EXECUTION VERSION ASSET PURCHASE AGREEMENT

Exhibit 2.1

EXECUTION VERSION

ASSET PURCHASE AGREEMENT

among

LIQUIDITY SERVICES, INC.

CARL C. JONES,

EDDIE FISCHER,

BRADLEY FISCHER

and

SOUTHERN TEXTILE RECYCLING, INC.

August 29, 2006

TABLE OF CONTENTS

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LIST OF EXHIBITS

LIST OF SCHEDULES

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ASSET PURCHASE AGREEMENT

This ASSET PURCHASE AGREEMENT (the " Agreement "), dated as of August [29],  2006, is entered into by and among LIQUIDITY SERVICES, INC., a Delaware corporation (" Purchaser "), SOUTHERN TEXTILE RECYCLING, INC., a Tennessee corporation (the " Company "), CARL C. JONES, EDDIE FISCHER AND BRADLEY FISCHER, each of whom is a shareholder of Company (Messrs. Jones, Fischer and Fischer are collectively referred to herein as " Shareholders " and each is referred to as a " Shareholder .").

RECITALS

WHEREAS, the Shareholders collectively own all the issued and outstanding equity securities of Company;

WHEREAS, Company is engaged in the business of purchasing and remarketing wholesale, surplus, salvage, overstock, closeout and store returned merchandise to wholesalers (the " Business ") and Company is also engaged in the business of purchasing and remarketing wholesale, surplus, salvage, overstock, closeout and store returned merchandise to retail customers through Company’s retail stores (the " Retail Business "); and

WHEREAS, Company desires to sell, the Shareholders desire to cause Company to sell and Purchaser desires to purchase,  certain of the assets, properties and rights relating to or otherwise used or held for use by Company in the Business, and in connection therewith, Purchaser is willing to assume specified liabilities of Company relating thereto, all upon the terms and conditions set forth herein.

AGREEMENT

NOW THEREFORE, in consideration of the respective covenants and promises contained herein and for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereto agree as follows:

• • ARTICLE I.

    DEFINITIONS

1.1.       Defined Terms .  As used herein, the terms below shall have the following meanings.

" Accounts Receivable " means all accounts receivable, notes and notes receivable, other receivables, book debts and other forms of obligations to Company, together with any unpaid interest or fees accrued thereon or other amounts due with respect thereto, and all related claims, rights, causes of action and suits related to such receivables.

" Acquired Assets " means all of Company’s right, title and interest in, to and under the assets, properties and rights of any nature, kind or description, whether tangible or intangible, real, personal or mixed, wherever located, and whether now existing or hereafter acquired prior

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to the Closing Date, related to, used or held for use in connection with, the Business, as the same shall exist on the Closing Date, including, without limitation:

(i)        all Business Intellectual Property;

(ii)       all Equipment;

(iii)      all Permits to the extent transferable to Purchaser;

(iv)      all Business Accounts Receivable other than the (i) Retained Receivables and (ii) the Accounts Receivable arising from the operation of the Retained Business;

(v)       all Business Records;

(vi)      all Business Inventory;

(vii)     all Assumed Contracts;

(viii)    all Real Property and all leasehold improvements situated at or in the Real Property;

(ix)       the benefit of any arrangement of any Person not to compete with the Business or to solicit or take customers or Employees of the Business;

(x)        all Prepaid Items;

(xi)       deposits received from customers of the Business;

(xii)      all Rights;

(xiii)     all goodwill and going concern value and other intangible assets, if any, related to, or arising from, the Business and the Acquired Assets, including, without limitation, all goodwill associated with Business Intellectual Property;

(xiv)    all marketing materials, sales literature and promotional literature; and

(xv)     all other assets, properties and rights that are disclosed on Schedule 1.1(a).

" Affiliate " means, with respect to any Person, any other Person which directly or indirectly controls, is controlled by or is under common control with such Person.

" Agreement " shall have the meaning specified in the Preamble.

" Ancillary Agreements " means the Employment Agreements, the Escrow Agreement, the Assignment and Assumption Agreement, the Bill of Sale and all other agreements, documents and instruments required to be delivered by any party pursuant to this Agreement or entered into in connection with this Agreement or the transactions contemplated hereby.

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" Applicable Law " means any domestic or foreign, federal, state or local statute, law, ordinance, policy, guidance, rule, administrative interpretation, regulation, rule, order, writ, injunction, directive, judgment, decree or other requirement (including common law), of any Governmental Authority (including any Environmental Law).

" Arbitrator " shall have the meaning set forth in Section 10.12(b) .

" Assignment and Assumption Agreement " means the assignment and assumption agreement by and among Purchaser and Company attached hereto as Exhibit A .

" Assumed Contracts " means all contracts and agreements set forth on Schedule 1.1(b) ; provided, however, that, notwithstanding anything to the contrary in this Agreement, a Non-assumed Contract shall not be an "Assumed Contract."

" Assumed Liabilities " means, subject to the limitations and the conditions as provided herein:

(i)        all liabilities arising out of ownership or use of the Acquired Assets after the Closing Date;

(ii)       all liabilities of Company under the (A) Assumed Contracts and (B) Permits included in Acquired Assets, in each case relating to obligations to be performed after the Closing Date; and

(iii)      all liabilities disclosed on Schedule 1.1(c) .

Assumed Liabilities shall not include any Excluded Liabilities.

" Base Consideration " shall mean Eight Million Five Hundred Thousand Dollars ($8,500,000).

" Benefit Plan " shall have the meaning specified in Section 3.13(a) .

" Bill of Sale " means the bill of sale attached hereto as Exhibit B .

" Business " shall have the meaning specified in the Recitals.

" Business Day " means a day other than a Saturday, Sunday or other day on which commercial banks in New York, New York are authorized or required by law to close.

" Business Accounts Receivable " means all Accounts Receivable arising from the operation of the Business but shall exclude any Accounts Receivable arising from the operation of the Retained Business.

" Business Intellectual Property " means all Intellectual Property owned by (in whole or in part), or licensed to, Company and in any way related to, used or held for use in connection with the Business, including all related claims, rights, causes of action and suits related to such Intellectual Property.

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" Business Inventory " means all Inventory related to, used or held for use in connection with the Business but shall exclude any Inventory related to, used or held for use in connection with the Retained Business, inventory on consignment, inventory in processing and inventory reserves.

" Business Records " means all books, records, original documents, accounts, files, papers, correspondence and other information of Company in any way related to the Business, the Acquired Assets or the Assumed Liabilities, which have been reduced to writing or other tangible or fixed form, whether in hard copy or computer or other electronic format, including legal records, warranty records, equipment logs, lists of present and former customers, distributors and suppliers, customer service and collection records, billing tapes, month-end tapes, documentation developed or used for accounting, marketing, services or any other purpose related to the conduct of the Business, other than (i) those relating solely to the Excluded Assets or Excluded Liabilities and (ii) Tax Returns and Tax records.

" CERCLA " shall have the meaning specified in Section 3.12 .

" Certificate of Incorporation " shall have the meaning specified in Section 3.1 .

" Closing " shall have the meaning specified in Section 2.10 .

" Closing Date " shall have the meaning specified in Section 2.10 .

" Closing Date Accounts Receivable Amount " means the value of Business Accounts Receivable set forth on the Closing Date Statement.

" Closing Date Inventory Amount " means the value of the Business Inventory set forth on the Closing Date Statement.

" Closing Date Inventory Statement " shall have the meaning specified in Section 2.7 .

" Closing Date Statement " shall have the meaning specified in Section 2.7 .

" Closing Payment " shall have the meaning specified in Section 2.4(a) .

" Code " means the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder.

" Company " shall have the meaning specified in the Preamble.

" Company Board " means the Board of Directors of Company.

" Company Balance Sheet " means the balance sheet of Company dated as of June 30, 2006 included in the Financial Statements.

" Company Common Stock " shall have the meaning specified in Section 3.1 .

" Company Disclosure Letter " shall have the meaning specified in Article III .

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" Company Owned Copyrights " shall have the meaning specified in Section 3.19(d) .

" Company Patents " shall have the meaning specified in Section 3.19(a) .

" Company Registered Copyrights " shall have the meaning specified in Section 3.19(a) .

" Company Software " shall have the meaning specified in Section 3.19(m) .

" Company Trademarks " shall have the meaning specified in Section 3.19(a) .

