Exhibit 10.26

 

Execution Version

 

ASSET PURCHASE AGREEMENT

 

BY AND AMONG

 

BASIC CHEMICALS COMPANY, LLC,

 

KMG-BERNUTH, INC., AND

 

KMG CHEMICALS INC.

 

DATED AS OF JUNE 7, 2005

 

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TABLE OF CONTENTS

 

ARTICLE 1 DEFINITIONS

 

ARTICLE 2 PURCHASE AND SALE OF ASSETS

 

2.1

Purchased Assets

 

2.2

Excluded Assets

 

2.3

Assumed Liabilities

 

2.4

Limitation of Liabilities

 

ARTICLE 3 PURCHASE PRICE

 

3.1

Purchase Price

 

3.2

Allocation of Purchase Price

 

ARTICLE 4 CLOSING

 

4.1

Closing

 

4.2

Deliveries by Seller

 

4.3

Deliveries by Buyer

 

ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF SELLER

 

5.1

Organization and Existence

 

5.2

Authority

 

5.3

No Violations

 

5.4

Governmental Approval

 

5.5

Seller Proceedings

 

5.6

No Brokers

 

5.7

Ownership of Purchased Assets

 

5.8

Environmental Matters

 

5.9

Compliance With Laws

 

5.10

Financial Information

 

5.11

Intangible Assets

 

5.12

Instruments in Full Force and Effect

 

5.13

Taxes

 

5.14

DISCLAIMER OF REPRESENTATIONS AND WARRANTIES

 

ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF BUYER

 

6.1

Organization and Existence

 

6.2

Authority

 

6.3

No Violations

 

6.4

Governmental Approval

 

6.5

Buyer Proceedings

 

6.6

No Brokers

 

ARTICLE 7 REPRESENTATIONS AND WARRANTIES OF GUARANTOR

 

7.1

Organization and Existence

 

7.2

Authority

 

7.3

No Violations

 

7.4

Governmental Approval

 

7.5

Guarantor Proceedings

 

ARTICLE 8 COVENANTS

 

8.1

Confidentiality

 

8.2

Employees and Employee Benefits

 

 

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8.3

Taxes Resulting From Sale

 

8.4

Ad-Valorem Taxes

 

8.5

Expenses

 

8.6

Agreement to Not Compete

 

8.7

Specific Performance

 

ARTICLE 9 POST-CLOSING SERVICES

 

9.1

Remittances

 

9.2

Delivery of Purchased Assets

 

9.3

Transition Activities

 

9.4

Removal of Equipment

 

ARTICLE 10 INDEMNIFICATION

 

10.1

Indemnification by Seller

 

10.2

Indemnification by Buyer

 

10.3

Indemnification Procedure

 

10.4

Survival

 

10.5

Applicability of Indemnification Obligation

 

10.6

Limitation on Amounts

 

10.7

Sole Remedy; Limitations

 

ARTICLE 11 GUARANTY

 

11.1

Guaranty

 

11.2

Amendments

 

11.3

Waivers

 

ARTICLE 12 MISCELLANEOUS

 

12.1

Notices

 

12.2

Entire Agreement

 

12.3

Amendments and Waiver; Rights and Remedies

 

12.4

Governing Law

 

12.5

Binding Effect; Assignment

 

12.6

Counterparts

 

12.7

Interpretation

 

12.8

Severability of Provisions

 

 

SCHEDULES AND EXHIBITS

 

Schedules

 

 

Schedule 1.1:

Knowledge

Schedule 2.1(c):

Equipment

Schedule 2.1(f):

Ordinary Course Agreements

Schedule 5.3:

Exception to No Violations

Schedule 5.4:

Seller’s Governmental Approvals

Schedule 5.5:

Pending Proceedings

 

 

Exhibits

 

 

Exhibit A:

Form of Promissory Note

Exhibit B:

Form of Bill of Sale

Exhibit C:

Form of Assumption Agreement

Exhibit D:

Form of Registration Assignment

Exhibit E:

Form of Chlorine Supply Agreement

 

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ASSET PURCHASE AGREEMENT

 

This ASSET PURCHASE AGREEMENT (“Agreement”) is entered into on and effective as
of this June 7, 2005, by and among KMG-BERNUTH, INC., a Delaware corporation
(“Buyer”), BASIC CHEMICALS COMPANY, LLC, a Delaware limited liability company
(“Seller”), and KMG CHEMICALS INC., a Delaware corporation (“Guarantor”). 
Seller and Buyer are each a “party” hereunder and collectively the “parties”
hereunder.

 

RECITALS

 

WHEREAS, Seller desires to sell and transfer to Buyer certain of the properties,
assets and liabilities related to the Penta Business (as defined below) other
than the Excluded Assets (as defined below), which Seller intends to acquire in
connection with its acquisition of certain assets of Vulcan Materials Company
(“VMC”) and Buyer desires to purchase and acquire such properties, assets and
liabilities, all upon the terms set forth herein; and

 

WHEREAS, the parties hereto desire to set forth certain representations,
warranties and agreements, all as more fully set forth below;

 

NOW, THEREFORE, in consideration of the premises and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:

 

AGREEMENT

 

ARTICLE 1
DEFINITIONS

 

As used in this Agreement, the following terms have the following respective
meanings:

 

“Affiliate” means, as to the Person specified, any Person controlling,
controlled by or under common control with such Person, with the concept of
control in such context meaning the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of
another, whether through the ownership of voting securities, by contract or
otherwise.

 

“Aggregate Inventory Cost” has the meaning specified in Section 3.1.

 

“Agreement” has the meaning specified in the opening paragraph.

 

“Assumed Liabilities” has the meaning specified in Section 2.3.

 

“Assumption Agreement” has the meaning specified in Section 4.2(c).

 

“Bill of Sale” has the meaning specified in Section 4.2(c).

 

“Business Records” means all Records in possession of Seller to the extent that
such Records relate primarily to the Penta Business, the Purchased Assets or the
Assumed Liabilities, and shall

 

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include historical financial and tax records primarily related to the prior
operation of the Penta Business, but shall exclude all Excluded Assets;
provided, however, that if any Business Records pertain both to the Penta
Business and to unrelated activities or other businesses of Seller or VMC, then
only the portion of such documents or other records which pertain to the Penta
Business shall be included in the Purchased Assets.

 

“Buyer” has the meaning specified in the opening paragraph of this Agreement.

 

“Claims” means all losses, liabilities, claims, demands, damages, costs, fees
and expenses (including reasonable attorneys’ fees and disbursements) of every
kind, nature and description.

 

“Closing” has the meaning specified in Section 4.1.

 

“Closing Date” means the date upon which the Closing occurs.

 

“Confidential Information” has the meaning specified in Section 8.1.

 

“Encumbrances” means liens, charges, pledges, options, mortgages, security
interests, claims, easements, rights-of-way, servitudes, title defects and other
similar encumbrances, but specifically excluding the Permitted Encumbrances.

 

“Environmental Laws” means any and all Legal Requirements pertaining to (i) the
control of any potential pollutant or protection of the air, water or land,
(ii) solid, gaseous or liquid waste generation, handling, treatment, storage,
disposal or transportation, or (iii) exposure to hazardous, toxic or other
substances alleged to be harmful.  Environmental Laws shall include all such
laws in effect in any and all jurisdictions in which the Purchased Assets are
located or in which any Seller or its Affiliates has conducted operations using
any of the Purchased Assets, including the Clean Air Act, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the Rivers and
Harbors Act of 1899, the Federal Water Pollution Control Act, the Occupational
Safety and Health Act of 1970, the Resource Conservation and Recovery Act of
1976, the Safe Drinking Water Act, the Toxic Substances Control Act, the
Superfund Amendments and Reauthorization Act of 1986, the Hazardous Materials
Transportation Act, Federal Insecticide, Fungicide and Rodenticide Act, the Food
Quality Protection Act, and other environmental conservation or protection laws.

 

“EPA” means the United States Environmental Protection Agency and all
subdivisions thereof.

 

“Equipment” has the meaning specified in Section 2.1(c).

 

“Excluded Assets” has the meaning specified in Section 2.2.

 

“Facility” means Seller’s Penta Products manufacturing facility in Wichita,
Kansas.

 

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“Governmental Entity” means any court or tribunal in any jurisdiction (domestic
or foreign) or any public, governmental or regulatory body, agency, department,
commission, board, bureau or other authority or instrumentality (domestic or
foreign).

 

“Guarantor” has the meaning specified in the opening paragraph of this
Agreement.

 

“Indemnified Party” has the meaning specified in Section 10.3.

 

“Indemnifying Party” has the meaning specified in Section 10.3.

 

“Instruments” has the meaning specified in Section 5.12.

 

“Intellectual Property Rights” has the meaning specified in Section 2.1(b).

 

“Knowledge” with respect to Buyer or Guarantor means the actual knowledge after
reasonable inquiry of the executive management of such entity and any other
Person with direct supervisory responsibility over a matter for such party, and
with respect to Seller means the actual knowledge of the individuals set forth
on Schedule 1.1, all of whom are employees of Seller or VMC or their respective
affiliates.

 

“Legal Requirements” has the meaning specified in Section 5.9(a).

