Document:

exv10wxqy

 

Exhibit 10-Q

Final

STOCK PURCHASE AGREEMENT

between

KENNAMETAL INC.

and

FEDERAL SIGNAL CORPORATION

Dated as of December 29, 2006

 

 

TABLE OF CONTENTS

	 	 	 	 	 	 	 	 	 
	ARTICLE 1 PURCHASE AND SALE OF SHARES	 	 	1	 
	 
	 	1.1	 	Purchase and Sale of Shares; Closing	 	 	1	 
	 
	 	1.2	 	Purchase Price for the Shares	 	 	2	 
	 
	 	1.3	 	Payment of Purchase Price	 	 	2	 
	 
	 	1.4	 	Post-Closing Adjustment	 	 	2	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE 2 ASSUMPTION OF CERTAIN LIABILITIES	 	 	3	 
	 
	 	2.1	 	Assumed Liabilities	 	 	3	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SELLER	 	 	3	 
	 
	 	3.1	 	Status of Seller and Subsidiaries	 	 	3	 
	 
	 	3.2	 	Financial Matters	 	 	6	 
	 
	 	3.3	 	Taxes	 	 	7	 
	 
	 	3.4	 	Real and Personal Property	 	 	8	 
	 
	 	3.5	 	Intellectual Property; Patents; Trademarks, Trade Names	 	 	9	 
	 
	 	3.6	 	Loans and Contracts	 	 	9	 
	 
	 	3.7	 	Employee Plans	 	 	10	 
	 
	 	3.8	 	Labor Relations	 	 	11	 
	 
	 	3.9	 	Litigation and Other Proceedings	 	 	12	 
	 
	 	3.10	 	Compliance with Laws	 	 	12	 
	 
	 	3.11	 	Bank Accounts	 	 	13	 
	 
	 	3.12	 	Brokers and Commissions	 	 	13	 
	 
	 	3.13	 	Related Party Transactions	 	 	13	 
	 
	 	3.14	 	Accounting Controls	 	 	14	 
	 
	 	3.15	 	Receivables	 	 	14	 
	 
	 	3.16	 	Inventory	 	 	14	 
	 
	 	3.17	 	Customers	 	 	15	 
	 
	 	3.18	 	No Other Representations	 	 	15	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF BUYER	 	 	15	 
	 
	 	4.1	 	Status of Buyer	 	 	15	 
	 
	 	4.2	 	Brokers and Commissions	 	 	16	 
	 
	 	4.3	 	Available Funds	 	 	16	 
	 
	 	4.4	 	Solvency	 	 	16	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE 5 COVENANTS OF THE SELLER	 	 	16	 
	 
	 	5.1	 	Conduct of Business by the Subsidiaries	 	 	16	 
	 
	 	5.2	 	Affirmative Covenants Relating to the Subsidiaries	 	 	18	 
	 
	 	5.3	 	Access Before Closing	 	 	18	 
	 
	 	5.4	 	Public Disclosure	 	 	18	 
	 
	 	5.5	 	Monthly and Quarterly Financial Statements	 	 	19	 
	 
	 	5.6	 	Termination of Related Party Transactions	 	 	19	 
	 
	 	5.7	 	Bank Accounts	 	 	19	 
	 
	 	5.8	 	Resignations	 	 	19	 
	 
	 	5.9	 	Real Estate	 	 	19	 
	 
	 	5.10	 	Consents and Closing Conditions	 	 	19	 

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	 	5.11	 	Hart-Scott-Rodino Act Notification	 	 	20	 
	 
	 	5.12	 	No Negotiation	 	 	20	 
	 
	 	5.13	 	Cooperation	 	 	20	 
	 
	 	5.14	 	Environmental	 	 	20	 
	 
	 	5.15	 	Intellectual Property	 	 	20	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE 6 COVENANTS OF BUYER	 	 	20	 
	 
	 	6.1	 	Consents and Closing Conditions	 	 	20	 
	 
	 	6.2	 	Obligations Concerning Employees	 	 	20	 
	 
	 	6.3	 	Flexible Spending Accounts	 	 	21	 
	 
	 	6.4	 	WARN Act Liability	 	 	21	 
	 
	 	6.5	 	Health Care Continuation Coverage	 	 	22	 
	 
	 	6.6	 	Employment Taxes	 	 	22	 
	 
	 	6.7	 	Hart-Scott-Rodino Act Notification	 	 	22	 
	 
	 	6.8	 	Cooperation	 	 	22	 
	 
	 	6.9	 	Books and Records	 	 	22	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE 7 TAX MATTERS	 	 	23	 
	 
	 	7.1	 	Payment of Taxes	 	 	23	 
	 
	 	7.2	 	Cooperation and Records Retention	 	 	24	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE 8 BUYER’S CONDITIONS TO CLOSING	 	 	24	 
	 
	 	8.1	 	Continued Truth of Warranties	 	 	24	 
	 
	 	8.2	 	Performance of Covenants	 	 	24	 
	 
	 	8.3	 	No Event Causing a Material Adverse Effect	 	 	24	 
	 
	 	8.4	 	Permits and Consents	 	 	24	 
	 
	 	8.5	 	No Litigation	 	 	24	 
	 
	 	8.6	 	HSR Act	 	 	24	 
	 
	 	8.7	 	Authorization	 	 	24	 
	 
	 	8.8	 	Release of Guarantees	 	 	25	 
	 
	 	8.9	 	Closing Documents	 	 	25	 
	 
	 	8.10	 	Key Employee Agreements	 	 	25	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE 9 THE SELLER’S CONDITIONS TO CLOSING	 	 	25	 
	 
	 	9.1	 	Continued Truth of Warranties	 	 	25	 
	 
	 	9.2	 	Performance of Covenants	 	 	25	 
	 
	 	9.3	 	Permits and Consents	 	 	25	 
	 
	 	9.4	 	No Litigation	 	 	25	 
	 
	 	9.5	 	HSR Act	 	 	25	 
	 
	 	9.6	 	Closing Documents	 	 	25	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE 10 DOCUMENTS TO BE DELIVERED AT CLOSING	 	 	26	 
	 
	 	10.1	 	Documents to be Delivered by the Seller	 	 	26	 
	 
	 	10.2	 	Documents to be Delivered by Buyer	 	 	27	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE 11 TERMINATION	 	 	27	 
	 
	 	11.1	 	Termination by Mutual Consent	 	 	27	 
	 
	 	11.2	 	Termination by Either Buyer or Seller	 	 	27	 
	 
	 	11.3	 	Termination by Buyer	 	 	28	 
	 
	 	11.4	 	Termination by Seller	 	 	28	 

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	 	11.5	 	Effect of Termination and Abandonment	 	 	28	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE 12 SURVIVAL; INDEMNIFICATION	 	 	28	 
	 
	 	12.1	 	Survival	 	 	28	 
	 
	 	12.2	 	Indemnification by the Seller	 	 	29	 
	 
	 	12.3	 	Indemnification by Buyer	 	 	29	 
	 
	 	12.4	 	Notice of Claims	 	 	30	 
	 
	 	12.5	 	Exclusive Remedy	 	 	31	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE 13 MISCELLANEOUS	 	 	32	 
	 
	 	13.1	 	Notices	 	 	32	 
	 
	 	13.2	 	Amendment	 	 	33	 
	 
	 	13.3	 	Counterparts	 	 	33	 
	 
	 	13.4	 	Binding on Successors and Assigns	 	 	33	 
	 
	 	13.5	 	Severability	 	 	33	 
	 
	 	13.6	 	Waivers	 	 	33	 
	 
	 	13.7	 	Publicity	 	 	33	 
	 
	 	13.8	 	Headings	 	 	33	 
	 
	 	13.9	 	List of Schedules and Exhibits	 	 	33	 
	 
	 	13.10	 	Entire Agreement; Law Governing	 	 	35	 
	 
	 	13.11	 	No Third-Party Rights	 	 	35	 
	 
	 	13.12	 	Sales and Transfer Taxes	 	 	35	 
	 
	 	13.13	 	Expenses	 	 	35	 
	 
	 	13.14	 	Specific Performance	 	 	35	 
	 
	 	13.15	 	Confidentiality	 	 	35	 
	 
	 	13.16	 	Survivability of Provisions After Termination	 	 	35	 

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STOCK PURCHASE AGREEMENT

     THIS STOCK PURCHASE AGREEMENT (this “Agreement”), is made as of this 29th day of
December, 2006, by and between Kennametal Inc., a Pennsylvania corporation (“Buyer”) and
FEDERAL SIGNAL CORPORATION, a Delaware corporation (“Seller”).

RECITALS

     WHEREAS, Seller is the owner of one hundred percent (100%) of the issued and outstanding
shares of capital stock of MANCHESTER TOOL COMPANY, a Delaware corporation (“Manchester
Tool”); and Manchester Tool is the owner of one hundred percent (100%) of the issued and
outstanding shares of capital stock of both CLAPP DICO CORPORATION, an Ohio corporation
(“Clapp Pico”), and ON TIME MACHINING COMPANY, an Ohio corporation (“OTM”)
(Manchester Tool, Clapp Dico and OTM each being a “Subsidiary,” and, collectively the
“Subsidiaries”); and

     WHEREAS, such shares of capital stock of the Subsidiaries (the “Shares”), owned as
set forth in the previous recital are, in each case, the only shares of capital stock of such
Subsidiaries that are issued and outstanding on the date hereof; and

     WHEREAS, the Subsidiaries are engaged in the business of manufacturing and reselling a broad
range of high precision and consumable tools for metal cutting industries (the
“Business”); and

     WHEREAS, Seller desires to sell, assign, transfer and convey to Buyer, and Buyer desires to
acquire from Seller, all of the Shares; and

     WHEREAS, each of the parties hereto desires to set forth certain representations, warranties
and covenants, and to establish certain closing conditions, made to induce the other to execute
and deliver this Agreement and to consummate the transactions contemplated hereby.

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

ARTICLE 1 

PURCHASE AND SALE OF SHARES

     1.1 Purchase and Sale of Shares; Closing. The purchase and sale of the Shares
shall be effected as follows:

          (a) At the Closing (as defined in Section 1.1 (b) hereof), Seller shall sell to Buyer, and
Buyer shall purchase from Seller, the Shares, as described above, such Shares being all of the
shares of capital stock of the Subsidiaries that are issued and outstanding, in consideration of
the Purchase Price (as defined in Section 1.2 hereof).

          (b) The closing (the “Closing”) of the transactions contemplated hereby shall take
place at the offices of Buchanan Ingersoll & Rooney PC, One Oxford Centre, Pittsburgh, Pennsylvania
15219, commencing at 9:00 a.m. Eastern Standard Time on January 31, 2007, or such other date or
time as may be mutually agreed upon by the parties (the “Closing Date”). The Closing shall
be effective as of 11:59 p.m. prevailing local time on the Closing Date.

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     1.2 Purchase Price for the Shares. The aggregate consideration to be paid by Buyer to
Seller in connection with the sale of the Shares shall be the amount of Sixty Seven Million Dollars
($67,000,000.00) in cash (the “Purchase Price”), subject to adjustment as set forth in Section 1.4.

     1.3 Payment of Purchase Price. At the Closing, Buyer shall deliver to Seller, by wire
transfer to an account designated by Seller at least three days prior to the Closing Date, an
aggregate amount in immediately available funds equal to the Purchase Price; provided, however, at
least two (2) business days prior to the Closing, Seller shall provide to Buyer the payoff amounts
of all outstanding indebtedness of the Subsidiaries, including interest, fees and premiums, if any,
which amounts shall be paid by Buyer to the relevant lenders of each indebtedness and in the
aggregate, reduce the amount of the Purchase Price otherwise payable to Seller; provided further,
however, that the foregoing proviso shall not apply to any trade payables or other similar
liabilities which do not include indebtedness for borrowed money properly reflected on the
Subsidiaries’ balance sheet on the Closing Date.

     1.4 Post-Closing Adjustment.

          (a) The Statement. Within 90 days after the Closing Date, Buyer shall prepare and
deliver to the Seller a statement (the “Statement”), setting forth the Net Assets (as
defined below) as of the close of business on the Closing Date (the “Closing Net Assets”)
determined in accordance with methodologies and policies used in the preparation of the Reference
Statement (as defined in Section 3.2) (including U.S. generally accepted accounting principles
(“GAAP”) in effect as of the date of the Reference Statement), except as provided in Schedule
1.4(a). After the Closing Date, at Buyer’s request, the Seller shall assist Buyer and its
representatives in the preparation of the Statement and shall provide Buyer and its representatives
any information reasonably requested.

          (b) Objections; Resolutions Disputes.

                (1) Unless Seller notifies the Buyer in writing within 45 days after Buyer’s
delivery of the Statement of any objection to any component of the computation of the Closing Net
Assets set forth therein (the “Notice of Objection”), such computation shall be final and
binding. During such 45-day period, the Seller and its representatives shall be permitted to review
during normal business hours as they shall reasonably request the books, records and working papers
of Buyer and the Subsidiaries relating to the Statement. Any Notice of Objection shall specify in
reasonable detail the basis for the objections set forth therein. The Parties acknowledge that
(i) the purpose of the determination of the Closing Net Assets is to adjust the Purchase Price so
as to reflect the change in Net Assets from July 2, 2006 to the Closing Date and (ii) such change
is to be measured on a totally consistent basis so that the calculation is to be done using the
same accounting principles, practices, methodologies and policies used in the preparation of the
Reference Statement, except as provided in Schedule 1.4(a).

                (2) If the Seller provides the Notice of Objection to Buyer within such
45-day
period, Buyer and Seller shall, during the 30-day period following Seller’s receipt of the Notice
of Objection, attempt in good faith to resolve the Seller’s objections. During the 30-day period
following Buyer’s receipt of the Notice of Objection, Buyer and its representatives shall be
permitted to review during normal business hours as they shall reasonably request the working
papers of the Seller relating to the Notice of Objection and the basis therefore. If Buyer and
Seller are unable to resolve all such objections within such 30-day period, the matters remaining
in dispute shall be submitted to an internationally recognized public accounting firm mutually
agreed upon by Buyer and Seller (or, if Buyer and Seller are unable to so agree within 10 days
after the end of such 30-day period or the firm so selected declines to act, then Buyer and Seller
shall each select an internationally recognized public accounting firm and such firms shall jointly
select a third internationally recognized public accounting

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firm to resolve the disputed matters (such determining firm being the “Independent Expert”)).
Buyer and Seller shall jointly instruct the Independent Expert to render its reasoned written
decision as promptly as practicable but in no event later than 30 days after its selection. The
resolution of disputed items by the Independent Expert shall be final and binding, and the
determination of the Independent Expert shall constitute an arbitral award that is final, binding
and non-appealable and upon which a judgment may be entered by a court having jurisdiction
thereover. The fees and expenses of the Independent Expert shall be borne 50% by Buyer and 50% by
Seller. After final determination of the Closing Net Assets, neither Buyer nor Seller shall have
any further right to make any claims against each other in respect of any post-Closing Purchase
Price adjustments hereunder.

          (c) Adjustment Payment. The Purchase Price shall be increased by the amount by which
the Closing Net Assets exceed $7,379,438.35 (the “Reference Net Assets”), which is the amount shown
as “Equity” in the Reference Statement, and the Purchase Price shall be decreased by the amount by
which the Closing Net Assets are less than the Reference Net Assets (the amount of any such
increase or decrease being hereinafter called the “Post-Closing Adjustment Amount”). Within 10
days after the Closing Net Assets have been finally determined in accordance with Section 1.04(b),
(i) if the Purchase Price is increased, then Buyer shall pay to Seller the Post-Closing Adjustment
Amount, together with interest thereon at a rate of 5.25%, per annum from the Closing Date to the
date of payment, and (ii) if the Purchase Price is decreased, Seller shall pay to Buyer the
Post-Closing Adjustment Amount, together with interest thereon at a rate of 5.25% per annum from
the Closing Date to the date of payment. Any such payment hereunder shall be made by wire transfer
of immediately available funds to an account or accounts designated in writing by Buyer or Seller,
as the case may be.

          (d) Net Assets. The term “Net Assets” means Total Assets minus Total
Liabilities. The terms “Total Assets” and “Total Liabilities” mean the consolidated
total assets (less goodwill) and total liabilities of the Subsidiaries, calculated in the same way,
using the same accounting principles, practices, methodologies and policies, as the line items
comprising total assets and total liabilities, respectively, on the Reference Statement (except as
provided in Schedule 1.4(a)).

ARTICLE 2 

ASSUMPTION OF CERTAIN LIABILITIES

     2.1 Assumed Liabilities. At the Closing, in addition to the purchase of the Shares
contemplated by this Agreement and the corresponding retention by the Subsidiaries of their
respective liabilities, Buyer shall assume and agree to pay, discharge and perform in accordance
with the terms thereof, each of the obligations of the Subsidiaries related to the Business that
are listed on Schedule 2.1, annexed hereto. Except as set forth herein, no liabilities shall be
assumed by the Buyer.

ARTICLE 3

REPRESENTATIONS AND WARRANTIES OF SELLER

     Seller hereby
represents and warrants to Buyer as follows:

     3.1 Status of Seller and Subsidiaries.

          (a) Corporate Existence, Status and Capitalization.

