**Exhibit 2.1**

 

**STOCK PURCHASE AGREEMENT**

 

**among**

 

**BLOUNTINTERNATIONAL INC.,**

 

**BLOUNT,INC.,**

 

**CARLTONHOLDINGS, INC.,**

 

**THE SHAREHOLDERS OF****CARLTON HOLDINGS, INC.**

 

**and**

 

**Jerry A. Parsons and Richard L. Hawkins, as the Shareholders’Representative**

 

**dated as of May 2, 2008**

 

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**CONTENTS**

 
| ARTICLE I.         | DEFINITIONS                                                                 | 1      |
|--------------------|-----------------------------------------------------------------------------|--------|
|               |                                                                        |   |
| ARTICLE II.        | PURCHASE AND SALE                                                           | 1      |
|               |                                                                        |
| SECTION 2.1.  | Purchase and Sale                                                           | 1      |
|               |                                                                        |   |
| SECTION 2.2.  | Purchase Price; Adjustments to Purchase Price                               | 2      |
|               |                                                                        |   |
| SECTION 2.3.  | Closing                                                                     | 2      |
|               |                                                                        |   |
| SECTION 2.4.  | Shareholders’ Representative                                           | 3      |
|               |                                                                        |   |
| ARTICLE III.       | REPRESENTATIONS AND WARRANTIES OF COMPANY                                   | 7      |
|               |                                                                        |   |
| SECTION 3.1.  | Incorporation and Qualification of Company and its Subsidiaries;  Authority | 8      |
|               |                                                                        |   |
| SECTION 3.2.  | Capital Stock of Company; Ownership of the Shares                           | 8      |
|               |                                                                        |   |
| SECTION 3.3.  | Subsidiaries                                                                | 10     |
|               |                                                                        |   |
| SECTION 3.4.  | No Conflict                                                                 | 10     |
|               |                                                                        |   |
| SECTION 3.5.  | Consents and Approvals                                                      | 11     |
|               |                                                                        |   |
| SECTION 3.6.  | Financial Information; Absence of Undisclosed Liabilities                   | 11     |
|               |                                                                        |   |
| SECTION 3.7.  | Litigation                                                                  | 12     |
|               |                                                                        |   |
| SECTION 3.8.  | Compliance With Laws; Licenses and Permits                                  | 12     |
|               |                                                                        |   |
| SECTION 3.9.  | Environmental Matters                                                       | 12     |
|               |                                                                        |   |
| SECTION 3.10. | Intellectual Property Rights                                                | 14     |
|               |                                                                        |   |
| SECTION 3.11. | Real and Personal Property                                                  | 15     |
|               |                                                                        |   |
| SECTION 3.12. | Material Contracts                                                          | 16     |
|               |                                                                        |   |
| SECTION 3.13. | Employee Benefit Matters                                                    | 18     |
|               |                                                                        |   |
| SECTION 3.14. | Labor Matters                                                               | 20     |
|               |                                                                        |   |
| SECTION 3.15. | Taxes                                                                       | 20     |
|               |                                                                        |   |
| SECTION 3.16. | Insurance                                                                   | 22     |
|               |                                                                        |   |
| SECTION 3.17. | Brokers; Company Transaction Expenses                                       | 22     |
|               |                                                                        |   |
| SECTION 3.18. | Bank Accounts; Power of Attorney; Officers and Directors                    | 22     |
|                    |                                                                             |        |  |

 

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| SECTION 3.19. | Absence of Certain Changes or Events               | 23     |
|--------------------|----------------------------------------------------|--------|
|               |                                               |   |
| SECTION 3.20. | Transactions with Related Persons                  | 25     |
|               |                                               |   |
| SECTION 3.21  | Inventory                                          | 25     |
|               |                                               |   |
| SECTION 3.22  | Customers; Suppliers                               | 25     |
|               |                                               |   |
| SECTION 3.23  | Accounts Receivable                                | 26     |
|               |                                               |   |
| SECTION 3.24. | Product Warranties                                 | 26     |
|               |                                               |   |
| SECTION 3.25. | Limitation to Representations                      | 26     |
|               |                                               |   |
| ARTICLE IV.        | REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS | 27     |
|               |                                               |   |
| SECTION 4.1.  | Organization                                       | 27     |
|               |                                               |   |
| SECTION 4.2.  | Ownership of the Shares                            | 27     |
|               |                                               |   |
| SECTION 4.3.  | Authorization; Binding Effect                      | 28     |
|               |                                               |   |
| SECTION 4.4.  | No Conflict                                        | 28     |
|               |                                               |   |
| SECTION 4.5.  | Consents and Approvals                             | 29     |
|               |                                               |   |
| SECTION 4.6.  | Litigation                                         | 29     |
|               |                                               |   |
| SECTION 4.7.  | Brokers                                            | 29     |
|               |                                               |   |
| SECTION 4.8.  | Limitation to Representations                      | 30     |
|               |                                               |   |
| ARTICLE V.         | REPRESENTATIONS AND WARRANTIES OF THE PURCHASER    | 30     |
|               |                                               |   |
| SECTION 5.1.  | Incorporation and Authority of the Purchaser       | 30     |
|               |                                               |   |
| SECTION 5.2.  | No Conflict                                        | 31     |
|               |                                               |   |
| SECTION 5.3.  | Consents and Approvals                             | 31     |
|               |                                               |   |
| SECTION 5.4.  | Litigation                                         | 32     |
|               |                                               |   |
| SECTION 5.5.  | Brokers                                            | 32     |
|               |                                               |   |
| ARTICLE VI.        | ADDITIONAL AGREEMENTS                              | 32     |
|               |                                               |   |
| SECTION 6.1.  | Access to Information; Confidentiality             | 32     |
|               |                                               |   |
| SECTION 6.2.  | Taxes                                              | 33     |
|               |                                               |   |
| SECTION 6.3.  | Agreement Not To Compete                           | 34     |
|               |                                               |   |
| SECTION 6.4.  | Post-Closing Action                                | 36     |
|               |                                               |   |
| SECTION 6.5   | Employees                                          | 36     |
|               |                                               |   |
| SECTION 6.6   | Environmental Insurance Policy                     | 37     |
|                    |                                                    |        |  |  |  |

 

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| ARTICLE VII.       | INDEMNIFICATION                         | 38     |
|--------------------|-----------------------------------------|--------|
|               |                                    |   |
| SECTION 7.1.  | Survival                                | 38     |
|               |                                    |   |
| SECTION 7.2.  | Indemnification by the Purchaser        | 38     |
|               |                                    |   |
| SECTION 7.3.  | Indemnification by the Shareholders     | 39     |
|               |                                    |   |
| SECTION 7.4.  | General Provisions                      | 42     |
|               |                                    |   |
| ARTICLE VIII.      | GENERAL PROVISIONS                      | 44     |
|               |                                    |   |
| SECTION 8.1.  | Expenses                                | 44     |
|               |                                    |   |
| SECTION 8.2.  | Notices                                 | 44     |
|               |                                    |   |
| SECTION 8.3.  | Public Announcements                    | 46     |
|               |                                    |   |
| SECTION 8.4.  | Interpretation; Exhibits and  Schedules | 46     |
|               |                                    |   |
| SECTION 8.5.  | Severability                            | 47     |
|               |                                    |   |
| SECTION 8.6   | Definitive Agreement                    | 47     |
|               |                                    |   |
| SECTION 8.7.  | Assignment                              | 47     |
|               |                                    |   |
| SECTION 8.8.  | No Third-Party Beneficiaries            | 47     |
|               |                                    |   |
| SECTION 8.9.  | Amendment; Waiver                       | 47     |
|               |                                    |   |
| SECTION 8.10. | Governing Law                           | 48     |
|               |                                    |   |
| SECTION 8.11. | Counterparts                            | 48     |
|                    |                                         |        |  |  |

 

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**EXHIBITS**

 
|       | Exhibit A   | Definitions                             |
|------------|------------------|-----------------------------------------|
| *          | Exhibit B   | Form of Perkins Coie Legal Opinion |
| *          | Exhibit C   | Latest Balance Sheet                    |
|       |             | ** **                              |
| *****      | **SCHEDULES**    | ** **                              |
| ** ** | ** **       | ** **                              |
|       | Schedule 2.1     | Shares                                  |
|       | Schedule 3.3     | Subsidiaries                            |
|       | Schedule 3.8     | List of Permits                         |
|       | Schedule 3.10(e) | Company Intellectual Property           |
|       | Schedule 3.11(a) | Real Property                           |
|       | Schedule 3.11(b) | Personal Property                       |
|       | Schedule 3.12    | Material Contracts                      |
|       | Schedule 3.13(a) | Plans                                   |
|       | Schedule 3.14    | Employees                               |
|       | Schedule 3.16    | Insurance                               |
|       | Schedule 3.18    | Bank Accounts                           |
|       | Schedule 3.24    | Warranties                              |
|       | Schedule 6.5(c)  | Severance                               |

 

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| * | Such exhibits and schedules  to the Stock Purchase Agreement are not being filed herewith. The Registrant  undertakes to furnish supplementally a copy of any omitted exhibit or  schedule to the Commission upon request, pursuant to Item 601(b)(2) of  Regulation S-K. |
|---|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

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**STOCK PURCHASEAGREEMENT**

** **

THIS STOCK PURCHASE AGREEMENT, dated as of May 2, 2008 (this “Agreement”),is entered into among BLOUNT INTERNATIONAL INC., a Delaware corporation (“Parent”),BLOUNT, INC., a Delaware corporation and wholly owned subsidiary of Parent (the“Purchaser”), CARLTON HOLDINGS, INC., an Oregon corporation (“Company”),the individuals named on Schedule 2.1 (each a “Shareholder” andcollectively, the “Shareholders”) and Jerry A Parsons and Richard L.Hawkins, as the representatives of the Shareholders (collectively, the “Shareholders’Representatives”).

 

**RECITALS**

** **

A.            TheShareholders collectively own all the authorized, issued and outstanding sharesof capital stock of Company, consisting of shares (the “Shares”) ofCompany’s voting Class A common stock, $0.01 par value per share (“Class ACommon Stock”) and non-voting Class B common stock, $0.01 par valueper share (“Class B Common Stock” and, together with the Class ACommon Stock, collectively the “Common Stock”).

 

B.            TheShareholders desire to sell to the Purchaser, and the Purchaser desires topurchase from the Shareholders, the Shares on the terms and subject to theconditions set forth herein.

 

**AGREEMENT**

 

NOW, THEREFORE, in consideration of the premises and of the mutualagreements and covenants hereinafter set forth, the Purchaser, Company and theShareholders hereby agree as follows:

 

# **ARTICLE I.**                   DEFINITIONS

# ** **

Defined terms used herein shall have the meanings given them in ExhibitA or in the Sections of this Agreement referenced in Exhibit A.

 

# **ARTICLE II.**                 PURCHASE AND SALE

# ** **

## **SECTION2.1.**                   Purchase and Sale

## ** **

On the terms and subject to the conditions set forth in this Agreement,each Shareholder shall sell, transfer and deliver to the Purchaser, and thePurchaser shall purchase from such Shareholder, the Shares free and clear ofall Liens. The shares of each Shareholder are set forth opposite the name ofsuch Shareholder on Schedule 2.1.

 

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## **SECTION2.2.**                   Purchase Price; Adjustments to Purchase Price

## ** **

(a)           Theaggregate purchase price for the Shares is (i) $64,000,000 *less* (ii) the sum of, without duplication,(A) Company’s Net Debt, (B) the DISC Amount and (C) the CompanyTransaction Expenses (the “Purchase Price”). Prior to the date hereof,Company has provided a written statement to the Purchaser, certified by anofficer of Company, setting forth the Company’s Net Debt and the CompanyTransaction Expenses, in each case, as of the Closing (the “ClosingCertificate”), for purposes of calculating the Purchase Price, which shallinclude a list of the amount and the Person to whom any such CompanyTransaction Expense is owed and each lender of Indebtedness that is included inthe determination of Net Debt. The Purchase Price is payable as provided in Section2.3(c). Parent agrees that following the Closing, it will promptly pay (orcause to be paid) any Company Transaction Expenses listed on the ClosingCertificate under the heading “Company Transaction Expenses”.

 

(b)           Onthe Closing Date, in consideration for the Shares sold by each Shareholderhereunder, such Shareholder shall be entitled to such Shareholder’s Pro RataPortion of (i) the Purchase Price less (ii) the Holdback Amount.

 

## **SECTION2.3.**                   Closing

## ** **

(a)           Subjectto the terms and conditions of this Agreement, the sale and purchase of theShares contemplated hereby shall take place at a closing (the “Closing”)at the offices of Perkins Coie LLP, 1120 NW Couch Street, Tenth Floor,Portland, Oregon, which shall occur simultaneously with the execution anddelivery of this Agreement by the parties hereto (the date on which the Closingtakes place being the “Closing Date”).

 

(b)           Simultaneouslywith the execution and delivery of this Agreement, the Shareholders or theShareholders’ Representative shall deliver or cause to be delivered to thePurchaser:

 

(i)            stock certificates evidencing the Shares,duly executed in blank or accompanied by stock powers duly executed in blank,in proper form for transfer;

 

(ii)           copies of all material consents,authorizations and approvals, if any, required to be obtained by Company, theShareholders or their affiliates and necessary for the consummation of thetransactions contemplated by this Agreement and the Transaction Documents;

 

(iii)          resignationsfrom each director of Company, dated effective as of or prior to the ClosingDate;

 

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(iv)          the opinion of Perkins Coie LLP, counselfor Company, dated the Closing Date, in substantially the form attached as Exhibit B;

 

(v)           a certificate, in form and substancesatisfactory to the Purchaser, certifying that the purchase of the Common Stockis exempt from withholding pursuant to the Foreign Investment in Real PropertyTax Act; and

 

(vi)          such certified copies of such corporateactions and proceedings and such other instruments and documents as shall havebeen reasonably requested by the Purchaser’s counsel.

 

(c)           Simultaneouslywith the execution and delivery of this Agreement, the Purchaser shall deliverto the Shareholders’ Representative, on behalf of the Shareholders, or otherparties as set forth in this Agreement:

 

(i)            the Purchase Price (including theHoldback Amount), by wire transfer in immediately available funds to an accountdesignated in writing by the Shareholders’ Representative prior to the datehereof;

 

(ii)           copies of all material consents,authorizations and approvals, if any, required to be obtained by Parent or thePurchaser and necessary for the consummation of the transactions contemplatedby this Agreement and the Transaction Documents; and

 

(iii)          suchcertified copies of such corporate actions and proceedings and such otherinstruments and documents as shall have been reasonably requested by Company’scounsel.

 

## **SECTION2.4.**                   Shareholders’ Representative

## ** **

(a)           EachShareholder irrevocably authorizes and appoints each of Jerry A. Parsons andRichard L. Hawkins as the Shareholders’ Representative (and by execution ofthis Agreement, each of such individuals hereby accepts such appointment), withfull power of substitution and resubstitution, as such Shareholder’srepresentative and true and lawful attorney-in-fact and agent to act in suchShareholder’s name, place and stead as set forth in this Agreement and toexecute in the name and on behalf of such Shareholder any documents to bedelivered by the Shareholders in connection with this Agreement. TheShareholders’ Representative shall not have any duties or responsibilitiesexcept those expressly set forth in this Agreement, and no implied covenants,functions, responsibilities, duties, obligations or liabilities shall be readinto this Agreement or shall otherwise exist against the Shareholders’Representative. Each individual serving as the Shareholders’ Representative mayact independently of the other on behalf of all Shareholders.

 

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(b)           Eachof the Shareholders agrees that the Shareholders’ Representative shall have thefull power, authority and right to perform, do and take any and all actions hedeems necessary or advisable to carry out the purposes of this Agreement. Inparticular, but not by way of limitation, the Shareholders’ Representative hasthe power to (i) make and carry out decisions and exercise any and allrights of the Shareholders under this Agreement and any Transaction Document onbehalf of each Shareholder and to sign documents and make filings on behalf ofeach Shareholder as if such Shareholder had itself signed or filed suchdocument, (ii) consummate the transactions contemplated by this Agreementand the Transaction Documents, (iii) receive and deliver to the Purchasersurrendered certificates representing the Shares, (iv) communicate to, andreceive all communications and notices from, the Purchaser, (v) signdocuments and make filings on behalf of each Shareholder as if such Shareholderhad itself signed or filed such document, (vi) subject to the limitationsset forth in Article VII, negotiate, settle, compromise, make payments inrespect of and otherwise handle all claims for indemnification made by thePurchaser hereunder, (vii) agree to, negotiate, enter into settlements andcompromises of, and commence, prosecute, participate in, settle, dismiss orotherwise terminate, as applicable, any litigation, action, proceeding orinvestigation relating to Company, the Shares, the Shareholders, thisAgreement, the Transaction Documents or any of the transactions contemplated bythis Agreement or the Transaction Documents, and comply with orders of courtsand awards of courts, mediators and arbitrators with respect to suchlitigation, action, proceeding or investigation, (viii) retain attorneys,accountants and other professional service providers to assist and advise himwith respect to his duties hereunder, (ix) make, execute, acknowledge anddeliver all such other agreements, guarantees, orders, receipts, endorsements,notices, requests, instructions, certificates, stock powers, letters and otherwritings relating to the foregoing, and, in general and (x) do any and allthings and take any and all actions that the Shareholders’ Representative, inits sole discretion, may consider necessary, proper or convenient in connectionwith, or to carry out on behalf of the Shareholders, the transactionscontemplated by this Agreement and the Transaction Documents. The Shareholders’Representative shall establish an account for receipt of the Purchase Price andany other amounts due to the Shareholders from the Purchaser pursuant to theterms of this Agreement, and shall authorize any payments due to any or all ofthe Shareholders pursuant to this Agreement to be paid from such account bywire transfer in immediately available funds to the accounts designated by eachShareholder, promptly after delivery of any payments from the Purchaser to theaccount established by the Shareholders’ Representative. If specificallyrequested by Shareholders who hold at least 75% of the Shares prior to theClosing (the “Required Shareholders”), the Shareholders’ Representativeshall also have the power to amend, modify or waive any agreement (includingthis Agreement) in the name of each Shareholder as if such Shareholder haditself amended, modified or waived such agreement (and regardless of whetherthe particular Shareholder in fact requested that the Shareholders’Representative enter into such amendment, modification or waiver); provided,however, that,

 

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notwithstanding anything to the contrary, the Shareholders’Representative shall have no power to amend any term of this Agreement whichwould change (i) the consideration to be received by the Shareholders or(ii) the relative indemnification obligations of the Shareholders. TheShareholders’ Representative shall have all of the rights and powers whichShareholders would otherwise have, and Shareholders agree that the Purchasershall be entitled to rely exclusively upon all actions taken or omitted to betaken by the Shareholders’ Representative (acting either jointly orindividually) pursuant to this Agreement and any of the foregoing matters. TheShareholders’ Representative shall for all purposes hereunder be deemed thesole authorized agent of the Shareholders until such time as the agency isterminated pursuant to the terms of Section 2.4(g).

