Exhibit 10.1
EQUITY PURCHASE AGREEMENT
By and Among
L&W SUPPLY CORPORATION,
JOSEPH GEORGE ZUCCHERO,
JCSG HOLDINGS CORPORATION,
THE JOSEPH G. ZUCCHERO FAMILY TRUST
DATED SEPTEMBER 12, 1988,
and
THE ENTITIES LISTED ON EXHIBIT A-1 HERETO
Dated as of February 25, 2007

 

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TABLE OF CONTENTS

                                      Page ARTICLE I. PURCHASE AND SALE OF
SHARES     2  
 
    1.1     Purchase and Sale of Shares     2  
 
    1.2     Purchase Price     2  
 
    1.3     Closing Adjustments     3  
 
    1.4     Assignment of Rights     3  
 
    1.5     Phantom Stock and Other Bonus Arrangements     4  
 
    1.6     Release of Escrow     4   ARTICLE II. CLOSING     4  
 
    2.1     Closing Defined     4  
 
    2.2     Documents To Be Delivered By Sellers     5  
 
    2.3     Payment and Documents To Be Delivered By Buyer     7  
 
    2.4     Other Payments and Documents To Be Delivered     8   ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF SELLERS AND THE COMPANIES     9  
 
    3.1     General Representations and Warranties of Sellers and the Companies
    9  
 
    3.2     Environmental Representations, Warranties and Covenants     31  
 
    3.3     Employee Benefit Representations and Warranties     35  
 
    3.4     General     37   ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF BUYER
    37  
 
    4.1     Organization and Standing; Corporate Power and Authority     37  
 
    4.2     Conflicts; Defaults     37  
 
    4.3     Brokers, Finders and Agents; Transaction Costs     38  
 
    4.4     Litigation     38  
 
    4.5     Financial Ability     38  
 
    4.6     No Other Representations or Warranties     38   ARTICLE V.
CONDITIONS TO CLOSING     38  
 
    5.1     Conditions to Buyer’s Obligations     38  
 
    5.2     Conditions to Sellers’ Obligations     39  
 
    5.3     Conditions to Buyer’s and Sellers’ Obligations     40   ARTICLE VI.
COVENANTS OF COMPANIES AND SELLERS     40  

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TABLE OF CONTENTS
(continued)

                                      Page
 
    6.1     Conduct of Business     40  
 
    6.2     Disclosure Supplements     43  
 
    6.3     Closing     43  
 
    6.4     Accounts Receivable     44  
 
    6.5     No Shopping or Disclosure     44  
 
    6.6     Payment of Indebtedness; Releases     44  
 
    6.7     Encumbrances     44  
 
    6.8     Consents     44  
 
    6.9     Sellers Acknowledgement and Waiver     44  
 
    6.10     Retention Agreements     45  
 
    6.11     Customer and Supplier Relationships     45  
 
    6.12     Further Assurances     45   ARTICLE VII.CERTAIN ADDITIONAL
COVENANTS     46  
 
    7.1     Access to Records and Properties     46  
 
    7.2     Maintenance of and Access to Records     46  
 
    7.3     Public Announcements     46  
 
    7.4     Expenses     46  
 
    7.5     Cooperation in the Defense of Claims     46  
 
    7.6     Antitrust Filings     47  
 
    7.7     Tax Matters     47  
 
    7.8     Drilling; Environmental Investigations     53  
 
    7.9     Executive Bonus     53   ARTICLE VIII.TERMINATION     54  
 
    8.1     Termination     54  
 
    8.2     Effect of Termination     55   ARTICLE IX. INDEMNIFICATION     55  
 
    9.1     Indemnification by Buyer     55  
 
    9.2     Indemnification by Sellers     55  
 
    9.3     Certain Limitations on Claims for Indemnification     58  
 
    9.4     Notice of Claim; Right to Participate in and Defend Third Party
Claim     61  

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TABLE OF CONTENTS
(continued)

                                      Page
 
    9.5     Adjustment to Purchase Price     62  
 
    9.6     Exclusive Remedy     62  
 
    9.7     No Special Damages     62   ARTICLE X. MISCELLANEOUS     63  
 
    10.1     Amendments and Waivers     63  
 
    10.2     Entire Agreement     63  
 
    10.3     Governing Law     63  
 
    10.4     Notices     63  
 
    10.5     Counterparts     65  
 
    10.6     Assignment; Affiliates     65  
 
    10.7     Specific Performance     65  
 
    10.8     Arbitration     65  
 
    10.9     Third Parties     66  
 
    10.10     Headings     66  
 
    10.11     Gender and Number     66  
 
    10.12     Construction     66  
 
    10.13     Exhibits and Disclosure Schedules     67  
 
    10.14     Conflict of Interest     67  

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INDEX OF DEFINED TERMS
(continued)

              Page
AAA Rules
    66  
Accounting Principles
    3  
Accounts Receivable
    15  
Acquisition Proposal
    44  
Affiliate
    4  
Agreement
    1  
Allocation Schedules
    51  
Balance Sheet Date
    13  
Balance Sheets
    13  
Benefit Arrangement
    35  
Business
    2  
Buyer
    1  
CalPly
    1  
CalPly Balance Sheet
    12  
CalPly Nevada
    18  
CalPly Shares
    1  
CalPly Tax Adjustment
    49  
CERCLA
    32  
Change in Control Agreement
    4  
Closing
    5  
Closing Consents
    29  
Closing Date
    5  
COBRA
    36  
Code
    7  
Companies
    1  
Company Intellectual Property
    26  
Company Shares
    2  
Confidentiality Agreement
    64  
Consents
    29  
Consulting Agreement
    8  
Covered Remedial Action
    58  
Damages
    56  
Disclosure Schedule
    9  
DOJ
    6  
E Foam
    1  
E-Foam Balance Sheet
    13  
Employee Plan
    35  
Employees
    35  
Environment
    32  
Environmental Claim
    32  
Environmental Condition
    32  
Environmental Laws
    32  

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INDEX OF DEFINED TERMS
(continued)

              Page
Environmental Liability
    33  
Environmental Permits
    33  
Environmental Reports
    33  
Equipment Leases
    23  
ERISA
    35  
ERISA Affiliate
    37  
Escrow Agent
    3  
Escrow Agreement
    3  
Escrowed Funds
    3  
Facilities
    32  
Final S Corp Income Tax Return
    48  
Financial Statements
    12  
First Tax Allocation Schedule
    51  
Foam Agreement
    1  
Foam Shares
    1  
Former Shareholders
    1  
FTC
    6  
GAAP
    13  
Governmental Approvals
    33  
Governmental Authorities
    12  
Hazardous Material
    33  
H-S-R Act
    6  
Individual
    1  
Initial Payment
    3  
Interim Purchase Price
    3  
IRS
    7  
ISSCInc.
    18  
ISSCo
    18  
Laws
    26  
Leased Real Property
    18  
Leases
    18  
Liability
    33  
Liens
    2  
Litigation Conditions
    62  
Loan Agreement
    7  
Location
    25  
Loss Reduction Amount
    61  
Material Contracts
    22  
Material Interest
    23  
Minority Foam Shareholders
    1  
Minority Shares
    2  
Net Debt Limit
    3  
New Lease Agreements
    8  
Noncompetition Agreement
    8  

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INDEX OF DEFINED TERMS
(continued)

              Page
OSHA
    35  
Permits
    26  
Permitted Liens
    18  
Person
    4  
Pre-Closing Breach
    54  
Products
    2  
Purchase Price
    3  
Related Agreements
    11  
Related Party
    23  
Related Party Leases
    8  
Release
    34  
Remedial Action
    34  
Restructuring
    2  
Retention Agreement
    8  
S Corp
    27  
S Corp Tax Adjustment
    49  
Second Tax Allocation Schedule
    51  
Section 338(h)(10) Election
    48  
Section 338(h)(10) Tax
    48  
Seller Holdco
    1  
Seller Material Adverse Change
    39  
Seller Trust
    1  
Sellers
    1  
Seller’s Knowledge
    25  
Shares
    2  
SMRH
    5  
Southwest
    1  
Southwest Balance Sheet
    13  
Southwest Shares
    1  
Statement of Net Debt
    3  
Stockdale
    1  
Stockdale Agreement
    1  
Stockdale Balance Sheet
    13  
Stockdale Shareholder
    1  
Stockdale Shares
    1  
Tax
    28  
Tax Adjustment
    50  
Tax Adjustment Schedule
    50  
Tax Return
    28  
Taxable
    28  
Taxes
    28  
Taxing
    28  
Termination Date
    54  
Third Party Claim
    61  

vi

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INDEX OF DEFINED TERMS
(continued)

              Page
Threshold Amount
    60  
Transaction
    12  
Unaudited CalPly Balance Sheet
    13  
Unaudited Financial Statements
    13  
Unlimited Section
    59  
Warranty Costs
    30  

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EQUITY PURCHASE AGREEMENT
          THIS EQUITY PURCHASE AGREEMENT (this “Agreement”), dated as of
February 25, 2007, is by and among L&W Supply Corporation, a Delaware
corporation (“Buyer”), Joseph G. Zucchero, an individual resident in the State
of California (“Individual”), JCSG Holdings Corporation, a California
corporation (“Seller Holdco”), the Joseph G. Zucchero Family Trust dated
September 12, 1988 (“Seller Trust” and, together with Individual and Seller
Holdco, “Sellers” ), and each of the entities listed on Exhibit A-1 hereto
(collectively, the “Companies”).
W I T N E S S E T H:
          WHEREAS, Individual owns all of the issued and outstanding shares of
capital stock of Seller Holdco;
          WHEREAS, Individual is a trustee and beneficiary of Seller Trust;
          WHEREAS, Seller Trust owns all of the issued and outstanding shares of
capital stock of California Wholesale Material Supply, Inc., a California
corporation (“CalPly” and such shares, the "CalPly Shares”), and, pursuant to
the Restructuring (as hereinafter defined), will transfer such shares to Seller
Holdco prior to the Closing (as hereinafter defined);
          WHEREAS, Individual owns all of the issued and outstanding shares of
capital stock of E Foam Corp., a Nevada corporation (“E Foam” and such shares,
the “Foam Shares”), and Southwest Install and Rework, Inc., a Nevada corporation
(“Southwest” and such shares, the “Southwest Shares”);
          WHEREAS, prior to the date hereof, the individuals listed on
Exhibit A-2 hereto (the "Minority Foam Shareholders”) owned Foam Shares in the
amounts and until the times indicated on Exhibit A-3 hereto;
          WHEREAS, on December 22, 2006, as part of the Restructuring, all of
the Foam Shares then owned by the Minority Foam Shareholders were acquired by
Individual pursuant to an agreement between the Minority Foam Shareholders and
Individual (the “Foam Agreement”), a copy of which is attached as Exhibit B
hereto, all as indicated on Exhibit A-3 hereto, for the consideration set forth
therein;
          WHEREAS, Individual has entered into an agreement (the “Stockdale
Agreement”), a copy of which is attached as Exhibit C hereto, with the sole
shareholder of Stockdale Materials Co., Inc., a California corporation
(“Stockdale”), whose name appears on Exhibit A-2 hereto (the "Stockdale
Shareholder” and, together with the Foam Shareholders, the “Former
Shareholders”) to purchase all of the issued and outstanding shares of Stockdale
(the “Stockdale Shares” and, together with the Foam Shares previously owned by
the Minority Foam Shareholders, the “Minority Shares”) for the consideration set
forth therein;

 

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          WHEREAS, immediately prior to the Closing and pursuant to the
Restructuring, all of the Stockdale Shares will be purchased from the Stockdale
Shareholder by Individual pursuant to the Stockdale Agreement;
          WHEREAS, the planned or completed acquisitions by Individual or Seller
Holdco, as the case may be, of the Minority Shares and sales of such Minority
Shares by the Former Shareholders as set forth in these recitals are
collectively referred to herein as the “Restructuring”;
          WHEREAS, the Restructuring is an integral part of the Transaction (as
hereinafter defined);
          WHEREAS, the Companies carry on the business (the “Business”) of
selling, distributing and marketing drywall, metal studs, acoustical ceilings,
insulation, hollow metal and commercial interior doors, trim, access doors,
exterior insulation and finish systems, plaster, foam, lumber and similar
products (collectively, the “Products”), producing foam shapes and products,
providing turnkey door installation services and providing stocking services;
and
          WHEREAS, Sellers desire to sell to Buyer, and Buyer desires to
purchase from Sellers, all of the issued and outstanding shares of capital stock
of the Companies (the “Shares” and, other than Shares of the Companies issued in
the name of another Company, the “Company Shares”);
          NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter set forth and other good and valuable consideration had
and received, the parties hereto, on the basis of, and in reliance upon, the
representations, warranties, covenants, obligations and agreements set forth in
this Agreement, and upon the terms and subject to the conditions contained
herein, hereby agree as follows:
ARTICLE I. PURCHASE AND SALE OF SHARES
     1.1 Purchase and Sale of Shares. At the Closing, Sellers will sell, assign,
transfer and deliver to Buyer, and Buyer will purchase from Sellers, the Company
Shares, free from any encumbrance, charge, lien, claim (including any “adverse
claim” as such term is defined in the Uniform Commercial Code), option, call,
mortgage, pledge, security interest, right of first refusal, easement, covenant,
reservation, defect in title, encroachment or other restriction of any kind
(collectively, “Liens”) other than registration or similar restrictions on
transfer by Buyer existing under applicable federal or state securities laws.
     1.2 Purchase Price.
     (a) Subject to Section 1.3, the purchase price to be paid by Buyer for the
Company Shares will be Two Hundred Thirty Million Dollars ($230,000,000) (the
“Interim Purchase Price”), subject to adjustment pursuant to Section 1.3, and
will be payable in the manner described in Section 1.2(b).
     (b) Subject to Section 1.3, at the Closing, Buyer will deliver:

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     (i) to Individual, for the benefit of Sellers, Two Hundred Two Million
Dollars ($202,000,000) (the “Initial Payment”) in cash by wire transfer of
immediately available funds to an account designated in writing by Seller Holdco
at least two business days prior to the Closing; and
     (ii) to LaSalle Bank National Association, as escrow agent (the “Escrow
Agent”), Twenty-Eight Million Dollars ($28,000,000) (the “Escrowed Funds”), to
be held in an interest-bearing escrow account pursuant to the terms of the
Escrow Agreement substantially in the form attached hereto as Exhibit D (the
“Escrow Agreement”).
     1.3 Closing Adjustments. The Interim Purchase Price set forth in
Section 1.2 will be subject to adjustment on the Closing Date (as hereinafter
defined) as follows (and for all purposes subsequent to such adjustments the
Interim Purchase Price, as so adjusted, will be deemed to be the “Purchase
Price”):
     (a) Net Debt Adjustment.
     (i) On the Closing Date, Sellers will deliver to Buyer an unaudited
statement of net debt of the Companies presenting the amount of indebtedness of
the Companies and the amount of cash of the Companies as of the close of
business on the business day prior to the Closing Date (the “Statement of Net
Debt”), prepared (A) consistently with the Financial Statements (as hereinafter
defined) and (B) on the basis of and applying the accounting principles set
forth in Exhibit E hereto (the “Accounting Principles”).
     (ii) If the amount of indebtedness of the Companies, as reflected on the
Statement of Net Debt, is greater than an amount equal to the sum of (A) the
amount of cash of the Companies, as reflected on the Statement of Net Debt, and
(B) the Net Debt Limit, the deficiency will be deducted from the Interim
Purchase Price.
     (iii) For purposes of this Agreement, “Net Debt Limit” means $50,000,000.
     (b) Payment on Account of Adjustments. The amount of any decrease in the
Interim Purchase Price pursuant to this Section 1.3 will be deducted from the
Initial Payment.
     1.4 Assignment of Rights. Prior to the Closing, Buyer may elect to assign
all or part of its rights and obligations under this Agreement to an existing or
newly formed subsidiary or Affiliate (as hereinafter defined) of Buyer and to
cause such subsidiary or Affiliate, as the case may be, to exercise any or all
of the rights and perform any or all of the obligations of Buyer under this
Agreement, including, without limitation, the rights and obligations of Buyer to
acquire the Company Shares pursuant to this Article I; provided, however, that
no such assignment will otherwise vary or diminish any of the rights or
obligations of Buyer under this Agreement. For purposes of this Agreement,
“Affiliate” means any individual, corporation, limited liability company,
partnership, trust or other entity or organization (each a “Person” and

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collectively, “Persons”) that directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with, the
Person specified.
     1.5 Phantom Stock and Other Bonus Arrangements. Seller Holdco and CalPly
will enter into letter agreements substantially in the form attached as
Exhibit F-1 hereto (each a "Change in Control Agreement”) with the individuals
listed on Exhibit F-2 hereto granting each such individual the right to receive
the cash payments set forth therein as a result of the consummation of the
Transaction. As a condition to, and prior to receipt of any such payment, such
individual will execute a written acknowledgement (in substantially the form
attached to the Change in Control Agreement) that the amounts set forth in the
Change in the Control Agreement are the only amounts such individual is entitled
to receive in connection with or as a result of the consummation of the
Transaction and will waive his rights, if any, to amounts that may be payable by
the Companies in connection with the Transaction as a result of such
individual’s prior employment by the Companies or ownership of Shares of the
Companies. The parties acknowledge and agree that all payments due to such
individuals under the Change in Control Agreements will be paid directly by
Seller Holdco and not the Companies, and that the Companies will have no
obligations whatsoever with respect to such payments.
     1.6 Release of Escrow. In addition to any provision relating to the release
of Escrowed Funds (as defined in the Escrow Agreement) set forth in the Escrow
Agreement, if on the third anniversary of the Closing Date, the Escrow Amount
(as defined in the Escrow Agreement) is in excess of $7,000,000, that excess
amount will be released from the Escrowed Funds to Individual, on behalf of
Sellers, if Buyer reasonably determines in good faith that the total mix of the
facts presented or discovered and source of any pending or threatened Third
Party Claims (as defined in the Escrow Agreement) against the Companies relating
to any Environmental Liability (as hereinafter defined) could not reasonably be
expected to result in additional Third Party Claims which Buyer reasonably
determines could be significant relating to Environmental Liabilities being
brought against the Companies. For purposes of this Section 1.6, the amount of
Unresolved Claims (as defined in the Escrow Agreement) will be reasonably
determined by Buyer in good faith. Buyer will provide Individual with written
notice of its determination within five (5) business days after the third
anniversary of the Closing Date and if such determination results in such excess
amount to be released from the Escrowed Funds, Buyer and Sellers will execute
and deliver to the Escrow Agent joint written instructions providing for such
release to Individual, for the benefit of Sellers, of such excess amount within
three (3) business days of the date of Sellers’ notice referenced herein. Any
disputes regarding Buyer’s determination referenced above will be governed by
the laws of the State of (including, without limitation, the Delaware Voluntary
Alternative Dispute Resolutions Act), notwithstanding any choice of law
provision contained herein or elsewhere, and will be submitted to binding
arbitration to an arbitrator skilled in the subject matter of any dispute
hereunder mutually agreeable to Sellers and Buyer. Except as otherwise provided
in this Section 1.6, such arbitration will be conducted in accordance with the
provisions of Section 10.8.
ARTICLE II. CLOSING
     2.1 Closing Defined. As used in this Agreement, the “Closing” means the
time at which Sellers consummate the sale of the Company Shares to Buyer by
delivery of the certificates referred to in Section 2.2(a) and the other
documents referred to in Section 2.2,

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against delivery by Buyer of the Initial Payment as provided in Section 1.2, and
Sellers, Buyer and the other Persons referred to herein deliver the additional
payments and documents referred to in Sections 2.3 and 2.4. In the absence of
prior termination of this Agreement by Buyer or Sellers in accordance with
Article VIII, the Closing will take place at the offices of Sheppard, Mullin,
Richter & Hampton LLP, 333 South Hope Street, 48th Floor, Los Angeles,
California, no later than the third business day following satisfaction or
waiver of all conditions hereunder, including the expiration or early
termination of any applicable waiting period under the H-S-R Act (as hereinafter
defined) and any other applicable antitrust laws of any Governmental Authority
(as hereinafter defined), or at such other time and place and on such other day
as is mutually agreed upon in writing by Buyer and Sellers (the “Closing Date”).
     2.2 Documents To Be Delivered By Sellers. At the Closing, Sellers will
deliver to Buyer:
     (a) (i) Original certificates representing all of the Company Shares, duly
endorsed (or accompanied by appropriate stock powers duly endorsed) in blank by
the appropriate Seller, as registered holder thereof, for transfer, together
with such supporting documents, endorsements, assignments, affidavits, and other
good and sufficient instruments of sale and transfer, in form and substance
satisfactory to Buyer and its counsel, as are necessary to permit Buyer to
acquire the Company Shares free of any Lien other than registration or similar
restrictions on transfer by Buyer existing under applicable federal or state
securities laws;
     (ii) Original certificates representing all of the Shares of the Companies
issued in the name of another Company;
     (b) The original stock books, stock ledgers, minute books and corporate
seals of the Companies;
     (c) An opinion, dated as of the Closing Date, of Sheppard, Mullin, Richter
& Hampton LLP (“SMRH”), counsel for Sellers, addressed to Buyer and
substantially in the form attached as Exhibit G hereto or otherwise acceptable
to Buyer;
     (d) Certificates of existence in good standing (or equivalent) for Seller
Holdco and each of the Companies from the jurisdiction in which such entity is
incorporated or organized, each dated not more than 15 business days prior to
the Closing Date, together with fax or internet confirmation, if available, or,
if not, oral advice as to good standing as of the Closing Date from each of the
foregoing jurisdictions;
     (e) Certificates of existence in good standing (or equivalent) and
qualification to transact business as a foreign corporation (or similar
documents) for each of the Companies from each state or other jurisdiction in
which the failure to so qualify would reasonably be expected to result in a
Seller Material Adverse Change (as hereinafter defined), each dated not more
than 15 business days prior to the Closing Date, together with fax or internet
confirmation, if available, or, if not, oral advice as to good standing and
qualification to transaction business as a foreign corporation as of the Closing
Date from each of the foregoing jurisdictions;

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     (f) Resignations tendered by each of the directors and officers of each of
the Companies, and evidence of payment of any amounts required to be paid to
such directors and officers under applicable Law as a result of such
resignations;
     (g) The Articles of Incorporation, or similar organizational documents, of
Seller Holdco and each of the Companies, in each case certified by the Secretary
of State, or equivalent state entity, of Seller Holdco’s or such Company’s
jurisdiction of incorporation or organization, as applicable, which
certifications will each be dated not more than 15 business days prior to the
Closing Date;
     (h) Certified copies of the Bylaws, or similar organizational documents, of
Seller Holdco and each of the Companies, in each case certified by the Secretary
or Assistant Secretary (or other statutory representative) of Seller Holdco or
such Company as of the Closing Date;
     (i) A copy of (i) the resolutions of the Board of Directors (or equivalent
governing body) of Seller Holdco and each of the Companies authorizing and
approving the Restructuring, this Agreement and all other transactions and
agreements contemplated hereby and (ii) the resolutions of the equity holders of
Seller Holdco and each of the Companies authorizing and approving the
Restructuring, this Agreement and all other transactions and agreements
contemplated hereby, each certified by the Secretary or Assistant Secretary (or
other statutory representative) of Seller Holdco or the applicable Company as of
the Closing Date;
     (j) Copies of all Consents (as hereinafter defined) of Governmental
Authorities (as hereinafter defined) and Closing Consents (as hereinafter
defined);
     (k) Evidence of the due filing by the Companies with (i) the Federal Trade
Commission (“FTC”) and the Antitrust Division of the Department of Justice
(“DOJ”) pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976
(the “H-S-R Act”) and (ii) any other applicable Governmental Authority pursuant
to the antitrust laws of such Governmental Authority and of the satisfaction of
all conditions, including the expiration of any applicable waiting period,
thereunder;
     (l) The certificates and other documents required by Sections 5.1(g) and
(h);
     (m) A receipt from Sellers acknowledging receipt of the Initial Payment
delivered at Closing;
     (n) Copies of the documents and instruments evidencing the cancellation of
indebtedness, obligations, guarantees and liabilities, and release of the Liens,
required by Section 6.6;
     (o) Copies of the documents and instruments necessary to allow Buyer to
(i) pay, perform and discharge the indebtedness of the Companies under the Loan
and Security Agreement among CalPly, as borrower, the lenders signatory thereto
from time to time and Union Bank of California, N.A., as agent and a lender (the
“Loan