 

“MAE” means (a) when used with respect to Seller’s or VMC’s Penta Business, any
material adverse change in the business, properties, results of operations or
financial condition of such Penta Business, taken as a whole, but excluding any
change to the extent arising from any (i) changes in laws, (ii) changes
resulting from the announcement of the execution hereof, or the execution of the
Asset Purchase Agreement between VMC and Seller, or the execution of the Asset
Purchase and Sale Agreement between ERCO Worldwide (USA) Inc. and Seller, and
the transactions contemplated hereby and thereby, (iii) changes in general
economic conditions or (iv) changes generally affecting the industry in which
such Penta Business competes, including changes in the price of energy, supplies
and raw materials, (b) when used with respect to Seller or the Penta Business of
Seller or VMC, any effect that materially impairs the ability of Seller to
complete the transactions contemplated hereby or to fulfill its respective
obligations hereunder, and (c) when used with respect to Buyer or Guarantor, any
effect that materially impairs the ability of Buyer or Guarantor to complete the
transactions contemplated hereby or to fulfill their respective obligations
hereunder.

 

“Non-Compete Term” has the meaning specified in Section 8.6.

 

“Note” has the meaning specified in Section 3.1(b).

 

“Open Orders” has the meaning specified in Section 2.3.

 

“Ordinary Course Agreements” has the meaning specified in Section 2.1(f).

 

“Penta” means pentachlorophenol.

 

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“Penta Business” means the manufacturing, formulating, processing, storing,
distributing, selling, marketing, use and licensing of the Penta Products.

 

“Penta Inventory” means all inventory of Penta Products stored in the Facility
as of the Closing that meets the relevant product specification for such Penta
Product, based on a physical inventory jointly conducted by the parties on or
about the Closing Date.

 

“Penta Products” means the pentachlorophenol product lines of Seller formerly
owned by VMC, including the following products:

 

PRODUCT NAME:

 

Registration Number

VULCAN GLAZD PENTA

 

EPA Reg. No. 5382-16

VULCAN PREMIUM 4 LB. PENTA (PCP 2) CONCENTRATE

 

EPA Reg. No. 5382-36

VULCAN GLAZD PENTA

 

PMRA Reg. No. 21785

VULCAN BLOCK PENTA

 

PMRA Reg. No. 22024

 

“Permits” means any permit, approval, authorization, license, variance, or other
permission or consent required from a Governmental Entity for operation of the
Penta Business under any applicable Legal Requirement.

 

“Permitted Encumbrances” shall mean (i) liens for current Taxes, assessments or
other claims by a governmental authority not yet delinquent, or which is being
contested in good faith by appropriate proceedings or for which an appropriate
reserve or security deposit is established, (ii) mechanics’, carriers’,
workers’, repairers’ and similar Encumbrances arising or incurred in the
ordinary course of business, (iii) zoning, entitlement and other land use and
environmental regulations by Governmental Entities, (iv) such other
imperfections in title, charges, easements, restrictions and other encumbrances
that do not materially detract from or materially diminish the value of the
Purchased Assets or do not materially interfere with the present use of such
asset in the Penta Business as currently conducted, and (v) matters resulting
from the actions of Buyer or its agents or Affiliates.

 

“Person” means a corporation, an association, a partnership, an organization, a
business, an individual or a Governmental Entity.

 

“PMRA” means the Canadian Pest Management Regulatory Agency and all subdivisions
thereof.

 

“Proceedings” means all proceedings, arbitration, litigation, actions, claims
and suits by or before any arbitrator or Governmental Entity.

 

“Purchase Price” has the meaning specified in Section 3.1.

 

“Purchased Assets” has the meaning specified in Section 2.1.

 

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“Real Property” means (i) all land in which Seller has an ownership interest,
(ii) all buildings, structures, fixtures, and improvements located on such land,
including those under construction, and (iii) means all privileges, rights,
easements, and appurtenances belonging to or for the benefit of such land.

 

“Records” means all information, regardless of the medium, including schedules,
work papers, books, records, notes, sales and sales promotional data,
advertising materials, credit information, cost and pricing information,
equipment maintenance data, purchasing records and information, supplier lists,
business plans, reference catalogs, purchase orders, sales forms, labels,
catalogs, brochures, artwork, photographs, product display and other similar
property, rights and information.

 

“Retained Liabilities” has the meaning specified in Section 2.4.

 

“Seller” has the meaning specified in the opening paragraph of this Agreement.

 

“Supply Agreement” has the meaning specified in Section 4.2(c).

 

“Taxes” means all federal, state, local, foreign and other taxes, charges, fees,
duties, levies, imposts, customs or other assessments, including all net income,
gross income, gross receipts, sales, use, ad valorem, transfer, franchise,
profits, profit sharing, license, lease, service, service use, value added,
withholding, payroll, employment, excise, estimated, severance, stamp,
recording, occupation, premium, property, windfall profits, or other taxes,
fees, assessments, customs, duties, levies, imposts, or charges of any kind
whatsoever, together with any interest, penalties, additions to tax, fines or
other additional amounts imposed thereon or related thereto, and the term “Tax”
means any one of the foregoing Taxes.

 

ARTICLE 2
PURCHASE AND SALE OF ASSETS

 

2.1                               PURCHASED ASSETS.

 

Upon the terms set forth in this Agreement, at the Closing, Seller shall convey,
transfer, assign and deliver to Buyer, and Buyer shall purchase, free and clear
of any Encumbrances, the following assets and rights of Seller (collectively,
the “Purchased Assets”), excluding for all purposes the Excluded Assets:

 

(a)                                  The registrations of the Penta Products,
any similar registrations under applicable United States or Canadian
authorizations and applications therefor, effective upon approval by the EPA or
PMRA, as required;

 

(b)                                 All of Seller’s rights to (i) the names of
the Penta Products and all derivatives thereof, (ii) all registered and
unregistered trademarks, service marks, logos, corporate names, and trade names,
with respect to the names of the Penta Products and all derivatives thereof
(iii) all related goodwill, (iv) Seller’s rights to intellectual property
embodied in or required for the operation of the Equipment, to the extent
assignable, and (v) all other intellectual property rights and other intangible
assets, including all efficacy, toxicology, residue, health and environmental
data and studies

 

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primarily relating to Penta and any data compensation rights in respect thereto,
(clauses (i) through (v), collectively, the “Intellectual Property Rights”), and
all of the documentation and other materials, and all Seller’s rights thereto,
primarily associated with the Intellectual Property Rights, including all
manufacturing and product designs, specifications, processes and documentation,
product labels, technical information and all copyrights thereto, but
specifically excluding items described in Section 2.2(f);

 

(c)                                  All removable equipment, machinery, tools,
appliances, implements, spare parts, supplies, and all other tangible personal
property listed on Schedule 2.1(c) (the “Equipment”), which shall be purchased
on an “AS IS, WHERE IS” basis and shall be free and clear of all Encumbrances,
and subject to Sections 5.14 and 9.4;

 

(d)                                 All Penta Inventory purchased pursuant to
Section 3.1;

 

(e)                                  All Open Orders and trade accounts
receivable for Penta Products shipped after the Closing Date;

 

(f)                                    Seller’s rights accruing on or after the
Closing under those certain contracts and agreements described on
Schedule 2.1(f) (the “Ordinary Course Agreements”) and under third party
warranties relating to the Purchased Assets, to the extent such warranties are
transferable; and

 

(g)                                 All Business Records, except that Seller
shall have the right to retain copies of any such Business Records.

 

2.2                               EXCLUDED ASSETS.

 

The Purchased Assets shall not include the following (collectively, the
“Excluded Assets”):

 

(a)                                  all cash and bank accounts of Seller;

 

(b)                                 all trade accounts receivable for products
shipped prior to the Closing Date, and any claim, remedy, security interest,
lien, or other right related to any such accounts receivable;

 

(c)                                  all intracompany and intercompany accounts
of Seller;

 

(d)                                 all prepaid expenses of Seller;

 

(e)                                  all raw materials used in the manufacture
of Penta Products, including, but not limited to, phenol, aluminum chloride,
HCL, and Dowtherm®;

 

(f)                                    all rights to use the designations
“Vulcan”, “Vulcan Materials”, “Vulcan Chemicals”, the Vulcan logo or any other
similar marks and derivatives or such names, marks and other indicia, including
domain names and copyrighted works or to the extent utilizing such names and
indicia, together with all of the goodwill represented thereby or pertaining
thereto;

 

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(g)                                 other than the Intellectual Property Rights,
the computer equipment and programs used in the Penta Business, all policies and
procedures of Seller, and all other intellectual property of Seller to the
extent not primarily used in the operation or conduct of the Penta Business;

 

(h)                                 all Real Property and all interests of any
kind therein;

 

(i)                                     the claims and rights under all
contracts to which Seller is a party not assigned to and assumed by Buyer
hereunder and, in the case of the Ordinary Course Agreements, claims and rights
thereunder to the extent, but only to the extent, that such claims and rights
accrue prior to Closing (for purposes of clarity, excluding any claims or rights
of Seller under third party warranties relating to the Purchased Assets, to the
extent such warranties are transferable);

 

(j)                                     all other rights and claims of Seller
against third parties (including, without limitation, those not yet ascertained
and/or unliquidated) relating to operation of the Penta Business for the period
prior to the Closing Date;

 

(k)                                  all insurance policies of Seller and all
rights of Seller of every nature and description under or arising out of such
insurance policies;

 

(l)                                     all losses, carryovers and rights to
receive refunds with respect to any and all Taxes of Seller, including interest
receivable with respect thereto;

 

(m)                               the basic books and records of account
relating to any Taxes of Seller;

 

(n)                                 the business of Seller or VMC, except as
expressly included in the definition of the Purchased Assets, none of which
shall relate exclusively to the manufacture or sale of the Penta Products;

 

(o)                                 all supplies, equipment, office furnishings,
computer equipment, vehicles, trucks, trailers, machinery and other tangible
personal property not included in the Equipment; and

 

(p)                                 all other assets, properties and rights of
Seller that are not Purchased Assets.

