ASSET SALE AND PURCHASE AGREEMENT

ASSET SALE AND PURCHASE AGREEMENT

ASSET SALE AND PURCHASE AGREEMENT (the “ Agreement ”) is made and entered into this 31 ^st day of January, 2006, by and between Steve’s Shoes, Inc., Debtor in Possession, a Missouri corporation (the “ Seller ”), and The Walking Company, a Delaware corporation (the “ Buyer ”, and collectively with the Seller, the “ Parties ”).

WITNESSETH:

WHEREAS , Seller desires to sell, assign, transfer and convey to Buyer certain of its assets, and Buyer desires to acquire such assets, based upon the terms and conditions set forth herein;

WHEREAS , Seller is currently in possession of its assets as a Debtor in Possession pursuant to chapter 11 of title 11 of the United States Code (the “ Bankruptcy Code ”) in the chapter 11 case of Steve’s Shoes, Inc. (the “ Bankruptcy Case ”), presently pending in the United States Bankruptcy Court for the District of Kansas (Kansas City) (the “ Bankruptcy Court ”), and Seller, upon proper approval and authorization from the Bankruptcy Court, may sell and assign its assets outside of the ordinary course of business;

NOW, THEREFORE , in consideration of the promises and the mutual covenants and agreements contained herein, the Parties hereto agree as follows:

SECTION 1

DEFINITIONS

1.1.       “ Affiliate ” as applied to any Person, means any other Person directly or indirectly controlling, controlled by or under common control with, that Person. For the purposes of this definition, “control” (including, with correlative meanings, the terms “controlling,” “controlled by” and “under common control with”), as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of that Person, whether through ownership of voting securities, by contract or otherwise. For purposes of this definition, a Person shall be deemed to be “controlled by” a Person if such Person possesses, directly or indirectly, the power to vote 10% or more of the securities having ordinary voting power for the election of directors of such Person.

1.2.       “ Assumed Lease(s) ” means the thirty (30) real property leases listed in Schedule 2.1 to this Agreement.

1.3.       “ Assumed Liabilities ” means all liabilities and obligations under or pursuant to each Lease and Contract that is assigned to Buyer under this Agreement which liabilities and obligations accrue and arise from and after the date such Lease or Contract is assigned to and assumed by Buyer under this Agreement.

1.4.       “ Closing ” means the closing of the transactions contemplated by this Agreement.

1.5.       “ Closing Date ” means January 31, 2006, or such other date as the Parties, LaSalle Retail Finance, Country Club Bank, and the Official Committee of Unsecured Creditors appointed in Seller’s Bankruptcy Case, may mutually agree upon in writing.

1.6.       “ Contract ” means all executory contracts, indentures, licenses, agreements, commitments, bids, quotes, proposals, purchase orders and sales orders, and personal property leases, other than the Assumed Leases and the Remaining Leases.

1.7.       “ Debtor ” means Steve’s Shoes, Inc., the Debtor-in-Possession in the Chapter 11 case now pending as Case No. 06-20015 in the Bankruptcy Court.

1.8.       “ Deposit ” means the Six Hundred Thousand Dollars ($600,000.00) in cash Buyer deposited with Evans & Mullinix for the account of the Debtor on January 20, 2006.

1.9.       “ DRA ” means the Designation Rights and Interim Operating Agreement, dated on or about January 31, 2006, by and between the Seller and Buyer, pursuant to which Buyer shall have (i) sixty (60) days to designate an additional fifteen (15) Remaining Leases for assumption and assignment as well as certain Contracts, and pursuant to which such assignment shall be completed no later than April 30, 2006; (ii) the right to use the Seller’s Distribution Center to assist in the transition of ownership for thirty (30) days following the Closing Date; and (iii) the right to manage and operate the Debtor’s retail stores, including the right to conduct going-out of-business sales.

1.10.     “ Distribution Center ” means the real estate consisting of the Debtor’s headquarters/distribution center located at 11333 Strang Line Road in Lenexa, Kansas.

1.11.     “ Knowledge ” means with respect to any party, the actual knowledge (without any duty to investigate) of the executive officers of such party.

1.12.     “ Lender ” means the Debtor’s debtor-in-possession lender as defined in Seller’s Revolving Credit Loan and Security Agreement, dated as of January 6, 2006.