" Confidentiality Agreement " shall have the meaning specified in Section 5.2(b) .

" Contaminant " shall have the meaning specified in Section 3.19(q) .

" Contract " shall have the meaning specified in Section 3.9(a) .

" Default " means (a) any actual breach or default, (b) the occurrence of an event that with the passage of time or the giving of notice or both would constitute a breach or default or (c) the occurrence of an event that, with or without the passage of time or the giving of notice or both, would give rise to a right of termination, renegotiation or acceleration.

" Disabling Code " shall have the meaning specified in Section 3.19(q) .

" Dispute " shall have the meaning specified in Section 10.12(a) .

" Dispute Notice " shall have the meaning specified in Section 10.12(b) .

" Employee " means any full-time or part-time employee, officer or director of Company.

" Employment Agreements " means the employment agreements to be entered into by Purchaser and each of the persons listed in Schedule 1.1(d) .

" Encumbrance " means any claim, lien, pledge, option, charge, easement, security interest, deed of trust, mortgage, conditional sales agreement, encumbrance or other right of third parties of any kind, whether voluntarily incurred or arising by operation of law, and includes, without limitation, 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.

" Environmental Claim " means any claim, violation or liability, by or of any Person relating to liability or potential liability (including liability or potential liability for enforcement, investigatory costs, cleanup costs, governmental response costs, natural resource damages, property damage, personal injury, fines or penalties) arising out of, based on or resulting from (a) the presence, discharge, emission, release or threatened release of any Hazardous Substance (as defined below) at any location and any exposure of Persons to such Hazardous Substance at any location, (b) the use, handling, treatment, storage or disposal of any

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Hazardous Substance, (c) circumstances forming the basis of any violation or alleged violation of any Environmental Laws (as defined below) or Permits or (d) otherwise relating to obligations or liabilities under any Environmental Law.

" Environmental Law " shall have the meaning specified in Section 3.12 .

" Equipment " means all of the tangible personal property, including, without limitation, the furnishings, furniture, machinery, office supplies, computer equipment, servers, printers, software and hardware products, trade fixtures, tools, vehicles, material handling equipment, forklifts, racks, shelving, carts, handtrucks and other equipment of every kind and nature owned or leased by Company and related to,  used or held for use in connection with, the Business.

" ERISA " shall have the meaning specified in Section 3.13(a) .

" ERISA Affiliate " shall have the meaning specified in Section 3.13(a) .

" Escrow Agent " shall have the meaning specified in Section 2.4(b) .

" Escrow Agreement " shall have the meaning specified in Section 2.4(b) .

" Escrow Amount " shall have the meaning specified in Section 2.4(b) .

" Escrow Fund " shall have the meaning specified in Section 2.4(b) .

" Escrow Termination Date " means the first anniversary of the Closing Date.

" Excluded Assets " means the Company’s right, title and interest in, to and under the following, which are not acquired by Purchaser hereunder:

(i)        the minute books, stock records, stock certificates, organizational documents and corporate seals of Company;

(ii)       all contracts and agreements that are not Assumed Contracts;

(iii)      any cash and cash equivalents of Company on the Closing Date;

(iv)      the Retained Receivables;

(v)       the rights in connection with and assets of any Benefit Plan on the Closing Date;

(vi)      all claims for Tax refunds (or credits) or Tax loss carryforwards relating to the operation of the Business for any period or portion thereof ending on or before the Closing Date;

(vii)     all claims (including pending claims), rights, causes of action, suits, judgments and demands of any nature in favor of Company to the extent relating to, or otherwise arising out of, the Retained Business, Excluded Assets or Excluded Liabilities, whether choate or inchoate, known or unknown, contingent or noncontingent;

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(viii)    all Permits to the extent not transferable to Purchaser;

(ix)       all Non-assumed Contracts;

(x)        all Inventory related to, used or held for use in connection with, the Retained Business and all Excluded Inventory;

(xi)       all rights of Company under this Agreement and the Ancillary Agreements; and

(xii)      all other assets, properties and rights related to the Business that are disclosed on Schedule 1.1(e) .

" Excluded Inventory " shall mean any Inventory (i) which the Company has agreed to sell to another party and (ii) with respect to which the Company has received full payment from such party, whether or not the Company has invoiced such party for the sale of such Inventory.

" Excluded Liabilities " means, except for Assumed Liabilities, all liabilities of Company, whether arising before, on or after the Closing Date.  Without limiting the generality of the preceding sentence, the Excluded Liabilities include the following liabilities of Company (for purposes of clarification, no portion of the following items described in the remainder of this definition shall constitute an Assumed Liability):

(i)        any liability that relates to, or otherwise arises out of, the conduct or operation of the Business on or before the Closing Date, including any warranty or guarantee obligations, any obligations and liabilities for refunds, adjustments or allowances of any kind;

(ii)       any liability that relates to, or otherwise arises out of, the Retained Business;

(iii)      any liability (i) under any Assumed Contract that is to be, or was to have been, performed on or before the Closing Date or that relates to any action or inaction of Company or any of its Affiliates occurring on or before the Closing Date, and (ii) under any Contract other than the Assumed Contracts, including, without limitation, any Non-assumed Contract;

(iv)      any liability for Taxes, including, without limitation, (i) any Taxes that relate to, or otherwise arise out of, the Business or the Acquired Assets, with respect to all periods or portions thereof ending on or prior to the Closing Date,  and (ii) any Taxes that will arise as a result of the transactions contemplated by this Agreement (including, but not limited to, any transfer, documentary, sales, use and other Taxes assessed upon or with respect to the transfer of the Acquired Assets to Purchaser, and any recording or filing fees with respect thereto);

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(iv)      any liability arising in respect of or relating to any Benefit Plan;

(v)       any liability for severance or other payments arising out of the transactions contemplated by this Agreement or otherwise to Employees who are not Transferred Employees;

(vi)      any liability from or relating to any indebtedness of Company or arising out of or relating to any credit facilities, capital leases or guarantees of Company or any Encumbrances related thereto;

(vii)     any liability relating to any Proceeding to which Company is or becomes a party that relates to or arises out of facts or circumstances existing before the Closing Date;

(viii)    any liability relating to Company failing to observe or comply with any Applicable Law, including, without limitation, any Applicable Law which relates to the sale of property in bulk in connection with the transfer of the Acquired Assets to Purchaser;

(ix)       any liability in connection with any obligations owing to any Affiliate of Company;

(x)        any liability under this Agreement or any Ancillary Agreement;

(xi)       any liability relating to an Excluded Asset or not associated with the Acquired Assets;

(xii)      any liability imposed upon Purchaser as a successor to or acquiror of the Business where such liability has not been expressly assumed by Purchaser as an Assumed Liability;

(xiii)     any liability based on any action, event, facts or circumstances relating to Company, the Acquired Assets or the Business arising or existing prior to the Closing Date;

(xiv)    any liability arising from, or relating to, the formation, organization or capitalization of Company or the capital stock of Company, including any common stock and preferred stock of Company, or any options, warrants or other rights to acquire any capital stock of Company, and including any liability relating to the manner in which any capital stock, or any options, warrants or other rights to acquire any capital stock of Company, were issued or granted, or relating to the distribution of proceeds from the transactions contemplated hereby to holders of capital stock of Company or any option, warrant or other right to acquire any capital stock of Company (including any liability that arises because such distribution or transaction may have constituted a fraudulent conveyance under applicable federal or state law, or may have violated state corporate law governing dividends, redemptions or other similar laws);

(xv)     any liability based on misappropriation, unauthorized use or infringement of any Intellectual Property of any Person by Company or with respect to Business Intellectual Property; and

(xvi)    any liability based upon acts or omissions of Company or its Representatives, shareholders or Affiliates.

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" Financial Statements " means the financial statements for Company attached hereto as Exhibit C , which consist of (i) a balance sheet dated as of December 31, 2005 and related statement of income and statement of cash flows for the year ended December 31, 2005; and (ii) the Company Balance Sheet and related statement of income and statement of cash flows for the six-month period ending June 30, 2006.

" GAAP " means accounting principles generally accepted in the United States consistently applied over all relevant periods.

" Governmental Authority " means any court, administrative agency, regulatory body, commission or other governmental authority or instrumentality of the United States or any other country or any state, county, municipality or other governmental division of any country.