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Agreement”), and (ii) obtain or procure the release of any and all Liens or
claims relating to such indebtedness or otherwise affecting the assets and
properties of the Companies;
     (p) Any materials received or maintained by Sellers or any of the Companies
relating to any inquiries, contacts, proposals or offers described in
Section 6.5;
     (q) An affidavit from each Seller, dated as of the Closing Date, sworn
under penalty of perjury and in form and substance required under Treasury
Regulations issued pursuant to Section 1445 of the Internal Revenue Code of
1986, as amended (the “Code”), stating that such Seller is not a foreign person
within the meaning of Section 1445 of the Code;
     (r) Copies of the documents and instruments evidencing the acquisition by
(i) Individual of the Foam Shares and the Stockdale Shares and (ii) Seller
Holdco of the CalPly Shares, each as indicated on Exhibit A-3;
     (s) An aged listing by customer and by Company of the Accounts Receivable
(as hereinafter defined) of the Companies that are outstanding as of the date
that is four business days prior to the Closing Date, together with (i) a list
of any notes or other security relating thereto and (ii) an appropriate notation
on such aged listing of those Accounts Receivable for which no sales have been
made by any of the Companies to such customer during the six months preceding
the Closing Date;
     (t) The Statement of Net Debt;
     (u) A copy of (i) the “protective” S election filed for Seller Holdco;
(ii) the “qualified subchapter S subsidiary” election filed for CalPly; and
(iii) if received from the Internal Revenue Service (“IRS”), acknowledgment from
the IRS of the foregoing elections;
     (v) A copy of the application for relief submitted to the IRS under Rev.
Proc. 2003-43, 2003-1 C.B. 998, to rectify E Foam’s status as a validly electing
subchapter S corporation; and
     (w) Such other certificates, documents and instruments as Buyer may
reasonably request to evidence or facilitate the Transaction.
     2.3 Payment and Documents To Be Delivered By Buyer. At the Closing, Buyer
will deliver to Sellers:
     (a) The Initial Payment (which will be delivered to Individual, for the
benefit of Sellers, pursuant to Section 1.2(b)(i));
     (b) Evidence of the due filing by Buyer with (i) the FTC and the DOJ
pursuant to the H-S-R Act, and (ii) any other applicable Governmental Authority
pursuant to the antitrust laws of such Governmental Authority and of the
satisfaction of all conditions, including the expiration of any applicable
waiting period, thereunder;

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     (c) The certificates required by Section 5.2(d) and (e); and
     (d) Such other certificates, documents and instruments as Sellers may
reasonably request to evidence or facilitate the Transaction.
     2.4 Other Payments and Documents To Be Delivered. At the Closing:
     (a) Each of (i) the individuals listed on Schedule 2.4(a) under the caption
“Noncompetition Agreements” will execute and deliver a Noncompetition Agreement
with Buyer in substantially the forms attached as Exhibit H-1 hereto (for
Individual) and Exhibit H-2 hereto (for the other individuals listed on
Schedule 2.4(a) under the caption “Noncompetition Agreements”) (each, a
“Noncompetition Agreement”); (ii) the individual listed on Schedule 2.4(a) under
the caption “Consulting Agreements” will execute and deliver a Consulting
Agreement with Buyer in substantially the form attached as Exhibit H-3 hereto
(each, a “Consulting Agreement”); and (iii) the individuals listed on
Schedule 2.4(a) under the caption “Retention Incentive Bonus Agreements” will
execute and deliver a Retention Incentive Bonus Agreement with Buyer in
substantially the form attached as Exhibit H-4 hereto (each, a “Retention
Agreement”);
     (b) The Companies will execute and deliver a new agreement relating to each
Leased Real Property (as hereinafter defined) listed on Schedule 3.1(l) under
the caption “Related Party Leases” (collectively, the “Related Party Leases”)
substantially in the form attached as Exhibit I-1 hereto, and subject to the
terms for each such Related Party Lease set forth on Exhibit I-2 hereto
(collectively, the “New Lease Agreements”), which New Lease Agreements will
replace the leases listed on Schedule 3.1(l) with respect to such Leased Real
Property, and Sellers will provide Buyer with evidence satisfactory to Buyer
that the Leases (as hereinafter defined) with respect to such Leased Real
Property have been terminated; provided, however, that notwithstanding anything
contained in such Leases, in no event will Buyer or the Companies be required to
make any change of control, penalty or other similar payment in connection with
such termination;
     (c) Sellers, Buyer and the Escrow Agent will execute and deliver the Escrow
Agreement and Buyer will deliver the Escrowed Funds to the Escrow Agent;
     (d) The Escrow Agent will execute and deliver a receipt acknowledging
receipt of the Escrowed Funds delivered at Closing;
     (e) Sellers and Buyer will each execute and deliver a certificate showing
all sources and disbursements of funds in connection with the Closing;
     (f) Each individual listed on Schedule 1.5 will execute and deliver the
acknowledgement and waiver referenced in Section 1.5;
     (g) The spouse of Individual and each Former Shareholder will execute and
deliver a consent, in substantially the form attached as Exhibit J hereto,
whereby such spouse will consent to execution and delivery of this Agreement and
the Related Agreements to which such Person is a party and the performance of
the Transactions; and

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     (h) Seller Holdco, Individual, each Former Shareholder and each director
and officer of each of the Companies will execute and deliver a waiver, in
substantially the form attached as Exhibit K hereto, whereby such Person will
(i) release any claims or other Liens that such Person may have against Buyer,
Sellers or the Companies with respect to the Shares of the Companies and
(ii) acknowledge and agree that such Person has not made any claim for, and to
such Person’s knowledge there are no facts or circumstances that would
reasonably be expected to give rise to any claim in respect of, indemnification
or contribution from any of the Companies or their respective predecessors,
including any such rights arising under any constituent documents of any of the
Companies.
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF SELLERS
AND THE COMPANIES
     Except as set forth in the disclosure schedule, dated the date hereof,
delivered by the Companies and Sellers to Buyer herewith (the “Disclosure
Schedule”), Sellers and each of the Companies hereby jointly and severally
represent and warrant to Buyer, as of the date hereof and as of the Closing
Date, that:
     3.1 General Representations and Warranties of Sellers and the Companies.
     (a) Organization and Standing. Seller Holdco and each Company is a
corporation duly formed, validly existing and in good standing under the laws of
the jurisdiction of its organization, as set forth on Exhibit A-1 hereto, and
has all requisite corporate or similar power and authority to operate its
business, to own or lease its properties and assets, to carry on its business as
now being conducted, and to enter into and perform all agreements and
instruments to be entered into by Seller Holdco or such Company in connection
herewith, and to perform the obligations required to be performed by it
thereunder. Seller Trust has been duly and validly formed and is validly
existing under California law and Individual and Karen S. Zucchero, as trustees
of Seller Trust, have full power and authority to dispose of the CalPly Shares
on behalf of Seller Trust. Except as set forth on Exhibit A-4 hereto, no Seller
or Company has any subsidiary corporations, companies or other entities, or
owns, directly or indirectly, any equity interest in any other Person. Each
Company is qualified to do business and in good standing in each jurisdiction in
which the failure to so qualify would reasonably be expected to result in a
Seller Material Adverse Change.
     (b) Authorized Capital; Restructuring.
     (i) As of the date of this Agreement, (A) each Company has an authorized
capital consisting solely of such capital as is set forth on Exhibit A-2 hereto,
which Exhibit also sets forth the amount of issued Shares of each Company, and
each of Individual, Seller Trust and the Former Shareholder identified on such
Exhibit is the sole holder of record of such number of Company Shares as are set
forth next to such Person’s name on Exhibit A-2 except that the Foam Shares have
been transferred to Individual pursuant to the Foam Agreement and Individual is
the sole holder of record thereof, and such Persons are the sole

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beneficial owners of all Shares and (B) good, valid and marketable title to such
Shares is held by such Person, free and clear of all Liens other than
registration or similar restrictions on transfer by such Person under applicable
federal and securities laws.
     (ii) As of the date of this Agreement and as of the Closing Date, (A)
Individual is the sole holder of record and beneficial owner of all of the
capital stock of Seller Holdco; (B) no Shares of any Company are held in
treasury of any Company; (C) all of issued and outstanding Shares of each
Company are duly authorized, validly issued, fully paid and non-assessable, and
there are no other securities of such Company of any class issued, reserved for
issuance or outstanding; and (D) there are no outstanding or authorized
(1) options, offers, warrants, conversion rights, subscriptions, exchange rights
or agreements or rights of any kind to subscribe for or to purchase, or
commitments to issue (either formal or informal, firm or contingent), shares of
capital stock or other securities of any Company (whether debt, equity or a
combination thereof) or obligating any Company to grant, extend or enter into
any such agreement or commitment, (2) contractual obligations of any Company
(other than in connection with the Restructuring) to repurchase, redeem or
otherwise acquire any shares of capital stock or other securities of such
Company or (3) voting trusts, proxies or similar agreements or understandings
with respect to the voting of the capital stock or membership interests, as the
case may be, of any Company.
     (iii) Set forth on Exhibit A-3 hereto is a description of all redemptions,
acquisitions and other transactions constituting the Restructuring. Immediately
following the Restructuring, the authorized capital and the amount of issued and
authorized but unissued Shares of each Company will be as set forth on
Exhibit A-4 hereto. Sellers and all Former Shareholders have consented to the
Restructuring (and have not revoked or qualified any such consent), and no
Former Shareholder has any claim or other Lien against any Company, including
any claim or other Lien with respect to any right to dissent.
     (iv) As of the Closing Date, (A) each Seller will be the sole holder of
record of such Company Shares set forth on Exhibit A-4 hereto, and Sellers will
be the sole beneficial owners of all Shares, free and clear of all Liens other
than registration or similar restrictions on transfer by such Person under
applicable federal and securities laws and (B) the certificates and other
documents representing the Shares of the Companies to be delivered to Buyer at
the Closing, and the signatures on and endorsements of the Company Shares and
stock powers or powers of attorney delivered therewith, are valid and genuine.
     (c) Good Title to Buyer; Execution of Agreements. Upon delivery by Sellers
of the Company Shares to Buyer as herein contemplated, Buyer will acquire good,
valid and marketable title to, directly or indirectly, all of the issued and
outstanding Shares of each Company, free and clear of all Liens other than
registration or similar restrictions on transfer by Buyer existing under
applicable federal or state securities laws. This Agreement and all of the other
agreements and instruments entered into or to be entered

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into by any Seller or any of the Companies in connection herewith (including in
connection with the Restructuring) (collectively, the “Related Agreements”) have
been, or upon execution and delivery will be, duly authorized, executed and
delivered by, and constitute, or upon execution and delivery will constitute,
the valid, legal and binding obligations of, such Seller or Company, as the case
may be, enforceable against such Seller or Company, as the case may be, in
accordance with their respective terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation, fraudulent conveyance and
other similar Laws and principles of equity affecting creditors’ rights and
remedies generally.
     (d) Charter Documents. Sellers have delivered to Buyer copies of the
Articles of Incorporation and Bylaws, or similar organizational documents, of
each of the Companies and such documents are true, correct and complete and have
not been amended or modified in any respect from the forms of such documents
previously delivered to Buyer. Sellers have also delivered to Buyer copies of
the minute books containing the records of meetings of the equity holders,
boards of directors and any committees thereof, the stock certificate books and
the stock record books of each of the Companies. Such stock certificate books
and stock record books are true, correct and complete, and have not been amended
or modified in any respect from the forms of such documents delivered to Buyer.
Such minute books are true, correct and complete and reflect all material
corporate actions of such Company and correctly record all resolutions of each
of the Companies.
     (e) Capacity; Conflicts; Defaults.
     (i) Each Seller and each Company, as the case may be, has all requisite
power, authority and capacity to enter into and perform this Agreement and all
Related Agreements entered into or to be entered into by such Seller or Company
in connection herewith, and to perform the obligations required to be performed
by such Seller or Company hereunder and thereunder.
     (ii) None of the Companies is in violation of its Articles of
Incorporation, Bylaws or similar organizational document as such documents
currently exist or as such documents existed on the date or dates of any Related
Agreements entered into prior to the date hereof.
     (iii) Neither the execution and delivery of this Agreement and the Related
Agreements, nor the performance of the transactions contemplated hereby or
thereby (collectively, the “Transaction”), by Sellers or any of the Companies,
(A) has violated, conflicted with, or constituted a default under or will
violate, conflict with, or constitute a default under, as the case may be, any
of the terms of any of Seller Holdco’s, Seller Trust’s or the Companies’
Articles of Incorporation or Bylaws, or similar organizational documents, or has
violated or will violate, as the case may be, any order, judgment or decree,
relating to any Seller or any of the Companies, any of the Business or the
Shares of the Companies, or by which any Seller or any of the Companies, the
assets of any of the Companies, any Seller or such Shares of the Companies may
be bound, (B) has resulted or will

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result, as the case may be, in the creation or imposition of any Lien in favor
of any third Person upon any assets of any of the Companies or the Shares of the
Companies, (C) has violated or will violate, as the case may be, any Law (as
hereinafter defined) of the United States of America or any other nation, any
state or other political subdivision thereof, or any entity exercising
executive, legislative, judicial, quasi-judicial, regulatory or administrative
functions of government or any agency or department or subdivision of any
governmental authority, including the United States federal government or any
state, local or foreign government (collectively, “Governmental Authorities”)
applicable to any Seller or any of the Companies or (D) has required or will
require, as the case may be, on the part of any of the Companies any filing or
registration with, notification to, or authorization, consent or approval of,
any Governmental Authority.
     (iv) Neither the execution and delivery of this Agreement and the Related
Agreements, nor the performance of the Transaction, by Sellers or any of the
Companies has violated, conflicted with, or constituted a default under or will
violate, conflict with, or constitute a default under, any provisions of, or has
resulted in the acceleration, termination or cancellation of, or will give rise
to the right to accelerate, terminate or cancel, or has created or will create,
as the case may be, in any party the right to accelerate, terminate or modify,
or require any notice under, any obligation under any contract, indenture, deed
of trust, lease, agreement or other instrument, including without limitation the
Material Contracts (as hereinafter defined).
     (f) Financial Statements. Sellers have heretofore delivered to Buyer the
following financial statements (together with the notes, supplementary
information, schedules and exhibits thereto and the financial statements to be
delivered pursuant to Section 6.2(b)(i), the “Financial Statements”):
     (i) the (A) audited consolidated balance sheets of CalPly and subsidiary as
of March 31, 2006, together with the footnote disclosure related thereto
(collectively, the “CalPly Balance Sheet”), and (B) audited consolidated
statements of income and comprehensive income, statements of shareholder’s
equity and statements of cash flows of CalPly and subsidiary for the year ended
March 31, 2006, together with the footnote disclosure related thereto;
     (ii) the (A) unaudited statement of assets, liabilities and equity (income
tax basis) of E-Foam, Inc. as of December 31, 2006 (the “E-Foam Balance Sheet”)
and (B) the unaudited statement of revenue and expenses (income tax basis),
statement of accumulated deficit (income tax basis) and statement of general and
administrative expenses (income tax basis) of E-Foam, Inc. for the twelve months
ended December 31, 2006;
     (iii) the (A) unaudited balance sheet of Southwest Install and Rework, Inc.
as of December 31, 2006 (the “Southwest Balance Sheet”) and (B) the unaudited
statement of revenue and expenses, statement of accumulated deficit

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and statement of general and administrative expenses of Southwest Install and
Rework, Inc. for the twelve months ended December 31, 2006;
     (iv) the (A) unaudited balance sheet of Stockdale Materials Company Inc. as
of December 31, 2006 (the “Stockdale Balance Sheet” and (B) the unaudited
statement of profit and loss for the twelve months ended December 31, 2006; and
     (v) the unaudited consolidated balance sheets of CalPly and subsidiary as
of December 31, 2006 (the “Unaudited CalPly Balance Sheet” and together with the
CalPly Balance Sheet, the E-Foam Balance Sheet, the Southwest Balance Sheet and
the Stockdale Balance Sheet, the “Balance Sheets”) and the unaudited
consolidated statements of income and comprehensive income, statements of
shareholder’s equity and statements of cash flows of CalPly and subsidiary for
the nine months ended December 31, 2006 (the financial statements described in
subclauses (ii) through (v) being collectively referred to as the “Unaudited
Financial Statements”).
Each of the Financial Statements was prepared from the books and records kept by
the Companies and fairly presents in all material respects the financial
position of the Companies as of such dates, and the result of operations and
cash flows of the applicable Companies for the periods then ended in accordance
with accounting principles generally accepted in the United States (“GAAP”)
consistently applied (except to the extent modified by the Accounting
Principles), subject to (A) any exceptions to GAAP disclosed in the notes to the
Financial Statements and (B) in the case of the Unaudited Financial Statements,
normal recurring year-end adjustments and the absence of footnotes. Since
March 31, 2006 (the “Balance Sheet Date”), there has been no Seller Material
Adverse Change, nor has there been any event or condition of any character which
would reasonably be expected to result in a Seller Material Adverse Change in
the future. Schedule 3.1(f) sets forth a list of all (x) inventory purchased or
sold outside the ordinary course of business since October 31, 2006, (y) other
properties and assets (other than capital assets) in an amount in excess of
$50,000 in any single instance or $250,000 in the aggregate purchased or sold
since October 31, 2006, and (z) capital assets purchased since October 31, 2006
in an amount in excess of $100,000 in any single instance or $250,000 in the
aggregate. Such Schedule 3.1(f) and the Balance Sheets collectively reflect all
properties and assets, real, personal or mixed, which are currently used by the
Companies in the Business other than (x) inventory purchased or sold consistent
with past practice in the ordinary course of business since December 31, 2006,
(y) other properties and assets (other than capital assets) in an amount not in
excess of $50,000 in any single instance or $250,000 in the aggregate purchased
or sold since December 31, 2006, consistent with past practices and in the
ordinary course of business and (z) capital assets purchased since December 31,
2006 in an amount not in excess of $100,000 in any single instance or $250,000
in the aggregate. The Statement of Net Debt will be prepared in accordance with
GAAP from the books and records kept by the Companies and will be true and
correct in all respects as of the close of business on the business day prior to
the Closing Date. The Financial Statements reflect an

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adequate reserve established in accordance with GAAP for all Taxes (as
hereinafter defined) payable by the Companies for all Taxable periods and
portions thereof accrued through the respective dates of such Financial
Statements. Deficiencies for Taxes that have been proposed, asserted or assessed
against the Companies that have not been fully paid are fully reflected as a
Liability (as hereinafter defined) in the Financial Statements, except to the
extent such deficiencies are being contested and an adequate reserve therefor
has been established and is fully reflected in such Financial Statements in
accordance with GAAP.
     (g) Undisclosed Liabilities. To Seller’s Knowledge, none of the Companies
has any liabilities or obligations of any nature whatsoever, including any
liabilities arising out of any illegal or concealed conditions, whether
absolute, accrued, contingent or otherwise, and there is no basis for any
present or future action, suit, proceeding, hearing, investigation, charge,
complaint, claim or demand against it giving rise to any liability or
obligation, except for those (i) reflected or reserved on the Balance Sheets or
(ii) incurred or accrued since October 31, 2006 consistent with past practices
and in the ordinary course of business in transactions involving the purchase or
sale by the Companies of goods and services in amounts which do not exceed
$25,000 in any single instance or $250,000 in the aggregate or which do not
extend for a period of more than three months, and consistent with the
representations, warranties, covenants, obligations and agreements contained in
this Agreement. To the extent a liability or obligation is not disclosed on
Schedule 3.1(g) but would otherwise be required to be disclosed on the
Disclosure Schedules pursuant to the requirements of a representation or
warranty included in this Article III other than this Section 3.1(g) but for the
fact that such liability or obligation does not exceed a materiality or dollar
threshold set forth therein, such liability or obligation will not be deemed to
violate this Section 3.1(g).
     (h) Accounts Receivable. All Accounts Receivable of the Companies have been
reflected properly on the books and records of the Companies in accordance with
GAAP consistently applied and have been generated in the ordinary course of
business from bona fide transactions. Except to the extent of Accounts
Receivable with respect to which applicable reserves are set forth on the
Financial Statements, all Accounts Receivable of the Companies outstanding as of
the Closing Date are current. To Seller’s Knowledge, there is no right or claim
of any counterclaim or set-off against any Accounts Receivable currently
outstanding other than those occurring in the ordinary course of business. None
of the Companies has experienced or suffered undue delay in its payment of its
liabilities and obligations to its trade creditors (including suppliers) or
debt. For purposes of this Agreement, “Accounts Receivable” means, collectively,
all accounts receivable (including royalties receivable) of the Companies or
otherwise relating to the Business, any payments received with respect thereto
after the Closing Date, unpaid interest accrued on any such accounts receivable
and any security or collateral relating thereto.
     (i) Inventories. Except as set forth on Schedule 3.1(i), all of the
Companies’ inventories consist entirely of manufactured, purchased and finished
goods, and are of a quality and quantity usable or salable in the ordinary
course of business, and there are no damaged, defective, slow-moving or obsolete
items or items of below standard quality

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included therein, except for which adequate reserves have been provided in the
Financial Statements. The value at which each of the Companies’ inventories is
carried on the Financial Statements reflects the lower of cost or market on a
first-in, first-out basis, and the value of all such inventories reflects
write-offs or write-downs for damaged or obsolete items or items of below
standard quality consistent with the historical practices of the Companies.
     (j) Changes in Circumstances. Since the Balance Sheet Date, none of the
Companies, considered collectively, has:
     (i) sold, leased, transferred or assigned or otherwise disposed of any of
its material properties or assets, tangible or intangible, outside the ordinary
course of business;
     (ii) mortgaged, pledged or subjected to any Lien (other than Permitted
Liens), any of its properties or assets;
     (iii) acquired any properties or assets outside the ordinary course of
business;
     (iv) experienced or sustained any damage, loss or destruction of or to a
portion of its assets, properties or business (whether or not covered by
insurance) in excess of $50,000;
     (v) entered into any agreement, contract or transaction involving payments
in excess of $50,000 in any twelve-month period, except for ordinary course
purchases and sales of inventory and, subject to (xvii) below, equipment, or
otherwise conducted its Business other than in the ordinary and normal course
and consistent with past practices;
     (vi) granted any salary increase or bonus or permitted any advance to any
officer or director or to any Seller or Former Shareholder or granted any salary
increase to any other employee, except for such salary increases of not more
than $10,000 per year granted in the ordinary course of business, or entered
into any new, or altered, amended or terminated any existing, Employee Plan or
Benefit Arrangement (each as hereinafter defined);
     (vii) entered into any employment contract or collective bargaining
agreement, whether written or oral, or made any material change in employment
terms with any of its directors, officers or employees except for changes in
employment terms with employees in the ordinary course of business;
     (viii) issued any commercial paper or refinanced any existing borrowings,
whether or not in the ordinary course of business;
     (ix) paid any obligation or liability (fixed or contingent), other than
payments in the ordinary course of business and consistent with past practices
or in an amount not in excess of $100,000 in any single instance or $400,000 in
the