1.13.     “ Liability ” means any liability, obligation, debt or commitment of any kind (whether known or unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, and whether due or to become due), including any liability for taxes.

1.14.     “ Person ” means any natural person, corporation, association, partnership, limited liability company, trust, joint venture, unincorporated organization, business, governmental body or any other legal entity.

1.15.     “ Properties ” means, collectively, (i) the Remaining Leased premises set forth on Schedule 2.2 attached hereto, and (ii) the rights of Seller under the Remaining Leases relating thereto.

1.16.     “ Purchase Price ” has the meaning assigned to that term in Section 3 of this Agreement.

1.17.     “ Purchased Assets ” has the meaning assigned to that term in Section 2.1 of this Agreement.

1.18.     “ Remaining Lease(s) ” means the leases identified in Schedules 2.2 to this Agreement.

SECTION 2

PURCHASE OF ASSETS AND ASSUMPTION OF LIABILITIES

2.1.       Purchased Assets .

a.      Subject to the terms and conditions hereof, and subject to the representations and warranties made herein, on the Closing Date Seller will sell, assign, transfer and convey to Buyer all of Seller’s right, title and interest in and to all assets of Seller, including but not limited to the assets set forth on Schedule 1 hereto (the “ Purchased Assets ”) free and clear of all liens, charges, claims, encumbrances and interests, but excluding the assets described in Section 2.4 herein (the “ Excluded Assets ”).

b.      Buyer further agrees that, as set forth more fully in the DRA, Buyer shall assume at least five (5) Remaining Leases listed on Schedule 2.2 (the “ TWC Designated Leases ”).

c.       Cash for Operations . Seller agrees to leave cash (the “ Operating Cash ”) in the cash register, or some other secure location, on-site at each of the Properties, in order to facilitate the transition from Seller’s operation of a store to Purchaser’s operation of that store with respect to each of the stores being transferred herein. The Operating Cash shall total Eighteen Thousand Dollars ($18,000.00), with that sum to be allocated by Seller to each such store in a manner that reasonably relates to the anticipated needs of such store based on historical demands. Purchaser shall compensate Seller for the Operating Cash either through the delivery of a payment to Seller on the Closing Date or through an increase of Eighteen Thousand Dollars ($18,000.00) in the Purchase Price contemplated herein.

2.2.       “AS IS” TRANSACTION . BUYER HEREBY ACKNOWLEDGES AND AGREES THAT, EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, SELLER MAKES NO REPRESENTATIONS OR WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED, WITH RESPECT TO THE PURCHASED ASSETS OR ANY OTHER MATTER WHATSOEVER, INCLUDING, WITHOUT LIMITATION, INCOME TO BE DERIVED OR EXPENSES TO BE INCURRED IN CONNECTION WITH THE PURCHASED ASSETS, THE PHYSICAL CONDITION OF THE PURCHASED ASSETS, THE ENVIRONMENTAL CONDITION, ZONING, OR OTHER MATTER RELATING TO THE CONDITION OF THE PURCHASED ASSETS, INCLUDING THE REAL ESTATE WHICH IS PART OF THE PURCHASED ASSETS, THE VALUE OF THE PURCHASED ASSETS, THE TERMS, AMOUNT, VALIDITY OR ENFORCEABILITY OF ANY ASSUMED LIABILITIES, THE MERCHANTABILITY OR FITNESS OF THE PURCHASED ASSETS FOR ANY PARTICULAR PURPOSE, OR ANY OTHER MATTER OR THING RELATING TO THE PURCHASED ASSETS. WITHOUT IN ANY WAY LIMITING THE FOREGOING, SELLER HEREBY DISCLAIMS ANY WARRANTY, EXPRESS OR IMPLIED, OF MERCHANTABILITY OR FITNESS OF THE PURCHASED ASSETS FOR ANY PARTICULAR PURPOSE. BUYER FURTHER ACKNOWLEDGES THAT BUYER HAS CONDUCTED AN INDEPENDENT INSPECTION AND INVESTIGATION OF THE PHYSICAL CONDITION OF THE PURCHASED ASSETS AND ALL SUCH OTHER MATTERS RELATING TO OR AFFECTING THE PURCHASED ASSETS AS BUYER DEEMED NECESSARY OR APPROPRIATE AND THAT IN PROCEEDING WITH ITS ACQUISITION OF THE PURCHASED ASSETS, EXCEPT FOR ANY REPRESENTATIONS AND WARRANTIES EXPRESSLY SET FORTH HEREIN, BUYER IS DOING SO BASED SOLELY UPON SUCH INDEPENDENT INSPECTIONS AND INVESTIGATIONS. ACCORDINGLY, BUYER WILL ACCEPT THE PURCHASED ASSETS AT THE CLOSING “AS IS,” “WHERE IS,” AND “WITH ALL FAULTS.”