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               (i) Seller and each of the Subsidiaries are corporations duly incorporated, organized,
entitled to conduct business and validly existing in good standing under the laws of the
state of their respective incorporation.

               (ii) Schedule 3.l(a)(ii) sets forth with respect to each Subsidiary (i) the
total authorized capital stock, (ii) the number of shares that are issued and outstanding
and (iii) the owner of such Shares. All of the Shares have been duly authorized, validly
issued and are fully paid and nonassessable and were not issued in violation of any
preemptive rights. There are no outstanding options, warrants, rights (including
preemptive rights), agreements, puts, calls, commitments or demands of any character
relating to the capital stock of the Subsidiaries or that may require the Subsidiaries to
issue any shares of capital stock, and there are no outstanding securities convertible
into or exchangeable for any of such capital stock.

               (iii) (A) Seller is the sole record and beneficial owner of all of the Shares of
Manchester Tool, free and clear of any lien, security interest, pledge, restriction on
transferability or voting, or other claim or encumbrance, except those restrictions imposed
by applicable securities laws, and has full legal right, power and authority to transfer
such Shares to Buyer in accordance with this Agreement, and (B) Manchester Tool is the sole
record and beneficial owner of all of the Shares of Clapp Dico and OTM, free and clear of
any lien, security interest, pledge, restriction on transferability or voting, or other
claim or encumbrance, except those restrictions imposed by applicable securities laws, and
has full legal right, power and authority to transfer such Shares to Buyer in accordance
with this Agreement. There are no voting trust agreements or other agreements restricting
the voting, dividend rights or disposition of any of the Shares.

          (b) Qualification. Schedule 3. 1(b) lists the jurisdictions in which each
Subsidiary is qualified to do business as a foreign corporation. Each Subsidiary is qualified to do
business and in good standing in all jurisdictions where the nature of its business makes such
qualification necessary, except where the failure to be so qualified would not have a Material
Adverse Effect. For purposes of this Agreement, the term “Material Adverse Effect” shall
mean with respect to the Subsidiaries, any effect which, individually or in the aggregate with all
other such effects, is both material and adverse to the financial condition or to the results of
operations, assets or business of the Business taken as a whole, except for (i) changes or effects
that are cured before the earlier of (A) the Closing Date and (B) the termination of this Agreement
or (ii) any such changes or effects caused by or resulting from (A) this Agreement or the
transactions contemplated hereby or thereby or the announcement thereof, (B) changes in general
social or political conditions including the engagement by the United States in hostilities or the
occurrence of a military or terrorist attack on the United States, or (C) changes in general
business, economic or market conditions or prevailing interest rates, including, without
limitation, changes affecting the businesses or industries in which the Business operates.

          (c) Corporate Power. Each Subsidiary has all requisite corporate power to own and
lease its properties and otherwise to conduct the Business.

          (d) Ownership Interests. Except as set forth on Schedule 3.1(d), the
Subsidiaries do not own any other subsidiary or have any equity securities of, investment in or
loans or advances to any business enterprise or person or any agreements or commitments for such
(other than trade terms extended to customers in the ordinary course of business and travel
advances to employees).

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          (e) Authorization.

               (i) Seller has the right, power and authority to enter into this Agreement and each
other agreement, instrument or other document required to be executed by the Seller
hereunder (collectively, the “Other Agreements”) and subject in each instance to
obtaining the consents and approvals set forth on Schedule 3.1(e)(i), to
consummate the transactions contemplated by, and otherwise to comply with and perform its
obligations under, this Agreement and the Other Agreements;

               (ii) The execution and delivery by Seller of this Agreement and the Other Agreements
to which it is a party, and the consummation by Seller of the transactions contemplated
by, and other compliance with and performance of its obligations under, this Agreement and
the Other Agreements to which it is a party have been duly authorized by all necessary
corporate action on the part of Seller, in compliance with its governing documents and
applicable law; and

               (iii) This Agreement and the Other Agreements to which Seller is a party constitute
valid and binding agreements of Seller that are enforceable against Seller in accordance
with their respective terms, except to the extent that such enforceability may be limited
by (A) the effect of any applicable bankruptcy, insolvency, reorganization, moratorium,
rehabilitation or similar laws relating to the enforcement of creditors’ rights generally,
(B) the availability of the remedies of specific performance or injunctive relief which may
be subject to the discretion of the court before which any proceeding for such remedies may
be brought, or (C) the exercise by any court of its discretion in invoking general
principles of equity.

          (f) Absence of Violations or Conflicts. Except as disclosed in Schedule
3.1(f) and except as would not have or reasonably be expected to have a Material Adverse
Effect, the execution and delivery of this Agreement and the Other Agreements by Seller and the
consummation by the Seller of the transactions contemplated by, or other compliance with or
performance under, this Agreement and the Other Agreements by the Seller, does not and will not
with the passage of time or giving of notice or both, constitute a violation of, be in conflict
with, constitute a default or require any payment under, permit a termination of, require any
consent under, or result in the creation or imposition of any lien, encumbrance or other adverse
claim or interest other than Permitted Encumbrances (as such term is defined in Section 3.4(a) of
this Agreement) under (i) any contract, agreement, commitment, undertaking or understanding to
which the Seller or any Subsidiary is a party or to which the Seller or any of the Subsidiaries or
any of their assets or properties are subject or bound, (ii) to the Knowledge of the Seller, any
judgment, decree or order of any governmental or regulatory authority to which the Seller or any
Subsidiaries or any of their assets or properties are subject or bound, (iii) to the Knowledge of
the Seller, any applicable law or regulation, or (iv) any governing documents of the Seller or any
Subsidiary (including their articles of incorporation and by-laws (as amended)). As used in this
Agreement, the term “Knowledge” means, with respect to Seller, the actual knowledge of Alan
Shaffer, Van Simpson, Frank Monteleone, Douglas Weiner, Michael Wachtel, Drew Arns and Thomas
McDougall, after making such inquiry as may be reasonable under the circumstances.

          (g) No Governmental Consents Required. Except as required by the HSR Act (as defined
in Section 5.5) or as set forth in Schedule 3.1(g), no consent, approval, order or
authorization of, or registration, declaration or filing with, any governmental authority on the
part of the Seller or any of the Subsidiaries is required in connection with its execution or
delivery of this Agreement or the Other Agreements or the consummation of the transactions
contemplated by, or other compliance with or performance under, this Agreement or such Other
Agreements by the Seller.

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     3.2 Financial Matters.

          (a) Financial Statements. Seller has delivered to Buyer true and complete copies of
the unaudited consolidated balance sheets of the Subsidiaries as of December 31, 2005 and 2004 and
the related unaudited consolidated statements of income for the years ended December 31, 2005 and
2004, together with the unaudited consolidated balance sheets as of July 2, 2006 (the “Reference
Statement”) as set forth in Schedule 3.2(a) and July 3, 2005 and the related unaudited
consolidated statements of income for the six-month periods ended July 2, 2006 and July 3, 2005
(collectively the Reference Statement together with the other unaudited financial statements
described in this sentence are referred to in this Agreement as the “Financial
Statements”). The Financial Statements of the Business were prepared in accordance with GAAP
consistently applied and fairly present in all material respects the financial condition and
results of operations of the Subsidiaries as of the respective dates thereof, except as set for in
Schedule 3.2(a).

          (b) Absence of Certain Events. Except as set forth in Schedule 3.2(b), since
July 2, 2006, the Seller and the Subsidiaries have conducted the Business in the ordinary and usual
course consistent with past practice and there has not been:

               (i) Any event, development or state of circumstance or fact that, individually or
taken together with all other facts, events and circumstances, has had a Material Adverse Effect
with respect to the Business;

               (ii) Any material damage, destruction or casualty loss with respect to the
Properties of the Subsidiaries (whether or not covered by insurance) which affected the Business
or financial condition or results of the Business;

               (iii) Any change in the articles of incorporation or bylaws of any of the
Subsidiaries or any declaration or payment of distributions with respect to the capital stock of
any of the Subsidiaries or redemption or repurchase of any such shares;

               (iv) Any change in accounting policies or practices by Seller or any of the Subsidiaries;

               (v) Any individual capital expenditure in excess of $50,000;

               (vi) Any creation or incurrence of any lien, other than Permitted Liens, on any of the assets
of the Subsidiaries;

               (vii) Any payment or increase by any of the Subsidiaries of any bonuses,
salaries or other compensation to any shareholder, director, officer or employee, except in the
ordinary course of business, or entry into any employment, severance, or similar agreement or
arrangement with any director, officer or employee;

               (viii) Any sale (other than sales of inventory and obsolete equipment or
machinery in the ordinary course of business), lease, or other disposition of any asset or
property of the Subsidiaries for which the aggregate proceeds thereof or payments therefore or net
book value thereof exceed $50,000;

               (ix) Any incurrence by the Subsidiaries of any indebtedness for borrowed
money, or any assumption, guarantee, endorsement or otherwise by the Subsidiaries of any
obligations of any other person;

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               (x) Any transactions or arrangements entered into, including modifications to
existing transactions and arrangements, with employees, officers, directors or shareholders, of the
Subsidiaries (other than those directly related to services as an officer, director or employee);
and

               (xi) Any commitment or agreement to do any of the foregoing.

          (c) Absence of Undisclosed Liabilities. Except (i) as set forth in or otherwise
disclosed in the Financial Statements or the Schedules hereto, (ii) for liabilities and obligations
arising since July 2, 2006 in the ordinary course of business, (iii) for liabilities and
obligations which would not be required to be disclosed in the Financial Statements, or (iv) as set
forth on Schedule 3.2(c) the Business has no debt, obligations or liabilities (contingent
or otherwise).

     3.3 Taxes.

          (a) Definitions. For purposes of this Agreement:

               (i) The term “Code” shall mean the Internal Revenue Code of 1986, as amended.
All citations to the Code or to the regulations promulgated thereunder shall include any
amendments or any substitute or successor provisions thereto.

               (ii) the term “Acquired Assets” shall mean, collectively, the assets of each
Subsidiary, and the Shares;

               (iii) The term “Returns” shall mean, collectively, all reports, forms,
declarations, estimates, returns, information statements, and similar documents relating
to, or required to be filed in respect of, any Taxes and the term “Return” means
any one of the foregoing Returns.

               (iv) The term “Taxes” shall mean (A) all net income, alternative or add-on
minimum tax, gross income, gross receipts, gains, sales, use, ad valorem, value added,
franchise, profits, license, unitary, intangible, corporate loan tax, capital stock tax,
lease, service, service use, withholding on amounts paid to or by each Subsidiary,
employment, payroll, excise, severance, transfer, documentary, mortgage, registration,
stamp, occupation, environmental, premium, property, windfall, profits, customs, duties, and
other taxes, fees, assessments or charges of any kind whatsoever, together with any
interest, penalties and other additions with respect thereto, imposed by any federal,
territorial, state, provincial, local or foreign government; and (B) any penalties,
interest, or other additions for the failure to collect, withhold, or pay over any of the
foregoing, or to accurately file any Return; and the term “Tax” shall mean any one
of the foregoing Taxes.

          (b)
Returns Filed and Taxes Paid. Except as otherwise set forth in Schedule 3.3 annexed hereto, (i) each Subsidiary has duly filed or caused to be filed (or joined in the
filing of), on or before the due date thereof (including any valid extensions), with the
appropriate taxing authorities, all Returns that it is required to file and all such Returns are
true, correct and complete in all material respects; (ii) all Taxes of each Subsidiary due with
respect to, or shown to be due on, each such Return (or amendment) or subsequent assessment with
regard thereto, have been timely paid or adequate reserves have been established for the payment of
such Taxes; (iii) there is no valid basis for the assessment of any deficiency with regard to any
such Return; (iv) no audit or examination or refund litigation with respect to any such Return is
pending or, to Seller’s Knowledge, has been threatened; (v) there are no outstanding waivers of
statute of limitations that have been given or requested with respect to any Taxes of Seller or the
Subsidiaries; (vi) no closing agreements, private letter rulings, technical

7

 

advice memoranda or similar agreement or rulings have been entered into or issued by any
taxing authority with respect to the Subsidiaries that continue to remain outstanding and/or
effective; (vii) the Subsidiaries are not bound by any tax indemnity, tax sharing or tax
allocation agreement or arrangement; (viii) the Subsidiaries have withheld and paid all Taxes that
they are required to withhold from compensation income of their employees; (ix) Seller has not
been a United States real property holding company within the meaning of Code Section 897(c)(2)
during the applicable period specified in Section 897(c)(1)(A)(ii); (x) Seller has disclosed on
its income Returns all positions taken therein that could reasonably give rise to a substantial
understatement of federal income Tax within the meaning of Code Section 6662; and (xi) Seller and
the Subsidiaries have not made and are not obligated to make a payment that would not be
deductible by reason of Code Section 280G. To the Knowledge of Seller, no other Taxes are due with
respect to any taxable periods or portions of periods ending on or before the Closing Date. There
are no liens, attachments, or similar encumbrances on any of the Acquired Assets with respect to
any Taxes, other than immaterial liens for Taxes that are not yet due and payable.

     3.4 Real and Personal Property.

          (a) Property. For purposes of this Agreement, “Property” or
“Properties” means those real and personal properties owned, leased or used by each
Subsidiary. Schedule 3.4(a) lists all of the real property which each Subsidiary holds
legal or equitable title (whether or not of record) or leases. Except as set forth on Schedule
3.4(a), (i) each Subsidiary has good and marketable title to all Properties on Schedule
3.4(a); and (ii) none of the Properties are subject to any lien, claim or other encumbrance
whatsoever, except for Permitted Encumbrances. For purposes of this Agreement,
“Permitted Encumbrances” shall mean (A) liens for Taxes not yet due and payable or being
contested in good faith by appropriate proceedings, (B) liens shown or described in the Financial
Statements, and (C) (1) liens imposed by law and incurred in the ordinary course of business for
obligations not yet due and payable to landlords, carriers, warehousemen, laborers,
materialmen and the like, (2) easements, building restrictions, rights of way, reservations
and such similar encumbrances or charges against real property as are of a nature generally
existing with respect to properties of a similar character and which do not in any material way
affect the use thereof in the Business, (3) liens, claims, encumbrances or other exceptions which
are identified on the title insurance policies issued to each Subsidiary with respect to such
Properties or otherwise set forth in Schedule 3.4(a) annexed hereto, and (4) liens, claims,
encumbrances or other exceptions which would not reasonably be expected to have a Material Adverse
Effect on such Properties.

          (b) Leases; Subleases. For purposes of this Agreement, “Lease” means any
written or oral lease, sublease or rental agreement (and any related contract, agreement,
commitment, arrangement, undertaking or understanding) and all amendments, modifications and
supplements thereof and waivers and consents thereunder pursuant to which each Subsidiary leases,
subleases or rents any real or personal property, either as lessor, lessee, landlord or tenant.
Schedule 3.4(b) annexed hereto lists all Leases. Schedule 3.4(b) describes all
oral Leases. True and complete copies of all written Leases have been made available to Buyer.
With respect to each of the Leases set forth on Schedule 3.4(b): (i) the Subsidiary is not
and, to the Knowledge of the Seller, no other party to such Lease is in material default in
connection with such Lease; (ii) to the Knowledge of the Seller, no act or event has occurred
which, with notice or lapse of time or both, would constitute a material default under such Lease
with respect to the Subsidiary or any other party; (iii) the Subsidiary has not given or received
any notice of cancellation or termination in connection with such Lease; and (iv)
except as disclosed in Schedule 3.4(b) annexed hereto, such Lease will not require
consents of the other parties thereto in connection with consummation of the transactions
contemplated by this Agreement.

          (c) Condition. To the Knowledge of Seller, except as set forth in Schedule
3.4(c) annexed hereto, the Properties are in good repair and condition subject to reasonable
wear and tear and

8

 

structurally and mechanically sound, as applicable; comply in all material respects with the
present zoning classifications assigned to such Properties or are legal nonconforming uses, and all
improvements constructed on the land included in the Properties have been constructed in all
material respects in accordance with the requirements of all applicable building, health, safety,
environmental, zoning and other federal, state and local laws, ordinances, regulations, codes,
licenses or permits applicable at the time of such construction, do not, to the Seller’s Knowledge,
contain any material defect in design or construction, and have access to existing highways, roads
and utility services. Neither Seller nor any of the Subsidiaries have received any notice or
request from any governmental authority, utility, insurer, board of fire authorities or similar
organization for the performance of any work or alteration with respect to the Properties or for
the termination or limitation of any access, services or insurance with respect thereto. Seller
does not own or lease any real property used in the Business except as listed in Schedule
3.4(a). The Subsidiaries do not own or lease any real property not listed in Schedule
3.4(a)

     3.5 Intellectual Property; Patents; Trademarks, Trade Names. (a) All patents,
inventions, discoveries, trademarks, service marks, trade names, fictitious business names,
software, mask works copyrights owned by or used or proposed to be used by the Subsidiaries and all
applications or registrations therefore (“Intellectual Property”) and all contracts,
agreements, commitments and understandings relating to the use or license of technology,
know-how, trade secrets, confidential or proprietary information, customer and supplier lists or
processes by the Subsidiaries that are known to the Subsidiaries or Seller and related to or used
in the Business (the “Intellectual Property Licenses”) are listed in Schedule 3.5 annexed hereto.
All necessary registration, maintenance and renewal fees currently due in connection with any
registered Intellectual Property have been paid and all necessary documents, recordations, and
certifications in connection with the registered Intellectual Property have been filed with the
relevant authorities for the purpose of maintaining such registered Intellectual Property. Except
as disclosed in Schedule 3.5: (i) each Subsidiary owns (free and clear of all liens, claims and
encumbrances, other than Permitted Encumbrances), or has the right to use, all Intellectual
Property, whether under Intellectual Property Licenses or otherwise, used in the ordinary conduct
of the Business; (ii) the consummation of the transactions contemplated by this Agreement will not
materially alter or impair any such rights or require any consent or approval; (iii) no
Intellectual Property owned, licensed or used by the Subsidiaries, or Intellectual Property License
is the subject of a lawsuit or any other proceeding, nor, has any party challenged or, to the
Knowledge of the Seller threatened to challenge any Subsidiary’s right to use such Intellectual
Property or Intellectual Property License or application for any of the foregoing or that the
operation of the Business as it has been and is currently conducted, has not and will not infringe
or misappropriate the intellectual property of any third party; and (iv) to the Knowledge of
Seller, no party has or is infringing or misappropriating any Intellectual Property.