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aggregate for all Companies considered collectively, or discharged or satisfied
any Lien, or settled any claim, liability or suit brought against it or any of
its properties or assets;
     (x) entered into any new licenses or leases except in the ordinary course
of business and involving payment obligations of not more than $50,000 in any
twelve-month period;
     (xi) made any loans or issued any note, bond or other debt security, or
created, incurred, assumed or guaranteed any indebtedness for borrowed money or
capitalized lease obligation;
     (xii) modified, amended, cancelled or terminated any existing contracts or
commitments under circumstances which would reasonably be expected to result in
a Seller Material Adverse Change;
     (xiii) become or has been party to any agreements, contracts, leases or
licenses for which any counterparty has accelerated, modified or cancelled any
obligation thereunder involving an aggregate amount in excess of $25,000;
     (xiv) imposed or allowed to be imposed any security interest on any of its
properties or assets, tangible or intangible, other than purchase money security
interests with respect to inventory received in the ordinary course of business
for which payment has not yet been made and except for Permitted Liens (as
hereinafter defined);
     (xv) except as contemplated by the Restructuring, issued, sold, purchased,
redeemed, retired or otherwise disposed of or acquired (directly or indirectly)
any of its capital stock, or granted any options, warrants or other rights to
purchase or obtain (including upon conversion, exchange or exercise) any of its
capital stock;
     (xvi) declared, paid or set aside for payment or distribution, or became
obligated to declare, pay or set aside for payment or distribution, any
dividend, payment or other distribution in respect of its capital stock;
     (xvii) made any capital expenditures or commitments either outside the
ordinary course of business or involving an amount in excess of $100,000 in any
single instance or $250,000 in the aggregate;
     (xviii) written down the value of any inventory or written off as
uncollectible any notes or accounts receivable or any portion thereof, except in
the ordinary course of business;
     (xix) delayed or postponed the payments of accounts payable or the
liabilities of any of the Companies outside the ordinary course of business;

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     (xx) made or pledged to make any charitable or other capital contribution
either outside the ordinary course of business or involving an amount in excess
of $1,000 in any single instance or $10,000 in the aggregate;
     (xxi) canceled, compromised, waived or released any debts, rights or claims
outside the ordinary course of business;
     (xxii) made any change in any method of accounting or accounting practice;
     (xxiii) except for the New Lease Agreements and as contemplated by the
Restructuring, entered into any transaction with any Related Party (as
hereinafter defined) involving an aggregate amount in excess of $10,000 for all
Companies, considered collectively; or
     (xxiv) agreed to, or obligated itself to, do anything identified in
(i) through (xxiii) above.
          (k) Assets; Good Title.
     (i) The Companies own or lease all machinery, equipment and other tangible
assets necessary for or used in the conduct of the Business as presently
conducted, and, to Seller’s Knowledge, such assets and properties (including
without limitation the assets and properties reflected on the Financial
Statements and any improvements to real property) are in good operating
condition and repair (subject to normal wear and tear consistent with the age of
such properties or assets). The Companies are the only business organizations
through which the Business is or has been conducted. Each of the Companies has
good and marketable title to all properties and assets used to conduct the
Business or reflected on the Balance Sheets or acquired since the Balance Sheet
Date (except to the extent such assets and properties have been disposed of on
arm’s length terms in the ordinary course of business and consistent with past
practices since the Balance Sheet Date), free and clear of any and all Liens,
except (A) Liens for Taxes (as hereinafter defined) and assessments or
governmental charges or levies not yet due and payable, (B) Liens disclosed as
securing specified liabilities on the Financial Statements and notes thereto
with respect to which no default exists, (C) statutory or common law liens in
favor of carriers, warehousemen, mechanics and materialmen to secure claims for
labor, materials or supplies and other similar Liens and (D) Liens disclosed on
Schedule 3.1(k) under the caption “Permitted Liens” (the Liens described in
clauses (A) through (D) being collectively referred to herein as “Permitted
Liens”). Set forth on Schedule 3.1(k) is a true, correct and complete list of
all tooling, equipment and fixed assets used in the Business and valued in
excess of $10,000, whether located at the Companies or at their respective
customers or suppliers. None of the Companies owns any material amount of
marketable securities or other financial instruments other than pursuant to
ordinary course of business cash management. Except as set forth in the

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Financial Statements, none of the Companies owns any derivative instruments or
contracts.
     (ii) CalPly owns all of the assets and properties acquired by CalPly (or a
predecessor) from Interior Systems Supply Co., Inc., an Arizona corporation
(“ISSCo”), pursuant to the Stock Purchase Agreement, dated August 16, 1999,
between California Wholesale Material Supply, Inc., a Nevada corporation
(“CalPly Nevada”), ISSCo and ISSC, Inc., a Nevada corporation (“ISSCInc. ”),
free and clear of any and all Liens. No Seller or Company has any Liability to
any of the previous owners of CalPly Nevada, ISSCo or ISSCInc. with respect to
such assets or any capital stock or other equity interests of CalPly Nevada,
ISSCo or ISSCInc.
     (l) Real Property.
     (i) None of the Companies owns any real property.
     (ii) Set forth under the caption “Leased Real Property” on Schedule 3.1(l)
is a true, correct and complete list of:
     (A) each lease or similar agreement, including all amendments,
modifications, supplements, renewals, extensions and guarantees related thereto
(collectively, the “Leases”), under which any of the Companies is lessee of, or
holds, uses or operates any real property owned by any third Person (the “Leased
Real Property”);
     (B) the name and address of the landlord for such Lease;
     (C) the base rent and the amount of additional rent payable as of
January 31, 2007 under such Lease;
     (D) except as set forth on the face of such Lease, any rent escalations, if
any, under such Lease;
     (E) the amount of any tenant security deposit held by the landlord as of
January 31, 2007, if any, under such Lease;
     (F) except as set forth on the face of such Lease, the commencement and
expiration dates and any unexercised renewal or expansion rights under such
Lease; and
     (G) except as set forth on the face of such Lease, any right to purchase or
rights of first refusal granted under such Lease.
     (iii) The Related Party Leases are all of the Leases under which any of the
Companies is lessee of, or holds, uses or operates, any Leased Real Property
owned, directly or indirectly, by any Related Party. The Related Party Leases
are listed under the caption “Related Party Leases” on Schedule 3.1(l).

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     (iv) Set forth under the captions “Leasehold Improvements” on Schedule
3.1(l) is a true, correct and complete list of each leasehold improvement made
to any Leased Real Property since March 31, 2005 having a net book value in
excess of $10,000.
     (v) The Leased Real Property comprises all the real property used by the
Companies in the Business.
     (vi) Assuming good fee title is vested in the landlord, and subject to any
defects in or other matters affecting the landlord’s title, each of the
Companies has valid leasehold title in all Leased Real Property used by it, in
each case free and clear of all Liens, except Permitted Liens. With respect to
each Lease:
     (A) a true correct, and complete copy of such Lease has been previously
delivered to Buyer;
     (B) such Lease is legal, valid, binding and presently in full force and
effect;
     (C) none of the Companies nor, to Seller’s Knowledge, any other party to
such Lease is in breach or default, and no event has occurred which, with notice
or lapse of time or both, would constitute a breach or default or permit
termination, modification or acceleration thereunder;
     (D) none of the Companies nor, to Seller’s Knowledge, any other party to
such Lease has repudiated any provision thereof;
     (E) there are no disputes, oral agreements or forbearance programs in
effect as to such Lease;
     (F) none of the Companies has assigned, transferred, conveyed, mortgaged,
deeded in trust or encumbered any interest of such Company in the Leased Real
Property; and
     (G) to Seller’s Knowledge, the owners of the Leased Real Property have good
and marketable title to such Leased Real Property, free and clear of any Liens,
except Permitted Liens.
     (vii) All facilities located on the Leased Real Property have received all
approvals of Governmental Authorities (including licenses and Permits (as
hereinafter defined)) required to have been obtained by a Company in connection
with the operation thereof and have been operated and maintained in accordance
with applicable Laws.
     (viii) All facilities located on the Leased Real Property are supplied with
utilities and other services necessary for the operation of said facilities, and
such

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utilities and services are adequate to service the current normal operations of
such facilities.
     (ix) There are no pending or, to Seller’s Knowledge, threatened
condemnation proceedings, lawsuits, or administrative actions relating to the
Leased Real Property or other matters affecting materially and adversely the
current use or occupancy thereof.
     (x) To Seller’s Knowledge, the buildings and improvements are located
within the boundary lines of the described parcels of Leased Real Property, are
not in violation of applicable setback requirements, zoning laws and ordinances
(and none of the properties or buildings or improvements thereon are subject to
“permitted non-conforming use” or “permitted non-conforming structure”
classifications) and do not encroach on any easement which may burden the
occupant, and, to Seller’s Knowledge, the Leased Real Property does not serve
any adjoining property for any purpose inconsistent with the use of the Leased
Real Property and is not located within any flood plain or subject to any
similar type restriction for which any permits or licenses necessary to the use
thereof have not been obtained.
     (xi) There are no subleases, licenses, concessions or other agreements,
written or oral, from the Companies granting to any third party or parties the
right of use or occupancy of any portion of the Leased Real Property.
     (xii) Except as set forth in the Leases, there are no outstanding options
or rights of first refusal given to the Companies to purchase the Leased Real
Property, or any portion thereof or interest thereon.
     (xiii) To Seller’s Knowledge, there are no outstanding options or rights of
first refusal given to any Person other than the Companies to purchase the
Leased Real Property, or any portion thereof or interest therein, which
interfere with (or threaten to interfere with) the use of such Leased Real
Property by the Companies.
     (xiv) There are no parties (other than the Companies) in possession of the
Leased Real Property.
     (xv) To Seller’s Knowledge, there is no material defect in the condition
of, or physical damage to, the buildings, structures or other improvements
located on the Leased Real Property, or any portion thereof, which has not been
corrected or which will materially impair the operation of the Leased Real
Property.
     (m) Contracts. Set forth on Schedule 3.1(m) is a list or description of:
     (i) each license, contract, agreement, commitment or undertaking (whether
written or oral), or group of related licenses, contracts, agreements,
commitments or undertakings, currently in effect, (A) to which any of the
Companies is a party or by which any of their respective properties are bound

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which (1) involve aggregate future payments in excess of $100,000 in any
twelve-month period or (2) involve aggregate future payments in excess of
$25,000 and extend for a period of more than one year and are not terminable
without liability, penalty or premium or (B) between any of the Companies and
any distributors, customers, manufacturers’ agents or selling agents, or
pursuant to which any of the Companies sells or distributes its Products, other
than for purchases and sales of Products in the ordinary course of business and
consistent with past practices;
     (ii) each indenture, note, loan or credit agreement or other contract
relating to the borrowing of money (other than trade credit incurred in the
ordinary course of business) by any of the Companies or to the guarantee or
assumption by any of the Companies of the obligations of any other Person for
borrowed money;
     (iii) each mortgage, pledge, security agreement or other document granting
any Lien (including Liens upon properties acquired under conditional sales,
capital lease or other title retention or security devices) relating to any of
the Companies or the Business, or to which any of the Companies is a party;
     (iv) each joint venture, partnership or similar contract involving a
sharing of profits or expenses to which any of the Companies is a party;
     (v) each stock purchase agreement, asset purchase agreement or other
acquisition or divestiture agreement relating to the acquisition, sale, lease or
disposal of any material asset (other than sales of inventory in the ordinary
course of business) entered into since March 31, 2003, or which is either
pending or involves continuing indemnity, earn-out or other contractual,
including payment, obligations, and to which any of the Companies is a party or
has an obligation thereunder;
     (vi) each contract or other agreement presently in effect under which any
of the Companies has agreed to indemnify any party, other than in the ordinary
course of business and consistent with past practices;
     (vii) each contract, agreement, commitment or undertaking relating to
capital stock, bonds or other securities of any of the Companies;
     (viii) each power of attorney given by any of the Companies to any Person
that is currently effective and outstanding;
     (ix) each contract or other agreement concerning confidentiality, other
than those entered into in the ordinary course of business;
     (x) each noncompetition, restrictive covenant, exclusivity covenant or
other agreement that restricts any of the Companies from doing business anywhere
in the world;

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     (xi) each contract, agreement, commitment or arrangement between any of the
Companies, on the one hand, and any Related Party (including any other Company),
on the other hand;
     (xii) unless otherwise described in clause (xi), each contract, agreement,
commitment or undertaking presently in effect by any of the Companies with any
current or former officer, director, other employee (or group of employees) or
equity holder (or group of equity holders) of any of the Companies;
     (xiii) each contract, agreement, commitment or undertaking presently in
effect by any of the Companies with any consultant or independent contractor
that involves aggregate payments in an amount in excess of $50,000 per year;
     (xiv) each contract, agreement, commitment, undertaking or arrangement,
whether formal or informal, involving the payment by any of the Companies of
royalties in amounts in excess of $1,000 per year; and
     (xv) all other contracts, agreements, commitments or undertakings of any of
the Companies which are material to its condition (financial or otherwise),
results of operations, properties, assets, liabilities, business or prospects
(the items described in clauses (i) through (xv), together with the contracts
and agreements set forth on Schedule 3.1(r), are collectively referred to herein
as the “Material Contracts”).
With respect to each such Material Contract, Sellers have used their reasonable
efforts to reference on such Schedule 3.1(m) the applicable clause of this
Section 3.1(m) to which such Material Contract relates. True, correct and
complete copies of each Material Contract, as amended to date, and a written
summary setting forth the terms and conditions of each Material Contract that is
an oral agreement, have been delivered to Buyer. Each of the Companies has
performed all material obligations required to be performed by it to date under
the Material Contracts, and no Company nor, to Seller’s Knowledge, any other
party to any Material Contract has breached or improperly terminated any
Material Contract, or is in default under any Material Contract. To Seller’s
Knowledge, there exists no condition or event which, after notice or lapse of
time or both, would constitute any such breach, termination or default of any
Material Contract. Each of the Material Contracts is in full force and effect,
and is a legal, binding and enforceable obligation of or against the Company or
Companies party thereto and, to Seller’s Knowledge, the other parties thereto
and, to Seller’s Knowledge, no Material Contract will fail to be the legal,
binding and enforceable obligation of or against the parties thereto as a result
of the transactions contemplated by the Transaction. None of the Companies has
outstanding contracts with officers, employees, agents, consultants, advisors,
salesmen or sales representatives that are not cancelable by it on notice of
30 days or less and without liability, penalty or premium in excess of $25,000
in any single instance. None of the Companies has received any written notice of
the intention of any party to terminate any Material Contract or repudiate any
provision thereof. For purposes of this Agreement, (A) “Related Party” means
(1) any director, officer, trustee, beneficiary or equity holder of Seller
Holdco, Seller Trust or any of the Companies, or

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any Person in which such director, officer, trustee, beneficiary or equity
holder has any Material Interest, (2) Individual, any immediate family member
(as such term is used under Item 404 of Regulation S-K under the Securities Act
of 1933, as amended) of Individual or any Person in which Individual or any
immediate family member of Individual has any Material Interest, (3) any Former
Shareholder, any immediate family member of a Former Shareholder or any Person
in which any Former Shareholder or any immediate family member of a Former
Shareholder has a Material Interest, and (4) Seller Holdco, Seller Trust, any of
the Companies or their respective Affiliates; and (B) “Material Interest” means
direct or indirect beneficial ownership (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended) of voting securities or other
voting interests representing at least 10% of the outstanding voting power of a
Person or equity securities or other equity interests representing at least 10%
of the outstanding equity securities or equity interests in a Person.
     (n) Equipment Leases. Set forth on Schedule 3.1(n) is a true, correct and
complete list of all leases for all material equipment utilized by any of the
Companies in the conduct of the Business, including all material motor vehicles
and forklifts (the “Equipment Leases”), true, correct and complete copies of
which have previously been provided to Buyer. With respect to each Equipment
Lease:
     (i) the rates and rental payments under any Equipment Lease entered into
between any Company and a Related Party are fair and reasonable (or were, when
entered into, fair and reasonable);
     (ii) no Equipment Lease will fail to be the legal, valid, binding and
enforceable obligation of or against the Company or Companies party thereto or,
to Seller’s Knowledge, the other parties thereto immediately following
consummation of the Transaction;
     (iii) none of the Companies is in breach or default, and no event has
occurred which, with notice or lapse of time or both, would constitute a breach
or default by any of the Companies or permit termination, modification or
acceleration thereunder by any of the other parties thereto;
     (iv) none of the Companies nor, to Seller’s Knowledge, any other party to
such Equipment Lease has repudiated any provision thereof;
     (v) there are no disputes, oral agreements or forbearance programs in
effect as to such Equipment Lease;
     (vi) no Company has assigned, transferred, conveyed, mortgaged, deeded in
trust or encumbered any interest of such Company in the property leased under
such Equipment Lease;
     (vii) all equipment leased thereunder has been operated and maintained in
accordance with all applicable Laws;

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     (viii) the applicable Company is in possession of the equipment leased
thereunder; and
     (ix) to Seller’s Knowledge, such Equipment Lease is not subject to, and
does not relate to equipment that is the subject of, a sublease or a
pass-through lease.
     (o) Insurance. Set forth on Schedule 3.1(o) is a true, correct and complete
list of all insurance policies, including but not limited to policies providing
property, casualty and liability coverage, self-insurance policies, workers’
compensation coverage and bond and surety arrangements, to which any of the
Companies is or has been a party, a named insured or otherwise the beneficiary
of such coverage at any time within the past five years, true, correct and
complete copies of which have previously been provided to Buyer. With respect to
each such insurance policy, Schedule 3.1(o) provides a description of (i) any
retroactive premium adjustments or other loss-sharing arrangements and (ii) any
claims made under such policy within the last five years, except as to claims
based on any injury caused or alleged to have been caused by goods or materials
purchased or sold by any of the Companies that contained or were alleged to have
contained Hazardous Materials, for which this disclosure requirement has no time
limit. With respect to each such insurance policy: (A) the application and all
other required documentation with respect thereto have been properly prepared
and delivered to the insurer, and the information contained in such application
or other documentation is, or was at the time of delivery, true and correct;
(B) none of the Companies nor, to Seller’s Knowledge, any other party to such
policy is in breach or default (including with respect to the payment of
premiums or the giving of notices), and no event has occurred which, after
notice or lapse of time or both, would constitute a breach or default or permit
termination, modification or acceleration under such policy; and (C) no party to
such policy has repudiated any provision thereof.
     (p) Bank Accounts. Set forth on Schedule 3.1(p) is a true, correct and
complete list of all banks, brokerage firms and other financial institutions in
which any of the Companies, or with respect to the Business, any other Person
has accounts or safe deposit boxes (specifying the locations and identifying
numbers) and the names of all Persons authorized to draw thereon or have access
thereto.
     (q) Litigation. None of the Companies is subject to any order of, or
written agreement or memorandum of understanding with, any Governmental
Authority. There exists no litigation, action, suit, proceeding, hearing,
demand, investigation, charge or complaint pending or, to Seller’s Knowledge,
threatened against any of the Companies or the Business, including without
limitation claims for product warranty, product liability or other Liability or
obligation relating to products sold by any of the Companies, or which would
adversely affect the Transaction. To Seller’s Knowledge, no Person has
threatened or asserted any claims against any of the Companies which would
adversely affect the Transaction. Set forth on Schedule 3.1(q) is a description
of all litigation, actions, suits, proceedings, hearings, investigations,
charges, claims, complaints and demands asserted, brought or, to Seller’s
Knowledge, threatened against any of the Companies within the five years
preceding the date hereof (other than ordinary and

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normal course workers’ compensation claims involving immaterial liabilities),
together with a description of the outcome thereof. None of the matters set
forth on Schedule 3.1(q) would reasonably be expected to result in a Seller
Material Adverse Change. For purposes of this Agreement, “Seller’s Knowledge”
means the actual knowledge of the Persons listed on Exhibit L hereto.
     (r) Customers and Suppliers. None of the Companies is involved in any claim
or controversy with any of its customers or suppliers that would reasonably be
expected to result in a Seller Material Adverse Change. Set forth on
Schedule 3.1(r) is a complete list of (i) the ten largest dollar-volume
customers at each of the locations where customers are served and Products are
stored (each, a “Location”), (ii) the ten largest dollar-volume suppliers at
each Location, in each case as of the twelve-month period ended December 31,
2006 and (iii) each current written contract or agreement (other than purchases
and sales in the ordinary course of business and consistent with past practices)
between the Company and (A) the 25 largest dollar-volume customers of the
Companies, taken as a whole, and (B) the ten largest dollar-volume suppliers of
the Companies, taken as a whole, in each case for the twelve-month period ended
December 31, 2006. None of the Companies has been advised in writing by any
customer or supplier listed on Schedule 3.1(r) that such customer or supplier
has plans to terminate its relationship with any of the Companies or would not
use any of the Companies’ services in the future. To Seller’s Knowledge, no
supplier or customer relationship will be terminated as a result of the
Transaction. All business placed by any officer or employee of any of the
Companies has been placed in the name of one or more of the Companies and all
amounts payable on such business have been paid to and are the property of the
Companies.
     (s) Regulatory and Legal Compliance. Each of the Companies has complied in
all material respects with all laws, statutes, rules, regulations, judgments,
decrees, orders, ordinance, regulation, arbitration awards, grants, franchises,
permits and licenses or other legally enforceable requirements of or by any
Governmental Authority (including without limitation zoning ordinances, building
codes and civil rights laws) (collectively, “Laws”) applicable to it and to the
conduct of the Business, and, to Seller’s Knowledge, no material expenditures
(except expenditures in the ordinary course of business and consistent with past
practices (with respect to both timing and amount)) are or will be required by
any of the Companies to comply with any Laws. None of the Companies is in
default under, and no event has occurred which, with the lapse of time or action
by a third party, would reasonably be expected to result in default under, the
terms of any judgment, decree, order or writ of any Governmental Authority,
whether at law or in equity, issued or entered against any of the Companies.
     (t) Brokers, Finders and Agents; Transaction Costs. No agent, broker,
investment banker, financial advisor or other firm or Person engaged by any
Seller or any of the Companies is or will be entitled to any brokers’ or
finders’ fee or any other commission or similar fee in connection with the
Transaction.
     (u) Company Intellectual Property. Set forth on Schedule 3.1(u) is a true,
correct and complete list of all material patents, trademarks (whether
registered or unregistered), service marks, trade names, service names, brand
names, logos, copyrights,