 

(c)           TheShareholders’ Representative shall be entitled to rely, and shall be fullyprotected in relying, on any statements furnished to him by any Shareholder orthe Purchaser, or on any other evidence deemed by the Shareholders’Representative to be reliable. The Shareholders’ Representative shall be fullyjustified in failing or refusing to take any action under this Agreement unlesshe shall have received such advice or concurrence of the Shareholders as hedeems appropriate or unless he shall have been expressly indemnified to hissatisfaction by the Shareholders severally and on a Pro Rata Portion basisagainst any and all liability and expense that it may incur by reason of takingor continuing to take any such action. The Shareholders’ Representative shallin all cases be fully protected in acting, or refraining from acting, underthis Agreement in accordance with a request of the Required Shareholders,subject to Section 2.4(b), and such request, and any such action taken orfailure to act pursuant thereto, shall be binding on all the Shareholders. Forthe avoidance of doubt, neither the Purchaser nor any of its affiliates shallbe under any obligation: (i) to indemnify and hold the Shareholders’Representative, in his capacity as such, harmless against any damages incurredby the Shareholders’ Representative, in such capacity, arising out of or inconnection with the acceptance or administration of the duties of theShareholders’ Representative hereunder or under any other TransactionDocuments; or (ii) to cover any out-of-pocket costs and expenses incurredby the Shareholders’ Representative, in such capacity, in connection withactions taken by the Shareholders’ Representative, in such capacity, pursuantto the terms of this Agreement or any other Transaction Documents; provided,however, that the foregoing shall in no way affect or limit any of theprovisions of Article VII, including Parent’s and the Purchaser’sobligations to indemnify the Shareholders for any and all Losses, including anyindemnifiable costs and expenses of the Shareholders’ Representative pursuantto Article VII.

 

(d)           TheShareholders’ Representative shall not be liable to the Shareholders for anyerror of judgment, or any action taken or omitted to be taken hereunder, exceptin the case of his bad faith, gross negligence or willful misconduct, asdetermined by a court of competent jurisdiction. The Shareholders’Representative shall be entitled to consult with counsel of his choosing andshall be fully protected against 

 

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liability to any Shareholder in any act taken, suffered or permitted byhim in good faith in accordance with the advice of counsel.

 

(e)           TheShareholders’ Representative shall not be paid any fee for services to berendered hereunder. All reasonable out-of-pocket fees and expenses incurred bythe Shareholders’ Representative in performing his duties hereunder shall bereimbursed severally and on a Pro Rata Portion basis by the Shareholders; provided,however, that, to the extent practical and permitted under thisSection 2.4(e), the Shareholders’ Representative shall deduct such feesand expenses from the amounts otherwise distributable to the Shareholders underthis Agreement. In particular, the Shareholders’ Representative shall hold backthe sum of $100,000 from amounts otherwise distributable to the Shareholdersunder this Agreement (the “Holdback Amount”) for a period of90 days from the date of this Agreement, to be used (i) first, tosatisfy any obligations for Transaction Expenses or Indebtedness, in each casenot listed on the Closing Certificate, and (ii) thereafter, to satisfy anyadministrative expenses the Shareholders’ Representative may incur in suchcapacity. Following the date that is 90 days from the date of thisAgreement, the Shareholders’ Representative may continue to hold any remainingfunds from the Holdback Amount until such time as the Shareholders’Representative determines, in the Shareholders’ Representative’s solediscretion, that no such additional administrative expenses will be incurred bythe Shareholders’ Representative in connection with the performance of itsobligation hereunder and, at the time of such determination and aftersubtracting any administrative expenses from the Holdback Amount, theShareholders’ Representative shall deliver any remaining funds from theHoldback Amount to the Shareholders on a Pro Rata Portion basis.

 

(f)            TheShareholders agree, severally and on a Pro Rata Portion basis, to indemnify andhold the Shareholders’ Representative harmless against any and all losses,claims, damages, liabilities and expenses (including reasonable costs ofinvestigation, attorneys’ fees and disbursements) that may be imposed on theShareholders’ Representative or incurred by the Shareholders’ Representative inconnection with the performance of his duties under this Agreement, includingany litigation arising from this Agreement or involving its subject matter,unless such loss, liability, claim or expense shall have been determined by acourt of competent jurisdiction to be a result of the Shareholders’Representative’s bad faith, gross negligence or willful misconduct. Anything inthis Agreement to the contrary notwithstanding, in no event shall theShareholders’ Representative be liable to the Shareholders for special,indirect or consequential loss or damage of any kind whatsoever, even if theShareholders’ Representative has been advised of the likelihood of such damagesand regardless of the form of action.

 

(g)           TheShareholders’ Representative may resign at any time. The Shareholders’Representative may be removed at any time by a writing signed by the 

 

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Required Shareholders. If the Shareholders’ Representative or anysuccessor shall resign, be so removed, or become unable to act as theShareholders’ Representative, a replacement Shareholders’ Representative shallpromptly be appointed by a writing signed by the Required Shareholders. Uponthe acceptance of any appointment as the Shareholders’ Representative hereunder,such successor Shareholders’ Representative shall thereupon succeed to andbecome vested with all the rights, powers, privileges and duties of theretiring Shareholders’ Representative, and the retiring Shareholders’Representative shall be discharged from its duties and obligations hereunder(but shall retain all rights under this Section 2.4 with respect to theretiring Shareholders’ Representative’s service as Shareholders’ Representativeprior to such resignation or removal).

 

(h)           Notwithstandinganything to the contrary herein, the Purchaser shall be notified in writing atleast five days prior to any such resignation, removal or appointment. Each ofthe Shareholders agrees that the Purchaser shall be entitled to relyexclusively on the actions taken or omitted to be taken by the resigning orremoved Shareholders’ Representative until the receipt of such notice.

 

(i)            EachShareholder agrees that this agency and power of attorney are coupled with aninterest, are therefore irrevocable without the consent of the Shareholders’Representative and shall survive the death, incapacity, bankruptcy, dissolutionor liquidation of any Shareholder or trust through which any Shareholder ownstheir respective Shares.

 

(j)            Theprovisions of this Section 2.4 shall apply separately to each individualserving as the Shareholders’ Representative, and each of such individuals mayact in such capacity independently of any other individual simultaneouslyacting in such capacity, on behalf of all Shareholders.

 

# **ARTICLE III.**                REPRESENTATIONS ANDWARRANTIES OF COMPANY

# ** **

Except as set forth in the corresponding sections or subsections of theSchedule of Exceptions delivered to the Purchaser on date hereof (the “Scheduleof Exceptions”) (it being understood that items set forth in one particularsection or subsection of the Schedule of Exceptions may apply to and/or qualifydisclosures made in one or more other sections or subsection to the extent thatit is reasonably apparent on its face that such disclosures apply to or qualifyother disclosures, and that the Schedule of Exceptions may include specificcross-references to particular items in other sections or subsections of theSchedule of Exceptions), Company makes the following representations andwarranties to the Purchaser:

 

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## **SECTION3.1.**                   Incorporation and Qualification of Company andits Subsidiaries; Authority

## ** **

Company is a corporation duly incorporated and validly existing underthe laws of the State of Oregon and has all necessary corporate power andauthority (i) to execute and deliver this Agreement and the TransactionDocuments to which it is or will be a party, (ii) to consummate thetransactions contemplated hereby and thereby, (iii) to own, operate, leaseor otherwise hold its properties and assets and (iv) to carry on itsbusiness as it is now being conducted. Company is duly qualified as a foreigncorporation to do business, and is in good standing, in each jurisdiction wherethe character of its properties owned, operated or leased or the nature of itsactivities makes such qualification necessary, except where the failure to soqualify, individually or in the aggregate, does not have or could notreasonably be expected to have a Material Adverse Effect. Each Subsidiary is acorporation duly incorporated, validly existing and, if applicable, in goodstanding under the laws of the applicable State set forth in Schedule 3.3and has the corporate power and authority to own, operate, lease or otherwisehold its properties and assets and to carry on its business as it is now beingconducted. Each Subsidiary is duly qualified as a foreign corporation to dobusiness, and is in good standing, in each jurisdiction where the character ofits properties owned, operated or leased or the nature of its activities makessuch qualification necessary, except where the failure to so qualify,individually or in the aggregate, does not have or could not reasonably beexpected to have a Material Adverse Effect. The execution and delivery by Companyof this Agreement and the Transaction Documents to which it is or will be aparty, the performance of its obligations hereunder and thereunder and theconsummation by Company of the transactions contemplated hereby and therebyhave been duly authorized by all requisite corporate action on the part ofCompany. Each Transaction Document to which it is a party has been dulyexecuted and delivered by Company, and (assuming due authorization, executionand delivery by the other parties) constitutes a legal, valid and bindingobligation of Company, enforceable against Company in accordance with its terms.Company has delivered or made available to the Purchaser true and completecopies of (i) its Articles of Incorporation and Bylaws, each as amended todate and (ii) the comparable governing instruments, each as amended todate, of each Subsidiary. The stock certificates, transfer books and the minutebooks of Company and each Subsidiary that have been made available forinspection by the Purchaser prior to the date hereof are true and completecopies thereof and reflect all transactions relating to the Company’s capitalstock.

 

## **SECTION3.2.**                   Capital Stock of Company; Ownership of theShares

## ** **

(a)           The authorized capital stock of Companyconsists of 10,000 shares of voting Class A Common Stock, par value $0.01per share, 137 shares of which are outstanding as of the date hereof, and100,000 shares of non-voting Class B Common Stock, par value $0.01 pershare, 13,070 shares of which are outstanding as of the date 

 

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hereof. Except for the Shares, there are no shares ofcapital stock or other equity securities of Company issued, reserved forissuance or outstanding and no shares of capital stock of Company are subjectto vesting or restrictions on transfer. The Shares have been duly authorizedand validly issued, are fully paid and nonassessable and were not issued inviolation of any preemptive rights, purchase options, call options, rights offirst refusal, subscription rights or any similar rights under any provision ofthe Oregon Business Corporation Act, the Articles of Incorporation or Bylaws ofCompany or any contract to which Company is a party or otherwise bound. Schedule2.1 is a true, complete and accurate list (the “Shareholder List”)that sets forth the name of each record holder of the Shares, exactly as suchrecord holder’s name is set forth on the share certificates. The ShareholdersList also sets forth with respect to each such record holder the share certificatenumbers held by such holder and the number of Shares evidenced by each suchshare certificate. The authorized and outstanding capital stock of eachSubsidiary is set forth in Schedule 3.3 and except as set forth in Schedule 3.3,there are no shares of capital stock or other equity securities of anySubsidiary issued, reserved for issuance or outstanding. The outstanding sharesof capital stock of each Subsidiary have been duly authorized and validlyissued, are fully paid and nonassessable and were not issued in violation ofany preemptive rights, purchase options, call options, rights of first refusal,subscription rights or any similar rights under any provision of the OregonBusiness Corporation Act, the General Corporation Law of the State of Delaware(as applicable), the governing instruments of any Subsidiary or any contract towhich any Subsidiary is a party or otherwise bound. No bonds, debentures, notesor other Indebtedness of Company has the right to vote (or is convertible into,or is exchangeable for, securities that have the right to vote) on any matterson which holders of Shares may vote (“Voting Company Debt”). There areno outstanding rights of first refusal, preemptive rights, options, rights,“phantom” stock rights, stock appreciation rights, stock-based performanceunits, commitments, warrants, convertible or exchangeable securities,contracts, arrangements or other agreements or undertakings of any kind towhich Company or any Subsidiary is a party or by which any of them is bound(i) obligating Company or any Subsidiary to issue, deliver or sell, orcause to be issued, delivered or sold, additional shares of capital stock orother equity interests in, or any security convertible or exercisable for orexchangeable into any capital stock of or other equity interest in, Company orof any Subsidiary or any Voting Company Debt, (ii) obligating Company or anySubsidiary to issue, grant, extend or enter into any such option, warrant,call, right, security, commitment, contract, arrangement or undertaking or(iii) that give any Person the right to receive any economic benefit orright similar to or derived from the economic benefits and rights accruing toholders of any shares of capital stock or other securities of Company or any Subsidiary.There are not any outstanding contractual obligations of Company or anySubsidiary to repurchase, redeem or otherwise acquire any shares of theirrespective capital stock or other securities thereof. Neither Company nor anySubsidiary is a party or subject to any agreement or understanding, and toCompany’s knowledge, there is no agreement or understanding between any Persons

 

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that affects or relates to the voting or giving ofwritten consents with respect to any securities of Company or any Subsidiary orthe voting by any director of Company or any Subsidiary.

 

(b)           The only outstanding Indebtedness ofCompany and its Subsidiaries is the Indebtedness set forth on the ClosingCertificate.

 

## **SECTION3.3.**                   Subsidiaries

## ** **

Company does not beneficially own or control, directly or indirectly,any capital stock, membership interest, partnership interest, joint ventureinterest or other equity interest of any corporation or have any other director indirect equity or ownership interest in any Person, other than Company’s100% ownership of each Subsidiary. All of the outstanding capital stock of, orother voting securities or ownership interests in, each Subsidiary of Companyis owned by Company, directly or indirectly, free and clear of any Lien andfree of any other limitation or restriction (including any restriction on theright to vote, sell or otherwise dispose of such capital stock or other votingsecurities or ownership interests).

 

## **SECTION3.4.**                   No Conflict

## ** **

The execution, delivery and performance by Company of this Agreementand the Transaction Documents to which it is a party, and the consummation ofthe transactions contemplated hereby and thereby, do not (a) conflict withor violate any provision of the Articles of Incorporation or Bylaws of Company,(b) conflict with or violate in any material respect any law, rule,regulation, order, writ, judgment, injunction, decree, determination or awardapplicable to Company or any Subsidiary or by which any of their respectiveassets or properties are bound, or (c) result in any material breach of,or constitute a material default (or event which with the giving of notice orlapse of time, or both, would become such a default) under, or give rise to anyrights of termination, amendment, acceleration or cancellation of or anymaterial obligation or to loss of a material benefit under, or to increased,additional, accelerated or guaranteed material rights or entitlements of anyPerson under, or result in the creation of any lien, mortgage, deed of trust,pledge, security interest, charges, easements, leases, subleases, covenants,rights of way, options, claims or other encumbrance or restriction of any kind(“Lien”) (other than any Permitted Liens) on any of the assets orproperties of Company or any Subsidiary pursuant to, any note, bond, mortgage,indenture, contract, agreement, lease, sublease, license, permit, franchiseloan, instrument, understanding, deed of trust, purchase order, sales order,joint venture or other instrument or agreement of any kind (written or oral)relating to such assets or properties to which Company or any Subsidiary is aparty or by which any of such assets or properties is bound or affected.

 

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## ** **

## **SECTION3.5.**                                                        Consents and Approvals

## ** **

The execution, delivery and performance by Company of this Agreementand the Transaction Documents to which it is a party do not require anyconsent, approval, exemption, authorization or other action by, or registration,declaration or filing with or notification to, any Federal, state, local orforeign government or any court, administrative agency or other governmental orregulatory authority or instrumentality, domestic or foreign or any thirdparty, except (a) for any consent, approval, exemption, authorization,action, filing or notification that is immaterial to Company’s business, and(b) as may be necessary as a result of any facts or circumstances relatingsolely to Parent’s or the Purchaser’s (as opposed to any third party’s)participation in the transactions contemplated hereby and by the otherTransaction Documents.

 

## **SECTION3.6.**                                                        Financial Information; Absence ofUndisclosed Liabilities

## ** **

Company has provided to the Purchaser true and complete copies of(a) the audited consolidated balance sheet of Company as ofDecember 31, 2005, 2006 and 2007 and the audited consolidated incomestatement and statement of cash flow for Company for the years endedDecember 31, 2005, 2006 and 2007 (collectively, the “Audited FinancialStatements”) and (b) the unaudited consolidated balance sheet ofCompany as of March 31, 2008 (the “Latest Balance Sheet”) (a copyof which is attached hereto as Exhibit C) and an unauditedconsolidated income statement and unaudited consolidated statement of cash flowfor Company as of and for the month ended March 31, 2008 (the “UnauditedFinancial Statements” and, together with the Audited Financial Statements,being referred to herein, collectively, as the “Financial Statements”). TheFinancial Statements present fairly the consolidated financial condition andresults of operations and cash flows of Company as of the dates thereof and forthe periods covered thereby, and the Financial Statements have been prepared inaccordance with GAAP, consistently applied, throughout the periods coveredthereby, except as described in the notes thereto and except that the UnauditedFinancial Statements do not contain the footnotes required by GAAP and theUnaudited Financial Statements are subject to year-end and other normal,recurring year-end audit adjustments that are not material. Company and eachSubsidiary have no material liabilities or obligations of any nature (absolute,accrued or contingent, unasserted or otherwise) that are required to bereflected or reserved against on Company’s balance sheet by GAAP which are not,on an aggregate basis, reflected or reserved against in the Latest BalanceSheet, except for liabilities or obligations incurred since the date of theLatest Balance Sheet in the ordinary course of business and consistent withpast practice. Neither Company nor any Subsidiary is a guarantor, indemnitor,surety or other obligor of any Indebtedness of any other Person.