 

2.3                               ASSUMED LIABILITIES.

 

Subject to Section 2.4, Buyer shall assume the rights and obligations of Seller
under the unfilled, non-delinquent customer purchase orders received in the
ordinary course of business for which no payment has been collected (“Open
Orders”) and under the Ordinary Course Agreements and trade accounts payable of
the Penta Business properly accrued after the Closing.  Notwithstanding the
foregoing, the Ordinary Course Agreements shall be assumed by Buyer to the
extent and only to the extent the duties and obligations thereunder accrue on or
after the Closing Date, excluding any Retained Liabilities (collectively, the
“Assumed Liabilities”).  Nothing in this Section shall operate to reduce Buyer’s
obligations with respect to remittances under Section 9.1.

 

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2.4                               LIMITATION OF LIABILITIES.

 

Except as otherwise expressly provided in Section 2.3, Buyer does not assume and
is not in any way liable or responsible for any liabilities or obligations of
Seller or VMC, whether fixed or contingent, and whether known or unknown
(“Retained Liabilities”).  Without limiting the generality of the foregoing,
except to the extent specifically provided in Section 2.3, Buyer shall not
assume, or take responsibility for:

 

(a)                                  Accounts payable of the Penta Business as
of the Closing including, (i) all trade accounts payable and other obligations
of payment to providers of goods and services, (ii) all other accounts and notes
payable and (iii) any obligations, penalties, judgments and other liabilities
related thereto, in each case properly accrued prior to the Closing;

 

(b)                                 Any liability or obligation for any and all
Taxes of, or pertaining or attributable to (i) the Penta Business and/or the
Purchased Assets for any period or portion thereof that ends on or before the
Closing or (ii) Seller or VMC, including any and all Taxes described in
clauses (i) and (ii) of this Section 2.4(b) for which liability is or may be
sought to be imposed on Buyer under any successor liability, transferee
liability or similar provision of any applicable federal, foreign, state or
local law;

 

(c)                                  Liabilities or obligations of Seller or VMC
under any note, bond or other instrument;

 

(d)                                 Any defects in or Claims related to products
manufactured, formulated, stored, handled, transported, maintained, sold or
distributed in connection with the Penta Business prior to the Closing, or any
liability or obligation of Seller or VMC in respect of any express or implied
representation, warranty, agreement or guaranty made (or claimed to have been
made), or imposed (or asserted to be imposed) by operation of law, in connection
with the Penta Business prior to the Closing;

 

(e)                                  Any obligation (including indemnification
and other contingent obligations) relating to (i) acts or omissions in
connection with the Penta Business, (ii) goods or services provided to or for
the benefit of Seller or VMC, (iii) goods or services provided as part of the
Penta Business prior to the Closing, (iv) any Proceedings or Claims arising
during any period prior to the Closing that are related to acts or omissions of
Seller or VMC, including any liability arising out of the payment or non-payment
of worker’s compensation premiums on behalf of employees or other issues arising
out of the coverage of employees with respect to worker’s compensation
insurance, or (v) any liability that accrued under any Ordinary Course Agreement
prior to the Closing;

 

(f)                                    Any statutory liens accrued or existing
at the time of the Closing against the Purchased Assets;

 

(g)                                 Any violation of, or default under, any
Legal Requirements prior to the Closing, including Environmental Laws, which
affects the ownership or operation of the Purchased Assets or results in any
change in the Assumed Liabilities, or any remedial obligation under any
Environmental Law arising out of or related to the ownership or operation of the
Purchased Assets prior to the Closing;

 

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(h)                                 Any liability resulting from or relating to
the employment relationship between Seller or its Affiliates, or VMC, and any of
their present or former employees or the termination of any such employment
relationship, including accrued severance pay and other similar benefits, if
any, and any claim filed at any time by or on behalf of any employee or former
employee relating to the employment or termination of employment of any such
employee, including any claim for wrongful discharge, breach of contract, unfair
labor practice, employment discrimination, unemployment compensation or workers’
compensation on or prior to the Closing;

 

(i)                                     Any liabilities or obligations of Seller
arising from or incurred in connection with the negotiation, preparation or
execution of this Agreement or the transactions contemplated hereby, including
fees and expenses of counsel; or

 

(j)                                     Any liabilities or obligations of VMC.

 

ARTICLE 3
PURCHASE PRICE

 

3.1                               PURCHASE PRICE.

 

Subject to the terms and conditions of this Agreement, the aggregate purchase
price for the Purchased Assets (the “Purchase Price”) shall be the sum of
(i) Thirteen Million Dollars ($13,000,000) plus (ii) the aggregate cost of the
Penta Inventory (the “Aggregate Inventory Cost”), in accordance with
Section 9.3, all which shall be paid by delivery of the following at the
Closing:

 

(a)                                  a wire transfer of immediately available
funds in the amount of Three Million Dollars ($3,000,000) plus the Aggregate
Inventory Cost to an account specified in writing to Buyer by Seller at least
three (3) business days before the Closing Date; and

 

(b)                                 a promissory note, substantially in the form
of Exhibit A hereto (the “Note”), in the principal amount of Ten Million Dollars
($10,000,000), payable in five (5) annual installments of Two Million Dollars
($2,000,000), and bearing interest on the then outstanding principal amount at
the rate of four percent (4%) per year, starting from the Closing Date.  Each
annual installment plus accrued interest shall be due and payable to Seller on
each subsequent anniversary of the Closing Date.

 

3.2                               ALLOCATION OF PURCHASE PRICE.

 

The Purchase Price shall be allocated for purposes of this Agreement and for
federal, state and local tax purposes in such manner as is agreed to by the
parties.  The parties shall reach such agreement in a timely manner and in
conjunction with Seller’s obligation to reach a similar agreement with VMC.  The
consideration shall be allocated among the Assets in the manner required by
Section 1060 of the Code and the regulations thereunder.  Each of Buyer and
Seller shall file on a timely basis all federal, state, local and foreign tax
returns and reports, including, the “Asset Acquisition Statement under
Section 1060” on Form 8594 to be filed with the Internal Revenue Service with
respect hereto, in accordance with such allocation.  If the parties are unable
to agree on such allocation in the time and manner contemplated earlier in this
Section, any disputed items shall be resolved by the an independent nationally
recognized auditing firm, acceptable to both parties (the

 

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“Neutral Auditors”).  The determination of the Neutral Auditors shall be final
and binding upon both parties, and each party shall bear 50% of the costs, fees
and expenses of the Neutral Auditors relating to the allocation.  The parties
shall not file (and shall cause their respective Affiliates not to file) any tax
return or other documents or otherwise take any position with respect to taxes
which is inconsistent with such allocation of the final Purchase Price;
provided, however, that neither party (nor its Affiliates) shall be obligated to
litigate any challenge to such allocation of the final Purchase Price by any
Governmental Entity.  The parties shall promptly inform one another of any
challenge by any Governmental Entity to any allocation made pursuant to this
Section 3.2 and agree to consult with and keep one another informed with respect
to the state of, and any discussion, proposal or submission with respect to,
such challenge.

 

ARTICLE 4
CLOSING

 

4.1                               CLOSING.

 

The consummation of the transactions contemplated by this Agreement (the
“Closing”) will take place at the offices of Wachtell, Lipton, Rosen & Katz, 51
West 52nd Street, New York, New York, on the date that Seller closes the
acquisition by Seller from VMC of the Purchased Assets or such other mutually
agreed time and place.  The documents to be delivered at the Closing may be
delivered by electronic transmission, to be followed by exchange of original
counterparts.

 

4.2                               DELIVERIES BY SELLER.

 

At Closing, Seller shall hereby deliver to Buyer the following:

 

(a)                                  Certificate of the Secretary of State of
the State of Delaware attesting to the due organization and good standing of
Seller as a limited liability company in its jurisdiction of incorporation;

 

(b)                                 A certificate of an executive officer of
Seller dated as of the Closing certifying that all required corporate
authorizations and approvals for the execution of this Agreement and all other
documentation executed in connection herewith, and for the consummation of the
transactions contemplated hereby and thereby, has been received and duly
recorded; and

 

(c)                                  Executed counterparts of a Bill of Sale,
substantially in the form attached hereto as Exhibit B (the “Bill of Sale”), an
Assumption Agreement, substantially in the form attached hereto as Exhibit C
(the “Assumption Agreement”), the Penta Products registration transfers with the
EPA and PMRA in the forms attached hereto as Exhibit D, and a Chlorine Supply
Agreement in the form attached hereto as Exhibit E (“Supply Agreement”).