     3.6 Loans and Contracts.

          (a) Indebtedness. Schedule 3.6(a) annexed hereto sets forth a complete and
accurate list or description of all instruments or other documents (“Debt Instruments”)
relating to any direct or indirect indebtedness for borrowed money of each Subsidiary (other than
trade debt incurred in the ordinary course), as well as indebtedness by way of industrial
development bonds, capital leases, lease-purchase arrangements, guarantees, undertakings on which
others rely in extending credit and all conditional sales contracts, chattel mortgages and other
security arrangements with respect to personal property used or owned by each Subsidiary.

          (b) Other Contracts. Schedule 3.6(b) annexed hereto lists each contract,
agreement, commitment, arrangement, undertaking or understanding (except where the same does not
call for the payment or receipt by a Subsidiary of cash or other property or services having a
value in excess of Fifty Thousand Dollars ($50,000.00)) to which each Subsidiary is a party or
bound or to which Seller is bound

9

 

but which is necessary to conduct the Business or to which a Subsidiary or its property is
subject, whether written or oral (“Contract,” but such list and the term “Contract” shall
not include Leases, Intellectual Property Licenses, Debt Instruments, Insurance Policies and
employee-related matters of each Subsidiary disclosed elsewhere in this Agreement). True and
complete copies of the Contracts have been provided to Buyer.

          (c) Insurance. The material terms of all insurance coverage of the Subsidiaries now in
force with respect to the Business (“Insurance Policies”), have been disclosed to Buyer,
and the insurance policies are set forth on Schedule 3.6(c) annexed hereto. All such
policies are on an occurrence basis and are in full force and effect. The Seller with respect to
the Subsidiaries and the Subsidiaries have not been denied any application for insurance or had any
policy of insurance terminated during the past three (3) years, nor has Seller or any of the
Subsidiaries been notified of any pending termination.

          (d) Status. Except as disclosed on Schedule 3.6(d) annexed hereto: (i)
each Subsidiary is not nor, to the Knowledge of the Seller, is any other party in material default
in connection with any Intellectual Property License, Debt Instrument or Contract; (ii) no
Subsidiary has received any notice of cancellation or termination in connection with any
Intellectual Property License, Debt Instrument or Contract; (iii) no Intellectual Property License,
Debt Instrument or Contract will be affected by, or require the consent of or payment to any other
party to avoid an event of default or event of termination with respect to such Intellectual
Property License, Debt Instrument or Contract (assuming that any required notice of default or
termination has been given and any periods for cure have expired) by reason of the transactions
contemplated by this Agreement; and (iv) each Intellectual Property License, Debt Instrument and
Contract is a valid and legally binding obligation of the Subsidiaries and the same are in full
force and effect.

     3.7 Employee Plans.

          (a) Except as set forth in Schedule 3.7 annexed hereto, neither Seller nor any
Subsidiary maintains, or is required to maintain or contribute to or otherwise participate in, with
respect to employees employed by the Subsidiaries who provide services to the Business (the
“Business Employees”), either (i) any employee pension benefit plan, including any employee
stock ownership plan (“Pension/Profit Sharing Plan”), or any employee welfare benefit plan
(“Welfare Plan”) (as such terms are defined in the Employee Retirement Income Security Act
of 1974, as amended (“ERISA”)), including any pension, profit sharing, retirement or thrift
plan, or (ii) any other compensation, welfare, fringe benefit or retirement plan, program, stock
purchase or stock option plan, policy, understanding or arrangement of any kind whatsoever, whether
formal or informal, providing for benefits for or the welfare of any or all of the current or
former Business Employees or their beneficiaries or dependents (all of the foregoing in items (i)
and (ii) being referred to herein collectively as the “Employee Plans” and individually as
an “Employee Plan”).

          (b) Except as set forth in Schedule 3.7, neither Seller nor any Subsidiary has
maintained, contributed to or been required to contribute to, with respect to any of the Business
Employees, a “multiemployer plan” (as defined in Section 3(37) of ERISA). Except as set forth in
Schedule 3.7 annexed hereto, no amount is due or owing from Seller or any Subsidiary on
account of a “multiemployer plan” (as defined in Section 3(37) of ERISA) covering any Business
Employee or on account of any withdrawal therefrom.

          (c) Except as set forth in Schedule 3.7, no Employee Plan, other than an Employee Plan
which is an employee pension benefit plan (within the meaning of Section 3(2)(A) of ERISA),
provides benefits, including without limitation death, health or medical benefits (whether or not
insured),

10

 

with respect to current or former Business Employees beyond their retirement or other termination
of service in the Business (other than (i) coverage mandated by applicable law, (ii) deferred
compensation benefits accrued as liabilities on the books of any Subsidiary, or (iii) benefits the
full cost of which is borne by the current or former Business Employee (or his or her
beneficiary)).

          (d) For each Employee Plan, to the extent applicable to each such Employee Plan, true and
complete copies of the following have been delivered to Buyer: (1) the documents embodying the
Employee Plans, including the plan documents, all amendments thereto, the related trust or funding
contracts, investment management contracts, administrative service contracts, insurance contracts,
union or trade contracts and, in the case of any unwritten Employee Plans, written descriptions
thereof; (ii) annual reports including Forms 5500 and all schedules thereto for the last three (3)
years; (iii) financial statements for the last three (3) years; (iv) actuarial reports, if
applicable, for the last three (3) years; (v) each communication (other than routine
communications) received by Seller, any of the Subsidiaries or any ERISA Affiliate from or
furnished by Seller, any of the Subsidiaries or any ERISA Affiliate to the Service, federal
Department of Labor (“DOL”), Pension Benefit Guaranty Corporation (“PBGC”) or other governmental
authorities; and (vi) if the Employee Plan is intended to be qualified under Code Section 401(a) or
403(a), the most recent determination letter received from the Service. Seller has also furnished
to Buyer a copy of the current summary plan description and each summary of material modification
prepared in the last three (3) years for each Employee Plan, and all employee manuals, handbooks,
policy statements and other written materials given to employees relating to any Employee Plans.
No material oral or written representations or commitments inconsistent with such written materials
have been made to any employee of the Subsidiaries by Seller.

          (e) Except as set forth on Schedule 3.7(e), each of the Employee Plans and all related
trusts, insurance contracts and funds have been created, maintained, funded and administered in all
material respects in compliance with all applicable laws including, without limitation, all
applicable requirements of the Code and any predecessor federal income tax laws, ERISA, the health
care continuation requirements of COBRA, the Health Insurance Portability And Accountability Act of
1996 (“HIPAA”) and any applicable collective bargaining contracts. There exists no condition or
set of circumstances with respect to an Employee Plan under which the Seller or the Subsidiaries
could, directly or indirectly, be subject to any material liability under ERISA or the Code or
other applicable law, other than liability for benefit claims and funding obligations payable in
the ordinary course. Without limiting the generality of the foregoing, Seller and the Subsidiaries
have provided all notices and other correspondence to employees and former employees required by
HIPAA and the health care continuation provisions of COBRA. Each of the Employee Plans and all
related trusts, insurance contracts and funds have also been created, maintained, funded and
administered in all material respects in compliance with applicable law, the plan document, trust
agreement, insurance policy or other writing creating the same or applicable thereto. To the
Knowledge of Seller, no Employee Plan is or is proposed to be under audit or investigation, and no
completed audit of any Employee Plan has resulted in the imposition of any tax, fine, penalty or
lien.

     3.8 Labor Relations. Except as described in Schedule 3.8 annexed hereto: (a) there is
no unfair labor practice, complaint, charge, representation proceeding or other matter against or
involving any of the Subsidiaries or their employees pending or, to the Knowledge of the Seller,
threatened before any governmental authority; (b) there is no labor strike, organizing effort,
slow down, stoppage or other material labor difficulty pending against or involving any of the
Subsidiaries or, to the Knowledge of the Seller, threatened against or affecting any of the
Subsidiaries; (c) no grievance nor any arbitration proceeding arising out of or under collective
bargaining agreements to which any of the Subsidiaries is a party is pending, and, to the
Knowledge of the Seller, no claim therefore exists; (d) there is no collective bargaining
agreement which is binding on any of the Subsidiaries; (e) all of the Subsidiaries’ employees are
employed at will; and (f) the Subsidiaries are in compliance in all material respects with all

11

 

applicable laws regarding labor, employment, pay equity, workers’ compensation, equal employment
opportunity, workplace safety and health, immigration, terms and conditions of employment, leaves
of absence, and wages and hours.

     3.9 Litigation and Other Proceedings. Except as disclosed in Schedule 3.9 annexed
hereto, none of the Subsidiaries is engaged in, a party to, subject to (nor are any of the Acquired
Assets or the Assets of the Seller used in the Business subject to) or, to the Knowledge of the
Seller, threatened with any claim, legal or equitable action, or other proceeding (whether as
plaintiff, defendant or otherwise and regardless of the forum or the nature of the opposing party)
relating to the Business.

     3.10 Compliance with Laws.

          (a) Generally. Except as set forth in Schedule 3.10(a) annexed hereto, (a)
each Subsidiary is conducting the Business in compliance with all applicable laws excluding,
however, any non-compliance which would not reasonably be expected to have a Material Adverse
Effect and excluding Environmental Laws, as to which the Subsidiary’s sole representations and
warranties are set forth in Section 3.10(c).

          (b) Permits. Except as set forth in Schedule 3.10(b) annexed hereto and except
with regard to Environmental Permits as to which each Subsidiary’s sole representations and
warranties are set forth in Section 3.10(c), to the Knowledge of Seller, each Subsidiary holds all
permits and franchises necessary to operate the Business as currently operated, except where the
failure to obtain a permit would not reasonably be expected to have a Material Adverse
Effect and excluding permits under Environmental Laws, as to which the Subsidiary’s sole
representations and warranties are as set forth in Section 3.10(c).

          (c) Environmental.

          (i) Except as set forth on Schedule 3.10(c) annexed hereto, no person or party
(including, but not limited to, any governmental or regulatory authority) has asserted any
pending claim against any of the Subsidiaries relating to any Environmental Law (defined
below) with respect to the Business. No Subsidiary has received oral or written notice of
any existing or pending violation, citation, claim, order, direction, instruction or
complaint relating to the Business, or any facility now or previously owned or operated by
the Subsidiary in connection therewith, arising under the Resource Conservation and
Recovery Act, the Comprehensive Environmental Response Compensation and Liability Act, the
Superfund Amendments and Reauthorization Act, the Toxic Substances Control Act, the Safe
Drinking Water Act, the Federal Water Pollution Control Act (Clean Water Act), the Clean
Air Act, the National Environmental Policy Act (Environmental Impact Statement), and
antipollution, waste control and disposal and environmental “cleanup” provisions of similar
statutes of any governmental authority, and all regulations and standards enacted pursuant
thereto and all permits and authorizations issued in connection therewith (collectively,
“Environmental Laws”).

          (ii) To the Knowledge of Seller, except as disclosed on Schedule 3.10(c)
annexed hereto, such Subsidiary’s operation of the Business is in compliance with all
applicable Environmental Laws.

          (iii) To the Knowledge of Seller, except as disclosed on Schedule 3.10(c)
annexed hereto, such Subsidiary currently holds all required permits, approvals or
other authorizations required under or issued pursuant to any Environmental Law with
respect to the

12

 

Business, except for such environmental permits, the absence of which would not,
individually or in the aggregate, reasonably be expected to have a Material Adverse
Effect.

          (iv) To the Knowledge of Seller, there are no Environmental Conditions that could
reasonably be expected to result in a Material Adverse Effect to Buyer. The term
“Environmental Condition” means (x) the presence in surface water, groundwater, drinking
water supply, land surface, subsurface strata, above-ground or underground storage tanks or
other containers, or ambient air of any pollutant, contaminant, industrial waste, hazardous
waste, polychlorinated biphenyls, radioactive materials, toxic or hazardous substances
(“Hazardous Substances”) or (y) any violation of any statue, ordinance, regulation,
administrative order, judicial order or decree or other governmental requirement relating
to the emission, discharge, deposit, disposal, leaching, migration or release of any
Hazardous Substance into the environment or the generation, treatment, storage,
transportation or disposal of any Hazardous Substance (i) arising out of or otherwise
related to the operations or other activities (including the disposition of such materials
or substances) of the Subsidiaries, or of any predecessor in title, interest or line of
business to Seller, conducted or undertaken prior to the Closing or (ii) existing at or
prior to the Closing at any of the Properties or any property previously owned, leased,
occupied, used or foreclosed upon.

          (v) To the Knowledge of Seller, no ozone depleting substances (“ODS”),
polychlorinated biphenyls (“PCBs”), asbestos containing material (“ACM”),
or urea formaldehyde insulation (“UFI”) is present on or at the Properties, or any
prior property that could reasonably be expected to result in a Material Adverse Effect on
the Subsidiaries and the Subsidiaries have complied in all material respects with all
regulatory requirements relating to the storage, removal, disposal or release, if any, of
ODS, ACM, PCB, or UFIs which currently are or any in the past have been located on or at
the Properties and any prior property.

          (vi) To the Knowledge of Seller, Seller and the Subsidiaries have complied in all
material respects with all applicable provisions of any environmental laws that condition,
restrict or prohibit the transfer, sale, lease or closure of any property for environmental
reasons and no environmental lien has attached to any portion of the Subsidiaries or the
Properties.

     3.11 Bank Accounts. Schedule 3.11 lists all bank, money market, savings and
similar accounts and safe deposit boxes of the Subsidiaries, specifying the account numbers and the
authorized signatories or persons having access to them.

     3.12 Brokers and Commissions. Except as disclosed in Schedule 3.12 annexed hereto,
no person, firm or corporation has asserted or is entitled to any commission or broker’s or
finder’s fee in connection with the other transactions contemplated by this Agreement.

     3.13 Related Party Transactions. Except as set forth on Schedule 3.13, (i) there is
no indebtedness between Seller or any of the Subsidiaries, on the one hand, and any employee,
officer, director, shareholder, member or affiliate of any of the Subsidiaries, on the other hand;
(ii) no such employee, officer, director, shareholder, member or affiliate provides or causes to be
provided any assets, services (other than services as an officer, director or employee) or
facilities to any of the Subsidiaries; (iii) none of the Subsidiaries provides or causes to be
provided any assets, services or facilities to any such employee, officer, director, shareholder,
member or affiliate; and (iv) to the Knowledge of Seller, no such employee, officer, director,
shareholder, member or affiliate has any direct or indirect ownership interest in any person with
which any of the Subsidiaries competes or has a business relationship. The transactions
contemplated by this Agreement will not (either alone, or upon the occurrence of any act or event,
lapse of time or the giving of notice or failure to cure) result in any payment (severance or

13

 

otherwise) becoming due from Seller or any of the Subsidiaries to any such employee, officer,
director, shareholder, member or affiliate, except as contemplated herein.

     3.14 Accounting Controls. Seller and the Subsidiaries have devised and maintained
systems of internal accounting controls sufficient to provide reasonable assurances that (i)
all material transactions are executed in accordance with management’s general or specific
authorization and (ii) all material transactions are recorded as necessary to permit the
preparation of financial statements in conformity with GAAP, and to maintain proper accountability
for items. Seller’s internal control over financial reporting is designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate. Management’s report
on internal control over financial reporting as of December 31, 2005 is included in Seller’s 2005
Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 23, 2006.
That report states that based upon management’s assessment, Seller maintained, in all material
respects, effective internal control over financial reporting (as defined in the Securities
Exchange Act of 1934, Rules 13a-15(f) and 15d-15(f)) as of December 31, 2005, based on criteria in
Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). Management’s assessment of the effectiveness of Seller’s internal
control over financial reporting as of December 31, 2005 was audited by Ernst & Young LLP as stated
in their report included in Seller’s 2005 Annual Report on Form 10-K filed with the Securities and
Exchange Commission. Subsidiaries’ internal control over financial reporting was included (to the
extent applicable to Seller taken as a whole) in the scope of management’s assessment as of
December 31, 2005. Seller did not identify any material weaknesses in Seller’s internal control
over financial reporting as of December 31, 2005. Management has not completed an assessment of its
internal control over financial reporting as of any period subsequent to the assessment included in
Seller’s 2005 Annual Report on Form 10-K. Seller’s chief executive officer and chief financial
officer executed the certifications required by Sections 302 and 906 of the Sarbanes-Oxley Act of
2002 as of December 31, 2005. These certifications are included in Seller’s 2005 Annual Report on
Form 10-K. As of December 31, 2005, there were no significant deficiencies or material weaknesses
in the design or operation of internal control over financial reporting related to the Subsidiaries
based on management’s assessment as of December 31, 2005 which was completed based on the
consolidated results of operations and financial position of Seller. In addition, as of December
31, 2005, there was no fraud that involved management or other employees who have a significant
role in Seller’s internal control over financial reporting related to the Subsidiaries.

