Document:

<PAGE>

                                                                    EXHIBIT 10.4

                           NATIONAL DENTEX CORPORATION

                                 AMENDMENT NO. 1
                                       TO
                SUPPLEMENTAL LABORATORY EXECUTIVE RETIREMENT PLAN

This Amendment No. 1 to the National Dentex Corporation Supplemental Laboratory
Executive Retirement Plan (as amended hereby, the "Plan") is dated as of the
17th day of January, 2006, is adopted by National Dentex Corporation, a
Massachusetts corporation (the "Company"), and is binding upon the Company and
the Participants. Capitalized terms used in this Amendment No. 1 and not defined
herein shall have the respective meanings ascribed to them in the Plan.

     WHEREAS, the Plan was first effective as of January 1, 1996; and

     WHEREAS, the Company desires that the Plan continue to serve as an
incentive for the Participants to continue their Service beyond the attainment
of age 65, if the Company and such employees mutually agree to such
continuation; and

     WHEREAS, the Company and the Participants now desire to amend certain
provisions of the Plan in order to clarify the benefits payable under the Plan
upon the death of a Participant who, with the consent of the Company, continues
in Service after attaining age 65; and

     WHEREAS, Article XIV of the Plan provides that it may be amended by a
written agreement signed by the Company and the Participants; and

     WHEREAS, as of the date hereof, the Board of Directors of the Company (the
"Board"), upon the recommendation of the Compensation Committee of the Board,
has approved and adopted this Amendment No. 1; and

     WHEREAS, each of the Participants has adopted this Amendment No. 1 by
executing and delivering to the Company an adoption agreement in substantially
the form attached as Exhibit A hereto.

     NOW, THEREFORE, in consideration of the foregoing, and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Plan is hereby amended as follows:

     1. AMENDMENT TO DEATH BENEFIT IN CASE OF DEFERRED RETIREMENT. Article IV of
the Plan is deleted in its entirety and replaced by the following:

<PAGE>

     "If the Participant dies prior to termination of his Service to the Company
     and prior to the attainment of age 65, the Company will pay to his
     Beneficiary the amount provided in Section (5) of Article II. Should the
     Participant elect to defer retirement and continue to work after age 65, he
     shall have the option of continuing the pre-retirement death benefit
     provided for in Section (5) of Article II or electing to have his
     beneficiary receive, upon his death, the payments that would otherwise have
     been payable to the Participant after Retirement in accordance with Section
     (2) of Article II, payable in installments or a lump sum as elected by such
     Beneficiary in accordance with such Section (2). Upon his retirement only
     the payments in accordance with Section (2) of Article II, payable in
     installments or a lump sum as elected by such Beneficiary in accordance
     with Section (2) shall be applicable."

     2. REMAINDER OF PLAN UNAFFECTED. In all other respects, the provisions of
the Plan shall remain in full force and effect.

     IN WITNESS WHEREOF, the Company has caused this Amendment No. 1 to the Plan
to be signed its corporate name by its duly authorized officer.

                                        NATIONAL DENTEX CORPORATION

                                        By: /s/ David L. Brown
                                            ------------------------------------
                                        Name: David L. Brown
                                        Title: President & CEO

                                        2

<PAGE>

                                                                       Exhibit A

                     ADOPTION AGREEMENT FOR AMENDMENT NO. 1

                         FOR USE BY PARTICIPANTS IN THE

                           NATIONAL DENTEX CORPORATION
                SUPPLEMENTAL LABORATORY EXECUTIVE RETIREMENT PLAN

     THE UNDERSIGNED, being a Participant under and as defined in the National
Dentex Corporation Supplemental Laboratory Executive Retirement Plan (the
"Plan"), hereby adopts and agrees to the terms and provisions of Amendment No. 1
to the Plan dated as of the 17th day of January, 2006, in the form to which this
Adoption Agreement has been attached, and agrees that this Adoption Agreement
shall serve as the undersigned's counterpart signature page to such Amendment
No. 1.

                                        ----------------------------------------
                                        [Signature of Participant]

                                        ----------------------------------------
                                        [Print or Type Name]

           [Singed by last required Participant on December 8, 2006.]

                                        3Ex-10.1 December 9, 2006 Stock Purchase Agreement

 

EXHIBIT 10.1

STOCK PURCHASE AGREEMENT

BY AND AMONG

HAT WORLD, INC.,

HAT SHACK, INC.,

AND

THE SHAREHOLDERS OF

HAT SHACK, INC.

 

 

TABLE OF CONTENTS

	 	 	 	 	 	 	 	 	 
	Article I	 	SALE AND TRANSFER OF SHARES; CLOSING	 	 	1	 
	 

	 	Section 1.1.
	 	Sale and Transfer of Shares
	 	 	1	 
	 

	 	Section 1.2.
	 	Purchase Price
	 	 	1	 
	 

	 	Section 1.3.
	 	Closing
	 	 	2	 
	 

	 	Section 1.4.
	 	Closing Obligations
	 	 	2	 
	 

	 	Section 1.5.
	 	Estimated Closing Adjustment Amount
	 	 	3	 
	 

	 	Section 1.6.
	 	Closing Adjustment Amount
	 	 	4	 
	 

	 	Section 1.7.
	 	Lease Consents
	 	 	5	 
	 

	 	Section 1.8.
	 	Obtaining Lease Consents
	 	 	6	 
	 

	 	Section 1.9.
	 	Change in Control Payments
	 	 	7	 
	 
	 	 	 	 	 	 	 	 
	Article II	 	REPRESENTATIONS AND WARRANTIES
OF PRINCIPAL SELLERS AND THE COMPANY	 	 	7	 
	 

	 	Section 2.1.
	 	Organization and Good Standing
	 	 	7	 
	 

	 	Section 2.2.
	 	Authority; No Conflict
	 	 	8	 
	 

	 	Section 2.3.
	 	Capitalization
	 	 	8	 
	 

	 	Section 2.4.
	 	Financial Statements
	 	 	9	 
	 

	 	Section 2.5.
	 	Real Property
	 	 	9	 
	 

	 	Section 2.6.
	 	Personal Property
	 	 	10	 
	 

	 	Section 2.7.
	 	Taxes
	 	 	10	 
	 

	 	Section 2.8.
	 	Employees
	 	 	11	 
	 

	 	Section 2.9.
	 	Employee Benefits
	 	 	11	 
	 

	 	Section 2.10.
	 	Compliance with Legal Requirements
	 	 	12	 
	 

	 	Section 2.11.
	 	Governmental Authorizations
	 	 	12	 
	 

	 	Section 2.12.
	 	Legal Proceedings; Orders
	 	 	12	 
	 

	 	Section 2.13.
	 	Environmental Matters
	 	 	12	 
	 

	 	Section 2.14.
	 	Insurance
	 	 	15	 
	 

	 	Section 2.15.
	 	Contracts
	 	 	15	 
	 

	 	Section 2.16.
	 	Intellectual Property
	 	 	16	 
	 

	 	Section 2.17.
	 	Accounts Receivable
	 	 	18	 
	 

	 	Section 2.18.
	 	Sufficiency of Assets
	 	 	18	 
	 

	 	Section 2.19.
	 	No Undisclosed Liabilities
	 	 	18	 
	 

	 	Section 2.20.
	 	Material Adverse Change
	 	 	18	 
	 

	 	Section 2.21.
	 	Absence of Certain Changes and Events
	 	 	18	 
	 

	 	Section 2.22.
	 	Transactions with Related Persons
	 	 	18	 
	 

	 	Section 2.23.
	 	Brokers or Finders
	 	 	18	 
	 

	 	Section 2.24.
	 	Change in Control Payments
	 	 	19	 
	 

	 	Section 2.25.
	 	Disclosure
	 	 	19	 
	 
	 	 	 	 	 	 	 	 
	Article III	 	REPRESENTATIONS AND WARRANTIES OF BUYER	 	 	20	 
	 

	 	Section 3.1.
	 	Organization and Good Standing
	 	 	20	 
	 

	 	Section 3.2.
	 	Authority and No Conflict
	 	 	20	 
	 

	 	Section 3.3.
	 	Legal Proceedings; Orders
	 	 	20	 
	 

	 	Section 3.4.
	 	Investment Intent
	 	 	21	 
	 

	 	Section 3.5.
	 	Brokers or Finders
	 	 	21	 
	 
	 	 	 	 	 	 	 	 
	Article IV	 	PRE-CLOSING COVENANTS	 	 	21	 
	 

	 	Section 4.1.
	 	Access and Investigation
	 	 	21	 

 

 

	 	 	 	 	 	 	 	 	 
	 

	 	Section 4.2.
	 	Operation of the Business of the Company
	 	 	21	 
	 

	 	Section 4.3.
	 	Required Approvals; Reasonable Best Efforts
	 	 	23	 
	 

	 	Section 4.4.
	 	Notification
	 	 	23	 
	 

	 	Section 4.5.
	 	No Negotiation
	 	 	23	 
	 

	 	Section 4.6.
	 	Payment of Indebtedness by Related Persons
	 	 	23	 
	 

	 	Section 4.7.
	 	Interim Financial Statements
	 	 	24	 
	 

	 	Section 4.8.
	 	Termination of Certain Agreements
	 	 	24	 
	 

	 	Section 4.9.
	 	Physical Inventory
	 	 	24	 
	 
	 	 	 	 	 	 	 	 
	Article V	 	CONDITIONS TO CLOSING	 	 	24	 
	 

	 	Section 5.1.
	 	Conditions to Obligations of Buyer
	 	 	24	 
	 

	 	Section 5.2.
	 	Conditions to Obligations of Sellers
	 	 	25	 
	 
	 	 	 	 	 	 	 	 
	Article VI	 	TERMINATION	 	 	26	 
	 

	 	Section 6.1.
	 	Termination Events
	 	 	26	 
	 

	 	Section 6.2.
	 	Effect of Termination
	 	 	27	 
	 
	 	 	 	 	 	 	 	 
	Article VII	 	ADDITIONAL AGREEMENTS	 	 	27	 
	 

	 	Section 7.1.
	 	Public Announcements
	 	 	27	 
	 

	 	Section 7.2.
	 	Confidentiality Agreements
	 	 	27	 
	 

	 	Section 7.3.
	 	Customers and Other Business Relationships
	 	 	27	 
	 

	 	Section 7.4.
	 	Tax Matters
	 	 	27	 
	 
	 	 	 	 	 	 	 	 
	Article VIII	 	INDEMNIFICATION	 	 	29	 
	 

	 	Section 8.1.
	 	Survival
	 	 	29	 
	 

	 	Section 8.2.
	 	Indemnification by Seller Indemnifying Persons
	 	 	29	 
	 

	 	Section 8.3.
	 	Indemnification by Buyer
	 	 	30	 
	 

	 	Section 8.4.
	 	Limitations on Indemnification by Seller Indemnifying Persons
	 	 	30	 
	 

	 	Section 8.5.
	 	Limitations on Indemnification by Buyer
	 	 	30	 
	 

	 	Section 8.6.
	 	Time Limitations
	 	 	31	 
	 

	 	Section 8.7.
	 	Procedure for Indemnification
	 	 	31	 
	 

	 	Section 8.8.
	 	Indemnification for Certain Disclosed Matters
	 	 	33	 
	 

	 	Section 8.9.
	 	Materiality Qualifications
	 	 	33	 
	 

	 	Section 8.10.
	 	Other Actions
	 	 	34	 
	 

	 	Section 8.11.
	 	Exclusive Remedy
	 	 	34	 
	 

	 	Section 8.12.
	 	Indemnification Calculations
	 	 	34	 
	 

	 	Section 8.13.
	 	Tax Treatment of Indemnity Payments
	 	 	34	 
	 

	 	Section 8.14.
	 	Liability Limitations
	 	 	34	 
	 
	 	 	 	 	 	 	 	 
	Article IX	 	SHAREHOLDERS’ COMMITTEE	 	 	34	 
	 

	 	Section 9.1.
	 	Shareholders’ Committee
	 	 	34	 
	 

	 	Section 9.2.
	 	Expenses of Shareholders’ Committee
	 	 	36	 
	 

	 	Section 9.3.
	 	Survival of Indemnities
	 	 	36	 
	 

	 	Section 9.4.
	 	Reliance
	 	 	36	 
	 

	 	Section 9.5.
	 	Irrevocable Grant
	 	 	36	 
	 

	 	Section 9.6.
	 	Accounting
	 	 	36	 
	 

	 	Section 9.7.
	 	Limitation of Liability
	 	 	37	 
	 

	 	Section 9.8.
	 	Resignation, Death or Disability
	 	 	37	 
	 

	 	Section 9.9.
	 	Actions by Shareholders’ Committee
	 	 	37	 
	 
	 	 	 	 	 	 	 	 
	Article X	 	GENERAL PROVISIONS	 	 	37	 
	 

	 	Section 10.1.
	 	Expenses
	 	 	37	 
	 

	 	Section 10.2.
	 	Assignment; No Third Party Beneficiaries
	 	 	37	 

 

 

	 	 	 	 	 	 	 	 	 
	 

	 	Section 10.3.
	 	Notices
	 	 	37	 
	 

	 	Section 10.4.
	 	Entire Agreement; Modification
	 	 	38	 
	 

	 	Section 10.5.
	 	Waiver; Remedies Cumulative
	 	 	39	 
	 

	 	Section 10.6.
	 	Severability
	 	 	39	 
	 

	 	Section 10.7.
	 	Headings; Construction
	 	 	39	 
	 

	 	Section 10.8.
	 	Governing Law
	 	 	39	 
	 

	 	Section 10.9.
	 	Execution of Agreement; Counterparts
	 	 	39	 
	 

	 	Section 10.10.
	 	Further Assurances
	 	 	39	 

 

 

STOCK PURCHASE AGREEMENT

     THIS STOCK PURCHASE AGREEMENT (this “Agreement”), dated as of December 9, 2006, by and
among HAT WORLD, INC., a Minnesota corporation (“Buyer”), HAT SHACK, INC., a Georgia
corporation (the “Company”), and all the shareholders of the Company as set forth on the
signature page hereto (individually, a “Seller” and collectively, the “Sellers”). Buyer,
the Company, and Sellers are sometimes referred to individually as a “Party” and
collectively as the “Parties”, and the Shareholders’ Committee shall be deemed a Party to
the extent it acts on behalf of the Sellers as provided in this Agreement.

     WHEREAS, as of the date of this Agreement, Sellers collectively own 111,437 shares of Common
Stock of the Company, 16,238 shares of Series A Convertible Preferred Stock of the Company and
30,000 shares of Series B Convertible Preferred Stock of the Company (collectively, the
“Shares”; it being acknowledged that the term “Shares” shall also refer to the
shares of the Company’s Common Stock into which the Company’s outstanding Series A Convertible
Preferred Stock and Series B Convertible Preferred Stock will be converted into, and the shares of
the Company’s Common Stock that will be issued pursuant to the exercise of stock options and
warrants, immediately prior to Closing), which Shares constitute all of the issued and outstanding
shares of capital stock of the Company;

     WHEREAS, Sellers desire to sell, and Buyer desires to purchase, all of the Shares, for the
consideration and on the terms set forth in this Agreement; and

     WHEREAS, the Company, in consideration of the anticipated benefits to be received by the
Company in connection with the closing of the transactions contemplated hereby, and in order to
induce Buyer to enter into this Agreement, has agreed to be a Party to this Agreement for certain
purposes as set forth herein.

     NOW, THEREFORE, in consideration of the mutual benefits to be derived from this Agreement, the
representations, warranties, conditions, and promises hereinafter contained, and other
consideration, the receipt and sufficiency of which are hereby acknowledged, each of the Parties
hereby agrees as follows:

ARTICLE I

SALE AND TRANSFER OF SHARES; CLOSING

     Section 1.1. Sale and Transfer of Shares. Subject to the terms and conditions of this
Agreement, at the Closing, Sellers shall sell and transfer the Shares to Buyer, and Buyer shall
purchase the Shares from Sellers.

     Section 1.2. Purchase Price. The purchase price (the “Purchase Price”) for
the Shares shall be $18,000,000, adjusted initially by the Estimated Closing Adjustment Amount and
finally by the Closing Adjustment Amount. In accordance with Section 1.4(b), at the Closing, the
Purchase Price, prior to adjustment by the Closing Adjustment Amount, shall be delivered as
follows:

          (a) $14,500,000, adjusted by the Estimated Closing Adjustment Amount, if applicable, and less
an amount equal to the Potential Lost Lease Cost, payable in cash by Buyer to Sellers by wire
transfer of immediately available funds (the “Cash Consideration”);

          (b) an amount set forth on Schedule 1.2 (the “Escrow Fund”), payable in cash
by Buyer to the Escrow Agent by wire transfer of immediately available funds to be held pursuant to
the Escrow Agreement (the “Escrow);

-1-

 

The Closing Adjustment Amount shall be paid by Buyer or Sellers, as the case may be, following the
Closing in accordance with Section 1.6. All interest earned on the Escrow shall be for the benefit
of the Sellers pro rata in accordance with their ownership interests of the Shares.

     Section 1.3. Closing. The closing of the transactions contemplated by this Agreement
(the “Closing”) will take place at the offices of Bass, Berry & Sims PLC, 315 Deaderick
Street, Suite 2700, Nashville, Tennessee 37238-3001 at 10:00 a.m. (local time) on the third
Business Day after the satisfaction or waiver of all the closing conditions set forth in Article V
of this Agreement or at such other time and place as Buyer and Sellers may agree in writing (the
date of the Closing, the “Closing Date”). Subject to the provisions of Article VI, failure
to consummate the purchase and sale provided for in this Agreement on the date and time and at the
place determined pursuant to this Section 1.3 will not result in the termination of this Agreement
and will not relieve any Party of any obligations under this Agreement. In such event, the Closing
will occur as soon as practicable, subject to Article VI.

     Section 1.4. Closing Obligations. In addition to any other documents to be delivered
under other provisions of this Agreement, at the Closing:

          (a) Sellers shall deliver, or cause to be delivered, to Buyer:

          (i) certificates representing the Shares, duly endorsed (or accompanied by duly
executed stock powers), for transfer to Buyer;

          (ii) releases in substantially the forms attached hereto as Exhibit A-1,
Exhibit A-2, and Exhibit A-3 executed by each of the Sellers and any
employees of the Company receiving Change in Control Payments as set forth on Schedule
1.9 (the “Releases”);

          (iii) noncompetition, nondisclosure, and nonsolicitation agreements in substantially
the form attached hereto as Exhibit B-1, executed by each of the Sellers (other than
Mark Deal, Katherine Ryback and Jim Hardison) and noncompetition, nondisclosure and
nonsolicitation agreements in substantially the form attached hereto as Exhibit B-2
executed by each by Mark Deal, Katherine Ryback and Jim Hardison (collectively, the
“Noncompetition Agreements”);

          (iv) an escrow agreement relating to the Escrow, in substantially the form attached
hereto as Exhibit C, executed by Sellers and the Escrow Agent (the “Escrow
Agreement”); and

          (v) Legal Opinion of Arnall Golden Gregory LLP, counsel to the Seller Parties, in
substantially the form attached hereto as Exhibit D.