 

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## **SECTION3.7.**                                                        Litigation

## ** **

No claim, suit, proceeding, investigation or other action is pendingor, to Company’s knowledge, threatened against, relating to or affectingCompany or any Subsidiary, and neither Company nor any Subsidiary is subject toany order, writ, judgment, injunction, decree, determination or award. Noclaim, suit, proceeding, investigation or other action is pending or, toCompany’s knowledge, threatened, which questions the validity of this Agreementor any of the Transaction Documents or prohibits or restricts any action takenor to be taken by Company hereunder or thereunder (and Company is not aware ofany basis for any such suit, proceeding, investigation or other action).

 

## **SECTION3.8.**                                                        Compliance With Laws; Licenses andPermits

## ** **

Neither Company nor any Subsidiary is in violation of or in defaultunder, any law, rule, regulation, ordinance, order, judgment or decreeapplicable to Company or any Subsidiary or by which any of their respectiveassets or properties are bound or affected, including those relating tooccupational health and safety (except for any violations that have beenremedied or cured) and except for violations that are immaterial to Company’sbusiness. Neither Company nor any of the Subsidiaries has received any writtenor oral notice since December 31, 2006 from any Person that alleges thatCompany or any Subsidiary is not in compliance in all material respects withany law, rule, regulation, ordinance, order, judgment or decree applicable toCompany or any Subsidiary or by which any of their respective assets orproperties are bound or affected. To Company’s knowledge, the current use byCompany and the Subsidiaries of the improvements located on any parcel of RealProperty owned, leased or occupied thereby does not violate any local zoning orsimilar land use or government regulations in any material respect. Company andeach Subsidiary (i) validly hold, and are in compliance in all materialrespects with, all governmental licenses, franchises, permits, filings,approvals, authorizations, exemptions, certificates and registrations (“Permits”)necessary to own, lease or operate its assets and carry on their respectivebusinesses as they are now being conducted, (ii) has complied in allmaterial respects with all terms and conditions thereof and (iii) has notreceived any notice of any suit, action or proceeding relating to therevocation or modification of any such Permits. To Company’s knowledge, none ofthe Permits will be subject to suspension, modification, revocation ornonrenewal as a result of the execution and delivery of this Agreement or theconsummation of the transactions contemplated hereby. All Permits held byCompany and each Subsidiary are listed on Schedule 3.8.

 

## **SECTION3.9.**                                                        Environmental Matters

## ** **

(a)           Company and each Subsidiaryis and has been in compliance in all material respects with all applicableEnvironmental Laws, and, since December 31, 2003,

 

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neither Company nor any of the Subsidiaries has received any(A) communication that alleges that Company or any of the Subsidiaries isin violation of, or has liability under, any Environmental Law or(B) written request for information from any governmental entity pursuantto any Environmental Law.

 

(b)           (i) Company and eachof the Subsidiaries have obtained and are in compliance in all materialrespects with all permits, licenses and governmental authorizations pursuant toEnvironmental Law (collectively “Environmental Permits”) necessary fortheir operations as currently conducted, (ii) all such Environmental Permitsare valid and in good standing, and (iii) neither Company nor any of theSubsidiaries has been advised by any governmental entity of any actual orpotential change in the status or terms and conditions of any existingEnvironmental Permit.

 

(c)           There are noEnvironmental Claims pending or, to the knowledge of Company, threatened,against Company or any of the Subsidiaries.

 

(d)           Neither Company norany Subsidiary is subject to any material order (including consent orders),judgment or Lien under or pursuant to any Environmental Laws.

 

(e)           Neither Company norany Subsidiary is currently undertaking any investigatory, remedial, control orother responsive action (together “Remedial Actions”) relating to anydisposal, Release or threatened Release of, or exposure  or potential exposure to, any HazardousSubstances, whether or not required by Environmental Laws.

 

(f)            There has been noRelease of, or exposure to, any Hazardous Material that could reasonably beexpected to form the basis of any material Environmental Claim against, ormaterial liability under any Environmental Law of, Company or any Subsidiary.

 

(g)           Neither Company norany Subsidiary owns, operates or leases any underground storage tanks,belowground-level liquids collection or storage sumps, or any treatment,storage or disposal facilities under the Resource Conservation and Recovery Actof 1976, as amended, or any solid waste disposal facility.

 

(h)           On, at, in or underthe real property currently owned or leased by Company or any Subsidiary, thereare no polychlorinated biphenyls in a form or condition prohibited by, orrequiring abatement or other Remedial Action under, Environmental Laws or anyasbestos in a friable or otherwise unencapsulated form.

 

(i)            Neither Company norany of its Subsidiaries has retained or assumed, either contractually or byoperation of law, any liabilities or obligations of any other Person that couldreasonably be expected to form the basis of any Environmental Claim against Companyor any of its Subsidiaries.

 

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(j)            Company has madeavailable to the Purchaser all records and files (including any assessments,reports, studies, audits, analyses, tests and monitoring) in the possession ofor reasonably available to Company pertaining to the existence of HazardousSubstances at facilities or properties currently owned, operated or leased byCompany or any Subsidiary or concerning compliance with or liability under anyEnvironmental Laws relating to any of such facilities or properties.

 

## **SECTION 3.10.**                                               Intellectual Property Rights

## ** **

(a)           Company and theSubsidiaries are the sole and exclusive owners of all Company OwnedIntellectual Property, free and clear of all Liens. Neither Company nor anySubsidiary (i) has been or is a party to any litigation enforcing ordefending its rights in, to or with respect to the Company Owned IntellectualProperty or Company Licensed IntellectualProperty, (ii) has knowledge of any claims or demands made orthreatened by any third party involving the ownership, enforceability,effectiveness or validity of Company’s rights in, to or with respect to theCompany Owned Intellectual Property or Company Licensed Intellectual Property or (iii) has knowledge of any infringement ofCompany Owned Intellectual Property or Company Licensed Intellectual Property,in each case, by any third party.

 

(b)           There is no pendingor, to Company’s knowledge, threatened claim, action, suit, investigation,proceeding or cause of action challenging the use or ownership by Company orany Subsidiary of any Company Owned Intellectual Property, challenging orquestioning the validity or effectiveness of Company Owned Intellectual Property, or alleging thatCompany or any Subsidiary is infringing upon, misappropriating or otherwiseadversely affecting the rights of any Person. To Company’s knowledge, there isno pending or threatened claim, action, suit, investigation, proceeding orcause of action challenging the use by Company or any Subsidiary of any CompanyLicensed Intellectual Property or challenging or questioning the validity oreffectiveness of Company Licensed Intellectual Property.

 

(c)           To Company’sknowledge, (i) the operations of Company and the Subsidiaries do notinfringe upon any validly issued Intellectual Property of any Person,(ii) the consummation of the transactions contemplated by this Agreementand the other Transaction Documents will not conflict with, alter or impair theCompany Owned Intellectual Propertyor Company Licensed Intellectual Propertyand (iii) there is no interference, infringement or misappropriation byany other Person of any Company Owned Intellectual Property or Company LicensedIntellectual Property.

 

(d)           To Company’sknowledge, the businesses of Company and the Subsidiaries do not involve theemployment of any Person in a manner that violates any noncompetition ornondisclosure agreement that such Person entered into in connection 

 

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with his or her employment or activities at any time prior toemployment by Company or any Subsidiary.

 

(e)           Schedule 3.10(e)lists all Intellectual PropertyRegistrations. To the Company’s knowledge, all Intellectual PropertyRegistrations are currently valid and (except for applications) enforceable.

 

(f)            Schedule 3.10(f)lists each license or other agreementpursuant to which Company uses or otherwise exploits Company Licensed Intellectual Property, excluding off theshelf software programs that are licensed by Company pursuant to “shrink wrap,”“click through” or similar licenses, the total fees for which are less than$50,000. To the knowledge of Company, Company has a valid and enforceable rightto use the Company Licensed IntellectualProperty pursuant to the terms and conditions set forth in the licensefor such Company Licensed IntellectualProperty.

 

## **SECTION3.11.**                                                 Real and Personal Property

## ** **

(a)           Schedule 3.11(a)contains a complete and accurate list of all real property that is owned,leased, rented or used by Company or any Subsidiary (the “Real Property”),together with the manner in which each such Real Property is held and adescription of its present use. Company has delivered or made available to thePurchaser true and complete copies of all leases, subleases, rental agreements,contracts of sale, tenancies or licenses relating to the Real Property, and allamendments and modifications thereto.

 

(b)           Schedule 3.11(b)contains a complete and accurate list of each item of personal property as of adate within two business days prior to the Closing****havinga book value in excess of $25,000, that is owned, leased, rented or used byCompany or any Subsidiary (the “Personal Property”); provided, however,that such list need not describe Company’s or any Subsidiary’s rights toIntellectual Property. Company has delivered or made available to the Purchasertrue and complete copies of all leases, subleases, rental agreements, contractsof sale, tenancies or licenses relating to the Personal Property, and allamendments and modifications thereto.

 

(c)           The Real Propertyand the Personal Property include all properties and assets (whether real,personal or mixed, tangible or intangible) (other than, in the case of thePersonal Property, property rights with an individual book value of less than$25,000 and Company Intellectual Property) reflected in the Latest BalanceSheet and all the properties and assets purchased by Company or any Subsidiarysince the date of the Latest Balance Sheet (except for such properties orassets sold since the date of the Latest Balance Sheet in the ordinary courseof business and consistent with past practice). The Real Property and thePersonal Property include all property used in the business of Company and theSubsidiaries (other than, in the case of the Personal Property, property 

 

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rights with an individual book value of less than $25,000 andIntellectual Property Rights of Company and the Subsidiaries) and such RealProperty and Personal Property are sufficient for the current conduct ofCompany and its Subsidiaries’ business.

 

(d)           Company or aSubsidiary has good and marketable fee title to all Real Property and PersonalProperty owned thereby (including any other personal property not listed on Schedule 3.11(b)that is owned thereby), free and clear of all Liens other than PermittedLiens. Company or a Subsidiary has good and valid title to the leaseholdestates in all Real Property and Personal Property leased thereby (includingany other personal property not listed on Schedule 3.11(b) that isleased thereby), free and clear of all Liens other than Permitted Liens.

 

(e)           Neither Company norany Subsidiary has subleased or granted any right to use or occupy all or anyportion of any Real Property or any Personal Property to a third party. NeitherCompany nor any Subsidiary has collaterally assigned or granted a securityinterest in any lease of Real Property or Personal Property.

 

(f)            With respect toeach owned Real Property, (i) there are no outstanding options, rights offirst offer or rights of first refusal to purchase any such Real Property orany portion thereof or interest therein, and (ii) there is no condemnationor other proceeding in eminent domain, pending or to Company’s knowledge, threatened,affecting such Real Property or any portion thereof or interest therein.

 

(g)           The Real Propertyand the Personal Property and any other personal property not listed on Schedule 3.11(b)is in normal repair and operating condition, ordinary wear and tearexcepted.

 

## **SECTION3.12.**                                                 Material Contracts

## ** **

(a)           Schedule 3.12lists, other than purchase and sale orders entered into in the ordinary courseof business and contracts and agreements that are no longer in force,(i) each contract to which Company or any Subsidiary is a party thatinvolves, in accordance with its terms, future payments or receipts by Companyin excess of $25,000, (ii) each contract to which Company or anySubsidiary is a party that has not been fully performed and is not terminable byCompany or such Subsidiary at will or by giving notice of 60 days or less(iii) each agreement for the sale, license or development of IntellectualProperty, (iv) each credit agreement, security agreement and instrumentrelating to Indebtedness to which Company or any Subsidiary is a party orthrough which Company or any Subsidiary guarantees any Indebtedness,(v) each lease of any portion of the Real Property and each lease, licenseor contract of sale to which the Personal Property is subject, (vi) eachemployment or consulting agreement to which Company or any Subsidiary is aparty, (vii) each contract involving a distributor, sales representative,broker or advertising arrangement which has aggregate future liability pursuantto its 

 

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terms to any Person (other than Company or any Subsidiary) in excess of$25,000, (viii) each contract providing for the purchase by Company or anySubsidiary of materials, supplies, merchandise or equipment in excess of $25,000,(ix) each contract with a covenant not to compete, exclusive dealing orother covenant restricting the development, manufacture, line of business,marketing or distribution of the products and services of Company or anySubsidiary, (x) each confidentiality, standstill or similar agreement,(xi) each contract not made in the ordinary course of business,(xii) each collective bargaining arrangement or other contract with anylabor organization, union or association, (xiii) each contract providingfor indemnification of any Person with respect to material liabilities relatingto any current or former business of Company, a Subsidiary or any predecessorPerson, (xiv) each agreement (other than this Agreement) with (A) anyShareholder or any affiliate of any Shareholder (other than Company or anySubsidiary) or (B) any current or former officer, director or employee ofCompany, a Subsidiary, any Shareholder or any affiliate of any Shareholder(other than employment agreements covered in clause (vi)), including allseverance, retention, change in control, termination, loan and indemnificationagreements with any current or former officer, director, employee orshareholder, (xv) any contract for any joint venture, partnership orsimilar arrangements or agreements and (xvi) each other contract, andcommitment (whether oral or in writing) that is material to Company and theSubsidiaries and their businesses (collectively, the “Material Contracts”).

 

(b)           With respect to theMaterial Contracts, (i) each Material Contract is valid, binding and infull force and effect and enforceable in accordance with its terms againstCompany and, to Company’s knowledge, the other contracting party (in each casesubject to the effect, if any, of (x) bankruptcy, insolvency, reorganization,fraudulent transfer, moratorium or other similar laws relating to or affectingthe rights or remedies of creditors or (y) general principles of equity,whether considered in a proceeding in equity or at law (including the possibleunavailability of specific performance or injunctive relief));(ii) neither Company nor any Subsidiary is in material default under or inmaterial violation of any provision of any of the Material Contracts, and noevent has occurred that with notice or lapse of time would constitute amaterial breach or default by Company; (iii) neither Company nor anySubsidiary has received notice of alleged nonperformance or other noncompliancewith respect to its obligations under any of the Material Contracts whichalleged nonperformance or other noncompliance is currently unresolved, nor anynotice that is currently unresolved that any of the Material Contracts may betotally or partially terminated or suspended by any other party thereto;(iv) Company does not have knowledge of any material nonperformance,breach or other noncompliance by any other party to any of the MaterialContracts and (v) neither Company nor any Subsidiary has received anynotice of the intention of any party to terminate any Material Contract.

 

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(c)           Company hasdelivered or made available to the Purchaser true and complete copies of eachMaterial Contract, together with all modifications and amendments thereto.

 

## **SECTION3.13.**                                                 Employee Benefit Matters

## ** **

(a)           Schedule 3.13(a)contains a true and complete list of all employee benefit plans (within themeaning of Section 3(3) of ERISA) and all bonus, stock option, stockpurchase, restricted stock, equity or equity-based, incentive, deferredcompensation, retiree medical or life insurance, supplemental retirement,severance, change in control, retention, termination or other compensation orbenefit plans, programs, policies or arrangements, and all employment,termination, severance, consulting, bonus, incentive, deferred compensation,equity or equity-based compensation, change in control, retention or othercontracts or agreements, in each case with respect to which Company or anySubsidiary or any Person or entity that, together with Company, is treated as asingle employer under Section 414 of the Internal Revenue Code (each, a “CommonlyControlled Entity”) has any obligation or which are maintained, contributedto or sponsored or required to be maintained or contributed to by Company orany Subsidiary or any Commonly Controlled Entity for the benefit of any currentor former employee, independent contractor, officer or director of Company orany Subsidiary (the “Plans”). Company has previously made available tothe Purchaser a true and complete copy of each Plan (or, in the case of anyunwritten Plan, a description) as currently in effect, and a true and completecopy of each of the following documents, to the extent applicable, prepared inconnection with each such Plan:  (i) acopy of each trust, insurance, annuity or other funding arrangement,(ii) the two most recent annual reports on Internal Revenue Service Form5500 required to be filed, (iii) the most recently received InternalRevenue Service determination letter, and (iv) the most recently preparedactuarial or other valuation report and financial statement. Neither Companynor any Subsidiary has any express or implied commitment to modify, change orterminate any Plan, other than with respect to any modification, change ortermination required by ERISA or the Internal Revenue Code.

 

(b)           None of the Plans(i) is a multiemployer plan, within the meaning of Section 3(37) or 4001(a)(3)of ERISA (a “Multiemployer Plan”), or a single-employer pension plan,within the meaning of Section 4001(a)(15) of ERISA, for which Company or anySubsidiary could incur liability under Section 4063 or 4064 of ERISA (a “MultipleEmployer Plan”) or (ii) provides or promises to provide retiree, health,medical or life insurance benefits, other than to the extent required bySection 4980B(f) of the Internal Revenue Code and Sections 601through 609 of ERISA. Neither Company nor any Subsidiary is a participant in orhas ever contributed to a Multiple Employer Plan.