     3.15 Receivables. All existing accounts receivable of each of the Subsidiaries with
respect to the Business and as reflected on the Financial Statements or in the accounting records
of the Subsidiaries as of the Closing Date, (i) represent valid obligations of customers of the
Subsidiaries arising from bona fide transactions entered into in the ordinary course of business
and (ii) are collectible, net of reserves therein reflected, in the ordinary course of business and
without any defenses, counterclaims or setoffs.

     3.16 Inventory. The inventories of the Subsidiaries set forth in the Financial
Statements are properly stated therein at the lower of cost or fair market value determined in
accordance with GAAP consistently applied. The inventories consist of a quality and quantity usable
and saleable in the ordinary course of business, except for obsolete items and items of
below-standard quality, all of which have been written off or written down to net realizable value,
or for which adequate reserves have been provided, in the Financial Statements or on the accounting
records of the Subsidiaries as of the Closing Date, as the case may be, in accordance with past
practices. The quantities of each item of inventory (whether raw

14

 

materials, work-in-process, or finished goods) are not excessive, but are reasonable in the
present circumstances of the Subsidiaries in accordance with past practices. All such inventories
are owned by the Subsidiaries free and clear of any encumbrances, other than Permitted
Encumbrances.

     3.17 Customers. Schedule 3.17 contains a list, as of the date hereof, of the ten
(10) largest customers of each of the Subsidiaries (the “Material Customers”) based on the gross
revenues of each of the Subsidiaries for both the fiscal year ended on December 30, 2005 and the
six (6) month period ended on July 2, 2006 for each such Material Customer during such periods.
Except as set forth in Schedule 3.17, there has not, to the Knowledge of the Seller, been any
material change in the Subsidiaries’ relationships with any of the Material Customers and the
Subsidiaries have not in the past twelve (12) months received notice from any Material Customer
that said customer intends to terminate or materially change its business relationship with the
Subsidiaries.

     3.18 No Other Representations. Except as set forth in this Agreement, the Schedules
hereto and any document delivered pursuant hereto, Seller does not make any other representation or
warranty whatsoever to Buyer.

ARTICLE 4

REPRESENTATIONS AND WARRANTIES OF BUYER 

     Buyer hereby
represents and warrants to the Seller as follows:

     4.1 Status of Buyer.

          (a) Organization. Buyer is a duly organized corporation, entitled to conduct
business and validly existing in good standing under the laws of the state of Pennsylvania.

          (b) Authorization.

          (i) Buyer has the right, power and authority to enter into this Agreement and each
Other Agreement and to consummate the transactions contemplated by, and otherwise to comply
with and perform its obligations under, this Agreement and the Other Agreements;

          (ii) The execution and delivery by Buyer of this Agreement and the Other Agreements,
and the consummation by Buyer of other transactions contemplated by, and other compliance
with and performance of its obligations under, this Agreement and the Other Agreements have
been duly authorized by all necessary corporate action on the part of Buyer in compliance
with its governing documents and applicable law; and

          (iii) This Agreement and the Other Agreements to which it is a party constitute the
valid and binding agreements of Buyer that are enforceable against Buyer in accordance with
their respective terms, except to the extent that such enforceability may be limited by (A)
the effect of any applicable bankruptcy, insolvency, reorganization, moratorium,
rehabilitation or similar laws relating to the enforcement of creditors’ rights generally,
(B) the availability of the remedies of specific performance or injunctive relief which may
be subject to the discretion of the court before which any proceeding for such remedies may
be brought, or (C) the exercise by any court of its discretion in invoking general
principles of equity.

          (c) Absence of Violations or Conflicts. Except as disclosed in Schedule 4.1(c)
annexed hereto, the execution and delivery by Buyer of this Agreement and the Other Agreements
and

15

 

the consummation by Buyer of the transactions contemplated by, or other compliance with or
performance under, this Agreement and the Other Agreements, do not and will not with the passage of
time or giving of notice or both, constitute a violation of, be in conflict with, constitute a
default or require any payment under, permit a termination of, require any consent under, or result
in the creation or imposition of any lien, encumbrance or other adverse claim or interest upon any
properties of Buyer under (i) any contract, agreement, commitment, undertaking or understanding to
which Buyer is a party or to which it or any of its assets or properties are subject or bound, (ii)
any judgment, decree or order of any governmental or regulatory authority to which Buyer or any of
its properties are subject or bound, (iii) to the knowledge of Buyer, any applicable law, or (iv)
any governing documents of Buyer.

          (d) No Governmental Consents Required. Except as required by the HSR Act (as defined
in Section 5.5) and as set forth in Schedule 4. l(d) annexed hereto, no consent, approval,
order or authorization of, or registration, declaration or filing with, any governmental or
regulatory authority on the part of Buyer is required in connection with its execution or delivery
of this Agreement or the Other Agreements or the consummation of the transactions contemplated by,
or other compliance with or performance under, this Agreement or such Other Agreements by Buyer.

     4.2 Brokers and Commissions. Except as set forth in Schedule 4.2 annexed hereto, no
person, firm or corporation has asserted or is entitled to any commission or broker’s or finder’s
fee in connection with the transactions contemplated by this Agreement by reason of any act or
omission of Buyer.

     4.3 Available Funds. As of the Closing, Buyer will have sufficient funds available to
satisfy the obligation of Buyer to pay the Purchase Price and to pay all fees and expenses of Buyer
related to the transactions contemplated by this Agreement.

     4.4 Solvency. Buyer is not insolvent and will not be rendered insolvent as a result
of any of the transactions contemplated by this Agreement. For purposes hereof, the term “solvency”
means that (i) the fair salable value of Buyer’s assets is in excess of the total amount of its
liabilities (including, for purposes hereof, all liabilities, whether or not reflected on a balance
sheet prepared in accordance with generally accepted accounting principles and whether direct or
indirect, fixed or contingent, secured or unsecured or disputed or undisputed), (ii) Buyer is able
to pay its debts or obligations in the ordinary course as they mature and (iii) Buyer has capital
sufficient to carry on its business and all businesses which it is about to engage.

ARTICLE 5 

COVENANTS OF THE SELLER

     5.1 Conduct of Business by the Subsidiaries. From the date hereof to the Closing
Date, except for transactions that are expressly approved in writing by Buyer, Seller shall not
and shall cause each Subsidiary to refrain from:

          (a) subjecting any Acquired Assets, tangible or intangible, to any lien, encumbrance, security
interest or other claim of any kind, exclusive of liens arising as a matter of law in the ordinary
course of business as to which there is no known default and except for Permitted Encumbrances;

          (b) except for sales in the ordinary course of business or consistent with past practices,
selling, assigning, transferring or otherwise disposing of any Subsidiary’s assets or properties;

16

 

          (c) modifying, amending, altering or terminating (whether by written or oral agreement, or
any manner of action or inaction) any of the Debt Instruments, Leases, Intellectual Property
Licenses, Employee Plans, Contracts or Insurance Policies, or entering into any such
arrangement which is outside of the ordinary course of business or which involves the payment or
receipt by the Subsidiary of an amount in excess of Fifty Thousand Dollars ($50,000.00);

          (d) taking or permitting any other action that, if taken or permitted immediately prior to the
execution of this Agreement, would constitute a breach of or an exception to the representations
and warranties in Section 3.1(d) hereof;

          (e) issue, sell or otherwise permit to become outstanding, or authorize the creation of, any
additional shares of capital stock or any rights with respect to the Shares, (ii) permit any shares
of capital stock of the Subsidiaries to become subject to stock options or other rights or similar
stock-based employee rights, (iii) repurchase, redeem or otherwise acquire, directly or indirectly,
any shares of the Subsidiaries capital stock, or (iv) effect any recapitalization,
reclassification, stock split or like change in capitalization;

          (f) make, declare, pay or set aside for payment any non-cash dividend on or in respect of, or
declare or make any non-cash distribution on any shares of the capital stock of the Subsidiaries or
split, combine, redeem, reclassify, purchase or otherwise acquire, any shares of its capital stock;

          (g) enter into, amend, modify, renew or terminate any material employment, consulting,
severance or similar contracts, with any directors, officers, employees of, or independent
contractors of the Subsidiaries, grant any salary, wage or other increase or increase any employee
benefit (including incentive or bonus payments) or take any action that would entitle any employee
to receive severance pay prior to the Closing Date, except for normal general increases in salary
to individual employees in the ordinary course of business consistent with past practice;

          (h) enter into, establish, adopt, amend, modify or terminate any Employee Plan or other
pension, retirement, stock option, stock purchase, savings, profit sharing, employee stock
ownership, deferred compensation, consulting, bonus, group insurance or other employee benefit,
incentive or welfare Contract, plan or arrangement, any trust agreement (or similar arrangement)
related thereto, except for administrative amendments adopted in the ordinary course of business,
in each case in respect of any current or former directors, officers, employees, former employees
of, or independent contractors with respect to the Subsidiaries;

          (i) amend the articles of incorporation or bylaws (or similar governing document) of the
Subsidiaries;

          (j) make, change or revoke any tax election or make any agreement or settlement with any
taxing authority or fail to pay any material tax or any other liability or charge when due, other
than charges contested in good faith by appropriate proceedings;

          (k) make any individual capital expenditure in excess of $50,000.00 or capital expenditures
in the aggregate in excess of $250,000.00, except for actions relating to purchase of a grinding
machine to replace the machine damaged in a fire at Manchester Tool;

          (1) take any action which could reasonably be expected to have a Material Adverse Effect on
the corporate existence, rights and franchises of the Subsidiaries; or

17

 

          (m) agree, whether in writing or otherwise, to do any of the foregoing.

     5.2 Affirmative Covenants Relating to the Subsidiaries. From the date hereof to the
Closing Date, Seller shall use its reasonable best efforts to cause each Subsidiary to:

          (a) maintain property and liability insurance in amounts and with coverage at least as great
as the amounts and coverage in effect on the date of this Agreement;

          (b) maintain, consistent with past practice, its properties in good repair, order and
condition, reasonable wear and tear excepted, and preserve its possession and control of all of its
assets and properties;

          (c) keep in faithful service its key officers and professional staff to preserve the goodwill
of those having business relations with the Subsidiary;

          (d) maintain the books, accounts and records of such Subsidiary in a manner consistent with
past practice and not implement or adopt any change in the accounting principles, practices or
methods used, other than as may be required by GAAP;

          (e) comply with all applicable law relating to the conduct of the Business, and conduct the
Business obligations in such a manner so that on the Closing Date the representations and
warranties contained in this Agreement shall be true as though such representations and warranties
were made on and as of such date, except for changes permitted or contemplated by the terms of this
Agreement;

          (f) provide Buyer with prompt written notice of any event, occurrence or
circumstance which could reasonably be expected to have a Material Adverse Effect; and

          (g) operate the Business only in the ordinary course so as to preserve its business
organization intact, including the goodwill of its suppliers, customers and others having business
relations with each such Subsidiary.

     5.3 Access Before Closing. From the date of this Agreement until the Closing Date,
Seller will cause each Subsidiary to permit Buyer and its representatives reasonable access on
reasonable notice during normal business hours to the properties, personal property, personnel,
books and records, contracts, and commitments of the Business, including the right to make copies
of such books and records, contracts, and commitments. In the event that any record or other
information requested by Buyer is subject to a confidentiality agreement with a third party,
attorney-client privilege, or other legal restriction or privilege, the Subsidiary and Buyer will
endeavor to find means of disclosing as much information as practicable that is needed by Buyer to
prepare for the transfer of the Business, but the Subsidiary will not be obligated to breach such
restriction or privilege. Buyer shall return all copies of such books and records, contracts, and
commitments promptly upon the request of the Seller if for any reason the Closing does not occur.
All requests for access to information, properties, personnel or documents pursuant to this Section
5.3 shall be directed to an executive officer or officers of the Subsidiary designated by the
Seller.

     5.4 Public Disclosure. Each of the Parties agrees that it will not, without the prior
approval of the other Party, issue any press release or written statement for general circulation
relating to the transactions contemplated hereby, except for any release or statement that is
required by law or regulation (including the rules of any self-regulatory organization) and as to
which the disclosing Party has used commercially reasonable efforts to discuss with the other Party
in advance, provided that such

18

 

release or statement has not been caused by, or is not the result of, a previous disclosure by or
at the direction of the disclosing Party or any of its representatives that was not permitted by
this Agreement. Notwithstanding the foregoing, each of the Parties may make internal statements
and announcements to their respective employees that are consistent with prior public disclosures
made by the Parties with respect to the transactions contemplated hereunder.

     5.5 Monthly and Quarterly Financial Statements. Seller shall promptly provide Buyer
with copies of unaudited (i) monthly income statements, which present the Business in a form
similar to the Financial Statements, and (ii) unaudited quarterly financial statements, in each
case for each such period after July 2, 2006 through the Closing Date on an unconsolidated basis.
Except for the absence of note disclosures and typical year end adjustments and accruals, such
unaudited quarterly financial statements shall present fairly the financial condition of the
Subsidiaries as of such dates and the results of operations of the Subsidiaries for the period then
ended.

     5.6 Termination of Related Party Transactions. Seller shall and Seller shall cause
the Subsidiaries to terminate all related party transactions prior to the Closing, except for the
related party transactions (i) set forth by Buyer on Schedule 5.6 and/or (ii) arising in the
ordinary course of business as a result of the purchase and sale of goods and services on an
arms-length basis or consistent with past practice.

     5.7 Bank Accounts. Prior to the Closing Date, Seller shall, and shall cause the
Subsidiaries to, change effective as of the Closing, the individuals authorized to draw on, or
having access to, the bank, savings, deposit or custodial accounts and safe deposit boxes
maintained by the Subsidiaries to the individuals designated in writing by the Buyer not less than
three (3) business days prior to the Closing Date.

     5.8 Resignations. Seller shall cause the directors and such executive officers of
the Subsidiaries as the Buyer shall request in writing not less then ten (10) business days prior
to the Closing Date to resign in such person’s capacity as a director or an officer, effective as
of the Closing. In connection with any such resignation, Seller shall cause such directors or
executive officers to duly execute and deliver to the Buyer such executive officer’s or director’s
resignation, in a form reasonably acceptable to the Buyer, and a release, in a form reasonably
acceptable to the Buyer, with respect to any claims such directors or executive officers may have
against the Subsidiaries.

     5.9 Real Estate. Seller shall cooperate with Buyer in obtaining title commitments,
title policies and surveys with respect to the Properties. Seller shall, or shall cause the
Subsidiaries to, execute any reasonable documents necessary to procure such title commitments and
title policies, including, without limitation ALTA statements, GAP affidavits, survey affidavits
and any other document reasonably necessary for the title insurer under such commitments and
policies to issue such title commitments and title policies satisfactory to Buyer showing good and
marketable fee simple title not subject to liens, claims and encumbrances not previously disclosed
in the Financial Statements and to ensure that title in the Properties is vested in the
Subsidiaries. All fees, costs and other amounts in obtaining the title commitments and title
policies shall be incurred and borne by the Buyer.

     5.10 Consents and Closing Conditions. Seller will and will cause each Subsidiary to
cooperate with Buyer: (a) to obtain such consents, approvals, authorizations and waivers from third
parties and to take other actions as may be required in order to fulfill the closing conditions
which are within its control; and (b) to cause the representations and warranties of the Subsidiary
in Article 3 to be true and correct on and as of the Closing Date.

19

 

     5.11 Hart-Scott-Rodino Act Notification. The Seller shall file with the Federal
Trade Commission and the Antitrust Division of the Department of Justice (collectively, the
“Antitrust Authorities”) the Notification and Report Form required by The
Hart-Scott-Rodino Antitrust Improvements Act of 1976 and regulations promulgated pursuant thereto
(the “HSR Act”), and otherwise shall comply with the requirements of the HSR Act applicable to it.
The Seller shall furnish to Buyer such information as Buyer shall reasonably request in connection
with its Notification and Report Form. Seller and Buyer shall share the applicable filing fee under
the HSR Act equally.