 

4.3                               DELIVERIES BY BUYER.

 

At Closing, Buyer shall hereby deliver the following to Seller:

 

(a)                                  Certificate of the Secretary of State of
the State of Delaware attesting to the due organization and good standing of
Buyer as a corporation in its jurisdiction of incorporation;

 

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(b)                                 A certificate of an executive officer of
Buyer dated as of the Closing certifying that all required corporate
authorizations and approvals for the execution of this Agreement and all other
documentation executed in connection herewith, and for the consummation of the
transactions contemplated hereby and thereby, has been received and duly
recorded;

 

(c)                                  Executed counterparts of the Assumption
Agreement and Supply Agreement;

 

(d)                                 The Purchase Price in accordance with
Section 3.1, including the Note; and

 

(e)                                  Buyer’s Estimated Ad Valorem Share in
accordance with Section 8.4.

 

ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF SELLER

 

Seller hereby represents and warrants to Buyer as follows:

 

5.1                               ORGANIZATION AND EXISTENCE.

 

Seller is a limited liability company, duly organized, validly existing and in
good standing under the laws of the State of Delaware, with all necessary
company power and authority to own the Purchased Assets and to carry on the
Penta Business.  Seller is in good standing in all jurisdictions in the United
States and Canada in which the character of the Purchased Assets or the nature
of the Penta Business currently conducted by it requires it to be so qualified
or licensed unless the failure to so qualify or be licensed would not reasonably
be expected to have a MAE.

 

5.2                               AUTHORITY.

 

Seller has all necessary corporate power and authority to execute, deliver, and
perform this Agreement and the other agreements and instruments to be executed
and delivered by it in connection with the transactions contemplated hereby and
thereby, has taken all necessary action to authorize the execution and delivery
of this Agreement and such other agreements and instruments and the consummation
of the transactions contemplated hereby and thereby.  This Agreement is, and the
other agreements and instruments to be executed and delivered by Seller in
connection with the transactions contemplated hereby shall be, the legal, valid,
and binding obligations of Seller, enforceable in accordance with their terms,
except to the extent the enforceability hereof and thereof may be limited by
bankruptcy, insolvency, moratorium, reorganization or other laws relating to or
affecting creditors’ rights generally or by general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).

 

5.3                               NO VIOLATIONS.

 

The execution and delivery of this Agreement by Seller, the fulfillment of and
compliance by it with the terms and conditions hereof and the consummation of
the transactions by it contemplated hereby will not, except as specifically
described in Schedule 5.3:

 

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(a)                                  Violate any of the provisions of Seller’s
articles of incorporation or bylaws, or any agreement to which Seller is a
party;

 

(b)                                 Result in a breach of any Ordinary Course
Agreement or any material contract, agreement, note, mortgage, indenture or
instrument to which Seller is a party or by which Seller is bound or to which
any of the Purchased Assets is subject, except where such breach would not have
a MAE on the Penta Business or Purchased Assets;

 

(c)                                  Result in the creation of any Encumbrance
on any of the Purchased Assets, or otherwise give any Person the right to
terminate any Open Order or Ordinary Course Agreement or other agreements
assumed by Buyer, except where such Encumbrance would not have a MAE on the
Penta Business or Purchased Assets;

 

(d)                                 Violate any Legal Requirement applicable to
or binding upon Seller or the Purchased Assets, other than such violations as
would not have a MAE on the Penta Business or Purchased Assets; or

 

(e)                                  Require any consent, approval or
authorization from any Person other than those the failure of which to obtain
would not have a MAE on the Penta Business or Purchased Assets.

 

5.4                               GOVERNMENTAL APPROVAL.

 

Except as set forth in Schedule 5.4, no consent, approval, waiver, order or
authorization of, or registration, declaration or filing with, any Governmental
Entity is required to be obtained or made in connection with the execution and
delivery of this Agreement by Seller or the consummation by Seller of the
transactions contemplated hereby.

 

5.5                               SELLER PROCEEDINGS.

 

(a)                                  There are no Proceedings pending,
instituted or, to Seller’s Knowledge, threatened against Seller and relating to
the Penta Business or the Purchased Assets or that challenge or seek injunctive
relief with respect to the transactions contemplated by this Agreement;

 

(b)                                 Except as provided in Schedule 5.5, to
Seller’s Knowledge, there is no action, suit, investigation, audit, claim or
assessment pending or threatened in writing with respect to the Penta Business
or the Purchased Assets; and

 

(c)                                  There are no investigations or inquiries
pending, instituted or, to Seller’s Knowledge, threatened against Seller that
challenge or seek injunctive relief with respect to the transactions
contemplated by this Agreement.

 

5.6                               NO BROKERS.

 

Seller has not employed or authorized anyone to represent it as a broker or
finder in connection with the transactions contemplated by this Agreement, and
no broker or other Person is entitled to any commission or finder’s fee from
Seller in connection with such transactions.

 

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5.7                               OWNERSHIP OF PURCHASED ASSETS.

 

Seller owns good title to the Purchased Assets, free and clear of all
Encumbrances, and, upon Seller’s execution and delivery of this Agreement and
Seller’s execution and delivery of the Bill of Sale, Buyer will own good title
to the Purchased Assets, free and clear of all Encumbrances.  No Affiliate of
Seller owns any part of the Purchased Assets (including the Business Records).

 

5.8                               ENVIRONMENTAL MATTERS.

 

(a)                                  Neither Seller nor, to Seller’s Knowledge,
VMC, has received any written notice of any investigation or inquiry by any
Governmental Entity under any applicable Environmental Laws relating to the
Penta Business or the ownership or operation of the Purchased Assets.

 

(b)                                 Except as to matters that would not
constitute a MAE, Seller and, to Seller’s Knowledge, the Penta Business of VMC
and the Purchased Assets are in material compliance with all of the terms and
conditions of all Permits required under, and all other limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules, and timetables which are contained in, all applicable Environmental
Laws.

 

(c)                                  Neither Seller nor, to Seller’s Knowledge,
VMC, has received any written notice from any Governmental Entity regarding
(i) any actual, alleged, possible or potential violation of or failure to comply
with any term or requirement of any Permit that pertains to applicable
Environmental Laws or (ii) any actual, proposed, possible or potential
revocation, withdrawal, suspension, cancellation, termination of or modification
to any such Permit.

 

5.9                               COMPLIANCE WITH LAWS.

 

Except as would not have a Seller MAE:

 

(a)                                  To Seller’s Knowledge, the Penta Business
of VMC is being, and since January 1, 2003 has been, conducted in all material
respects in compliance with each law, rule, regulation, code, directive, order,
injunction, judgment, decree of any Governmental Entity, or other legally
enforceable requirement or guideline (collectively, “Legal Requirements”)
applicable to VMC in the operation of the Penta Business or the ownership or use
of the Purchased Assets, considered without regard to environmental matters,
which are addressed in Section 5.8;

 

(b)                                 To Seller’s Knowledge, VMC has not received
any notice or other communication (written or otherwise) from any Governmental
Entity regarding any actual, alleged, possible or potential violation of, or
failure to comply with, any Legal Requirement applicable to VMC in the operation
of the Penta Business or the ownership or use of the Purchased Assets,
considered without regard to environmental matters, which are addressed in
Section 5.8.

 

5.10                        FINANCIAL INFORMATION.

 

To Seller’s Knowledge, a schedule of the annual net sales revenues of the Penta
Business for the five calendar years ended December 31, 2004 has been previously
delivered to Buyer that is true and correct in all material respects.  Neither
Seller, nor, to Seller’s Knowledge, VMC, has entered

 

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into any agreement granting to any third person a right to purchase, lease or
otherwise acquire any assets or interests comprising the Purchased Assets.

 

5.11                        INTANGIBLE ASSETS.

 

To Seller’s Knowledge, there are no pending or threatened infringement claims
against Seller or VMC by any Person with respect to any of the Intellectual
Property Rights.  To Seller’s Knowledge, the use of the Intellectual Property
Rights does not and the conduct of the Penta Business as presently conducted
does not, infringe on the rights of any other Person, except as would not
reasonably be expected to have a MAE on the Penta Business.

 

5.12                        INSTRUMENTS IN FULL FORCE AND EFFECT.

 

To Seller’s Knowledge, the Ordinary Course Agreements and Open Orders
constituting a part of the Purchased Assets (the “Instruments”) are valid,
binding and in full force and effect, have not been amended or supplemented in
any manner or respect except as disclosed, and upon assignment and assumption,
with applicable consents if necessary, will be enforceable by Buyer in
accordance with their respective terms.  To Seller’s Knowledge, there are no
defaults thereunder by any party thereto, and, to Seller’s Knowledge, no event
has occurred that with the lapse of time or action or inaction by any party
thereto would result in a violation thereof or a default thereunder.