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web addresses, web sites and domain names owned or used by each of the Companies
(collectively, the “Company Intellectual Property”). Each of the Companies owns
or has the right to use such Company Intellectual Property in connection with
the operation and conduct of the Business. Each item of Company Intellectual
Property owned or used by the Companies as of the date hereof and any other
Company Intellectual Property owned or used by the Companies immediately prior
to the Closing will be owned or available for use by such Companies on identical
terms and conditions immediately following the Closing. Other than the Company
Intellectual Property, none of the Companies owns or uses any other intellectual
property, other than validly licensed or public domain software and the
trademarks of its suppliers. None of the Companies has interfered with,
infringed upon or misappropriated any intellectual property rights of third
Persons. Neither Sellers nor any of the Companies has ever received any charge,
complaint, claim, demand or notice alleging any such interference, infringement,
misappropriation or violation. To Seller’s Knowledge, no third Person has
interfered with, infringed upon, misappropriated or otherwise come into conflict
with any such rights of any of the Companies. None of the Companies has agreed
to indemnify any Person for or against any interference, infringement,
misappropriation or other conflict with respect to any item of Company
Intellectual Property. Use of the Company Intellectual Property will not
interfere with, infringe upon, misappropriate or otherwise come into conflict
with any intellectual property rights of third Persons as a result of the
continued operation of the Business of the Companies as presently conducted.
     (v) Permits. Each of the Companies has, and is in material compliance with,
all material permits, permissions, grants, orders, registrations,
authorizations, exemptions, approvals, licenses, registrations, variances,
waivers, consents or similar rights or privileges (“Permits”) which are
necessary or required for the operation of its Business as currently operated
and its present activities on the Leased Real Property, all of which Permits are
in full force and effect. Schedule 3.1(v) lists all such Permits existing as of
the date hereof.
     (w) Employees; Employee Relations; Collective Bargaining Agreements. Set
forth on Schedule 3.1(w) is a complete list of: (i) all employees of each of the
Companies as of December 31, 2006, including total compensation (such as
salaries, bonuses and commissions) for each such employee for the preceding
twelve months; (ii) all present or former employees of any of the Companies who
have terminated or given notice of their intention to terminate their employment
during the twelve months ending on December 31, 2006; and (iii) any increase
during the twelve months ending on December 31, 2006 in the rate of compensation
of any employee (other than immaterial increases made in the ordinary course of
business and consistent with past practices). There have been no material
changes to the information set forth on Schedule 3.1(w) since the dates
indicated therein. All employees of the Companies are employees at will. There
are no material claims pending or, to Seller’s Knowledge, threatened between any
of the Companies and any representative of their respective employees. Each of
the Companies has complied and is complying in all material respects with all
Laws relating to the employment of labor, including without limitation any
provision thereof relating to wages, hours, collective bargaining, employee
health, safety, insurance and welfare and the payment of social security and
similar taxes. None of the Companies has experienced any material

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labor difficulties, including without limitation strikes and work stoppages,
within the three years preceding the date hereof. There is no labor strike,
dispute, stoppage or lockout pending or, to Seller’s Knowledge, threatened
against any of the Companies. Except as set forth on Schedule 3.1(w), none of
the Companies is a party to, or bound by, any collective bargaining agreement,
contract or other agreement or understanding with a labor union or labor
organization. There exists no current union organizational effort with respect
to any of the Companies’ non-union employees. To Seller’s Knowledge, no
executive, key employee or group of key employees has any plans to terminate
employment with any of the Companies. There is no unfair labor practice or labor
arbitration proceeding pending or, to Seller’s Knowledge, threatened against any
of the Companies.
     (x) Taxes. Each of the Companies indicated on Schedule 3.1(x) as being an
“S Corp” (each an “S Corp” and collectively, the “S Corps”) is and has been a
validly electing S corporation within the meaning of Sections 1361 and 1362 of
the Code from and after the dates indicated on such Schedule 3.1(x). Each of the
Companies indicated on Schedule 3.1(x) as being a “Qsub” (each a “Qsub”) is and
has been a validly electing qualified subchapter S subsidiary within the meaning
of Section 1361(b)(3)(B) of the Code from and after the date indicated on such
Schedule 3.1(x) and immediately prior to becoming a Qsub was a validly electing
S corporation within the meaning of Sections 1361 and 1362 of the Code from and
after the dates indicated on such Schedule 3.1(x). Each of the Companies has
timely filed all Tax Returns required to be filed by it with the appropriate
Governmental Authority and all such Tax Returns are true, correct and complete
in all material respects. Each of the Companies has timely paid all Taxes due,
except such Taxes, if any, being contested in good faith. All deficiencies for
any Taxes that have been proposed, asserted, or assessed against the Companies
have been fully paid. Each of the Companies has withheld and paid all Taxes
required to have been withheld and paid in connection with amounts paid or owing
to any employee, independent contractor, creditor, shareholder or other third
party. None of the Companies is subject to any agreement, waiver or other
arrangement extending the period for assessment or collection of any Taxes. None
of the Companies is a party to any action or proceeding for the assessment or
collection of any Taxes, nor is any such action or proceeding threatened, and no
deficiency notices or reports have been received by any of the Companies in
respect of any Tax. None of the Companies is a party to or bound by any Tax
sharing or allocation agreement. There are no Liens with respect to Taxes (other
than Taxes not yet due and payable) on any of the assets or properties of any of
the Companies. No claim has ever been made by a Taxing authority in a
jurisdiction in which any of the Companies has never filed a Tax Return that
such Company is or may be subject to taxation by that jurisdiction. None of the
Companies (i) is, or has been, a member of an affiliated, consolidated, combined
or unitary group (other than a group the common parent of which was CalPly), or
(ii) has any Liability for the Taxes of any other Person under Treasury
Regulation Section 1.1502-6 (or any similar provision of state, local or foreign
law), or as a transferee or successor, or by contract or otherwise (other than
with respect to other members of the affiliated group of which CalPly is the
parent). None of the Companies will be denied a deduction pursuant to
Section 280G of the Code as a result of the Transaction. None of the Companies
is or will be required to include any amount in its gross income or exclude any
amount of its deductions in any Taxable

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period ending after the Closing Date by reason of a change in accounting method
in any Taxable period ending on or before the Closing Date. The Restructuring
will not adversely impact any S Corp’s eligibility to be a validly electing S
corporation within the meaning of Sections 1361 and 1362 of the Code. The term
“Tax” (including, with correlative meaning, the terms “Taxes,” “Taxable” and
“Taxing”) means all United States or foreign federal, state, local net income,
gross income, profits, franchise, gross receipts, payroll, sales, employment,
use, occupation, license, value added, property, ad valorem, withholding,
excise, user, fuel, excess or windfall profits, alternative or add-on minimum,
gains, transfer (including without limitation real property transfer taxes),
documentary, stamp, built-in gains and other taxes of any kind whatsoever,
together with all interest, penalties, fines and additions to tax or other
amounts imposed with respect thereto. The term “Tax Return” means any return,
report, statement, election, information return or other document (including
schedules or any related or supporting information) filed or required to be
filed with any Governmental Authority in connection with the determination,
assessment or collection of any Tax or the administration of any Laws relating
to any Tax.
     (y) Product Warranties; Product Liability.
     (i) Except for written product warranties made by the Companies on any
sales records used within the last five years, true, accurate and complete
copies of which heretofore have been provided to Buyer by Sellers, none of the
Companies has created or granted any express product warranties or guarantees in
connection with the installation, assembly, sale, lease or delivery of its
Products. None of the Companies or any Seller has received any notice and, to
Seller’s Knowledge, there is no claim that any of the Companies has any
Liability with respect to the return of, or failure to properly install,
Products other than in the ordinary course of business and consistent with past
practices. Since January 1, 2001, there has not been, nor is there under
consideration or investigation by any of the Companies or any Seller, any
recall, rework, retrofit or post-sale warning concerning any Product. Except for
returns and repairs of Products by customers in the ordinary course of business
and consistent with past practices, each Product installed, assembled, sold,
leased or delivered by the Companies has been in conformity in all material
respects with all applicable contractual commitments and regulatory requirements
and all express and implied warranties, and, to Seller’s Knowledge, none of the
Companies has any material Liability, and there is no reasonable basis for any
present or future action, suit, proceeding, hearing, investigation, charge,
complaint, claim or demand against any of the Companies giving rise to any
Liability, for replacement or repair thereof or other damages in connection
therewith.
     (ii) None of the Companies has any Liability, and, to Seller’s Knowledge,
there is no reasonable basis for any present or future action, suit, proceeding,
hearing, investigation, charge, complaint, claim or demand against any of the
Companies giving rise to any Liability, arising out of any injury to any
individuals or property as a result of the ownership, possession or use of any
Product installed, assembled, sold, leased or delivered by any of the Companies.

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     (z) Consents and Approvals. Set forth on Schedule 3.1(z) is a true, correct
and complete list of all notices, consents, novations, approvals,
authorizations, waivers and other requirements which must be given, obtained or
satisfied by Sellers or any of the Companies for consummation of the
Transaction, including without limitation all notices, consents, novations,
approvals, authorizations, waivers or other requirements which must be given,
obtained or satisfied for the indirect transfer or deemed transfer or assignment
of any of the Companies’ assets, including orders, contracts, agreements,
leases, commitments, licenses, franchises, Permits, authorizations or
concessions which are non-assignable or non-transferable or cannot be subleased
to Buyer, or non-assignable or non-transferable or cannot be subleased without
the consent of some other Person, or are otherwise subject to change-in-control
restrictions (collectively, “Consents”). No consent, novation, approval, filing
or authorization is required to be obtained or satisfied for the continued
performance by any of the Companies of any Material Contract except for the
consents marked with an “*” on Schedule 3.1(z) (the “Closing Consents”).
     (aa) Absence of Certain Commercial Practices. No Seller, Company, Former
Shareholder or officer, director, employee, trustee, agent or representative of
any of the foregoing, nor any Person acting on behalf of any of the foregoing,
has given or agreed to give (i) any gift or similar benefit of more than nominal
value to any customer, supplier, Governmental Authority (including any
governmental employee or official) or any other Person who is or may be in a
position to help, hinder or assist any of the Companies, the Business or the
Person giving such gift or benefit in connection with any actual or proposed
transaction relating to any of the Business, which gifts or similar benefits
would individually or in the aggregate subject any of the Companies or any
officer, director, employee, agent or representative of any of the Companies to
any fine or penalty or to any criminal sanctions; (ii) illegal receipts from or
payments to any governmental officials or employees; (iii) bribes or kick-backs;
(iv) illegal political contributions; or (v) any receipts or disbursements in
connection with any unlawful boycott. No such gift or benefit is required in
connection with the current operation of the Business to avoid any fine,
penalty, cost, expense or Seller Material Adverse Change.
     (bb) Books and Records. The books and records of each of the Companies
maintained in connection with the Business (including without limitation
(i) books and records relating to the purchase of materials and supplies,
manufacture or processing of products, sales of products, dealings with
customers, invoices, customer lists, government procurements, inventories,
supplier lists, personnel records and taxes, (ii) the stock books, stock ledgers
and minute books of each of the Companies, and (iii) computer software and data
in computer readable and human readable form used to maintain such books and
records together with the media on which such software and data are stored and
all documentation relating thereto), accurately record all transactions of each
of the Companies in all material respects, and have been maintained consistent
with good business practice.
     (cc) Warranty Costs. Set forth on Schedule 3.1(cc) is a description of all
litigation, actions, suits, investigations, claims and proceedings asserted,
brought or to Seller’s Knowledge threatened, against any of the Companies within
the year preceding the date hereof, together with a description of the outcome
thereof, relating to any claim

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for Warranty Costs involving individual amounts paid or payable by the Companies
in excess of $25,000. Claims for Warranty Costs since the Balance Sheet Date did
not exceed $25,000 individually or in the aggregate, and there are no
outstanding or, to Seller’s Knowledge, threatened claims for any such costs
which would exceed $25,000 individually or in the aggregate. As used herein,
“Warranty Costs” means the costs and expenses of servicing, repairing and/or
replacing, or allowances for service, repair, return or replacement, of
defective or allegedly defective or improperly selected products or parts or
components thereof distributed, manufactured or sold by the Companies and the
costs of materials and expenses of replacing materials or products or correcting
any jobs or materials inadequately performed or manufactured, together with such
legal liability, if any, as may exist under the Uniform Commercial Code in
connection with sales of products, whether such costs and expenses relate to or
arise out of claims or causes of action which assert causes sounding in tort,
contract or warranty, or any combination of the foregoing.
     (dd) Pricing Practices. The prices to be received or paid by each of the
Companies under all outstanding contracts, agreements, commitments and
undertakings with its customers and suppliers and others have been determined on
an arms’ length basis.
     (ee) Transactions with Related Parties.
     (i) Set forth on Schedule 3.1(ee) is a list of (A) all outstanding loans to
or from any Company, on the one hand, and any Related Party on the other,
(B) any unresolved contractual or other claims, express or implied, of any kind
whatsoever against any of the Companies by any Related Party; (C) any unresolved
contractual or other claims, express or implied, of any kind whatsoever against
any Related Party by any of the Companies; (D) any Lien held currently by a
Related Party with respect to any property or assets used by any of the
Companies; or (E) all other existing transactions (other than employment
relationships) between any Company, on the one hand, and any Related Party on
the other.
     (ii) Set forth on Schedule 3.1(ee) is a true, correct and complete list of
any director, officer, employee or equity holder of any of the Companies, and
any Person in which any such director, officer, employee or equity holder has
any Material Interest, owing more than $10,000 to the Business or to any of the
Companies in connection with the Business.
     (iii) Except as set forth in Section 1.5, no amounts have been paid or may
be payable to any Related Party pursuant to any phantom stock, bonus or similar
plan or arrangement in connection with or as a result of the consummation of the
Transaction.
     (ff) Other Businesses. No Seller has any direct or indirect interest in any
Person or business which competes with or conducts any business similar to the
Business conducted by the Companies.

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     (gg) Unclaimed Property. None of the Companies has any assets that may
constitute unclaimed property under applicable Law. Each of the Companies has
complied in all material respects with all applicable unclaimed property Laws.
Without limiting the generality of the foregoing, each of the Companies has
established and followed procedures to identify any unclaimed property and, to
the extent required by applicable Law, remit such unclaimed property to the
applicable Governmental Authority.
     (hh) Disclosure. To Seller’s Knowledge, no representation or warranty made
by any of the Companies or any Seller contained in this Agreement, any Related
Agreement or any certificate delivered by any Seller pursuant hereto contains an
untrue statement of a material fact or omits to state a material fact necessary
to make the statements and facts contained herein or therein, in the light of
the circumstances in which they were or are made, not false or misleading. Until
the Closing Date, the Companies and Sellers will have a continuing obligation to
supplement the schedules to this Agreement, including the cover letter thereto,
to the extent necessary to comply with this Section 3.1(hh); provided that in no
event will any such supplement relieve any Company or any Seller of any
obligation that may have accrued by reason of any failure to make such
disclosure prior to or contemporaneously with the execution and delivery of this
Agreement.
     (ii) No Other Representations or Warranties. Except for the representations
and warranties contained in this Article III, none of the Companies nor any
Seller makes any express or implied representation or warranty on behalf of the
Companies or any Seller and the Companies and Sellers hereby disclaim any such
representation or warranty whether by the Companies, Sellers, any of their
respective Affiliates, officers, directors, employees, agents or representatives
or any other Person.
     3.2 Environmental Representations, Warranties and Covenants.
     (a) Definitions. For the purposes of this Agreement, the following terms
have the following definitions:
          ”Environment” means any of the following media: (i) land, including
surface land, sub-surface strata and any natural or man-made structures;
(ii) water, including coastal and inland waters, surface waters, ground waters,
and drinking water supplies; and (iii) air, including indoor and outdoor air, in
each case, including any living organism or system supported by such media.
          ”Environmental Claim” means any notice, claim, demand, action, suit,
complaint, proceeding or communication by any Governmental Authority or other
Person alleging (i) Liability or potential Liability that affects or would
reasonably be expected to affect any of the Companies, the Business or any
property currently or formerly owned, operated or leased by any of the Companies
or its predecessors in interest, or any off-site treatment, storage or disposal
facilities used by any of the Companies or its predecessors in interest
(collectively, the “Facilities”), relating to, arising out of, based on or
resulting from any Environmental Law or Environmental

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Permit (each as hereinafter defined) or (ii) Liabilities for any Environmental
Condition under common law or Liabilities under any Environmental Laws of any
third party that any of the Companies has assumed, contractually or by operation
of applicable law.
          ”Environmental Condition” means any actual or threatened bodily
injury, property damage, environmental contamination or pollution arising out of
any Release or threatened Release of or exposure to Hazardous Materials (each as
hereinafter defined) that would reasonably be expected to form the basis for any
Environmental Claim against any of the Companies, the Business or any of the
Facilities.
          ”Environmental Laws” means the common law and all applicable federal,
state, local and foreign Laws relating in any manner to contamination, pollution
or protection of human health or the Environment including without limitation:
the Clean Air Act, as amended, U.S.C. §§ 7401 et seq.; the Clean Water Act, as
amended, 33 U.S.C. §§ 1251 et seq.; the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended (“CERCLA”); the Resource
Conservation and Recovery Act, as amended, 42 U.S.C. §§ 6901 et seq.; the
Emergency Planning and Community Right-to-Know Act, 42 U.S.C. §§ 11001 et seq.;
the Toxic Substances Control Act, 15 U.S.C. §§ 2601 et seq.; the Federal
Insecticide, Fungicide and Rodenticide Act, as amended, 7 U.S.C. §§ 136 et seq.;
Rivers and Harbor Act of 1899, 33 U.S.C. §§ 401 et seq.; Safe Drinking Water
Act, 42 U.S.C. §§ 300f et seq.; Oil Pollution Act, 33 U.S.C. §§ 2701 et seq.;
National Environmental Policy Act, 42 U.S.C. §§ 4321 et seq.; Hazardous
Materials Transportation Act, 49 U.S.C. §§ 5101 et seq.; Endangered Species Act,
16 U.S.C. §§ 1531 et seq.; and Consumer Product Safety Act, 15 U.S.C. §§ 2501 et
seq. and any applicable state and local Laws, in each case as in effect as of
the Closing Date, that regulate the same subject matter as the aforementioned
Laws.
          ”Environmental Liability” means all Damages (as hereinafter defined)
incurred or suffered by Buyer or any of the Companies after the Closing to the
extent relating to, arising out of, or in respect of any Environmental Condition
that existed or occurred or relates to the operation of the Business or the sale
or distribution of Products on or prior to the Closing Date, including any
Environmental Claim in respect of any such Environmental Condition.
          ”Environmental Permits” means all Permits and other Governmental
Approvals (as hereinafter defined) required to be in effect as of the Closing
Date under Environmental Laws for the conduct of the Business or the ownership
or use of the Facilities.
          ”Environmental Reports” means all applications, notifications,
reports, studies, assessments, data and audits that address any assessment or
analysis of the Environment, including without limitation any reports prepared
by or for Buyer prior to the Closing Date which relate to the Facilities, or
address any issue of

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noncompliance with, or Liability under, any Environmental Law that may affect
any of the Companies, the Business or the Facilities.
          ”Governmental Approvals” means any consent, approval, authorization,
waiver, permit, grant, franchise, concession, agreement, license, exemption or
order of, registration, certificate, declaration or filing with, or report or
notice of or to, any Governmental Authority.
          ”Hazardous Material” means any pollutant, contaminant, chemical,
material, substance, waste or constituent (including without limitation crude
oil or any other petroleum product and asbestos) subject to regulation under, or
which can give rise to Liability under, any Environmental Law or which was
located at any location occupied, or contained in any Product sold, by any of
the Companies.
          ”Liability” or “Liabilities” means any and all liabilities and
obligations, whether such liabilities or obligations relate to payment,
performance or otherwise, are known or unknown, absolute or contingent, accrued
or unaccrued, disputed or undisputed, liquidated or unliquidated, secured or
unsecured, joint or several, due or to become due, vested or unvested,
executory, determined, determinable or otherwise, and whether or not such
liabilities or obligations would be required to be reflected on or reserved
against the financial statements of the obligor under GAAP.
          ”Release” means any releasing, spilling, seeping, leaking, pumping,
pouring, emitting, emptying, discharging, injecting, escaping, migrating,
leaching, dumping or disposing of any Hazardous Materials into the Environment
(including the abandonment or discarding of barrels, containers, tanks or other
receptacles containing Hazardous Materials).
          ”Remedial Action” means all actions required by any Environmental Law
or any Governmental Authority under any Environmental Law or by any lessor
pursuant to a valid and binding lease of any facility: (i) to clean up, remove,
treat, abate or in any other way address any Environmental Condition; (ii) to
prevent the Release or threat of Release or minimize the further Release of any
Hazardous Materials so that it does not migrate or endanger or threaten to
endanger human health or the Environment; and (iii) to perform pre-remedial
sampling, studies and/or investigations in connection with any Release or
threatened Release. Remedial Action also includes any actions, measures or steps
necessary to bring any of the Companies into compliance with Environmental Laws.
     (b) Each of the Companies is in compliance with all Environmental Laws
applicable to them, the Business as presently conducted and the Facilities, and
possesses and complies with all Environmental Permits required under such
Environmental Laws except where any failure to so comply would not reasonably be
expected to cause a Seller Material Adverse Change. A true, correct and complete
list of all Environmental Permits held by any of the Companies is set forth in
Schedule 3.2. All such Environmental Permits are in full force and effect. None
of the Companies has received written notice from any Governmental Authority
that any such Environmental Permits will be modified,

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suspended or revoked or cannot be renewed in the ordinary course of business and
consistent with past practices. Each of the Companies has timely taken all
action necessary to renew such Environmental Permits.
     (c) To Seller’s Knowledge, there are no Environmental Conditions that have
not been completely resolved to the satisfaction of applicable Governmental
Authorities.
     (d) There is no pending or, to Seller’s Knowledge, threatened Environmental
Claim against any of the Companies relating to the Business or the Facilities
for which any of the Companies may reasonably be expected to have any Liability.
     (e) To Seller’s Knowledge, there are no Hazardous Materials or other
conditions at, under or emanating from, and there has been no Release at, on or
adjoining, any of the Facilities that would reasonably be expected to give rise
to an Environmental Claim against or Liability of any of the Companies under any
Environmental Law.
     (f) To Seller’s Knowledge, none of the Facilities are (i) listed or
proposed for listing on the National Priorities List promulgated under CERCLA,
(ii) listed on the Comprehensive Environmental Response, Compensation, and
Liability Information System promulgated under CERCLA, or (iii) listed on any
comparable list promulgated or published by any Governmental Authority. No Lien
has been recorded under any Environmental Law with respect to any of the
Facilities.
     (g) None of the Companies is conducting any Remedial Action under any
Environmental Law, nor is any of the Companies obligated under any order, decree
or agreement with any Governmental Authority to conduct any such Remedial
Action, in each case related to the Companies and the Business.
     (h) To Seller’s Knowledge, there are no underground storage tanks or
related piping, surface impoundments, land disposal sites, hazardous waste
storage, treatment or disposal units or facilities or friable asbestos
containing material at the Facilities.
     (i) Set forth on Schedule 3.2 is an accurate and complete list of all
Environmental Reports in the possession or control of any Seller, any of the
Companies or any of their respective Affiliates in connection with any
Environmental Conditions or current or planned Remedial Action with respect to
the Companies, the Business or the Facilities. A copy of such Environmental
Reports has previously been provided to Buyer.
     (j) Each of the Facilities owned or leased by the Companies is in
compliance with the Occupational Safety and Health Act, as amended (“OSHA”), and
all other applicable Laws with respect to occupational safety and health. There
are no actions, suits, claims, notices of potential claims, regulatory
proceedings or other litigation, proceedings or governmental investigations
pending or, to Seller’s Knowledge, threatened against or affecting the Business
or any of such Facilities, in each case based upon an alleged violation of OSHA
or any other applicable Law with respect to occupational safety and health.