     5.12 No Negotiation. From and after the date hereof and until the termination of
this Agreement, and provided that Buyer shall not have breached any of its obligations hereunder,
Seller will not, and Seller will cause the Subsidiaries and its officers, employees and agents not
to initiate, solicit or encourage, directly or indirectly, any inquiries or the making of any
proposal with respect to, or engage in any negotiations concerning, provide any confidential
information or data to, have any discussions with or enter into any agreements with or cooperate
with, or take any action to knowingly facilitate or enter into any merger, acquisition, option,
joint venture, partnership or similar agreements with, any person relating directly or indirectly
to any acquisition, business combination, reorganization or purchase of all or any portion of the
capital stock or assets of the Subsidiaries, other than the sale of assets in the ordinary course
of business. Following the execution of this Agreement, Seller will, and Seller will cause the
Subsidiaries to, promptly cease and cause to be terminated any existing activities, discussions or
negotiations with any parties conducted heretofore with respect to any such potential transactions
involving the Subsidiaries.

     5.13 Cooperation. The Seller shall provide Buyer all information or assistance
reasonably requested by Buyer to bring about the consummation of the transactions contemplated by
this Agreement. The Seller shall cooperate with Buyer and shall use commercially reasonable efforts
to assist Buyer in obtaining all consents or approvals required for consummation of the
transactions contemplated by this Agreement.

     5.14 Environmental. Seller will complete and deliver to Buyer a Phase II
environmental assessment for the Manchester Tool location.

     5.15 Intellectual Property. With respect to any Intellectual Property not
identified in Schedule 3.5 which is determined after Closing to be owned by Seller and used
primarily in the Business, Seller shall transfer ownership of such Intellectual Property to the
Buyer or the Subsidiary, as appropriate, promptly and without charge. With respect to any
Intellectual Property not identified on Schedule 3.5 which is determined after Closing to be
licensed to Seller, and used primarily in the Business, Seller, shall sublicense or arrange for an
assignment of the primary license to the Buyer or the Subsidiary, as appropriate, without charge.

ARTICLE 6

COVENANTS OF BUYER

     6.1 Consents and Closing Conditions. Buyer shall use commercially reasonable efforts
to obtain such consents, approvals, authorizations and waivers from third parties and to take other
actions as may be required in order to fulfill the closing conditions which are within its control.

     6.2 Obligations Concerning Employees.

          (a) Employment of all persons employed by the Subsidiaries as of the Closing Date
(“Hired Employees”), including employees who are not actively at work on account of any illness or

20

 

injury (“Disability”) of less than six (6) months duration as of the Closing Date
(“Short Term Disability”), but excluding all persons who were formerly employed by the
Subsidiaries or predecessors thereof, including, without limitation, those who are, as of the
Closing Date, (A) retired or (B) not actively at work due to any Disability of six (6) months or
longer duration as of the Closing Date (“Long Term Disability”), shall not be deemed
terminated or interrupted by reason of the transactions contemplated in this Agreement. Such
employees shall be eligible to participate in the employee benefit plans and programs of Buyer in
accordance with, and subject to, the terms of each such employee benefit plan or program. Nothing
in this Agreement shall require Buyer to, or require Buyer to cause the Subsidiaries to, establish,
maintain, operate or administer any employee benefit plan or program not in effect as of the date
of this Agreement.

          (b) All Hired Employees for whom Buyer shall offer employee benefit plans and programs
pursuant to Section 6.2(a) will cease participation, in, and shall cease to be covered by, all
employee benefits plans and programs of Seller as of the Closing Date, provided that, with respect
to any benefits accrued or payable as of the Closing Date under any employee benefit plans or
programs of the Subsidiaries or Seller, such employees shall continue to be entitled to such
benefits after the Closing Date payable by Seller or any Employee Plan.

          (c) With respect to Hired Employees, Buyer shall recognize service with the Subsidiaries and
predecessors thereof, for purposes of determining (i) eligibility for vacation benefits, short term
disability or weekly accident and sickness benefits, severance benefits, service recognition and
other similar programs and (ii) eligibility and vesting under all other employee benefit plans and
programs of Buyer applicable to such employees, to the extent such service was recognized by Seller
or the Subsidiaries for such purposes; provided, that Buyer shall not be obligated to give credit
for such service to the extent it would result in duplication of any benefits to which such an
employee is entitled to or had previously received under any comparable employee benefit plans or
programs maintained by Seller or the Subsidiaries.

          (d) Nothing in this Agreement shall require the Buyer or the Subsidiaries to retain any Hired
Employees for any period of time after the Closing Date and, subject to requirements of applicable
law, Buyer reserves the right, at any time after the Closing Date, to terminate such employment
and, except as expressly stated in this Agreement, to amend, modify or terminate any term and
condition of employment including, without limitation, any employee benefit plan, program, policy,
practice or arrangement or the compensation or working conditions of Hired Employees.

     6.3 Flexible Spending Accounts. As soon as possible following the Closing Date, the
Seller shall transfer to Buyer, and Buyer agrees to accept, those amounts which represent the Hired
Employees’ balances under any flexible spending accounts maintained by Seller or any Subsidiary
(the “FSAs”). Buyer agrees to administer the FSAs (consistent with the terms of the flexible
spending account program applicable to Buyer’s employees) such that the Hired Employees will be
able to contribute additional before-tax compensation (in accordance with the terms of the
applicable Buyer Plan) and to submit claims against their respective FSA within the time period
permitted by applicable law.

     6.4 WARN Act Liability. Buyer acknowledges and agrees that as of the Closing Date,
Buyer is considered for purposes of the Worker Adjustment and Retraining Notification Act (“WARN
Act”) the employer of the Hired Employees and that Buyer, and not the Seller, shall thereupon be
responsible for complying with the WARN Act with respect to the Hired Employees. Prior to and on
the Closing Date, none of the Hired Employees shall be, nor shall they be deemed to be, terminated.
Buyer shall indemnify and hold the Seller harmless from and against all losses incurred, paid or
required under penalty of law to be paid by Seller: (a) resulting from any compliance obligations,
including without limitation the obligation to give notice or pay money under the WARN Act with
respect to the

21

 

termination of any Hired Employee as of the Closing Date, or (b) resulting from any claims
from the Hired Employees, including without limitation claims for cash payments or the
continuation of health care or other benefits.

     6.5 Health Care Continuation Coverage. Buyer acknowledges that, as a result of the
transactions contemplated by this Agreement, the Hired Employees will not be deemed to have a
termination of employment for purposes of Section 601 et seq. of the Employee Retirement Income
Security Act of 1974, as amended (“COBRA”). Nevertheless, any COBRA notices or coverages required
to be given or made available to any Hired Employees as a result of the transactions contemplated
by this Agreement shall be given or made exclusively by Buyer. Buyer shall indemnify and hold the
Seller harmless from and against all losses incurred, paid or required under penalty of law to be
paid by the Seller: (a) resulting from any COBRA compliance obligation as a result of the
transactions contemplated by this Agreement that arise with respect to the Hired Employees, or (b)
resulting from any claims made by Hired Employees, including without limitation claims for health
care or other benefit coverage, as a result of the transactions contemplated by this Agreement.
Buyer shall be responsible for compliance with all requirements under Section 4980B of the Code and
Section 601 et seq. of ERISA with respect to any (i) Hired Employee or (ii) family member of such
Hired Employee, in each case who becomes a qualified beneficiary within the meaning of Section
4980B(g)(1) of the Code as a result of the transactions contemplated by this Agreement or as a
result of any “qualifying event” within the meaning of Section 4980B(f)(3) of the Code which occurs
on or after the Closing Date. Sellers shall be responsible for any COBRA compliance obligations
under Section 4980B of the Code and Section 601 et seq. of ERISA with respect to individuals who
are not Hired Employees or family members of Hired Employees, and with respect to qualifying events
that occurred before the Closing Date.

     6.6 Employment Taxes. Buyer acknowledges and agrees that, for FICA and FUTA tax
purposes, Buyer qualifies as a successor employer with respect to the Hired Employees. In
connection with the foregoing, the parties agree to follow the “Alternative Procedures” set forth
in Section 5 of Revenue Procedure 96-60, 1996-2-C.B.399. In connection with the application of
the “Alternative Procedures,” (a) the Seller, on the one hand, and Buyer, on the other, shall
report on a predecessor- successor basis as set forth in such Revenue Procedure, (b) the Seller
shall be relieved from furnishing Forms W-2 to the Hired Employees, and (c) Buyer shall assume the
obligations of the Seller to furnish such Forms W-2 to such Hired Employees for the full calendar
year in which the Closing Date occurs.

     6.7 Hart-Scott-Rodino Act Notification. Buyer shall file with the Antitrust
Authorities the Notification and Report Form required by the HSR Act, and otherwise shall comply
with the requirements of the HSR Act applicable to it. Buyer shall furnish to the Seller such
information as the Seller shall reasonably request in connection with its Notification and Report
Form. Seller and Buyer shall share the applicable filing fee under the HSR Act equally.

     6.8 Cooperation. Buyer shall provide the Seller with all information or
assistance reasonably requested by the Seller to bring about the consummation of the transactions
contemplated by this Agreement. Buyer shall cooperate with the Seller and shall use commercially
reasonable efforts to assist the Seller in obtaining all consents or approvals required for
consummation the transactions contemplated by this Agreement.

     6.9 Books and Records.

          (a) Buyer agrees that it shall preserve and keep all books and records in respect of the
Business in Buyer’s possession for a period of at least six years from the Closing Date. After
such six-year period, before Buyer shall dispose of any of such books and records, at least 90
calendar days’ prior written notice to such effect shall be given by Buyer to Seller, and Seller
shall be given an

22

 

opportunity during such 90-day period, at its cost and expense, to remove and retain all or
any part of such books and records as Seller may select. During such six-year period, duly
authorized representatives of Seller shall, upon reasonable notice, have access thereto during
normal business hours to examine, inspect and copy such books and records.

          (b) If, in order to properly prepare documents required to be filed with governmental
authorities or its financial statements or required under any applicable law, it is necessary that
either party hereto (or any of their respective affiliates) or any successors be furnished with
additional information relating to the Subsidiaries and such information is in the possession of
the other party hereto or any of its affiliates, such party agrees to use its best efforts to
furnish such information to such other party as soon as reasonably practicable, at the cost and
expense of the party being furnished such information.

ARTICLE 7

TAX MATTERS

     7.1 Payment of Taxes.

          (a) Seller shall prepare, or cause to be prepared, and file, or cause to be filed, all Tax
Returns of, or which include, the Subsidiaries for all tax periods ending on or prior to the
Closing Date (a “Pre-Closing Period”); provided, that such Tax Returns shall be
prepared consistent with Seller’s prior year tax accounting methods, and, with respect to such Tax
Returns, the Seller shall be liable for and pay when due all Taxes due with respect to the
Subsidiaries, or as to which the Subsidiaries are otherwise liable, for the Pre-Closing Period.
Buyer and its representatives shall be permitted to review during normal business hours as they
shall reasonably request the books, records and working papers of Seller relating to such Tax
Returns not less than thirty (30) days prior to the required filing date of such Tax Returns, and
the Parties shall cooperate fully with each other in a timely manner to resolve any disagreements
with respect to the preparation of such Tax Returns. Buyer shall prepare, or cause to be prepared,
and file, or cause to be filed, all Tax Returns of, or which include, the Subsidiaries for all
taxable periods ending after the Closing Date, and shall pay all Taxes with respect thereto (except
as otherwise provided in the second sentence of paragraph (b) below), for all taxable periods
ending after the Closing Date.

          (b) For purposes of this Agreement, if, for any federal, state, local or foreign Tax purpose,
a taxable period of any of the Subsidiaries, does not terminate on the Closing Date, the Parties
shall, to the extent permitted by applicable law, elect with the relevant governmental authority to
treat such taxable period for all purposes as a short taxable period ending as of the close of
business on the Closing Date and such short taxable period shall be treated as a Pre-Closing Period
for purposes of this Agreement. In any case where applicable law does not permit such an election
to be made, then, for purposes of this Agreement, the taxable income of the Subsidiaries for the
entire taxable period shall be allocated between the period prior to the Closing and the remainder
of the taxable period using an interim-closing-of-the-books method, assuming that such pre-closing
taxable period ended at the close of business on the Closing Date and treating such pre-closing
taxable period as a Pre-Closing Period for purposes of this Agreement, except that exemptions,
allowances and deductions calculated on an annual basis shall be apportioned on a per diem basis.

          (c) From and after the Closing Date, each of Buyer and Seller shall cooperate fully with each
other in connection with the preparation of any Tax Return, any Tax audit, or any judicial or
administrative proceedings relating to any Tax regarding the Subsidiaries, and each will retain and
provide the other with any records or information that may be reasonably relevant to such Tax
Return,

23

 

Tax audit, proceeding or determination. The Party requesting assistance hereunder shall
reimburse the other for reasonable direct expenses incurred in providing such assistance. No Party
shall settle a Tax audit assessment or determination related to a period ending on or before the
Closing Date without the prior written consent of the other Party which shall not be unreasonably
withheld or delayed.

     7.2 Cooperation and Records Retention. From time to time, the Seller and Buyer shall
provide, and shall cause their respective accountants and other representatives to provide, to
each other on a timely basis, the information that they or their accountants or other
representatives have within their control and that may be reasonably necessary in connection with
the preparation of any Return or the examination by any taxing authority or other administrative
or judicial proceeding relating to any Return. The Seller and Buyer shall retain or cause to be
retained, until the applicable statutes of limitations (including any extensions and carryovers)
have expired, copies of all Returns for all tax periods beginning before the Closing Date,
together with supporting work schedules and other records or information that may be relevant to
such Returns.

ARTICLE 8

BUYER’S CONDITIONS TO CLOSING

     The obligations of Buyer to consummate the transactions contemplated by this Agreement shall
be subject to the fulfillment to Buyer’s reasonable satisfaction of each of the following
conditions:

     8.1 Continued Truth of Warranties. The representations and warranties of the Seller
herein contained shall be true and correct in all material respects as of the Closing Date.

     8.2 Performance of Covenants. The Seller shall have performed in all material
respects all covenants and obligations and complied with all conditions required by this Agreement
to be performed or complied with by it on or prior to the Closing Date.

     8.3 No Event Causing a Material Adverse Effect. There shall have been no event,
occurrence or circumstance from the date of this Agreement through the Closing Date that could
reasonably be expected to have a Material Adverse Effect.

     8.4 Permits and Consents. The Seller shall have secured the orders, consents,
approvals and clearances set forth in Schedules 3.1(f), 3.1(g), 3.4(b), 3.5 and 8.4.

     8.5 No Litigation. There shall not be any litigation or proceeding pending or
threatened (including, without limitation, any litigation or proceeding arising under the
antitrust, competition, trade or securities laws) to restrain or invalidate the transactions
contemplated by this Agreement.

     8.6 HSR Act. The waiting period imposed by the HSR Act (including extensions thereof,
if any) shall have expired or been terminated without any enforcement action being threatened by
either of the Antitrust Authorities.

     8.7 Authorization. All corporate action necessary to authorize the execution,
delivery and performance by the Seller of this Agreement, and the consummation of the transactions
contemplated hereby, shall have been duly and validly taken by the Seller and the Seller shall have
furnished Buyer with copies of all applicable resolutions adopted by the Board of Directors of the
Seller certified by the Secretary or Assistant Secretary of the Seller.

24

 

     8.8 Release of Guarantees. The Subsidiaries shall have been released from
all Debt Instruments including, without limitation, all guarantee obligations of indebtedness of
the Seller and its affiliates in connection with (i) that certain Amended and Restated Credit
Agreement dated as of February 3, 2006 by and among Federal Signal Corporation, the Guarantors
Party thereto, the Banks Party thereto, Harris N.A., as Agent and Lead Arranger, and National City
Bank of the Midwest, as Documentation Agent, (ii) those certain Senior Notes issued pursuant to
that certain Note Purchase Agreement dated as of June 1, 1999 ($300,000,000 Senior Notes Issuable
in Series; $50,000,000 Principal Amount due June 11, 2011), and (iii) those certain Senor Notes
issued pursuant to that certain Master Note Purchase Agreement dated as of June 1, 2003
($300,000,000 Senior Notes Issuable in Series; Initial Issuance of $50,000,000 Series 2003-A) and
the Seller shall have furnished Buyer with evidence of such release.

     8.9 Closing Documents. The Seller shall have delivered all documents required to be
delivered by it at Closing, as more specifically set forth in this Agreement, in each case in form
and substance reasonably satisfactory to Buyer.

     8.10 Key Employee Agreements. The Hired Employees listed on Schedule 10.1(b)
annexed hereto shall have executed employment agreements with Buyer in a form satisfactory to
Buyer.

ARTICLE 9 

THE SELLER’S CONDITIONS TO CLOSING

     The obligation of Seller to consummate the transactions contemplated by this Agreement shall
be subject to the fulfillment to its reasonable satisfaction of the following conditions:

     9.1 Continued Truth of Warranties. The representations and warranties of Buyer
herein contained shall be true and correct in all material respects on and as of the Closing Date.

     9.2 Performance of Covenants. Buyer shall have performed in all material respects
all covenants and obligations and complied with all conditions required by this Agreement to be
performed or complied with by it on or prior to the Closing Date.

     9.3 Permits and Consents. Buyer shall have secured the orders, consents, approvals
and clearances set forth in Schedule 9.3.