 

(c)           None of Company, anySubsidiary or any Commonly Controlled Entity has sponsored, maintained,contributed to or been required to maintain or 

 

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contribute to, or has any actual or contingent liability under, anyPlan that is subject to Section 302 or Title IV of ERISA or Section 412of the Internal Revenue Code or is otherwise a defined benefit plan. Withrespect to each Plan, neither Company nor any Subsidiary is currently liablefor any material Tax arising under Section 4971, 4972, 4975, 4979, 4980 or4980B of the Internal Revenue Code, and no fact or event exists which couldreasonably be expected to give rise to any such liability. Neither Company norany Subsidiary has incurred any material liability under, arising out of or byoperation of Title IV of ERISA (other than liability for premiums to thePension Benefit Guaranty Corporation arising in the ordinary course), includingany liability in connection with (i) termination or reorganization of anyemployee pension benefit plan subject to Title IV of ERISA or(ii) withdrawal from any Multiemployer Plan or Multiple Employer Plan. Noneof the assets of Company or any Subsidiary is the subject of any Lien arisingunder Section 302(f) of ERISA or Section 412(n) of the InternalRevenue Code and neither Company nor any Subsidiary has been required to postany security under Section 307 of ERISA or Section 401(a)(29) of theInternal Revenue Code with respect to any Plan, and to Company’s knowledge, nofact or event exists which could reasonably be expected to give rise to any suchLien or requirement to post any such security.

 

(d)           Each Plan (and anyrelated trust or other funding vehicle) has been operated in all materialrespects in accordance with, and is in compliance in all material respectswith, its terms and the requirements of applicable laws, including ERISA andthe Internal Revenue Code. Each of Company and the Subsidiaries is incompliance in all material respects with all laws applicable to Plans,including ERISA and the Internal Revenue Code. No Plan has incurred an “accumulatedfunding deficiency” (within the meaning of Section 302 of ERISA orSection 412 of the Internal Revenue Code), whether or not waived.

 

(e)           None of theexecution and delivery of this Agreement, the purchase of the Shares or theother transactions contemplated by this Agreement (alone or in conjunction withany other event, including any termination of employment on or following theClosing Date) will (i) entitle any current or former director, officer,employee or independent contractor of Company or any Subsidiary to anycompensation or benefits, (ii) accelerate the time of payment or vesting,or trigger any payment or funding, of any compensation or benefits or triggerany other material obligation under any Plan or (iii) result in any breachor violation of or default under, or limit Company’s right to amend, modify orterminate, any Plan.

 

(f)            No amount or otherentitlement that could be received as a result of the transactions contemplatedhereby (alone or in conjunction with any other event) by any “disqualifiedindividual” (as defined in Section 280G(c) of the Internal Revenue Code)with respect to Company will constitute an “excess parachute payment” (asdefined in Section 280G(b)(1) of the Internal Revenue Code). No director,officer, employee or independent contractor of Company or any Subsidiary isentitled to receive any gross-up 

 

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or additional payment by reason of the Tax required bySection 409A or 4999 of the Internal Revenue Code being imposed on suchPerson.

 

## **SECTION3.14.**                                                 Labor Matters

## ** **

Schedule 3.14sets forth a list of all employees employed by Company and the Subsidiaries asof the date hereof (the “Employees”). There are no labor controversiespending or, to Company’s knowledge, threatened, between Company or anySubsidiary, on the one hand, and any of the Employees or any former employee ofCompany or any Subsidiary, on the other hand. Neither Company nor anySubsidiary is engaged in any unfair labor practice and there are not anyunfair labor practice charges or complaints against Company or any Subsidiarypending, or, to Company’s knowledge, threatened, before the National LaborRelations Board. There are not any pending, or, to Company’s knowledge,threatened, charges against Company or any Subsidiary or any of their currentor former employees before the Equal Employment Opportunity Commission or anystate or local agency responsible for the prevention of unlawful employmentpractices and none of Company nor any Subsidiary has received written or oralcommunication of the intent of any governmental entity responsible for theenforcement of labor or employment laws to conduct an investigation of oraffecting Company or any Subsidiary and, to Company’s knowledge, no such investigationis in progress. Neither Company nor any Subsidiary is a party to or bound byany contract, collective bargaining agreement, works council agreement or otherlabor union contract with any labor or similar organization applicable to anyof the Employees; and Company has no knowledge of any labor dispute, unionorganization attempts, strikes, slowdowns, work stoppages, lockouts or threatsthereof, by or with respect to any of the Employees.

 

## **SECTION3.15.**                                                 Taxes

## ** **

(a)           (i) Each of Companyand the Subsidiaries has timely filed all Tax Returns required to be filed byit on or prior to the date hereof, taking into account any extension of time tofile granted to or obtained on behalf thereof; (ii) all such Tax Returnswere, at the time they were filed, correct and complete in all materialrespects; (iii) all Taxes, if any, shown to be payable by Company or anySubsidiary on such Tax Returns have been paid or are supported by adequatereserves reflected on the latest Balance Sheet; and (iv) no deficiency forTaxes has been assessed by a Tax Authority against Company or any Subsidiary.

 

(b)           The amount ofliability of Company and the Subsidiaries for unpaid Taxes for all periodsending on or before the date of the Latest Balance Sheet does not, in theaggregate, exceed the amount of the current liability accruals for Taxes(excluding reserves for deferred Taxes) with respect thereto, as such accrualsare reflected on the Latest Balance Sheet.

 

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(c)           Each of Company andthe Subsidiaries has timely withheld from and paid over to the proper TaxAuthority all amounts required thereof to be so withheld and paid over.

 

(d)           There are no Lienson any assets of Company or any Subsidiary for unpaid Taxes other thanPermitted Liens.

 

(e)           No audits or otheradministrative or court proceedings are presently pending with regard to anyTaxes for which Company or any Subsidiary may be liable. There are noagreements in effect to extend the time to file any Tax Return or the period oflimitations for the assessment or collection of any Taxes for which Company orany Subsidiary may be liable, and no written or unwritten notice of such auditor examination has been received by Company or any Subsidiary. No power of attorneywith respect to any Taxes has been executed or filed with any governmentalauthority by or on behalf of Company or any Subsidiary that currently is ineffect.

 

(f)            Neither Company norany Subsidiary has been a United States real property holding corporationwithin the meaning of Section 897(c)(2) of the Internal Revenue Code during theapplicable period specified in Section 897(c)(1)(A)(ii) of the Internal RevenueCode.

 

(g)           Neither Company norany Subsidiary is a party to any Tax allocation, Tax sharing or similaragreement, (including any advance pricing agreement, closing agreement or otheragreement relating to Taxes with any Tax Authority).

 

(h)           Neither Company norany Subsidiary shall be required to include in a taxable period ending afterthe Closing Date taxable income attributable to income that accrued in a priortaxable period but was not recognized in any prior taxable period as a resultof the installment method of accounting, the long-term contract method ofaccounting, the cash method of accounting or Section 381 of the InternalRevenue Code or any comparable provision of state, local, or foreign Tax law,or for any other reason.

 

(i) Schedule 3.15 sets forth (i) each jurisdiction in whichCompany or any Subsidiary joins or has joined for any taxable period endingafter December 31, 2003 in the filing of any consolidated, combined orunitary Tax Return, and (ii) the common parent corporation and the otherindividual members of the consolidated, combined or unitary group filing suchTax Return.

 

(j) The Company has made available to Purchaser copies of all state,county, local, municipal or foreign Tax Returns relating to state and localincome, franchise, license, excise, net worth, property or sales and use taxesfor taxable periods ending after December 31, 2003.

 

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## **SECTION3.16.**                                                 Insurance

## ** **

Company and each Subsidiary maintains policies of liability, casualtyand other forms of insurance in such amounts, with such deductibles and againstsuch risks and losses as are, in Company’s judgment, reasonable for thebusiness and assets of Company and each Subsidiary. Schedule 3.16contains a list of all liability, property, accident, casualty, fire, flood,workers’ compensation, keyman, group life or health and other insurancepolicies and arrangements affecting or relating to Company or the Subsidiariesor their assets or business and Company has provided or made available to thePurchaser true and complete copies of such policies and arrangements. Allinsurance policies of Company and the Subsidiaries are in full force andeffect, all premiums covering all periods up to and including the Closing havebeen paid, and no notice of cancellation or termination has been received withrespect to any such policy. Neither Company nor any Subsidiary has been refusedany insurance with respect to their respective assets or operations, nor hastheir coverage been limited, by any insurance carrier to which they haveapplied for any such insurance or with which they have carried insurance.

 

## **SECTION3.17.**                                                 Brokers; Company Transaction Expenses

## ** **

(a)           Except for MeridianCapital, LLC, no broker, finder, investment banker or other firm or Person isentitled to any brokerage, finder’s or other similar fee or commission inconnection with the transactions contemplated by this Agreement based onarrangements made by or on behalf of Company.

 

(b)           The CompanyTransaction Expenses listed on the Closing Certificate under the heading“Company Transaction Expenses,” are the only unpaid costs, fees and expenses(including all legal fees, accounting, tax, investment banking fees andexpenses) incurred by Company prior to or upon the Closing relating to theprocess of the Shareholders selling the Shares to the Purchaser, whether incurredin connection with this Agreement or otherwise.

 

## **SECTION3.18.**                                                 Bank Accounts; Power of Attorney;Officers and Directors

## ** **

Schedule 3.18sets forth a true and correct list of (i) all the names and locations ofall banks, trust companies, savings and loan associations and other financialinstitutions at which Company or any Subsidiary maintains safe deposit boxes oraccounts of any nature, (ii) all savings accounts, certificates of depositand safe deposit boxes of Company or any Subsidiary, (iii) the names ofall Persons authorized to draw thereon, make withdrawals therefrom or haveaccess thereto, (iv) all powers of attorney granted by Company and theSubsidiaries and those Persons authorized to act thereunder and (v) allofficers and directors of Company and the Subsidiaries.

 

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## **SECTION3.19.**                                                 Absence of Certain Changes or Events

## ** **

Since December 31, 2007, there has not been any event, effect,change or development that, individually or in the aggregate, has had, or couldreasonably be expected to have a Material Adverse Effect and neither Companynor any Subsidiary has:

 

(a)           taken any action or entered into oragreed to enter into any transaction, agreement or commitment other than in theordinary course of business;

 

(b)           forgiven or canceled any materialIndebtedness (individually or in the aggregate) or waived any material claimsor rights of material value (including, any Indebtedness owing by anyShareholder, officer, director, employee or affiliate of Company or anySubsidiary);

 

(c)           (i) granted to any director, officer,employee or independent contractor of Company or any Subsidiary any increase incompensation or benefits, except for increases in base salaries for employeesother than officers in the ordinary course of business and consistent with pastpractice or as required by law, (ii) granted to any director, officer,employee or independent contractor of Company or any Subsidiary any change incontrol, severance or termination compensation or benefits, (iii) enteredinto, amended, modified, changed or terminated any Plan except as required byERISA or the Internal Revenue Code, (iv) taken any action to acceleratethe time of payment or vesting of any rights or benefits, or made any materialdeterminations not in the ordinary course of business consistent with pastpractice, under any Plan or (v) taken any action to fund or otherwisesecure the payment of any compensation or benefits under any Plan;

 

(d)           borrowed or agreed to borrow anyfunds, or assumed or become subject to, whether directly or by way of guaranteeor otherwise, any liabilities or obligations (absolute, accrued or contingent)of any third party or outside the ordinary course of business;

 

(e)           instituted, or paid, discharged,settled or satisfied any claims, actions, proceedings, liabilities orobligations (absolute, accrued or contingent) other than the payment, dischargeor satisfaction in the ordinary course of business of claims, liabilities andobligations reflected or reserved against in the audited consolidated balancesheet of Company dated December 31, 2007 or incurred in the ordinarycourse of business since December 31, 2007;

 

(f)            sold, leased, licensed, transferredor otherwise disposed of any of its properties or assets (real, personal ormixed, tangible or intangible), except the sale of inventory in the ordinarycourse of business and consistent with past practice;

 

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(g)           made or incurred any single capitalexpenditure or commitment in excess of $25,000 or made or incurred aggregatecapital expenditures in excess of $50,000;

 

(h)           made any change in any method ofaccounting or accounting practice or internal control procedure;

 

(i)            issued any capital stock, othersecurities or options or other rights to acquire capital stock or othersecurities, or declared, paid or set aside for payment any dividend or otherdistribution in respect of its capital stock, or redeemed any other equityinterest in Company, purchased or otherwise acquired, directly or indirectly,any shares of capital stock, option, warrant, or right relating thereto orother securities of Company or any Subsidiary convertible into or exchangeablefor any shares of capital stock, or otherwise permitted the withdrawal by anyof the holders of capital stock of Company or any Subsidiary of any cash orother assets (real, personal or mixed, tangible or intangible), incompensation, indebtedness or otherwise, other than payments of compensation inthe ordinary course of business;

 

(j)            paid, loaned or advanced (other thanpayment, advance or reimbursement of expenses in the ordinary course ofbusiness) any amount to, or sold, transferred or leased any properties orassets to, or entered into any agreement or arrangement with, any officers,directors, employees or affiliates of Company or any Subsidiary;

 

(k)           adjusted, split, combined orreclassified any capital stock;

 

(l)            permitted, allowed or suffered anyassets to become subjected to any Lien of any nature (other than Liens arisingunder conditional sales contracts for the purchase of goods entered into in theordinary course of business and consistent with past practice and PermittedLiens);

 

(m)          accelerated, terminated, materiallymodified or cancelled any Material Contract;

 

(n)           made any capital investment in, orany acquisition of the securities or assets of, any other Person (or series ofrelated capital investments and acquisitions);

 

(o)           delayed or postponed the payment ofaccounts payable or any other liabilities outside the ordinary course ofbusiness and there have not been made any changes in the cash manage policiesand practices of Company, including policies and practices with respect to thecollection of accounts receivable and the payment of accounts payable;

 

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(p)           experienced any material propertydamage, destruction or casualty loss or personal injury loss (whether or notcovered by insurance) affecting the business or assets of Company or anySubsidiary;

 

(q)           amended or otherwise changed itsArticles of Incorporation or Bylaws or other comparable organizationaldocuments; or

 

(r)            agreed, whether in writing orotherwise, to take any action described in this Section 3.19.

 

## **SECTION3.20.**                                                 Transactions with Related Persons

## ** **

Since December 31, 2005, neither Company nor any of itsSubsidiaries has purchased, leased, licensed or otherwise acquired any propertyor assets or obtained any services from, sold, leased, licensed or otherwisedisposed of any property or assets or provided any services to, entered into ormodified in any manner any contract or other commitment with or otherwiseengaged in any transactions with or borrowed any money from, or made orforgiven any loan or other advance to, any officer, director or affiliate ofCompany or any of its Subsidiaries or any Person who has a family relationship(as defined in Item 401(d) of Regulation S-K) with any officer, director oraffiliate of Company or any of its Subsidiaries (collectively, “RelatedPersons”). Except for the ownership of capital stock of Company, no RelatedPerson owns or has any other right (including as licensee) to or interest orinvestment in any assets or properties of Company and its Subsidiaries.

 

## **SECTION3.21**                                                    Inventory

## ** **

Tothe Company’s knowledge, the inventory of Company and the Subsidiaries, whetherreflected on the Latest Balance Sheet or subsequently acquired, is properlyreflected in the books and records of Company at the lesser of cost and fairmarket value, as determined in accordance with GAAP and past practices ofCompany. Since the date of the Latest Balance Sheet, there have not been anywrite-downs of the value of, or establishment of any reserves against, anyinventory of Company and the Subsidiaries, except for write-downs and reservesin the ordinary course of business and consistent with past practice.

 

## **SECTION3.22**                                                    Customers; Suppliers

## ** **

(a)           Schedule 3.22(a)sets forth a list of the top 10 largest customers of Company (each a “TopTen Customer”), on a consolidated basis, for the 2007 fiscal year. NeitherCompany nor any Subsidiary has any other customer to whom it made more than 5%of Company’s consolidated total sales during the year ended December 31, 2007. SinceDecember 31, 2006, Company and the Subsidiaries have not received anywritten or oral complaint from any Top Ten Customer concerning product quality,product 

 

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damage, deliveries or quality of service, nor have they had anymaterial quantity of their products returned by a purchaser thereof, other thancomplaints and returns in the ordinary course of business.

 

(b)           Schedule 3.22(b)sets forth a list of the 10 largest suppliers (based on purchases by Company ona consolidated basis) with respect to the 2007 fiscal year and sets forthopposite the name of each such supplier the aggregate purchases by Company andits Subsidiaries from such supplier for such period. Other than as set forth onSchedule 3.22(b), neither Company nor any Subsidiary had any othersupplier from whom it purchased more than 5% of the total amount of goods andservices which it purchased, on a consolidated basis, during the 2007 fiscalyear.

 

## **SECTION3.23**                                                    Accounts Receivable

## ** **

All the accounts receivable of Company and the Subsidiaries(a) represent obligations incurred by the applicable account debtors and(b) have arisen from bona fide transactions in the ordinary course of thebusiness of Company and the Subsidiaries. Since the date of the Latest BalanceSheet, there have not been any write-offs as uncollectible of any customeraccounts receivable of Company and the Subsidiaries, except for write-offs inthe ordinary course of business and consistent with past practice.

 

## **SECTION3.24.**                                                 Product Warranties

## ** **

Schedule 3.24sets forth express warranties currently made by Company and the Subsidiarieswith respect to their respective products and current policies with respect toreturns of products in the conduct of their business. Neither Company nor anySubsidiary has made any express warranties in connection with the sale of theirproducts other than the warranties set forth on Schedule 3.24. Theproducts manufactured, sold, leased or delivered by Company or any of theSubsidiaries, taken as a whole, have been in conformity in all materialrespects with applicable contractual commitments and express and impliedwarranties, and there are no outstanding or, to Company’s knowledge, threatenedclaims for the replacement or repair of a material amount of Company products,subject to any reserves for product warranty claims reflected in the LatestBalance Sheet.