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     3.3 Employee Benefit Representations and Warranties.
     (a) Set forth on Schedule 3.3 is a true, correct and complete list of all
the following: (i) each “employee benefit plan,” as such term is defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
(“ERISA”), pursuant to which any of the Companies has any Liability in respect
of current or former employees, directors, officers or independent contractors
of any of the Companies (“Employees”) or any beneficiaries or dependents of any
Employees (each, an “Employee Plan”), and (ii) each other plan, program, simple
retirement account, policy, contract or arrangement providing for bonuses,
pensions, deferred pay, stock or stock related awards, severance pay, salary
continuation or similar benefits, hospitalization, medical, dental or disability
benefits, life insurance or other employee benefits, or compensation to or for
any Employees or any beneficiaries or dependents of any Employees (other than
directors’ and officers’ liability policies), whether or not insured or funded,
(A) pursuant to which any of the Companies has any Liability or (B) constituting
an employment or severance agreement or arrangement with any officer or director
of any of the Companies or with any Seller (each, a “Benefit Arrangement”). Each
of the Companies has provided to Buyer with respect to each Employee Plan and
Benefit Arrangement: (i) a true, correct and complete copy of all written
documents comprising such Employee Plan or Benefit Arrangement and any related
trust agreement, insurance contract or other funding vehicle (including
amendments and individual agreements relating thereto, or, if there is no such
written document, an accurate and complete description of such Employee Plan or
Benefit Arrangement); (ii) the most recent Form 5500 or Form 5500-C/R (including
all schedules thereto), if applicable; (iii) the most recent financial
statements and actuarial reports or valuations, if any; (iv) the summary plan
description currently in effect and all material modifications thereof, if any;
and (v) the most recent Internal Revenue Service determination or opinion
letter, if any.
     (b) Each Employee Plan and Benefit Arrangement has been established,
operated and maintained in accordance with its terms and in compliance in all
material respects with applicable Laws and the rules and regulations thereunder,
including, but not limited to, ERISA and the Code. The Companies have complied
with the continuation coverage requirements of Section 601 et seq. of ERISA and
Section 4980B of the Code (“COBRA”).
     (c) All contributions and other payments required to be made with respect
to any Employee Plan and Benefit Arrangement (or to any person pursuant to the
terms thereof) which are due have been made or paid in a timely fashion, and all
contributions or other payments for any period ending on or before the Closing
Date which are not yet due have been accrued in the appropriate Financial
Statements to the extent required by GAAP. All premiums or other payments due on
or before the Closing Date have been paid with respect to each such Employee
Plan or Benefit Arrangement.
     (d) Each Employee Plan that is intended to be qualified under Section
401(a) of the Code is so qualified with respect to any qualification requirement
for which the applicable remedial amendment period has closed and has been
determined by the Internal Revenue Service to be so qualified, and no
circumstances exist that are

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reasonably expected by any of the Companies or any Seller to result in the
revocation of any such determination.
     (e) All required reports and descriptions of each Employee Plan and Benefit
Arrangement (including without limitation IRS Form 5500 Annual Reports, Summary
Annual Reports and Summary Plan Descriptions) have been timely filed and
distributed.
     (f) Any notices required by ERISA or the Code or any other state or federal
law or any ruling or regulation of any state or federal administrative agency
with respect to any Employee Plan or Benefit Arrangement has been appropriately
given.
     (g) Each Employee Plan and Benefit Arrangement may be terminated by the
Companies at any time.
          (h) With respect to each Employee Plan and Benefit Arrangement:
     (i) There has been no “prohibited transaction” (within the meaning of
Section 4975 of the Code or Section 406 of ERISA) that is not exempt under
Section 408 of ERISA, nor fiduciary breach within the meaning of Section 404 or
409 of ERISA, with respect to which any of the Companies could have or has any
Liability. No action, suit, proceeding, hearing, audit or investigation with
respect to the administration or the investment of the assets of any Employee
Plan or Benefit Arrangement (other than routine claims for benefits) is pending
or, to Seller’s Knowledge, threatened. None of the Companies (including but not
limited to the employees with responsibility for employee benefits matters), to
Seller’s Knowledge, any basis for any such action, suit, proceeding, hearing,
audit or investigation.
     (ii) None of the Companies nor any Seller has incurred, expects to incur or
has any knowledge of any facts pursuant to which any of the Companies or any
Seller might incur any excise tax imposed by Chapter 43 of the Code.
     (iii) No Employee Plan or Benefit Arrangement is subject to Title IV of
ERISA, and none of the Companies nor any Person required to be treated as a
single employer with any of the Companies pursuant to Code Sections 414(b), (c),
(m) or (o) (“ERISA Affiliate”) has ever maintained or contributed to any plan,
policy or arrangement subject to Title IV of ERISA, and none of the Companies
nor any ERISA Affiliate has any liability under (A) Title IV of ERISA,
(B) Section 302 of ERISA or (C) Sections 412 and 4971 of the Code.
     (i) No Employee Plan is a “multiemployer plan” as that term is defined in
Section 3(37) of ERISA or a “multiple employer plan” described in Section
4063(a) of ERISA, nor has any of the Companies or any ERISA Affiliate ever
contributed to or been obligated to contribute to such a multiemployer plan or
multiple employer plan. No Employee Plan is a plan maintained by more than one
employer described in Section 413(b) or (c) of the Code.

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     (j) None of the Companies maintains or ever has maintained or contributed
or been required to contribute to any Employee Plan or Benefit Arrangement
providing medical, health or life insurance or other welfare-type benefits for
current or future retired or terminated employees, their spouses, or their
dependents, other than as required under COBRA.
     (k) Neither the execution or delivery of this Agreement, the Restructuring
nor the consummation of the Transaction (either alone or together with any
additional or subsequent events related thereto), constitutes an event under any
Employee Plan, Benefit Arrangement, loan to, or individual agreement or contract
with, an Employee that may result in any payment (whether of severance pay or
otherwise), acceleration of payment or vesting, increase in benefits or
compensation, or required funding, with respect to any Employee, or the
forgiveness of any loan or other commitment of any Employee. Each of the
Companies has reserved the right to amend or terminate any Employee Plan or
Benefit Arrangement at any time without the consent of any Person.
     3.4 General. Except as set forth in Section 6.2(a), the representations and
warranties of the parties hereto made in this Agreement, subject to the
exceptions therein or in the Disclosure Schedule hereto, will not be affected by
any information furnished to, or any investigation conducted by, any of them or
their representatives in connection with the subject matter of this Agreement.
The representations and warranties made in this Agreement or in any instrument
delivered pursuant to this Agreement will survive the Closing for the respective
periods set forth in Section 9.3(a).
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF BUYER
     Buyer represents and warrants to Sellers, as of the date hereof and as of
the Closing Date, that:
     4.1 Organization and Standing; Corporate Power and Authority. Buyer is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has full corporate power and authority to execute
and deliver this Agreement and the Related Agreements entered into by it in
connection herewith, and to perform the obligations required to be performed by
it hereunder and thereunder. This Agreement and the Related Agreements entered
into by Buyer in connection herewith have been duly executed and delivered by
Buyer. This Agreement and the Related Agreements entered into or to be entered
into by Buyer in connection herewith have been duly approved by the Board of
Directors of Buyer, and constitute, or upon execution and delivery by Buyer will
constitute, the valid, binding and enforceable obligations of Buyer, subject to
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation,
fraudulent conveyance and other similar Laws and principles of equity affecting
creditors’ rights and remedies generally.
     4.2 Conflicts; Defaults. Neither the execution and delivery of this
Agreement and the Related Agreements executed and delivered, or to be executed
and delivered, in connection herewith by Buyer, nor the performance of the
Transaction by Buyer, will (a) violate, conflict with or constitute a default
under any of the terms of Buyer’s Certificate of Incorporation or Bylaws, (b)
violate any Law of any Governmental Authority applicable to Buyer, (c) require
any

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consent to be obtained from, filed with or delivered to any Governmental
Authority or any other Person or (d) materially violate or constitute a material
default under any agreement, indenture or other instrument to which Buyer or any
Affiliate of Buyer is a party or by which Buyer may be bound, or any order,
judgment or decree applicable to Buyer or any Affiliate of Buyer, in each case
that would adversely affect the consummation of the Transaction on substantially
the terms set forth herein.
     4.3 Brokers, Finders and Agents; Transaction Costs. No agent, broker,
investment banker, financial advisor or other firm or Person engaged by Buyer is
or will be entitled to any brokers’ or finders’ fee or any other commission or
similar fee in connection with the Transaction.
     4.4 Litigation. There is no action, suit or proceeding pending or, to the
knowledge of Buyer, threatened against Buyer or any Affiliate of Buyer that
would adversely affect the consummation of the Transaction on substantially the
terms set forth herein.
     4.5 Financial Ability. Buyer has the financial resources necessary to
consummate the Transactions, including, without limitation, the ability to pay
the Purchase Price at Closing.
     4.6 No Other Representations or Warranties. Buyer acknowledges that the
Companies and Sellers have disclaimed any representations or warranties, whether
express or implied, made by the Companies and Sellers (or their Affiliates,
officers, directors, employees, agents and representatives, as applicable) that
are not expressly set forth herein, whether or not such representations,
warranties or statements were made in writing or orally.
ARTICLE V. CONDITIONS TO CLOSING
     5.1 Conditions to Buyer’s Obligations. The obligation of Buyer to
consummate the Transaction is subject to the satisfaction, on or prior to the
Closing Date, of each of the following conditions, any of which may be waived by
Buyer except for the conditions set forth in Sections 5.1(e) (as to Consents of
Governmental Authorities) and (f):
     (a) Representations and Warranties. Each of the representations and
warranties of Sellers and the Companies made in Article III of this Agreement
must be true and correct in all material respects (provided that any such
representation or warranty that is qualified by a materiality standard will not
be further qualified hereby) both on the date hereof and as of the Closing Date
as though made at such time except for such representations and warranties that
are explicitly limited to other dates, which representations and warranties must
have been true and correct in all material respects as of such dates (provided
that any such representation or warranty that is qualified by a materiality
standard will not be further qualified hereby).
     (b) Covenants. Each Seller and each of the Companies must have performed
and complied in all material respects with all covenants and agreements
hereunder (including without limitation those contained in Sections 6.2(b) and
7.1) required to be performed or complied with by each of them at or prior to
the Closing Date.

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     (c) Seller Material Adverse Change. Since the date hereof, there must not
have been any Seller Material Adverse Change or any event, condition or
occurrence reasonably likely to result in a Seller Material Adverse Change. For
purposes of this Agreement, “Seller Material Adverse Change” means a material
adverse change in the condition (financial or otherwise), results of operations,
properties, assets, liabilities, business or prospects of the Companies or their
respective Businesses, taken as a whole, other than changes (a) generally
affecting the industries in which the Companies operate and (b) resulting
primarily from the announcement or the execution of this Agreement or the
pendency or consummation of the Transaction.
     (d) Litigation. No action, suit or proceeding shall be pending or
threatened before any Governmental Agency or before any arbitrator wherein an
unfavorable injunction, judgment, order, decree, ruling or charge would
(i) prevent the Restructuring or the consummation of the Transaction, (ii) cause
the Restructuring or the Transaction to be rescinded following consummation or
(iii) affect adversely the right of Buyer to the Shares and the Companies.
     (e) Consents. All Consents of Governmental Authorities and Closing Consents
must have been obtained, waived or satisfied.
     (f) Antitrust Proceeding or Litigation. No litigation under the United
States federal antitrust laws or the antitrust laws of any other Governmental
Authority challenging the legality of the Transaction shall have been instituted
by the federal government or such other Governmental Authority and not settled
or otherwise terminated.
     (g) Certificate of Sellers and the Companies. At the Closing, Individual,
the President or Chief Executive Officer and the Secretary or Assistant
Secretary of Seller Holdco and each of the Companies and the trustee or trustees
of Seller Trust having authority to act on behalf of Seller Trust must have
executed and delivered to Buyer a certificate, dated the Closing Date, to the
effect that the conditions specified in Sections 5.1(a), (b) and (c).
     (h) Certificates; Documents. Sellers and other Persons must have delivered
the certificates, opinions of counsel and other documents required by
Sections 2.2 and 2.4, including, if not previously delivered, documents and
instruments satisfactory to Buyer evidencing the Restructuring.
     5.2 Conditions to Sellers’ Obligations. The obligations of Sellers to
consummate the Transaction are subject to the satisfaction, on or prior to the
Closing Date, of each of the following conditions, any of which may be waived by
Sellers except for the conditions set forth in Section 5.2(c):
     (a) Representations and Warranties. Each of the representations and
warranties of Buyer made in Article IV of this Agreement must be true and
correct in all material respects both on the date hereof and as of the Closing
Date as though made at such time.

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     (b) Covenants. Buyer must have performed and complied in all material
respects with all covenants and agreements hereunder required to be performed or
complied with by it at or prior to the Closing Date.
     (c) Antitrust Proceeding or Litigation. No litigation under the United
States federal antitrust laws or the antitrust laws of any other Governmental
Authority challenging the legality of the Transaction shall have been instituted
by the federal government or such other Governmental Authority and not settled
or otherwise terminated.
     (d) Certificate of Buyer. At the Closing, Buyer must have delivered to
Sellers a Certificate, signed by the President or a Vice President and the
Secretary or Assistant Secretary of Buyer and dated the Closing Date, to the
effect that the conditions specified in Section 5.2(a) and (b) have been
fulfilled.
     (e) Certificates; Documents. Buyer must have delivered the payments,
certificates and other documents required of it by Sections 2.3 and 2.4.
     5.3 Conditions to Buyer’s and Sellers’ Obligations. The obligations of
Buyer and Sellers to consummate the Transaction are subject to the condition
that, on or prior to the Closing Date, any applicable waiting period or similar
requirement under the H-S-R Act must have expired or been terminated, and no
action shall have been instituted by the FTC or the DOJ challenging or seeking
to enjoin the consummation of the Transaction, which action shall not have been
withdrawn or terminated.
ARTICLE VI. COVENANTS OF COMPANIES AND SELLERS
     6.1 Conduct of Business. During the period from the date hereof through the
Closing, each of the Companies will, and Sellers will cause each of the
Companies to, conduct the Business and operate their assets only in the ordinary
course of business and consistent with past practices (including without
limitation using their commercially reasonable efforts to preserve beneficial
relationships between the Companies and their respective agents, lessors,
suppliers and customers) and continue normal maintenance, marketing,
advertising, distributional and promotional expenditures in connection with the
Business. None of the Companies will engage in any transactions, including
transactions relating to the purchase or sale of goods, raw materials,
inventories or other operating or production items, intracorporate or otherwise,
with any Related Party from the date hereof until the Closing other than
transactions consistent with past practices (but not including the entry into,
or the amendment of, any contracts or agreements) or approved by Buyer in
writing. Without limiting the generality of the foregoing and except as
expressly provided in this Agreement (including in connection with the
Restructuring) or as set forth on Schedule 6.1, during the period from the date
hereof until the Closing, none of the Companies will, and Sellers will not
permit any of the Companies to:
     (a) Obligations for Borrowed Money. Other than indebtedness incurred in the
ordinary course of business and consistent with past practices (i) create, incur
or assume any indebtedness (including obligations in respect of capital leases)
or any debt for money borrowed (whether long- or short-term); (ii) assume,
guarantee, endorse or

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otherwise become liable or responsible (whether directly, contingently or
otherwise) for the obligation of any other Person; or (iii) make any loans,
advances or capital contributions to any other Person except for advances to
employees for travel and other customary expenses and loans to employees for
relocation expenses in the ordinary course of business in an aggregate amount
not in excess of $25,000;
     (b) Accounts Receivable. Write off as uncollectible any notes or Accounts
Receivable, except write-offs in the ordinary course of business and consistent
with past practices;
     (c) Employee Matters. Adopt or amend any Employee Plan or Benefit
Arrangement or increase in any manner the compensation or fringe benefits of any
Employee (other than, solely with respect to non-executive Employees, in the
ordinary course of business), or pay or fund any benefit not required by any
Employee Plan or Benefit Arrangement or change any actuarial assumptions with
respect to any Employee Plan or Benefit Arrangement, or take any action or grant
any benefit not expressly required under the terms of any Employee Plan or
Benefit Arrangement or enter into any contract, agreement, commitment or
arrangement to do any of the foregoing;
     (d) Acquisition or Sale of Assets. Except for inventory in the ordinary
course of business and consistent with past practices, purchase or acquire or
sell, transfer, license or otherwise dispose of or agree to purchase or acquire
or sell, transfer, license or otherwise dispose of, directly or indirectly, any
material assets, including without limitation any failure to maintain any
Company Intellectual Property or technology;
     (e) Acquisitions. Acquire (by merger, consolidation or acquisition of stock
or assets) any corporation, partnership or other business organization or
division thereof or any equity interest therein;
     (f) Liquidation. Adopt a plan of complete or partial liquidation or
resolutions providing for or authorizing such liquidation or a dissolution,
merger, consolidation, restructuring, recapitalization or other reorganization;
     (g) Commitments. Enter into any other agreement, commitment, contract or
undertaking, except agreements, commitments, contracts or undertakings made in
the ordinary course of business and consistent with past practices and the
representations and warranties of the Companies and Sellers contained in this
Agreement, or amend or modify any Material Contract where such amendment or
modification would reasonably be expected to have a Seller Material Adverse
Change;
     (h) Leased Facilities. Except as contemplated by Section 2.4(b), terminate,
modify or amend any of the leases set forth on Schedule 3.1(l) under the caption
“Leased Real Property”;
     (i) Encumbrances. Encumber, pledge or otherwise grant or create a Lien on
any of their respective assets;

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     (j) Articles and Bylaws. Make or propose any change or amendment in their
respective Articles of Incorporation or Bylaws or similar organizational
documents;
     (k) Capital Stock. Issue or sell any shares of capital stock or other
securities or issue any securities convertible into or exchangeable for, or
options, warrants to purchase, scrip, rights to subscribe for, calls or
commitments of any character whatsoever relating to, or enter into any contract,
understanding or arrangement with the respect to the issuance of, any shares of
capital stock or any other securities of any of them or enter into any
arrangement or contract with respect to the purchase or voting of shares of
their capital stock, or adjust, split, cancel, combine or reclassify any of
their capital stock or other securities, or make any other changes in their
capital structures;
     (l) Dividends. Declare, set aside, pay or make any dividend or other
distribution or payment (whether in cash, stock or other equity interest or
property) with respect to any shares of the capital stock or other equity
interest of any of them (except for cash distributions (i) in the ordinary
course of business and consistent with past practices (with respect to both
timing and amount, provided that in no event will such ordinary course
distribution exceed $16,667 per day for the quarterly period to which the
dividend relates) and (ii) to the extent necessary for Sellers to satisfy their
income tax obligations relating to income generated by the Companies), or
purchase or redeem any shares of the capital stock or other equity interest of
any of them;
     (m) Insurance. Cause or permit any of the policies of insurance referred to
in Section 3.1(o) to terminate, lapse or be canceled, unless reasonable
replacement policies, without lapse of coverage, have been put in place;
     (n) Litigation. Enter into any compromise or settlement of any litigation,
action, suit, claim, proceeding or investigation to which any of the Companies
is a party or to which any of the Companies is subject, except (i) settlements
made in the ordinary course of business involving disputes with customers or
suppliers which do not exceed $50,000 individually or in the aggregate or
(ii) other settlements made in the ordinary course of business which do not
exceed $10,000 individually or in the aggregate;
     (o) Taxes. Except with the consent of Buyer (which will not be unreasonably
withheld or delayed), (i) make, revoke or amend any Tax election (other than in
the ordinary course of business) except for the Tax elections contemplated by
Section 7.7(k), (ii) adopt or change any Tax accounting method, (iii) undertake
any transaction that triggers a Tax liability under Section 1374 of the Code,
(iv) settle or compromise any material claim or assessment with respect to
Taxes, or (v) consent to any waivers extending the statutory period of
limitations with respect to the collection or assessment of any Taxes or amend
any Tax Returns;
     (p) Subchapter S Corporation Status. Revoke any of the Companies’ election
to be taxed as a subchapter S corporation within the meaning Sections 1361 and
1362 of the Code or take or allow any action that would result in the
termination of any of the Companies’ status as validly electing subchapter S
corporations within the meaning Sections 1361 and 1362 of the Code;

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     (q) Inventories. Maintain levels of all products held in inventory,
including raw materials, work in process, supplies and finished goods
inventories, at levels that are inconsistent with current practice in the
ordinary course of business;
     (r) Acceleration; Discounts. Accelerate orders or sales, offer any special
terms, discounts or purchase programs (including by providing credit terms) to
customers or suppliers, or accelerate the collection of any receivables, except
in the ordinary course of business and consistent with past practices; or
     (s) Accounting Policies. Make any change in any method of accounting or
accounting practice.
     6.2 Disclosure Supplements.
     (a) From time to time and in no event later than five business days prior
to the Closing Date (except with respect to matters that arise after the fifth
business day prior to the Closing Date, in which case this deadline will be two
business days prior to the Closing Date), Sellers and the Companies will amend
and supplement the Disclosure Schedules with respect to any matter (i) which may
arise hereafter and which, if existing or occurring at or prior to the date
hereof, would have been required to be set forth or described in the Disclosure
Schedules, or (ii) which makes it necessary to correct any information in the
Disclosure Schedules or in any representation and warranty of Sellers or the
Companies which has been rendered inaccurate thereby. Any amendment or
supplement to the Disclosure Schedules will be described in the cover letter to
the correspondence delivered to Buyer pursuant to Section 10.4 by which Sellers
amend or supplement such Disclosure Schedules. Any amendment or supplement to
the Disclosure Schedules and any delivery of schedules after the date hereof
will not modify, affect or diminish Buyer’s right to terminate this Agreement
pursuant to Section 8.1 or relieve the Companies or Sellers of any obligation
that may have accrued by reason of any failure to make such disclosure prior to
or contemporaneously with the execution and delivery of this Agreement;
provided, however, that if the Closing occurs, Buyer will be deemed to have
waived any right or claim pursuant to Article IX hereof with respect to those
matters that both (A) were disclosed to Buyer in any such supplement or
amendment at least five business days prior to the Closing Date and (B) arose
after the date hereof.
     (b) During the period from the date hereof to the Closing, the Companies
and Sellers will promptly (i) furnish or make available to Buyer copies of all
operating reports and monthly, quarterly and other financial statements of the
Companies, and (ii) notify Buyer of (A) the institution or settlement of any
litigation, complaint, investigation, action, suit, claim or proceeding
involving any of the Companies or their respective businesses and of any
developments therein, and (B) any development that would reasonably be expected
to result in a material breach of the representations and warranties of the
Companies and Sellers provided herein or a Seller Material Adverse Change.
     6.3 Closing. Sellers, Buyer and the Companies will, to the extent within
their control, use their commercially reasonable efforts to cause the conditions
set forth in Sections 5.1, 5.2 and 5.3 to be satisfied by the Closing Date.