          (b) Buyer shall deliver, or cause to be delivered, to Sellers or the Escrow Agent, as
applicable:

          (i) the Cash Consideration to Sellers by wire transfer of immediately available funds
to an account of Arnall Golden Gregory LLP, counsel to the Company, designated on
Schedule 1.4(b)(i) which funds will in turn be allocated to the Sellers. Buyer
shall have no liability to the Sellers or any other Person with respect to the allocation of
the Purchase Price;

-2-

 

          (ii) the Escrow Agreement, executed by Buyer and the Escrow Agent, together with the
delivery to the Escrow Agent of the Escrow Fund by wire transfer to an account specified by
the Escrow Agent; and

          (iii)
the Noncompetition Agreements, executed by Buyer.

     Section 1.5. Estimated Closing Adjustment Amount.

          (a) The “Estimated Closing Adjustment Amount” (which may be a positive or negative
number) will be an amount equal to (i) the Working Capital of the Company as reflected on the
Estimated Closing Balance Sheet (as prepared and delivered pursuant to Section 1.5(b) below), minus
(ii) $3,250,000. If the Estimated Closing Adjustment Amount is negative, such amount will be
subtracted from the Cash Consideration payable by Buyer to Sellers pursuant to Section 1.4(b)(i).
If the Estimated Closing Adjustment Amount is positive, such amount will be added to the Cash
Consideration payable by Buyer to Sellers pursuant to Section 1.4(b)(i).

          (b) No earlier than five (5) Business Days and no later than one (1) Business Day prior to the
Closing Date, the Shareholders’ Committee shall cause an estimated balance sheet of the Company as
of the Closing Date (the “Estimated Closing Balance Sheet”) to be prepared and delivered to
Buyer, which will be accompanied by a calculation of the estimated Working Capital of the Company
as of the Closing Date. The inventory valuation, to be used as a basis for calculating the
estimated Working Capital of the Company as of the Closing Date, shall be determined as follows:

          (i) Buyer shall analyze the inventory of the Company as more particularly described on
Schedule 1.5(b) in order to determine the market value of the inventory (but
excluding any inventory reserves) (the “HW Inventory Valuation”), which will then be
used in the calculation of the estimated and actual Working Capital of the Company as of the
Closing Date;

          (ii) No later than ten (10) days prior to the date by which the Shareholders’ Committee
is to deliver the calculation of the estimated Working Capital of the Company pursuant to
Section 1.5(b), Buyer shall present the HW Inventory Valuation to the Shareholders’
Committee (the “Presentation Date”);

          (iii) If within five (5) days following the Presentation Date, the Shareholders’
Committee has not given written notice of its objection to the HW Inventory Valuation (which
notice must contain (i) a statement of the Shareholders’ Committee’s calculation of the
market value of the Company’s inventory to be used as a basis for calculating the Working
Capital of the Company as of the Closing Date and (ii) the basis of the Shareholders’
Committee’s objection), then the HW Inventory Valuation will be binding and conclusive on
the Parties and will be used as the basis for calculating the estimated Working Capital of
the Company as of the Closing Date; and

          (iv) If the Shareholders’ Committee duly gives Buyer such notice of objection within
five (5) days following the Presentation Date, the Shareholders’ Committee, at its
discretion, may submit only the items in dispute from the HW Inventory Valuation to an
independent third party audit or appraisal firm to be mutually agreed upon by Buyer and the
Shareholders’ Committee (the “Independent Appraiser”) for resolution. If issues are
submitted to the Independent Appraiser for resolution, (i) the Shareholders’ Committee and
Buyer shall furnish or cause to be furnished to the Independent Appraiser such work papers
and other documents and information relating to the disputed issues with respect to the HW
Inventory

-3-

 

Valuation as the Independent Appraiser may request and are available to that Party or
its agents and shall be afforded the opportunity to present to the Independent Appraiser any
material relating to the disputed issues and to discuss the issues with the Independent
Appraiser; (ii) for purposes of its determination, the Independent Appraiser shall use the
inventory valuation methodology set forth on Schedule 1.5(b); and (iii) the
determination by the Independent Appraiser, as set forth in a notice to be delivered to the
Shareholders’ Committee and Buyer within thirty (30) days of the submission to the
Independent Appraiser of the issues in dispute, will be final, binding, and conclusive on
Sellers (through the actions of the Shareholders’ Committee) and Buyer. The Shareholders’
Committee shall pay the fees and costs of the Independent Appraiser in connection with such
determination; provided, however, that if the Independent Appraiser determines that the
items in dispute from the HW Inventory Valuation were under-reported by Buyer by more than
fifteen percent (15%), then Buyer shall pay the fees and costs of the Independent Appraiser
in connection with such determination.

     Section 1.6. Closing Adjustment Amount.

          (a) The “Closing Adjustment Amount” will be an amount (which shall be a positive
number) equal to the difference between (i) the Working Capital of the Company as reflected on the
Closing Balance Sheet and (ii) the Working Capital of the Company as reflected on the Estimated
Closing Balance Sheet. If the Working Capital of the Company as reflected on the Closing Balance
Sheet is greater than the Working Capital of the Company as reflected on the Estimated Closing
Balance Sheet, then the Closing Adjustment Amount will be paid by wire transfer of immediately
available funds by Buyer to Escrow Agent for distribution to the Sellers pursuant to written
instructions provided to the Escrow Agent by the Shareholders’ Committee. If the Working Capital
of the Company as reflected on the Estimated Closing Balance Sheet is greater than the Working
Capital of the Company as reflected on the Closing Balance Sheet, then the Closing Adjustment
Amount will be paid to Buyer to an account specified by Buyer from and to the extent of the Working
Capital Escrow held by the Escrow Agent under the Escrow Agreement, and any remaining amount
payable to Buyer by wire transfer of immediately available funds by Sellers to Buyer to an account
specified by Buyer. Within three (3) Business Days after the calculation of the Closing Adjustment
Amount becomes binding and conclusive on the Parties pursuant to Sections 1.6(c) and 1.6(d),
Sellers or Buyer, as the case may be, will make the payment provided for in this Section 1.6(a)
and/or Buyer and the Shareholders’ Committee will deliver joint written instructions to the Escrow
Agent under the Escrow Agreement directing that the appropriate amount be paid to Buyer from the
Working Capital Escrow with any remaining amount of the Working Capital Escrow, if any, being
distributed to Sellers. If the payment provided for in this Section 1.6(a) is not made within ten
(10) Business Days after such Closing Adjustment Amount becomes binding and conclusive on a Party,
interest at the rate of five percent (5%) per annum shall accrue and be payable on the Closing
Adjustment Amount.

          (b) Buyer shall prepare a balance sheet of the Company as of the Closing Date (the
“Closing Balance Sheet”), which will include a calculation of the Working Capital of the
Company as of the Closing Date. Buyer shall deliver the Closing Balance Sheet to the Shareholders’
Committee within forty-five (45) days following the Closing Date (the date of such delivery, the
“Delivery Date”).

          (c) If within fifteen (15) days following the Delivery Date, the Shareholders’ Committee has
not given Buyer written notice of its objection to the Closing Balance Sheet calculation (which
notice must contain (i) a statement of the Shareholders’ Committee’s calculation of the Company’s
Working Capital as of the Closing Date and (ii) the basis of the Shareholders’ Committee’s
objection), then the Working Capital amount reflected in the Closing Balance Sheet will be binding
and conclusive on the Parties and will be used in computing the Closing Adjustment Amount.

-4-

 

          (d) If the Shareholders’ Committee duly gives Buyer such notice of objection within fifteen
(15) days following the Delivery Date, and if the Shareholders’ Committee and Buyer fail to resolve
the issues outstanding with respect to the Closing Balance Sheet and the calculation of the Working
Capital reflected in the Closing Balance Sheet within fifteen (15) days of Buyer’s receipt of the
objection notice from the Shareholders’ Committee, the Shareholders’ Committee and Buyer shall
submit the issues remaining in dispute to an independent accounting firm to be mutually agreed upon
by Buyer and the Shareholders Committee (the “Independent Accountants”) for resolution. If
issues are submitted to the Independent Accountants for resolution, (i) the Shareholders’ Committee
and Buyer shall furnish or cause to be furnished to the Independent Accountants such work papers
and other documents and information relating to the disputed issues as the Independent Accountants
may request and are available to that Party or its agents and shall be afforded the opportunity to
present to the Independent Accountants any material relating to the disputed issues and to discuss
the issues with the Independent Accountants; (ii) if any item in dispute relates to the valuation
of inventory, the Independent Accountants must use the inventory valuation methodology set forth on
Schedule 1.5(b); (iii) the determination by the Independent Accountants, as set forth in a
notice to be delivered to the Shareholders’ Committee and Buyer within thirty (30) days of the
submission to the Independent Accountants of the issues remaining in dispute, will be final,
binding, and conclusive on Sellers and Buyer; and (iv) Sellers and Buyer shall pay equal
percentages of the fees and costs of the Independent Accountants in connection with such
determination, unless one Party’s calculation of the disputed items in the Working Capital
calculation as of the Closing Date differs from the calculation of the disputed items in the
Working Capital as of the Closing Date by the Independent Accountants by more than 33.33%, in which
case such Party shall then pay one hundred percent (100%) of the Independent Accountants’ fees and
costs in connection with such determination. In the event that both Parties’ calculation of the
disputed items in the Closing Adjustment Amount differs from the determination of the Independent
Accountants by more than 33.33%, then the Party whose calculation differs from the determination of
the Independent Accountants by the greatest amount shall pay one hundred percent (100%) of the
Independent Accountants’ fees and costs.

     Section 1.7. Lease Consents.

          (a) As used herein:

          (i) “Lease Consent Cost” means any amount Buyer or the Company pays or agrees
to pay in order to obtain a Lease Consent from a landlord under a Lease, either prior to the
Closing or at any time after the Closing prior to the end of the 210th day
following the Closing Date (whether such amount is paid or payable by Buyer or the Company
prior to or after Closing). If such amount is a one time payment, the Lease Consent Cost
shall be the amount of such payment. If such amount is more than one payment (such as
increased rent), the Lease Consent Cost shall be the net present value (calculated using a
5% discount rate) of the sum of such payments becoming payable during the remaining term of
the Lease;

          (ii) “Other Lease Increase Cost” means any amount Buyer or the Company is
required to pay or otherwise agrees to pay under any Lease as a result of the occurrence of
the transactions contemplated by this Agreement that (i) would not have been owed had the
transactions contemplated by this Agreement not occurred and (ii) is not a Lease Consent
Cost. If such amount is a one time payment, the Other Lease Increase Cost shall be the
amount of such payment. If such amount is more than one payment (such as increased rent),
the Other Lease Increase Cost shall be the net present value (calculated using a 5% discount
rate) of the sum of such payments becoming payable during the remaining term of the Lease.
In the event that such amount is a percentage of the revenues from a store owned by Buyer or
any of its affiliates as of the Closing Date which violates a radius or other similar
restriction in a Lease, for purposes of this Agreement, the Other Lease Increase Cost shall
equal the last trailing twelve months of such

-5-

 

store’s revenues as of the Closing Date multiplied by the applicable percentage payable
to the landlord pursuant to the Lease, for the remaining term of the Lease.

          (iii) “Lost Lease Cost” means the net present value (calculated using a 5%
discount rate) of the lesser of (i) 4.5 times the Store EBITDA reflected on Schedule
1.7 hereto and (ii) the Store EBITDA for the store covered by such Lease multiplied by
the remaining term of the applicable Lease, with respect to any Leases that (y) are
terminable by the landlord thereunder as a result of the transactions contemplated by this
Agreement and (z) are in fact so terminated by such landlord not later than 210 days after
the Closing Date. The Lost Lease Cost for Leases which may be but are not terminated prior
to the Closing Date is the “Potential Lost Lease Cost”.

          (b) In the event that the Company fails to obtain the consent of a landlord for any Lease
listed on section (a) of Schedule 1.7 prior to the Closing, Buyer shall reduce the cash
consideration payable at Closing by the Potential Lost Lease Cost for each such Lease and shall
deposit such amount with the Escrow Agent, to be held in escrow pursuant to the terms of the Escrow
Agreement.

          (c) If any Lease Consent Cost or Other Lease Increase Cost is not paid or accrued by the
Company at or prior to the Closing or if there is any Lost Lease Cost, Buyer shall be entitled to
reimbursement from the funds held by the Escrow Agent under the Lease Escrow in an amount equal to
such Lease Consent Costs, Other Lease Increase Costs and Lost Lease Costs. The procedures set
forth in Section 8.7(a) shall apply to a claim for reimbursement under this Section as if it were a
claim for indemnification to which Section 8.7(a) is applicable. The Deductible limitation in
Section 8.4 is not applicable to any such claim for reimbursement under this Section.

     Section 1.8. Obtaining Lease Consents.

          (a) With respect to Leases, the provisions of this Section shall be applicable in connection
with the efforts of the Parties to obtain Lease Consents.

          (b) Prior to the Closing, the Company may obtain Lease Consents on such economic terms as the
Buyer shall approve in advance in writing which approval will not be unreasonably withheld,
conditioned or delayed. If Buyer has not disapproved in writing the form and/or terms of any
proposed Lease Consent within three (3) Business Days following written notice thereof, Buyer shall
be deemed to have consented in writing to the form and terms thereof. In addition, anything to the
contrary herein notwithstanding, in no event shall the Company agree to any non-economic terms or
conditions in connection with any Lease Consents without the prior written consent of Buyer, which
consent shall not be unreasonably withheld, conditioned or delayed by Buyer.

          (c) After the Closing and prior to the end of the 210th day following the Closing
Date, Buyer or the Company may incur or agree to incur Lease Consent Costs and Other Lease Increase
Costs in connection with obtaining Lease Consents only with the advance written approval of the
Shareholders’ Committee (which approval shall not be unreasonably withheld, conditioned or delayed
by the Shareholders’ Committee) and the costs so incurred shall be subject to the provisions of
Section 1.7(c). If the Shareholders’ Committee has not disapproved in writing such costs within ten
(10) days following written notice thereof, the Shareholders’ Committee shall be deemed to have
consented in writing to such costs.

          (d) Each of the Shareholders’ Committee and Buyer shall, during the period of time that they
are obtaining Lease Consents subject to the provisions of this Section and Section 1.7, furnish a
weekly report to the other party as to the Lease Consents obtained since the prior weekly report
and the

-6-

 

terms agreed to in connection therewith, and shall otherwise furnish the other party from time
to time with all other information reasonably requested concerning the efforts made to obtain Lease
Consents. Buyer shall use commercially reasonable efforts to assist the Company and the
Shareholders’ Committee in obtaining the Lease Consents.

     Section 1.9. Change in Control Payments. The Company will make the Change in Control
Payments at Closing to the Persons and in the amounts set forth under the heading “Hat Shack
Retention” on Schedule 1.9 attached hereto. Buyer shall make the retention payments to the
Persons and in the amounts set forth under the heading “Hat World Retention” by the 20th
day of the month following the date(s) set forth under the heading “Guaranteed Salary Thru” in
Schedule 1.9 and the severance payments to the Persons and in the amounts set forth under
the heading “Hat World Severance” upon termination of such Person’s employment by the Company
without cause, provided that such Person (i) has been an employee of the Company in good standing
at all times since the Closing Date, (ii) executes and delivers to the Company and Buyer a Release,
and (iii) with respect to Messrs. Deal and Hardison and Ms. Ryback, has signed a Noncompetition
Agreement in the form of Exhibit A-2.

ARTICLE II

REPRESENTATIONS AND WARRANTIES OF PRINCIPAL SELLERS AND THE COMPANY

     In order to induce Buyer to enter into this transaction, Mark S. Monroe, The Monroe Revocable
Trust, Michael W. McNelis, Donald W. Weber, Jennifer A. Major, Steven D. Weber and Christopher J.
Weber (individually, a “Principal Seller” and collectively, the “Principal
Sellers”) and the Company, jointly and severally, represent and warrant to Buyer that, except
as set forth in the disclosure schedules of the Company (collectively, the “Disclosure
Schedule”), the statements made in this Article II are true and correct as of the date of this
Agreement and will be true and correct as of the Closing as though made as of the Closing, except
to the extent such representations and warranties are specifically made as of a particular date (in
which case such representations and warranties will be true and correct as of such date). The
Disclosure Schedule will be arranged in paragraphs corresponding to the numbered and lettered
sections contained in this Article II.

     Section 2.1. Organization and Good Standing.

          (a) The Disclosure Schedule contains a complete and accurate list of the Company’s
jurisdiction of incorporation and any other jurisdictions in which it is qualified to do business
as a foreign corporation. The Company is a corporation duly organized, validly existing, and in
good standing under the laws of its jurisdiction of incorporation, with full corporate power and
authority to conduct its business as it is now being conducted, to own or use its properties and
assets, and to perform all of its obligations under the Applicable Contracts. The Company is duly
qualified to do business as a foreign corporation and is in good standing under the laws of each
state or other jurisdiction in which either the ownership or use of the properties owned or used by
it, or the nature of the activities conducted by it, requires such qualification.

          (b) True and complete copies of the Articles of Incorporation and Bylaws of the Company, as
currently in effect, have been delivered to Buyer.

          (c) The Company does not, directly or indirectly, own, and has not agreed to purchase or
otherwise acquire, the capital stock or other equity interests of, or any interest convertible into
or exchangeable or exercisable for capital stock or other equity interests of, any Person.

-7-

 

     Section 2.2. Authority; No Conflict.

          (a) This Agreement constitutes the valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms. Upon the execution and delivery by the Company
of each document or instrument to be executed or delivered by it at Closing pursuant to Section
1.4(a) or any other provision of this Agreement (collectively, the “Company Closing
Documents”), each of the Company Closing Documents will constitute the valid and binding
obligation of the Company, enforceable against the Company in accordance with its terms. The
Company has all requisite corporate power and authority to execute and deliver this Agreement and
the Company Closing Documents and to consummate the transactions contemplated hereby and thereby.
The execution and delivery of this Agreement by the Company and the consummation of the
transactions contemplated hereby have been duly and validly authorized and approved by the Company,
and no other corporate action on the part of the Company is necessary to authorize the execution
and delivery of this Agreement by the Company or the consummation of the transactions contemplated
hereby.