 

5.13                        TAXES.

 

To Seller’s Knowledge, (i) all Tax returns required to be filed by or with
respect to VMC’s Penta Business or the Purchased Assets for any period ending on
or before the Closing Date have been or will be timely filed (taking into
account any extensions validly obtained) and all such Tax returns are complete
and accurate in all material respects, and (ii) none of the Purchased Assets is
subject to any lien arising in connection with any failure or alleged failure to
pay any Tax, and all Taxes due and owing (whether or not shown on any Tax
return) with respect to the Purchased Assets have been or will be timely paid,
other than such failures to pay such Taxes as would not result in an Encumbrance
upon the Purchased Assets or in Buyer becoming liable or responsible therefor.

 

5.14                        DISCLAIMER OF REPRESENTATIONS AND WARRANTIES.

 

Except for the express representations and warranties by Seller in this
Agreement, (i) Buyer has made its own independent inspection and investigation
of the Equipment and the condition thereof and is purchasing the Equipment AS
IS, WHERE IS AND WITH ALL FAULTS, (ii) Seller disclaims any warranty of
merchantability or fitness for a particular purpose, (iii) Seller disclaims all
liability and responsibility for any representation, warranty, statement or
information (financial or otherwise) made or communicated (orally or in writing)
to Buyer or any of its affiliates, or their respective employees, agents,
consultants or representatives, and (iv) Seller makes no representation or
warranty regarding the future success or profitability of the Penta Business.

 

ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF BUYER

 

Buyer hereby represents and warrants to Seller as follows:

 

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6.1                               ORGANIZATION AND EXISTENCE.

 

Buyer is a corporation, duly organized, validly existing and in good standing
under the laws of the State of Delaware, with all necessary corporate power and
authority to own the Purchased Assets and to carry on the Penta Business.  Buyer
is in good standing in all jurisdictions in the United States and Canada in
which the character or the nature of the business currently conducted by it
requires it to be so qualified or licensed unless the failure to so qualify or
be licensed would not reasonably be expected to have a MAE.

 

6.2                               AUTHORITY.

 

Buyer has all necessary corporate power and authority to execute, deliver, and
perform this Agreement, the Note and the other agreements and instruments to be
executed and delivered by it in connection with the transactions contemplated
hereby and thereby, has taken all necessary action to authorize the execution
and delivery of this Agreement, the Note and such other agreements and
instruments and the consummation of the transactions contemplated hereby and
thereby.  This Agreement, the Note and the other agreements and instruments to
be executed and delivered by Buyer in connection with the transactions
contemplated hereby shall be the legal, valid, and binding obligations of Buyer,
enforceable in accordance with their terms, except to the extent the
enforceability hereof and thereof may be limited by bankruptcy, insolvency,
moratorium, reorganization or other laws relating to or affecting creditors’
rights generally or by general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).

 

6.3                               NO VIOLATIONS.

 

The execution and delivery of this Agreement and the Note by Buyer, the
fulfillment of and compliance by it with the terms and conditions hereof and the
consummation by it of the transactions contemplated hereby will not:

 

(a)                                  Violate any of the terms of Buyer’s
certificate of incorporation or bylaws, or any agreement to which Buyer is a
party;

 

(b)                                 (i) With respect to this Agreement, result
in a breach of any material contract, agreement, note, mortgage, indenture or
instrument to which Buyer is a party or by which Buyer is bound or result in the
creation of any Encumbrance on any of its assets, which breach or default would
reasonably be expected to have a MAE on Buyer, or (ii) with respect to the Note,
result in a breach of any contract, agreement, note, mortgage, indenture or
instrument to which Buyer is a party or by which Buyer is bound or result in the
creation of any Encumbrance on any of its assets, which has an adverse impact on
the ability of Buyer to perform its obligations under the Note;

 

(c)                                  To Buyer’s Knowledge, violate any provision
of any law, statute, rule or administrative regulation or any judgment, order,
injunction or decree of any Governmental Entity applicable to or binding upon
Buyer or any of its Affiliates; or

 

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(d)                                 (i) With respect to this Agreement, require
the consent or approval of any Person other than those the failure of which to
obtain would not have a MAE on Buyer, or (ii) with respect to the Note, require
the consent or approval of any Person other than those the failure of which to
obtain would have an adverse impact on the ability of Buyer to perform its
obligations under the Note.

 

6.4                               GOVERNMENTAL APPROVAL.

 

Except for the EPA and PMRA approvals required for transfer of the registrations
of the Penta Products, no consent, approval, waiver, order or authorization of,
or registration, declaration or filing with, any Governmental Entity is required
to be obtained or made in connection with the execution and delivery, of this
Agreement by Buyer or the consummation by Buyer of the transactions contemplated
herein.

 

6.5                               BUYER PROCEEDINGS.

 

Buyer is not the subject of any current bankruptcy proceeding.  There are no
Proceedings, suits or investigations pending, instituted or, to Buyer’s
Knowledge, threatened against Buyer or its Affiliates that could reasonably be
expected to have a MAE on Buyer or in which Buyer would be declared insolvent or
the subject of any bankruptcy or reorganization laws or procedures.

 

6.6                               NO BROKERS.

 

Buyer has not employed or authorized anyone to represent it as a broker or
finder in connection with the transactions contemplated by this Agreement, and
no broker or other Person is entitled to any commission or finder’s fee from
Buyer in connection with such transactions.

 

ARTICLE 7
REPRESENTATIONS AND WARRANTIES OF GUARANTOR

 

Guarantor hereby represents and warrants to Seller as follows:

 

7.1                               ORGANIZATION AND EXISTENCE.

 

Guarantor is a corporation, duly organized, validly existing and in good
standing under the laws of the State of Delaware, with all necessary corporate
power and authority to guarantee Buyer’s obligations under this Agreement.

 

7.2                               AUTHORITY.

 

Guarantor has all necessary corporate power and authority to execute, deliver,
and perform its obligations under this Agreement and the other agreements and
instruments to be executed and delivered by it in connection with the
transactions contemplated hereby and thereby, has taken all necessary action to
authorize the execution and delivery of this Agreement and such other agreements
and instruments and the consummation of the transactions contemplated hereby and
thereby.  This Agreement is, and the other agreements and instruments to be
executed and delivered by Guarantor in connection with the transactions
contemplated hereby shall be, the legal, valid, and

 

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binding obligations of Guarantor, enforceable in accordance with their terms,
except to the extent the enforceability hereof and thereof may be limited by
bankruptcy, insolvency, moratorium, reorganization or other laws relating to or
affecting creditors’ rights generally or by general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).

 

7.3                               NO VIOLATIONS.

 

The execution and delivery of this Agreement by Guarantor, the fulfillment of
and compliance by it with the terms and conditions hereof and the consummation
by it of the transactions contemplated hereby will not:

 

(a)                                  Violate any of the terms of Guarantor’s
certificate of incorporation or bylaws, or any agreement to which Guarantor is a
party;

 

(b)                                 Result in a breach of any material contract,
agreement, note, mortgage, indenture or instrument to which Guarantor is a party
or by which Guarantor is bound or result in the creation of any Encumbrance on
any of its assets, which breach or default would reasonably be expected to have
a MAE on Guarantor;

 

(c)                                  To Guarantor’s Knowledge, violate any
provision of any law, statute, rule or administrative regulation or any
judgment, order, injunction or decree of any Governmental Entity applicable to
or binding upon Guarantor or any of its Affiliates; or

 

(d)                                 Require any consent or approval of any
Person other than those the failure of which to obtain would not have a MAE on
Guarantor.

 

7.4                               GOVERNMENTAL APPROVAL.

 

No consent, approval, waiver, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required to be obtained
or made in connection with the execution and delivery, of this Agreement by
Guarantor or the consummation by Guarantor of the transactions contemplated
herein.

 

7.5                               GUARANTOR PROCEEDINGS.

 

There are no Proceedings, suits or investigations pending, instituted or, to
Guarantor’s Knowledge, threatened against Guarantor or its Affiliates that could
reasonably be expected to have a MAE on the business or financial condition of
Guarantor taken as a whole or that, if adversely determined, would delay or
prevent the consummation of the transactions contemplated by this Agreement.

 

ARTICLE 8
COVENANTS

 

Seller and Buyer hereby covenant and agree as follows:

 

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8.1                               CONFIDENTIALITY.

 

(a)                                  For a period of five (5) years from the
Closing Date, Seller shall maintain in strict confidence all Confidential
Information and disclose such Confidential Information only (A) to its employees
and duly authorized agents and representatives who have been informed of the
obligations of the parties under this Agreement with respect to such
Confidential Information, who have a need to know information in connection with
consummating the transactions contemplated herein, and who agree to keep such
information confidential, or (B) as required by legal process (of which the
other party shall be given prompt notice).  Seller shall be responsible for any
breach of this Section 8.1 with respect to such Confidential Information by any
of its representatives and agrees to take all reasonable measures to restrain
its representatives from prohibited or unauthorized disclosure of the
Confidential Information.  For the purpose of this Section 8.1(a), the term
“Confidential Information” means confidential or proprietary information that
relates primarily to the Penta Business, the Purchased Assets or the Assumed
Liabilities and is the subject of efforts that under the circumstances are
reasonable to maintain its confidentiality; provided however “Confidential
Information” shall not mean (A) information generally available to the public
which has not become available as a result of disclosure in violation of this
Section 8.1 and (B) information which becomes available on a non-confidential
basis from a source other than Seller or its representatives, provided that such
source is not known by Seller to be bound by a confidentiality agreement or
other obligation of secrecy to another party to this Agreement or its
representative.