" Hazardous Materials " shall have the meaning specified in Section 3.12 .

" Immediate Family ", with respect to any specified Person who is a natural person, means such Person’s spouse, parents, children and siblings, including adoptive relationships and relationships through marriage, or any other relative of such Person that shares such Person’s home.

" Inbound License Agreements " shall have the meaning specified in Section 3.19(g) .

" Indemnification Claim " shall have the meaning specified in Section 9.2b) .

" Indemnifying Party " shall have the meaning specified in Section 9.3(a) .

" Independent Accountants " shall have the meaning specified in Section 2.7(d) .

" Independent Appraisers " shall have the meaning specified in Section 2.7(d) .

" Intellectual Property " shall have the meaning specified in Section 3.19(a) .

" Inventory " means all inventory, including raw and packing materials, work-in-progress, finished goods, supplies, parts and similar items owned by Company but shall exclude any Excluded Inventory.

" IRS " shall have the meaning specified in Section 3.13(d) .

" JAMS " shall have the meaning specified in Section 10.12(c) .

" Knowledge " of Company means the knowledge of the officers and directors (other than Eddie Fisher and Brad Fisher) of Company, which will be deemed to include (i) the actual knowledge of such individuals; and (ii) the knowledge that a prudent individual could be expected to discover or otherwise become aware of in the course of conducting a reasonably comprehensive investigation  of the surrounding facts, circumstances, events or other matters at issue, whether or not in fact he or she made such reasonable investigation.

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" Liquidator " shall have the meaning specified in Section 2.5(c) .

" Losses " shall have the meaning specified in Section 9.2(a) .

" Material Adverse Effect " means any event, change, circumstance, effect or state of facts that is or could reasonably be expected to be materially adverse to (i) the business, operations, assets, condition (financial or otherwise), results of operations, liabilities or prospects of Company or the Business, as applicable, or (ii) the ability of Company to perform its obligations under this Agreement or the Ancillary Agreements.

" Material Consents " means the consents, approvals, authorizations, notifications or filings identified on Schedule 1.1(g) .

" Material Contracts " shall have the meaning specified in Section 3.9(a) .

" Minimum Inventory Sales Amount " means an amount equal to one hundred and twenty-four percent (124%) of the Closing Date Inventory Amount.

" Non-assumed Contracts " means a Contract that is listed on Schedule 1.1(b) , but with respect to which the Company has not obtained the consent required from a third-party in order to assign such Contract to Purchaser or which the Purchaser elects, in its sole discretion, not to assume.

" Notice of Disagreement " shall have the meaning specified in Section 2.7(d) .

" Ordinary Course of Business " or " Ordinary Course " or any similar phrase shall describe any action taken by a Person if:

(i)        such action is consistent in manner and amount with the past practices of such Person and is taken in the ordinary course of the normal day-to-day operations of such Person; and

(ii)       such action is not required to be authorized by the board of directors of such Person (or by any Person or group of Persons exercising similar authority) and is not required by Applicable Law or consistent with customary practice of such Person to be authorized by the parent company or equity holders (if any) of such Person.

" Other Intellectual Property Rights " shall have the meaning specified in Section 3.19(a) .

" Outbound License Agreement " shall have the meaning specified in Section 3.19(g) .

" Patents " shall have the meaning specified in Section 3.19(a) .

" Permits " means all licenses, permits, franchises, approvals, authorizations, consents or orders of, or filings with, any Governmental Authority, whether foreign, federal, state or local, or with any other Person, relating to the Acquired Assets, the Assumed Liabilities or the past or present conduct or operation of, the Business.

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" Permitted Encumbrances " means (i) Encumbrances consisting of zoning or planning restrictions, easements, permits and other restrictions or limitations on the use of real property or irregularities in title thereto which do not materially detract from the value of, or materially impair the use of, such property as it is presently used in connection with the Business, (ii) Encumbrances for current Taxes, assessments or governmental charges or levies on property not yet due, (iii) mechanic’s, materialmen’s and similar liens arising in the Ordinary Course of Business or by operation of law.

" Person " means any person or entity, whether an individual, trustee, corporation, partnership, limited partnership, limited liability company, trust, unincorporated organization, business association, firm, joint venture or Governmental Authority.

" Prepaid Items " means all credits, cash reserves, prepaid expenses, advance payments, security deposits, escrows and other prepaid items of Company arising from or related to the Business or the Acquired Assets.

" Price Allocation " shall have the meaning specified in Section 2.6(a) .

" Proceeding " shall have the meaning specified in Section 3.17 .

" Property Taxes " shall have the meaning specified in Section 2.9 .

" Purchase Price " shall have the meaning specified in Section 2.3 .

" Purchaser " shall have the meaning specified in the Preamble.

" Purchaser Indemnitee " shall have the meaning specified in Section 9.2(a) .

" Real Property " shall have the meaning specified in Section 3.5 .

" Related Party ", with respect to any specified Person, means:  (i) any Affiliate of such specified Person, or any director, executive officer, general partner or managing member of such Affiliate; (ii) any Person who serves as a director, executive officer, partner, member or in a similar capacity of such specified Person; (iii) any Immediate Family member of an individual described in clause (ii); or (iv) any other Person who holds, individually or together with any Affiliate of such other Person and any member(s) of such other Person’s Immediate Family, more than 10% of the outstanding equity or ownership interests of such specified Person.

" Representative " means, with respect to any Person, any officer, director, principal, employee, advisor, consultant, auditor, agent, banker or other representative of such Person.

" Representative Agreements " shall have the meaning specified in Section 9.6(a) .

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" Restricted Services " means purchasing and remarketing wholesale, surplus, salvage, overstock, closeout and store returned merchandise (specifically excluding, however, the sale of used clothing or shoes purchased from thrift or charitable organizations that are not suppliers to the Business, such as Goodwill Industries or the Salvation Army, and subsequently remarketed to international buyers that are not buyers in connection with the Business).

" Retained Business " means the businesses or operations of Company other than the Business,  including without limitation the Retail Business.

" Retail Business " shall have the meaning specified in the Preamble.

" Retained Receivables " means the Accounts Receivable arising prior to the Closing Date and listed on Schedule 1.1(h) .

" Rights " means all claims, causes of action, rights of recovery and rights of set-off against any Person arising from or related to the Business, the Acquired Assets or the Assumed Liabilities, including: (i) all rights under any Assumed Contract, including all rights to receive payment for products sold and services rendered thereunder, to receive goods and services thereunder, to assert claims and to take other rightful actions in respect of breaches, defaults and other violations thereof; (ii) all rights under or in respect of any Business Intellectual Property, including all rights to sue and recover damages for past, present and future infringement, dilution, misappropriation, violation, unlawful imitation or breach thereof, and all rights of priority and protection of interests therein under the laws of any jurisdiction; (iii) all rights under all guarantees, express or implied warranties, indemnities and similar rights arising from or related to the Business, the Acquired Assets or the Assumed Liabilities; (iv) all proceeds from existing insurance policies of Company relating to pre-Closing claims or occurrences, any benefits under such policies and any claims of Company with respect thereto, to the extent arising out of an insured loss of Company covered by any such policy whether occurring before or after the Closing Date; and (v) all claims (including pending claims and counterclaims), rights, causes of action, suits, judgments and demands of any nature in favor of Company that relate to, or otherwise arise out of, the Acquired Assets or Assumed Liabilities, whether choate or inchoate, known or unknown, contingent or noncontingent; except, in each of clauses (i) through (v) above, to the extent specifically related to Excluded Assets or Excluded Liabilities.

" Software " shall have the meaning specified in Section 3.19(m) .

" Solvent " shall have the meaning specified in Section 3.27 .

" Shareholder " shall have the meaning specified in the Preamble.

" Shareholders’ Representative " shall have the meaning specified in Section 9.6 .

" Subsidiary " means any corporation, partnership, limited liability company, association, trust, unincorporated association or other legal entity of which Company or Purchaser (as the case may be) or any such other person (either alone or through or together with any other subsidiary), owns, directly or indirectly, more than fifty percent (50%) of the capital stock or other equity interests, the holders of which are generally entitled to vote for the election of the board of directors or other governing body of such corporation or other legal entity.

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" Systems " shall have the meaning specified in Section 3.19(q) .