          (b) Except as set forth in Section 2.2(b) of the Disclosure Schedule, neither the execution
and delivery of this Agreement by Seller Parties nor the consummation of the transactions
contemplated hereby will, directly or indirectly (with or without notice or lapse of time):

          (i) conflict with or violate the Articles of Incorporation or Bylaws of the Company;

          (ii) conflict with or violate, or give any Governmental Authority or other Person the
right to challenge any of the transactions contemplated hereby or exercise any remedy or
obtain any relief under, any Legal Requirement or any Order to which any Seller Party, or
any of the assets owned or used by the Company, may be subject;

          (iii) cause Buyer or the Company to become subject to, or to become liable for, the
payment of any Tax;

          (iv) breach any provision of any Applicable Contract, or give any Person the right to
declare a default under, exercise any remedy under, accelerate the maturity or performance
of or payment under, or cancel, terminate, or modify, any Applicable Contract; or

          (v) result in the imposition or creation of any Lien upon or with respect to any of the
assets owned or used by the Company.

          (c) Except as set forth in the Disclosure Schedule, the Seller Parties are not and will not be
required to give any notice to or obtain any consent or approval from (i) any Governmental
Authority, (ii) any party to any Applicable Contract, or (iii) any other Person, in connection with
the execution and delivery of this Agreement or the consummation of the transactions contemplated
hereby.

     Section 2.3. Capitalization. The authorized equity securities of the Company consist
of 900,000 shares of Class A voting common stock, no par value, of which 110,143 shares are issued
and outstanding, 100,000 shares of Class B nonvoting common stock, no par value, of which 1,294
shares are issued and outstanding, 500,000 shares of Series A Convertible Preferred Stock, no par
value, of which 16,238 shares are issued and outstanding, and 500,000 shares of Series B
Convertible Preferred Stock, no par value, of which 30,000 shares are issued and outstanding. All
of the Shares have been duly authorized and validly issued and are fully paid and non-assessable.
The Shares have not been issued in violation of, and, the capital stock of the Company is not
subject to, any preemptive or subscription rights or rights of first refusal. None of the Shares
were issued in violation of the Securities Act or any other

-8-

 

Legal Requirement, nor does the payment or agreement to pay a portion of the Purchase Price to
Mark Monroe, Mark Deal, Katherine Ryback, Jim Hardison and/or any other Person not a Seller
violate the Securities Act or any other Legal Requirement. Except as set forth on the Disclosure
Schedule, there are no options, warrants, calls, subscriptions, convertible securities, or other
rights, agreements, or commitments that obligate the Company to issue, transfer, or sell any shares
of capital stock of the Company. There are no outstanding or authorized stock appreciation,
phantom stock, profit participation, or similar rights with respect to the Company. There is no
obligation, contingent, or otherwise, of the Company to repurchase, redeem, or otherwise acquire
any Shares. There are no voting trusts, proxies, or other agreements to which any Seller is a
party with respect to the voting or transfer of any Shares.

     Section 2.4. Financial Statements. Attached on the Disclosure Schedule are copies of
(i) the audited balance sheets of the Company for the fiscal years ended as of February 1, 2004,
January 30, 2005 and January 29, 2006, and the related audited income statements for the year then
ended (the “Audited Financial Statements”), and (ii) the unaudited balance sheets of the
Company as of October 29, 2006 (the “Most Recent Balance Sheet”), and the related unaudited
income statements for the nine-month period then ended (the “Unaudited Financial
Statements”) (the financial statements referred to in clauses (i) and (ii) above, including the
notes thereto, if any, the “Financial Statements”). The Financial Statements fairly
present in all material respects (and the financial statements to be delivered pursuant to Section
4.7 will fairly present in all material respects) the financial condition and results of operations
of the Company as at the respective dates of and for the periods referred to in such Financial
Statements; provided, however, that the Unaudited Financial Statements are subject to normal
year-end adjustments and lack footnotes and other presentation items (which, if presented, would
not differ materially from those included in the Audited Financial Statements). The Financial
Statements have been prepared from the books and records of the Company (which books and records
are accurate and complete in all material respects) in accordance with GAAP and reflect the
consistent application of accounting principles throughout the periods involved, except as
disclosed in the notes to the Financial Statements.

     Section 2.5. Real Property.

          (a) The Company does not own and has never owned any real property.

          (b) The Disclosure Schedule lists (i) all real property with respect to which the Company
holds a leasehold interest or subleasehold interest, or otherwise has a license or other right to
use (the “Leased Real Property”), and (ii) each agreement, contract, or other arrangement
under which the Company leases or otherwise has the right to use any such Leased Real Property
(listing, with respect to each such agreement, the names of the parties to the agreement, the
address of the Leased Real Property, the rentable square footage and annual rent thereunder and the
expiration date). The Seller Parties have delivered to Buyer true, correct and complete copies of
each agreement, contract or arrangement under which the Company leases or otherwise has the right
to use any such Leased Real Property, including any amendments thereto, assignments thereof and any
renewal terms. The Company enjoys peaceful and undisturbed possession of the Leased Real Property.
The Company has not entered into any subleases, arrangements, licenses, or other agreements
relating to the use or occupancy of all or any portion of the Leased Real Property by any Person
other than the Company.

          (c) To the Knowledge of the Company, the Leased Real Property, and the use of the Leased Real
Property by the Company for the purposes for which it is currently being used, conforms to all
applicable fire, safety, zoning, and building laws and ordinances, laws relating to the disabled,
and other applicable Legal Requirements.

-9-

 

     Section 2.6. Personal Property.

          (a) The Company has good and valid title to, or a valid and enforceable right to use under a
contract listed in Section 2.15 of the Disclosure Schedule, all property and assets (whether
tangible or intangible) used or held for use by the Company in connection with its business,
including all such assets reflected in the Most Recent Balance Sheet or acquired since October 29,
2006 (the “Most Recent Balance Sheet Date”), free and clear of all Liens other than (i) any
Lien for Taxes not yet due and payable, (ii) any landlord’s, carriers’, warehousemen’s, mechanics’,
materialmen’s, or similar Liens arising or incurred in the ordinary course of business with respect
to obligations that are not yet due or delinquent, and (iii) any Liens identified on the Disclosure
Schedule (the “Permitted Liens”).

          (b) Each item of machinery, equipment, furniture, and other tangible personal property used or
held for use by the Company in connection with its business is in good repair and good operating
condition, ordinary wear and tear excepted, is suitable for the purposes for which it is presently
used, and is free from any latent and patent defects. All such tangible personal property is in
the possession of the Company.

     Section 2.7. Taxes.

          (a) The Company has timely filed all Tax Returns required to be filed by it in accordance with
applicable Legal Requirements, other than any Tax Returns in respect of which the Company has been
the beneficiary of any extension of time within which to file any such Tax Returns as disclosed on
the Disclosure Schedule. All such Tax Returns are true and complete in all material respects.
Except as set forth in the Disclosure Schedule, no such Tax Return has been audited or examined by
any taxing authority, court, or other Governmental Authority, and, to the Knowledge of the Company,
no such audit or examination is threatened. The Company has not received from any foreign,
federal, state, or local taxing authority any (i) notice indicating an intent to open an audit or
other review, (ii) request for information related to Tax matters, or (iii) notice of deficiency or
proposed adjustment for any amount of Tax proposed, asserted, or assessed by any taxing authority
against the Company. True and complete copies of such Tax Returns for the past three years and any
examination reports and statements of deficiencies relating thereto assessed against or agreed to
by the Company have been made available to Buyer.

          (b) All Taxes due and owing by the Company (whether or not shown on any Tax Return) have been
paid or reserved. All Taxes that the Company is or was required by applicable Legal Requirements
to withhold or collect have been withheld or collected, and, to the extent required, have been
properly paid on a timely basis to the appropriate Governmental Authority or other Person. The (i)
unpaid Taxes of the Company (computed consistent with the Company’s historical accounting
principles and practices provided that such principles and practices are consistent with applicable
Tax law) do not exceed the reserve for Taxes (rather than any reserve for deferred Taxes
established to reflect timing differences between book and tax income) set forth on the face of the
Most Recent Balance Sheet (rather than in any notes thereto), and (ii) the reserve set forth on the
Most Recent Balance Sheet represents an accurate estimate of the Taxes due with respect to the
periods ended October 29, 2006.

          (c) There is no dispute or claim concerning (i) any Liability of the Company for additional
Taxes, or (ii) any obligation of the Company to file Tax Returns or pay Taxes in any jurisdiction
in which it does not file Tax Returns or pay Taxes, either (x) claimed or raised by any
Governmental Authority in any notice or other communication provided to the Company, or (y) as to
which any Seller Party has Knowledge. No assessment or other Proceeding by any taxing authority,
court, or other Governmental Authority is pending, or to the Knowledge of the Company, threatened,
with

-10-

 

respect to the Taxes or Tax Returns of the Company. There are no Liens for Taxes upon any
assets of the Company.

          (d) There are no outstanding agreements, waivers, or arrangements extending the statutory
period of limitations applicable to any claim for or the period for the collection or assessment of
Taxes due by the Company for any taxable period.

          (e) The Company does not have any liability for Taxes of any Person other than the Company (i)
under Treasury Regulations Section 1.1502-6 (or any similar provision of applicable law); or (ii)
as a transferee or successor by contract or otherwise. The Company has not been a member of an
“affiliated group” within the meaning of Section 1504(a) of the Code. The Company is not a party
to any Tax allocation agreement, Tax sharing agreement, Tax indemnity agreement, or similar
agreement.

          (f) None of the assets of the Company is “tax-exempt use property” within the meaning of
Section 168(h) of the Code.

          (g) The Company has not made any payments, is not obligated to make any payments, and is not a
party to any agreement that under certain circumstances could obligate it or any successor to make
payments, that will not be deductible under Section 280G of the Code (including any payments
required to be made in connection with the consummation of the transactions contemplated hereby).

          (h) The Company has disclosed on its federal income Tax Returns all positions taken therein
that could give rise to a substantial understatement of federal income Tax within the meaning of
Section 6662 of the Code.

          (i) No closing agreement pursuant to Section 7121 of the Code or any similar provision of
applicable law has been entered into with respect to the Company or any of its assets.

          (j) There are no joint ventures, partnerships, or other arrangements or contracts to which the
Company is a party that could be treated as a partnership for federal income tax purposes.

          (k) The Company will not be required to include any item of income in, or exclude any item of
deduction from, taxable income for any taxable period (or portion thereof) ending after the Closing
Date as a result of any:

          (i) change in method of accounting for a taxable period ending on or prior to the
Closing Date;

          (ii) installment sale or open transaction disposition made on or prior to the Closing
Date; or

          (iii) prepaid amount received on or prior to the Closing Date.

          (l) The Company has not distributed stock of another Person, nor had its stock distributed by
another Person, in a transaction that was purported or intended to be governed in whole or in part
by Section 355 of the Code; and

          (m) The Company has not participated in any “listed transaction” or “reportable transactions”
or “tax shelters” within the meaning of the Code requiring it to file, register, prepare,

-11-

 

produce or maintain any disclosure report, list or any other statement or document under
Section 6111 or 6112 of the Code.

     Section 2.8. Employees.

          (a) The Disclosure Schedule sets forth a complete and accurate list of (i) each salaried
employee of the Company, including each employee on leave of absence or layoff status, and (ii)
each director of the Company, giving, with respect to each such individual, name, job title,
current annual salary with the Company, any bonuses paid by the Company in addition to such annual
salary since January 1, 2006 and services credited for purposes of vesting and eligibility to
participate under any Employee Benefit Plan (in each case, to the extent applicable). Pursuant to
written Company policy, all employees of the Company are required to use their vacation and sick
days on or before the last day of the fiscal year, and if they do not use such days by such date,
the employees will lose all rights with respect thereto and have no right to any payment therefor.

          (b) There is no collective bargaining agreement in effect between the Company and any labor
unions or organizations in respect of its employees. The Company has not experienced any organized
slowdown, work interruption strike, or work stoppage by its employees, and, to the Knowledge of the
Company, there is no strike, labor dispute, or union organization activities pending or threatened
affecting the Company.

          (c) The Company is, and at all times has been, in compliance with all Legal Requirements
regarding employment and employment practices, terms and conditions of employment, wages and hours,
benefits, equal employment opportunity, anti-discrimination, immigration, occupational health and
safety, unfair labor practices, and collective bargaining (the “Employment Matters”),
except where such noncompliance would not have a Material Adverse Effect. Except as set forth in
the Disclosure Schedule, since January 1, 2002 (the “Compliance Date”), there have been no
Proceedings or claims regarding the Employment Matters, whether oral or in writing, by or against
the Company or that otherwise relate to or may affect the business of, or any of the assets owned
or used by, the Company.

          (d) Except as set forth in the Disclosure Schedule, the Company is not a party to any
employment, non-competition, severance, or other contract or agreement with any employee or
director of the Company. To the Knowledge of the Company, no employee or director of the Company
is bound by any contract or agreement that purports to limit the ability of such director or
employee to engage in or continue or perform any conduct, activity, duties, or practice relating to
the business of the Company, or that requires the employee to transfer, assign, or disclose
information concerning his or her work to anyone other than the Company.

     Section 2.9. Employee Benefits.

          (a) The Disclosure Schedule lists all employment, consulting, executive compensation, bonus,
deferred compensation, incentive compensation, stock purchase, stock option or other equity-based,
retention, change in control, severance or termination pay, hospitalization or other medical, life,
disability, dental, vision or other insurance, supplemental unemployment benefits, profit-sharing,
pension or retirement plans, programs, agreements or arrangements, and each other fringe or other
employee benefit plan, program, agreement or arrangement (including any “employee benefit plan,”
within the meaning of Section 3(3) of ERISA), sponsored, maintained, or contributed to or required
to be contributed to by the Company or by any ERISA Affiliate for the benefit of any employee or
former employee of the Company, or any beneficiaries thereof, or with respect to which the Company
or any ERISA Affiliate may have any Liability (the “Employee Benefit Plans”).

-12-

 

          (b) Each Employee Benefit Plan is and has been maintained and administered in compliance
with its terms and with the applicable requirements of ERISA, the Code, and any other applicable
Legal Requirements. The Company has timely segregated or transferred all employee contributions
and paid all other contributions, premiums, and expenses payable to or in respect of each Employee
Benefit Plan under the terms thereof and in accordance with the Code, ERISA, and other applicable
Legal Requirements. Neither the Company, nor, to the Knowledge of the Company, any other Person,
has engaged in any transaction with respect to any Employee Benefit Plan that would be reasonably
likely to subject the Company or Buyer to any Tax or penalty (civil or otherwise) imposed by ERISA,
the Code, or other applicable Legal Requirements.

          (c) With respect to each Employee Benefit Plan, the Company has delivered to Buyer complete
copies of each of the following documents: (i) a copy of each Employee Benefit Plan (including any
amendments thereto); (ii) a copy of the three most recent Form 5500 and annual report, if any,
required under ERISA or the Code; (iii) a copy of the three most recent nondiscrimination reports,
if any, required under the Code; (iv) a copy of the most recent Summary Plan Description and any
related summary of material modification, if any, required under ERISA; (v) if the Employee Benefit
Plan is funded through a trust or any third party funding vehicle, a copy of the trust or other
funding agreement (including any amendments thereto); and (vi) if the Employee Benefit Plan is
intended to be qualified under Section 401(a) of the Code, the most recent determination letter
received from the Internal Revenue Service.

          (d) No Employee Benefit Plan is a “multiemployer plan,” as such term is defined in Section
3(37) of ERISA or a plan that is subject to Title IV of ERISA, and neither the Company nor any
ERISA Affiliate has at any time contributed to, maintained, or incurred any liability with respect
to such a plan.

          (e) None of the Employee Benefit Plans that are “welfare benefit plans,” within the meaning of
Section 3(1) of ERISA, provide for continuing benefits or coverage after termination or retirement
from employment, except for COBRA rights under a “group health plan” as defined in Section 4980B(g)
of the Code and Section 607 of ERISA.

          (f) Each Employee Benefit Plan that is intended to be qualified under Section 401(a) of the
Code has received a determination from the Internal Revenue Service that it is so qualified and
there are no facts or circumstances that would be reasonably likely to adversely affect the
qualified status of any such Employee Benefit Plan.

          (g) Except as set forth in the Disclosure Schedule, the consummation of the transactions
contemplated hereby will not (i) result in an increase in or accelerate the vesting of any of the
benefits available under any Employee Benefit Plan, or (ii) otherwise entitle any current or former
director or employee of the Company to any severance pay, bonus payments, or other payment from the
Company.

          (h) There are no pending or, to the Knowledge of the Company, threatened Proceedings that have
been asserted relating to any Employee Benefit Plan by any employee or beneficiary covered under
any Employee Benefit Plan or otherwise involving any Employee Benefit Plan (other than routine
claims for benefits), and neither the Company, any ERISA Affiliate, nor any other Person has
engaged in a nonexempt prohibited transaction described in Section 406 of ERISA or Section 4975 of
the Code. No examination or audit of any Employee Benefit Plan by any Governmental Authority is
currently in progress or, to the Knowledge of the Company, threatened. The Company is not a party
to any agreement or understanding with the Pension Benefit Guaranty Corporation, the Internal
Revenue Service, or the Department of Labor.

-13-

 

     Section 2.10. Compliance with Legal Requirements. Except as set forth on the
Disclosure Schedule, the Company is, and at all times has been, in compliance with all Legal
Requirements, including any Legal Requirements related to escheat laws, that are or were applicable
to the operation of its business or the ownership or use of any of its assets, except where such
non-compliance could not have a Material Adverse Effect. The Company has not received, at any time
since the Compliance Date, any notice or other communication from any Governmental Authority or
other Person regarding any actual, alleged, or potential violation of or failure to comply with any
Legal Requirement.

     Section 2.11. Governmental Authorizations. Each Governmental Authorization of the
Company is valid and in full force and effect except where the failure to be in full force and
effect could not be expected to have a Material Adverse Effect. Except as set forth on the
Disclosure Schedule, the Company is, and at all times since the Compliance Date, has been, in
compliance with each such Governmental Authorization except where the failure to be in compliance
could not be expected to have a Material Adverse Effect. Except as set forth on the Disclosure
Schedule, the Company has not received, at any time since the Compliance Date, any notice or other
communication from any Governmental Authority or other Person regarding (a) any actual, alleged, or
potential violation of or failure to comply with any term or requirement of any such Governmental
Authorization, or (b) any actual, proposed, or potential revocation, suspension, cancellation or
termination of, or modification to, any such Governmental Authorization. The Company has all of
the Governmental Authorizations necessary to permit the Company to lawfully conduct and operate its
business in the manner it is currently conducted except where the failure to have such
authorizations could not reasonably be expected to have a Material Adverse Effect.