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     6.4 Accounts Receivable. If any Seller or any Affiliate of any Seller
receives any payment relating to any Account Receivable outstanding on or after
the Closing Date, such payment will be the property of, and will be promptly
forwarded and remitted to, Buyer. Such Seller or Affiliate will promptly endorse
and deliver to Buyer any cash, checks or other documents received by such Seller
or Affiliate on account of any such Account Receivable.
     6.5 No Shopping or Disclosure. From the date hereof through and until the
earlier of termination of this Agreement pursuant to Article VIII or the
Closing, none of the Companies or Sellers nor any officer, director, employee,
trustee, agent or representative of any of the foregoing will, directly or
indirectly, (a) solicit, initiate or encourage any inquiries, proposals or
offers from any Person relating to any acquisition or purchase of all or
substantially all of the assets of, or all or a material amount of any
securities of, or any merger, consolidation or business combination with, any of
the Companies (any such inquiry, proposal or offer being hereafter referred to
as an “Acquisition Proposal”), or (b) with respect to any of the foregoing
(i) participate in any discussions or negotiations, (ii) furnish to any other
Person any information with respect to any of the Companies or the Business, or
(iii) otherwise cooperate in any way with, or assist or participate in, or
facilitate or encourage any such effort. Sellers will notify Buyer immediately
if any Person makes any inquiry, proposal or offer with respect to the
foregoing. Neither Buyer, any of the Companies or any Seller nor any of their
respective employees, officers, equity holders, agents or representatives will
disclose this Agreement or the Transaction to any third party without the
consent of the other parties hereto, except for disclosure to the attorneys and
accountants involved in assisting with the negotiation and consummation of the
Transaction.
     6.6 Payment of Indebtedness; Releases. Except for (a) indebtedness under
the Loan Agreement, (b) current trade payables incurred in the ordinary course
of business and consistent with past practices and (c) as set forth on
Schedule 6.6, on or before the Closing Date, each of the Companies will, and
Sellers will cause each of the Companies to, (i) pay, perform and discharge any
and all Liabilities for indebtedness of the Companies, whether fixed, contingent
or otherwise, and (ii) obtain or procure the release of any and all Liens
(including any guarantees of any Company) or claims relating to such
indebtedness or otherwise affecting the assets and properties of the Companies.
     6.7 Encumbrances. After the date hereof and prior to the Closing, Sellers
will not pledge or otherwise encumber any of the Shares of the Companies owned
by Sellers or permit any other Shares of any of the Companies to be pledged or
otherwise encumbered, in each case except as contemplated by the Restructuring.
     6.8 Consents. After the date hereof and prior to the Closing, Sellers will
(a) obtain any Consents of any Related Party and (b) use its commercially
reasonable efforts to obtain all Consents of Governmental Authorities and
Closing Consents (other than those described under subsection (a) hereof).
     6.9 Sellers Acknowledgement and Waiver. From and after the Closing, Sellers
will not assert, and hereby waive or agree to cause to be waived as of the
Closing, any and all claims by any Seller (including in such Seller’s capacity,
if any, as an officer, employee or director of any of the Companies) against any
of the Companies and their respective directors and officers

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arising out of or relating to events, circumstances, acts or omissions occurring
prior to Closing (including but not limited to any appraisal rights with respect
to the Shares of any of the Companies), but not including (a) claims for which
such Seller is entitled to indemnification under any of the Companies’ Articles
of Incorporation, Bylaws or similar organizational documents or applicable state
Law governing corporations, (b) claims that such Individual may have relating to
amounts payable with respect to the employment-based bonus described in
Section 7.9, or (c) any unpaid salary or benefit accrued prior to the Closing
Date.
     6.10 Retention Agreements. After the Closing Date, Sellers will use their
commercially reasonable efforts to obtain from each of the individuals as is
reasonably requested by Buyer an executed Retention Incentive Bonus Agreement
with Buyer and CalPly in substantially the form attached as Exhibit M hereto.
     6.11 Customer and Supplier Relationships. From the Closing Date, Sellers
will use their commercially reasonable efforts, at Buyer’s request and expense
but without compensation to Sellers, to assist in the transfer to Buyer of the
goodwill and reputation associated with the Companies’ Business and the
Companies’ personnel, suppliers, manufacturers’ representatives and customer
relationships. Sellers will use their commercially reasonable efforts, at
Buyer’s request and expense but without compensation to Sellers, to assure that
the Companies’ current customers and suppliers will continue to do business with
the Companies and Buyer in accordance with the terms and for the periods of time
set forth in any contract, agreement, commitment or undertaking (including the
Material Contracts), whether oral or written, and whether currently in effect or
proposed to be entered into by any of the Companies. Notwithstanding the
foregoing, in no event will Sellers be require to expend a material amount of
time or effort in furtherance of this Section 6.11.
     6.12 Further Assurances. From time to time, including without limitation
after the Closing, upon request of Buyer and without further consideration
hereunder, Sellers will: (a) execute, acknowledge and deliver, or cause to be
executed, acknowledged and delivered, such other instruments of sale,
assignment, conveyance and transfer and will take all such other action as may
be required for the Restructuring or the consummation of the Transaction, and to
more effectively transfer to and vest in Buyer, and to put Buyer in possession
of, the Companies’ Business and the Shares of the Companies, free and clear of
any and all Liens, including without limitation at Sellers’ expense, all actions
required to assure that title to any Company Intellectual Property rights owned,
or purported to be owned, by any of the Companies or their respective
predecessors in interest is properly transferred to, and registered in the name
of, such of the Companies or such other Persons as Buyer may designate; (b) use
its commercially reasonable efforts to secure, or to assist Buyer in securing,
any Consent from any Person or Governmental Authority which may be required for
the Restructuring and the consummation of the Transaction and the continued
operation of the Companies’ Business after the Closing; and (c) not take any
action designed or intended to have the effect of discouraging any employee,
lessor, licensor, customer or supplier of any of the Companies from maintaining
the same business relationships after the Closing as it maintained with the
Companies prior to the Closing. Notwithstanding the foregoing, in no event will
Sellers be require to expend a material amount of time or effort in furtherance
of this Section 6.12.

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ARTICLE VII. CERTAIN ADDITIONAL COVENANTS
     7.1 Access to Records and Properties. Prior to the Closing, Sellers and the
Companies will (a) provide Buyer and its agents and representatives, including
its independent accountants, internal auditors and attorneys, upon reasonable
notice, access to all the facilities and offices of the Companies, and to all of
the books and records of the Companies (including work papers of any independent
accountant) during normal business hours, and upon Individual’s consent (which
will not be unreasonably withheld or delayed), the Companies’ personnel and
(b) furnish Buyer with such other financial and operating data (including
interim, monthly and quarterly financial information) and other information with
respect to the condition (financial or otherwise), results of operations,
properties, assets, liabilities, business or prospects of the Companies or the
Business as Buyer reasonably requests.
     7.2 Maintenance of and Access to Records. Buyer will preserve and maintain
the records relating to the Business that are part of the Companies’ assets as
of the Closing in accordance with Buyer’s normal document retention policy but
in any event for at least two years after the Closing Date for purposes of
(a) permitting Sellers to satisfy their Tax requirements, (b) the defense or
prosecution of litigation (including arbitration and mediation), and (c) any
other reasonable need of Sellers to consult such books and records. Following
the second anniversary of the Closing Date up to and including the seventh
anniversary of the Closing Date, prior to the destruction of any records of the
Company relating to Taxes for any period or portion thereof ending on or before
the Closing Date, Buyer will notify Sellers of its intent to destroy such
records and afford Sellers the opportunity, at Sellers’ expense and to the
extent reasonably necessary, to take possession of such records.
     7.3 Public Announcements. None of the parties hereto will issue any press
release or make any similar public announcement relating to the subject matter
of this Agreement prior to Closing except as may be required by applicable law,
in which case the party proposing to issue such press release or make such
public announcement will consult in good faith with the other parties before
issuing any such press release or making any such public announcement.
     7.4 Expenses. Except as otherwise provided herein, Sellers and Buyer will
each pay all of their own legal, accounting, investment banking and other fees,
costs and expenses incurred by each such party in connection with this
Agreement, the Related Agreements and the Transaction, including but not limited
to their fees relating to the any filings pursuant to the H-S-R Act. In
addition, Sellers will pay all accounting, consulting, brokers’ or finders’
fees, investment banking, or other fees, expenses or charges incurred by any of
the Companies in connection with the negotiation, preparation, execution or
performance of the Restructuring, this Agreement, the Related Agreements and the
Transaction.
     7.5 Cooperation in the Defense of Claims. If and for so long as any party
to this Agreement is actively contesting or defending against any action, suit,
proceeding, hearing, investigation, charge, complaint, claim or demand in
connection with the Restructuring, the Transaction or any fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act or transaction on or prior to the Closing Date
involving any of the Companies, each of the other parties to this Agreement will
reasonably cooperate with him, her or it and his, her or its counsel or insurers
in the contest or defense, make

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available their personnel and provide such testimony and access to their books
and records as may be reasonably necessary in connection with the contest or
defense, all at the sole cost and expense of the contesting or defending party
unless the contesting or defending party is entitled to indemnification therefor
under Article IX or otherwise.
     7.6 Antitrust Filings. Within two business days following the date of this
Agreement, the Companies and Buyer will file with the FTC, the DOJ and all other
applicable Governmental Authorities pursuant to any antitrust or similar Laws
relating to competition, including without limitation the H-S-R Act, the
notification and documentary material required in connection with the
acquisition of the Shares of the Companies by Buyer pursuant to this Agreement.
Sellers will cause the Companies to, and Buyer will promptly, file any
additional information requested in connection therewith as soon as practicable
after receipt of a request for additional information. Buyer and Sellers will
use commercially reasonable efforts to satisfy all conditions, including
obtaining early termination of the applicable waiting periods, under any such
Laws, including the H-S-R Act. None of the parties hereto will extend any
waiting period under the H-S-R except with the prior consent of the other
parties (which will not be unreasonably withheld or delayed). The parties hereto
will coordinate and cooperate with one another in exchanging such information
and providing such reasonable assistance as may be requested in connection with
such filings. Pursuant to Section 7.4, Sellers and Buyer will each pay all of
their own fees relating to the any filings pursuant to the H-S-R Act.
     7.7 Tax Matters.
          (a) Section 338(h)(10) Election.
     (i) At Buyer’s option, Individual will join with Buyer in making an
election under Section 338(h)(10) of the Code (and any corresponding election
under state or local law with respect to the purchase and sale of the Shares of
any of the S Corps hereunder (with respect to each S Corp, the
“Section 338(h)(10) Election” and collectively, the “Section 338(h)(10)
Elections”)). Buyer will notify Individual in writing of each Section 338(h)(10)
Election within two months after the Closing. With respect to each S Corp for
which Buyer notifies Individual of its election to make a Section 338(h)(10)
Election, Buyer will prepare and provide to Individual an IRS Form 8023, which
Individual will then sign and return to Buyer within 30 days after receiving
notification from Buyer regarding each such Section 338(h)(10) Election, and
will take all other actions reasonably necessary to effect the Section
338(h)(10) Election, including without limitation that Individual will include
any income, gain, loss, deduction or other Tax item resulting from the Section
338(h)(10) Election on Individual’s Tax Return to the extent required by Law.
     (ii) Individual will cooperate with Buyer and use commercially reasonable
efforts to provide to Buyer such information and documentation as Buyer
reasonably requests to calculate the value of the Tax benefits to Buyer of
making the Section 338(h)(10) Elections and the amount of additional Taxes that
would be owed by Individual and the S Corps as a result of making the
Section 338(h)(10) Elections, including without limitation information about the
adjusted

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tax basis in the Shares of the S Corps and the adjusted tax basis of the S
Corps’ assets.
     (iii) Whether or not a Section 338(h)(10) Election is made for any of the
Companies, Individual will prepare and file the final federal income Tax Return
(and any corresponding final state income Tax Returns) for each S Corp for its
last taxable year as an S corporation (collectively, with respect to each S
Corp, the “Final S Corp Income Tax Return”), and Individual will pay any Taxes
shown as due on each such Final S Corp Income Tax Return (including any Tax
imposed on the S Corp attributable to the making of the Section 338(h)(10)
Election, including (A) any Tax imposed under Section 1374 of the Code or any
similar provision of state or local Law and (B) any state or local Tax imposed
on the S Corp’s gain such as the 1.5% California corporate franchise Tax
corporation (the “Section 338(h)(10) Tax”). Individual will cause each such
Final S Corp Income Tax Return to be prepared and filed in accordance with
applicable Law and consistent with past practices. Individual will permit Buyer
to review and comment on each such Final S Corp Income Tax Return prior to
filing. With respect to each S Corp for which a Section 338(h)(10) Election is
made and no later than sixty (60) days prior to the due date for filing its
Final S Corp Income Tax Return, Individual will provide to Buyer a draft
schedule showing the amount of Section 338(h)(10) Taxes imposed on the S Corp
(computed in accordance with the allocations made on the Second Allocation
Schedule). During the thirty (30) calendar days following receipt by Buyer of
such draft schedule, Individual and Buyer will meet and confer and attempt in
good faith to agree upon the amount of the Section 338(h)(10) Tax due. If the
parties cannot agree, the disagreement will then be submitted, as promptly as
practicable, to an arbitrator pursuant to Section 10.8, whose decision as to
such question or questions in dispute will (1) be reached within fifteen
(15) calendar days after submission thereof, (2) be limited to choosing the
position either of Individual or Buyer with respect to each disagreement, and
(3) be final and binding upon Individual and Buyer. The fees of the accounting
arbitrator will be borne by Individual, on the one hand, and Buyer on the other
hand, in such amount(s) as determined by the arbitrator pursuant to
Section 10.8. Buyer will reimburse Individual for the amount of such Taxes
within 10 days of the payment of such Taxes made with the filing of the Final S
Corp Income Tax Returns.
     (iv) Buyer will pay or cause to be paid to Individual, in cash, the amount
of additional consideration necessary to cause the after-Tax net proceeds that
Seller Holdco realizes from the sale of the CalPly Shares (treating Taxes
incurred by Individual as a result of such sales as though such Taxes were
incurred by Seller Holdco for purposes of calculating such after-Tax net
proceeds to Seller Holdco) to be equal to the after-Tax net proceeds that
Individual would have received had Individual not transferred the CalPly Shares
to Seller Holdco pursuant to the Restructuring and, instead, sold the CalPly
Shares directly to Buyer without making a Section 338(h)(10) Election for CalPly
(the “CalPly Tax Adjustment”); provided, however, in no event will the CalPly
Tax Adjustment be a negative number. In calculating the CalPly Tax Adjustment,
there will be taken

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into account only the effects upon Individual of realizing items of income,
gain, deduction, loss and expense arising out of the deemed sale of assets under
Treas. Reg. § 1.1361-5(b) resulting from the sale by Seller Holdco of the CalPly
Shares, as compared to the effects upon Individual of realizing gain from the
direct sale of CalPly Shares to Buyer without having transferred the CalPly
Shares to Seller Holdco pursuant to the Restructuring (including without
limitation realization of income, gain, deduction or loss or change in character
thereof). For avoidance of doubt, in each case the calculations made pursuant to
the immediately preceding sentence will be made disregarding any deduction,
expense or loss realized by Seller Holdco or CalPly to the extent attributable
to amounts paid or payable pursuant to Section 1.5.
     (v) If a Section 338(h)(10) Election is made with respect to any S Corp,
Buyer and each of the S Corps, jointly and severally, will pay or cause to be
paid to Individual, in cash, the amount of additional consideration necessary to
cause the after-Tax net proceeds that Individual realizes from the sale of the
Company Shares for all S Corps for which a Section 338(h)(10) Election is made
to be equal to the after-Tax net proceeds that Individual would have received
had no Section 338(h)(10) Election been made for any of such S Corps (the “S
Corp Tax Adjustment”); provided, however, in no event will the S Corp Tax
Adjustment be a negative number. In calculating the S Corp Tax Adjustment, there
will be taken into account only the effects upon Individual of realizing items
of income, gain, deduction, loss and expense arising out of the hypothetical
sale of assets and liquidation resulting from the all the Section 338(h)(10)
Elections, as compared to the effects upon Individual of realizing gain from a
sale of Company Shares of the S Corps for which a Section 338(h)(10) Election is
made without such Section 338(h)(10) Election (including without limitation
realization of income, gain, deduction or loss or change in character thereof).
     (vi) No later than April 10, 2008, Buyer and each of the Companies, jointly
and severally, will pay or cause to be paid to Individual by wire transfer of
immediately available funds the full amount the CalPly Tax Adjustment and the S
Corp Tax Adjustment (collectively, the “Tax Adjustment”); provided, however, if
a dispute regarding the amount of the Tax Adjustment is pending on April 10,
2008, then Buyer and each of the Companies, jointly and severally, will pay or
cause to be paid to Individual by wire transfer of immediately available funds
(i) the undisputed portion of the Tax Adjustment no later than April 10, 2008
and (ii) any remainder of the Tax Adjustment within five days after resolution
of any such dispute. The Tax Adjustment will be increased if required due to any
final “determination” (as defined in Section 1313(a) of the Code and any
corresponding provision of state or local Law), and the obligations of Buyer and
each of the Companies to pay the Tax Adjustment will survive until the
expiration of all applicable statutes of limitation with respect to Individual
and each S Corp for which a Section 338(h)(10) Election is made for all taxable
years during which either Closing occurs or any portion of the Purchase Price or
the Tax Adjustment is paid or payable. Within thirty (30) days after all
Allocation Schedules have become final pursuant to Section 7.7(b), Individual
will deliver to

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Buyer a draft schedule computing the amount of the Tax Adjustment (as finally
determined pursuant hereto, the “Adjustment Schedule”). During the thirty
(30) calendar days following receipt by Buyer of such draft Tax Adjustment
Schedule, Individual and Buyer will meet and confer and attempt in good faith to
agree upon and finalize the Tax Adjustment Schedule. Within ten (10) calendar
days after the expiration of such 30-day period, Individual will deliver to
Buyer a further draft Tax Adjustment Schedule with any revisions so agreed.
Within ten (10) calendar days after receipt of such further draft Tax Adjustment
Schedule, Buyer will notify Individual whether Buyer concurs or disagrees with
such further draft Tax Adjustment Schedule and, if applicable, Buyer’s
disagreements. If such disagreements cannot be resolved between Individual and
Buyer within ten (10) calendar days after delivery of such notice by Buyer to
Individual, the disagreement will then be submitted, as promptly as practicable,
to an arbitrator pursuant to Section 10.8, whose decision as to such question or
questions in dispute will (1) be reached within fifteen (15) calendar days after
submission thereof, (2) be limited to choosing the position either of Individual
or Buyer with respect to each disagreement, and (3) be final and binding upon
Individual and Buyer. The fees of the accounting arbitrator will be borne by
Individual, on the one hand, and Buyer on the other hand, in such amount(s) as
determined by the arbitrator pursuant to Section 10.8.
     (b) Purchase Price Allocation. Set forth on Schedule 7.7(b) is an
allocation schedule showing the allocation of the Purchase Price among the
Company Shares for all the Companies (the “First Tax Allocation Schedule”).
Within 90 days after the Closing Date, Buyer will prepare and deliver to
Individual, with respect to each S Corp for which a Section 338(h)(10) Election
is made (and with respect to CalPly), an allocation schedule showing the
allocation among the assets of each such S Corp (and CalPly) of the portion of
the Purchase Price (and separately showing any and all other capitalized costs)
allocated to that S Corp (and CalPly) under the applicable First Tax Allocation
Schedule and the liabilities of such S Corp (and CalPly) taken into account as
part of the consideration for the assets of such S Corp (and CalPly) in the
hypothetical sale of assets pursuant to Section 338(h)(10) of the Code (and
under Treas. Reg. 1.1361-5(b) in a manner consistent with Sections 338 and 1060
of the Code and the Treasury Regulations thereunder and other applicable Law (as
finalized pursuant hereto, the “Second Tax Allocation Schedule” and together
with the First Tax Allocation Schedule, the “Allocation Schedules”). Any amount
paid to Sellers out of Escrowed Funds will be allocated to good will and going
concern value of CalPly. The allocations set forth in the Second Tax Allocation
Schedule will be binding upon Sellers except to the extent (i) determined
otherwise pursuant to a final determination (as defined in Section 1313(a) of
the Code or corresponding provisions of state or local Law, as applicable) or
(ii) Sellers receive a written opinion of a nationally recognized law firm or
accounting firm to the effect that compliance with the Second Tax Allocation
Schedule would subject Sellers to Tax penalties. Buyer and Sellers will report
and file Tax Returns (including IRS Form 8883) in all respects and for all
purposes consistent with such Allocation Schedules. Sellers and Buyer will use
commercially reasonable efforts to provide each other with such information and
documentation as reasonably required to prepare any Allocation Schedule. Neither
Buyer nor Sellers will take any position (whether in audits, Tax

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Returns or otherwise) that is inconsistent with such Allocation Schedules unless
required to do so by Law.
     (c) Information Reporting. On or before the Closing Date, Sellers will
provide Buyer with all information needed by Buyer to comply with the reporting
provisions of new Section 6043A of the Code and Buyer will timely prepare and
file all reports required thereunder consistent with such information provided
by Sellers and the Allocation Schedules.
     (d) Tax Returns. Buyer will prepare and file, or cause to be prepared and
filed, all Tax Returns (other than the Final S Corp Income Tax Returns and any
other income Tax Return for any S Corp for any taxable year or portion thereof
ending on or before the Closing Date, as to which the provisions of
Section 7.7(a) apply) for each of the Companies required to be filed ending
after the Closing Date. In connection therewith, Sellers will be responsible for
and reimburse Buyer for any Taxes for which Sellers have agreed to indemnify
Buyer pursuant to Sections 9.2(a)(iv) and (v). In the case of Tax Returns for
periods starting before and ending after the Closing Date, Buyer will provide
Sellers with an opportunity to review and comment on such Tax Returns no less
than 15 days prior to the due date thereof and will make such revisions as may
be reasonably requested by Sellers. In addition to the Final S Corp Income Tax
Returns and the other income Tax Returns of the S Corps for any taxable year
ending on or before the Closing Date, Sellers will prepare and file, or cause to
be prepared and filed, all Tax Returns required to be filed by each of the
Companies on or before the Closing Date.
     (e) Cooperation on Tax Matters. Buyer, the Companies and Sellers will
cooperate fully, to the extent reasonably requested by another party, in
connection with the filing of Tax Returns and any audit, litigation or other
proceeding with respect to Taxes. Such cooperation will include (i) the
retention and (upon the other party’s request) the provision of records and
information reasonably relevant to any such audit, litigation or other
proceeding, (ii) making employees available on a mutually convenient basis to
provide additional information and explanation of any material provided
hereunder, (iii) furnishing the other with copies of all correspondence received
from any Taxing authority in connection with any Tax audit or information
request relating to Taxes for which either of the parties is entitled to
Indemnification, and (iv) in the case of any federal, state, county, local or
foreign Tax audit claim or assessment relating to any payroll withholding Tax
liability asserted against any of the Companies, promptly seeking abatement of
liability pursuant to Section 3402(d) of the Code (and, in that connection,
requesting each affected employee to provide an affidavit or other proof that
the relevant compensation was included in taxable income and any applicable
Taxes thereon were paid), making filings required for adjustments without
interest pursuant to Section 6205(a)(1) of the Code, and taking appropriate
action under similar provisions of state or local law. Sellers, on the one hand,
and Buyer and the Companies, on the other hand, will (i) retain all books and
records with respect to Tax matters pertinent to the Companies relating to any
Taxable period beginning before the Closing Date until expiration of the statute
of limitations (and, to the extent notified by Buyer or Sellers, any extensions
thereof) of the respective Taxable periods, and to abide by all record retention
agreements entered into with any Taxing authority, and (ii) give the other party