     9.4 No Litigation. There shall not be any litigation or proceeding pending or
threatened (including, without limitation, any litigation or proceeding arising under the
antitrust, competition, trade or securities laws) to restrain or invalidate the transactions
contemplated by this Agreement.

     9.5 HSR Act. The waiting period imposed by the HSR Act (including extensions thereof,
if any) shall have expired or been terminated without any enforcement action being threatened by
either of the Antitrust Authorities.

     9.6 Closing Documents. Buyer shall have delivered all documents required to be
delivered by it at Closing, as more specifically set forth in this Agreement, in each case in form
and substance satisfactory to the Seller.

25

 

ARTICLE 10

DOCUMENTS TO BE DELIVERED AT CLOSING

     10.1 Documents to be Delivered by the Seller. At the Closing, the
Seller shall:

          (a) Deliver to Buyer a certificate of incumbency and copies of the resolutions adopted by the
Board of Directors of the Seller, authorizing the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby, duly certified as of the Closing Date by the
Secretary or an Assistant Secretary of the Seller;

          (b) Deliver to Buyer a certificate of the Seller, dated as of the Closing Date, to the effect
that the representations and warranties of the Seller as contained in Article 3 of this Agreement
are true and correct as of such Closing Date, and that the covenants of the Seller as contained in
Articles 5 and 7 of this Agreement required to be performed or complied with on or prior to the
Closing Date have been so performed or complied with, including, but not limited to:

               (i) all of the Subsidiaries Debt Instruments shall have been terminated or
cancelled, the outstanding indebtedness (other than trade debt) of the Subsidiaries shall have
been repaid in full and the liens on the assets of the Subsidiaries shall have been released or
terminated, in each case in a form and substance reasonably satisfactory to Buyer; and

               (ii) each related party transaction or arrangement shall have been terminated or amended to
Buyer’s reasonable satisfaction.

          (c) Deliver to Buyer certificates of good standing or their equivalent, dated not more than
thirty (30) days prior to the Closing Date, attesting to the good standing of the Seller and each
Subsidiary as a corporation under the laws of the state of its incorporation and each other
jurisdiction listed on Schedule 3.1(b);

          (d) Deliver to Buyer copies of all consents or approvals set forth on Schedule
8.4;

          (e) Deliver to Buyer (i) the current Articles of Incorporation of each Subsidiary, certified
by the Secretary of State of the Subsidiary’s state of incorporation, and (ii) the current By-laws
(or equivalent) of each Subsidiary, certified as of the Closing Date by the Secretary or an
Assistant Secretary of the Subsidiary;

          (f) Deliver to Buyer the original corporate minute books, stock transfer books and corporate
seal of each Subsidiary;

          (g) Deliver to Buyer certificate(s) representing the Shares of Manchester Tool, Clapp Dico and
OTM with, in the case of Manchester Tool only, duly executed and valid stock powers attached in
form for transfer to Buyer and otherwise acceptable in form and substance to Buyer;

          (h) Execute and deliver to Buyer any and all instruments of sale, assignment and transfer and
other documents reasonably requested by Buyer in order to facilitate the transactions contemplated
hereby, such instruments to include, but not be limited to stock powers for the Shares;

          (i) Deliver to Buyer copies of the releases from all Debt Instruments;

26

 

          (j) Deliver to Buyer a Non-Competition/Non-Solicitation Agreement substantially in the
form of Exhibit A attached hereto; and

          (k) Deliver to Buyer an Administrative Services Agreement substantially in the form of
Exhibit B attached hereto.

     10.2 Documents to be Delivered by Buyer. At the Closing, Buyer shall:

          (a) Deliver to the Seller a certificate of incumbency and a copy of the resolutions adopted by
the Board of Directors of Buyer, authorizing the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby, duly certified as of the Closing Date by the
Secretary or an Assistant Secretary of Buyer;

          (b) Deliver to the Seller a certificate of Buyer, dated as of the Closing Date, to the effect
that the representations and warranties of Buyer as contained in Article 3 of this Agreement are
true and correct as of such Closing Date, and that the covenants of Buyer as contained in Articles
6 and 7 of this Agreement required to be performed or complied with on or prior to the Closing Date
have been so performed or complied with;

          (c) Deliver to the Seller a certificate of good standing or its equivalent dated not more than
thirty (30) days prior to the Closing Date, attesting to the good standing of Buyer as a
corporation under the laws of the Commonwealth of Pennsylvania.

          (d) Deliver to the Seller copies of all consents or approvals set forth on Schedule
9.3;

          (e) Deliver to the Seller the Purchase Price as set forth in Sections 1.2 and 1.3 of this
Agreement; and

          (f) Execute and deliver to the Seller any and all instruments of sale, assignment and transfer
and other documents reasonably requested by the Seller in order to effect the assumption of the
Assumed Liabilities by Buyer or otherwise to facilitate the transactions contemplated hereby, such
instruments to include, but not be limited to assumption agreements with respect to the liabilities
of the Seller falling within the definition of Assumed Liabilities in Section 2.1 of this
Agreement.

ARTICLE 11

TERMINATION

     11.1 Termination by Mutual Consent. This Agreement may be terminated and
the transactions contemplated herein may be abandoned at any time prior to the Closing, by the
mutual consent of Seller, on the one hand, and Buyer, on the other, by appropriate action of their
respective Boards of Directors.

     11.2 Termination by Either Buyer or Seller. This Agreement may be terminated and the
transactions contemplated herein may be abandoned at any time prior to the Closing by action of the
Board of Directors of either Buyer or Seller if (a) the transactions contemplated in this Agreement
shall not have been consummated by March 31, 2007, or (b) any court of competent jurisdiction or
other governmental entity having jurisdiction over Seller, Buyer, or the Business has issued a
final order, decree or ruling or taken any other final action restraining, enjoining, or otherwise
prohibiting or

27

 

materially restricting the consummation of the transactions contemplated in this Agreement
and such order, decree, ruling or other action shall have become final and nonappealable.

     11.3 Termination by Buyer. This Agreement may be terminated and the transactions
contemplated herein may be abandoned at any time prior to the Closing by action of the Buyer, if
Seller shall have breached any of its representations or warranties or failed to perform in any
material respect any of its covenants or agreements contained in this Agreement which breach or
failure (i) individually or in the aggregate, (A) could be reasonably be expected to have a
Material Adverse Effect, or (B) could prevent or materially delay the consummation of the
transactions contemplated in this Agreement, or (C) could materially impair the ability of
Buyer following consummation of the transactions contemplated in this Agreement to conduct
the Business in any jurisdiction where the Business is now being conducted and (ii) shall not have
been cured within fifteen (15) business days after the receipt of written notice to Seller from
Buyer of such breach or failure.

     11.4 Termination by Seller. This Agreement may be terminated and the transactions
contemplated herein may be abandoned at any time prior to the Closing by Seller, if Buyer shall
have breached any of its representations or warranties or failed to perform in any material respect
any of its covenants or agreements contained in this Agreement which breach or failure shall not
have been cured within fifteen (15) business days after the receipt of written notice by Seller to
Buyer of such breach or failure.

     11.5 Effect of Termination and Abandonment. In the event of the termination of this
Agreement pursuant to any of the provisions of this Article 11, neither Seller nor Buyer (nor any
of their respective directors and officers) shall have any liability or further obligation to the
other party to this Agreement, except that nothing herein will relieve any party from liability
for breach of any representation or warranty or any failure to perform any covenant and agreement.
The terminating party’s rights to pursue all legal remedies due to such breach or failure to
perform shall survive the termination of this Agreement unimpaired.

ARTICLE 12 

SURVIVAL; INDEMNIFICATION

     12.1 Survival.

          (a) All representations and warranties in this Agreement or in any certificate delivered
pursuant hereto shall survive the Closing Date for a period of two (2) years thereafter, except
that the representations and warranties set forth in (i) Sections 3.1 (a) (corporate existence,
status and capitalization), 3.1 (d) (subsidiaries), 3.1(e) (authority), 3.7 (employee plans),
3.13 (related party transactions) and 3.12 (broker fees) shall indefinitely survive the Closing
Date; (ii) Section 3.10(c) (environmental) shall survive the Closing Date for a period of five (5)
years thereafter and (iii) Section 3.3 (taxes) shall survive the Closing Date until the expiration
of the applicable statute of limitations.

          (b) Seller shall not be liable for any Buyer’s Loss (as defined below), as applicable,
resulting from any inaccuracy in any representation or warranty of such Party contained in this
Agreement or in any certificate delivered pursuant hereto unless written notice of entitlement to
make a claim (whether or not any monetary losses have actually been suffered) with respect to such
losses is given by Buyer on or prior to the expiration of the survival of the particular
representation or warranty at issue, as set forth in Section 12.1 (a) above.

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     12.2 Indemnification by the Seller.

          (a) The Seller will indemnify, hold harmless, defend and bear all reasonable costs of
defending Buyer and following the Closing, the Subsidiaries, together with their respective
successors and assigns (the “Buyer Indemnities”), from, against and with respect to any and
all damage, loss, deficiency, expense (including any reasonable attorney and accountant fees, legal
costs or expenses), action, suit, proceedings, demand, assessment or judgment to or against Buyer
or the Subsidiaries, including any punitive, exemplary or consequential damages but only to the
extent such punitive, exemplary or consequential damages are contained as part of an award to a
third party (collectively, “Buyer’s Loss”), as a result of, arising out of or in connection
with:

               (i) any breach or violation by Seller of any of the representations or warranties
contained in this Agreement or in any certificate required to be furnished pursuant to this
Agreement; provided, however, that the ability of the Buyer Indemnities to recover
hereunder in respect of such a breach or violation of such representations and warranties shall
not be deemed qualified by any standard of materiality;

               (ii) any breach, violation, or nonperformance by Seller of any of its covenants or agreements
contained in this Agreement;

               (iii) fees and expenses of any accountant, agent, attorney, broker, investment
banker or other advisor engaged by Seller in connection with the execution of this Agreement or
consummation of the transactions contemplated hereby;

               (iv) any liability or obligation of any nature whatsoever arising out of or
resulting from the Environmental Condition described in the Phase II environmental assessment for
the Manchester Tool location; and

               (v) all Taxes for which the Seller is liable under Section 7.1 for all Pre-Closing Periods.

          (b) Notwithstanding the above Section 12.2(a), the Seller shall not have any obligation to
indemnify the Buyer Indemnities with respect to clause (i) of Section 12.2(a) above: (A) for any
individual items where the Buyer’s Loss is less than $10,000.00, which items shall not be subject
to aggregation (except that items that present substantially the same legal and factual issues as
other pending items shall be subject to aggregation); (B) until Buyer Indemnities have suffered
Buyer’s Loss by reason of all such breaches in excess of $300,000.00 (“Seller’s Floor”) (upon such
Buyer’s Loss exceeding the Seller’s Floor, Seller shall indemnify the Buyer for the full amount of
all such Buyer’s Loss); and (C) to the extent the Buyer’s Loss by reason of all such breaches
exceeds an amount equal to ten percent (10%) of the Purchase Price set forth in Section 1.2 as
adjusted by Section 1.4 (“Seller’s Cap”) (after which point the Seller will have no obligation to
indemnify Buyer Indemnities from and against further Buyer’s Loss). Provided, however, that any
claim or portion thereof by Buyer Indemnities based upon (1) any representation or warranty (or
portion thereof) relating to Section 3.3 (taxes) and Section 12.2 (a)(v) and Sections 3.10(c)
(environmental) and 12.2(a)(iv), (2) any cases of fraud or deceit committed by Seller and (3) the
representations and warranties in Sections 3.1(a), 3.1(d), 3.1(e), 3.7, 3.12 and 3.13, shall not be
subject to any of the limitations contained in the preceding sentence of this subsection (b).

     12.3 Indemnification by Buyer.

29

 

          (a) Buyer will indemnify, hold harmless, defend and bear all costs of defending the Seller,
together with its respective successors and assigns, from, against and with respect to any and all
damage or loss, deficiency, expense (including any reasonable attorney and accountant fees, legal
costs or expenses), action, suit, proceeding, demand, assessment or judgment to or against the
Seller, including any punitive, exemplary or consequential damages but only to the extent such
punitive, exemplary or consequential damages are contained as part of an award to a third party
(collectively, the “Seller’s Loss”), arising out of or in connection with:

               (i) any liability or obligation of any nature whatsoever (whether accrued,
absolute, continent, unasserted or otherwise) arising out of or resulting from the assets,
business, activities and operations of the Subsidiaries after the Closing, except to the extent
the Seller is required to provide indemnification for such liabilities and obligations pursuant to
Section 12.2 or other than those arising out of or in connection with any breach, violation or
nonperformance covered by Section 12.2;

               (ii) any breach or violation by Buyer of any of its representations or warranties contained in
this Agreement or in any certificate required to be furnished pursuant to this Agreement; and

               (iii) any nonperformance by Buyer of any of its respective covenants or agreements
contained in this Agreement.

          (b) Notwithstanding the above Section 12.3(a), Buyer shall not have any obligation to
indemnify the Seller with respect to clause (ii) above: (A) for any individual items where the
Seller’s Loss is less than $10,000.00, which items shall not be subject to aggregation (except that
items that present substantially the same legal and factual issues as other pending items shall be
subject to aggregation); (B) until the Seller has suffered Seller’s Loss by reason of all such
breaches in excess of $300,000.00 (“Buyer’s Floor”) (upon such Seller’s Loss exceeding the
Buyer’s Floor, Buyer shall indemnify the Seller for the full amount of such Seller’s Loss); (C) to
the extent the Seller’s Loss by reason of all such breaches exceeds an amount equal to ten percent
(10%) of the Purchase Price set forth in Section 1.2 as adjusted by Section 1.4 (“Buyer’s
Cap”) (after which point Buyer will have no obligation to indemnify the Seller from, against
and with respect to further Seller’s Loss). Provided, however, that any claim or portion thereof
based upon any cases of fraud or deceit committed by Seller shall not be subject to any of the
limitations contained in the preceding sentence of this subsection (b).

     12.4 Notice of Claims.

          (a) Third Party Claims.

               (i) If any third party shall notify either Party (the “Indemnified Party”) with
respect to any matter (a “Third Party Claim”) which may give rise to a claim for
indemnification against the other Party (the “Indemnifying Party”) under this Article 12,
then the Indemnified Party shall promptly (and in any event within ten (10) business days after
receiving notice of the Third Party Claim) notify the Indemnifying Party thereof in writing;
provided, however, that failure to give such notification shall not affect the indemnification
provided hereunder except to the extent the Indemnifying Party shall have been actually and
materially prejudiced as a result of such failure.

               (ii) The Indemnifying Party will have the right at any time to assume and
thereafter conduct the defense of the Third Party Claim with counsel of his or its choice
reasonably satisfactory to the Indemnified Party; provided, however, that the Indemnifying
Party will not consent to the entry of any judgment or enter into any settlement with respect to
the Third Party Claim without the prior written consent of the Indemnified Party (not to be
withheld or delayed unreasonably) unless the judgment or proposed settlement releases the
Indemnified Party completely in connection with such

30

 

Third Party Claim and that would not otherwise adversely affect the Indemnified Party.
Notwithstanding the foregoing, the Indemnifying Party shall not be entitled to assume the defense
of any Third Party Claim (and shall be liable for the reasonable fees and expenses of counsel
incurred by the Indemnified Party in defending such Third Party Claim) if the Third Party Claim
seeks an order, injunction or other equitable relief or relief for other than money damages against
the Indemnified Party that the Indemnified Party reasonably determines, after conferring with its
outside counsel, cannot be separated from any related claim for money damages. If such equitable
relief or other relief portion of the Third Party Claim can be so separated from that for money
damages, the Indemnifying Party shall be entitled to assume the defense of the portion relating to
money damages.

               (iii) Unless and until the Indemnifying Party assumes the defense of the Third
Party Claim as provided above, however, the Indemnified Party may defend against the Third Party
Claim in any manner it reasonably may deem appropriate. Notwithstanding the above, the Indemnified
Party will not consent to the entry of any judgment or enter into any settlement with respect to
the Third Party Claim without the prior written consent of the Indemnifying Party (not to be
withheld or delayed unreasonably).

               (iv) The Party defending a Third Party Claim shall conduct the defense actively
and diligently, and all Parties shall cooperate in the defense of such claim. Such cooperation
shall include the provision and access to the defending Party of documents, information, books and
records reasonably requested by the defending Party and material to such claim, and making
available employees as may be reasonably requested by the Party defending such claim and as shall
be reasonably required in connection with the defense of such claim and litigation resulting
therefrom.

          (b) Other Claims. In the event any Indemnified Party should have a claim against any
Indemnifying Party that does not involve a Third Party Claim being asserted against or sought to
be collected from such Indemnified Party, the Indemnified Party shall deliver notice of such claim
with reasonable promptness and detailing the basis for such claim or claims to the Indemnifying
Party. As long as the notice is provided within the relevant survival period, if any, set forth in
Section 12.l(a) above, the failure by any Indemnified Party so to notify the Indemnifying Party
shall not relieve the Indemnifying Party from any liability that it may have to such Indemnified
Party, except to the extent that the Indemnifying Party shall have been actually and materially
prejudiced as a result of such failure. The Indemnifying Party shall notify the Indemnified Party
within ten (10) business days following its receipt of such notice if the Indemnifying Party
disputes its liability to the Indemnified Party, provided that the failure by any Indemnifying
Party so to timely notify the Indemnified Party shall not affect any defense the Indemnifying
Party may have to such Indemnified Party, except to the extent that the Indemnified Party shall
have been actually and materially prejudiced as a result of such failure.