     Section 2.12. Legal Proceedings; Orders.

          (a) Except as set forth in the Disclosure Schedule, there are no pending Proceedings or
claims, whether oral or in writing, (i) by or against the Company or that otherwise relate to or
may affect the business of, or any of the assets owned or used by, the Company, or (ii) that
challenge, or that may have the effect of preventing, delaying, making illegal, or otherwise
interfering with, any of the transactions contemplated hereby. To the Knowledge of the Company, no
such Proceeding or claim, whether oral or in writing, has been threatened, and no event has
occurred or circumstance exists that may give rise to or serve as a basis for the commencement of
any such Proceeding or claim. Except as set forth in the Disclosure Schedule, there have not been
any orders, judgments, or decrees rendered against, or any settlements effected by, the Company in
connection with any Proceedings or claims, whether oral or in writing, brought by or against the
Company, or that otherwise relate to or may affect the business of, or any of the assets owned or
used by, the Company.

          (b) There are no Orders outstanding (i) against the Company; or (ii) to the Company’s
Knowledge, that challenge, or that may have the effect of preventing, delaying, making illegal, or
otherwise interfering with, any of the transactions contemplated hereby. To the Knowledge of the
Company, no such Order has been threatened, and no event has occurred or circumstance exists that
may give rise to or serve as a basis for the commencement of any such Order.

     Section 2.13. Environmental Matters.

          (a) To the Knowledge of the Company, the Company is and has been in compliance with all
Environmental Laws, and does not have any Liability under any Environmental Laws with respect to
the Leased Real Property or any other properties and assets (whether real, personal, or mixed) in
which the Company (or any predecessor) has or at any time has had an interest, except in each case
as could not have a Material Adverse Effect.

-14-

 

          (b) To the Knowledge of the Company, there are no Hazardous Materials present on or in the
environment at the Leased Real Property or any properties in which the Company has had at any time
an interest except as could not have a Material Adverse Effect. To the Knowledge of the Company,
there has been no emission, disposal, discharge, or other release or, to the Knowledge of the
Company, threat of release, of any Hazardous Materials at or from the Leased Real Property or any
properties in which the Company has had at any time an interest or, during the period of the
Company’s ownership or lease thereof, at, on, under, or from any property formerly owned or leased
by the Company.

          (c) The Company has not received any citation, notice, or other communication from any
Governmental Authority regarding any alleged, actual, or potential violation of any Environmental
Law relating to the Leased Real Property or any properties in which the Company has had at any time
an interest, or any alleged, actual, or potential obligation to undertake or bear the cost of any
Liabilities under any Environmental Law relating to the Leased Real Property or any properties in
which the Company has had at any time an interest.

     Section 2.14. Insurance. The Disclosure Schedule contains a true and complete list
and summary (including coverage amounts) of (a) all policies of property, fire, and casualty,
products liability, workers’ compensation, and other forms of insurance under which any of the
assets or properties of the Company are covered or otherwise relating to the business of the
Company, and (b) all life insurance policies covering the life of any employee of the Company for
which the Company or any employee of the Company has paid any premiums. Such policies are in full
force and effect, and the Company or such employee has paid all premiums due, and has otherwise
performed all of its obligations under, all such policies of insurance. Neither the Company nor
any employee of the Company has received any notice of (a) cancellation or intent to cancel, or (b)
an increase or intent to increase premiums with respect to such insurance policies, and is not
aware of any basis for any such action. None of the policies identified on the Disclosure Schedule
provides for retrospective premium adjustment. The Disclosure Schedule identifies all risks that
the Company has designated as being self-insured and the amount of reserves set aside by the
Company to cover such risks. True and complete copies of such insurance policies have been
delivered to Buyer.

     Section 2.15. Contracts.

          (a) Section 2.15(a) of the Disclosure Schedule lists each contract, agreement, or other
commitment to which the Company is a party or by which the Company is otherwise bound, involving
payments to or from the Company in the aggregate amount exceeding $10,000, excluding the agreements
disclosed in Sections 2.5(b), 2.8(d), and 2.16(c) of the Disclosure Schedule (such contracts,
agreements, and obligations, together with the agreements disclosed in the aforesaid sections of
this Agreement (the “Applicable Contracts”):

          (b) Except as set forth in the Disclosure Schedule:

          (i) Each Applicable Contract is valid and binding and in full force and effect.

          (ii) The Company and, to the Knowledge of the Company, each other party to any
Applicable Contract is, and at all times has been, in compliance with all applicable terms
and requirements of each Applicable Contract.

          (iii) The Company has not given to, or received from, any other party to any Applicable
Contract, any notice or other communication regarding any actual or alleged breach of

-15-

 

or default under any Applicable Contract by the Company or any other party to such
Applicable Contract.

          (c) True and complete copies of each of the Applicable Contracts have been delivered to
Buyer.

     Section 2.16. Intellectual Property.

          (a) The term “Intellectual Property Assets” means all intellectual property owned,
licensed (as licensor or licensee), or used by the Company, including:

          (i) the Company’s name, all fictional business names, trade names, trade dress,
registered and unregistered trademarks, registered and unregistered service marks, and
applications for any of the foregoing (collectively, “Marks”);

          (ii) all patents, patent applications, and inventions and discoveries that may be
patentable or unpatentable worldwide (collectively, “Patents”);

          (iii) all registered and unregistered copyrights in both published works and
unpublished works, and copyright applications (collectively, “Copyrights”);

          (iv) all rights in Internet web sites and Internet domain names (collectively,
“Internet Rights”);

          (v) all computer software (excluding off-the-shelf software components licensed to the
Company pursuant to non-negotiable standard form, mass-market, or “shrink wrap” licenses
involving payments of less than $3,000 on an annual basis) (the “Software”);

          (vi) all confidential or proprietary know-how, information, customer lists, technical
information, data, process technology, plans, drawings, and blue prints pertaining to the
business of the Company and maintained by the Company as trade secrets (collectively,
“Trade Secrets”); and

          (vii) all general know-how, business information, customer and supplier lists,
technical information, data processing technology, plans, drawings, and blue prints
pertaining to the business of the Company but which are not Trade Secrets (collectively,
“Business Knowledge”).

          (b) The Disclosure Schedule contains a true and complete list of the Intellectual Property
Assets (other than Trade Secrets and Business Knowledge) in each case listing, as applicable, (i)
the title of the application or registration, (ii) the name of the applicant/registrant and current
owner, (iii) the jurisdiction where the application/registration is located, (iv) the application
or registration number, (v) filing date, and (vi) whether each such Intellectual Property Asset is
owned or licensed. Prior to the date of this Agreement, the Company has provided Buyer with
specimens showing the use of each Mark in commerce.

          (c) The Disclosure Schedule contains a true and complete list of agreements and contracts
under which the Company licenses any Intellectual Property Assets (as a licensor or licensee). To
the Knowledge of the Company, the Intellectual Property Assets constitute all of the intellectual
property necessary to the conduct of the Company’s business as currently conducted. The Company
has good and valid title to, or a valid and enforceable right to use under an agreement listed in
the Disclosure

-16-

 

Schedule, each of the Intellectual Property Assets, free and clear of all Liens. The Company
has the right to use without payment to a third party each of the Intellectual Property Assets,
other than any payment required under any agreement listed in the Disclosure Schedule. Neither
this Agreement nor the transactions contemplated by this Agreement, including the assignment to
Buyer by operation of law or otherwise of any contracts or agreements to which the Company is a
party, will result in (i) Buyer granting to any Person any right to or with respect to any
Intellectual Property Assets; or (ii) Buyer being bound by, or subject to, any non-compete or other
restriction on the operation or scope of its business.

          (d) To the Knowledge of the Company, none of the Intellectual Property Assets is infringed by
any patent, proprietary right, trade name, trademark, trade dress, service mark, copyright, domain
name, or other intellectual property or proprietary right of any other Person or, to the Knowledge
of the Company, has been challenged or threatened in any way. None of the Intellectual Property
Assets infringes or interferes with or is alleged to infringe or interfere with any patent, trade
name, trademark, trade dress, service mark, copyright, domain name or other intellectual property
right of any other Person, or misappropriates any trade secret or proprietary rights of any other
Person.

          (e) There are no pending or, to the Knowledge of the Company, threatened Proceedings asserting
that any of the Intellectual Property Assets is infringed by the intellectual property rights of
any other Person or that any of the Intellectual Property Assets infringes or interferes with any
intellectual property or proprietary rights of any other Person, or otherwise relating to the
Intellectual Property Assets.

          (f) All Patents, Marks, and Copyrights that have been registered, and all Internet Rights, are
in compliance in all material respects with all formal Legal Requirements (including the payment of
any required maintenance fees), and are valid and enforceable.

          (g) The Company has taken all commercially reasonable precautions to protect the secrecy,
confidentiality, and value of all Trade Secrets. The Trade Secrets are not part of the public
knowledge or literature, and the Trade Secrets have not been used, divulged, or appropriated either
for the benefit of any Person (other than the Company) or to the detriment of the Company. The
Business Knowledge has not been appropriated either for the benefit of any Person (other than the
Company) or to the detriment of the Company.

          (h) To the extent that any work, invention, or material relating to the business of the
Company has been developed or created by any employee or third party for the Company, the Company
has entered into a written agreement with such employee or third party with respect thereto and
thereby has obtained ownership of, and is the exclusive owner of, all intellectual property in such
work, including all Marks, Copyrights, Patents, Trademarks, and Trade Secrets, material or
invention by operation of law or by valid assignment. The Company has not licensed any computer
software source code included in the Intellectual Property Assets to any Person in source code
format.

          (i) Except as set forth in the Disclosure Schedule, all proprietary software of the Company
conforms in all material respects to the specifications and documentation therefor and is otherwise
in compliance with applicable law. No open source, public source, or freeware software, code, or
other technology, or any modification or derivative thereof, including, without limitation, any
version of any software licensed pursuant to any GNU general public license or limited general
public license, was or is used in, incorporated into, integrated or bundled with, or used in the
development or compilation (other than generally available commercial compilers) of, any
Intellectual Property Assets.

-17-

 

          (j) The Company is not barred from seeking patents on material potentially patentable
inventions by “on-sale” or similar bars to patentability or by failure to apply for a patent on
such inventions within the time required.

     Section 2.17. Accounts Receivable. Attached on the Disclosure Schedule are the
accounts receivable of the Company as of November 26, 2006, and such accounts receivable and each
account receivable that will be on the accounting records of the Company as of the Closing Date
represent or will represent valid obligations arising from sales actually made or services actually
performed by the Company in the ordinary course of business. There is no contest, claim, defense,
or right of set off, other than returns in the ordinary course of business, with any account debtor
of an account receivable relating to the amount or validity of such account receivable.

     Section 2.18. Sufficiency of Assets. The assets of the Company constitute all of the
assets, tangible and intangible, of any nature whatsoever, used in or necessary to operate the
business of the Company in the manner presently conducted by the Company.

     Section 2.19. No Undisclosed Liabilities. Except as set forth in the Disclosure
Schedule, the Company has no Liabilities except for Liabilities reflected or reserved against in
the Most Recent Balance Sheet and current Liabilities incurred in the ordinary course of business
of the Company since the Most Recent Balance Sheet Date.

     Section 2.20. Material Adverse Change. Since the Most Recent Balance Sheet Date,
there has not been any material adverse change in the business, operations, prospects, assets,
results of operations, or financial condition of the Company, and no event has occurred or
circumstance exists that may reasonably be expected to result in such a material adverse change.
For purposes of this Section 2.20, any adverse effect on the business or prospects of the Company
that (i) arises from general business or economic conditions, or (ii) is cured by the Company
before the Closing Date and the date on which this Agreement is terminated pursuant to Section 6.1
hereof, shall not constitute a “material adverse change.”

     Section 2.21. Absence of Certain Changes and Events. Except as set forth in the
Disclosure Schedule, (i) since January 29, 2006, the Company has conducted its business in the
ordinary course of business, and (ii) since the Most Recent Balance Sheet Date, the Company has not
taken any action that, if taken during the period from the date of this Agreement through the
Closing Date, would require the prior consent of Buyer pursuant to the provisions of Section
4.2(b).

     Section 2.22. Transactions with Related Persons. Except as set forth in the
Disclosure Schedule, (i) neither Sellers nor any employee, officer, or director of the Company, or
any Related Person thereof (together, the “Company Related Persons”), is, or at any time
since January 1, 2002, has been, involved in any business arrangement or relationship with, or
otherwise is a party to any Applicable Contract (other than any employment or other agreements
disclosed pursuant to Section 2.8(d)) of the Disclosure Schedule, and (ii) no Company Related
Person owns, directly or indirectly, any property or right, tangible or intangible, used by the
Company in the current conduct of its business.

     Section 2.23. Brokers or Finders. Except as set forth on the Disclosure Schedule,
Seller Parties have not incurred and will not incur any liability for brokerage or finders’ fees or
agents’ commissions or other similar payment in connection with the transactions contemplated
hereby.

-18-

 

     Section 2.24. Change in Control Payments. The Disclosure Schedule identifies each
Person, including any taxing authority, to whom any Change in Control Payment is owed or to whom
any Change in Control Payment has been made, with the amount owed to such Person specified.

     Section 2.25. Disclosure. No representation or warranty or other statement made by
any Seller Party in this Agreement, the certificate to be delivered pursuant to Section 5.1(h)(iv),
and any other document or agreement delivered or to be delivered by any Seller Party in connection
with the transactions contemplated hereby contains or will contain any untrue statement or omits or
will omit to state a material fact necessary to make any of them, in light of the circumstances in
which it was made, not misleading.

ARTICLE IIA

REPRESENTATIONS AND WARRANTIES OF SELLERS

     In order to induce Buyer to enter into this transaction, each Seller represents and warrants
to Buyer that, except as set forth in the Disclosure Schedule, the statements made in this Article
IIA are true and correct as of the date of this Agreement and will be true and correct as of the
Closing as though made as of the Closing, except to the extent such representations and warranties
are specifically made as of a particular date (in which case such representations and warranties
will be true and correct as of such date). The Disclosure Schedule will be arranged in paragraphs
corresponding to the numbered and lettered sections contained in this Article IIA.

     Section 2A.1. Ownership of Shares. Each Seller has valid title to and owns
beneficially and of record all of the Shares set forth opposite Seller’s name on Schedule 2A.1 to
the Disclosure Schedule, and has good and marketable title to such Shares, free and clear of any
and all transfer restrictions (other than those imposed by relevant securities laws), options,
liens, claims, pledges, voting trusts and agreements, security interests, charges, and other
restrictions or encumbrances of any kind or nature. Seller has the absolute and unconditional
right, power, authority, and capacity to execute and perform this Agreement and any other agreement
or instrument executed by Seller in connection herewith (collectively with the Agreement, the
“Transaction Documents”) to which Seller is a party and to consummate the transactions
contemplated hereby. Except as set forth on the Disclosure Schedule, Seller has not granted any
option or other commitment or is not otherwise a party to or bound by any agreement obligating such
Seller to sell, pledge, or otherwise grant any interest in the Shares to any person or entity.

          Section 2A.2. Authorization. The Transaction Documents shall include all documents
executed and delivered at the Closing to which Seller is a party. This Agreement and each of the
Transaction Documents to which each Seller is a party have been duly executed and delivered by each
Seller and constitute the valid and binding obligations of each Seller enforceable against each
Seller in accordance with their respective terms, except to the extent that such enforcement may be
subject to applicable bankruptcy, reorganization, insolvency, fraudulent conveyance, or other laws
affecting creditors’ rights generally and to the application of general equitable principles.

          Section 2A.3. No Conflicts. Except as set forth on the Disclosure Schedule, the
execution, delivery, and performance of this Agreement and the Transaction Documents and the
consummation of the transactions contemplated hereby and thereby by Seller do not and will not
violate, conflict with, result in a breach of or constitute a default under (or which with notice
or lapse of time, or both, would constitute a breach of or default under), or result in the
creation of any lien, security interest, or other encumbrance under (a) any note, agreement,
contract, license, instrument, lease, or other obligation to which Seller is a party or by which
the Seller is bound, and for which Seller has not previously obtained a written waiver of such
breach or default, which waiver has been delivered to Buyer,

-19-

 

(b) any judgment, order, decree, ruling, or injunction applicable to Seller, or (c) any
statute, law, regulation, or rule of any governmental agency or authority.

     Section 2A.4. Representations and Warranties. To the knowledge of each Seller (other
than the Principal Sellers) without independent verification, the statements made in Article II are
true and correct as of the date of this Agreement and will be true and correct as of the Closing as
though made as of the Closing, except to the extent such representations and warranties are
specifically made as of a particular date (in which case such representations and warranties will
be true and correct as of such date).

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF BUYER

     Buyer represents and warrants to Sellers as follows:

     Section 3.1. Organization and Good Standing. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the State of Minnesota, with full corporate
power and authority to conduct its business as it is now being conducted.

     Section 3.2. Authority and No Conflict.

          (a) This Agreement constitutes the valid and binding obligation of Buyer, enforceable against
Buyer in accordance with its terms. Upon the execution and delivery by Buyer of each document and
instrument to be executed and delivered at Closing by Buyer pursuant to Section 1.4(b) or any other
provision of this Agreement (collectively, the “Buyer Closing Documents”), each of the
Buyer Closing Documents will constitute the valid and binding obligation of Buyer enforceable
against Buyer in accordance with its terms. Buyer has all requisite corporate power and authority
to execute and deliver this Agreement and the Buyer Closing Documents and to consummate the
transactions contemplated hereby and thereby. The execution and delivery of this Agreement by
Buyer and the consummation of the transactions contemplated hereby have been duly and validly
authorized and approved by Buyer, and no other corporate action on the part of Buyer is required to
authorize the execution and delivery of this Agreement by Buyer, or the consummation of the
transactions contemplated hereby.

          (b) Neither the execution and delivery of this Agreement by Buyer, nor the consummation of the
transactions contemplated hereby will, directly or indirectly (with or without notice or lapse of
time):

          (i) conflict with or violate the Charter or Bylaws of Buyer;

          (ii) conflict with or violate, or give any Governmental Authority or other Person the
right to challenge any of the transactions contemplated hereby or exercise any remedy or
obtain any relief under, any Legal Requirement applicable to Buyer or any Order to which
Buyer may be subject.