In regard to the foregoing, and without limitation, Buyer acknowledges that it will not be entitled to any Closing or post-Closing adjustment to the Purchase Price based on its later inspection of the Purchased Assets being acquired.

2.3.       Liabilities .

a.      Subject to the terms and conditions of this Agreement, Buyer hereby agrees, as of the Closing Date, to assume and discharge all liabilities and obligations under or pursuant to each Assumed Lease and Contract that is assigned to Buyer under this Agreement which liabilities and obligations accrue and arise from and after the date such Lease or Contract is assigned to Buyer under this Agreement (the “ Assumed Liabilities ”).

b.      Buyer also agrees to honor gift certificates issued by Seller for its merchandise that are outstanding on the Closing Date, in an amount not to exceed Sixty Five Thousand Dollars ($65,000.00), and the obligation to accept returned merchandise sold by Seller in the ordinary course of business prior to the Closing Date in accordance with standard return policies.

c.      As more fully set forth in the DRA, Buyer shall be responsible for, and shall pay in accordance with Section 2.6 of the DRA, all obligations that are specifically attributed to the Properties and the Contracts from January 31, 2006. Buyer’s obligation for such costs will terminate as set forth in the DRA.

d.      As more fully set forth in the DRA, with respect to each Lease for which Buyer designates as the Designee either itself or any Purchaser Affiliate, to the extent that the costs of curing monetary defaults arising prior to the Carrying Cost Date on such Lease (and relating solely to the obligation to pay rent and other occupancy costs to the landlords for such Lease) exceeds $75,000 in the aggregate for the month of January, 2006, Buyer shall be responsible and obligated to pay such excess portion of the cure cost to or for the benefit of the Seller within ten (10) days of Seller providing to Buyer written notice that such payment is due together with a reasonable written calculation of the amount of excess amount, and subject to the same dispute procedures as set forth in Section 2.4(a) of the DRA with respect to Lease Rejection Dilution Amounts.

e.      Buyer further agrees that, pursuant to the DRA, in consideration for the Seller permitting the Buyer to utilize its Distribution Center for a period of no more than thirty (30) days, Buyer shall be responsible for the costs associated with its use of the Distribution Center as set forth in the DRA.

f.      Any and all other obligations and liabilities of Seller, whether accrued or contingent or due or not due, which are not specifically assumed herein, shall be and remain the obligations and liabilities of Seller to pay and discharge, and Buyer shall not be obligated therefor. For purposes of example, but without limitation, the Parties acknowledge and agree that Buyer is not assuming any liability under or in regard to (i) any obligation or claim under or relating to any Lease or Contract that accrued, arose or relates to events occurring on or prior to the date as of which such Assumed Lease or Contract is assigned to Buyer (except as provided in the DRA), (ii) any liability with respect to sales taxes or similar or other taxes or obligations of Seller occurring on or prior to the Closing Date and (iii) any obligation, claim or right of or to any employee of Buyer, whether relating to benefits, wages, employee benefit plans, vacation pay, severance liability, union claims or otherwise, whether arising in connection with any individual’s employment by the Debtor or otherwise.

2.4.       Excluded Assets . The Excluded Assets are (i) the Distribution Center, (ii) all cash held by the Debtor as of the Closing Date, except as set forth in Section 2.1c., (iii) any Contract that is not designated by Buyer as a Purchased Asset, (iv) any Remaining Lease that is not designated by Buyer pursuant to the DRA, (v) all fraudulent conveyance and preference actions with respect to Debtor’s insiders and lenders, and any claims arising under the Debtor’s D&O insurance; provided that Buyer reserves the right to pursue an action against any insider or employee of the Debtor for misappropriation of any Purchased Assets and (vi) any other assets of Seller expressly excluded in Schedule 1 from the Purchased Assets.