 

(b)                                 No press release, public announcement,
confirmation or other information regarding this Agreement or the contents
hereof shall be made by Buyer or Seller without prior consultation with Buyer
and Seller, except as may be necessary in the opinion of counsel to any party to
meet any Legal Requirements (including disclosure requirements in connection
with securities laws and regulations or exchange rules) or the determination of
any court.

 

8.2                               EMPLOYEES AND EMPLOYEE BENEFITS.

 

It is understood and agreed that Buyer is not hiring any employees of Seller or
VMC in connection with the transactions contemplated by this Agreement.  To the
extent that any employees of Seller or VMC are terminated in connection with
this transactions contemplated under this Agreement, Seller shall be responsible
for such termination and any liability associated therewith under
Section 2.4(h).

 

8.3                               TAXES RESULTING FROM SALE.

 

Buyer shall be responsible for any documentary, excise, stamp, and transfer
taxes and any sales, use or other Taxes imposed by reason of the sale or
transfer of the Assets contemplated hereunder, regardless of which party has
liability for such Tax under Legal Requirements, and any deficiency, interest or
penalty asserted with respect thereto; provided, however, that Seller shall be
responsible for all Taxes related to the income of Seller or its Affiliates
resulting from or in connection with the sale of the Purchased Assets pursuant
to this Agreement.  Buyer shall pay the fees and costs of its recording or
filing any conveyance instruments, and all third party costs of applying for new
permits in replacement of the Permits and obtaining the transfer of existing
Permits which may be lawfully transferred.

 

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8.4                               AD-VALOREM TAXES.

 

Ad valorem property Taxes imposed on or with respect to the Equipment removed
and Penta Inventory purchased by Buyer for the taxable period that contains the
Closing Date shall be prorated between Seller and Buyer based on the relative
number of days prior to the Closing Date and on and after the Closing Date
during the taxable period, with Seller being responsible for such ad valorem
property Taxes and Buyer reimbursing Seller for prorated ad valorem property
Taxes for the period on and after the Closing Date.  Buyer’s reimbursement of
the prorated post-Closing ad valorem property Taxes shall be an addition to the
Purchase Price.  As an estimate of the amount of post-Closing ad valorem
property taxes that Buyer would be required to reimburse Seller hereunder
(“Buyer’s Estimated Ad Valorem Share”), Buyer shall deliver Ten Thousand Dollars
($10,000) to Seller at the Closing.  Seller shall be responsible as between
Seller and Buyer for the payment of the total amount of ad valorem property
Taxes imposed on or with respect to the Purchased Assets for the taxable period
that contains the Closing Date.  Upon receipt of the ad valorem property Tax
bills for the taxable period that contains the Closing Date, Seller shall
calculate the prorated ad valorem property Taxes and shall refund to Buyer the
amount, if any, by which Buyer’s prorated share of such ad valorem property
Taxes hereunder is less than Buyer’s Estimated Ad Valorem Share.  The maximum
amount of ad valorem Taxes that Buyer shall be required to bear hereunder is
Buyer’s Estimated Ad Valorem Share, regardless of whether the actual prorated
amount of such ad valorem Taxes calculated hereunder exceed Buyer’s Estimated Ad
Valorem Share.

 

8.5                               EXPENSES.

 

Except as otherwise expressly provided in this Agreement, each of the parties
hereto shall assume and bear all expenses, costs and fees incurred or assumed by
such party in the preparation and execution of this Agreement and in compliance
with and performance of the agreements and covenants contained in this
Agreement.

 

8.6                               AGREEMENT TO NOT COMPETE.

 

In consideration of the Purchase Price and as an inducement for Buyer to enter
into this Agreement, Seller agrees that, effective as of the date hereof and for
a period of sixty (60) months hereafter (the “Non-Compete Term”), none of Seller
or its Affiliates shall, without the consent of Buyer, directly or indirectly,
own, engage in, manage, operate, join, control, finance or participate in the
ownership, management, operation, control or financing of, or be connected as an
employer, principal, agent, representative, consultant, investor, owner
(including shareholder), lender, partner, manager, joint venturer or otherwise
with, or permit its name to be used by or in connection with the Penta Business
or the manufacture, formulation, distribution or sales of pentachlorophenol or
solvents for pentachlorophenol used to pressure treat wood in the United States
and/or Canada.  Notwithstanding the foregoing, Seller shall be entitled to own
up to twenty-five percent (25%) of any class of equity securities of any such
competitive Person if (x) such equity securities are listed on a national or
regional securities exchange or registered under Section 12(g) of the Securities
Act of 1933, or (y) such Person does not derive more than ten percent (10%) of
their net sales revenue from the business of such Person that competes with the
Penta Business of Buyer, provided, in each case, that Seller does not
participate in the activities or operations of such Person.

 

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8.7                               SPECIFIC PERFORMANCE.

 

Seller acknowledges and agrees that any breach of the restrictive covenants set
forth in Section 8.6 hereof will result in irreparable damage to Buyer for which
there will be no adequate remedy at law, and Seller consents to an injunction,
issued by any court of competent jurisdiction, in favor of Buyer, enjoining any
breach of such covenant, without prejudice to any other right or remedy to which
Buyer may be entitled.  In the event that any part of Section 8.6 herein is
determined by any court of competent jurisdiction to be unenforceable by reason
of its being extended for too great a period of time or too large a geographic
area or over too great a range of activities, that section is to be interpreted
to extend only over the maximum period of time, geographic area or range of
activities required to render it valid and enforceable.

 

ARTICLE 9
POST-CLOSING SERVICES

 

9.1                               REMITTANCES.

 

Buyer shall timely pay Seller the full unpaid amount due for the accounts
receivable of Seller that are attributable to Buyer’s purchases from the Penta
Business operated by VMC prior to the Closing Date.  Commencing as of the
Closing Date and for a transition period not to exceed one hundred eighty (180)
days, Buyer shall use its good faith efforts to assist Seller in collecting the
uncollected accounts receivable of the Penta Business that are Excluded Assets. 
To the extent that Buyer receives payments of receivables that are Excluded
Assets, Buyer shall forward amounts so collected to Seller at the end of each
month.  From and after the Closing Date, Seller will remit (and will cause VMC
to remit) to Buyer, within one month following receipt thereof, any payments
received by Seller or VMC with respect to Open Orders, Ordinary Course
Agreements, and Penta Products sold by Buyer, or other amounts properly payable
to Buyer hereunder.

 

9.2                               DELIVERY OF PURCHASED ASSETS.

 

At Closing or as directed otherwise by Buyer, Seller shall deliver to Buyer all
of the Purchased Assets other than the Penta Inventory and the Equipment.  For
the first ninety (90) days following the Closing Date, Seller shall deliver the
Penta Inventory to Buyer, or to third parties on behalf of Buyer, as directed by
Buyer.  Thereafter, any Penta Inventory for which Buyer has not provided
delivery instructions will be delivered by Seller to Buyer’s Tuscaloosa, Alabama
facility.  Buyer shall bear the transportation and insurance costs associated
with all deliveries of Penta Inventory under this Section 9.2.  Seller shall
deliver the Equipment in accordance with Section 9.4.

 

9.3                               TRANSITION ACTIVITIES.

 

If Seller has phenol in stock as of the Closing Date, Seller may elect to
continue to operate the Equipment for a period of thirty (30) calendar days, at
Seller’s sole cost and expense, in order to convert all of such phenol into
finished Penta Products.  Seller shall sell only to Buyer, and Buyer shall
purchase, all such Penta Products that meet the relevant Vulcan Chemicals
Pentachlorophenol Product Specification and shall pay Seller for such Penta
Products at Seller’s cost therefor.  Seller shall supply Buyer with
pentachlorophenol not meeting the relevant product specifications that is stored
at the Facility as of the Closing Date, at no additional cost, on an “AS IS,
WHERE IS” basis,

 

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FOB the Facility, up to the maximum of ten (10) short tons.  Buyer and Seller
shall mutually agree as to the purchase or other disposition of any additional
pentachlorophenol products not conforming to specifications, however, in the
absence of any written agreement regarding the same, Seller shall remain
responsible for the disposal of such additional products in accordance with
Legal Requirements, and all costs and expenses associated therewith.  Except as
otherwise specified in this Agreement, Seller shall bear all costs associated
with its operation of the Equipment during such period.