 

## **SECTION3.25.**                                                 Limitation to Representations

## ** **

Company shall not be deemed to have made to Parent or the Purchaser anyrepresentations or warranties other than as expressly made by Company in thisAgreement. Without limiting the generality of the foregoing, andnotwithstanding any representations and warranties made by Company in thisArticle III or otherwise, Company makes no representation or warranty toParent or the Purchaser with respect to (a) any projections, estimates,plans or budgets delivered to or made available to Parent or 

 

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the Purchaser of future revenues, expenses or expenditures or futureresults of operations or performance of Company or any Subsidiary or theirrespective businesses, or (b) except as expressly covered by arepresentation and warranty contained in this Agreement, any other informationor documents (financial or otherwise) made available to Parent or the Purchaseror its counsel, accountants or advisors.

 

# **ARTICLE IV.**                                               REPRESENTATIONS AND WARRANTIES OF THESHAREHOLDERS

# ** **

Except as set forth in the corresponding sections or subsections of theSchedule of Exceptions (it being understood that items set forth in oneparticular section or subsection of the Schedule of Exceptions may apply toand/or qualify disclosures made in one or more other sections or subsection tothe extent that it is reasonably apparent on its face that such disclosuresapply to or qualify other disclosures, and that the Schedule of Exceptions mayinclude specific cross-references to particular items in other sections orsubsections of the Schedule of Exceptions), each Shareholder hereby, severallyand not jointly, makes the following representations and warranties to thePurchaser:

 

## **SECTION4.1.**                                                        Organization

## ** **

If such Shareholder is a Trust, that such Shareholder is a trust dulyformed and validly existing under the laws of its jurisdiction of formation,pursuant to a declaration of trust or similar trust formation document (a “Declarationof Trust”) currently in effect.

 

## **SECTION4.2.**                                                        Ownership of the Shares

## ** **

Such Shareholder owns and has good and valid title to the number ofShares set forth opposite such Shareholder’s name on Schedule 2.1,free and clear of all Liens, restrictions on sale, transfer dividend rights,disposition or voting (other than restrictions imposed by applicable securitieslaws), preemptive rights, options or other rights to purchase, except ascreated pursuant to this Agreement. Such Shareholder is not a party or subjectto any existing agreement or understanding that affects or relates to thevoting or giving of written consents with respect to the Shares of suchShareholder and no proxies with respect to such Shares have been granted by suchShareholder. Assuming the Purchaser has the requisite power and authority to bethe lawful owner of the Shares of such Shareholder, upon delivery to thePurchaser at the Closing of certificates representing such Shares, dulyendorsed by such Shareholder for transfer to the Purchaser, and upon theShareholders Representatives’ receipt of the Purchase Price allocable to suchShareholder, good and valid title to such Shares will pass to the Purchaser,free and clear of any Liens, other than those arising from acts of Purchaser orits affiliates. No stock transfer taxes are due as a result of such purchaseand sale of such Shares.

 

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## **SECTION4.3.**                                                        Authorization; Binding Effect

## ** **

(i) Such Shareholder and, if such Shareholder is also acting as theShareholders’ Representative, the Shareholders’ Representative has the legalcapacity and authority to execute this Agreement and the Transaction Documentsto which such Shareholder is a party and to consummate the transactionscontemplated hereby and thereby, (ii) if such Shareholder is a Trust, thePersons executing this Agreement and the other Transaction Documents on behalfof such Trust constitute all the Trustees of such Trust and are authorized toact on behalf of such Trust and (iii) if such Shareholder is a Trust, eachTrustee of such Trust has the legal capacity and authority, including therequisite power and authority under the applicable Declaration of Trust, and iscompetent to execute and deliver this Agreement and the other TransactionDocuments to which such Trust is a party on behalf of such Trust in his or hercapacity as a Trustee of such Trust and to perform his or her obligationshereunder and to consummate the transactions contemplated hereby and thereby. Theexecution and delivery by such Shareholder of this Agreement and theTransaction Documents to which such Shareholder is a party, the performance bysuch Shareholder of such Shareholder’s obligations hereunder and thereunder andthe consummation by such Shareholder of the transactions contemplated herebyand thereby have been duly authorized by all requisite action, if any, on thepart of such Shareholder. Each Transaction Document to which such Shareholderis a party has been duly executed and delivered by such Shareholder, and(assuming due authorization, execution and delivery by the other parties)constitutes a legal, valid and binding obligation of such Shareholderenforceable against such Shareholder in accordance with its terms, in each casesubject to the effect, if any, of (i) bankruptcy, insolvency,reorganization, fraudulent transfer, moratorium or other similar laws relatingto or affecting the rights or remedies of creditors or (ii) generalprinciples of equity, whether considered in a proceeding in equity or at law(including the possible unavailability of specific performance or injunctiverelief). If such Shareholder is married and the Shares set forth opposite suchShareholder’s name on Schedule 2.1 constitute community propertyunder applicable laws, this Agreement has been duly authorized, executed anddelivered by, and constitutes the valid and binding agreement of suchShareholder’s spouse.

 

## **SECTION4.4.**                                                        No Conflict

## ** **

The execution, delivery and performance by suchShareholder of this Agreement and the Transaction Documents to which suchShareholder is a party, and the consummation of the transactions contemplatedhereby and thereby, do not (a) conflict with or violate any law, rule,regulation, order, writ, judgment, injunction, decree, determination or awardapplicable to such Shareholder or by which any of such Shareholder’s assets orproperties are bound or any applicable Declaration of Trust, or (b) resultin any breach of, or constitute a default (or event which with the giving ofnotice or lapse of time, or both, would become a default) under, or give riseto any rights 

 

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of termination, amendment, acceleration orcancellation or of any obligation or to loss of a material benefit under, or toincreased, additional, accelerated or guaranteed rights or entitlements of anyPerson under, or result in the creation of any Lien on any of the Shares ownedby such Shareholder pursuant to, any note, bond, mortgage, indenture, contract,agreement, lease, sublease, license, permit, franchise loan, instrument,understanding, deed of trust, purchase order, sales order, joint venture orother instrument or agreement of any kind (written or oral) relating to suchassets or properties to which such Shareholder is a party or by which any ofsuch Shares are bound or affected.

 

## **SECTION4.5.**                                                        Consents and Approvals

## ** **

The execution, delivery and performance by such Shareholder of thisAgreement and the Transaction Documents to which such Shareholder is a party donot require any consent, approval, exemption, authorization or other action by,or registration, declaration or filing with or notification to, any Federal,state, local or foreign government or any court, administrative agency or othergovernmental or regulatory authority or instrumentality, domestic or foreign,any trustee, trust advisor or any beneficiary of any Trust or any third party,or other third party, except as may be necessary as a result of any facts orcircumstances relating solely to the Purchaser’s (as opposed to any thirdparty’s) participation in the transactions contemplated hereby and by the otherTransaction Documents. No consent, approval, waiver or other action by anyPerson, including any trustee, trust advisor or any beneficiary of any Trust,is required or necessary for the execution, delivery and performance by suchShareholders of this Agreement or any other Transaction Document to which suchShareholder is a party or the consummation by such Shareholder of the transactionscontemplated hereby or thereby.

 

## **SECTION4.6.**                                                        Litigation

## ** **

No claim, suit, proceeding, investigation or other action is pendingor, to such Shareholder’s knowledge, threatened against or relating to suchShareholder, and such Shareholder is not subject to any order, writ, judgment,injunction, decree, determination or award. To such Shareholder’s knowledge, noclaim, suit, proceeding, investigation or other action is pending orthreatened, which questions the validity of this Agreement or any of the TransactionDocuments or prohibits or restricts any action taken or to be taken by suchShareholder hereunder or thereunder (and such Shareholder is not aware of anybasis for any such suit, proceeding, investigation or other action).

 

## **SECTION4.7.**                                                        Brokers

## ** **

No broker, finder, investment banker or other firm or Person isentitled to any brokerage, finder’s or other fee or commission in connectionwith the transactions contemplated by this Agreement based on arrangements madeby such Shareholder.

 

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## **SECTION4.8.**                                                        Limitation to Representations

## ** **

No Shareholder shall be deemed to have made to Parent or the Purchaserany representation or warranty other than as expressly made by such Shareholderin this Agreement. Without limiting the generality of the foregoing, andnotwithstanding any representations and warranties made by the Shareholders inthis Article IV or otherwise, no Shareholder makes any representation orwarranty to Parent or the Purchaser with respect to (a) any projections,estimates, plans or budgets delivered to or made available to Parent or thePurchaser of future revenues, expenses or expenditures or future results ofoperations or performance of Company or any Subsidiary or their respectivebusinesses, or (b) except as expressly covered by a representation andwarranty of such Shareholder contained in this Agreement, any other informationor documents (financial or otherwise) made available to Parent, the Purchaseror their counsel, accountants or advisors.

 

# **ARTICLE V.**                                                   REPRESENTATIONS AND WARRANTIES OF THEPURCHASER

# ** **

Each of Parent and the Purchaser represents and warrants to Company andeach of the Shareholders as follows:

 

## **SECTION5.1.**                                                        Incorporation and Authority of thePurchaser

## ** **

Each of Parent and the Purchaser is a corporation duly incorporated,validly existing and in good standing under the laws of the State of Delawareand has all necessary corporate power and authority to execute and deliver thisAgreement and the Transaction Documents to which it is a party and toconsummate the transactions contemplated hereby and thereby. The execution anddelivery by Parent and the Purchaser of this Agreement and the TransactionDocuments to which Parent and/or the Purchaser is a party, the performance oftheir respective obligations hereunder and thereunder and the consummation bythem of the transactions contemplated hereby and thereby have been dulyauthorized by all requisite corporate action on the part of Parent and thePurchaser. Each Transaction Document to which Parent or the Purchaser is aparty has been duly executed and delivered thereby, and (assuming dueauthorization, execution and delivery by the other parties) constitutes alegal, valid and binding obligation thereof, enforceable against Parent or thePurchaser, as applicable in accordance with its terms, in each case subject tothe effect, if any, of (i) bankruptcy, insolvency, reorganization,fraudulent transfer, moratorium or other similar laws relating to or affectingthe rights or remedies of creditors or (ii) general principles of equity,whether considered in a proceeding in equity or at law (including the possibleunavailability of specific performance or injunctive relief).

 

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**SECTION 5.2.      No Conflict**

 

The execution, delivery and performance by Parent andthe Purchaser of this Agreement and the Transaction Documents to which Parentand/or the Purchaser is a party, and the consummation of the transactionscontemplated hereby and thereby, do not (a) conflict with or violate anyprovision of the Certificate or Articles of Incorporation or bylaws (or similardocuments) of Parent or the Purchaser or by which any of their respectiveassets or properties are bound, (b) conflict with or violate any law,rule, regulation, order, writ, judgment, injunction, decree, determination oraward applicable to Parent or the Purchaser, or (c) except as could notreasonably be expected to have a material adverse effect on the ability ofParent or the Purchaser to perform their obligations under this Agreement andsuch Transaction Documents, result in any breach of, or constitute a default(or event which with the giving of notice or lapse of time, or both, wouldbecome a default) under, or give rise to any rights of termination, amendment,acceleration or cancellation of, any obligation or to loss of a materialbenefit under, or to increased, additional, accelerated or guaranteed rights orentitlements of any Person under, or result in the creation of any Lien theassets or properties of Parent or the Purchaser under, any provision of note,bond, mortgage, indenture, contract, agreement, lease, sublease, license,permit, franchise loan, instrument, understanding, deed of trust, purchaseorder, sales order, joint venture or other instrument or agreement of any kind(written or oral) to which Parent or the Purchaser is a party or by which anyof their respective assets or properties are bound or affected.

 

**SECTION 5.3.      Consents and Approvals**

 

The execution, delivery and performance by Parent andthe Purchaser of this Agreement and the Transaction Documents to which Parentand/or the Purchaser is a party and the ownership by the Purchase of Company donot require any consent, approval, exemption, authorization or other action by,or registration, declaration or filing with or notification to, any Federal,state, local or foreign government or any court, administrative agency or othergovernmental or regulatory authority or instrumentality, domestic or foreign orother third party, except (a) where failure to obtain such consent,approval, exemption, authorization or action, or to make such filing ornotification would not prevent Parent or the Purchaser from performing any oftheir respective material obligations under this Agreement and such TransactionDocuments, and (b) as may be necessary as a result of any facts orcircumstances relating solely to the participation of Company (as opposed toany third party), the Subsidiaries or the Shareholders (as opposed to any thirdparty) in the transactions contemplated hereby and by the other TransactionDocuments.

 

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**SECTION 5.4.      Litigation**

 

No claim, suit, proceeding, investigation or otheraction is pending or, to Parent’s knowledge, threatened against, relating to oraffecting Parent or the Purchaser, that questions the validity of thisAgreement or any of the Transaction Documents to which Parent and/or thePurchaser is a party or any action taken or to be taken by Parent or thePurchaser hereunder or thereunder (and Parent is not aware of any basis for anysuch suit, proceeding, investigation or other action), and neither Parent northe Purchaser is subject to any order, writ, judgment, injunction, decree, determinationor award that prohibits or restricts any action taken or to be taken by itpursuant to this Agreement or any such Transaction Document.

 

**SECTION 5.5.      Brokers**

 

No broker, finder, investment banker or other firm orPerson is entitled to any brokerage, finder’s or other fee or commission inconnection with the transactions contemplated by this Agreement based onarrangements made by or on behalf of Parent or the Purchaser.

 

**ARTICLE VI.        ADDITIONALAGREEMENTS**

 

**SECTION 6.1.      Access to Information; Confidentiality**

 

In order to facilitate the resolution of any claimsmade by or against or incurred by Company, Subsidiary or the Shareholders withrespect to the period prior to the Closing, after the Closing, upon reasonablenotice, Parent and the Purchaser shall (a) afford the Shareholders, theirauditors, counsel and other authorized agents and representatives reasonableaccess, during normal business hours and upon reasonable notice, to the booksand records of Company, the Subsidiaries and their businesses with respect tothe periods prior to the Closing and to applicable personnel, (b) furnishto the Shareholders and their authorized agents and representatives suchadditional financial and other information regarding Company, the Subsidiariesand their businesses with respect to the periods prior to the Closing as theShareholders may from time to time reasonably request; provided, however,that the Purchaser shall not have any obligation to furnish(A) proprietary or confidential information of its customer or supplierwhich the Purchaser possesses, (B) information the disclosure of which islegally or contractually prohibited (provided that Parent and the Purchasershall use commercially reasonable efforts to have such provision waived) and(C) such portions of documents or information which are subject toattorney-client privilege and the provisions of which, as determined by thePurchaser’s counsel, may eliminate the privilege pertaining to suchdocuments.  The Shareholders and theirauthorized agents and representatives shall keep confidential and not discloseany information learned as a result of any examination conducted pursuant tothis Section 6.1 to any other Person without the prior consent of thePurchaser unless (i) the disclosure is 

 

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in response to a legal, regulatory requirement, order, subpoena orrequest or inquiry of a governmental authority, in which case the Shareholdersshall take reasonable steps to safeguard the confidentiality of such information,(ii) the disclosure is required to facilitate the investigation,litigation and disposition of any claims that may have been or may be made byor against any party or its affiliates or (iii) the information otherwiseis readily ascertainable from public or published information, or trade sources(without violation of the foregoing provisions of this sentence).  The Shareholders shall reimburse thePurchaser for reasonable out-of-pocket costs and expenses incurred in assistingthe Shareholders pursuant to this Section 6.1.  The Purchaser shall not be required by thisSection 6.1 to take any action that would unreasonably interfere with anyof the businesses or operations of Parent, the Purchaser, Company or anySubsidiary.

 

**SECTION 6.2.      Taxes**

 

(a)           Anyand all sales, transfer, stamp and similar Taxes, levies, charges and feesincurred as a result of the transfers of the Common Stock contemplated by thisAgreement shall be shared equally by Shareholders and the Purchaser.

 

(b)           ThePurchaser, at its cost and expense, shall be responsible for making or causingto be made all proper and timely filings of all Tax Returns required to befiled by Company or any Subsidiary after the Closing Date.  With respect to Tax Returns for periods thatend on the Closing Date, and Tax Returns that include but do not end on theClosing Date, such Tax Returns shall be prepared and filed in a mannerconsistent with past practice of Company or such Subsidiary, except as requiredby applicable law.  The Purchaser shallpermit the Shareholders’ Representative to review and comment on each TaxReturn described in the preceding sentence, no later than 30 days prior to thefiling of such Tax Return.  The Purchasershall not file or permit to be filed any such Tax Return without theShareholders’ Representative’s written consent, which consent shall not beunreasonably withheld or delayed.  Ifapplicable, the Federal income Tax Return of Company and any Subsidiary for thetaxable period that ends on the Closing Date shall be prepared in accordancewith Treasury Regulations Section 1.1502-76; provided, however,that no election shall be made under Treasury RegulationsSection 1.1502-76(b)(2)(ii)(D).  Tothe extent applicable, any state or local income Tax Returns of Company and anySubsidiary shall be prepared in accordance with comparable provisions of stateor local law. Notwithstanding anything in this Agreement to the contrary, the partiesacknowledge and agree that any and all deductions attributable to bonuses paidor payable to employees, agents and consultants of Company and theSubsidiaries, and any other losses, deductionsor other items, triggered prior to or in connection with the transactionsexpressly contemplated by this Agreement shall be allocable for Tax purposes tothe Pre-Closing Tax Period, as defined below.