" Takeover Proposal " means any proposal or offer from any Person relating to any direct or indirect acquisition or purchase of all or any portion of Company, whether effected by sale of assets, sale of stock, merger or otherwise, other than Inventory to be sold in the ordinary course of business consistent with past practice.

" Tax " shall have the meaning specified in Section 3.11(a) .

" Tax Return " shall have the meaning specified in Section 3.11(a) .

" Termination Fee " means the terminating party’s out-of-pocket costs and expenses in connection with the transactions contemplated by this Agreement.

" Third Party Claim " shall have the meaning specified in Section 9.3(a) .

" Threshold " shall have the meaning specified in Section 9.2(c) .

" Trade Secrets " shall have the meaning specified in Section 3.19(a) .

" Trademarks " shall have the meaning specified in Section 3.19(a) .

" Transfer Tax " shall have the meaning specified in Section 5.10(a) .

" Transferred Employees " shall have the meaning specified in Section 5.7(a) .

" WARN Act " shall have the meaning specified in Section 3.18(g) .

1.2.       Construction .  Unless the context otherwise clearly indicates, words used in the singular include the plural and words used in the plural include the singular.  The Schedules and Exhibits referred to herein shall be incorporated into this Agreement as an integral part hereof to the same extent as if they were set forth verbatim herein.  All "Article" and "Section" references herein are references to Articles and Sections of this Agreement, unless otherwise specified.  The Recitals and the captions and headings of Articles and Sections of this Agreement are solely for the purpose of reference, are not part of the agreement of the parties and shall not affect the meaning or interpretation of this Agreement.  All references herein to dollars (or $) shall mean US Dollars.

• • ARTICLE II.

    PURCHASE AND SALE

2.1.       Purchase and Sale of Acquired Assets.

(a)       Upon the terms and subject to the conditions of this Agreement, and in reliance upon the representations, warranties and agreements herein set forth, at the Closing, Company shall irrevocably sell, transfer, convey, assign and deliver to Purchaser, and Purchaser

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shall purchase, acquire and accept from Company, the Acquired Assets, free and clear of all Encumbrances other than Permitted Encumbrances.

(b)       The Acquired Assets shall not include, and Purchaser shall not purchase, any Excluded Assets, all of which shall be retained by Company.

2.2.       Assumed Liabilities; Excluded Liabilities .  On the terms and subject to the conditions of this Agreement, at the Closing, Purchaser shall assume and become responsible for the Assumed Liabilities.  Purchaser shall not assume, nor shall Purchaser agree to pay, perform, discharge or otherwise satisfy, or agree to indemnify Company or the Shareholders against or otherwise have any responsibility or obligation for or with respect to, any Excluded Liabilities.

2.3.       Purchase Price .  On the Closing Date, in full consideration for the Acquired Assets, Purchaser shall (i) assume the Assumed Liabilities, and (ii) in accordance with the provisions of Section 2.4 , pay an amount equal to the Base Consideration, which amount shall be subject to adjustment as described in Sections 2.4(a) and  2.7 (as so adjusted, the " Purchase Price ").

2.4.       Payment of Purchase Price; Escrow Fund .

(a)       At the Closing, Purchaser shall deliver to Company Eight Million Five Hundred Thousand Dollars ($8,500,000) subject to adjustment insofar as feasible to reflect all prorations required pursuant to Section 6.2(a) (as so adjusted, the " Closing Payment "), by wire transfer of immediately available funds to an account designated in writing by Company.

(b)       At the Closing, Purchaser shall deposit with Bank of New York, as escrow agent (" Escrow Agent "), Eight Hundred Fifty Thousand Dollars ($850,000) plus any additional amount deposited pursuant to Section 2.7(e)(i) , or less any amount paid pursuant to Section 2.7(g) (the " Escrow Amount ") in immediately available funds to be held as the escrow fund (the " Escrow Fund ") pursuant to the Escrow Agreement among the Escrow Agent, Company, the Shareholders and Purchaser dated as of the date hereof (the " Escrow Agreement "), a copy of which is attached as Exhibit D hereto.  Amounts in the Escrow Fund may be used (i) to satisfy claims arising under this Agreement (including claims for indemnification pursuant to Article IX ) and (ii) to pay any amounts due to Purchaser under Section 6.3 .

(c)       The Purchase Price delivered to Company and the Escrow Agent in accordance with the terms hereof and Purchaser’s assumption of the Assumed Liabilities shall be deemed to be full payment for and in satisfaction of all rights in and pertaining to the Acquired Assets.

2.5.       Necessary Actions; Further Action .

(a)       Nothing in this Agreement or the Ancillary Agreements shall be construed as an agreement to assign any Acquired Asset that by its terms or pursuant to Applicable Law is not capable of being sold, assigned, transferred or delivered without the consent or waiver of a third party or Governmental Authority unless and until such consent or waiver shall be given.  Company and each Shareholder shall use its best efforts, and Purchaser shall cooperate reasonably with Company, to obtain such consents and waivers and to resolve the impediments to the sale, assignment, transfer or delivery contemplated by this Agreement or the Ancillary

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Agreements and to obtain any other consents and waivers necessary to convey to Purchaser all of the Acquired Assets.  Other than with respect to any Non-assumed Contract, in the event any such consents or waivers have not been obtained on or prior to the Closing Date, Company and each Shareholder shall use its best efforts to obtain the relevant consents or waivers until such consents or waivers are obtained, and Company and each Shareholder will cooperate with Purchaser in any lawful and economically feasible arrangement to provide that Purchaser shall receive the interest of Company in the benefits under any such Acquired Asset, including performance by Company, if economically feasible, as agent; provided that Purchaser shall undertake to pay or satisfy the corresponding liabilities for the enjoyment of such benefit to the extent Purchaser would have been responsible therefor hereunder if such consents or waivers had been obtained.  Nothing in this Section 2.5(a) shall affect Purchaser’s right to terminate this Agreement under Section 8.1(c) in the event that any consent or waiver as described herein is not obtained .

(b)       If any further action is necessary or desirable at any time before, at or after the Closing to carry out the purposes and intent of this Agreement and the Ancillary Agreements, and to vest in Purchaser all rights, title and interests in and to the Acquired Assets, Company and each Shareholder shall take all such necessary or desirable actions.  Without limiting the foregoing, Company and each Shareholder agrees to assist and cooperate with Purchaser in collecting, transferring, assigning, asserting or enforcing any claim, right or title of any kind in or to the Acquired Assets, and to do all such acts and things in relation thereto as Purchaser shall reasonably request.

(c)       If, following the Closing, the Company Board and the Shareholders vote to dissolve Company and a Person is appointed to dispose of Company’s assets, discharge its liabilities, and otherwise wind up its affairs in compliance with Applicable Law (such person, the " Liquidator "),  Company and the Shareholders shall instruct the Liquidator to (i) cause Company to perform its obligations under this Agreement and the Ancillary Agreements, including, without limitation, Company’s obligations under Sections 2.5 , 2.6 , 2.7 , 2.9 , 5.2 , 5.5 , 5.8 , 5.9 , 5.10 , 5.11 , 5.13 , 5.14 , 6.1 , 6.2 and 6.3 of this Agreement and (ii) take any actions requested by Purchaser to acknowledge and agree to the Liquidator’s responsibilities under this Section 2.5(c) to cause Company to perform its obligations under this Agreement and the Ancillary Agreements.  The Liquidator and the Shareholders shall be jointly and severally liable for causing Company to perform its obligations under this Agreement and the Ancillary Agreements.

2.6.       Purchase Price Allocation .

(a)       Within sixty (60) days after the Closing Date, Purchaser shall provide to Company a draft purchase price allocation (the " Price Allocation "), which shall be prepared in a manner consistent with Section 1060 of the Code and the regulations promulgated thereunder.  Purchaser and Company expect that the aggregate value allocable to furniture, fixtures and equipment in such Price Allocation shall be approximately $600,000.  Company shall propose to Purchaser any changes to the draft Price Allocation within thirty (30) days of the receipt thereof.   If any such changes are proposed, Company and Purchaser shall negotiate in good faith and shall use their reasonable efforts to agree upon the final Price Allocation.  Notwithstanding the foregoing, if Company and Purchaser cannot agree upon a final Price Allocation, Company and

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Purchaser covenant and agree to file and cause their respective Affiliates to file, all Tax Returns (including amended returns, claims for refund and those returns and forms required under Section 1060 of the Code and any applicable Treasury regulations) consistent with each of Company’s and Purchaser’s good faith allocations, unless otherwise required by law.  Company and Purchaser agree to act in accordance with the Price Allocation, if agreed to by both Company and Purchaser, or in accordance with their respective good faith allocations, if Company and Purchaser do not agree to the Price Allocation, for all purposes and agree not to take any position on any Tax Return inconsistent therewith, and to conduct any audit, Tax proceeding or Tax litigation relating thereon in a manner consistent therewith.

