TABLE OF CONTENTS

						Page
Article 1 Definitions						1
Article 2 Purchase and Sale of Transferred Assets; Closing						11
		2.1		Purchase of Transferred Assets		11
		2.2		Consideration		12
		2.3		Closing		14
		2.4		Purchase Price Adjustment		15
		2.5		Calculation of Closing Date Qualified Accounts Receivable and Assumed Accrued Liabilities		16
		2.6		Inventory.   OPEN ISSUE		16
		2.7		Allocation		17
Article 3 Representations and Warranties of Seller						18
		3.1		Organization and Good Standing; Shareholders		18
		3.2		Authorization		18
		3.3		Real Property		18
		3.4		Personal Property.		19
		3.5		Environmental Matters		19
		3.6		Contracts		20
		3.7		No Conflict or Violation; Consents		21
		3.8		Permits		22
		3.9		Financial Information; Books and Records		22
		3.10		Liabilities		22
		3.11		Litigation		23
		3.12		Labor Matters		23
		3.13		Purchase Commitments and Outstanding Bids		23
		3.14		Employee Benefit Plans		24
		3.15		Transactions with Related Parties		24
		3.16		Compliance with Legal Requirements		24
		3.17		Intellectual Property		24
		3.18		Assets Necessary to Continue to Conduct Business		25
		3.19		Brokers; Transactions Costs		26
		3.20		No Other Agreements to Sell the Transferred Assets		26
		3.21		Product Liability		26
		3.22		Approvals		26
Article 4 Purchaser’s Representations and Warranties						26
		4.1		Organization		26
		4.2		Authorization		26
		4.3		Brokers; Transactions Costs		27

 

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		4.4		Transferred Assets “AS IS”; Purchaser’s Acknowledgment Regarding Same		27
		4.5		Availability of Funds		27
Article 5 Covenants						27
		5.1		Access and Availability		27
		5.2		Operation of the Business		27
		5.3		Notices and Consents		29
		5.4		Commercially Reasonable Efforts		29
		5.5		Notice of Developments		30
		5.6		Bankruptcy Proceedings		30
		5.7		Expense Reimbursement Amount and Termination Fee		30
		5.8		Notice of Bids		31
		5.9		No Credit Bid		31
		5.10		Employee Matters		31
		5.11		Confidentiality		32
		5.12		Change of Name		32
		5.13		Transfer of Assets		32
		5.14		Cure Costs		32
Article 6 Conditions Precedent to the Parties’ Respective Obligation to Close						32
		6.1		No Restraints		32
		6.2		Governmental Authorizations		32
Article 7 Conditions Precedent to Purchaser’s Obligation to Close						33
		7.1		Accuracy of Representations		33
		7.2		Performance of Obligations		33
		7.3		Deliveries		33
		7.4		No Material Adverse Effect		33
		7.5		Orders		33
		7.6		Executory Contracts		33
		7.7		No Proceedings		33
		7.8		Governmental Approvals		34
		7.9		Accounts Receivable and Inventory		34
Article 8 Conditions Precedent to Seller’s Obligation to Close						34
		8.1		Accuracy of Representations		34
		8.2		Performance of Obligations		34
		8.3		Deliveries		34
		8.4		No Proceedings		34
		8.5		Orders		34

 

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Article 9 Termination						34
		9.1		Termination Events		34
		9.2		Termination Procedures		35
		9.3		Expenses; Termination Fees		36
		9.4		Effect of Termination		36
Article 10 Post-Closing Covenants						36
		10.1		General		36
		10.2		Leases		36
		10.3		Certain Tax Matters.		37
		10.4		Access to Books, Records, Etc.; Further Action.		37
Article 11 General Provisions						38
		11.1		Applicable Law		38
		11.2		Jurisdiction; WAIVER OF JURY TRIAL		38
		11.3		Termination of Representations and Warranties		38
		11.4		Notices		38
		11.5		Confidentiality		38
		11.6		Public Announcements		39
		11.7		Binding Effect; Assignment		39
		11.8		Modification		39
		11.9		Counterparts		39
		11.10		Severability		39
		11.11		Entire Agreement		39
		11.12		Interpretation of Agreement		39

 

Exhibits
Exhibit A		-		Bidding Procedures
Exhibit B		-		Bidding Procedures Order
Exhibit C		-		Sale Order (To be attached per Section 5.6(g))
Exhibit D		-		Escrow Agreement (To be attached per Section 2.2(a))
Exhibit E		-		Form of Assignment Agreement
Exhibit F		-		Form of Bill of Sale
Exhibit G		-		Material Terms of Amendments to Real Estate Leases
Exhibit H		-		Forms of Noncompetition Agreement
Exhibit I				Material Terms of Barrington/LA Sax Agreement

 

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ASSET PURCHASE AGREEMENT

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

Recitals :

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

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

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

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

E.             Seller and Purchaser have each approved the Acquisition.

Agreement :

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

Article 1

Definitions

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

“ Holdback Amount ” means $3,000,000.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

“ PBGC ” shall mean the Pension Benefit Guaranty Corporation.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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ARTICLE 2
PURCHASE AND SALE OF TRANSFERRED ASSETS; CLOSING

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

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

(b)           Inventory .  All Inventory;

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

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

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

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

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

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

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

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

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

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

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

2.2           Consideration .

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

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

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

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

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

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

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

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

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

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

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

(iii)          any Liability relating to the Excluded Assets;

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

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

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

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

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

(ix)           any Employee Plan Liability; and

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

2.3           Closing .

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

(b)           At the Closing:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

2.6           Inventory .

(a)           Inventory Valuation .

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

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

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

(b)           Inventory Valuation Methodology .  The following conventions shall apply to the identification and valuation of the Inventory, the Closing Inventory and the Nonqualifying Closing Inventory:  (i) the Preliminary Estimate shall be based on Seller’s customary I