2.5.       Designation Rights and Operating Agreement . On the Closing Date, the Parties will enter into the DRA in substantially the form attached as Exhibit “A” .

2.6.       Use and Occupancy of the Distribution Center . Seller agrees that Buyer shall have full access to and the exclusive right to use the Distribution Center for thirty (30) days following the Closing, for the purpose of facilitating the transfer of the Purchased Assets and the conversion of the Debtor’s retail locations to Buyer’s stores. Buyer agrees to pay the occupancy costs related to its use of the Distribution Center as set forth in the DRA. Buyer shall cooperate in good faith with Seller to allow Seller reasonable access to the Distribution Center to market the Distribution Center and to facilitate the transfer of the Purchased Assets and the wind down of Debtor’s business. Requests for access to the Distribution Center will be coordinated through the Seller’s Chief Restructuring Officer and Buyer’s Chief Financial Officer.

SECTION 3

PURCHASE PRICE

3.1.       The purchase price for the Purchased Assets (the “ Purchase Price ”) shall be Four Million Two Hundred Thousand Dollars ($4,200,000.00).

3.2.       Seller acknowledges that on January 20, 2006, Buyer paid the Deposit to Seller.

3.3.       Upon the satisfaction or waiver of the Buyer Closing Conditions, at the Closing on the Closing Date, Seller shall apply the Deposit to the Purchase Price and Buyer shall pay the balance of the Purchase Price in the amount of Three Million Six Hundred Thousand Dollars ($3,600,000) to Seller by wire transfer of immediately available federal funds to a bank account to be designated by Seller in writing prior to the Closing Date.

SECTION 4

CLOSING

4.1.       The Closing . The Closing shall take place on the Closing Date promptly following the entry of an order by the Bankruptcy Court authorizing Seller’s entry into this Agreement pursuant to Section 8.6 herein, which Closing shall take place at the United States Bankruptcy Court or a location to mutually determined by the Parties. At the Closing on the Closing Date:

a.      Seller shall sell, assign, transfer and convey to Buyer all of Seller’s right, title and interest in and to the Purchased Assets, other than the Excluded Assets and the Remaining Leases and the Contracts not then assigned, free and clear of all liens, claims, charges, encumbrances and interests. Such sale, assignment, transfer and conveyance shall be effected or evidenced by delivery by Seller to Buyer of appropriate bills of sale, assignments and other documents reasonably acceptable in form and substance to Buyer and Seller. Seller shall pay any applicable transfer, sales and use taxes on the transfer if any. All utility charges, rents and other amounts payable under Assumed Leases, licenses and other Contracts assumed and assigned to Buyer at the Closing will be prorated as of Closing. Nothing in this Section 4.1.a. shall alter or otherwise affect Buyer’s liabilities under Section 2.3 herein or under the DRA.

b.      Buyer shall assume the Assumed Liabilities as to the Assumed Leases as provided in Section 2.3.

c.      The Parties will enter into the DRA in substantially the form attached hereto as Exhibit A.

4.2.       Post-Closing Assignment of Contracts and Remaining Leases.   On or before April 30, 2006, Seller will assume and assign to Buyer all of Seller’s Remaining Leases and Contracts that Buyer has designated to be assigned to Buyer (collectively the “ Assumed Remaining Leases and Contracts ”). As more fully set forth in the DRA, Buyer shall be required to assume the leases for no less than five (5) of the Remaining Leases. Such assignment shall be effected or evidenced by entry of an appropriate Bankruptcy Court Order. The Remaining Leases and Contracts that Buyer elects to have assigned to it shall be identified by Buyer in a written notice as required in the DRA.

SECTION 5

SELLER’S REPRESENTATIONS AND WARRANTIES

Seller hereby represents and warrants to Buyer as follows:

5.1.       Authorization for Agreement . The execution, delivery and performance of this Agreement by Seller and the consummation of the transactions contemplated hereby will have been duly authorized by all necessary actions of Seller prior to the Closing, and this Agreement is, and any documents or instruments to be executed and delivered by Seller pursuant hereto will be, legal, valid and binding obligations of Seller enforceable in accordance with their terms, except as enforceability may