 

(c)           Anystate Tax refunds that are received by Parent or the Purchaser and any amountcredited against Taxes to which Parent or the Purchaser or any of their 

 

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affiliates become entitled during a period of 12 months after theClosing Date and that relate to state Taxes of Company or any Subsidiary fortaxable periods or portions thereof that end on or before the Closing Date (“Pre-ClosingTax Period”) shall be for the account of the Shareholders, but only if andto the extent such state Taxes were actually paid by the Company orShareholders during the Pre-Closing Tax Period (or such Taxes were Taxes forwhich the Shareholders have previously indemnified the Purchaser Indemniteespursuant to Section 7.3(a)) and such refund or credit is not attributableto Taxes paid by the Parent or Purchaser after Closing.  Parent and the Purchaser shall pay over orcause to be paid over to the Shareholders’ Representative, for the benefit ofthe Shareholders, any such refund or the amount of any such credit within 10days after receipt or entitlement thereto.

 

(d)           Theparties to this Agreement shall cooperate fully, as and to the extentreasonably requested by another party, in connection with the filing of TaxReturns pursuant to this Section 6.2 and any audit, litigation or otherproceeding with respect to Taxes.  Suchcooperation shall include the retention and (upon such other party’s request)the provision of records and information that are reasonably relevant to anysuch Tax Return or audit, litigation or other proceeding and making employeesavailable on a mutually convenient basis to provide additional information andexplanation of any materials provided hereunder.  Parent, the Purchaser and Company agree(i) to retain all books and records with respect to Tax matters pertinentto Company and the Subsidiaries relating to any Pre-Closing Tax Period untilthe expiration of the statute of limitations of the respective taxable periods(after giving effect to any extensions or waivers thereof), plus 30 days, andto abide by all record-retention agreements entered into with any TaxAuthority, and (ii) to give the Shareholders’ Representative reasonablewritten notice prior to transferring, destroying or discarding any such booksand records and, if the Shareholders’ Representative so requests, Parent, thePurchaser and Company shall allow the Shareholders’ Representative to takepossession of such books and records.

 

(e)           Parent,the Purchaser and the Shareholders agree, upon request, to use reasonableefforts to obtain any certificate or other document from any governmental bodyor any other Person as may be necessary to mitigate, reduce or eliminate anyTax that could be imposed and for which the Shareholders may be liable.

 

**SECTION 6.3.      Agreement Not To Compete**

 

(a)           EachShareholder understands that the Purchaser shall be entitled to protect andpreserve the going concern value of the business of Company and itsSubsidiaries to the extent permitted by law and that the Purchaser would nothave entered into this Agreement absent the provisions of this Section 6.3and, therefore, for a period of three years from the Closing, each Shareholdershall not, and shall cause each of its affiliates not to, directly orindirectly:

 

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(i)            engagein activities or businesses, or establish any new businesses, that aresubstantially in competition with the business and operations of Company and theSubsidiaries as of the date hereof (“Competitive Activities”), including(A) manufacturing or selling goods or services of the type sold by Companyor any Subsidiary as of the date hereof, except that if any goods or serviceswere not sold by Company or any Subsidiary during the period of time prior tothe Closing and are not sold by Company and the Subsidiaries at the time of theClosing (collectively, “Permitted Goods and Services”), any Shareholdermay sell any Permitted Goods and Services, (B) knowingly soliciting anycustomer or prospective customer of Company or any Subsidiary to purchase anygoods or services sold by Company or any Subsidiary as of the date hereof,other than Permitted Goods and Services, from anyone other than Company, anySubsidiary, Purchaser and its affiliates, (C) owning, directly orindirectly, an economic interest in any business engaged in CompetitiveActivities and (D) assisting any Person in any way to do, or attempt todo, anything prohibited by clause (A), (B) or (C) above; and

 

(ii)           (A) solicit,recruit or hire any employee of Company and the Subsidiaries employed as of thedate hereof or any Person who has worked for Company and the Subsidiaries afterthe date hereof (unless his or her employment has been terminated by Company,any Subsidiary, Purchaser or any affiliate), (B) solicit or encourage anyemployee of Company and the Subsidiaries to leave the employment of Company andthe Subsidiaries and (C) except as otherwise expressly permitted by thisAgreement, disclose or furnish to anyone any confidential information relatingto Company and the Subsidiaries or otherwise using such confidentialinformation for its own benefit or the benefit of any other Person.

 

(b)           Section 6.3(a) shallbe deemed not breached as a result of (i) the ownership by any Shareholderor any of its affiliates of: (A) less than an aggregate of 5% of any classof stock of a Person engaged, directly or indirectly, in CompetitiveActivities; provided, however, that such stock is listed on anational securities exchange; (B) less than 10% in value of any instrumentof Indebtedness of a Person engaged, directly or indirectly, in CompetitiveActivities; or (C) a Person that engages, directly or indirectly, inCompetitive Activities if such Competitive Activities account for less than 10%of such Person’s consolidated annual revenues or (ii) Russ German’semployment by Company, the Purchaser or any affiliate.

 

(c)           Notwithstandingany other provision of this Agreement, it is understood and agreed that the remedyof indemnity payments pursuant to Article VII and other remedies at lawwould be inadequate in the case of any breach of the covenants contained inthis Section 6.3.  The Purchasershall be entitled to equitable relief, including 

 

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the remedy of specific performance, with respect to any breach orattempted breach of such covenants.

 

**SECTION 6.4.      Post-Closing Action**

 

From and after the Closing, each of Parent and thePurchaser agrees (a) not to recommend, propose or initiate, directly orindirectly, any action to rescind the transaction contemplated by thisAgreement and (b) not to consent to, and to use its commerciallyreasonable best efforts to take all actions necessary to avoid, the remedy ofrescission in any settlement negotiation or judicial action in connection withthe transaction contemplated by this Agreement that is brought or threatened byany U.S. or foreign Person or agency to enforce anti-trust or comparable lawsof any jurisdiction (any such negotiation or judicial action being an “Action”).  Upon becoming aware of any such pending orthreatened Action, Parent shall promptly provide notice thereof to theShareholders’ Representative and, during the pendency of such Action, Parentshall consult with the Shareholders’ Representative in responding to suchAction and consider the views of the Shareholders’ Representative with respectto such response; provided, however, that the Purchaser may, inits sole discretion but subject to the terms of this Agreement, respond to anysuch Action in any manner it deems appropriate.

 

**SECTION 6.5       Employees**

 

(a)           Parentand the Purchaser shall for a period of not less than one (1) yearfollowing the Closing continue to provide or cause to be provided such plans,programs, agreements or arrangements on behalf of the employees of Companyimmediately prior to the Closing who remain employed with Company, Purchaser,Parent or their affiliates after the closing (the “Company Employees”),so as to provide, in the aggregate, employee benefits that are substantiallyequivalent to the benefits provided to other similarly situated employees ofParent or the Purchaser.

 

(b)           Parentand the Purchaser shall give (or cause to be given) the Company Employees fullcredit for purposes of eligibility, vesting and benefit accrual (except forpurposes of benefit accrual prior to the Closing under defined benefit plans)under any employee benefit plans or arrangements maintained by Parent or thePurchaser for such Company Employees’ service with Company to the same extentrecognized by Company immediately prior to the Closing.  Parent and the Purchaser shall (i) waive(or cause to be waived) all limitations as to preexisting conditions andwaiting periods with respect to participation and coverage requirementsapplicable to the Company Employees under any welfare plan that such employeesmay be eligible to participate in after the Closing, other than limitations onwaiting periods that are already in effect with respect to such employees andthat have not been satisfied as of the Closing under any welfare planmaintained for the Company Employees immediately prior the Closing and(ii) provide (or cause to be provided to) each Company Employee withcredit for any co-payments 

 

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and deductibles paid prior to the Closing to satisfy any applicabledeductible or out-of-pocket requirements under any welfare plans that suchemployees are eligible to participate in after the Closing to the same extentas if those deductibles or co-payments had been paid under the welfare plansfor which such employees are eligible after the Closing.

 

(c)           Parentor any of its affiliates shall provide each Company Employee who has beenemployed by Company for at least 30 days immediately prior to the Closing Dateand whose employment is terminated during the one-year period beginning on andimmediately following the Closing Date by Parent or its affiliates for reasonsother than cause (as determined by Parent and its affiliates in their solediscretion consistent with Purchaser’s past practices) with a lump-sumseverance payment in an amount determined pursuant to the schedule set forth onSchedule 6.5(c), subject to such Company Employee’s execution of a release ofclaims that is satisfactory to Parent and its affiliates.  Each Company Employee will have the limitedright to ensure that a severance plan that includes the amounts inSchedule 6.5(c) is maintained by Parent or any of its affiliates, butno Company Employee will have any other rights regarding the severance planpursuant to this Section 6.5(c).

 

(d)           Noprovision of this Section 6.5 shall be deemed to amend any Plan or anyemployee benefit plan or arrangement maintained by Parent or its affiliates(including Company).  Except as expresslyauthorized in Section 6.5(c), no provision of this Section 6.5 shallcreate any third-party beneficiary rights in any Company Employee or otherPerson (including without limitation any heir, beneficiary, executor, administratoror representative of a Company Employee or any other Person claiming through aCompany Employee) or Company with respect to employment or any term orcondition thereof.

 

**SECTION 6.6       Environmental Insurance Policy**

 

The parties agree that (a) Company and itsaffiliates shall be entitled to the first $1,000,000 of any amounts actuallyrecovered by Parent, the Purchaser, the Company or any affiliate of theforegoing under Coverage K and Coverage L of the EnvironmentalInsurance Policy, after deducting all of Parent’s, the Purchaser’s andCompany’s out-of-pocket costs incurred after the Closing in seeking recoveriesunder the Environmental Insurance Policy and any premiums paid after theClosing (“Recovery Costs”) with respect to existing coverage under the policy(such net amount being referred to herein as the “Net Recovery Amount”) and(b) until such parties receive such Net Recovery Amount, any claim madeunder the Environmental Insurance Policy shall be made solely at the discretionof, and controlled and directed solely by, Parent, the Purchaser and theCompany.  The parties further agree thatafter Company and its affiliates have received the Net Recovery Amount asdescribed above, (a) the Shareholders shall be (i) entitled to anyadditional recoveries under Coverage K and Coverage L of theEnvironmental 

 

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Insurance Policy (provided that in no case shall the Shareholders beentitled to recoveries in excess of $1,000,000 less any Recovery Costs) and (ii) responsiblefor their own costs of seeking such recoveries and for all of Parent’s, thePurchaser’s and Company’s out-of-pocket costs incurred, at the Shareholders’reasonable request, in seeking such additional recoveries under theEnvironmental Insurance Policy and (b) Parent, the Purchaser and Companyshall reasonably cooperate with the Shareholders or their agent in bringing anyclaims under the policy seeking such additional recoveries; providedthat neither Parent, the Purchaser nor the Company shall be required to bringany suit to enforce rights or recover any costs under the EnvironmentalInsurance Policy. The parties agree that any recoveries under the EnvironmentalInsurance Policy that are paid to the Shareholders shall be deemed an adjustmentto the Purchase Price.  Parent shallpromptly provide to the Shareholders’ Representative copies of all claimssubmitted to the insurer in connection with the Environmental Insurance Policytogether with notice of any recoveries thereunder.

 

**ARTICLE VII.      INDEMNIFICATION**

 

**SECTION 7.1.      Survival**

 

Subject to the limitations and other provisions ofthis Agreement, the representations and warranties of the parties contained inthis Agreement and the Transaction Documents shall survive the Closing andremain in full force and effect, regardless of any investigation made by or onbehalf of any party hereto, for a period of 12 months after the ClosingDate; provided, however, that (i) the representations andwarranties in Sections 3.2(a) (Capital Stock of Company; Ownership ofthe Shares) and 4.2 (Ownership of the Shares) shall survive until, and shallterminate upon, the expiration of the applicable statute of limitations and(ii) any obligations to indemnify and hold harmless pursuant to thisArticle VII shall not terminate with respect to any item as to which thePerson to be indemnified shall have, before the expiration of the applicableperiod, previously made a claim by delivering a notice of such claim pursuantto this Article VII to the Indemnifying Parties.  The covenants and agreements of the partiescontained in this Agreement that by their terms extend beyond the Closing Dateshall not terminate until all obligations with respect thereto have beenperformed or satisfied or shall have expired or been terminated in accordancewith their terms.

 

**SECTION 7.2.      Indemnification by the Purchaser**

 

(a)           Parentand the Purchaser agree, subject to the other terms and conditions of thisAgreement and without gross-up for Taxes, jointly and severally to indemnifythe Shareholders against and hold the Shareholders harmless from any and allliabilities, losses, claims, costs, expenses (including reasonable attorneys’fees) of and damages (collectively, “Losses”) incurred or suffered bythe Shareholders, to the extent arising out of or with respect to the breach ofany representation, warranty, covenant or 

 

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agreement of Parent or the Purchaser in this Agreement and theTransaction Documents (it being agreed and acknowledged by the parties that forthe sole purpose of determining Losses (and not for determining whether or notany breaches of representations or warranties have occurred) pursuant to thisclause, the representations and warranties of Parent or the Purchaser in thisAgreement shall not be deemed qualified by any references herein to materialitygenerally or to whether or not any such breach results or may result in aMaterial Adverse Effect).  Payments byParent or the Purchaser pursuant to this Section 7.2(a) shall belimited to the amount of any Loss that remains after deducting therefrom anyamounts actually recovered by or on behalf of the Shareholders under insurancepolicies with respect to such liability or damage, net of actual out-of-pocketexpenses incurred in obtaining such amounts, any co-payment, retrospectivepremium adjustment and increased premiums resulting from such liability ordamage.  The Shareholders shall usecommercially reasonable efforts to obtain payments under any insurance policiesof the Shareholders with respect to any such liability or damage; provided,however, that the Shareholders shall not be required to bring suit against anyinsurer to enforce rights under any such applicable policies.

 

(b)           Parentand the Purchaser agree, subject to the other terms and conditions of thisAgreement, jointly and severally to indemnify the Shareholders (and, in theevent of rescission of the transaction contemplated by this Agreement, Company)against and hold the Shareholders (and, in the event of rescission of thetransaction contemplated by this Agreement, Company) harmless from any and all(i) Losses incurred or suffered, directly or indirectly, by any of theShareholders (and, in the event of rescission of the transaction contemplatedby this Agreement, by Company) in connection with any Action or rescission ofsuch transaction (including, for all (A) lost or diminished value ofCompany in the case of rescission and (B) reasonable out-of-pocketexpenses) and (ii) Tax liabilities and payments (net of any Tax credits orrecoveries received prior to the third anniversary of such rescission) relatingto (A) the sale of the Shares to the Purchaser and the rescission of suchsale and (B) if such transaction is rescinded, any indemnification paymentsfor Losses, liabilities and payments described in thisSection 7.2(b).  Parent and thePurchaser also agree that the Shareholders may set off any indemnifiable TaxLosses described in this Section 7.2(b) against any amounts owing toParent or the Purchaser for rescission or otherwise.

 

**SECTION 7.3.      Indemnification by the Shareholders**

 

(a)           EachShareholder agrees, subject to the other terms and conditions of this Agreementand without gross-up for Taxes, (i) jointly and severally to indemnify thePurchaser, its affiliates (including Company and each Subsidiary) and each oftheir respective officers, directors, employees, stockholders, agents andrepresentatives (the “Purchaser Indemnitees”) against and hold themharmless from any and all Losses incurred or suffered by such PurchaserIndemnitee arising out of or with respect to (A) the breach of anyrepresentation or warranty or (B) any covenant or agreement, in the 

 

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case of (A) and (B) of Company in this Agreement or theTransaction Documents  (it being agreedand acknowledged by the parties that for the sole purpose of determining Losses(and not for determining whether or not any breaches of representations orwarranties have occurred) pursuant to this clause, the representations andwarranties of Company or any Shareholders in this Agreement or any TransactionDocument shall not be deemed qualified by any references herein to materialitygenerally or to whether or not any such breach results or may result in a MaterialAdverse Effect), and (ii) severally but not jointly to indemnify thePurchaser Indemnitees against and hold them harmless from any and all Lossesincurred or suffered by the Purchaser Indemnitees arising out of or withrespect to (A) the breach of any representation or warranty or(B) any covenant or agreement, in the case of (A) and (B) ofsuch Shareholder in this Agreement or the Transaction Documents.

 

(b)           Paymentsby the Shareholders pursuant to Section 7.3(a) shall be limited tothe amount of any liability or damage that remains after deducting therefrom(i) any amounts actually recovered by or on behalf of any PurchaserIndemnitees under insurance policies with respect to such liability or damage,net of actual out-of-pocket expenses incurred in obtaining such amounts, anyco-payment, retrospective premium adjustment and increased premiums resultingfrom such liability or damage, and (ii) any adjustments to the PurchasePrice pursuant to Section 2.2(a) with respect to the subject matterin dispute.  Each of Parent and thePurchaser shall use commercially reasonable efforts to obtain payments underany insurance policies of the Company, any of its Subsidiaries, Parent or thePurchaser with respect to any such liability or damage; provided, however, thatneither Parent nor the Purchaser shall be required to bring suit against anyinsurer to enforce rights under any such applicable policies.