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reasonable written notice prior to transferring, destroying or discarding any
such books and records and, if such other party so requests, the party giving
such notice will allow the other party to take possession of such books and
records.
     (f) Tax Sharing Agreements. Any Tax sharing agreements or similar
agreements with respect to or involving the Companies and any Person other than
the Companies will be terminated as of the Closing Date and, after the Closing
Date, the Companies will not be bound thereby or have any Liability thereunder.
     (g) Proceedings. Notwithstanding any other provision of this Agreement or
the Escrow Agreement, whenever any Taxing authority asserts a claim, makes an
assessment or otherwise disputes the amount of Taxes for which Buyer is entitled
to indemnification under this Agreement or for which Sellers are otherwise
responsible, Buyer will promptly inform Sellers, and Sellers will have the right
to control any resulting administrative and judicial proceedings or
determinations and to determine whether and when to settle any such claim,
assessment or dispute to the extent such proceedings or determinations affect
the amount of Taxes for which Buyer is entitled to indemnification under this
Agreement or for which Sellers are otherwise responsible. Whenever any Taxing
authority asserts a claim, makes an assessment or otherwise disputes the amount
of Taxes for which Sellers are entitled to indemnification under this Agreement
or for which Buyer is otherwise responsible, Buyer will have the right to
control any resulting administrative and judicial proceedings and to determine
whether and when to settle any such claim, assessment or dispute to the extent
such proceedings or determinations affect the amount of Taxes for which Sellers
are entitled to indemnification under this Agreement or for which Buyer is
otherwise responsible.
     (h) Transfer Taxes. Notwithstanding any other provision of this Agreement
to the contrary, Sellers will be liable for, and will timely pay, any and all
gains, transfer, sales, use, bulk sales, recording, registration, documentary,
stamp and other Taxes that may result solely from the transfer of Shares of the
Companies to Buyer hereunder (other than any such Taxes that are payable as a
result of making a Section 338(h)(10) Election).
     (i) Refunds. Except to the extent any such refund was reflected as an asset
on the Financial Statements as of Closing, all refunds of Taxes for any taxable
period or portion thereof ending on or before the Closing Date (other than Taxes
that Buyer is responsible to pay under this Agreement) will belong to Sellers,
and any such refund received by or credited to Buyer will be promptly paid by
Buyer to Sellers.
     (j) Timing Adjustments. If (i) a Section 338(h)(10) Election is not made
with respect to a Company (and in any event to the extent relevant with respect
to California corporate franchise tax) and (ii) the Tax liability of any of the
Companies and/or Sellers for a taxable period or portion thereof ending on or
before the Closing Date is increased or decreased because of the correction of
the timing of an item of income, deduction, or credit, which when corrected
produces a Tax benefit or detriment available to Buyer, any of the Companies or
a successor to any of the Companies after the Closing Date, Buyer will pay to
Sellers, or Sellers will pay to Buyer, as the case may be, from time to time,
without duplication, upon receipt, payment, or application of all or any portion
of such

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Tax benefit or detriment or portion thereof by Buyer, any of the Companies or
any successor of any of the Companies, an amount equal to such Tax benefit or
detriment or portion thereof received, paid or applied.
     (k) S Election/Qsub Election. Prior to Closing and pursuant to the
Restructuring, Sellers will file a “protective” S election for Seller Holdco and
a qualified subchapter S subsidiary election for CalPly, which (with the
transfer by Seller Trust of the CalPly Shares to Seller Holdco) Sellers will
treat for Tax purposes as a reorganization under Section 368(a)(1)(F) of the
Code so that Seller Holdco will be treated as a continuation of CalPly and
CalPly’s original S election will be treated as never having terminated. To the
extent not received from the IRS prior to the Closing Date, Sellers will
promptly provide Buyer with a copy of the IRS acknowledgment of such elections
following their receipt from the IRS.
     (l) E Foam S Election Relief. Prior to Closing, Sellers will file an
application for relief under Rev. Proc. 2003-43, 2003-1 C.B. 998, so that E Foam
will be a validly electing S corporation as of the Closing Date.
     (m) Section 453A Reimbursement. Buyer will reimburse Sellers for interest
paid by Sellers under Section 453A(c) of the Code, up to $275,000, resulting
from a portion of the Purchase Price being held in an escrow account (as
specified in Section 1.2(b)(ii)). Within ten days of Sellers providing proof of
payment of such interest, Buyer will pay or cause to be paid to Sellers, in
cash, the amount of such interest paid, up to a total of $275,000. Proof of
payment may be made by Sellers providing to Buyer a certification to Buyer of
such payment by a certified public accountant on behalf of Sellers.
     7.8 Drilling; Environmental Investigations. For a period of five years
following the Closing Date, Buyer will not, and will cause the Companies not to,
and will not allow any Person acting on Buyer’s or the Companies’ behalf to
(a) drill or bore on or through the surface of any Leased Real Property or
(b) conduct any environmental testing or sampling at any Leased Real Property,
in each case without either (i) a valid business reason for such activity or
(ii) Sellers’ consent (which will not be unreasonably withheld or delayed). The
parties acknowledge and agree that any such activity the primary purpose of
which is to create an opportunity to make a claim for indemnification under
Article IX hereto, or any other activity that cannot reasonably be justified
absent Sellers’ obligations under Article IX hereof, will not be deemed to have
a valid business reason.
     7.9 Executive Bonus. Buyer will cause the Companies to pay Individual any
employment-based bonus earned by Individual with respect to the fiscal year
ending March 31, 2007, and, in the event the Closing Date occurs after March 31,
2007, with respect to the period between March 31, 2007 and the Closing Date,
all in accordance with the terms and conditions of the Executive Bonus Agreement
of event date herewith between Individual and CalPly.

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ARTICLE VIII. TERMINATION
     8.1 Termination. This Agreement and the Transaction may be terminated at
any time prior to the Closing:
     (a) Mutual Consent. By mutual written consent of Sellers and Buyer;
     (b) Closing Date. By Sellers or Buyer if the Closing has not occurred on or
before 90 days from the date of this Agreement (the “Termination Date”) (other
than on account of the failure of the party seeking to terminate this Agreement
to comply with his, or its (or, in the case of Sellers, any Company’s)
obligations under this Agreement);
     (c) Seller Misrepresentation or Breach. By Buyer, if there has been a
breach by any of the Companies or by Sellers of any representations, warranties,
covenants, obligations or agreements of any of the Companies or Sellers set
forth in this Agreement or in any writing delivered pursuant hereto by any of
the Companies or any Seller (“Pre-Closing Breach”) which failure to comply, if
it is capable of being cured, has not been cured within ten (10) days following
receipt by Individual of notice of such failure to comply and such Pre-Closing
Breach would reasonably be expected to result in a Seller Material Adverse
Change;
     (d) Buyer Misrepresentation or Breach. By Sellers, if there has been a
breach by Buyer of any of its representations, warranties, covenants,
obligations or agreements set forth in this Agreement or in any writing
delivered pursuant hereto by Buyer which failure to comply, if it is capable of
being cured, has not been cured within ten (10) days following receipt by Buyer
of notice of such failure to comply and such breach would reasonably be expected
to have a material adverse effect on Buyer’s ability to consummate the
Transaction in accordance with the terms of this Agreement;
     (e) Court Order. By Sellers or Buyer if consummation of the Transaction
will violate any non-appealable final order, decree or judgment of any court or
Governmental Authority having competent jurisdiction;
     (f) Seller Material Adverse Change. By Buyer, if since the date hereof
there has been a Seller Material Adverse Change or the occurrence of a condition
or event which would reasonably be expected to result in a Seller Material
Adverse Change;
     (g) Buyer’s Conditions. By Buyer, if any condition precedent to Buyer’s
obligation to effect the Closing as set forth in Section 5.1 is not satisfied or
incapable of being satisfied (other than on account of the failure of Buyer to
comply with its obligations under this Agreement) and such condition is not
waived, if waivable, by Buyer on or prior to the Termination Date;
     (h) Sellers’ Conditions. By Sellers, if any condition precedent to Sellers’
obligation to effect the Closing as set forth in Section 5.2 is not satisfied or
incapable of being satisfied (other than on account of the failure of the
Companies or any Seller to comply with their respective obligations under this
Agreement) and such condition is not waived, if waivable, by Sellers on or prior
to the Termination Date; and

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     (i) Acquisition Proposal. By Buyer if any Company or Seller has entered
into any agreement with respect to an Acquisition Proposal other than this
Agreement.
     8.2 Effect of Termination. If this Agreement is terminated pursuant to
Section 8.1, this Agreement will thereafter become void and have no further
force and effect and all further obligations of the Companies, Sellers and Buyer
under this Agreement will terminate without further liability of the Companies,
Sellers and Buyer, and no party will be entitled to any monetary damages or
injunctive relief (including specific performance) as a result of such
termination, or any indemnification under Article IX, except that (a) the
obligations of the Companies, Sellers and Buyer under Section 7.4 and under the
Confidentiality Agreement (as hereafter defined) relating to the Restructuring
and the Transaction will survive such termination and (b) in no event will any
termination of this Agreement limit or restrict the rights and remedies of any
party hereto against any other party which has willfully or recklessly breached
any of the agreements or other provisions of this Agreement prior to termination
thereof. Notwithstanding the foregoing, nothing set forth in this Section 8.2
will be deemed to modify, affect or diminish any party’s right to terminate this
Agreement pursuant to Section 8.1.
ARTICLE IX. INDEMNIFICATION
     9.1 Indemnification by Buyer. Buyer will indemnify, defend and hold Sellers
harmless from and against any and all claims, actions, suits, demands,
assessments, interest, penalties, fines, judgments, losses, liabilities
(including strict liabilities), damages, costs and expenses (including without
limitation reasonable attorneys’ fees to the extent permitted by Law, advisors’
and consultants’ fees and expenses, accounting fees, and defense and
investigation costs) and of any settlement, of whatever kind or nature,
contingent or otherwise, matured or not matured, foreseeable or unforeseeable
(collectively, “Damages”) that may be incurred by Sellers arising out of or
relating to any breach of any (a) representation or warranty set forth in
Article IV or (b) covenant, obligation or agreement of Buyer contained herein.
     9.2 Indemnification by Sellers.
     (a) Except with respect to any Environmental Liabilities arising out of, or
relating to, Environmental Conditions, with respect to which Section 9.2(b) will
govern, Sellers will jointly and severally indemnify, defend and hold Buyer and
the Companies harmless from and against any and all Damages incurred by Buyer or
any of the Companies arising out of, or relating to:
     (i) any breach of any representation or warranty contained in Sections 3.1
or 3.3;
     (ii) any breach of any covenant, obligation or agreement of any of the
Companies or any Seller contained herein;
     (iii) any litigation, action, suit, proceeding, claim or demand against any
of the Companies or Buyer, whether pending or threatened, arising out of events
occurring on or before the Closing Date that is brought or asserted by any
Person who was, at any time prior to the Closing Date, a holder or purported
holder of securities, including equity securities, or membership or other
interests,

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in any of the Companies, with respect to such holder or purported holder’s
rights as a holder of equity securities, membership interests or other similar
equity interests;
     (iv) all Taxes, whether imposed by assessment, withholding or otherwise,
(A) subject to the obligations of Buyer and the Companies under Section 7.7,
that are imposed on any Seller as a result of the Transaction, (B) that any
Seller is required to pay pursuant to Section 7.7(h) of this Agreement, or
(C) that are imposed on any Seller, any of the Companies or their Affiliates or
beneficiaries solely as a result of the Restructuring;
     (v) all Taxes of any of the Companies payable for any Taxable year or
Taxable period ending on or before the Closing Date and the portion through the
end of the Closing Date for any Taxable year or period that includes (but does
not end on) the Closing Date, but only to the extent such Taxes exceed the
amount of Taxes that have been reserved therefor on the Balance Sheets (but not
including any Taxes imposed on any of the Companies as a result of any
Section 338(h)(10) Election);
     (vi) the failure of any Seller to sign a Section 338(h)(10) Election;
     (vii) the invalidity of a Section 338(h)(10) Election due to failure of a
Company to qualify as a validly electing S corporation within the meaning of
Sections 1361 and 1362 of the Code as of the Closing Date;
     (viii) the failure of the sale of the CalPly Shares to be treated as an
asset sale under Treas. Reg. § 1.1361-5(b) due to (A) a failure of Seller Holdco
to qualify as a validly electing S corporation within the meaning of
Sections 1361 and 1362 of the Code as of the Closing Date or (B) a failure of
CalPly to be treated as a qualified subchapter S subsidiary within the meaning
of Section 1361(b)(3)(B) of the Code as of the Closing Date;
     (ix) the failure of the transfer by Seller Trust of the CalPly Shares to
Seller Holdco pursuant to the Restructuring (along with the election by CalPly
to be treated as a qualified subchapter S subsidiary within the meaning of
Section 1361(b)(3)(B) of the Code) to qualify as a reorganization within the
meaning of Section 368(a)(1)(F);
     (x) any claims by any Affiliate of any Seller against any of the Companies
or their respective directors and officers arising out of or relating to events,
circumstances, acts or omissions occurring prior to the Closing; and
     (xi) any litigation, action, suit, proceeding, claim or demand by any
employee or former employee in respect of any success, severance, stay or
similar bonus paid or payable as a result of the Transaction.
     For purposes of Section 9.2(a)(v), with respect to any period that includes
but does not end on the Closing Date, (A) liability for any Taxes determined by
reference to

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income, capital gains, gross income, gross receipts, sales, net profits,
windfall profits or similar items or resulting from a transfer of assets will be
allocated between the part of the period ending on or before the Closing Date
and the part of the period thereafter based on a closing of the books as of the
end of the Closing Date; and (B) liability for all other Taxes will be allocated
between the part of the period ending on or before the Closing Date and the part
of the period thereafter, pro rata based on the number of days in the Taxable
period; provided, however, that no part of any Taxes described in this clause
(B) will be allocated to the part of the period ending on or before the Closing
Date to the extent attributable to any asset acquired after the Closing Date.
     (b) Environmental Liabilities Indemnification by Sellers.
     (i) Subject to the remaining provisions of this Section 9.2(b) and
notwithstanding any notification by Sellers to Buyer or any of the Companies
prior to the Closing, or any prior knowledge of Buyer or any of the Companies,
Sellers will jointly and severally indemnify, defend and hold Buyer and the
Companies harmless from and against any and all (A) Environmental Liabilities
and (B) Damages incurred by Buyer or any of the Companies arising out of, or
relating to, any breach of any representation or warranty contained in
Section 3.2.
     (ii) Notwithstanding the foregoing, Sellers will have no obligation to
indemnify, defend or hold harmless Buyer or the Companies from or against any
Environmental Liability to the extent such Environmental Liability (A) has been
caused by any negligence, recklessness or willful misconduct of Buyer or,
post-Closing, any of the Companies; provided, however, that any construction,
erection, removal, repair, maintenance, demolition, alteration, modification or
relocation of the Leased Real Property, the other assets of the Companies or the
Business will not be considered “acts, negligent omissions, negligence,
recklessness or willful misconduct” under this Section 9.2(b)(ii) if such
activities are performed (other than at the request of Buyer) or required to be
performed by the owner of the facility (if other than Buyer), Sellers (or any
Affiliate of any Seller) or any Former Shareholder, (B) arises out of, or
relates to, any Environmental Condition at a Leased Real Property that is not
the subject of a Related Party Lease that does not arise out of, or relate to,
the operations of the Companies at such Leased Real Property on or prior to the
Closing Date or (C) has been discovered or identified as a result of a breach of
Section 7.8.
     (iii) From and after the Closing, as long as Sellers have an obligation to
indemnify Buyer pursuant to this Section 9.2(b) and provided that the Litigation
Conditions (as hereinafter defined) are satisfied, Sellers will control all
Remedial Action and negotiations with any Governmental Authority in respect of
all Environmental Conditions. Any such Remedial Actions with respect to which
Sellers will have an indemnification obligation hereunder (a “Covered Remedial
Action”) will be performed in a commercially reasonable manner, including, to
the extent allowed or authorized by applicable Environmental Law or the
Governmental Authority with jurisdiction over a Covered Remedial Action, the use
of applicable numeric or narrative standards to which Hazardous Materials in,

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on or around land must be remediated as established pursuant to Environmental
Laws by the Governmental Authority with jurisdiction over such land. Sellers
will select consultants and contractors to implement such Covered Remedial
Action (not reasonably objected to by Buyer). Sellers, their consultants and
their contractors will be allowed, during normal business hours and upon Buyer’s
consent (which will not be unreasonably withheld or delayed), to implement such
Covered Remedial Action and to the extent such use would not unreasonably
interfere with Buyer’s or the Companies’ business, use, at Sellers’ cost and
during normal business hours and upon Buyer’s consent (which will not be
unreasonably withheld or delayed), any systems, equipment or utilities at such
location reasonably necessary to conduct any Covered Remedial Action, including
but not limited to any systems, equipment and utilities reasonably necessary for
the proper or effective operation of any remedial system (including the sanitary
sewer system and those systems necessary for the supply of gas, water,
compressed air and electricity). Buyer will provide Sellers and their
environmental consultants, if any, with copies of all non-privileged
Environmental Reports, analytical data, correspondence, directives, orders and
documents submitted to or received by Buyer or any of the Companies from any
Governmental Authority in connection with the Covered Remedial Action, and other
non-privileged documents created or received by or on behalf of Buyer or any of
the Companies in connection with the Covered Remedial Action.
     (iv) Buyer will inform Sellers promptly in writing of any Environmental
Condition or Environmental Claim in respect of which Sellers may have an
indemnification obligation under this Section 9.2(b), and Sellers will inform
Buyer promptly in writing upon being served with any summons, citation,
subpoena, complaint, indictment, information, notice of violation or other
document relating to any Environmental Condition or Remedial Action with respect
to the Facilities, whether civil, criminal or investigative; provided, however,
that the failure of a party to give such notice will not adversely affect the
party’s rights under this Agreement except to the extent (if any) that the party
who is not promptly informed will have been materially prejudiced as a result of
such failure.
     9.3 Certain Limitations on Claims for Indemnification.
     (a) Time Limitations.
     (i) The right of Buyer to indemnification under Section 9.2 will apply only
to those claims for indemnification which are given pursuant to this Agreement
on or before the respective dates set forth below:
     (A) Any claim for indemnification under Section 9.2(a)(i) relating to any
breach of the representations and warranties set forth in Sections 3.1(x) or 3.3
(to the extent any such representation and warranty set forth in Section 3.3
relates to compliance with the Code), or any claim for indemnification under
Sections 9.2(a)(iv), (v), (vi), (vii), (viii) or (ix)

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will be made on or before 90 days after the expiration of the applicable statute
of limitations (and any extensions thereof) applicable to any claim arising in
connection with any breach of any such representations and warranties or the
subject of such indemnity.
     (B) No time limit will apply to any right to indemnification under
Section 9.2(a)(i) relating to any breach of any representation or warranty
contained in Sections 3.1(a), (b) or (c), subsections (i), (ii) or part (A) of
(iii) of Section 3.1(e) or Section 3.1(k)(ii) (each such section or subsection,
as the case may be, an “Unlimited Section” and collectively, the “Unlimited
Sections”), Section 9.2(a)(iii), Section 9.2(a)(viii) or Section 9.2(a)(ix).
     (C) Any claim for indemnification under Section 9.2(a)(i) relating to any
breach of any representation or warranty set forth in any subsection of
Sections 3.1 or 3.3 (or portion thereof) not referred to elsewhere in this
Section 9.3(a)(i) or under Section 9.2(a)(ii) will be made on or before the date
that is 18 months following the Closing Date.
     (D) Any claim for indemnification under Section 9.2(b) will be made on or
before the fifth anniversary of the Closing Date.
     (ii) Any claims for indemnification under Section 9.1 for any breach of any
representation or warranty set forth in Article IV will be made on or before the
date that is 18 months following the Closing Date.
     (iii) Notwithstanding the foregoing, if a claim for indemnification under
Sections 9.1 or 9.2 is made in a timely manner, the subsequent expiration of the
survival period, if any, of the corresponding representation or warranty or
right of indemnification will not affect the rights and obligations of the
indemnified and indemnifying parties thereunder with respect to such claim.
     (b) Maximum and De minimis Amounts.
     (i) The maximum aggregate amount of indemnification which can be required
of Sellers:
     (A) under Section 9.2(a)(i) relating to any breach of any representation or
warranty contained in the Unlimited Sections or Section 3.1(f) (with respect to
the Statement of Net Debt), Section 9.2(a)(iii), Section 9.2(a)(x) and Section
9.2(a)(xi) will not exceed an amount equal to the Purchase Price;
     (B) under Section 9.2(a)(i) relating to any breach of any representation or
warranty set forth in any section other than the Unlimited Sections will not
exceed $28,000,000; and

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     (C) under Section 9.2(b) will not exceed $36,000,000; provided, however,
that after the date that is 18 months following the Closing Date such limit will
be reduced to an amount equal to (1) $28,000,000 plus (2) the total monetary
amount of any claim for which Buyer has sought indemnification from Sellers
pursuant to Section 9.2(b) prior to such date.
     (ii) Sellers will not be required to indemnify, defend or hold Buyer or the
Companies harmless from and against any Damages under Section 9.2(b) or
Section 9.2(a)(i) with respect to any breach of any representation or warranty
(other than a breach of any representation and warranty contained in an
Unlimited Section or, with respect to Section 3.1(f) as it pertains to the
Statement of Net Debt), unless and until the aggregate amount of all such
Damages equals $2,800,000 (the “Threshold Amount”), in which event Sellers will
be obligated to indemnify Buyer and the Companies, and Buyer and the Companies
may assert their right to indemnification hereunder to the extent such Damages
exceed the Threshold Amount. For purposes of calculating the amount of Damages
incurred by a party seeking indemnification hereunder arising out of or
resulting from, but not for purposes of determining whether there has occurred,
any breach of a representation, covenant or agreement contained herein,
references to an “Seller Material Adverse Change” or materiality (or other
correlative terms) will be disregarded.
     (c) Exception to Limitations. Notwithstanding anything in this Section 9.3,
the limitations set forth in Sections 9.3(a) and (b) will not apply with respect
to any fraud or willful or intentional misrepresentation.
     (d) Payment of Damages. If an amount is payable to Buyer pursuant to this
Article IX, such amount will, (i) first, to the extent of available funds, be
paid to Buyer by the Escrow Agent from the Escrowed Funds and, to the extent
that the Escrowed Funds are insufficient, (ii) second, be paid to Buyer directly
by Sellers in cash, by cashier’s or certified check or by wire transfer of
immediately available funds to an account designated by Buyer.
     (e) Calculation of Damages. The amount of any Damages for which
indemnification is provided to any party pursuant to this Article IX will be
calculated giving effect to (net of) (i) any amounts actually recovered by the
indemnified party with respect to such Damages under any insurance policies of
the Companies (and, with respect to claims for indemnification made by Buyer,
Buyer agrees to use commercially reasonable efforts to inquire as to whether any
such insurance policies provide coverage for the claim at issue and, if so, to
use commercially reasonable efforts to seek recovery thereunder) or from any
third-party; (ii) any amounts specifically accrued or reserved for as a current
liability or as a deduction from a current asset on the Balance Sheets with
respect to such Damages; and (iii) the amount of any Tax benefits actually
received (net of any Tax detriment suffered) by the indemnified party or its
Affiliates (each a “Loss Reduction Amount”). If the amount of any Damages
incurred by an indemnified party at any time subsequent to the making of a
payment by an indemnifying party pursuant to