          (c) Buyer is not and will not be required to give any notice to or obtain any consent from any
Governmental Authority or any other Person in connection with the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby.

     Section 3.3. Legal Proceedings; Orders. There are no Proceedings or claims pending
or, to the Knowledge of Buyer, threatened, against Buyer that challenge, or that may have the
effect of preventing, delaying, making illegal or otherwise interfering with, any of the
transactions contemplated

-20-

 

hereby. There are no Orders outstanding or, to the Knowledge of Buyer, threatened, against
Buyer that challenge, or that may have the effect of preventing, delaying, making illegal or
otherwise interfering with, any of the transactions contemplated hereby.

     Section 3.4. Investment Intent. Buyer is acquiring the Shares for its own account and
not with a view to their distribution within the meaning of Section 2(11) of the Securities Act.

     Section 3.5. Brokers or Finders. Buyer has not incurred and will not incur any
liability for brokerage or finders’ fees or agents’ commissions or other similar payment in
connection with the transactions contemplated hereby.

ARTICLE IV

PRE-CLOSING COVENANTS

     Section 4.1. Access and Investigation. Between the date of this Agreement and the
Closing Date, and upon reasonable advance notice received from Buyer, Sellers shall cause the
Company to (a) afford Buyer and its agents and representatives, and the agents and representatives
of any Persons providing financing to Buyer in connection with the transactions contemplated hereby
(collectively, the “Buyer Group”), full access, during regular business hours, to the
Company’s properties, facilities, contracts, books and records, and other documents and data, such
rights of access to be exercised in a manner that does not unreasonably interfere with the
operations of the Company, (b) furnish to the Buyer Group copies of all such contracts, books and
records, and other existing documents and data that the Buyer Group may reasonably request, (c)
furnish the Buyer Group with such additional financial, operating, and other relevant data and
information as the Buyer Group may reasonably request, and (d) otherwise cooperate and assist, to
the extent reasonably requested by the Buyer Group, with the Buyer Group’s investigation of the
properties, assets, and financial condition of the Company. Buyer will be provided access to the
Company’s employees, significant customers, significant suppliers, and other Persons having
business relations with the Company, at such times and in the manner mutually agreed to by Buyer
and Sellers.

     Section 4.2. Operation of the Business of the Company.

          (a) Except as contemplated by this Agreement or with the prior written consent of Buyer,
between the date of this Agreement and the Closing Date, Sellers shall cause the Company to (i)
conduct its business in the ordinary course of business; (ii) use best efforts to preserve intact
the current business organization of the Company, keep available the services of the Company’s
officers, employees, and agents, and maintain the Company’s relations and good will with suppliers,
customers, landlords, creditors, employees, agents, and others having business relationships with
the Company; (iii) confer with Buyer prior to implementing operational decisions of a nature which
are either material in respect of the business of the Company or outside the ordinary course of
business; and (iv) upon reasonable request from Buyer, periodically report to Buyer concerning the
status of the business, operations, and finances of the Company.

          (b) Without limiting the generality of Section 4.2(a), except as contemplated by this
Agreement, between the date of this Agreement and the Closing Date, the Company shall not, without
the prior written consent of Buyer, take any of the following actions:

          (i) issue, sell, repurchase, redeem, or acquire any shares of capital stock of the
Company, or grant or enter into any rights, warrants, options, agreements, or commitments
with respect to the issuance of such capital stock;

-21-

 

          (ii) declare, set aside, or pay any dividend or other distribution (whether in cash,
securities, or property or other combination thereof) in respect of any shares of capital
stock of the Company;

          (iii) adjust, split, combine, subdivide, or reclassify any shares of capital stock of
the Company;

          (iv) amend the Articles of Incorporation or Bylaws of the Company;

          (v) pay or increase any salaries payable to any employee or director of the Company, or
pay any bonuses to any employee or director of the Company (except in the ordinary course of
business);

          (vi) adopt, amend, or increase the payments or benefits under any Employee Benefit Plan
unless required by law;

          (vii) except as set forth in Section 4.8, enter into, amend, or terminate, or waive or
assign any material right under (1) any contract or agreement of the Company having a value
per contract, or involving payments by or to the Company, of at least $10,000 in the
aggregate, other than purchase orders for inventory and business supplies in the ordinary
course of business consistent with past practice; (2) any contract or agreement with any
Material Customer; (3) any joint venture, partnership, or other similar agreement; (4) any
agreement or contract with any Company Related Person; or (5) any other material contract or
agreement;

          (viii) acquire assets or other properties of any Person outside of the ordinary course
of business;

          (ix) sell, lease, or otherwise dispose of any assets or properties of the Company other
than dispositions of obsolete or unsaleable inventory or equipment in the ordinary course of
business;

          (x) make any capital expenditure (or series of capital expenditures) or commitments for
capital expenditures in excess of $5,000 individually or $10,000 in the aggregate;

          (xi) make any loans or advances to any Person, except for advances to employees of the
Company for expenses incurred in the ordinary course of business;

          (xii) incur, assume, or guaranty any indebtedness for borrowed money or capitalized
lease obligations;

          (xiii) fail to keep in full force and effect insurance comparable in amount and scope
to insurance now carried by the Company;

          (xiv) permit or allow any of the assets of the Company to be subject to any Lien other
than any Permitted Lien;

          (xv) cancel, waive, settle, or compromise any Proceeding disclosed on Section 2.12(a)
of the Disclosure Schedule;

-22-

 

          (xvi) cancel, waive, or settle any claims or rights with a value to the Company in
excess of $10,000;

          (xvii) make any change in connection with its accounts payable or accounts receivable
terms, policies, or procedures;

          (xviii) make any change in the accounting or tax methods used by the Company; or

          (xix) enter into any agreement, whether oral or written, to do any of the foregoing.

     Section 4.3. Required Approvals; Reasonable Best Efforts. As promptly as practicable
after the date of this Agreement, Sellers shall, and shall cause the Company to, make all filings
required by Legal Requirements to be made by the Company or Sellers in order to consummate the
transactions contemplated hereby, and to use reasonable best efforts to obtain all consents
required in connection with the transactions contemplated hereby including those set forth on
Section 2.2(c) of the Disclosure Schedule. In addition, between the date of this Agreement and the
Closing Date, each Party will use reasonable best efforts to cause the conditions in Article V to
be satisfied.

     Section 4.4. Notification. Between the date of this Agreement and the Closing Date,
Buyer or Seller Parties, as the case may be, shall promptly notify the other Party in writing if
such Party becomes aware of (i) any fact or condition that causes or constitutes a breach of any of
the representations and warranties of such Party made as of the date of this Agreement, or (ii) the
occurrence after the date of this Agreement of any fact or condition that would or be reasonably
likely to cause or constitute a breach of any such representation or warranty had that
representation or warranty been made as of the time of the occurrence of, or such Party’s discovery
of, such fact or condition. If any such fact or condition requires any change to the Schedules,
Seller Parties shall promptly deliver to Buyer a supplement to the Schedules specifying such
change. In addition, between the date of this Agreement and the Closing Date, Buyer or Seller
Parties, as the case may be, shall promptly notify the other Party of the occurrence of any breach
of any covenant of such Party in this Article IV or of the occurrence of any event that may make
the satisfaction of any conditions in Section 5.1 or Section 5.2 impossible or unlikely. No
disclosure pursuant to this Section 4.4 will prevent or cure any breach of any representation or
warranty or covenant set forth herein. Notwithstanding the foregoing, in the event that one Party
supplements the schedules pursuant to this Section 4.4 or notifies the other Party of a breach of
any covenant, and notwithstanding such disclosure the other Party proceeds to close the transaction
contemplated by this Agreement, the non-breaching party may not seek indemnification for such
breach to the extent of the disclosure thereof.

     Section 4.5. No Negotiation. Until such time as this Agreement is terminated pursuant
to Section 8.1, Seller Parties shall not, and shall cause their respective representatives and
agents not to, directly or indirectly, solicit, initiate, encourage, or entertain any inquiries or
proposals from, discuss or negotiate with, provide any information to, or consider the merits of
any inquiries or proposals from, any Person (other than Buyer) relating to any merger,
consolidation, business combination, or similar transaction involving the Company, or the sale of
the business or assets of the Company (other than sales of inventory in the ordinary course of
business), or the sale of any capital stock of the Company. Seller Parties shall notify Buyer of
any such inquiry or proposal and the terms thereof within twenty-four (24) hours of receipt or
awareness of the same by any Seller Party.

     Section 4.6. Payment of Indebtedness by Related Persons. Sellers shall cause all
indebtedness owed to the Company by Sellers, the employees of the Company, or any Related Person
thereof, to be paid in full prior to Closing.

-23-

 

     Section 4.7. Interim Financial Statements. Until the Closing Date, Sellers shall
cause the Company to deliver to Buyer within fifteen (15) calendar days after the end of each month
the unaudited balance sheets of the Company as of the last day of such month and the related
unaudited income statements for the month then ended prepared in a manner consistent with the
Company’s current practices.

     Section 4.8. Termination of Certain Agreements. Prior to the Closing Date, at the
Buyer’s election, the Company shall take all necessary steps to terminate the Company’s 401(k) Plan
and shall provide satisfactory evidence to Buyer of such termination. Prior to the Closing Date,
the Amended and Restated Shareholders Agreement dated August 8, 2002 shall have been terminated,
and all warrants and options for the purchase of any of the Company’s stock shall have been
exercised or cancelled. Buyer shall arrange for the remittance of any income tax and employment
tax withholding amounts out of the Cash Consideration otherwise payable to such optionee. The
Company shall timely pay on behalf of any Person to whom the Company has tax withholding
obligations any applicable employment tax expense payable with respect to the exercise by any
optionee of any option to purchase stock or the realization of any other benefit to which the
optionee is entitled pursuant to the Company’s option plan.

     Section 4.9. Physical Inventory. Prior to the Closing, at Buyer’s option and expense,
Buyer and its representatives shall have the right to conduct a physical inventory of the Company’s
assets.

ARTICLE V

CONDITIONS TO CLOSING

     Section 5.1. Conditions to Obligations of Buyer. The obligations of Buyer to
consummate the transactions contemplated by this Agreement are subject to the satisfaction at or
prior to the Closing of each of the following conditions (any of which may be waived in writing, in
whole or in part, by Buyer):

          (a) Representations and Warranties. (i) Each of the representations and warranties of
Principal Sellers and the Company in Article II and the Sellers in Article IIA of this Agreement
must have been accurate in all material respects as of the date of this Agreement, and must be
accurate in all material respects as of the Closing Date as if made on the Closing Date, and (ii)
each of the representations and warranties of the Principal Sellers and the Company in Article II
and the Sellers in Article IIA of the Agreement that contains an express materiality qualification
must have been accurate in all respects as of the date of this Agreement, and must be accurate in
all respects as of the Closing Date as if made on the Closing Date.

          (b) Covenants. All of the covenants and obligations that Seller Parties are required
to perform or to comply with pursuant to this Agreement at or prior to the Closing must have been
duly performed and complied with in all material respects.

          (c) Consents. Other than Lease Consents and consents to the assignment of certain
equipment leases disclosed on Section 2.2(b) of the Disclosure Schedule, all consents required to
be obtained from, and all declarations or filings required to be made with, any Governmental
Authority or other Person in connection with the transactions contemplated hereby, including those
set forth on Section 2.2(c) of the Disclosure Schedule, must have been obtained.

          (d) No Proceedings. Since the date of this Agreement, there must not have been
commenced or threatened against Buyer, or against any Affiliate thereof, any Proceeding (i)
involving any challenge to, or seeking Damages or other relief in connection with, the transactions
contemplated hereby, or (ii) that may have the effect of preventing, delaying, making illegal,
imposing limitations or conditions on, or otherwise interfering with, any of the transactions
contemplated hereby.

-24-

 

          (e) No Claim regarding Stock Ownership or Sales Proceeds. There must not have been
made or threatened by any Person any claim asserting that such Person (i) is the holder or the
beneficial owner of, or has the right to acquire or to obtain beneficial ownership of, any stock
of, or any other voting, equity, or ownership interest in, the Company, or (ii) is entitled to all
or any portion of the Purchase Price payable for the Shares (except as otherwise contemplated
herein).

          (f) No Conflict. Neither the consummation nor the performance of the transactions
contemplated hereby will, directly or indirectly (with or without notice or lapse of time),
conflict with or result in a violation of, or cause Buyer or any Affiliate thereof to suffer any
material adverse consequence under, any Order issued by any court or other Governmental Authority
since the date of this Agreement or any Legal Requirement enacted or promulgated since the date of
this Agreement.

          (g) Officers and Directors. Except as otherwise agreed to by Buyer, each of the
officers and directors of the Company must have resigned effective as of the Closing.

          (h) Closing Deliveries. Sellers must have caused the documents and instruments
required by Section 1.4(a) and the following documents to be delivered (or tendered subject only to
Closing) to Buyer:

          (i) the Articles of Incorporation and all amendments thereto of the Company, duly
certified as of a recent date by the Secretary of State of the State of Georgia;

          (ii) certificates dated as of a date not earlier than the tenth Business Day prior to
Closing as to the good standing of the Company, executed by the appropriate officials of the
jurisdiction of the Company’s incorporation and each jurisdiction in which the Company is
licensed or qualified to do business as a foreign corporation as specified in Section
2.1(a);

          (iii) a certificate dated as of the Closing Date, executed by Sellers and the Company,
certifying as to the satisfaction of the conditions set forth in Sections 5.1(a) and (b);
and

          (iv) such other documents as Buyer may reasonably request for the purpose of evidencing
the satisfaction of any condition referred to in this Section 5.1, or otherwise facilitating
the consummation or performance of any of the transactions contemplated hereby.

          (i) Material Adverse Change. Between the date hereof and Closing, there shall have
been no material adverse change in the business, operations, prospects, assets, results of
operations, or condition of the Company, and no event shall have occurred or circumstance shall
exist that may reasonably be expected to result in such a material adverse change. For purposes of
this Section 5.1(i), an adverse effect on the business or prospects of the Company that (i) arises
from general business or economic conditions, or (ii) is cured by the Company before the earlier of
the Closing Date and the date on which this Agreement is terminated, pursuant to Section 6.1
hereof, shall not constitute a “material adverse change”.

          (j) Value of Inventory. At the Closing, the market value of the Company’s inventory
shall equal or exceed $1,900,000 (net of any reserves) as determined by Buyer in its reasonable
discretion.

     Section 5.2. Conditions to Obligations of Sellers. The obligations of Sellers to
consummate the transactions contemplated by this Agreement are subject to the satisfaction at or
prior to the Closing

-25-

 

of each of the following conditions (any of which may be waived in writing, in whole or in
part, by Sellers):

          (a) Representations and Warranties. Each of the representations and warranties of
Buyer in Article III of this Agreement must have been accurate in all material respects as of the
date of this Agreement, and must be accurate in all material respects as of the Closing Date as if
made on the Closing Date.

          (b) Covenants. All of the covenants and obligations that Buyer is required to perform
or to comply with pursuant to this Agreement at or prior to the Closing must have been duly
performed and complied with in all material respects.

          (c) No Conflict. Neither the consummation nor the performance of the transactions
contemplated hereby will, directly or indirectly (with or without notice or lapse of time),
conflict with, or result in a violation of, or cause Sellers to suffer any material adverse
consequence under, any Order issued by any court or other Governmental Authority since the date of
this Agreement or any Legal Requirement enacted or promulgated since the date of this Agreement.

          (d) Closing Deliveries. Buyer must have delivered the documents and instruments
required by Section 1.4(b) and the following documents to Sellers:

          (i) a certificate, dated as of the Closing Date, executed by Buyer, certifying as to
the satisfaction of the conditions set forth in Sections 5.2(a) and (b); and

          (ii) such other documents as Sellers may reasonably request for the purpose of
evidencing the satisfaction of any condition referred to in this Section 5.2, or otherwise
facilitating the consummation or performance of any of the transactions contemplated hereby.

ARTICLE VI

TERMINATION

     Section 6.1. Termination Events. By written notice given prior to or at the Closing,
subject to Section 6.2, this Agreement may be terminated as follows:

          (a) by Buyer, in the event a material breach of this Agreement has been committed by any
Seller Party and such breach has not been waived in writing by Buyer;

          (b) by Sellers, in the event a material breach of this Agreement has been committed by Buyer,
and such breach has not been waived in writing by Sellers;

          (c) by Buyer, if the satisfaction of any of the conditions to Buyer’s obligation to close the
transactions contemplated hereby as set forth in Section 5.1 becomes impossible (other than through
the failure of Buyer to comply with its obligations under this Agreement), and Buyer has not waived
such condition in writing on or before such date;

          (d) by Sellers, if the satisfaction of any of the conditions to Sellers’ obligation to close
the transactions contemplated hereby as set forth in Section 5.2 becomes impossible (other than
through the failure of Sellers to comply with their obligations under this Agreement), and Sellers
have not waived such condition in writing on or before such date;

          (e) by mutual consent of Buyer and Sellers; and

-26-

 

          (f) by Buyer or Sellers, if the Closing has not occurred on or before February 28, 2007, or
such later date as the Parties may agree upon, unless the terminating party(ies) is in material
breach of this Agreement.

     Section 6.2. Effect of Termination. Each Party’s right of termination under Section
6.1 is in addition to any other rights it may have under this Agreement or otherwise, and the
exercise of such right of termination will not be an election of remedies. If the Agreement is
terminated pursuant to Section 6.1, all obligations of the Parties under this Agreement will
terminate, except that the obligations in this Article VI, Section 7.1, Section 7.2, and Article IX
will survive; provided, however, that termination of this Agreement will not preclude a Party from
bringing an indemnification claim against any other Party to this Agreement for a breach arising
prior to such termination pursuant to the terms and conditions set forth herein.

ARTICLE VII

ADDITIONAL AGREEMENTS

     Section 7.1. Public Announcements. Any public announcement or similar publicity with
respect to this Agreement or the transactions contemplated hereby will be issued at such time and
in such manner as the Parties may agree; provided, however, that in the case of announcements,
statements, or acknowledgments that any Party is required by applicable Legal Requirements to make,
issue, or release, the making, issuing, or releasing of any such announcement, statements, or
acknowledgment by the Party so required to do by applicable Legal Requirements will not constitute
a breach of this Agreement if such Party has given, to the extent reasonably possible, notice
thereof to the other Parties not less than one (1) Business Day prior to such disclosure and has
attempted, to the extent reasonably possible, to clear such announcement, statement, or
acknowledgment with the other Parties.