(b)       Any indemnification payment treated as an adjustment to the total consideration paid for the Acquired Assets under Section 9.2 shall be reflected as an adjustment to the consideration allocated to a specific asset, if any, giving rise to the adjustment and if any such adjustment does not relate to a specific asset, such adjustment shall be allocated among the Acquired Assets in accordance with the Price Allocation method provided in this Section 2.6 .

2.7.       Purchase Price Adjustment .

(a)       Inventory and Accounts Receivable Adjustment .  The Purchase Price shall be adjusted in accordance with Section 2.7(e) based on the difference between the Closing Date Inventory Amount and the Closing Date Accounts Receivable Amount.

(b)       Physical Inventory; Closing Date Inventory Statement .  Company will provide to Purchaser a full and complete listing of the Business Inventory no later than the start of business on the third Business Day immediately prior to the Closing Date.  Purchaser shall cause a third party to conduct a physical count of the Business Inventory on the third Business Day immediately prior to the Closing Date.  The Business Inventory shall be valued in accordance with Schedule 2.7(b) .  Purchaser shall, based on such physical count of the Business Inventory, then prepare or cause to be prepared, at Purchaser’s expense, a statement setting forth the Closing Date Inventory Amount (the " Closing Date Inventory Statement "), and a copy thereof shall be delivered by Purchaser to Company.  Purchaser and Company shall agree on the Closing Date Inventory Amount as set forth on the Closing Date Inventory Statement no later than one (1)  Business Day prior to the Closing Date.

(c)       Closing Date Statement .  Following the Closing, Purchaser shall prepare or cause to be prepared, at Purchaser’s expense, a statement setting forth the Closing Date Accounts Receivable Amount (together with the Closing Date Inventory Amount, the " Closing Date Statement "), and a copy of the Closing Date Statement, along with Purchaser’s calculation of any adjustment to the Purchase Price required pursuant to Section 2.7(e) , shall be delivered by Purchaser to Company within thirty (30) Business Days after the Closing Date.  Company and its Representatives shall cooperate fully with all Representatives of Purchaser in the preparation of the Closing Date Statement and, without limiting the generality of the foregoing, each such Representative shall be reasonably available during normal business hours to Purchaser upon reasonable prior request.  For purposes of reviewing the Closing Date Statement, Company shall have reasonable access to all data, schedules and work papers used by Purchaser in preparing the Closing Date Statement, and the employees and Representatives of Purchaser involved in preparing the Closing Date Statement.

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(d)       Resolution of Disputes .  The determination of the Closing Date Inventory Amount and the Closing Date Accounts Receivable Amount  shall become final and binding upon the parties on the thirtieth (30th) day following receipt of the Closing Date Statement by Company unless Company delivers written notice of its disagreement (a " Notice of Disagreement ") to Purchaser before such date.  Any Notice of Disagreement shall specify whether Company disagrees with the Closing Date Inventory Amount and/or the Closing Date Accounts Receivable Amount and the basis for such disagreement in reasonable detail.  Any item to which Company does not expressly object in the Notice of Disagreement shall be deemed to have been accepted by Company and shall become final and binding upon Company.  If a Notice of Disagreement is sent by Company, then Company and Purchaser shall seek in good faith to resolve in writing any differences which they may have with respect to any amount specified in the Notice of Disagreement within the twenty day period following receipt of the Notice of Disagreement.

(i)      If, at the end of such twenty (20) day period, Company and Purchaser have not reached agreement on the Closing Date Accounts Receivable Amount, the amounts that remain in dispute shall be recalculated by an independent public accounting firm selected by Purchaser (the " Independent Accountants "), acting as experts and not as arbitrators.  The Independent Accountants shall be authorized to resolve only those items remaining in dispute between the parties in accordance with the provisions of this Section 2.7 within the range of the difference between Purchaser’s position with respect thereto and Company’s position with respect thereto.  Company and Purchaser shall direct the Independent Accountants to deliver to Company and Purchaser, within twenty (20) days after being retained, a report setting forth each recalculation.  Any amounts so recalculated shall be final and binding on the parties hereto, and judgment thereon may be entered in any court having jurisdiction.  Company shall bear fifty percent of the fees and expenses of the Independent Accountants incurred under this Section 2.7(d) (which costs are not payable out of the Escrow Fund) and Purchaser shall bear fifty percent of the fees and expenses of the Independent Accountants incurred under this Section 2.7(d) .

(ii)     If, at the end of the twenty (20) day period referred to in Section 2.7(d) above, Company and Purchaser have not reached agreement on the Closing Date Inventory Amount, they shall refer their differences with respect to particular items of Inventory to a nationally recognized firm of personal property appraisers as shall be agreed in writing by Purchaser and Company (the " Independent Appraisers "), acting as experts and not as arbitrators.  The Independent Appraisers shall be authorized to resolve only those items remaining in dispute between the parties in accordance with the provisions of this Section 2.7(d) within the range of the difference between Purchaser’s position with respect thereto and Company’s position with respect thereto.  Company and Purchaser shall direct the Independent Appraisers to deliver to Company and Purchaser, within twenty (20) days after being retained, a report setting forth each recalculation.  Any amounts so recalculated shall be final and binding on the parties hereto, and judgment thereon may be entered in any court having jurisdiction.  Company shall bear fifty percent of the fees and expenses of the Independent Appraisers incurred under this Section 2.7(d) (which costs are not payable out of the Escrow Fund) and Purchaser shall bear fifty percent of the fees and expenses of the Independent Appraisers incurred under this Section 2.7(d) .

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(e)       Final Adjustment .  The Purchase Price shall be adjusted, upwards or downwards, as follows:

(i)      if the Closing Date Inventory Amount as finally determined pursuant to Section 2.7 is greater than the Closing Date Accounts Receivable Amount, the Purchase Price shall be adjusted upwards in an amount equal to the difference between the Closing Date Inventory Amount and the Closing Date Accounts Receivable Amount, and Purchaser shall pay ninety percent (90%) of such amount to Company and ten percent (10%) of such amount to the Escrow Agent for deposit into the Escrow Fund within five (5) Business Days after the date on which the Closing Date Inventory Amount and the Closing Date Accounts Receivable Amount are finally determined; and

(ii)     if the Closing Date Inventory Amount as finally determined pursuant to Section 2.7 is less than the Closing Date Accounts Receivable Amount, the Purchase Price shall be adjusted downwards in an amount equal to the difference between the Closing Date Inventory Amount and the Closing Date Accounts Receivable Amount,  and Company shall pay such amount to Purchaser within five (5) Business Days after final determination of the Closing Date Inventory Amount and Closing Date Accounts Receivable Amount.

(f)        Amounts to be paid pursuant to Section 2.7(e) shall bear interest from the Closing Date to the date of such payment at a rate equal to the prime rate in effect from time to time at Citibank, N.A. in New York, calculated on the basis of a year of 365 days and the number of days elapsed.

(g)       If the amount remaining in the Escrow Fund following the payment required under Section 2.7(e) is greater than ten percent (10%) of the Purchase Price as adjusted pursuant to this Section 2.7 , the Escrow Agent shall distribute to Company in accordance with the Escrow Agreement a portion of the Escrow Fund such that the amount remaining in the Escrow Fund is equal to ten percent (10%) of the Purchase Price, as adjusted pursuant to Section 2.7(e ).  The amount of the distribution required pursuant to this Section 2.7(g) , if any, shall be determined without regard to any claims made or pending against the Escrow Fund for indemnification in accordance with Section 6.3 or Article IX .

2.8.       Withholding Rights .  Purchaser shall be entitled to deduct and withhold from the Purchase Price otherwise payable pursuant to this Agreement such amounts as Purchaser is required to deduct and withhold with respect to the making of such payment under the Code, or any provision of Applicable Law.  To the extent that amounts are so withheld or paid over to or deposited with the relevant Governmental Authority by Purchaser, such amounts shall be treated for all purposes of this Agreement as having been paid to Company.