 

(c)           Noclaim may be made against the Shareholders for indemnification pursuant toSection 7.3(a)(i)(A) or 7.3(a)(ii)(A) with respect to anyindividual item of Loss, unless all Losses of the Purchaser Indemnitees withrespect to Section 7.3(a)(i)(A) and 7.3(a)(ii)(A) shall exceedon a cumulative basis an amount equal to $2,500,000, at which time andthereafter, such Purchaser Indemnitee shall be entitled to indemnification forall such Losses in excess of $2,500,000; provided, however, thatany Losses based upon a breach of Section 3.2 (Capital Stock of Company;Ownership of the Shares), Section 3.17 (Brokers; Company TransactionExpenses), Section 4.2 (Ownership of the Shares) or Section 4.3(Authorization; Binding Effect) shall not be subject to any suchlimitation.  The aggregate maximumindemnification payable by the Shareholders pursuant toSection 7.3(a)(i)(A) and 7.3(a)(ii)(A), other than for any claimsbased upon a breach of Section 3.2 (Capital Stock of Company; Ownership ofthe Shares), Section 4.2 (Ownership of the Shares) or Section 4.3(Authorization; Binding Effect ), shall be limited to an amount equal to 10% ofthe Purchase Price.  Notwithstanding theforegoing, in the event of a breach of Section 3.1 (Incorporation andQualification of Company and its Subsidiaries; Authority), Section 3.2(Capital Stock of Company; Ownership of the 

 

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Shares), Section 4.2 (Ownership of the Shares) or Section 4.3(Authorization; Binding Effect), each Shareholder’s maximum liability for suchbreach shall be limited to the Purchase Price proceeds received by suchShareholder.

 

(d)           Eachof Parent and the Purchaser hereby agrees that, to the extent anyrepresentation or warranty of Company or any Shareholder in this Agreement orany other Transaction Document is, to the knowledge of Parent or the Purchaseracquired prior to the Closing, untrue or incorrect as of the Closing, then suchrepresentation or warranty shall be deemed to be amended as of the Closing tothe extent necessary to render it consistent with such knowledge of Parent orthe Purchaser and, notwithstanding any other provision of this Agreement or anyother Transaction Document, no claim for indemnification may(i) thereafter be asserted on the basis of such inaccuracy or (b) beasserted for any breach of any representation, warranty, covenant or agreementof which breach (or of facts, circumstances or conditions that could reasonablyform the basis of such breach) Parent or the Purchaser had knowledge prior tothe Closing; provided, however, that this Section 7.3(d) shall notapply with respect to the representations and warranties set forth inSection 3.15(a) and (c). Company and the Shareholders agree that any disclosure in the Scheduleof Exceptions relating to potential liabilities of Company for state Taxes shallbe disregarded for purposes of determining whether any representation orwarranty has been breached or in determining the amount of any Loss relating toany such breach.

 

(e)           Anyindemnification payments due to the Purchaser for any breach ofSection 3.2(b) (Capital Stock of Company; Ownership of Shares) andSection 3.17 (Brokers; Company Transaction Expenses) shall first be madefrom the Holdback Amount.

 

(f)            Inlight of the 12-month survival period provided in Section 7.1, theTrustees shall retain on behalf of the Shareholders, in aseparate and distinct account, and will not distribute until the firstanniversary of the date of this Agreement, an aggregate amount equal toten percent (10%) of the Purchase Price.  If as of such anniversary date there existsany unresolved claim described in a claim notice delivered to the Shareholders’Representative pursuant to Section 7.4(a) or (b) prior to suchanniversary date, the Trustees shall, withrespect to each such claim, retain and not distribute until such claim isresolved by the applicable parties an aggregate amount equal to the good faithestimate of the indemnifiable Losses relating to such then-outstandingclaim, as mutually agreed upon by the Purchaserand the Shareholders’ Representative.

 

(g)           Notwithstandinganything to the contrary, in no event shall the Shareholders or any of them beliable to any Purchaser Indemnitee with respect to any Third-Party Claimrelating to the operation of the business of the Company and/or any of itsSubsidiaries prior to the Closing and of which neither the Company nor any 

 

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Shareholder had knowledge as of the Closing.  This Section 7.3(g) shall not applyto state Tax matters covered by Section 3.15(a) and (c).

 

**SECTION 7.4.      General Provisions**

 

(a)           Eachparty entitled to indemnification under this Article VII (an “IndemnifiedParty”) agrees to give the party or parties bearing the relatedindemnification obligation hereunder (each an “Indemnifying Party”,which notice in the case of the Shareholders, shall be made to theShareholders’ Representative on behalf of the applicable Shareholders), writtennotice (describing in reasonable detail the facts and circumstances withrespect to the subject matter of such claim or action), within 10 days afterreceipt by such Indemnified Party of written notice of any claim, assertion,event or proceeding by or in respect of a third party (a “Third-Party Claim”);provided, however that the failure of an Indemnified Party tonotify the Indemnifying Parties shall relieve the Indemnifying Parties from itsobligation to indemnify only to the extent that the Indemnifying Parties areactually prejudiced as a result of such failure.  If a Third-Party Claim is made against anIndemnified Party, the Indemnifying Parties shall have the right to assume,through counsel of their own choosing (and reasonably satisfactory to theIndemnified Party), the defense or settlement of any such Third-Party Claim attheir own expense.  If the IndemnifyingParties elect to assume the defense of any such Third-Party Claim, theIndemnified Party may participate in such defense and to employ counselseparate from the counsel employed by the Indemnifying Parties, but in suchcase the expenses of the Indemnified Party and its counsel shall be paid by theIndemnified Party.  If the IndemnifyingParties choose to defend any Third-Party Claim, the Indemnified Party shallcooperate in the defense and prosecution thereof.  Such cooperation shall include the retentionand (upon the Indemnifying Parties’ request) the provision to the IndemnifyingParties of access to its records and personnel reasonably relating to any suchThird-Party Claim during normal business hours and on a mutually convenientbasis.  If the Indemnifying Parties electto assume the defense of any such Third-Party Claim, the Indemnified Partyshall not pay, or permit to be paid, any part of any claim or demand arisingfrom such asserted liability unless the Indemnifying Parties consent in writingto such payment (which consent shall not be unreasonably withheld or delayed)or unless the Indemnifying Parties, subject to the last sentence of thisSection 7.4(a), withdraw from the defense of such asserted liability, orunless a final judgment from which no appeal may be taken by or on behalf ofthe Indemnifying Parties is entered against the Indemnified Party for suchliability.  If the Indemnifying Partiesshall fail to defend or, if after commencing or undertaking any such defense,shall fail to prosecute or shall withdraw from such defense, the IndemnifiedParty shall have the right to undertake the defense or settlement thereof, andin such case the expenses of the Indemnified Party and its counsel shall bepaid by the Indemnifying Parties.  If theIndemnified Party assumes the defense of any such Third-Party Claim pursuant tothis Section 7.4(a) and proposes to settle such Third-Party Claimprior to a final judgment thereon or to forgo any appeal 

 

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with respect thereto, then the Indemnified Party shall give theIndemnifying Parties prompt written notice thereof, and the IndemnifyingParties shall have the right to participate in the settlement or assume orreassume the defense of such Third-Party Claim.

 

(b)           Ifany Indemnified Party desires to assert any claim for indemnification providedfor under this Article VII other than a claim in respect of, arising outof or involving a Third-Party Claim, such Indemnified Party shall notify theIndemnifying Parties in writing of such claim promptly after becoming aware ofthe existence of such claim; provided, however, that the failureof an Indemnified Party to notify the Indemnifying Parties shall relieve theIndemnifying Parties from the obligation to indemnify only to the extent thatthe Indemnifying Parties are actually prejudiced as a result of suchfailure.  Any such notice shall (takinginto account the information then available to the Indemnified Parties),describe in reasonable detail the claim and related Losses incurred by theapplicable Indemnified Party (or provide a good faith estimate thereof).  If the Indemnifying Parties do not notify theIndemnified Party within 30 calendar days following their receipt of suchnotice that the Indemnifying Parties dispute liability to the Indemnified Party(including any dispute made on the basis that the Indemnifying Parties lacksufficient information to assess the validity or amount of the claim), suchclaim specified by the Indemnified Party in such notice shall be conclusivelydeemed a liability of the Indemnifying Parties hereunder and the IndemnifyingParties shall pay the amount of such liability to the Indemnified Party ondemand or, in the case of any notice in which the amount of the claim (or anyportion thereof) is estimated, on such later date when the amount of such claim(or such portion thereof) becomes finally determined.  If the Indemnifying Parties provide, within30 days after delivery to them of the claim notice from the Indemnified Party,to the Indemnified Party notice of the Indemnifying Parties’ dispute of theclaim, the Indemnifying Parties and the Indemnified Party shall attempt toresolve the claim, by mutual agreement, legal action or otherwise.

 

(c)           Eachof the Shareholders, Parent and the Purchaser hereby acknowledges and agreesthat its sole and exclusive remedy with respect to any and all claims relatingto the subject matter of this Agreement and the Transaction Documents shall bepursuant to the indemnification provisions set forth in this Article VII,except in the case of fraud or as otherwise expressly provided inSections 6.1 and 6.3.  Infurtherance of the foregoing, each of the Shareholders, Parent and thePurchaser hereby waives, to the fullest extent permitted under applicable law,any and all rights, claims and causes of action (other than claims of, orcauses of action arising from fraud) it may have against any other party heretoarising under or based on any Federal, state or local statute, law, ordinance,rule or regulation (including, any such rights, claims or causes of actionarising under or based on common law or otherwise) except pursuant to theexpress indemnification provisions set forth in this Article VII.

 

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(d)           Anythingherein to the contrary notwithstanding, no breach of any representation,warranty, covenant or agreement contained in this Agreement or any TransactionDocument shall give rise to any right on the part of any party hereto, afterthe consummation of the purchase and sale of the Shares contemplated hereby, torescind this Agreement or any Transaction Document or any of the transactionscontemplated hereby or thereby.

 

(e)           Subjectto the Shareholder’s (or the Company’s) rights to be indemnified for lost ordiminished value of the Company under Section 7.2(b), in no event shallany party hereto be liable for any special, indirect, incidental orconsequential damages.

 

(f)            Anyamount paid pursuant to this Article VII (other than pursuant toSection 7.2(b)) shall be treated as an adjustment to the Purchase Pricefor Tax purposes, unless otherwise required by applicable law.

 

(g)           Inno event shall the individuals who serve as trustees of trusts that areShareholders be personally liable for any breaches of representation,warranties, covenants or agreements set forth in any Transaction Document.

 

**ARTICLE VIII.     GENERALPROVISIONS**

 

**SECTION 8.1.      Expenses**

 

Unless otherwise expressly provided in this Agreementor to the extent the Purchase Price takes into account such costs and expensespursuant to Section 2.2(a), all costs and expenses incurred in connectionwith this Agreement and the transactions contemplated hereby, including, feesand disbursements of counsel, financial advisors, and accountants, shall bepaid by the party incurring such costs and expenses.

 

**SECTION 8.2.      Notices**

 

Unless otherwise provided, any notice under thisAgreement shall be given in writing and shall be deemed effectively given(a) upon personal delivery to the party to be notified, (b) uponconfirmation of receipt by fax by the party to be notified, (c) onebusiness day after deposit with a reputable overnight courier, prepaid forovernight delivery and addressed as set forth in clause (d), or(d) three days after deposit with the U.S. Post Office, postage prepaid,registered or certified with return receipt requested and addressed to theparty to be notified at the address indicated for such party below, or at suchother address as such party may designate by 10 days’ advance writtennotice to the other parties given in the foregoing manner.

 

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TO PARENT OR THE PURCHASER:

 

Blount, Inc.

4909 S.E. International Way

Portland, OR 97222

Facsimile: (503) 653-4613 

Attention: Calvin E. Jenness

 

with a copy to:

 

Blount, Inc.

4909 S.E. International Way

Portland, OR 97222

Facsimile: (503) 653-4593 

Attention: Richard H. Irving, III

 

TO THE SHAREHOLDERS**’**REPRESENTATIVE:

 

Jerry A. Parsons

1600 Ridgecrest Drive

Lake Oswego, OR 97034

Facsimile: (503) 699-1066

 

and

 

Richard L. Hawkins

888 SW Fifth Ave., Suite 800

Portland, OR 97204

Facsimile: (503) 546-4197

 

with a copy to:

 

Perkins Coie LLP

1120 NW Couch Street, Tenth Floor

Portland, OR 97209-4128

Facsimile: (503) 727-2222

Attention: David Matheson

 

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**SECTION 8.3.      Public Announcements**

 

For a period of 30 calendar days following the ClosingDate, no party to this Agreement shall issue any press release or make anypublic disclosure relating to the subject matter of this Agreement without theprior written consent of Parent, on behalf of itself and the Purchaser, or theShareholders’ Representative, on behalf of the Shareholders (which consentshall not be unreasonably withheld or delayed); provided, however,that if a party is required by law or applicable rules or regulations ofany securities exchange or self regulatory authority (including the SEC andNYSE) to make any such disclosure, it must first provide to the other party orparties the content of the proposed disclosure; and, provided, further,that the press release announcing the consummation of the transactionscontemplated hereby shall not be subject to the terms of this Section 8.3.

 

**SECTION 8.4.      Interpretation;Exhibits and Schedules**

 

When a reference is made in this Agreement to a Section,Subsection, Exhibit or Schedule (including the Schedule of Exceptions),such reference shall be to a Section or Subsection of, or anExhibit or Schedule (including the Schedule of Exceptions) to, thisAgreement unless otherwise indicated. The headings contained in this Agreement, in any Schedule (including theSchedule of Exceptions) and in the table of contents to this Agreement, are forreference purposes only and shall not affect in any way the meaning orinterpretation of this Agreement.  AllExhibits and Schedules (including the Schedule of Exceptions) annexed hereto orreferred to herein are hereby incorporated in and made part of this Agreementas if set forth in full herein.  Anycapitalized term used in any Schedule or Exhibit  but not otherwisedefined therein, shall have the meaning ascribed to such term in thisAgreement.  Unless the context clearlyrequires otherwise, whenever the words “include”, “includes”, “including”,“such as”, or terms of similar meaning, are used in this Agreement, they shallbe deemed to be followed by the words “without limitation”.  The words “hereof”, “herein”, “hereby” and“hereunder” and words of similar import when used in this Agreement shall referto this Agreement as a whole and not to any particular provision of thisAgreement.  The words “date hereof” shallrefer to the date of this Agreement.  Theterm “or” is not exclusive.  The word“extent” in the phrase “to the extent” means the degree to which a subject orother thing extends, and such phrase shall not mean simply “if”.  The definitions contained in this Agreementare applicable to the singular as well as the plural forms of such terms.  Any agreement or instrument defined or referredto herein or in any agreement or instrument that is referred to herein meanssuch agreement or instrument as from time to time amended, modified orsupplemented.  References to a Person arealso to its permitted successors and assigns. Pronouns of one gender shall include all genders.

 

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**SECTION8.5.      Severability**

 

If any term or otherprovision of this Agreement is invalid, illegal or incapable of being enforcedby any rule of law, or public policy, all other conditions and provisions ofthis Agreement shall nevertheless remain in full force and effect so long asthe economic or legal substance of the transactions contemplated hereby is notaffected in any manner materially adverse to any party. Upon such determinationthat any term or other provision is invalid, illegal or incapable of beingenforced, the parties hereto shall negotiate in good faith to modify thisAgreement so as to effect the original intent of the parties as closely aspossible in a mutually acceptable manner in order that the transactionscontemplated hereby be consummated as originally contemplated to the greatestextent possible.

 

**SECTION8.6       Definitive Agreement**

 

This Agreement, theTransaction Documents, and the Schedule of Exceptions thereto supersede theterm sheet dated as of February 13, 2008, with respect to the subjectmatter hereof.

 

**SECTION8.7.      Assignment**

 

Neither Parent nor thePurchaser may delegate any of their obligations under this Agreement byoperation of law or otherwise without the express written consent of theShareholders’ Representative, on behalf of the Shareholders. This Agreementshall be binding on and inure to the benefit of the parties hereto and theirrespective successors, heirs, personal representatives and permitted assigns.

 

**SECTION8.8.      No Third-Party Beneficiaries**

 

Except to the extentspecified in Section 6.5(c) and as provided in Article VII with respect toPurchaser Indemnitees, this Agreement is for the sole benefit of the partieshereto and their successors, heirs, personal representatives and permittedassigns, and nothing herein, express or implied, is intended to or shall conferon any other Person any legal or equitable right, benefit or remedy of anynature whatsoever under or by reason of this Agreement.

 

**SECTION8.9.      Amendment; Waiver**

 

This Agreement may not beamended or modified except by an instrument in writing duly executed by Parent,the Purchaser and the Shareholders’ Representative, on behalf of theShareholders. Waiver of any term or condition of this Agreement shall only beeffective if in writing, duly executed by the party or parties to be boundthereby, and shall not be construed as a waiver of any subsequent breach orwaiver of the same term or condition, or a waiver of any other term orcondition of this Agreement.

 

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**SECTION8.10.    Governing Law**

 

This Agreement shall begoverned by, and construed in accordance with, the laws of the State of Oregonapplicable to contracts executed and to be performed in that state, withoutregard to the conflicts of law principles of such state.

 

**SECTION8.11.    Counterparts**

 

This Agreement may beexecuted in one or more counterparts, and by the different parties hereto inseparate counterparts, each of which when executed shall be deemed to be anoriginal but all of which taken together shall constitute one and the sameagreement. To expedite the Closing, the parties acknowledge that TransmittedCopies of this Agreement and the Transaction Documents will be equivalent tooriginal documents until such time as original documents are completelyexecuted and delivered. “Transmitted Copies” means copies that arereproduced or transmitted via photocopy, facsimile or other process of completeand accurate reproduction and transmission.

 

[Signature pagesfollow]

 

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IN WITNESS WHEREOF, theparties hereto have entered into and signed this Agreement as of the date andyear first above written.