     Section 7.2. Confidentiality Agreements. The Confidentiality Agreement, dated
September 19, 2006, as amended on December 1, 2006, entered into by and between Genesco Inc. and
the Company (collectively, the “Confidentiality Agreement”) will remain in full force and
effect following the date of this Agreement, whether or not the Closing occurs, in accordance with
the terms thereof.

     Section 7.3. Customers and Other Business Relationships. After the Closing, Sellers
will cooperate with Buyer in its efforts to continue and maintain for the benefit of Buyer those
business relationships of Sellers relating to the business of the Company, including relationships
with suppliers, customers, landlords, creditors, lessors, and employees. After the Closing,
Sellers will refer all customer inquiries relating to the business of the Company to Buyer.

     Section 7.4. Tax Matters.

          (a) Buyer shall prepare or cause to be prepared all Tax Returns of the Company for all Tax
periods ending on or prior to the Closing Date that are required to be filed after the Closing
Date, including any Tax Return for the short period ending on the Closing Date (the “Short
Period Returns”). The results reported and positions taken on all such Tax Returns shall be
consistent with the past custom and practice of the Company. Buyer and Seller acknowledge and
agree that the Short Period Returns will include deductions from the Company’s income for the
Change in Control Payments. Buyer shall provide Sellers with a copy of such Tax Returns at least
thirty (30) days prior to the due date for any such return and shall make such revisions as are
reasonably requested by Sellers. Buyer shall execute and file such Tax Returns on or prior to the
due date thereof (taking into account any extensions received from the relevant tax authorities),
and shall pay the Taxes shown as due thereon.

-27-

 

          (b) In order to apportion appropriately any Taxes relating to a period that includes the
Closing Date, the Parties will, to the extent permitted by applicable law, elect with the relevant
tax authority to treat the Closing Date as the last day of a taxable period of the Company (a
“Short Period”), and such period shall be treated as a Short Period and a period ending
prior to or on the Closing Date for purposes of this Agreement. In any case where applicable law
does not permit the Company to treat the Closing Date as the last day of a Short Period, then for
purposes of this Agreement, the portion of each Tax that is attributable to the period which would
have qualified as a Short Period if such election had been permitted by applicable law (a
“Straddle Period”) shall be (i) in the case of a Tax that is not based on net income, the
total amount of such Tax for the period in question multiplied by a fraction, the numerator of
which is the number of days in the Straddle Period, and the denominator of which is the total
number of days in such period, and (ii) in the case of a Tax that is based on net income, the Tax
that would be due with respect to the Straddle Period if such Straddle Period were a Short Period
determined based upon an interim closing of the books.

          (c) Any refunds that are received by Buyer or the Company, and any amounts credited against
Tax to which Buyer or the Company become entitled, that relate to periods or portions thereof
ending on or before the Closing Date shall be for the account of Sellers, in accordance with
instructions received from the Shareholders’ Committee, and Buyer shall pay over to the
Shareholders’ Committee, for the benefit of the Sellers, any such refund or the amount of such
credit within 15 days after receipt or entitlement thereto. In addition, to the extent that a
claim for refund or a proceeding results in a payment or credit against Tax by a taxing authority
to Buyer or the Company of any amount accrued on the Closing Balance Sheet, Buyer shall pay such
amount to the Shareholders’ Committee, for the benefit of the Sellers, within 15 days after receipt
or entitlement thereto. This Section 7.4(c) shall not apply to any refunds received by the Company
relating to periods ending on or prior to the Closing Date that are received as a result of Buyer
filing a claim for refund with the relevant taxing authority (other than refunds included in the
calculation of the Working Capital). In addition, any amount otherwise payable to the Sellers
pursuant to this Section 7.4(c) shall be reduced by the amount by which the Tax liability of the
Company or Buyer is increased for any period following the Closing Date by any adjustments relating
to the items that contributed to such refund.

          (d) Neither the Shareholders’ Committee nor Buyer shall file or cause to be filed any amended
Tax Return or claims for refund with respect to the Company for any pre-Closing period without the
prior written consent of the other Party; provided that the Shareholders’ Committee approval shall
not be required if such amended Tax Return does not increase the Company’s Tax liability for the
relevant period, or, if the Tax liability is increased, Buyer waives in writing any indemnification
claim it may have under this Agreement with respect to such increase.

          (e) Neither Buyer nor the Company nor any of their Affiliates shall make any election under
Section 338 of the Code with respect to the transactions contemplated by this Agreement.

          (f) Buyer and Sellers shall cooperate fully, as and to the extent reasonably requested by the
other Party, in connection with the filing of Tax Returns pursuant to this Section 7.4 and any
audit, litigation, or other Proceeding with respect to such Tax Returns. Such cooperation shall
include Buyer’s retention and (upon Sellers’ request) the provision of records and information
which are reasonably relevant to any such audit, litigation, or other Proceeding and Buyer’s filing
of any Tax refund claim taken into consideration in determining the Closing Adjustment Amount;
provided, however, that Buyer shall have no obligation to file any claim for Tax refunds with
respect to which Buyer receives an opinion of counsel or an opinion of its regular accounting firm
that such claim would more likely than not be denied by the Internal Revenue Service or other
taxing authority. Seller Parties shall retain all of their books and records with respect to Tax
matters pertinent to the Company relating to any taxable period beginning before the Closing Date
until the expiration of the statute of limitations.

-28-

 

     Section 7.5. Buyer Obligation to Hold Harmless. Buyer agrees to indemnify and hold
harmless each Seller from any personal guaranties or obligations that such Seller may have in
connection with any contract or instrument to which the Company is a party where such obligation is
reflected as a liability of the Company on the Financial Statements and is otherwise solely an
obligation of the Company.

ARTICLE VIII

INDEMNIFICATION

     Section 8.1. Survival. All representations, warranties, covenants, and obligations in
this Agreement, the Schedules attached hereto, the certificates delivered pursuant to Article V,
and any other certificate or document delivered pursuant to this Agreement will survive the Closing
to the extent contemplated by Section 8.6. The waiver of any condition based on the accuracy of
any representation or warranty, or on the performance of or compliance with any covenant or
obligation, will not affect the right to indemnification, reimbursement, or other remedy based on
such representations, warranties, covenants, and obligations.

     Section 8.2. Indemnification by Seller Indemnifying Persons. Subject to the terms and
conditions of this Article VIII, Sellers and (subject to the last sentence of this Section 8.2) the
Company (the “Seller Indemnifying Persons”), jointly and severally, shall indemnify and
hold harmless Buyer and its Affiliates, stockholders, officers, directors, employees, agents, and
representatives (collectively, the “Buyer Indemnified Persons”), and shall reimburse the
Buyer Indemnified Persons for, any losses, liabilities, claims, damages, and expenses (including
reasonable attorneys’ fees and expenses), whether or not involving a third-party claim
(collectively, “Damages”), arising, directly or indirectly, from or in connection with:

          (a) any breach of any representation or warranty made in Article II or IIA of this Agreement,
the Schedules attached hereto (including any supplements thereto), the certificate to be delivered
by Sellers and the Company pursuant to Section 5.1(h)(iv), and any certificate or document
delivered at Closing by Seller Parties pursuant to this Agreement;

          (b) any breach of any covenant or obligation of Seller Parties in this Agreement;

          (c) any liability or obligation for Taxes payable (including the failure of the Company to
receive any Tax refund receivable taken into consideration in determining the Closing Adjustment
Amount) for all taxable periods ending on or prior to the Closing Date and the portion through the
end of the Closing Date for any taxable period that includes (but does not end on) the Closing Date
that are not taken into consideration in determining the Closing Adjustment Amount (i) payable by
the Company or (ii) for which the Company otherwise has any liability or obligation as a transferee
or successor, or pursuant to any contractual obligation or otherwise;

          (d) any claim or Damages arising out of the incidents giving rise to the matters disclosed in
Section 2.12 of the Disclosure Schedule;

          (e) any of the matters disclosed on Section 2.8(c) of the Disclosure Schedules; and

          (f) any Lease Consent Cost, Other Lease Increase Cost or Lost Lease Cost in connection with
the failure of the Company to give notice of the transactions contemplated by this Agreement to the
landlords of the locations listed in section (c) of Schedule 1.7 prior to the Closing or
failure of the Company to obtain the consent of the landlords of the locations listed in section
(b) of Schedule 1.7 prior to Closing.

-29-

 

Notwithstanding the foregoing, on and after the Closing, the obligation of the Company to indemnify
the Buyer Indemnified Persons will terminate and be of no further force and effect.

     Section 8.3. Indemnification by Buyer. Subject to the terms and conditions of this
Article VIII, Buyer shall indemnify and hold harmless Sellers and Sellers’ Affiliates, Related
Persons, agents, and representatives (collectively, the “Seller Indemnified Persons”), and
shall reimburse Seller Indemnified Persons for, any Damages arising, directly or indirectly, from
or in connection with:

          (a) any breach of any representation or warranty made by Buyer in Article III of this
Agreement, the certificate to be delivered by Buyer pursuant to Section 5.2(d)(iii), and any
certificate or document delivered at Closing by Buyer pursuant to this Agreement; and

          (b) any breach of any covenant or obligation of Buyer in this Agreement.

     Section 8.4. Limitations on Indemnification by Seller Indemnifying Persons.
Notwithstanding anything contained herein to the contrary, the obligation of Seller Indemnifying
Persons to indemnify the Buyer Indemnified Persons pursuant to Section 8.2 is subject to the
following limitations and qualifications:

          (a) Seller Indemnifying Persons will not have any indemnification liability under Section
8.2(a) until the total amount of Damages incurred or suffered by the Buyer Indemnified Persons
hereunder is at least $150,000 (the “Deductible”), and then only the excess amounts above
the Deductible will be payable;

          (b) any indemnification claims brought by or on behalf of the Buyer Indemnified Persons must
be brought within the time periods set forth in Section 8.6(a) below; and

          (c) except for liabilities arising out of Sections 2.2(a) (Authority), 2.3 (Capitalization),
2.7 (Taxes), 2.9 (Employee Benefits), 2.23 (Brokers or Finders), 2A.1 (Ownership of Shares), and
2A.2 (Authorization) and subject to Section 8.10, the Seller Indemnifying Persons’ maximum
aggregate liability under Sections 8.2.(a) and 8.2.(b) shall not exceed $6,000,000. The only
available source of payments for any Damages arising under Section 8.2(d) shall be the Litigation
Escrow.

     Section 8.5. Limitations on Indemnification by Buyer. Notwithstanding anything
contained herein to the contrary, the obligation of Buyer to indemnify Seller Indemnified Persons
pursuant to Section 8.3 is subject to the following limitations and qualifications:

          (a) Buyer will not have any indemnification liability under Section 8.3(a) until the total
amount of Damages incurred or suffered by Seller Indemnified Persons hereunder exceeds the
Deductible, and then only the excess amounts above the Deductible will be payable; provided,
however, that Buyer’s obligations pursuant to Section 7.5 of this Agreement shall not be subject to
the Deductible;

          (b) any indemnification claims brought by or on behalf of Seller Indemnified Persons must be
brought within the time periods set forth in Section 8.6(b) below; and

          (c) subject to Section 8.10, Buyer’s maximum aggregate liability under Section 8.3(a) and
8.3(b) shall not exceed $6,000,000.

-30-

 

     Section 8.6. Time Limitations.

          (a) If the Closing occurs, Seller Indemnifying Persons will have no indemnification liability
under this Article VIII with respect to (i) any claims made under Section 8.2(a) or (ii) any claims
made under Section 8.2(b) relating to any covenant or obligation to be performed and complied with
by Seller Parties on or prior to the Closing Date, unless on or before the date that is eighteen
(18) months following the Closing Date, Buyer notifies the Shareholders’ Committee of a claim
specifying the factual basis of that claim in reasonable detail to the extent then known by Buyer;
provided, however, that (x) any claims with respect to Sections 2.7, 2.9, 2.13, and 2.23, made
under Section 8.2(a), or any claims made under Section 8.2(c) or 8.2(e), may be made at any time
prior to the expiration of the applicable statute of limitations and (y) any claims with respect to
Sections 2.2(a), 2.3, 2A.1 and 2A.2, a claim made under Section 8.2(d) or 8.2(f) or a claim for
indemnification or reimbursement not based upon any covenant or obligation to be performed and
complied with prior to the Closing Date may be made at any time.

          (b) If the Closing occurs, Buyer will have no indemnification liability under this Article
VIII with respect to (i) any claim made under Section 8.3(a) or (ii) any claims made under Section
8.3(b) relating to any covenant or obligation to be performed and complied with by Buyer on or
prior to the Closing Date, unless on or before the date that is eighteen (18) months following the
Closing Date, the Shareholders’ Committee notifies Buyer of a claim specifying the factual basis of
that claim in reasonable detail to the extent then known by Sellers; provided, however, that any
claim for indemnification or reimbursement made under Section 8.3(b) not based upon any covenant or
obligation to be performed and complied with prior to the Closing Date may be made at any time.

     Section 8.7. Procedure for Indemnification.

          (a) An indemnified party under Section 8.2 or 8.3, as the case may be (an “Indemnified
Person”) that has (or believes that it has) a claim for indemnification under this Article
VIII, other than a claim for indemnification that involves a third party claim, shall give written
notice to Buyer or the Shareholders’ Committee, as applicable (each, an “Indemnifying
Person”, as applicable) (a “Claim Notice”), requesting indemnification and describing
in reasonable detail to the extent then known the nature of the indemnification claim being
asserted by the Indemnified Person, providing therein an estimate of the amount of Damages
attributable to the claim to the extent feasible (which estimate may be but shall not necessarily
be conclusive of the final amount of such claim), and also providing therein the basis for and
factual circumstances surrounding the Indemnified Person’s request for indemnification under this
Article VIII. The Indemnifying Person shall, within thirty (30) days after its receipt of a Claim
Notice, notify the Indemnified Person in writing as to whether the Indemnifying Person admits or
disputes the claim described in the Claim Notice. If the Indemnifying Person gives written notice
that it admits the indemnification claim described in such Claim Notice, then the Indemnified
Person shall be entitled to indemnification pursuant to the provisions of this Article VIII, and
subject to the limitations hereof, with respect to the estimated amount of Damages stated in the
Claim Notice. If the Indemnifying Person notifies the Indemnified Person in writing that it
disputes such claim for indemnification, or that it admits the entitlement of the Indemnified
Person to indemnification under this Article VIII with respect thereto but disputes the amount of
the Damages in connection therewith, or if the Indemnifying Person fails to notify the Indemnified
Person within such thirty (30) day period that it either admits or disputes such claim for
indemnification, then in either of such cases the indemnification claim described in the Claim
Notice shall be a disputed indemnification claim that must be resolved by settlement between the
Indemnified Person and the Indemnifying Person or by proceedings commenced in an appropriate court
of competent jurisdiction by either the Indemnifying Person or the Indemnified Person, or by any
other mutually agreeable method. Payment of all amounts determined pursuant to this Section 8.7 to
be owed to a Buyer Indemnified Person shall be made (y) by the Escrow Agent, first to the extent of
the Escrow Consideration, upon the written instruction for the making of such payment by both the
Shareholders’

-31-

 

Committee and Buyer, and/or (z) after the Escrow Consideration is exhausted, by the Sellers by
wire transfer to an account specified by Buyer, in each case within ten (10) days after (i) the
making of a binding settlement approved by the Shareholders’ Committee and Buyer, or (ii) the
expiration of all appeal rights from a final adjudication of a court of competent jurisdiction with
respect thereto, or (iii) the final and nonappealable determination of such liability and amount by
any other resolution method undertaken pursuant to the mutual written agreement of the Buyer and
the Shareholders’ Committee. Payment of all amounts determined pursuant to this Section 8.7(a) to
be owed to a Seller Indemnified Person shall be made by Buyer within ten (10) days after (i) the
making of a binding settlement approved by the Shareholders’ Committee and Buyer, or (ii) the
expiration of all appeal rights from a final adjudication of a court of competent jurisdiction with
respect thereto, or (iii) the final and nonappealable determination of such liability and amount by
any other resolution method undertaken pursuant to the mutual written agreement of the Buyer and
the Shareholders’ Committee.

          (b) If a claim is asserted against an Indemnified Person by a person other than a party to
this Agreement and is based on factual allegations which, if true, would entitle the Indemnified
Person to indemnification under Section 8.2 or 8.3 (any such claim is a “Third Party
Claim”), the Indemnified Person against whom the Third Party Claim is asserted shall give a
Claim Notice to the Indemnifying Person of the assertion of such Third Party Claim, describing in
such notice in reasonable detail to the extent then known the nature of the Third Party Claim and
the factual basis and circumstances surrounding same and estimating the amount of Damages
attributable to such Third Party Claim to the extent feasible (which estimate shall not be
conclusive of or binding as to the final amount of such indemnification claim). A copy of all
papers served on or received by the Indemnified Person with respect to such Third Party Claim, if
any, shall be attached to the Claim Notice. The failure of an Indemnified Person to properly
deliver a Claim Notice to the Indemnifying Person shall not defeat or prejudice the indemnification
rights under this Article VIII of such Indemnified Person with respect to the related Third Party
Claim unless and except to the extent that the resulting delay is materially prejudicial to the
defense of the Third Party Claim or the amount of Damages associated therewith. Within fifteen
(15) days after receipt of any Claim Notice with respect to a Third Party Claim (the “Election
Period”), the Indemnifying Person shall notify the Indemnified Person who provided the Claim
Notice in writing that the Indemnifying Person either (i) disputes the right of the Indemnified
Person to indemnification under this Article VIII with respect to that Third Party Claim, or (ii)
admits the right of the Indemnified Person to indemnification under this Article VIII with respect
to Damages arising in connection with that Third Party Claim. The failure of the Indemnifying
Person to respond to the Indemnified Person within such fifteen (15) day period after receipt of a
Claim Notice by the Indemnifying Person shall be deemed to constitute a response by the
Indemnifying Person that it denies the right of such Indemnified Person to indemnification under
this Article VIII with respect to that Third Party Claim.