     12.5 Exclusive Remedy. The Buyer, the Seller and, following the Closing, the
Subsidiaries, acknowledge and agree that the foregoing indemnification provisions in this Article
12 shall be the exclusive remedy of the Buyer, Seller and Subsidiaries with respect to the
transactions contemplated by this Agreement. Without limiting the generality of the foregoing, the
Buyer, Seller and the Subsidiaries hereby waive any statutory, equitable or common law rights or
remedies, other than under the foregoing indemnification provisions of this Article 12, relating
to any environmental matters arising under any Environmental Law.

31

 

ARTICLE 13

MISCELLANEOUS

     13.1 Notices, Any notices or other communications required or permitted hereunder
(including, by way of illustration and not limitation, any notice permitted or required under
Article 12 hereof) to any party hereto shall be sufficiently given when delivered in person, or
when sent by certified or registered mail, postage prepaid, or one business day after dispatch of
such notice with an overnight delivery service, or when transmitted by facsimile or other form of
electronic communication if an answer back is received by the sender, in each case addressed as
follows:

     In the case of Buyer, care of:

Kennametal Inc.

1600 Technology Way

Latrobe, PA 15650

Attn: Vice President and General Counsel

Fax No.: (724)539-3839

     With a copy to:

Lewis U. Davis, Jr., Esq.

Buchanan Ingersoll & Rooney PC 
One
Oxford Centre, 20th Floor

301 Grant Street 
Pittsburgh,
PA 15219

Fax No.: (412)562-1041

     In the case of the Seller:

Federal Signal Corporation

1415 West 22nd Street

Oak Brook, IL 60523

Attention: John A. Gruber

Fax No.: (630)954-2041

     With a copy to:

Federal Signal Corporation

1415 West 22nd Street

Oak Brook, Illinois 60523

Attention: Jennifer Sherman, General Counsel

Fax No.: (630)954-2138

     and

32

 

Thompson Coburn LLP

One US Bank Plaza

Suite 3400

St. Louis, Missouri 63101

Attention: Robert M. LaRose

Fax No.: (314)552-7078

or such substituted address or attention as any party shall have given notice to the others in
writing in the manner set forth in this Section 13.1.

     13.2 Amendment. This Agreement may be amended or modified in whole or in part only by
an agreement in writing executed by all parties hereto and making specific reference to this
Agreement.

     13.3 Counterparts. This Agreement may be executed in any number of counterparts and
by facsimile or other electronic transmission, each of which shall be deemed an original, but all
of which shall constitute one instrument, and shall become effective when such separate
counterparts have been exchanged between the parties hereto.

     13.4 Binding on Successors and Assigns. This Agreement shall be binding upon, inure to
the benefit of and be enforceable by and against the parties hereto and their respective successors
and assigns in accordance with the terms hereof. Neither party may assign their interest under
this Agreement without the prior written consent of the other party.

     13.5 Severability. In the event that any one or more of the provisions contained in
this Agreement or any application thereof shall be invalid, illegal or unenforceable in any
respect, the validity, legality or enforceability of the remaining provisions of this Agreement
and any other application thereof shall not in any way be affected or impaired thereby; provided,
however, that to the extent permitted by applicable law, any invalid, illegal, or unenforceable
provision may be considered for the purpose of determining the intent of the parties in connection
with the other provisions of this Agreement.

     13.6 Waivers. The parties may, by written agreement, (a) extend the time for the
performance of any of the obligations or other acts of the parties hereto, (b) waive any
inaccuracies in the representations contained in this Agreement or in any document delivered
pursuant to this Agreement, (c) waive compliance with, or modify, any of the covenants or
conditions contained in this Agreement, and (d) waive or modify performance of any of the
obligations of any of the parties hereto; provided, that no such waiver or failure to insist upon
strict compliance with such obligation, covenant, agreement or condition shall operate as a waiver
of, or an estoppel with respect to, any subsequent insistence upon such strict compliance other
than with respect to the matter so waived or modified.

     13.7 Publicity. Any public announcement, press release or similar publicity with
respect to this Agreement or the transactions contemplated herein will be issued, if at all, at
such time and in such manner as Buyer and Seller shall mutually agree and determine.

     13.8 Headings. The headings in the sections and subsections of this Agreement and in
the Schedules are inserted for convenience only and in no way alter, amend, modify, limit or
restrict the contractual obligations of the parties.

     13.9 List of Schedules and Exhibits. As mentioned in this Agreement, there are
attached hereto or delivered herewith, the following Schedules and Exhibits:

33

 

SCHEDULES

	 	 	 
	Schedule No.	 	Schedule Caption
	 
	 	 
	1.4(a)

	 	Exceptions to GAAP
	2.1

	 	Assumed Liabilities
	3.1(a)(ii)

	 	Capital Stock/Outstanding Shares
	3.1(b)

	 	Foreign Qualifications
	3.1(d)

	 	Ownership Interests
	3.1(e)(i)

	 	Consents and Approvals
	3.1(f)

	 	Seller’s Conflicts
	3-l(g)

	 	Governmental Consents
	3.2(a)

	 	Financial Statements
	3.2(b)

	 	Ordinary Course Exceptions
	3.2(c)

	 	Undisclosed Liabilities
	3.3

	 	Tax Matters
	3.4(a)

	 	Real and Personal Property
	3.4(b)

	 	Leases
	3.4(c)

	 	Condition of Assets
	3.5

	 	Intellectual Property Licenses
	3.6(a)

	 	Indebtedness
	3.6(b)

	 	Other Contracts
	3.6(c)

	 	Insurance
	3.6(d)

	 	Status
	3.7

	 	Employee Plans
	3.7(e)

	 	Employee Plan Compliance
	3.8

	 	Labor Relations
	3.9

	 	Litigation
	3.10(a)

	 	Compliance with Laws
	3.10(b)

	 	Permits
	3.10(c)

	 	Environmental Matters
	3.11

	 	Bank Accounts
	3.12

	 	Brokers and Commissions
	3.13

	 	Related Party Transactions
	3.17

	 	Customers
	4.1(c)

	 	Buyer’s Conflicts
	4.1(d)

	 	Governmental Consents
	4.2

	 	Brokers and Commissions
	5.6

	 	Retained Related Party Transactions
	8.4

	 	Seller Closing Consents
	9.3

	 	Buyer Closing Consents
	10.1(b)

	 	Key Employee Agreements

EXHIBITS

	 	 	 
	Exhibit No.	 	Caption
	 
	 	 
	A

	 	Non-Competition/Non-Solicitation Agreement
	 
	 	 
	B

	 	Administrative Services Agreement

34

 

Each of the foregoing Schedules and Exhibits is incorporated herein by this reference and
expressly made a part hereof.

     13.10 Entire Agreement; Law Governing. All prior negotiations and agreements between
the parties hereto are superseded by this Agreement (except with respect to the Confidentiality
Agreement described in Section 13.15 of this Agreement), and there are no
representations, warranties, understandings or agreements other than those expressly set forth
herein or in an Exhibit or Schedule delivered pursuant hereto, except as modified in writing
concurrently herewith or subsequent hereto. This Agreement shall be governed by and construed and
interpreted according to the internal laws of the State of Illinois, determined without reference
to conflicts of law principles. Each party hereto agrees to personal jurisdiction in any action
brought in any court, Federal or State, within the State of Illinois having subject matter
jurisdiction over the matters arising under to this Agreement. Any suit, action or proceeding
arising out of or relating to this Agreement shall only be instituted in the State of Illinois.
Each party waives any objection which it may have now or hereafter to the laying of the venue of
such action or proceeding and irrevocably submits to the jurisdiction of any such court in any such
suit, action or proceeding.

     13.11 No Third-Party Rights. This Agreement is not intended and shall not be
construed to create any rights in any persons other than Buyer and the Seller, and no person shall
assert any rights as third-party beneficiary hereunder.

     13.12 Sales and Transfer Taxes. Each Party shall be responsible for and pay all
applicable sales, transfer, documentary, use, filing and other taxes and fees that may become due
or payable as a result of the sale, conveyance, assignment, transfer or delivery of the Shares or
the Business, as levied on Buyer and Seller.

     13.13 Expenses. Except as expressly provided otherwise herein, the Seller, on the
one hand, and Buyer, on the other, shall pay all costs and expenses incurred by it or on its behalf
in connection with this Agreement and the transactions contemplated hereby, including, without
limiting the generality of the foregoing, fees and expenses of its own financial consultants,
accountants and counsel.

     13.14 Specific Performance. The parties hereto agree that irreparable damage would
occur in the event any provision of this Agreement required to be performed prior to the Closing
was not performed in accordance with the terms hereof and that, prior to the Closing, the parties
shall be entitled to specific performance of the terms hereof, in addition to any other remedy at
law or in equity.

     13.15 Confidentiality. The terms of the Confidentiality Agreement dated September 18,
2006 between Seller and Buyer are hereby incorporated herein by reference and shall continue in
full force and effect until the Closing, at which time such Confidentiality Agreement and the
obligations of the parties under this Section 13.15 shall terminate. If this Agreement is, for
any reason, terminated prior to the Closing, the Confidentiality Agreement shall continue in full
force and effect.

     13.16 Survivability of Provisions After Termination. If this Agreement is terminated
pursuant to Article 11 hereof, it shall become null and void and have no further force and effect,
except as provided in Sections 11.5, 13.10, 13.13, 13.15 and this 13.16 which shall survive
termination and except that nothing herein shall relieve any party hereto for a breach by such
party of the terms of this Agreement. Upon any termination of this Agreement, each party hereto
will return all documents work papers and all other material of the other party relating to the
transactions contemplated hereby and all

35

 

covers at such materials, where so obtained before or after the execution hereof, to the party
furnishing the same.

[the remainder of the page is intentionally left blank]

36

 

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by
their duly authorized representatives on the day and year first above written.

	 	 	 	 	 
	BUYER:

KENNAMETAL INC.

 	 	 
	By:  	
 	 	 
	 	Name:  	JAMES E. MORRISON 	 	 
	 	Title:  	VICE PRESIDENT 	 	 
	 
	SELLER:

FEDERAL SIGNAL CORPORATION

 	 	 
	By:  	
 	 	 
	 	Name:  	John A. Gruber 	 	 
	 	Title:  	Vice President — Corporate Development 	 	 

37

 

	 	 	 	 	 

Exhibit A

Form of

NON-COMPETITION/NON-SOLICITATION AGREEMENT

          This Non-Competition/Non-Solicitation Agreement (this “Agreement”) is made and
entered into this ____ day of January, 2007, by and between Kennametal Inc., a Pennsylvania
corporation having its principal place of business at 1600 Technology Way, Latrobe, Pennsylvania
15650 (“Kennametal”), and Federal Signal Corporation, a Delaware corporation having its principal
place of business at 1415 West 22nd Street, Oak Brook, IL 60523 (“FSC”).

          WHEREAS, pursuant to the terms of that certain Stock Purchase Agreement (the “Stock Purchase
Agreement”) dated December 29, 2006, by and between Kennametal and FSC, Kennametal is, as of the
date hereof, acquiring all of the issued and outstanding capital stock of Manchester Tool Company,
a Delaware corporation (“Manchester Tool”);

          WHEREAS, Manchester Tool is the owner of all of the issued and outstanding shares of capital
stock of both Clapp Dico Corporation, an Ohio corporation (“Clapp Dico”) and On Time Machining
Company, an Ohio corporation (“OTM”) (Manchester Tool, Clapp Dico and OTM collectively, the
“Subsidiaries”);

          WHEREAS, the Subsidiaries are engaged in the business of manufacturing and reselling high
precision and consumable tools for metalcutting industries, excluding all tooling for metal
stamping, pressing, rolling, heading, drawing, die casting and other metalforming processes (the
“Business”); and

          WHEREAS, as a material inducement and condition to Kennametal’s obligations under the Stock
Purchase Agreement, FSC agreed to enter into this Agreement with Kennametal.

          NOW, THEREFORE, in consideration of the promises contained herein and for good and valuable
consideration, receipt of which is hereby acknowledged, the parties hereto, intending to be
legally bound hereby, covenant and agree as follows:

     1. Definitions. For purposes of this Agreement:

     “Closing” means the closing pursuant to the Stock Purchase Agreement.

     “Covered Period” means the three (3) year period immediately following the Closing.

     “FSC” means, except where the context otherwise requires, FSC and each of its Subsidiaries
and Affiliates.

     “Parties” means Kennametal and FSC and “Party” shall mean Kennametal on the one hand and
FSC on the other hand, as the context requires.

     Capitalized terms not otherwise defined herein shall have the meanings set forth in the Stock
Purchase Agreement.

     2. Agreement Not to Solicit. As an inducement for Kennametal to enter into the Stock
Purchase Agreement and as additional consideration for the consideration inuring to FSC under

 

 

the Stock Purchase Agreement, FSC agrees throughout the Covered Period, not to, directly or
indirectly, (i) solicit, induce or attempt to induce any employee of the Subsidiaries to leave the
employ of said Subsidiaries or Kennametal, as the case may be; (ii) in any way interfere with the
relationship between the Subsidiaries or Kennametal, as the case may be and any employee of
Subsidiaries or Kennametal, as the case may be; or (iii) employ or otherwise engage as an employee,
consultant, independent contractor or otherwise any such employee. Notwithstanding the foregoing,
FSC shall not be prohibited from (A) hiring former employees of the Subsidiaries who have left the
employ of the Subsidiaries without inducement by FSC; (B) employing any employee who contacts FSC
on his or her own initiative and without any direct or indirect solicitation by FSC; or (C)
conducting generalized solicitations for employees (which solicitations are not specifically
targeted at Kennametal or the Subsidiary’s employees) through the use of media advertisements,
professional search firms or otherwise .

     3. Agreement Not to Compete, As a further inducement for Kennametal to enter into the
Stock Purchase Agreement, throughout the Covered Period, FSC agrees that it will not: i) directly
or indirectly, engage or invest in, own, manage, operate, finance, control or participate in the
ownership, management, operation, financing or control of, or guarantee any obligation of, any
Person engaged in or, to FSC’s actual knowledge, planning to become engaged in, the Business
anywhere in the world; provided, however, that FSC may purchase or otherwise acquire up to (but not
more than) two percent of any class of securities of any enterprise (but without otherwise
participating in the activities of such enterprise) if such securities are listed on any national
or regional securities exchange or have been registered under Section 12(g) of the Securities
Exchange Act of 1934; and (ii) directly or indirectly, solicit the business of any Person known to
FSC to be a customer of the Subsidiaries, whether or not FSC had contact with such Person, with
respect to products or activities which compete in whole or in part with the Business.

     FSC acknowledges and agrees that the covenant in (a) above is reasonable with respect to its
duration, geographical area and scope.

     4. Limitation on Applicability. This Agreement will in no way prevent or place
constraints upon a possible future sale of FSC’s Die and Mold Tool business, including but not
limited to a sale to any company or person in competition with the Business.

     5. Extension. In the event of a breach by FSC of either covenant (non-
solicitation/non-compete) set forth in Section 2 and 3, above, the term of such covenant will be
extended by the period of the duration of such breach.

     6. Equitable Relief. FSC stipulates and agrees that the rights of Kennametal under
this Agreement are of a specialized and unique character and that immediate and irreparable damage
will result to Kennametal if FSC fails to or refuses to perform its obligations under this
Agreement and, notwithstanding any election by Kennametal to claim damages from FSC as a result of
any such failure or refusal. Kennametal may, in addition to any other remedies and damages
available, seek an injunction in a court of competent jurisdiction to restrain any such failure or
refusal. In the event Kennametal obtains any such injunction, order, decree or other relief, in
law or in equity, FSC shall be responsible for all costs associated with obtaining the relief,
including reasonable attorney’s fees and expenses and costs of suit.

 

 

     7. Severability. The covenants, provisions and paragraphs of this Agreement are
severable. If any provisions of this Agreement as applied to either Party or to any circumstances
shall be adjudged by a court to be invalid or unenforceable, the same shall in no way affect any
other provision of this Agreement, the application of such provision in any other circumstances, or
the validity or enforceability of this Agreement. The Parties intend this Agreement to be enforced
as written. If any provision or any part thereof is held to be invalid or unenforceable because of
the duration thereof, the Parties agree that the court making such determination shall have the
power to reduce the duration and/or to delete specific words or phrases, and in its modified form
such provision shall then be enforceable. The Parties expressly agree that this Agreement shall
be given the construction that renders its provisions valid and enforceable to the maximum extent
permitted by law.