2.9.       Allocation of Taxes .  All state, county and local ad valorem and real or personal property Taxes on Acquired Assets (" Property Taxes ") shall be prorated between Purchaser and Company as of the Closing Date, computed by multiplying the amount of Property Taxes for the fiscal period for which the same are levied or assessed by a fraction, the numerator of which is the number of days in such fiscal period up to and including the Closing Date and the denominator of which is the number of days in such fiscal period.  In connection with such proration of Property Taxes, in the event that actual Property Tax figures are not available at the

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Closing Date, proration of Property Taxes shall be based upon the actual Property Taxes for the preceding fiscal year for which actual Property Tax figures are available, and a good faith estimate (based on facts currently available) of the Property Taxes payable with respect to the current fiscal year.

2.10.     Closing .  The sale and purchase of the Acquired Assets and the assumption of the Assumed Liabilities contemplated by this Agreement shall take place at a closing (the " Closing ") to be held at the offices of Gibson, Dunn & Crutcher LLP, 1050 Connecticut Avenue, N.W., Washington, DC 20036, at 10:00 A.M. local time on October 16, 2006, or at such other place or at such other time or on such other date as Purchaser and Company mutually may agree in writing.  The day on which the Closing takes place is referred to as the " Closing Date ."

2.11.     Deliveries by Company .

(a)       On or prior to the date hereof, Company has delivered to Purchaser copies of Schedule 1.1(h) and Schedule 3.13(f) , which have been prepared as if the date hereof was the Closing Date;

(b)       On the third Business Day prior to the Closing Date, Company shall deliver to Purchaser:

(i)      copies of Schedule 1.1(h) and Schedule 3.13(f) , which shall be prepared as of the Closing Date;

(ii)     a true, correct and complete list of the Accounts Receivable, including the aging thereof as of the third Business Day prior to the Closing Date; and

(iii)    a true and complete list of all Inventory as of the third Business Day prior to the Closing Date, the value thereof and the address at which such Inventory is located.

(c)       On or prior to the Closing Date, Company and the Shareholders, as appropriate, shall deliver, or cause to be delivered, to Purchaser the following:

(i)      the executed Escrow Agreement, Assignment and Assumption Agreement and Bill of Sale;

(ii)     a certificate executed by the Secretary of Company, dated as of the Closing Date, certifying as to (A) the Certificate of Incorporation and bylaws of Company; (B) resolutions adopted by the Company Board relating to the transactions contemplated by this Agreement and the Ancillary Agreements; (C) the good standing of Company in the State of Tennessee; (D) incumbency; and (E) specimen signatures of officers of Company executing this Agreement and the Ancillary Agreements;

(iii)    such bills of sale, instruments of transfer, assignment and conveyance and other instruments as Purchaser shall deem necessary or appropriate to convey, transfer and assign to Purchaser and effectively vest in Purchaser all right, title and interest in and to, and good and marketable title to, the Acquired Assets, free and clear of any Encumbrances, other

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than Permitted Encumbrances, including, without limitation, instruments of assignment of the Assumed Contracts and all necessary assignments of Business Intellectual Property to Purchaser;

(iv)    evidence satisfactory to Purchaser of the removal of Encumbrances, other than Permitted Encumbrances, on the Acquired Assets;

(v)     the opinion of Callister & Broberg, a Law Corporation, counsel for Company, dated as of the Closing Date, a copy of which is attached hereto as Exhibit E ;

(vi)    such keys, passwords, codes, lock and safe combinations and other similar items as Purchaser shall require to obtain immediate and full possession and control of the Acquired Assets;

(vii)   copies of all Material Consents;

(viii) all Business Records;

(ix)     executed Employment Agreements or consulting agreements between Purchaser and each of the persons listed in Schedule 1.1(d) ;

(x)      a duly executed certificate of an executive officer of Company certifying the fulfillment of the conditions set forth in Section 7.1(a) ; and

(xi)     such other documents and items as Purchaser reasonably requests.

2.12.     Deliveries by Purchaser .  On or prior to the Closing Date, Purchaser shall deliver, or cause to be delivered, to Company, the Escrow Agent or third parties, as applicable, the following:

(a)       the Closing Payment and the Escrow Amount;

(b)       the executed Escrow Agreement, Assignment and Assumption Agreement and Bill of Sale;

(c)       executed Employment Agreements; and

(d)       a duly executed certificate of an executive officer of Purchaser certifying the fulfillment of the conditions set forth in Section 7.2(a) .

• • ARTICLE III.

    REPRESENTATIONS AND WARRANTIES OF

    COMPANY AND SHAREHOLDERS

As a material inducement to Purchaser to enter into this Agreement, except as disclosed in the disclosure letter delivered to Purchaser by Company concurrently herewith (the " Company Disclosure Letter ") and except as provided herein, Company and each Shareholder jointly and severally make the following representations and warranties to Purchaser as of the date of this

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Agreement and as of the Closing Date.  Notwithstanding any other provision of this Agreement or the Company Disclosure Letter, each exception set forth in the Company Disclosure Letter will be deemed to qualify only those representations and warranties set forth in this Agreement that are specifically identified (by cross-reference or otherwise) in the Company Disclosure Letter as being qualified by such exception.  Unless otherwise specified, each reference in this Agreement to any numbered schedule is a reference to that numbered schedule which is included in the Company Disclosure Letter.

3.1.       Organization .

(a)       Company is duly organized and validly existing under the laws of the State of Tennessee with full corporate power and corporate authority to conduct the Business and its other businesses as each is presently being conducted and to own or lease, as applicable, its assets and properties.  Company is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction where the character of its properties owned or leased or the nature of its activities make such qualification necessary.  Copies of Company’s Charter (the " Certificate of Incorporation ") and the Company’s current bylaws, and all amendments thereto, have heretofore been delivered to Purchaser and are accurate and complete as of the Closing Date.

(b)       Other than shares of common stock, no par value per share, of Company (" Company Common Stock ") held by the Shareholders, no other equity securities of Company are issued and outstanding.    There are no outstanding options, warrants, rights, calls, commitments, conversion rights, rights of exchange, subscriptions, claims of any character, agreements, obligations, convertible or exchangeable securities or other plans or commitments, contingent or otherwise, relating to equity securities of Company; (ii) no equity securities of Company have been reserved for issuance for any purpose; and (iii) there are no outstanding or authorized stock appreciation, phantom stock, stock plans or similar rights with respect to Company.

(c)       Each Shareholder has good title to, and is the record holder and beneficial owner of, the Company Common Stock held by such Shareholder, free and clear of any Encumbrances and defects of title whatsoever.  Each Shareholder holds the amount of Company Common Stock set forth opposite his name on Schedule 3.1(c) .

3.2.       No Subsidiaries .  Company does not own or control, directly or indirectly, any Subsidiary, and, except as set forth on Schedule 3.2 , Company has no interest in any other corporation, limited liability company, partnership, trust, joint venture, association or other entity.

3.3.       Authorization .

(a)       Company has all necessary power and authority, and has taken all action necessary, to execute, deliver and perform this Agreement and the Ancillary Agreements to which it is or will be a party, to consummate the transactions contemplated hereby and thereby, and to perform its obligations hereunder and thereunder.  The execution and delivery of this Agreement and the Ancillary Agreements to which it is or will be a party by Company and the

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consummation by Company of the transactions contemplated hereby and thereby have been duly approved by the Company Board, which is a duly appointed and elected board of directors, and by the shareholders of Company in unanimity.  No other proceeding on the part of Company or its shareholders is necessary to authorize this Agreement and the Ancillary Agreements and the transactions contemplated hereby and thereby.  This Agreement has been duly executed and delivered by Company, and, upon execution and delivery of the Ancillary Agreements, this Agreement and the Ancillary Agreements to which Company is or will be a party will be, the legal, valid and binding obligations of Company, enforceable against Company in accordance with their respective terms, except as enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws affecting creditors’ rights generally and except insofar as the availability of equitable remedies may be limited by Applicable Law.