 

9.4                               REMOVAL OF EQUIPMENT.

 

Seller shall be solely responsible for the dismantling and cleaning the
Equipment, at all times in accordance with standard industry requirements for
dismantling and cleaning such equipment, including all costs associated with
such cleaning.  Seller shall dismantle and clean the Equipment within six
(6) weeks following the Closing Date, or if Seller continues production of Penta
Products under this Agreement, six (6) weeks following cessation of such
production by Seller.  Buyer shall select the Equipment that it will remove
within three (3) weeks after Closing Date.  Buyer shall remove (or cause the
removal of) the selected Equipment from the Facility within four (4) months
following written notice from Seller that it has completed its cleaning
obligations hereunder.  The removal shall take place during Seller’s normal
business hours, shall comply with Seller’s reasonable policies and procedures
applicable to third parties undertaking similar work at the Facility, and shall
not unduly disrupt Seller’s other business activities.  Buyer shall be
responsible for all shipping costs and for reasonable repair expenses for damage
to Seller’s property caused by removal of the selected Equipment by Buyer, its
Affiliates or agents.  Buyer shall notify Seller of the expected date, scope of
the work, and identity of any third parties requiring access to the Facility
prior to the removal of the selected Equipment; the scope of the work as well as
the employment of any third parties must be approved by Seller prior to the
removal of the removable machinery and equipment.  The parties shall cooperate
to obtain any necessary permits and approvals of Governmental Entities and any
other third parties for the removal of the selected Equipment or any portion
thereof that Buyer elects to remove.  Seller shall be responsible for the first
$150,000 of costs associated with the obtaining of necessary permits and
approvals and the dismantling, removal and packing of the selected Equipment,
including rigging company charges.  Buyer shall be responsible for any such
costs in excess of the first $150,000.  Any Equipment that Buyer elects not to
remove shall remain the responsibility of Seller.

 

ARTICLE 10
INDEMNIFICATION

 

10.1                        INDEMNIFICATION BY SELLER.

 

Seller agrees to indemnify, defend and hold Buyer and its Affiliates, officers,
directors, employees or agents (“Buyer Indemnified Parties”) harmless from and
against any and all Claims sustained by Buyer or any of its Affiliates based
upon, arising out of or otherwise in respect of (i) the inaccuracy of any
representation or warranty, or the breach of any covenant or agreement, of
Seller contained in this Agreement, (ii) any liabilities of Seller fixed,
contingent or otherwise, including (A) any liabilities related to the ownership,
management or use of the Purchased Assets or operation of the Penta Business
prior to the Closing, or related to the Penta Inventory while at the Facility
after the Closing or to the Equipment during the post-Closing operation by
Seller thereof pursuant to

 

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Section 9.3, and (B) all Retained Liabilities, or (iii) any act of omission of
Seller, prior to the Closing, with respect to the Open Orders (specifically
excluding the fact that delivery has not occurred thereunder) or the Ordinary
Course Agreements; in each case, exclusive of the Assumed Liabilities.

 

10.2                        INDEMNIFICATION BY BUYER.

 

Buyer agrees to indemnify, defend and hold Seller and its Affiliates, officers,
managers, employees or agents (“Seller Indemnified Parties”) harmless from and
against any and all Claims sustained by Seller or any of its Affiliates based
upon, arising out of or otherwise in respect of (i) the inaccuracy of any
representation or warranty, or the breach of any covenant or agreement, of Buyer
contained in this Agreement, (ii) any liabilities of Buyer fixed, contingent or
otherwise, including (A) any liabilities related to the ownership, management or
use of the Purchased Assets or operation of the Penta Business after the
Closing, except those related to the Penta Inventory while at the Facility after
the Closing or to the Equipment during the post-Closing operation by Seller
thereof pursuant to Section 9.3, and (B) all Assumed Liabilities, or (iii) any
act of omission of Buyer, after the Closing, with respect to the Open Orders or
the Ordinary Course Agreements; in each case, exclusive of the Retained
Liabilities.

 

10.3                        INDEMNIFICATION PROCEDURE.

 

Any Seller Indemnified Party or Buyer Indemnified Party seeking information or
reimbursement for Claims hereunder (the “Indemnified Party”) shall as promptly
as practical notify the party from which such indemnification is sought (the
“Indemnifying Party”) upon which the Indemnified Party intends to base a claim
for indemnification or reimbursement hereunder; provided, however, that the
failure of an Indemnified Party so to notify the Indemnifying Party shall not
relieve the Indemnifying Party from any liability under this Agreement to the
Indemnified Party with respect to such Claim except to the extent the
Indemnifying Party is actually prejudiced or damaged by the failure to receive
timely notice. In the event of any claims for indemnification or reimbursement,
the Indemnifying Party, at its option, may assume (with legal counsel reasonably
acceptable to the Indemnified Party) the defense of any claim, demand, lawsuit
or other proceeding brought against the Indemnified Party, which claim, demand,
lawsuit or other proceeding may give rise to the indemnity or reimbursement
obligation of the Indemnifying Party hereunder, and may assert any defense of
any party; provided, however, that the Indemnified Party shall have the right at
its own expense to participate jointly with the Indemnifying Party in the
defense of any claim, demand, lawsuit or other proceeding in connection with
which the Indemnified Party claims indemnification or reimbursement hereunder. 
Notwithstanding the right of an Indemnified Party so to participate, the
Indemnifying Party shall have the sole right to settle or otherwise dispose of
such claim, demand, lawsuit or other proceeding on such terms as the
Indemnifying Party, in its sole discretion, shall deem appropriate with respect
to any issue involved in such claim, demand, lawsuit or other proceeding as to
which (i) the Indemnifying Party shall have acknowledged the obligation to
indemnify the Indemnified Party hereunder and the settlement is solely for cash
or (ii) the Indemnified Party shall have declined so to participate.

 

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10.4                        SURVIVAL.

 

All representations and warranties of the parties hereto shall survive the date
hereof and shall remain in full force and effect for a period of eighteen (18)
months from the Effective Date, except for Section 5.13, which shall continue
until thirty (30) days after the expiration of the applicable statute of
limitations if later than the period set forth herein, and Section 5.8, which
shall survive until the first anniversary of the Closing Date, as such term is
defined in the Asset Purchase Agreement among Seller, Vulcan Chloralkali, LLC
and VMC, dated October 11, 2004.  All representations, warranties and covenants
and agreements made by the parties shall not be affected by any investigation
heretofore or hereafter made by and on behalf of any of them and shall not be
deemed merged into any instruments or agreements delivered in connection with
the transactions contemplated hereby.  The covenants and agreements entered into
pursuant to this Agreement shall survive the date hereof, subject to the
applicable statutes of limitations.

 

10.5                        APPLICABILITY OF INDEMNIFICATION OBLIGATION.

 

EACH OF THE AGREEMENTS TO INDEMNIFY, DEFEND OR HOLD HARMLESS CONTAINED IN
SECTION 10.1 OR 10.2 SHALL APPLY IRRESPECTIVE OF WHETHER THE SUBJECT CLAIM IS
BASED IN WHOLE OR IN PART UPON THE SOLE OR CONTRIBUTORY NEGLIGENCE (WHETHER
ACTIVE, PASSIVE OR GROSS), BREACH OF COVENANT, OR BREACH OR VIOLATION OF ANY
DUTY IMPOSED BY ANY LAW OR REGULATION, ON THE PART OF THE BENEFICIARY OF THIS
AGREEMENT, EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS AGREEMENT.

 

10.6                        LIMITATION ON AMOUNTS.

 

Notwithstanding anything to the contrary in this Agreement, neither Seller nor
Buyer shall be liable for any Claims with respect to the matters set forth in
Section 10.1 or 10.2, respectively, unless (i) a Claim is timely asserted during
the survival period specified in Section 10.4, and (ii) the aggregate of all
Claims under Section 10.1 or 10.2, respectively, exceeds, on a cumulative basis,
$50,000; provided however, that after the aggregate amount of indemnified Claims
reaches such threshold amount, the Indemnified Party shall be entitled to the
entire amount of the Claim suffered by the Indemnified Party.  Notwithstanding
anything to the contrary in this Agreement, the aggregate liability of Seller to
the Buyer Indemnified Group and the aggregate liability of Buyer to the Seller
Indemnified Group, arising under or related to this Agreement and the
transactions contemplated hereby, whether based in contract, tort, strict
liability, common law or otherwise, shall not exceed, in either case,
$3,000,000.

 

10.7                        SOLE REMEDY; LIMITATIONS.

 

Buyer and Seller acknowledge and agree that in the absence of actual fraud or
intentional misconduct, the foregoing indemnification provisions in this
ARTICLE 10 shall be the sole and exclusive remedy at equity and law of Buyer and
Seller arising out of, related to or with respect to this Agreement, whether
based on contract, tort, statute, strict liability, common law or otherwise.  NO
PARTY SHALL BE LIABLE FOR SPECIAL, PUNITIVE, EXEMPLARY, INCIDENTAL,
CONSEQUENTIAL OR INDIRECT DAMAGES OR LOST PROFITS, WHETHER BASED ON

 

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CONTRACT, TORT, STRICT LIABILITY, OTHER LAW OR OTHERWISE AND WHETHER OR NOT
ARISING FROM THE OTHER PARTY’S SOLE, JOINT OR CONCURRENT NEGLIGENCE, STRICT
LIABILITY OR OTHER FAULT, EXCEPT SUCH DAMAGES THAT ARE PAYABLE TO A THIRD PARTY
WITH RESPECT TO A THIRD PARTY CLAIM FOR WHICH SELLER IS SEEKING INDEMNIFICATION
HEREUNDER.