 

 
|   | **BLOUNT INTERNATIONAL, INC.**                                      |
|--------|---------------------------------------------------------------------|
|   | ** **                                                          |
|   | ** **                                                          |
|   | By:                                                                 | /s/ James S. Osterman |
|   | Name:  James  S. Osterman                                 |
|   | Title:    Chairman  and Chief Executive Officer |
|   |                                                                |
|   |                                                                |
|   | **BLOUNT, INC.**                                                    |
|   | ** **                                                          |
|   | By:                                                                 | /s/ James S. Osterman |
|   | Name:  James  S. Osterman                                 |
|   | Title:    Chairman  and Chief Executive Officer |
|   |                                                                |
|   |                                                                |
|   | **CARLTON HOLDINGS, INC.**                                          |
|   | ** **                                                          |
|   | By                                                                  | /s/ Russell L. German |
|   | Name:  Russell  L. German                                 |
|   | Title:    President  and CEO                    |
|        |                                                                     |  |  |

 

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| ** ** | ** ** | **SHAREHOLDERS:**                                                         |
|------------|------------|---------------------------------------------------------------------------|
| ** ** | ** ** | ** **                                                                |
| ** ** | ** ** | ** **                                                                |
| ** ** | ** ** | **RAYMOND R. CARLTON MARITAL  TRUST A**                                   |
|       |       |                                                                      |
|       |       | By:                                                                       | /s/ Jerry A. Parsons |
|       |       | Jerry A. Parsons,  Co-Trustee                                             |
|       |       |                                                                      |
|       |       | By:                                                                       | /s/ Richard L. Hawkins |
|       |       | Richard L. Hawkins,  Co-Trustee                                           |
|       |       |                                                                      |
|       |       |                                                                      |
| ** ** | ** ** | **RAYMOND R. CARLTON MARITAL  TRUST B**                                   |
|       |       |                                                                      |
|       |       | By:                                                                       | /s/ Jerry A. Parsons |
|       |       | Jerry A. Parsons,  Co-Trustee                                             |
|       |       |                                                                      |
|       |       | By:                                                                       | /s/ Richard L. Hawkins |
|       |       | Richard L. Hawkins,  Co-Trustee                                           |
|       |       |                                                                      |
|       |       |                                                                      |
| ** ** | ** ** | **IRREVOCABLE TRUST DATED  MARCH 2, 2004,  FBO KATHLEEN R. HILLMAN** |
|       |       |                                                                      |
|       |       | By:                                                                       | /s/ Jerry A. Parsons |
|       |       | Jerry A. Parsons,  Co-Trustee                                             |
|       |       |                                                                      |
|       |       | By:                                                                       | /s/ Richard L. Hawkins |
|       |       | Richard L. Hawkins,  Co-Trustee                                           |
|       |       |                                                                      |
|       |       | /s/ Russell L. German                                                     |
| ** ** | ** ** | **RUSSELL L. GERMAN**                                                     |

 

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|   |   | **SHAREHOLDERS’ REPRESENTATIVE**                                                                                                                                                 |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                  |
|   |   | Each of the undersigned  agrees to serve as the Shareholders’ Representative in connection with this  Agreement, and hereby agrees to act and perform its obligations hereunder: |
|   |   |                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                  |
|   |   |      /s/  Jerry A. Parsons                                                                                                                                   |
|   |   | Name: Jerry A. Parsons                                                                                                                                                                |
|   |   |                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                  |
|   |   |      /s/  Richard L. Hawkins                                                                                                                                 |
|   |   | Name: Richard L.  Hawkins                                                                                                                                                             |

 

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**Exhibit A**

 

Definitions

 

As used in thisAgreement, the following terms shall have the following meanings.Cross-references to additional terms defined in this Agreement are included atthe end of this Exhibit A.

 

“affiliates”means, with respect to any Person, another Person that, directly or indirectlythrough one or more intermediaries, controls or is controlled by or is undercommon control with such Person.

 

“Business Day”means any day that is not a Saturday, a Sunday or any other day on which banksgenerally are required or authorized to be closed in Portland, Oregon.

 

“Company Licensed Intellectual Property” means all Intellectual Property that is licensed toCompany or any of its Subsidiaries by any third party.

 

“Company Owned Intellectual Property” means all Intellectual Property owned or purportedto be owned by Company or any of its Subsidiaries.

 

“Company TransactionExpenses” means all (a) unpaid costs, fees and expenses of outsideprofessionals incurred by Company prior to or upon the Closing relating to theprocess of the Shareholders selling the Shares to the Purchaser, whetherincurred in connection with this Agreement or otherwise, including all legalfees, accounting, tax, investment banking fees and expenses, and (b) asset forth on Schedule 3.6 of the Schedule of Exceptions, the “success”bonus payable to Company’s Chief Executive Officer as a result of thetransactions contemplated by this Agreement and the pro rated bonuses toCompany’s Chief Executive Officer and Chief Financial Officer.

 

“DISC Amount”means $998,329.10.

 

“Environmental Claim”means any and all administrative, regulatory or judicial actions, suits,orders, demands, directives, claims, liens, investigations, proceedings orwritten or oral notices of noncompliance or violation by or from any Personalleging liability of whatever kind of nature (including liability orresponsibility for the costs of enforcement proceedings, investigations,cleanup, governmental response, removal or remediation, natural resourcesdamages, property damages, personal injuries, medical monitoring, penalties,contribution, indemnification and injunctive relief) arising out of, based onor resulting from (y) the presence or Release of, or exposure to, any HazardousMaterials at any location; or (z) the failure to comply with any EnvironmentalLaw.

 

A-1

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“EnvironmentalInsurance Policy” means the Pollution Legal Liability Select Clean-Up CostCap Insurance policy issued to the Company by American International Group(Policy Number PLCC4177828) as in place on the date of this Agreement.

 

“Environmental Laws”means all Federal, state, local and foreign laws, regulations, decrees,licenses, judgments, orders, legally binding agreements or EnvironmentalPermits issued, promulgated or entered into by or with any governmental entityrelating to (a) emissions, discharges, Releases or threatened Releases ofHazardous Substances, (b) the generation, manufacture, handling,transport, use, treatment, storage or disposal of Hazardous Substances ormaterials containing Hazardous Substances or (c) otherwise relating to thepollution , natural resources, protection of endangered or threatened species,human health or safety or the environment (including ambient air, surface water,groundwater, land surface or subsurface strata), solid waste handling treatmentor disposal, reclamation or remediation activities.

 

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

 

“GAAP” meansUnited States generally accepted accounting principles as in effect from timeto time.

 

“Hazardous Substances”means (y) any pollutant, toxic substance, asbestos and asbestos-containingmaterials, hazardous waste, hazardous material, hazardous substance,contaminant, petroleum, petroleum by-product and petroleum-containingmaterials, chromium in form, radiation and radioactive materials, leadedpaints, toxic mold and other harmful biological agents, and polychlorinatedbiphenyls, urea formaldehyde foam insulation; and (z) any other chemical,material, substance or waste that is prohibited, limited or regulated under anyEnvironmental Law.

 

“Indebtedness” ofany Person means either (a) all obligations of any Person (i) forborrowed money (including the current portion thereof), or (ii) under anyreimbursement or other obligations relating to a letter of credit, bankers’acceptance, note purchase facility or surety bonds, whether or not matured, or(iii) evidenced by a bond, note, debenture or similar instrument(including a purchase money obligation), or (iv) for the payment of moneyrelating to leases that are required to be classified as a capitalized leaseobligation in accordance with GAAP, or (v) for all or any part of thedeferred purchase price of property or services (other than trade payables),including any “earnout” or similar payments or any noncompete payments, or(vi) under foreign exchange contract, interest rate or currency swap,hedging or similar agreements, in each case whether contingent or matured, or(vii) under conditional sale or other title retention agreements relatingto property acquired by such Person, or (viii) in respect of the deferredpurchase price of property or services (excluding accounts payable), or(ix) created or arising under any conditional sale or other titleretention agreement with respect to property acquired by 

 

A-2

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such Person (even thoughthe rights and remedies of the seller or lender under such agreement in theevent of default are limited to repossession or sale of such property), or(x)  referred to in clauses (i) through (ix) above secured by anyLien on property (including accounts and contract rights) owned by such Personor (b) any liability of others described in the preceding clause (a) thatsuch Person has guaranteed, that is recourse to such Person or any of itsassets or that is otherwise its legal liability or that is secured in whole orin part by the assets of such Person. For purposes of this Agreement,Indebtedness includes any and all accrued interest and success fees, prepaymentpremiums incurred prior to or at the Closing, make-whole premiums incurredprior to or at the Closing or penalties and fees or expenses associated withthe prepayment prior to or at the Closing of any Indebtedness.

 

“Intellectual Property”means trademarks, service marks, brand names, certification marks, trade dressand other indications of origin, the goodwill associated with the foregoing andregistrations in any jurisdiction of, and applications in any jurisdiction toregister, the foregoing, including any extension, modification or renewal ofany such registration or application; inventions, discoveries and ideas,whether patentable or not, in any jurisdiction; patents, applications forpatents (including divisions, continuations, continuations in part and renewalapplications), and any renewals, extensions or reissues thereof, in anyjurisdiction; nonpublic information, trade secrets and confidential informationand rights in any jurisdiction to limit the use or disclosure thereof by anyPerson; writings and other works, whether copyrightable or not, in anyjurisdiction; and registrations or applications for registration of copyrightsin any jurisdiction, and any renewals or extensions thereof; and any similarintellectual property or proprietary rights.

 

“Intellectual Property Registrations”means all patents, registered trademarks, registered copyrights and designs,mask work registrations and applications for each of the foregoing that areregistered or filed in the name of Company.

 

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

 

“knowledge” meanswith reference to (a) any Shareholder, the actual knowledge of suchShareholder, (b) Company, the actual knowledge of Russell L. German, BryceDuPere and Sandra Tabor, after due inquiry, and (c) Parent or thePurchaser, the actual knowledge of James Osterman, Jim Fawls, Richard Irving,III, Cal Jenness, Dale Johnson and, solely with respect to environmentalmatters, Jason Smith. “To the knowledge of” or any similar phrase used withrespect to, any Person means that such Person has no actual knowledge contraryto the facts or matters so referenced after due inquiry.

 

“Latest Balance Sheet”means the unaudited balance sheet of Company as of March 31, 2008,attached to this Agreement as Exhibit C.

 

A-3

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“Material AdverseEffect” means any event, effect, change or development that, individuallyor in the aggregate with other events, effects, changes or developments is, orcould be reasonably expected to be, material and adverse to the financialcondition, business, assets, liabilities (contingent or otherwise), operationsor results of operations of Company and the Subsidiaries, taken as a whole;provided, however, that to the extent any event, effect, change or developmentis caused by or results from any of the following, in each case, it will not betaken into account in determining whether there has been (or could reasonablybe expected to be) a Material Adverse Effect: (A) factors affecting the economy or financial markets as a whole,whether domestic or international (except to the extent the effect thereof ismaterially disproportionately negative with respect to Company relative toother companies in its industry); (B) factors affecting the forestproducts, construction, home building or saw chain industries (except to theextent the effect thereof is materially disproportionately negative withrespect to Company relative to other companies in its industry); (C) anyfailure by Company to meet any revenue or earnings predictions prepared byCompany; (D) changes in laws, rules or regulations of any governmentalentity affecting Company and its Subsidiaries; (E) any change in GAAP bythe Financial Accounting Standards Board, the SEC or any other regulatory body;(F) any outbreak or escalation of hostilities, terrorism or war (whetheror not declared), or the declaration by the United States of a nationalemergency or war or the occurrence of any other calamity or crisis;(G) effects of weather or other meteorological events or naturaldisasters; or (H) the compliance of any party hereto with the terms ofthis Agreement.

 

“Net Debt” means(a) all obligations of Company and the Subsidiaries (including principal andaccrued but unpaid interest) for Indebtedness as of 11:59 p.m. (Pacific Time)on the day immediately preceding the Closing Date, less (b) $1,700,000plus (c) any prepayment penalties relating to Indebtedness which prepaymentpenalties are paid in connection with the transactions contemplated by thisAgreement prior to the Closing.

 

“NYSE” means theNew York Stock Exchange.

 

“Permitted Liens”means, collectively, (a) Liens for current Taxes, assessments, fees andother charges by governmental authorities that are not due and payable as ofthe Closing Date; (b) inchoate mechanic’s and materialmen’s Liens forconstruction in progress and workmen’s, repairmen’s, warehousemen’s andcarrier’s Liens arising in the ordinary course of business that are notdelinquent; and (c) imperfections of title and Liens the existence ofwhich, individually and in the aggregate, would not reasonably be expected tomaterially impair the continued use and operation of the assets to which theyrelate in the conduct of the business as presently conducted.

 

“Person” means anyindividual, sole proprietorship, partnership, corporation, limited liabilitycompany, unincorporated society or association, trust or other entity.

 

A-4

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“Pro Rata Portion”means, with respect to any Shareholder, an amount equal to the product of(a) a fraction, the numerator of which is the number of Shares set forthopposite the name of such Shareholder on Schedule 2.1, and thedenominator of which is the total number of all the Shares set forth on Schedule2.1, multiplied by (b) the applicable dollar amount.

 

“Release” meansany actual or threatened release, spill, emission, leaking, dumping, injection,pouring, deposit, disposal (including any offsite disposal or arrangement fordisposal), discharge, dispersal, leaching or migration into or through theenvironment (including ambient air, surface water, groundwater, land surface orsubsurface strata) or within any building, structure, facility or fixture.

 

“SEC” means theSecurities and Exchange Commission.

 

“Subsidiaries”means the subsidiaries of Company listed in Schedule 3.3.

 

“Tax” means allincome, gross receipts, sales, use, employment, franchise, profits, property orother taxes, fees, stamp taxes and duties, assessments or charges of any kindwhatsoever, whether payable directly or by withholding (together with anyinterest and any penalties, additions to tax or additional amounts imposed withrespect thereto), imposed by any governmental or taxing authority.

 

“Tax Authority”shall mean any domestic, foreign, Federal, national, state, county or municipalor other local government, any subdivision, agency, commission or authoritythereof, or any quasi-governmental body exercising tax regulatory authority.

 

“Tax Return” meansany return, report or statement required to be filed with respect to any Tax(including any attachments thereto and any amendment thereof).

 

“Transaction Documents”means this Agreement and each of the other agreements, certificates,instruments and documents executed or delivered pursuant to the terms of thisAgreement.

 

“Trusts” meanseach of the following: Raymond R. Carlton Marital Trust A; Raymond R.Carlton Marital Trust B; Irrevocable Trust dated March 2, 2004 FBOKathleen R. Hillman.

 

“Trustees” meansJerry A. Parsons and Richard L. Hawkins in their capacities as co-trustees ofthe Trusts.

 

**Certain Additional Defined Terms**

 

In addition to the termsdefined above, the following capitalized terms are used as defined in theSections of this Agreement set forth opposite such terms:

 

A-5

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| **Defined Terms**              | ** ** | **Section  Reference** |
|--------------------------------|------------|------------------------|
| ** **                     | ** ** | ** **             |
| Action                         |       | Section 6.4            |
| Agreement                      |       | Introduction           |
| Audited Financial  Statements  |       | Section 3.6            |
| Class A Common  Stock     |       | Recital A              |
| Class B Common  Stock     |       | Recital A              |
| Closing                        |       | Section 2.3(a)         |
| Closing Certificate            |       | Section 2.2(a)         |
| Closing Date                   |       | Section 2.3(a)         |
| Common Stock                   |       | Recital A              |
| Commonly Controlled  Entity    |       | Section 3.13(a)        |
| Company                        |       | Introduction           |
| Company Employees              |       | Section 6.5(a)         |
| Company Intellectual  Property |       | Section 3.10(e)        |
| Competitive Activities         |       | Section 6.3(a)(i)      |
| Declaration of Trust           |       | Section 4.1            |
| Employees                      |       | Section 3.14           |
| Environmental Permits          |       | Section 3.9(b)         |
| Environmental Records          |       | Section 3.9(j)         |
| Financial Statements           |       | Section 3.6            |
| Holdback Amount                |       | Section 2.4(e)         |
| Indemnified Party              |       | Section 7.4(a)         |
| Indemnifying Party             |       | Section 7.4(a)         |
| Latest Balance Sheet           |       | Section 3.6       |
| Lien                           |       | Section 3.4       |
| Losses                         |       | Section 7.2(a)         |
| Material Contracts             |       | Section 3.12(a)        |
| Multiemployer Plan             |       | Section 3.13(b)        |
| Multiple Employer Plan         |       | Section 3.13(b)        |
| Net Recovery Amount            |       | Section 6.6            |
| Parent                         |       | Introduction           |
| Permits                        |       | Section 3.8            |
| Permitted Goods and  Services  |       | Section 6.3(a)(i)      |
| Personal Property              |       | Section 3.11(b)        |
| Plans                          |       | Section 3.13(a)        |
| Pre-Closing Tax Period         |       | Section 6.2(c)         |
| Purchase Price                 |       | Section 2.2(a)         |
| Purchaser                      |       | Introduction           |
| Purchaser Indemnitees          |       | Section 7.3            |
| Real Property                  |       | Section 3.11(a)        |
| Recovery Costs                 |       | Section 6.6            |

 

A-6

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| Remedial Actions                   |   | Section 3.9(e)               |
|------------------------------------|--------|------------------------------|
| Required Shareholders              |   | Section 2.4(b)          |
| Related Persons                    |   | Section 3.20                 |
| Schedule of Exceptions             |   | Introduction to Article  III |
| Shareholder List                   |   | Section 3.2(a)               |
| Shareholders                       |   | Introduction                 |
| Shareholders’  Representative |   | Introduction                 |
| Shares                             |   | Recital A                    |
| Unaudited Financial  Statements    |   | Section 3.6                  |
| Third-Party Claim                  |   | Section 7.4(a)               |
| Top Ten Customer                   |   | Section 3.22(a)              |
| Transmitted Copies                 |   | Section 8.11                 |
| Voting Company Debt                |   | Section 3.2                  |

 

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