(b)       Each Shareholder has all necessary power and authority, and has taken all action necessary, to execute, deliver and perform this Agreement and the Ancillary Agreements to which it is or will be a party, to consummate the transactions contemplated hereby and thereby, and to perform its obligations hereunder and thereunder.  This Agreement has been duly executed and delivered by each Shareholder, and, upon execution and delivery of the Ancillary Agreements, this Agreement and the Ancillary Agreements to which Shareholder is or will be a party will be, the legal, valid and binding obligations of such Shareholder, enforceable against it in accordance with their respective terms, except as enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws affecting creditors’ rights generally.

3.4.       Title to Properties and Assets; Sufficiency of Assets .

(a)       Except as set forth on Schedule 3.4(a) , (i) Company has good and valid title to or, in the case of leased properties or properties held under license, a good and valid leasehold or license interest in, all of the Acquired Assets and (ii) Company holds title to each Acquired Asset which it purports to own, free and clear of any Encumbrances other than Permitted Encumbrances.

(b)       All items of tangible personal property with a value in excess of $5,000 included in the Acquired Assets are in good operating condition and repair and are adequate for the conduct of the Business in substantially the same manner as currently conducted.  Schedule 3.4(b) sets forth a true and complete list of each item of tangible personal property included in the Acquired Assets having a value in excess of $5,000; items in Schedule 3.4(b) denoted with an asterisk (*) are leased by Company.

(c)       The delivery to Buyer of the Bill of Sale will transfer to Buyer good and valid title to, or a license to use or a valid leasehold interest in, all of the Acquired Assets, free and clear of all Encumbrances (other than Permitted Encumbrances).

(d)       The Acquired Assets constitute and will constitute on the Closing Date all of the assets, property and rights, tangible or intangible, that are used or held for use by Company in the Business, other than the Excluded Assets, and that are necessary and sufficient for the conduct of the Business as currently conducted or as proposed to be conducted.

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3.5.       Real Property .  Schedule 3.5 sets forth a true and complete list of all real property leased by Company in respect of the Business (collectively, the " Real Property "), including the location of, and a brief description of the nature of the activities conducted on, such Real Property.  Company does not currently own and has not previously owned any real property.  Company does not lease any real property except as set forth on Schedule 3.5 .

3.6.       Financial Statements; Books and Records .

(a)       Company has delivered to Purchaser true and correct copies of the Financial Statements.  The Financial Statements (i) are correct and complete in all material respects, (ii) have been prepared in accordance with the books and records of Company, (iii) have been prepared in accordance with GAAP consistently applied throughout the periods covered thereby and (iv) fairly and accurately present the financial position of Company as of the respective dates thereof and the results of operations and changes in cash flows for the periods then ended, except as otherwise noted therein.  Specifically, but not by way of limitation, the Company Balance Sheet discloses all of the debts, liabilities and obligations of any nature of Company in respect of the Business, whether due or to become due, as of the date thereof to the extent such debts, liabilities and obligations are required to be disclosed in accordance with GAAP.

(b)       Company has made and kept (and given Purchaser access to) true, correct and complete books and records, which, in reasonable detail, accurately and fairly reflect the activities of Company.  Company’s books and records have been maintained in accordance with sound business practices, including the maintenance of a effective system of internal control over financial reporting.

3.7.       Liabilities .  Except (i) as disclosed in the Financial Statements as of and for the period ended July 31,2006 and the Company Balance Sheet; (ii) for liabilities incurred after July 31, 2006 in the Ordinary Course of Business that are not, individually or in the aggregate, material to the Business (none of which results from or relates to any breach of contract, tort, infringement or violation of Applicable Law); or (iii) for liabilities that have been discharged or paid in full, Company has not incurred any liabilities of any nature, including without limitation in respect of the Business or to which the Business may be subject, whether known or unknown, and whether accrued, absolute, contingent, matured, unmatured or other, including, without limitation, "off-balance sheet" liabilities.

3.8.       Absence of Certain Changes .  Since December 31, 2005, there has not been any change, effect, event, occurrence, state of facts or development known to Company that, individually or in the aggregate, has had or could reasonably be expected to have a Material Adverse Effect on Company or the Business.  Without limiting the generality of the foregoing, except as disclosed in Schedule 3.8 or except as contemplated hereby, since December 31, 2005:

(a)       Company has conducted the Business in the Ordinary Course of Business;

(b)       Company has not incurred any indebtedness for borrowed money or issued any debt securities or assumed, guaranteed or endorsed, or otherwise become responsible for, the obligations of any Person, or made any loans or advances, in each case affecting Company, the Business or the Acquired Assets or to which Company or the Business may be subject, or otherwise incurred any liability that would constitute an Assumed Liability, except in the ordinary course of business;

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(c)       there has not been any change in any method of accounting or accounting practice by Company, except for any such change required by reason of a change in GAAP and set forth on Schedule 3.8(c) ;

(d)       Company has not (i) granted any severance or termination pay to any Employee, (ii) entered into any employment, deferred compensation or other similar agreement with (or any amendment to any such existing agreement) any Employee, (iii) increased the benefits payable under any existing severance or termination pay policies or employment agreements, or (iv) increased the compensation, bonus or other benefits payable to Employees, in each case other than in the Ordinary Course of Business;

(e)       Company has not sold, transferred or disposed of any assets, properties or rights, including, without limitation, any Rights, other than in the Ordinary Course of Business;

(f)        Company has not entered into any joint venture, partnership, exclusive dealing, noncompetition or similar agreement with any Person;

(g)       Company has not made any loans or advances to any Person, other than ordinary advances to Employees for travel expenses;

(h)       Company has not made any declaration, setting aside or payment of any dividend or other distribution in respect of the capital stock of Company;

(i)        there has not been any damage, destruction or loss, whether or not covered by insurance, materially and adversely affecting the assets, properties, financial condition, operating results or prospects of Company or the Business;

(j)        there has not been any satisfaction or discharge of an Encumbrance or payment of any obligation by Company, except such a satisfaction, discharge or payment made in the Ordinary Course of Business that is not material to the assets, properties, financial condition, operating results or prospects of Company or the Business;

(k)       there has not been any write-down of the value of any asset or Inventory used or held for use in the Business or any write-off as uncollectible of any Accounts Receivable or any portion thereof of Company in respect of the Business;

(l)        Company has not made any change or amendment to an Assumed Contract, except for changes or amendments which are disclosed in this Agreement;

(m)      there has not been any creation or assumption by Company of any Encumbrance, other than Permitted Encumbrances, on any Acquired Asset;

(n)       Company has not canceled, compromised, waived or released any right or claim relating to the Business or the Acquired Assets;

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(o)       Company has not permitted the lapse of any existing policy of insurance;

(p)       Company has not permitted the lapse of any right relating to any Assumed Contract, Intellectual Property or any intangible asset used or held for use in connection with the Business;

(q)       Company has not accelerated the collection of or discounted any Receivables, delayed the payment of liabilities or deferred expenses, or otherwise increased cash on hand, except in the Ordinary Course of Business;

and

(r)        Company has not authorized or committed or agreed to take any of the actions described in subsections (a) through (q) of this Section 3.8 .

3.9.       Material Contracts .

(a)       Schedule 3.9(a)   sets forth a complete and accurate list of all written or oral contracts, agreements, consensual obligations, promises, undertakings, legally binding arrangements, options, leases, licenses, sales and purchase orders, warranties, guarantees, indentures, mortgages, commitments and other instruments of any kind (each a " Contract "), to which Company is a party or to which Company, or any of its properties, is otherwise bound, and that relates to Company or the Business as follows (each a " Material Contract " and, collectively, the " Material Contracts "):

(i)      each Contract of Company pursuant to which Company received (or was entitled to receive) or paid (or was purportedly obligated to pay) (A) in excess of $25,000 in the twelve (12) month period ended December 31, 2005, or (B) in excess of $12,500 in the six (6) month period ended June 30, 2006;

(ii)     each Contract that requires payment by or to Company after December 31, 2005 of more than $25,000;

(iii)    each Contract of Company relating to indebtedness for borrowed money, extension of credit or the deferred purchase price of property (whether incurred, assumed, guaranteed or secured by any asset) pursuant to which Company is obligated to make any future payment or payments, in the aggregate, in excess of $25,000;

(iv)    each Contract for the purchase or delivery of goods, or performance of Services, to Company or the Business;

(v)     each broker, distributor, dealer, manufacturer’s representative, franchise, agency, sales promotion, market research, marketing, consulting or advertising Contract;

(vi)    each Contract with a Related Party;