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this Article IX is reduced by a Loss Reduction Amount, the amount of such Loss
Reduction Amount (less any costs, expenses or premiums incurred in connection
therewith) will promptly be repaid by the indemnified party to the indemnifying
party. Sellers hereby waive any and every claim for recovery from Buyer for any
and all Damages which Buyer recovers as a Loss Reduction Amount. Sellers agree
that the waiver hereunder will preclude the assignment of any such claim by
subrogation (or otherwise) to an insurance company (or any other Person).
     9.4 Notice of Claim; Right to Participate in and Defend Third Party Claim.
If any indemnified party receives notice of the assertion of any claim, the
commencement of any suit, action or proceeding, or the imposition of any penalty
or assessment by a third party in respect of which indemnity may be sought
hereunder (a “Third Party Claim”), and the indemnified party intends to seek
indemnity hereunder, the indemnified party will promptly provide the
indemnifying party with notice of the Third Party Claim (including a copy of any
related third party demand, claim or complaint). The failure by an indemnified
party to notify an indemnifying party of a Third Party Claim will not relieve
the indemnifying party of any indemnification responsibility under this
Article IX, unless such failure adversely prejudices the ability of the
indemnifying party to defend such Third Party Claim. The indemnifying party will
have the right, exercisable by written notice to the indemnified party at any
time following receipt of notice from the indemnified party of the commencement
of or assertion of any Third Party Claim, at the sole expense of the
indemnifying party, to assume the defense of such Third Party Claim which
involves (and continues to involve) solely monetary damages; provided, that
(a) the indemnifying party expressly agrees in such notice that, as between the
indemnifying party and the indemnified party, the indemnifying party will be
solely obligated to satisfy and discharge such Third Party Claim; provided, any
amounts necessary to so discharge such Third Party Claim will first be recovered
from the Escrowed Funds; and provided, if the indemnifying party gives the
indemnified party prompt written notice and an opportunity to participate in the
defense thereof, the indemnifying party will not be deemed to have agreed to be
solely obligated to satisfy and discharge (i) such Third Party Claim to the
extent facts and circumstances arise subsequent to the date of such notice that
indicate, in the reasonable judgment of the indemnifying party, that the
indemnifying party would not be solely responsible, as between the indemnifying
party and the indemnified party, for the Damages resulting from such Third Party
Claim or (ii) any additional claims brought in the same action against the
indemnified party following the assumption of the defense of such Third Party
Claim; (b) the defense or settlement of such Third Party Claim by the
indemnifying party will not, in the reasonable judgment of the indemnified
party, have a material and adverse effect on the continued operation of the
indemnified party’s business; (c) the timing of the assumption of the defense by
the indemnifying party will not, in the reasonable judgment of the indemnified
party, adversely prejudice the defense of such Third Party Claim; and (d) the
indemnifying party makes reasonably adequate provision to ensure the indemnified
party of the ability of the indemnifying party to satisfy and discharge such
Third Party Claim in full (provided, any amounts necessary to so discharge such
Third Party Claim will first be recovered from the Escrowed Funds) (the
conditions set forth in clauses (a), (b), (c) and (d) are collectively referred
to as the “Litigation Conditions”); provided, however, that if the parties in
any action will include both an indemnifying party and an indemnified party,
and, under the applicable rules of professional conduct, counsel would not be
permitted to represent both the indemnified party and the indemnifying party,
the indemnified party will have the right to select separate counsel (in
addition to local counsel solely for

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purposes of satisfying jurisdictional requirements) to participate in the
defense of such action on its behalf, at the expense of the indemnifying party,
to the extent such expenses are reasonable; and provided further, however, that
the indemnifying party will forfeit the right to control the defense or
settlement of any such claim if, at any time after assuming the defense or
settlement thereof, the indemnifying party no longer satisfies the Litigation
Conditions. If the indemnifying party elects not to compromise or defend the
Third Party Claim, fails to notify the indemnified party of its election as
herein provided, or fails to satisfy the Litigation Conditions, the indemnified
party may pay, compromise or defend such Third Party Claim; and provided
further, however, that the indemnifying party will not settle or compromise any
Third Party Claim without the indemnified party’s prior written consent, unless
(i) the terms of such settlement or compromise release the indemnified party
from any and all liability with respect to the Third Party Claim, (ii) the
indemnifying party will have available assets (giving effect to the aggregate
amount of Escrowed Funds then available) sufficient to cover the full amount of
any judgment or settlement award payable in connection with such Third Party
Claim, and (iii) the indemnifying party will have acknowledged its obligations
to indemnify the indemnified party with respect to such Third Party Claim in
accordance with this Article IX. The indemnified party will be entitled (at the
indemnified party’s expense) to participate in the defense of any Third Party
Claim with its own counsel. The parties agree to cooperate fully with each other
and their respective counsel in the defense against any Third Party Claim.
Notwithstanding any other provision of this Section 9.4, if Seller is the
indemnifying party with respect to a Third Party Claim and such Third Party
Claim relates to any actual or alleged Environmental Liability involving
Hazardous Material not referred to in Section 9.2(b)(iii), the indemnified party
has the option to either (x) allow Seller to defend the Third Party Claim
pursuant to the terms and conditions of the preceding sentence with counsel
reasonably acceptable to the indemnified party or (y) defend such Third Party
Claim, provided that all legal fees and costs of the indemnified party’s
attorneys in connection with the defense will be paid by such indemnified party
and Sellers will not be obligated to indemnify Buyer with respect to such fees
and costs. In the event Sellers and Buyer subsequently agree, in their
reasonable discretion, to the addition of an insurer to cover some or all of the
potential liabilities hereunder, the parties acknowledge that reasonable
revisions to the provisions herein related to defense of Third Party Claims may
be necessary in order to accommodate the insurer.
     9.5 Adjustment to Purchase Price. Any payment under this Article IX will be
treated by the parties as an adjustment to the Purchase Price for Tax purposes
to the extent permitted by applicable Law.
     9.6 Exclusive Remedy. Except for any Damages arising out of, or relating
to, any breach of any representation or warranty contained in the Unlimited
Sections or with respect to any fraud or willful or intentional
misrepresentation, after the Closing has occurred, the right to indemnification
under this Article IX will be the exclusive remedy of each party hereto in
connection with any breach by the other party of its representations,
warranties, covenants or agreements contained herein.
     9.7 No Special Damages. No party to this Agreement will have any liability
for any special, exemplary, punitive or consequential damages (including loss of
profit or revenue) suffered or incurred by any other party; except where a third
party has claimed such damages.

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ARTICLE X. MISCELLANEOUS
     10.1 Amendments and Waivers. Buyer and Sellers may, by mutual agreement,
amend this Agreement in any respect, and any party, as to such party, may
(a) extend the time for the performance of any of the obligations of the other
party; (b) waive any inaccuracies in representations and warranties by the other
party; (c) waive compliance by the other party with any of the covenants or
agreements contained herein and performance of any obligations by the other
party; and (d) waive the fulfillment of any condition that is precedent to the
performance by such party of any of its obligations under this Agreement. To be
effective, any such amendment or waiver must be in writing and be signed by the
party providing such waiver or extension, as the case may be. Such waiver or
failure to insist upon strict compliance with such obligation, covenant,
agreement or condition will not operate as a waiver of, or estoppel with respect
to, any subsequent or other failure. Whenever this Agreement requires or permits
consent by or on behalf of any party hereto, such consent will be given in
writing in a manner consistent with the requirements for a waiver of compliance
as set forth in this Section 10.1.
     10.2 Entire Agreement. Reference is made to the Confidentiality Agreement
dated August 17, 2004 (the “Confidentiality Agreement”) between Buyer, CalPly
and USG Corporation. This Agreement, together with the exhibits and Schedules
referred to herein, sets forth the entire understanding of the parties hereto
with respect to the subject matter hereof and supersedes all prior contracts,
agreements, arrangements, communications, discussions, representations and
warranties, whether oral or written, between the parties with respect to the
subject matter hereof other than the Confidentiality Agreement.
     10.3 Governing Law. This Agreement, the Related Agreements, and all other
agreements, documents and instruments delivered pursuant hereto incorporated
herein, unless otherwise expressly provided therein, will be governed by, and
construed in accordance with, the substantive laws of the State of Delaware
applicable to agreements made and to be performed entirely within such state,
without reference to the conflicts of laws rules of such state.
     10.4 Notices. Any notice, request or other communication required or
permitted hereunder will be in writing and will be deemed to have been duly
given (a) when received if personally delivered, (b) within five days after
being sent by registered or certified mail, return receipt requested, postage
prepaid, (c) within twelve hours after being sent by facsimile, with confirmed
answer back, and (d) within one business day of being sent by established
overnight courier, to the parties (and to the persons to whom copies will be
sent) at their respective addresses set forth below.

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If to Buyer or, after the Closing, any of the Companies:
USG Corporation
Legal Department
125 South Franklin Street
Chicago, Illinois 60606
Attention: Ellis A. Regenbogen, Esq., Associate General Counsel
Telephone: (312) 606-5978
Facsimile: (312) 606-4150
With a copy to:
Jones Day
77 W. Wacker Drive
Suite 3500
Chicago, Illinois 60601
Attention: Timothy J. Melton
Facsimile: (312) 782-8585
If to Sellers, or before the Closing, the Companies:
Joseph G. Zucchero
c/o California Wholesale Material Supply, Inc.
Telephone: (562) 433-2613
Facsimile: (562) 438-9263
With a copy to:
Sheppard, Mullin, Richter & Hampton LLP
333 South Hope Street
Forty-Eighth Floor
Los Angeles, California 90071
Attention: Lawrence M. Braun, Esq.
Telephone: (213) 617-4184
Facsimile: (213) 443-2814
and
Allen Ralston, Esq.
P.O. Box 92467
Long Beach, California 90809-2467
Telephone: (562) 494-4104
Facsimile: (562) 597-9527

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Any party by notice given to the other party in accordance with this
Section 10.4 may change the address or the persons to whom notices or copies
thereof will be directed.
     10.5 Counterparts. This Agreement may be executed in any number of
counterparts (any of which may be delivered by facsimile or email transmission
followed promptly by an executed original), each of which will be deemed to be
an original, and all of which together will constitute one and the same
instrument.
     10.6 Assignment; Affiliates. This Agreement, including without limitation
Section 9.2, will be binding upon and inure to the benefit of the successors,
heirs, beneficiaries, representatives and assigns of each party hereto,
including without limitation the beneficiaries of any trust which is a party
hereto, but no rights, obligations or liabilities hereunder will be assignable
by any party without the prior written consent of the other party except as
provided in Section 1.4.
     10.7 Specific Performance. Each of the parties acknowledges and agrees that
the other parties would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their specific
terms or otherwise are breached. Accordingly, each of the parties agrees that
the other parties will be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce specifically this
Agreement and the terms and provisions hereof in an arbitration instituted
pursuant to Section 10.8.
     10.8 Arbitration.
     (a) Each party hereto, for itself and its successors and assigns, agrees
that any dispute between the parties hereto with respect to any matter covered
by or arising out of this Agreement will be submitted to binding arbitration,
before one arbitrator and administered by the American Arbitration Association
in accordance with its Commercial Arbitration Rules (this “AAA Rules”), to occur
in Los Angeles, California. Each party, for itself and its successors and
assigns, irrevocably waives any objection it may have now or hereafter to
binding arbitration under the AAA Rules to occur in Los Angeles, California.
Each party agrees not to commence any action, suit or proceeding relating hereto
in any venue other than arbitration.
     (b) Each party is required to notify the other parties and the Escrow
Agent, in writing, of any dispute. Notice of a dispute for which the party
intends to initiate arbitration will be made by registered or certified mail,
postage prepaid, to each party at its address set forth in Section 10.4 or at
such other address of which the other parties have been notified in accordance
with the provisions of Section 10.4. Within ten days after receipt of a notice
of a dispute for which the party intends to initiate arbitration, Buyer and
Sellers will designate in writing one arbitrator to resolve the dispute;
provided, that if Buyer and Sellers cannot agree on an arbitrator within such
ten-day period, the party that provided written notice of the dispute will file
a demand for arbitration with the American Arbitration Association and the
arbitrator will be selected by the American Arbitration Association. The
arbitrator so designated will not be an employee, consultant, officer, director
or equity holder of any party hereto or any Affiliate of any party to this
Agreement.

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     (c) The parties will participate in the arbitration in good faith. Each
such party will have the right to be represented by counsel. The arbitration
will be governed by the AAA Rules; provided, that the final arbitration decision
is to be rendered as promptly as practicable but in any event no later than
180 days after first referral to the arbitrator, and the arbitrator will agree
to comply with this schedule before accepting appointment; provided further,
however, that this time limit may be extended by agreement of the parties and by
the arbitrator, if necessary.
     (d) The arbitrator’s decision and award will be made and delivered in
writing to each party and the Escrow Agent and will set forth a reasoned basis
for the decision, including any award of damages or finding of liability. The
decision and award of the arbitrator will be binding and conclusive upon all
parties hereto.
     (e) The prevailing party in any arbitration will be entitled to an award of
reasonable attorneys’ fees incurred in connection with the arbitration, and the
non-prevailing party will pay such fees. The non-prevailing party will also be
responsible for the payment or reimbursement of the fees of the arbitrator and
the costs and expenses of the arbitration. The arbitrator will determine which
is the prevailing party for purposes of this Section 10.8(e). The arbitrator
will also determine the amount of “reasonable attorney’s fees” to be awarded to
the prevailing party.
     (f) Any arbitration award entered pursuant to this Section 10.8 will be
binding and the parties waive any appellate review of the arbitration award
absent manifest error. Judgment upon the award by the arbitrator may be entered
in any court having jurisdiction thereof.
     10.9 Third Parties. Except as provided in Section 1.4, nothing expressed or
implied in this Agreement is intended, or will be construed, to confer upon or
give any Person other than Buyer, Sellers and the Companies any rights or
remedies under or by reason of this Agreement.
     10.10 Headings. The headings in this Agreement are solely for convenience
of reference and will not be given any effect in the construction or
interpretation of this Agreement.
     10.11 Gender and Number. The masculine, feminine or neutered gender and the
singular or plural number will each be deemed to include the others whenever the
context so indicates.
     10.12 Construction. Buyer and Sellers have participated jointly in the
negotiation and drafting of this Agreement and the Related Agreements. In the
event any ambiguity or question of intent or interpretation arises, this
Agreement and the Related Agreements will be construed as if drafted jointly by
Buyer and Sellers, and no presumption or burden of proof will arise favoring or
disfavoring any party by virtue of the authorship of any of the provisions of
this Agreement or the Related Agreements. Any reference to any federal, state,
local or foreign statute or law will be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
words “included,” “includes,” or “including” (or any other tense or variation of
the word “include”) in this Agreement will be deemed to be followed by the words
“without limitation.” When reference is made in this Agreement to an Article or

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Section or Schedule, such reference will be to an Article or Section or Schedule
of this Agreement unless otherwise indicated. All accounting terms used but not
otherwise defined in this Agreement will have the meanings determined by GAAP.
The words “hereof,” “herein” and “hereunder” and words of similar import when
used in this Agreement will refer to this Agreement as a whole and not to any
particular provision of this Agreement. The definitions contained in this
Agreement are applicable to the singular as well as to the plural forms of such
terms and to the masculine as well as to the feminine and neuter genders of such
term. Any agreement, instrument or statute defined or referred to herein or in
any document or instrument that is referred to herein means such agreement,
instrument or statute as from time to time amended, modified or supplemented,
including (in the case of agreements or instruments) by waiver or consent and
(in the case of statutes) by succession of comparable successor statutes.
     10.13 Exhibits and Disclosure Schedules. All exhibits and schedules,
including the Disclosure Schedule, annexed hereto or referred to herein are
hereby incorporated in and made a part of this Agreement as if set forth in full
herein. Nothing in the Disclosure Schedule will be deemed adequate to disclose
an exception to a representation or warranty made herein unless the Disclosure
Schedule identifies the exception with reasonable particularity. Without
limiting the generality of the foregoing, the mere listing (or inclusion of a
copy) of a document or other item will not be deemed adequate to disclose an
exception to a representation or warranty made herein (unless the representation
or warranty has to do with the existence of the document or other item itself).
Any information disclosed in a particular Schedule will not be deemed disclosed
and incorporated into any other Schedule of the Disclosure Schedule except to
the extent the applicability of the disclosure to such other Schedule is
reasonably inferable from the disclosure made. Except to the extent set forth in
the Disclosure Schedule, neither the specification of any dollar amount in any
representation or warranty contained in this Agreement nor the inclusion of any
specific item in any Schedule hereto is intended to vary the definition of
“Seller Material Adverse Change” or to imply that such amount, or higher or
lower amounts, or the item so included or other items, are or are not material,
and no party will use the fact, in and of itself, of the setting forth of any
such amount or the inclusion of any such item in any dispute or controversy
between the parties as to whether any obligation, item or matter not described
herein or included in the Disclosure Schedule is or is not material for purposes
of this Agreement; provided that nothing herein is intended to modify any
determination with respect to (a) whether a representation, warranty or covenant
in which such amount is set forth has been breached or defaulted upon or (b) one
party’s rights including rights to terminate or obtain indemnification as a
result of such breach or default. Unless this Agreement specifically provides
otherwise, except to the extent set forth in the Disclosure Schedule, neither
the specification of any item or matter in any representation or warranty
contained in this Agreement nor the inclusion of any specific item in the
Disclosure Schedule hereto is intended to imply that such item or matter, or
other items or matters, are or are not in the ordinary course of business, and
no party will use the fact, in and of itself, of the setting forth or the
inclusion of any such item or matter in any dispute or controversy between the
parties as to whether any obligation, item or matter not described herein or
included in the Disclosure Schedule is or is not in the ordinary course of
business for purposes of this Agreement.
     10.14 Conflict of Interest. If any Seller so desires, and without the need
for any consent or waiver by the Companies or Buyer, SMRH will be permitted to
represent such Seller after the Closing in connection with any matter, including
without limitation anything related to the

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transactions contemplated by this Agreement or any disagreement or dispute
relating thereto. Without limiting the generality of the foregoing, after the
Closing, SMRH will be permitted to represent such Seller, any of his agents and
Affiliates, or any one or more of them, in connection with any negotiation,
transaction or dispute (“dispute” includes litigation, arbitration or other
adversary proceeding) with Buyer, the Company or any of their agents or
Affiliates under or relating to this Agreement, any transaction contemplated by
this Agreement, and any related matter, such as claims for indemnification and
disputes involving consulting or noncompetition agreements or other agreements
entered into by such Seller in connection with this Agreement. Upon and after
the Closing, the Companies will cease to have any attorney-client relationship
with SMRH, unless and to the extent SMRH is specifically engaged in writing by a
Company to represent such Company after Closing and either such engagement
involves no conflict of interest with respect to such Seller or such Seller
consents in writing at the time to such engagement. Any such representation of
such Company by SMRH after the Closing will not affect the foregoing provisions
hereof.
[Signatures on next page]

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          IN WITNESS WHEREOF, Individual has executed this Agreement, and Seller
Holdco, Seller Trust, Buyer and each of the Companies have caused their
respective duly authorized representatives, agents or trustees to execute this
Agreement, as of the date first written above.

                  Buyer:   Individual:
 
                L&W SUPPLY CORPORATION                     /s/ Joseph George
Zucchero
             
 
          Name:   Joseph George Zucchero By:   /s/ Brendan J. Deely
                     
 
  Name:   Brendan J. Deely        
 
  Title:   President and Chief Operating Officer                     Seller
Holdco:
 
                            JCSG HOLDINGS CORPORATION
 
                By:   /s/ John W. Cain
  By:   /s/ Joseph George Zucchero              
 
  Name:   John W. Cain       Name:
 
  Title:   Executive Vice President,       Title:
 
      Business Development, Strategy and Corporate Relations        
 
                            Seller Trust:
 
                            THE JOSEPH G. ZUCCHERO FAMILY TRUST DATED SEPTEMBER
12, 1988
 
               
 
          By:   /s/ Joseph George Zucchero
 
               
 
              Joseph George Zucchero, Trustee
 
               
 
          By:   /s/ Karen S. Zucchero
 
               
 
              Karen S. Zucchero, Trustee

 

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                              Companies:
 
                            CALIFORNIA WHOLESALE MATERIAL SUPPLY, INC.
 
               
 
          By:   /s/ Joseph George Zucchero
 
               
 
              Name:
 
              Title:
 
                            STOCKDALE MATERIALS CO., INC.
 
               
 
          By:   /s/ Joseph George Zucchero
 
               
 
              Name:
 
              Title:
 
                            SOUTHWEST INSTALL AND REWORK, INC.
 
               
 
          By:   /s/ Joseph George Zucchero
 
               
 
              Name:
 
              Title:
 
                            E FOAM CORP.
 
               
 
          By:   /s/ Joseph George Zucchero
 
               
 
              Name:
 
              Title:
 
                            DISTRIBUIDORA CALPLY DE MEXICO, S.A DE C.V.
 
               
 
          By:   /s/ Joseph George Zucchero
 
               
 
              Name:
 
              Title:

 

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EXHIBITS

     
Exhibit A-1
  Companies
Exhibit A-2
  Pre-Restructuring Capitalization
Exhibit A-3
  Restructuring
Exhibit A-4
  Post-Restructuring Capitalization
Exhibit B
  Foam Agreement
Exhibit C
  Stockdale Agreement
Exhibit D
  Form of Escrow Agreement
Exhibit E
  Accounting Principles
Exhibit F-1
  Change of Control Agreement
Exhibit F-2
  Individuals Receiving Change of Control Agreements
Exhibit G
  Form of Opinion of SMRH
Exhibit H-1
  Form of Noncompetition Agreement (Individual)
Exhibit H-2
  Form of Noncompetition Agreement
Exhibit H-3
  Form of Consulting Agreement
Exhibit H-4
  Form of Retention Agreement
Exhibit I-1
  Form of New Lease Agreement
Exhibit I-2
  New Lease Agreement Terms
Exhibit J
  Form of Spousal Consent
Exhibit K
  Form of Waiver
Exhibit L
  Seller’s Knowledge
Exhibit M
  Form of Retention Incentive Bonus Agreement