          (c) If the Indemnifying Person admits that an Indemnified Person is entitled to
indemnification under this Article VIII with respect to a Third Party Claim, then in such event (i)
the Indemnifying Person shall vigorously defend the Third Party Claim with counsel approved by the
Indemnified Person (which approval shall not be unreasonably withheld), and (ii) the Indemnifying
Person shall not enter into any settlement of the Third Party Claim unless such settlement is
approved in writing by the Indemnified Person (which approval may not be unreasonably withheld or
delayed). (If the Shareholders’ Committee is the Indemnifying Person defending a Third Party
Claim, the costs and expenses of such defense shall be payable by (or the Shareholders’ Committee
shall be entitled to reimbursement therefor upon demand to) the Escrow Agent from the funds held
pursuant to the Escrow Agreement, and Buyer and the Shareholders’ Committee shall each so instruct
the Escrow Agent in writing to that effect.) If the Indemnifying Person disputes the right of the
Indemnified Person to indemnification under this Article VIII with respect to the Third Party Claim
described in a Claim Notice, then in such event (i) the Indemnified Person may defend the Third
Party Claim with counsel of its choice and may enter into a settlement thereof without seeking or
obtaining approval of the Indemnifying Person

-32-

 

as to counsel employed or for the making of such settlement, and (ii) the amount of damages
incurred by the Indemnified Person in connection with such Third Party Claim, and the Indemnified
Person’s right to indemnification under this Article VIII with respect thereto, shall be a disputed
indemnification claim to be resolved by settlement between the Indemnifying Person and the
Indemnified Person, or by appropriate proceedings in any court of competent jurisdiction. Payment
of all amounts determined pursuant to this subsection (c) to be owed to a Buyer Indemnified Person
shall be made (y) by the Escrow Agent, first to the extent of the Escrow Consideration, upon the
written instruction for the making of such payment by both the Shareholders’ Committee and Buyer,
and/or (z) after the Escrow Consideration is exhausted, by the Sellers by wire transfer to an
account specified by Buyer, in each case within ten (10) days after (i) the making of a binding
settlement approved in writing by the Shareholders’ Committee and the Buyer Indemnified Person, or
(ii) the expiration of all appeal rights from a final adjudication of a court of competent
jurisdiction with respect thereto, or (iii) the final and nonappealable determination of such
liability and amount by any other resolution method undertaken pursuant to the mutual written
agreement of the Shareholders’ Committee and the Buyer Indemnified Person. Payment of all amounts
determined pursuant to this Section 8.7(c) to be owed to a Seller Indemnified Person shall be made
by Buyer, within ten (10) days after (i) the making of a binding settlement, or (ii) the expiration
of all appeal rights from a final adjudication of a court of competent jurisdiction with respect
thereto, or (iii) the final and nonappealable determination of such liability and amount by any
other resolution method undertaken pursuant to the mutual written agreement of the Shareholders’
Committee and the Buyer Indemnified Person.

          (d) With respect to any third-party claim subject to indemnification under this Article VIII:
(i) both the Indemnified Person and the Indemnifying Person, as the case may be, shall keep the
other Person fully informed of the status of such Third Party Claim and any related Proceedings at
all stages thereof where such Person is not represented by its own counsel, and (ii) the
Indemnified Person and Indemnifying Person shall render to each other such assistance as they may
reasonably require of each other and cooperate in good faith with each other in order to ensure the
proper and adequate defense of any third-party claim.

          (e) With respect to any Third Party Claim subject to indemnification under this Article VIII,
the Parties shall cooperate in such a manner as to preserve in full (to the extent possible) the
confidentiality of all confidential information and the attorney-client and work-product
privileges. In connection therewith, each party agrees that: (i) it will use its reasonable best
efforts, in respect of any third-party claim in which it has assumed or has participated in the
defense, to avoid production of confidential information (consistent with applicable law and rules
of procedure), and (ii) all communications between any Parties hereto and counsel responsible for
or participating in the defense of any Third Party Claim will, to the extent possible, be made so
as to preserve any applicable attorney-client or work-product privilege.

     Section 8.8. Indemnification for Certain Disclosed Matters. Notwithstanding anything
contained herein to the contrary, the Damages arising, directly or indirectly, from or in
connection with the defense of or satisfaction of Liabilities associated with the matters described
in Section 2.12 of the Disclosure Schedule shall be determined pursuant to Section 8.7, and within
five (5) Business Days after such determination, the Shareholders’ Committee and/or Buyer will
deliver joint written instructions to the Escrow Agent under the Escrow Agreement directing that
the appropriate amount be paid to Buyer from the Escrow Fund.

     Section 8.9. Materiality Qualifications. For purposes of calculating the amount of
Damages to which the Buyer Indemnified Persons and Seller Indemnified Persons are entitled under
this Article VIII and for purposes of determining whether a representation or warranty has been
breached, the terms “material,” “materiality,” and “Material Adverse Effect” will be disregarded.

-33-

 

     Section 8.10. Other Actions. Notwithstanding anything to the contrary in this Article
VIII, any liabilities arising from criminal activity, willful misrepresentation or fraud shall
survive the periods set forth in Section 8.6 and shall not be subject to the limitations on
liability set forth in Sections 8.4 and 8.5.

     Section 8.11. Exclusive Remedy. Each of the Parties agrees that its sole recourse for
any breach or default hereunder, or for any other matter as to which indemnification is provided to
it in this Article VIII, shall be limited to (a) the indemnification provisions set forth herein,
(b) any equitable relief to which it is entitled, and (c) any action based on criminal liability,
willful misrepresentation or common law fraud.

     Section 8.12. Indemnification Calculations. The amount of any Damages for which
indemnification is provided under this Article VIII shall be computed net of any insurance proceeds
received by Buyer or other recoveries available to any Indemnified Person in connection with such
Damages. Each Indemnified Person shall use commercially reasonable efforts to obtain such proceeds
and recoveries. If any such proceeds or recoveries are received by any Indemnified Person (or any
of its Affiliates) with respect to any Damages after an Indemnifying Person has made a payment to
the Indemnified Person with respect thereto, the Indemnified Person (or such Affiliate) shall
promptly pay to the Indemnifying Person the amount of such proceeds or recoveries (up to the amount
of the Indemnifying Person’s payment).

     Section 8.13. Tax Treatment of Indemnity Payments. The Parties agree that any
indemnification payments made pursuant to this Agreement shall be treated as an adjustment to the
Purchase Price unless otherwise required by applicable law.

     Section 8.14. Liability Limitations. In no event shall any Indemnified Person be,
under or in respect of this Agreement, entitled to recover punitive or exemplary damages.

ARTICLE IX

SHAREHOLDERS’ COMMITTEE

     Section 9.1. Shareholders’ Committee. From and after the date of the execution of
this Agreement, Buyer shall be entitled to deal exclusively with a Shareholders’ Committee (the
“Shareholders’ Committee”) in respect of all notices, disputes and other matters delegated
to the Shareholders’ Committee pursuant to this Agreement or the Escrow Agreement. The
Shareholders’ Committee shall consist of Michael W. McNelis, Mark S. Monroe and Donald W. Weber and
shall have the power and authority:

          (i) to execute and deliver the Escrow Agreement (with such modifications or changes
therein as to which the Shareholders’ Committee, in its sole discretion, shall have
consented) and to agree to such amendments or modifications thereto as the Shareholders’
Committee, in its sole discretion, determines to be desirable;

          (ii) to execute and deliver such waivers, consents and amendments in connection with
this Agreement and the Escrow Agreement and the consummation of the transactions
contemplated hereby and thereby as the Shareholders’ Committee, in its sole discretion, may
deem necessary or desirable;

          (iii) except as otherwise provided herein, to collect and receive all monies and other
proceeds and property payable to the Sellers, pursuant to the terms of the Escrow Agreement,
including, without limitation, the Escrow Amount and any portion of or earnings accrued on
such Escrow Amount which are distributable to the Sellers, subject to the Escrow

-34-

 

Agreement, and to apply the proceeds thereof to the payment of (or reimbursement of the
Shareholders’ Committee for) expenses and liabilities which the Shareholders’ Committee may
actually incur in the performance of its duties pursuant to this Agreement or the Escrow
Agreement and, subject to any applicable withholding retention laws, to disburse and pay the
same to each of the Sellers to the extent of, and in accordance with, the respective
interests of the Sellers, as set forth on Schedule III to the Escrow Agreement;

          (iv) to enforce and protect the rights and interests of the Sellers arising out of or
under or in any manner relating to this Agreement and the Escrow Agreement, and each other
agreement, document, instrument or certificate referred to herein or therein or the
transactions provided for herein or therein (including, without limitation, in connection
with any and all claims for indemnification brought under Article VIII hereof), and to take
any and all actions which the Shareholders’ Committee believes are necessary or appropriate
under either of the Escrow Agreement and/or this Agreement for and on behalf of the Sellers
including, consenting to, compromising or settling any such claims, conducting negotiations
with Buyer and its representatives regarding such claims, and, in connection therewith, to
(A) assert any claim or institute any action, proceeding or investigation; (B) investigate,
defend, contest or litigate any claim, action, proceeding or investigation initiated by the
Buyer, or any other Person, or by any Governmental Authority against the Shareholders’
Committee and/or any of the Sellers and/or the Escrow Amount, and receive process on behalf
of any or all of the Sellers in any such claim, action, proceeding or investigation and
compromise or settle on such terms as the Shareholders’ Committee shall determine to be
appropriate, and give receipts, releases and discharges with respect to, any such claim,
action, proceeding or investigation; (C) file any proofs of debt, claims and petitions as
the Shareholders’ Committee may deem advisable or necessary; (D) settle or compromise any
claims asserted under either this Agreement or the Escrow Agreement; and (E) file and
prosecute appeals from any decision, judgment or award rendered in any such action,
proceeding or investigation, it being understood that the Shareholders’ Committee shall not
have any obligation to take any such actions, and shall not have any liability for any
failure to take any such actions;

          (v) to refrain from enforcing any right of the Sellers or any of them and/or the
Shareholders’ Committee arising out of or under or in any manner relating to this Agreement,
the Escrow Agreement or any other agreement, instrument or document in connection with the
foregoing; provided, however, that no such failure to act on the part of the Shareholders’
Committee, except as otherwise provided in this Agreement or in the Escrow Agreement, shall
be deemed a waiver of any such right or interest by the Shareholders’ Committee or by the
Sellers unless such waiver is in writing signed by the waiving party or by the Shareholders’
Committee;

          (vi) to make, execute, acknowledge and deliver all such other agreements, guarantees,
orders, receipts, endorsements, notices, requests, instructions, certificates, stock powers,
letters and other writings, and, in general, to do any and all things and to take any and
all action that the Shareholders’ Committee, in its sole and absolute discretion, may
consider necessary or proper or convenient in connection with or to carry out the
transactions contemplated by this Agreement, the Escrow Agreement and all other agreements,
documents or instruments referred to herein or therein or executed in connection herewith
and therewith; and

          (vii) to engage special counsel, accountants and other advisors and incur such other
expenses on behalf of the Sellers in connection with any matter arising under this Agreement
or the Escrow Agreement as the Shareholders’ Committee deems appropriate.

-35-

 

     Section 9.2. Expenses of Shareholders’ Committee. The Shareholders’ Committee shall
be entitled to receive reimbursement from, and be indemnified by, the Sellers for certain expenses,
charges and liabilities as provided below, which charges and liabilities shall first be paid or
reimbursed from any Closing Adjustment Amount as described in Section 1.6 or upon release of any
amounts of the Escrow Consideration to the Shareholders’ Committee on behalf of the Sellers
pursuant to the Escrow Agreement. In connection with this Agreement, the Escrow Agreement and any
instrument, agreement or document relating hereto or thereto, and in exercising or failure to
exercise all or any of the powers conferred upon the Shareholders’ Committee hereunder, (i) the
Shareholders’ Committee shall incur no responsibility whatsoever to any of the Sellers by reason of
any error in judgment or other act or omission performed or omitted hereunder or in connection with
the Escrow Agreement or any such other agreement, instrument or document, excepting only
responsibility for any act or failure to act which represents willful misconduct, and (ii) the
Shareholders’ Committee shall be entitled to rely on the advice of counsel, public accountants or
other independent experts experienced in the matter at issue, and any error in judgment or other
act or omission of the Shareholders’ Committee pursuant to such advice shall in no event subject
the Shareholders’ Committee to liability to any of the Sellers. Each of the Sellers shall
indemnify, pro rata based upon such holder’s percentage interest as set forth on Schedule III to
the Escrow Agreement, the Shareholders’ Committee against all losses, damages, liabilities, claims,
obligations, costs and expenses, including reasonable attorneys’, accountants’ and other experts’
fees and the amount of any judgment against them, of any nature whatsoever (including, but not
limited to, any and all expenses whatsoever reasonably incurred in investigating, preparing or
defending against any litigation, commenced or threatened or any claims whatsoever), arising out of
or in connection with any claim, investigation, challenge, action or proceeding or in connection
with any appeal thereof, relating to the acts or omissions of the Shareholders’ Committee
hereunder, or under the Escrow Agreement or otherwise. The foregoing indemnification shall not
apply in the event of any action or proceeding which finally adjudicates the liability of the
Shareholders’ Committee hereunder for its willful misconduct. In the event of any indemnification
hereunder, upon written notice from the Shareholders’ Committee to the Sellers as to the existence
of a deficiency toward the payment of any such indemnification amount, each Seller shall promptly
deliver to the Shareholders’ Committee full payment of his or her ratable share of the amount of
such deficiency, in accordance with such holder’s percentage interest as set forth on Schedule III
to the Escrow Agreement.

     Section 9.3. Survival of Indemnities. All of the indemnities, immunities and powers
granted to the Shareholders’ Committee under this Agreement shall survive the Closing Date and/or
any termination of this Agreement and/or the Escrow Agreement.

     Section 9.4. Reliance. Buyer shall have the right to rely upon all actions taken or
omitted to be taken by the Shareholders’ Committee pursuant to this Agreement and the Escrow
Agreement, all of which actions or omissions shall be legally binding upon the Sellers.

     Section 9.5. Irrevocable Grant. The grant of authority provided for herein (i) is
coupled with an interest and shall be irrevocable and survive the death, incompetency, bankruptcy
or liquidation of any of the Sellers, and (ii) shall survive the Closing, and any action taken by
the Shareholders’ Committee pursuant to the authority granted in this Agreement or under the Escrow
Agreement shall be effective and absolutely binding on each Seller notwithstanding any contrary
action of or direction from such holder.

     Section 9.6. Accounting. Upon written request of any Seller, the Shareholders’
Committee shall provide such holder with an accounting of all monies received and distributed by
the Shareholders’ Committee, and shall provide such holder with such other reasonable information
regarding the Shareholders’ Committee’s actions as such holder may reasonably request.

-36-

 

     Section 9.7. Limitation of Liability. Buyer acknowledges and agrees that the
Shareholders’ Committee shall have no liability to, and shall not be liable for any Damages of
Buyer or to any Buyer Indemnified Person in connection with any obligations of the Shareholders’
Committee under this Agreement or the Escrow Agreement or otherwise in respect of this Agreement or
the transactions contemplated hereby, except to the extent that such Damages shall be proven to be
the direct result of willful misconduct by the Shareholders’ Committee in connection with the
performance of its obligations hereunder or under the Escrow Agreement.

     Section 9.8. Resignation, Death or Disability. No member of the Shareholders’
Committee shall resign his position hereunder unless and until a replacement member has been
appointed and such replacement member agrees in writing to be bound by this Agreement and the
Escrow Agreement. If a member of the Shareholders’ Committee dies or becomes disabled, the
remaining members shall appoint a replacement member to the Shareholders’ Committee.

     Section 9.9. Actions by Shareholders’ Committee. Any action by the Shareholders’
Committee may be taken pursuant to a meeting (whether telephonic or otherwise) or written consent.
The affirmative vote of 2 of the 3 members shall be sufficient to approve all actions of the
Shareholders’ Committee.

ARTICLE X

GENERAL PROVISIONS

     Section 10.1. Expenses. Buyer shall bear its costs and expenses incurred in
connection with the preparation, execution, and performance of this Agreement and the transactions
contemplated hereby, including all fees and expenses of Buyer’s agents and representatives and all
transfer, documentary, sales, use, or other similar Taxes arising in connection with the
transactions contemplated hereby. The Sellers shall bear the costs and expenses of Seller Parties
incurred in connection with the preparation, execution, and performance of this Agreement and the
transactions contemplated hereby, including all fees and expenses of Seller Parties’ agents and
representatives.

     Section 10.2. Assignment; No Third Party Beneficiaries. No party may assign any of
its rights or delegate any of its obligations under this Agreement without the prior written
consent of the other Parties, except that Buyer may assign any of its rights and delegate any of
its obligations under this Agreement to any Affiliate of Buyer, provided that no such assignment or
delegation will relieve Buyer from any of its obligations hereunder. Subject to the preceding
sentence, this Agreement will apply to, be binding in all respects upon, and inure to the benefit
of the successors and permitted assigns of the Parties. Nothing in this Agreement will be
construed to give any Person other than the Parties to this Agreement any legal or equitable right
under or with respect to this Agreement or any provision of this Agreement, except such rights as
will inure to a successor or permitted assignee pursuant to this Section 10.2.

     Section 10.3. Notices. All notices, consents, waivers, and other communications under
this Agreement must be in writing and must be delivered (a) personally, (b) by national overnight
courier with confirmation of next-day delivery, (c) by facsimile or (d) by email and will be deemed
given (w) when so delivered personally, (x) if sent by national overnight courier, two (2) days
after the date of mailing, to the addresses set forth below, (y) if sent by facsimile, upon
confirmation of transmission by the transmitting equipment or (z) if sent by email, one (1) day
after the email is sent (or to such other physical or email addresses and facsimile numbers as a
Party may designate by notice to the other Parties):

-37-

 

If to Sellers or the Company (prior to the Closing Date):

Hat Shack, Inc.

1061 Triad Court, Suite 6

Marietta, Georgia 30062

Facsimile: (770) 419-7838

If to Shareholders’ Committee:

845 Spring Street, #330

Atlanta, Georgia 30308

Attn: Mark S. Monroe

Email:                     

525 Old Cobblestone Drive

Atlanta, Georgia 30350

Attention: Donald W. Weber

Email: dwweber@mindspring.com

4401 Mangrove Place

Sarasota, Florida 34242

Attention: Michael W. McNelis

Email: mike@sigmafundingllc.com

with a copy to:

Arnall Golden Gregory LLP

171 17th Street, NW, Suite 2100

Atlanta, Georgia 30363-1032

Attn: Sherman A. Cohen

Facsimile: 404-873-8631

If to Buyer or the Company (following the Closing Date):

Hat World, Inc.