(vii)   each employment Contract;

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(viii)      each Contract that limits or purports to limit, the ability of Company or the Business to compete in any line of business or with any Person or in any geographic area or during any period of time, or that restricts the right of Company or the Business to purchase from any Person or to hire any Person;

(ix)         each Contract that requires Company to grant "most favored customer" status or any type of special discount rights to any other Person;

(x)          each Contract that requires a consent to or other action by any Person for, or will be subject to default, termination, repricing or other renegotiation or cancellation  because of, the transactions contemplated by this Agreement or the Ancillary Agreements, or otherwise contains a provision relating to "change of control", or that would prohibit or delay the consummation of the transactions contemplated by this Agreement or the Ancillary Agreements;

(xi)         each  fidelity or surety bond or completion bond;

(xii)        each Contract providing for liquidated damages upon failure to meet performance or quality milestones;

(xiii)       each lease of personal property;

(xiv)       each Contract providing for  indemnification to or from any Person with respect to liabilities relating to Company, the business or the Acquired Assets;

(xv)        each Contract containing confidentiality clauses;

(xvi)       each Contract relating in whole or in part to any Business Intellectual Property;

(xvii)      each Contract relating to capital expenditures and involving future payments in excess of $25,000;

(xviii)     each Contract for the purchase of raw materials or services, including any construction Contract, involving in excess of $25,000;

(xix)       each Contract relating to any joint venture or partnership, merger, asset or stock purchase or divestiture Contract;

(xx)        each Contract that results in any Person holding a power of attorney that relates to Company, the Business or the Acquired Assets;

(xxi)       each Contract relating to settlement of any administrative or judicial proceedings within the past five years;

(xxii)      each Contract with a Governmental Authority; and

(xxiii)     each other Contract, whether or not made in the Ordinary Course of Business that (A) involves a future or potential liability or receivable, as the case may be, in

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excess of $5,000 on an annual basis or in excess of $15,000 over the current Contract term, (B) has a term greater than one year and cannot be cancelled by Company without penalty or further payment and without more than 30 days’ notice or (C) is material to the business, operations, assets, financial condition, results of operations or prospects of Company or the Business, each taken as a whole.

(b)       Each Material Contract is in full force and effect, paid currently and has not been materially impaired by any acts or omissions of Company.  Except for those Material Contracts denoted with an asterisk (*) as set forth on Schedule 3.9(a) , no Material Contract requires the consent of any other contracting party to prevent a breach of, a Default under, or a termination, change in the terms or conditions or modification of, any Material Contract as a result of the consummation of the transactions contemplated hereby.  All of the Material Contracts are valid, binding and enforceable against Company in accordance with their terms, except as enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws affecting enforcement of creditors’ rights generally and except insofar as the availability of equitable remedies may be limited by Applicable Law.  Company has fulfilled, or taken all action reasonably necessary to enable it to fulfill when due, all of its material obligations under each of such Material Contracts.  Company is not in Default under any Material Contract.  To the Knowledge of Company, no other party is in Default under such Material Contracts and, to the Knowledge of Company, no event has occurred and no condition or state of facts exists which, with the passage of time or the giving of notice or both, would constitute such a Default and no written notice of any claim of Default has been given to Company.  Neither Company nor any Shareholder is aware of any intent by any party to any Material Contract to terminate or amend the terms thereof or to refuse to renew any such Material Contract upon expiration of its term.  Company is not currently paying liquidated damages in lieu of performance under any Material Contract.  Company has delivered to Purchaser true and complete copies of all Material Contracts and any amendments thereto.

3.10.     Compliance with Other Instruments; No Conflicts .

(a)       Company is not in any violation, breach or Default of (i) any term of its Certificate of Incorporation, bylaws or similar organizational documents or (ii) any provision of Applicable Law that is applicable to or binding upon Company, the Acquired Assets or the Assumed Liabilities.

(b)       The execution, delivery and performance by Company and the Shareholders of and compliance with this Agreement and the Ancillary Agreements and the consummation of the transactions contemplated hereby and thereby will not:

(i)      conflict with or violate the Certificate of Incorporation, bylaws or similar organizational documents of Company,

(ii)     conflict with or violate any Applicable Law applicable to Company, the Shareholders, the Business or any of the Acquired Assets or by which Company, the Shareholders, the Business or any of the Acquired Assets may be bound or affected;

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(iii)    result in any breach or violation of, constitute a default (or an event that, with notice or lapse of time or both, would become a default) under, require any consent of any Person pursuant to, give to others any right of termination, amendment, modification, acceleration of, give rise to any increased, accelerated or additional rights of any Person or otherwise adversely affect any rights of Company or the Business under, or result in the creation of any Encumbrance on any of the Acquired Assets pursuant to, any Material Contract.

3.11.     Taxes .

(a)       Definitions .  For purposes of this Agreement:

(i)      the term " Tax " (including with correlative meaning, the terms "Taxes" and "Taxable") means all U.S. federal, state, local, provincial, foreign or other taxes, customs, tariffs, imposts, levies, duties, government fees or other like assessments or charges of any kind, including, without limitation, all income, franchise, sales, use, ad valorem, transfer, license, recording, employment (including federal and state income tax withholding, backup withholding, FICA, FUTA or other payroll taxes), environmental, excise, severance, stamp, occupation, premium, prohibited transaction, property, value-added, net worth, or any other taxes and any interest, penalties and additions imposed with respect to such amounts; and

(ii)     the term " Tax Return " means all U.S. federal, state, local, provincial and foreign returns, declarations, claims for refunds, forms, statements, reports, schedules, information returns or similar statements or documents, and any amendments thereof (including, without limitation, any related or supporting information or schedule attached thereto) required to be filed with any Taxing authority in connection with the determination, assessment or collection of any Tax or Taxes.

(b)       Company has filed (or will file when due) all Tax Returns that are required to be filed in respect of the Acquired Assets or the Business, all such Tax Returns are accurate, and all Taxes with respect to such Tax Returns have been paid.  Company has paid all Taxes imposed with respect to the Acquired Assets, or otherwise payable by Company.

(c)       There are no liens for Taxes (other than for current Taxes not yet due and payable) upon the Acquired Assets and there are no grounds for the assertion or assessment of any Encumbrances against the Acquired Assets, or the Business in respect of any Taxes.  The transactions contemplated by this Agreement will not give rise to (i) the creation of any Encumbrances against the Acquired Assets or the Business in respect of any Taxes or (ii) the assertion of any additional Taxes against the Acquired Assets or the Business.

(d)       No claim has ever been made or threatened by a Tax authority in a jurisdiction where Company does not file Tax Returns that the Business is or may be subject to Taxes by that jurisdiction.  No Proceeding is pending or threatened by any Governmental Authority for any audit, examination, deficiency, assessment or collection from Company of any Taxes related to the Business, no unresolved claim for any deficiency, assessment or collection of any Taxes related to the Business has been asserted against Company and all resolved assessments of Taxes related to the Business have been paid.  No issues have been raised by the relevant taxing authorities on audit that are of a recurring nature and that would have an effect upon the Taxes of the Business.

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3.12.     Environmental Matters .  During the period that Company has owned or leased the Real Property, (a) there have been no disposals, releases or threatened releases of Hazardous Materials (as defined below) on, from or under the Real Property and (b) neither Company nor, to the Knowledge of Company, any third party, has used, generated, manufactured or stored on, under or about the Real Property or transported to or from the Real Property any Hazardous Materials, except to the extent not in violation of applicable Environmental Laws.  Company has no Knowledge of any presence, disposals, releases or threatened releases of Hazardous Materials on, from or under any of the Real Property, which may have occurred before Company took possession of any of the Real Property.  For purposes of this Agreement, the terms "disposal," "release" and "threatened release" shall have the definitions assigned thereto by the U.S. Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. Section 9601 et seq., as amended (" CERCLA ").  For the purposes of this Section 3.12 , " Hazardous Materials " shall mean any hazardous or toxic substance, material or waste which is regulated under, or defined as a "hazardous substance," "pollutant," "contaminant," "toxic chemical," "hazardous material," "toxic substance" or "hazardous chemical" under (i) CERCLA; (ii) the Emergency Planning and Community Right-to-Know Act, 42 U.S.C. Section 11001 et seq .; (iii) the U.S. Hazardous Materials Transportation A