 

ARTICLE 11
GUARANTY

 

11.1                        GUARANTY

 

(a)                                  Guarantor hereby unconditionally and
irrevocably guarantees to Seller and each of its successors, indorsees,
transferees and assigns, the prompt and complete payment in cash and performance
by Buyer when due (whether at the stated maturity, by acceleration or otherwise)
of the obligations of Buyer under this Agreement and the Note (the “Guaranteed
Obligations”).  This is a guarantee of payment and not collection and the
liability of Guarantor is primary.

 

(b)                                 Notwithstanding anything to the contrary in
this Agreement, the maximum liability of Guarantor hereunder shall in no event
exceed the amount that can be guaranteed by it under applicable federal and
state laws relating to the insolvency of debtors.

 

(c)                                  Guarantor agrees that if the maturity of
the Guaranteed Obligations is accelerated by bankruptcy or otherwise, such
maturity shall also be deemed accelerated for the purpose of this guarantee
without demand or notice to such Guarantor.  The guarantee contained in this
ARTICLE 11 shall remain in full force and effect until all the Guaranteed
Obligations shall have been satisfied by payment in full in cash.

 

11.2                        AMENDMENTS.

 

Guarantor shall remain obligated hereunder, and its obligations hereunder shall
not be released, discharged or otherwise affected, notwithstanding that, without
any reservation of rights against Guarantor and without notice to, demand upon
or further assent by Guarantor (which notice, demand and assent requirements are
hereby expressly waived by Guarantor), (a) any demand for payment of any of the
Guaranteed Obligations made by Seller may be rescinded by Seller and any of the
Guaranteed Obligations continued; (b) this Agreement may be amended, modified,
supplemented or terminated, in whole or in part, as Buyer and Seller may deem
advisable from time to time; and (c) any additional guarantors, makers or
endorsers of the Guaranteed Obligations may from time to time be obligated on
the Guaranteed Obligations or any additional security or collateral for the
payment and performance of the Guaranteed Obligations may from time to time
secure the Guaranteed Obligations.

 

11.3                        WAIVERS.

 

Guarantor hereby waives any and all notice of the creation, renewal, extension
or accrual of any of the Guaranteed Obligations and notice of or proof of
reliance by Seller upon the guarantee contained in this ARTICLE 11 or acceptance
of the guarantee contained in this ARTICLE 11; the Guaranteed Obligations, and
any of them, shall conclusively be deemed to have been created,

 

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contracted or incurred, or renewed, extended, amended or waived, in reliance
upon the guarantee contained in this ARTICLE 11 and no notice of creation of the
Guaranteed Obligations or any extension of credit already or hereafter
contracted by or extended to Buyer need be given to Guarantor; and all dealings
between Buyer and Guarantor, on the one hand, and Seller, on the other hand,
likewise shall be conclusively presumed to have been had or consummated in
reliance upon the guarantee contained in this ARTICLE 11.  Guarantor waives
diligence, presentment, protest, demand for payment and notice of default or
nonpayment to or upon Buyer or any of Guarantor with respect to the Guaranteed
Obligations.

 

ARTICLE 12
MISCELLANEOUS

 

12.1                        NOTICES.

 

All notices and other communications required or permitted to be given or made
hereunder by either party hereto shall be in writing and shall be deemed to have
been duly given if delivered personally or sent by prepaid overnight delivery
service, or sent by facsimile transmission, to the parties at the following
addresses (or at such other addresses as shall be specified by the parties by
like notice):

 

If to Buyer:

 

KMG-Bernuth, Inc.

10611 Harwin, Suite 402

Houston, Texas 77036

Attention:  Chief Financial Officer

Facsimile: (713) 988-9298

 

with a copy to:

 

Roger C. Jackson, Esq.

General Counsel

KMG Chemicals Inc.

10611 Harwin, Suite 402

Houston, Texas 77036

Facsimile: (713) 988-9298

 

If to Seller:

 

Occidental Chemical Corporation

5005 LBJ Freeway

Dallas, Texas 75244

Attention: Vice President and General Counsel

Facsimile: (972) 404-4155

 

Such notices, demands and other communications shall be effective (i) if
delivered personally or sent by courier service, upon actual receipt by the
intended receipt, (ii) if mailed, upon the earlier

 

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of five days after deposit in the mail or the date of delivery as shown by the
return receipt therefor, or (iii) if sent by telecopy or facsimile transmission,
when confirmation of receipt is received.

 

12.2                        ENTIRE AGREEMENT.

 

This Agreement, including the schedules, exhibits, annexes and other writings
referred to herein or delivered pursuant hereto, constitutes the entire
agreement between the parties hereto with respect to the subject matter hereof
and supersedes all prior agreements and understandings, both written and oral,
between the parties with respect to the subject matter hereof.

 

12.3                        AMENDMENTS AND WAIVER; RIGHTS AND REMEDIES.

 

This Agreement may be amended, superseded, canceled, renewed or extended, and
the terms hereof may be waived, only by a written instrument signed by the
parties or, in the case of a waiver, by the party waiving compliance.  No delay
on the part of either party in exercising any right, power or privilege
hereunder shall operate as a waiver thereof, nor shall any waiver on the part of
either party of any such right, power or privilege, or any single or partial
exercise of any such right, power or privilege, preclude any further exercise
thereof or the exercise of any other such right, power or privilege.  The rights
and remedies herein provided are cumulative and are not exclusive of any rights
or remedies that any party may otherwise have at law or in equity.  The rights
and remedies of either party based upon, arising out of or otherwise in respect
of any inaccuracy in or breach of any representation, warranty, covenant or
agreement contained in this Agreement shall in no way be limited by the fact
that the act, omission, occurrence or other state of facts upon which any claim
of any such inaccuracy or breach is based may also be the subject matter of any
other representation, warranty, covenant or agreement contained in this
Agreement (or in any other agreement between the parties) as to which there is
no inaccuracy or breach.

 

12.4                        GOVERNING LAW.

 

This Agreement shall be governed by, and construed in accordance with, the laws
of the State of New York, without regard to the principles of conflicts of laws
thereof.

 

12.5                        BINDING EFFECT; ASSIGNMENT.

 

This Agreement and all the provisions hereof shall be binding upon and inure to
the benefit of the parties and their respective successors and permitted
assigns.  Buyer may upon notice to Seller direct that title to all or part of
the Purchased Assets be conveyed to one or more of Buyer’s wholly owned
subsidiaries (direct or indirect).  This Agreement may not be assigned without
prior written consent of the other party, such consent not to be unreasonably
withheld.

 

12.6                        COUNTERPARTS.

 

This Agreement may be executed in any number of counterparts, each of which,
when so executed and delivered, whether by facsimile transmission or original
form, shall be deemed an original, and all of which together shall constitute
one and the same agreement.

 

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12.7                        INTERPRETATION.

 

Unless the context of this Agreement clearly requires otherwise:  (a) references
to the plural include the singular and vice versa; (b) references to any Person
include such Person’s successors and assigns but, if applicable, only if such
successors and assigns are permitted by this Agreement; (c) ”including” is not
limiting; (d) ”or” has the inclusive meaning represented by the phrase “and/or”;
(e) all references to dollars or “$” mean United States dollars; (f) the words
“hereof”, “herein”, “hereby”, “hereunder” and similar terms in this Agreement
refer to this Agreement as a whole and not any particular provision of this
Agreement; (g) article, paragraph, subparagraph, section, subsection, exhibit
references are to this Agreement unless otherwise specified; (h) reference to
any agreement (including this Agreement), document or instrument means such
agreement, document or instrument as amended or modified and in effect from time
to time in accordance with the terms thereof and, if applicable, the terms
hereof; (i) references to any applicable law such applicable law as amended,
modified, codified or reenacted, in whole or in part, and in effect from time to
time, unless the effect thereof is to reduce, limit or otherwise prejudicially
affect any obligation or any right, power or remedy hereunder, in which case
such agreement, modification, codification or reenactment will not, to the
maximum extent permitted by applicable law, form part of this Agreement and is
to be disregarded for purposes of the construction and interpretation hereof.

 

12.8                        SEVERABILITY OF PROVISIONS.

 

If any provision of this Agreement is held to be unenforceable, this Agreement
shall be considered divisible and such provision shall be deemed inoperative to
the extent it is deemed unenforceable, and in all other respects this Agreement
shall remain in full force and effect; provided, however, that if any such
provision may be made enforceable by limitation thereof, then such provision
shall be deemed to be so limited and shall be enforceable to the maximum extent
permitted by Legal Requirements.

 

[SIGNATURE PAGE FOLLOWS]

 

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IN WITNESS WHEREOF, the parties have caused this Asset Purchase Agreement to be
executed by their respective officers hereunto duly authorized as of the date
first above written.

 

BUYER:

SELLER:

 

 

KMG-BERNUTH, INC.

BASIC CHEMICALS COMPANY, LLC

 

 

 

 

By:

/s/ John V. Sobchak

 

By:

/s/ Chuck Anderson

 

 

  John V. Sobchak, Vice President

 

  Chuck Anderson

 

  and Chief Financial Officer

 

  Executive Vice President

 

 

GUARANTOR:

 

 

 

KMG CHEMICALS INC.

 

 

 

 

 

By:

/s/ John V. Sobchak

 

 

 

  John V. Sobchak, Vice President

 

 

  and Chief Financial Officer

 

 

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