7555 Woodland Drive

Indianapolis, Indiana 46278

Attn: Ken Kocher

Facsimile: 317-337-2622

with a copy to:

Bass, Berry & Sims PLC

315 Deaderick Street, Suite 2700

Nashville, Tennessee 37238-3001

Attn: Allen Overby

Facsimile: 615-742-2711

     Section 10.4. Entire Agreement; Modification. This Agreement (together with the
Annexes, Schedules, and Exhibits attached to this Agreement and the other documents delivered
pursuant to this Agreement) and the Confidentiality Agreement constitute the entire agreement among
the Parties and

-38-

 

supersede all prior agreements, whether written or oral, between the Parties with respect to
the subject matter hereof and thereof. This Agreement may not be amended except by a written
agreement signed by each of the Parties to this Agreement.

     Section 10.5. Waiver; Remedies Cumulative. Neither the failure nor any delay by any
Party in exercising any right under this Agreement or the documents referred to in this Agreement
will operate as a waiver of such right, and no single or partial exercise of any such right will
preclude any other or further exercise of such right or the exercise of any other right. To the
maximum extent permitted by applicable law, (a) no claim or right arising out of this Agreement or
the documents referred to in this Agreement can be discharged by one Party, in whole or in part, by
a waiver or renunciation of the claim or right unless in writing signed by the other Parties; (b)
no waiver that may be given by a Party will be applicable except in the specific instance for which
it is given; and (c) no notice to or demand on one Party will be deemed to be a waiver of any
obligation of such Party or of the right of the Party giving such notice or demand to take further
action without notice or demand as provided in this Agreement or the documents referred to in this
Agreement. The rights and remedies of the Parties to this Agreement are cumulative and not
alternative.

     Section 10.6. Severability. If any provision of this Agreement is held invalid or
unenforceable by any court of competent jurisdiction, the other provisions of this Agreement will
remain in full force and effect, and the Agreement shall be deemed modified to the least extent
necessary and not in a manner that would deprive any Party of the benefit of its bargain.

     Section 10.7. Headings; Construction. The headings of Articles and Sections in this
Agreement are provided for convenience only and will not affect its construction or interpretation.
All Annexes, Exhibits, and Schedules to this Agreement are incorporated into and constitute an
integral part of this Agreement as if fully set forth herein. All words used in this Agreement
will be construed to be of such gender or number as the context requires. All references to
documents, instruments, or agreements will be deemed to refer as well to all addenda, exhibits,
schedules, or amendments thereto. The language used in this Agreement will be construed, in all
cases, according to its fair meaning, and not for or against any Party hereto. The Parties
acknowledge that each Party has reviewed this Agreement and that rules of construction to the
effect that any ambiguities are to be resolved against the drafting Party will not be available in
the interpretation of this Agreement.

     Section 10.8. Governing Law. This Agreement will be governed by and construed under
the laws of the State of Tennessee without regard to any conflicts of laws principles that would
require the application of any other law.

     Section 10.9. Execution of Agreement; Counterparts. This Agreement may be executed in
one or more counterparts, each of which will be deemed to be an original copy of this Agreement and
all of which, when taken together, will be deemed to constitute one and the same agreement. The
exchange of copies of this Agreement and of signature pages by facsimile, or by .pdf or similar
imaging transmission, will constitute effective execution and delivery of this Agreement as to the
parties and may be used in lieu of the original Agreement for all purposes. Signatures of the
parties transmitted by facsimile, or by .pdf or similar imaging transmission, will be deemed to be
their original signatures for any purpose whatsoever.

     Section 10.10. Further Assurances. The parties shall cooperate reasonably with each
other and with their respective representatives and agents in connection with any steps required to
be taken as part of their respective obligations under this Agreement, and the parties agree (a) to
furnish upon request to the other parties such further information, (b) to execute and deliver to
each other such other documents,

-39-

 

and (c) to do such other acts and things, all as the other parties may reasonably request, for
the purpose of carrying out the intent of this Agreement and the transactions contemplated hereby.

[remainder of page intentionally left blank]

-40-

 

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

	 	 	 	 	 
	 	Company:

Hat Shack, Inc.

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Its: 	 	 
	 

	 	 	 	 	 
	 	SELLERS:

 	 
	 	 	 
	 	Mark S. Monroe 	 
	 
	 	 	 
	 	Donald W. Weber 	 
	 
	 	 	 
	 	Jennifer A. Major 	 
	 	 	 
	 	 	 
	 	Christopher J. Weber 	 

	 	 	 
	 	 	 
	 	Steven D. Weber 	 
	 	 	 
	 	 	 
	 	Walter M. Grant 	 
	 	 	 
	 	 	 
	 	Doug Cox 	 
	 	 	 
	 	 	 
	 	Mark Deal 	 
	 	 	 
	 	 	 
	 	Michael W. McNelis 	 
	 	 	 
	 	 	 
	 	Katherine Ryback 	 
	 	 	 
	 	 	 
	 	Jim Hardison 	 
	 	 	 
	 	 	 
	 	Neal Schachtel 	 
	 	 	 	 
	 
	 	The Monroe Revocable Trust

 	 
	 	By:  	 	 
	 	 	Craig S. Monroe, Co-Grantor and Co-Trustee 	 
	 	 	 	 
	 
	 	 	 
	 	By:  	 	 
	 	 	Kathleen M. Monroe, Co-Grantor and Co-Trustee 	 

Signature Page to the Stock Purchase Agreement

 

 

	 	 	 	 	 
	 	Buyer: 

Hat World, Inc.

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Its: 	 	 
	 

Signature
Page to the Stock Purchase Agreement

 

 

Annexes, Exhibits & Disclosure Schedule

	 	 	 
	Annexes
	 	 
	Annex A

	 	Defined Terms
	 
	 	 
	Exhibits
	 	 
	Exhibit A-1, A-2 and A-3

	 	Forms of Release
	Exhibit B-1 and B-2

	 	Forms of Noncompetition Agreement
	Exhibit C

	 	Form of Escrow Agreement
	Exhibit D

	 	Form of Opinion
	 
	 	 
	Disclosure Schedule
	 	 

 

 

Annex A

Defined Terms

     Capitalized terms used in this Agreement have the meanings set forth below:

     “Affiliate” means, with respect to any Person, any other Person controlling,
controlled by, or under common control with such first Person.

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

     “Applicable Contracts” has the meaning set forth in Section 2.15(a).

     “Audited Financial Statements” has the meaning set forth in Section 2.4.

     “Business Day” means any day other than Saturday or Sunday, or any other day on which
banks in the State of Tennessee are permitted or required to be closed.

     “Business Knowledge” has the meaning set forth in Section 2.16(a)(vii).

     “Buyer” has the meaning set forth in the first paragraph of this Agreement.

     “Buyer Closing Documents” has the meaning set forth in Section 3.2(a).

     “Buyer Group” has the meaning set forth in Section 4.1.

     “Buyer Indemnified Persons” has the meaning set forth in Section 8.2.

     “Cash Consideration” has the meaning set forth in Section 1.2(a).

     “Change in Control Payments” means any payments made or to be made by the Company to
any Person as a result of the consummation of the transactions contemplated by this Agreement,
including any Taxes paid or payable by the Company as a result of such payments, but excluding any
payments with respect to options.

     “Claim Notice” has the meaning set forth in Section 8.7(a).

     “Closing” has the meaning set forth in Section 1.3.

     “Closing Adjustment Amount” has the meaning set forth in Section 1.6(a).

     “Closing Balance Sheet” has the meaning set forth in Section 1.6(b).

     “Closing Date” has the meaning set forth in Section 1.3.

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

     “Company” has the meaning set forth in the first paragraph of this Agreement.

     “Company Closing Documents” has the meaning set forth in Section 2.2(a).

A-1

 

     “Compliance Date” has the meaning set forth in Section 2.8(c).

     “Confidentiality Agreement” has the meaning set forth in Section 7.2.

     “Company Related Persons” has the meaning set forth in Section 2.23.

     “Copyrights” has the meaning set forth in Section 2.16(a)(iii).

     “Damages” has the meaning set forth in Section 8.2.

     “Deductible” has the meaning set forth in Section 8.4(a).

     “Delivery Date” has the meaning set forth in Section 1.7(c).

     “Disclosure Schedule” has the meaning set forth in the first paragraph of Article II.

     “Election Period” has the meaning set forth in Section 8.7(b).

     “Employee Benefit Plans” has the meaning set forth in Section 2.9(a).

     “Employment Matters” has the meaning set forth in Section 2.8(c).

     “Environmental Laws” means all domestic or foreign federal, state, local and municipal
Legal Requirements concerning pollution or the protection of the environment.

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

     “ERISA Affiliate” means any entity that is considered a single employer with the
Company under Section 414 of the Code.

     “Escrow” means the Working Capital Escrow, the Indemnification Escrow, the Litigation
Escrow and the Lease Escrow.

     “Escrow Agent” means the escrow agent to be mutually agreed to by Buyer and the
Shareholders’ Committee, or any successor named pursuant to the Escrow Agreement.

     “Escrow Agreement” has the meaning set forth in Section 1.4(a)(iv).

     “Escrow Fund” has the meaning set forth in Section 1.2(b).

     “Estimated Closing Adjustment Amount” has the meaning set forth in Section 1.5(a).

     “Estimated Closing Balance Sheet” has the meaning set forth in Section 1.5(b).

     “Financial Statements” has the meaning set forth in Section 2.4.

     “GAAP” means generally accepted accounting principles for financial reporting in the
United States.

A-2

 

     “Governmental Authority” means any domestic or foreign federal, state, local, or
municipal court, legislature, executive, or regulatory authority, agency or commission, or other
governmental entity, authority, or instrumentality.

     “Governmental Authorization” means any consent, license, or permit issued, granted,
given, or otherwise made available by or under the authority of any Governmental Authority or
pursuant to any Legal Requirement.

     “Hazardous Materials” means any (a) pollutant, contaminant, waste, petroleum,
petroleum products, asbestos or asbestos-containing material, radioactive materials,
polychlorinated biphenyls, mold, urea formaldehyde, and radon gas, and (b) any other chemicals,
materials, or substances defined or regulated as “hazardous waste,” “hazardous material,”
“hazardous substance,” “extremely hazardous waste,” “restricted hazardous waste,” “biohazardous
waste,” “biomedical waste,” “medical waste,” “sharps,” “contaminant,” “pollutant,” “toxic waste,”
“toxic substance” or words of similar import, under any Environmental Law.

     “HW Inventory Valuation” has the meaning set forth in Section 1.5(b)(i).

     “Indemnification Escrow” has the meaning set forth in Section 1.2 of the Disclosure
Schedule.

     “Indemnified Person” has the meaning set forth in Section 8.7(a).

     “Indemnifying Person” has the meaning set forth in Section 8.7(a).

     “Independent Accountants” has the meaning set forth in Section 1.6(d).

     “Independent Appraiser” has the meaning set forth in Section 1.5(iv).

     “Intellectual Property Assets” has the meaning set forth in Section 2.16(a).

     “Internet Rights” has the meaning set forth in Section 2.16(a)(iv).

     “Knowledge of Buyer” (and any similar expression) means any matters actually known by,
or which should be known following reasonable inquiry by, the executive officers or directors of
Buyer.

     “Knowledge of the Company” (and any similar expression) means any matters known by, or
which should be known following reasonable inquiry by or of, Mark Monroe, Katherine Ryback, Mark
Deal, Jim Hardison or any of the directors of the Company.

     “Lease” means any lease listed on Schedule 1.7 hereto.

     “Lease Consent” as applicable with respect to a particular Lease, means a written
consent of the landlord thereunder to the consummation of the transactions by this Agreement (and
to the effect thereof on the voting control of the Company) or a written waiver by such landlord of
any right to terminate the Lease or of any default arising or occurring (or that would arise or
occur) as a result of the consummation of the transactions contemplated by this Agreement (and any
resultant change of voting control with respect to the Company).

     “Lease Consent Cost” has the meaning set forth in Section 1.7(a)(i).

     “Lease Escrow” has the meaning set forth in Section 1.2 of the Disclosure Schedule.

A-3

 

     “Leased Real Property” has the meaning set forth in Section 2.5(b).

     “Legal Requirements” means any domestic or foreign federal, state, local, or municipal
laws, ordinances, codes, or regulations.

     “Liability” or “Liabilities” means, with respect to any Person, any liability
or obligation of such Person of any kind, character, or description, whether known or unknown,
absolute or contingent, accrued or unaccrued, liquidated or unliquidated, secured or unsecured,
joint or several, due or to become due, vested or unvested, executory, determined, determinable, or
otherwise, and whether or not the same is required to be accrued on the financial statements of
such Person.

     “Lien” means any charge, claim, lien, option, pledge, security interest, mortgage, or
other encumbrance.

     “Litigation Escrow” has the meaning set forth in Section 1.2 of the Disclosure
Schedule.

     “Lost Lease Cost” has the meaning set forth in Section 1.7(b).

     “Marks” has the meaning set forth in Section 2.16(a)(i).

     “Material Adverse Effect” means any event, change, occurrence, effect, fact, or
circumstance having, or that would reasonably be expected to have, a material adverse effect on the
business, operations, prospects, assets, results of operations or financial condition of the
Company.

     “Most Recent Balance Sheet” has the meaning set forth in Section 2.4.

     “Most Recent Balance Sheet Date” has the meaning set forth in Section 2.6(a).

     “Noncompetition Agreement” has the meaning set forth in Section 1.4(a)(iii).

     “Order” means any order, injunction, judgment, decree, ruling, assessment, or
arbitration award of any Governmental Authority or arbitrator.

     “Other Lease Increase Cost” has the meaning set forth in Section 1.7(a)(ii).

     “Party” has the meaning set forth in the first paragraph of this Agreement.

     “Patents” has the meaning set forth in Section 2.16(a)(ii).

     “Permitted Liens” has the meaning set forth in Section 2.6(a).

     “Person” means any individual, partnership, limited partnership, corporation, business
trust, limited liability company, limited liability partnership, joint stock company, trust,
unincorporated association, joint venture, or other entity, or any Governmental Authority.

     “Potential Lost Lease Cost” has the meaning set forth in Section 1.7(a)(iii).

     “Presentation Date” has the meaning set forth in Section 1.5(b)(ii).

     “Principal Seller” has the meaning set forth in the first paragraph of Article II.

A-4

 

     “Proceeding” means any action, arbitration, audit, hearing, investigation, litigation,
or suit (whether civil, criminal, administrative, judicial, or investigative, whether formal or
informal, whether public or private) commenced, brought, conducted, or heard by or before, or
otherwise involving, any Governmental Authority or arbitrator.

     “Purchase Price” has the meaning set forth in Section 1.2.

     “Related Person” means, with respect to any individual, (a) such individual’s spouse,
siblings, children, sibling’s children, or parents, and (b) an entity, the beneficiaries,
stockholders, partners or owners, or persons holding a controlling interest of which, consist of
such individual and/or such other individuals referred to in clause (a).

     “Releases” has the meaning set forth in Section 1.4(a)(ii).

     “Securities Act” means the Securities Act of 1933, as amended.

     “Seller Closing Documents” has the meaning set forth in Section 2.2(a).

     “Sellers” has the meaning set forth in the first paragraph of this Agreement.

     “Seller Indemnified Persons” has the meaning set forth in Section 8.3.

     “Seller Indemnifying Persons” has the meaning set forth in Section 8.2.

     “Seller Parties” means Sellers and the Company.

     “Shareholders’ Committee” has the meaning set forth in Section 9.1 of this Agreement.

     “Shares” has the meaning set forth in the Recitals of this Agreement.

     “Short Period” has the meaning set forth in Section 7.4b).

     “Short Period Returns” has the meaning set forth in Section 7.4(a).

     “Software” has the meaning set forth in Section 2.16(a)(v).

     “Store EBITDA” means the earnings of each of the Company’s retail stores before taking
into account the interest, taxes, depreciation, and amortization with respect to such store as set
forth on Schedule 1.7.

     “Straddle Period” has the meaning set forth in Section 7.4(b).

     “Taxes” means any income, payroll, employment, excise, property, franchise,
withholding, social security, unemployment, disability, sales, use, transfer, or other tax, fee,
assessment, charge, or duty of any kind, and any interest, penalties, additions, or additional
amounts thereon, imposed, assessed, or collected by or under the authority of, any Governmental
Authority.

     “Tax Returns” means any returns, information returns, reports, statements, schedules,
notices, forms, or other documents or information (including any amendment thereof) filed with or
submitted to, or required to be filed with or submitted to, any Governmental Authority in
connection with the

A-5

 

determination, assessment, collection, or payment of any Tax or in connection with the
administration, implementation, or enforcement of or compliance with any Legal Requirement relating
to any Tax.

     “Third Party Claim” has the meaning set forth in Section 8.7(b).

     “Total EBITDA” has the meaning set forth on Schedule 1.7.

     “Trade Secrets” has the meaning set forth in Section 2.16(a)(vi).

     “Transaction Documents” has the meaning set forth in Section 2A.1.

     “Transaction Expense” means all costs, fees, and expenses incurred by the Company,
other than the Change in Control Payments, that are or will become payable upon the Closing or
otherwise in connection with the transactions contemplated by this Agreement and the Seller Closing
Documents or that were incurred in anticipation of or in the course of the transactions
contemplated by this Agreement and the Seller Closing Documents.

     “Unaudited Financial Statements” has the meaning set forth in Section 2.4.

     “Working Capital” means the total assets of the Company (including accruals for any
reasonably anticipated Tax refunds) minus the total liabilities of the Company (including all
accruals relating to Employee Benefit Plans and all accruals for bonuses and commissions), as
determined in accordance with GAAP and in a manner consistent with the Financial Statements;
provided, however, that the payment or accrual of the Change in Control Payments, Transaction
Expenses, and any obligations related to the termination of the agreements set forth in Section 4.8
shall be included as a liability in the calculation of Working Capital. In no event will the
Company record any Tax savings, benefit, deduction or other asset as a result of the exercise of
options listed on Section 2.3 of the Disclosure Schedule. In addition, in the event that accounts
receivable of the Company reflected on the Estimated Closing Balance Sheet have not been paid
within 60 days following Closing, such unpaid accounts receivable will be removed from the Closing
Balance Sheet as assets and will be excluded for purposes of determining the Closing Adjustment
Amount. In the event that the Company receives payment for such receivables, the Company will
promptly remit to the Shareholders’ Committee such payment. Notwithstanding the foregoing, the
Company shall be entitled to reflect in the determination of Working Capital the reduction in Tax
liability arising from the deduction for the 2007 tax year of the Change in Control Payments made
by the Company on the Closing Date and the Transaction Expenses.

     “Working Capital Escrow” has the meaning set forth in Section 1.2 of the Disclosure
Schedule.

A-6

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00114-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00114-of-00352.parquet"}]]