     8. Consent to Jurisdiction and Venue. Any action or proceeding seeking to enforce any
provision of, or based upon any right arising out of, this Agreement may be brought against either
of the Parties hereto in any court, Federal or State, within the State of Illinois, having subject
matter jurisdiction over the matters arising under this Agreement, and each of the Parties hereto
consents to the jurisdiction of such courts (and of the appropriate appellate courts) in any such
action or proceeding. Each of the Parties hereto hereby irrevocably waives any objection which it
may now or hereafter have to the venue of any such action or proceeding brought in such court and
any claim that such action or proceeding brought in such court has been brought in an inconvenient
forum. Process in any action or proceeding referred to in this Section 7 may be served on either
Party anywhere in the world.

     9. Notices. All notices or other communications required or permitted hereunder shall
be in writing and shall be delivered by any of the following methods: (i) personally; (ii) by
registered or certified mail (postage prepaid); (iii) by legible facsimile transmission; or (iv) by
overnight courier (fare prepaid), in all cases addressed as follows:

If to Kennametal, to:

Kennametal Inc.

1600 Technology Way

Latrobe, PA 15650

Attention: Vice President, General Counsel

Facsimile: 724/539-3839

With a copy to:

Lewis U. Davis, Jr., Esq.

Buchanan Ingersoll & Rooney, PC
 One
Oxford Centre, 20th Floor

301 Grant Street

Pittsburgh, PA 15219

Facsimile: 412/562-1041

 

 

If to FSC,to:

Federal Signal Corporation

1415 West 22nd Street

Oak Brook, IL 60523

Attention: Jennifer Sherman, General Counsel

Facsimile: 630/954-2138

With a copy to:

Thompson Coburn LLP

One US Bank Plaza

Suite 3400

St. Louis, MO 63101

Attention: Robert M. LaRose

Facsimile: 314/552-7078

or to such address as such party may indicate by a notice delivered to the other parties hereto in
the manner provided above. Notice shall be deemed received the same day (when delivered
personally), five (5) days after mailing (when sent by registered or certified mail), or the next
business day (when sent by facsimile transmission or when delivered by overnight courier).

     10. Descriptive Headings. The descriptive headings of the Sections hereof are for
convenience of reference only and shall in no way affect or be used to construe or interpret this
Agreement.

     11. Entire Agreement. This Agreement is an integrated document, contains the entire
agreement between the parties regarding the subject matter hereof, wholly cancels, terminates and
supersedes any and all previous and/or contemporaneous oral agreements, negotiations, commitments
and writings between the parties hereto with respect to such subject matter. No change,
modification, extension, termination, discharge, abandonment or waiver of this Agreement or any of
the provisions hereof, nor any representation, promise or condition relating to this Agreement,
shall be binding upon the parties hereto unless made in writing and signed by the Parties.

     12. Remedies Cumulative. It is agreed that the rights and remedies herein provided in
case of any default or breach by either Party to this Agreement are cumulative and shall not affect
in any manner any other remedies that the other Party may have by reason of such default or breach.
The exercise of any right or remedy herein provided shall be without prejudice to the right to
exercise any other right or remedy provided herein, by law or by equity.

     13. Waiver. No waiver of any right or remedy allowed hereunder shall be implied by the
failure to enforce any such right or remedy. No express waiver shall affect any such right or
remedy other than that to which the waiver is applicable and only for that occurrence.

 

 

     14. Binding Effect. This Agreement shall be binding upon and shall inure to the
benefit of each of the Parties hereto and its successors and permitted assigns.

     15. Assignment. Neither Party shall have the right to assign this Agreement without
the prior written consent of the other Party.

     16. Governing Law. This Agreement and the rights and the obligations of the Parties
hereto shall be governed by and construed and enforced in accordance with the laws of the State of
Illinois without regard to any jurisdiction’s conflicts of law provisions.

     17. Counterparts. This Agreement may be executed in two or more counterparts, each of
which when taken together shall comprise one instrument. Delivery of executed signature pages
hereof by facsimile transmission shall constitute effective and binding execution and delivery
hereof.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

 

[NON-COMPETITION/NON-SOLICITATION AGREEMENT SIGNATURE PAGE]

          IN WITNESS WHEREOF, the parties have caused this Non-Competition/Non-Solicitation
Agreement to be executed on the day and year first above written.

	 	 	 	 	 
	 	KENNAMETAL INC.

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 
	 	FEDERAL SIGNAL CORPORATION

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 

 

 

	 	 	 	 	 

Exhibit B

Form Of

ADMINISTRATIVE SERVICES AGREEMENT

     THIS ADMINISTRATIVE SERVICES AGREEMENT (the “Agreement”) is made
and entered into as of the ____ day of January, 2007 (the “Effective Date”), by and between
Federal Signal Corporation, a Delaware corporation (“FSC”), and Manchester Tool Company, a Delaware
corporation (“Manchester Tool”), on its own behalf and on behalf of its wholly-owned subsidiaries,
Clapp Dico Corporation, an Ohio corporation (“Clapp Dico”) and On Time Machining Company, an Ohio
corporation (“OTM”) (Manchester Tool, Clapp Dico and OTM collectively, the “Cutting Tool
Business”).

RECITALS

     WHEREAS, pursuant to the terms of that certain Stock Purchase Agreement (the “Stock Purchase
Agreement”) dated December 29, 2006, by and between FSC and Kennametal Inc., a Pennsylvania
corporation (“Buyer”), Buyer is, as of the date hereof, acquiring all of the issued and outstanding
capital stock of Manchester Tool; and

     WHEREAS, the Cutting Tool Business will require the continuation of certain administrative
services currently provided by FSC directly and/or through FSC’s vendors and service providers
until Buyer can provide similar services to the Cutting Tool Business or establish stand-alone
services for the Cutting Tool Business; and

     WHEREAS, it is a condition to Buyer’s obligations under the Stock Purchase Agreement that FSC
enter into this Agreement for the provision of administrative services to the Cutting Tool
Business during such transition period; and

     WHEREAS, FSC is willing to provide such services to the Cutting Tool Business on the terms
set forth herein.

     NOW, THEREFORE, in consideration of the mutual promises and agreements set forth herein, and
intending to be legally bound, the parties hereby agree as follows:

ARTICLE I

SERVICES

     1.1 Services. During the Term of this Agreement, FSC agrees to provide to the Cutting
Tool Business the services (the “Services”), and any applicable upgrades, new versions,
modifications and enhancements thereto implemented by FSC and/or made available by third parties
and used by FSC set forth on Exhibit A (the “Exhibit”) for the compensation set forth in
the Exhibit, provided that nothing in this sentence shall be deemed to obligate FSC to implement
any upgrades, new versions, modifications or enhancements to the Services. The Exhibit shall be
subject to the terms contained in such Exhibit. In the event that the Exhibit is terminated, this

 

 

Agreement shall remain in effect unless otherwise terminated as provided below. In the event of any
conflict between the terms of this Agreement and the Exhibit attached hereto, the terms of this
Agreement shall govern. For purposes of this Agreement, the Services provided by FSC shall include
services provided by any of FSC’s subsidiaries or affiliates directly and/or through their
respective vendors and service providers.

     1.2 Performance of Services.

     (a) FSC shall perform the Services with the same degree of care, skill and prudence
customarily exercised for its own operations. In the event that FSC changes the degree of care,
skill and prudence customarily exercised for its own operations, FSC, following 90 days prior
written notice to the Cutting Tool Business of such proposed change, may modify the Services
performed hereunder to comply with its revised internal performance standards for such Services and
in such event the compensation payable to FSC shall be modified accordingly, but in any event shall
not be increased by more than the amount of any incremental increase in costs of performing the
Services incurred by FSC directly related to such modification.

     (b) Each party acknowledges that the Services will be provided only with respect to the
Cutting Tool Business as such business existed immediately prior to the Effective Date of this
Agreement (with such changes as may occur in the ordinary course of business of the Cutting Tool
Business) or as otherwise mutually agreed in writing by the parties. The Cutting Tool Business
agrees to use the Services in accordance with all applicable federal, state and local laws,
regulations and tariffs and in accordance with all reasonable conditions, rules, regulations and
specifications which are or may be set forth in any manuals, materials, documents or instructions
of FSC. FSC agrees to make available to the Cutting Tool Business manuals, materials, documents,
instructions, vendor source codes, if made available to FSC by the vendor, and application source
codes in and to the applications/systems/software set forth in Exhibit A for each such
applications/systems/software. FSC reserves the right to take any and all actions necessary to
assure that the Services are provided in accordance with any applicable laws or regulations.
Notwithstanding anything else contained in this Agreement, FSC shall consult with the Cutting Tool
Business in advance of modifying the Services, will provide the Cutting Tool Business with
information concerning the nature and extent of the modifications to the Services and the
reasonable opportunity to make appropriate arrangements prior to any action to modify the Services
pursuant to this Section 1.2.

     (c) The Cutting Tool Business shall provide any input or information needed by FSC to perform
the Services pursuant to the provisions of this Agreement in a manner consistent with the practices
employed by the parties immediately prior to the Effective Date of this Agreement. Should the
failure to provide such input or information render the performance of the Services impossible or
unreasonably difficult, FSC may, upon reasonable notice to the Cutting Tool Business, refuse to
provide such Services.

     1.3 Compensation.

     (a) In consideration for FSC’s obligations under this Agreement, the Cutting Tool Business
agrees to pay FSC the compensation set forth in the Exhibit hereto. The Cutting Tool Business’
obligation to make payments shall survive the expiration or earlier termination of this

2

 

Agreement until all amounts owed to FSC hereunder are paid. In addition, the Cutting Tool
Business shall be solely responsible for its allocable share of all third-party out-of-pocket
costs and expenses incurred by FSC as a result of providing the Services including, without
limitation, travel costs, as well as all ongoing maintenance of its information systems required
to provide the Services, to the extent such information systems are being retained solely to
continue performance hereunder. FSC shall be responsible for and the Cutting Tool Business shall
reasonably cooperate with FSC in obtaining any required third-party consents or approvals
necessary for the Cutting Tool Business to utilize the Services and the Cutting Tool Business
shall be responsible for the payment of any fees or other charges associated therewith (including,
without limitation, additional license fees imposed by any software licensors or vendors).

     (b) Except as otherwise provided in the Exhibit, the Cutting Tool Business shall pay all fixed
fees set forth in the Exhibit for Services to be rendered during a month by the fifteenth
(15th) day of such month. The Cutting Tool Business shall pay all variable fees for
Services rendered during a month by the fifteenth (15th) day of the next month. Payment
of all expenses due to FSC hereunder shall be made by the fifteenth (15th) day of the
month following the month in which such expenses are incurred. The Cutting Tool Business shall pay
all fees or expenses due hereunder either by check, wire transfer, or such other method(s) to which
the parties mutually agree in writing. Any amount that is not paid within thirty (30) days of the
date due, other than amounts disputed in good faith, shall bear interest at the rate of one and one
half percent (1.5%) per month, or at the maximum rate allowable by law, whichever is less. FSC
shall be entitled to recover its costs and expenses incurred in collecting any amounts due
hereunder, including reasonable attorney’s fees.

ARTICLE II

CONFIDENTIALITY

     2.1 — Confidentiality of Information.

     (a) Each party shall use the Confidential Information (as hereinafter defined) of the other
party only in furtherance of the purpose of this Agreement (which purposes are strictly limited to
FSC providing Services to the Cutting Tool Business) and shall not transfer or otherwise disclose
the Confidential Information to any third party without such party’s prior written consent. Each
party shall (i) provide access to the Confidential Information solely to those of its employees who
have a need to have access thereto strictly in order to perform the Services, and (ii) take the
same security precautions to protect against disclosure or unauthorized use of such information
that a party takes with its own confidential information, provided, however, that in no event shall
either party apply less than a reasonable standard of care to prevent such disclosure or
unauthorized use. Each party agrees to promptly return or destroy the other party’s Confidential
Information upon the expiration or earlier termination of this Agreement.

     (b) The term “Confidential Information” shall mean all confidential or other proprietary
information disclosed by the Cutting Tool Business or FSC and/or any of their respective
subsidiaries or affiliates under this Agreement including, without limitation: (i) all trade
secrets, products, operations, marketing and business plans, customer or supplier names

3

 

and addresses, corporate organization and finances, plans, research, know-how, trade secrets,
specifications, drawings, sketches, models, samples, data, technology, computer programs,
documentation, software, computer systems, source code, object code methodologies, product
development, distribution plans, contractual arrangements, profits, sales, pricing policies,
operational methods, technical processes, other business affairs and methods, plans for future
developments or other technical and business information, which can be communicated by any means
whatsoever, including, without limitation oral, visual, written and electronic transmission, other
confidential business information and other confidential information learned in the course of
performance by either party of its obligations hereunder; (ii) all information, data, software or
computer programs disclosed by either party to the other party under or in contemplation of this
Agreement; and (iii) the existence of this Agreement and the terms and conditions set forth herein
and in the Exhibit hereto.

     (c) Notwithstanding the foregoing, the term “Confidential Information” shall not include
information which: (i) is or becomes publicly available without any action by, or involvement of,
the receiving party; (ii) was in the receiving party’s possession and obtained without breaching an
obligation of confidentiality prior to its disclosure by the disclosing party, (iii) becomes
available to the receiving party on a non-confidential basis from a source other than the
Subsidiaries that is not otherwise bound by a confidentiality agreement with Kennametal or (iv) is
independently developed by the receiving party without any use of, or reference to, the
Confidential Information of the disclosing party. Either party may disclose the Confidential
Information of the other party pursuant to a judicial or governmental order or regulation to the
extent required by such order or regulation; provided, that, when possible, such party provides the
other party with sufficient prior notice to contest such order or to seek appropriate confidential
treatment of the Confidential Information. Any party hereto may disclose the Confidential
Information described in Section 2.1(b)(iii) to the extent required by applicable securities laws.

     (d) FSC shall provide and the Cutting Tool Business agrees reasonably to cooperate and
implement, where necessary, appropriate security controls, access limitations and firewalls to
protect the confidentiality of each party’s Confidential Information on FSC’s information
technology systems. Neither party shall access or utilize the other party’s data for any sales,
marketing, customer analysis, pricing, employee compensation or other purpose, including without
limitation, data mining.

ARTICLE III

TERM AND TERMINATION

     Unless earlier terminated or extended as provided below, the term of this Agreement shall
commence on the Effective Date and expire on the six (6) month anniversary hereof (the “Term”).
The Cutting Tool Business shall have the option to extend the Term of this Agreement and/or the
Exhibit for up to an additional three (3 ) months upon written notice delivered to FSC not less
than ninety (90) days prior to the last day of the Term, at the same monthly compensation set
forth on the Exhibit, unless FSC incurs additional cost in maintaining the systems or in replacing
necessary hardware. The Cutting Tool Business shall have the right to terminate this Agreement
and/or the Exhibit at any time by thirty (30) days’ advance written

4

 

notice to FSC. Upon the effectiveness of any such termination, the Cutting Tool Business shall
not be obligated to pay the fees set forth in the terminated Exhibit for any period remaining in
the Term. Notwithstanding the foregoing, however, if the Cutting Tool Business terminates this
Agreement or the Exhibit hereunder, the Cutting Tool Business agrees to pay to FSC all amounts owed
for Services provided up to the effective date of such termination.

ARTICLE IV

MISCELLANEOUS

     4.1 Additional Actions and Documents. Both parties hereto agree to take or cause to be
taken such further actions, to execute, acknowledge, deliver and file or cause to be executed,
acknowledged, delivered and filed such further documents and instruments, and to use all reasonable
efforts to obtain such consents, as may be necessary or as may be reasonably requested in order to
fully effectuate the purposes, terms and conditions of this Agreement.

     4.2 Notice. All notices, demands, requests or other communications which may be or are
required to be given pursuant to this Agreement shall be in writing and shall be personally
delivered, mailed by first class, registered or certified mail postage prepaid, or sent by
electronic or facsimile transmission, addressed as follows:

If to the Cutting Tool Business:

The Cutting Tool Business

c/o Kennametal Inc.

1600 Technology Way

Latrobe, PA 15650

Attn: Vice President, Secretary and General Counsel

Fax: 724/539-3839

With a copy to:

Lewis U. Davis, Jr., Esq.

Buchanan Ingersoll & Rooney, PC 

One
Oxford Centre, 20th Floor

301 Grant Street 
Pittsburgh, PA 15219

Fax: 412/562-1041

If to FSC:

Federal Signal Corporation

1415 West 22nd Street

Oak Brook, IL 60523

Attn: Jennifer Sherman, General Counsel

Fax: 630/954-2138

5

 

With a copy to:

Thompson Coburn LLP 
One US
Bank Plaza

Suite 3400

St. Louis, MO 63101

Attn: Robert M. LaRose 
Fax:
314/552-7078

     Both parties may designate by notice in writing a new address to which any notice, demand,
request or communication may thereafter be so given, served or sent. Each notice, demand, request
or communication which shall be delivered, mailed or transmitted in the manner described above
shall be deemed sufficiently given, served, sent or received for all purposes at such time as it is
delivered to the addressee or at such time as delivery is refused by the addressee upon
presentation.

     4.3 Amendment. This Agreement may be amended or modified in whole or in part only by
an agreement in writing executed by all parties hereto and making specific reference to this
Agreement.

     4.4 Counterparts. This Agreement may be executed in any number of counterparts and by
facsimile or other electronic transmission, each of which shall be deemed an original, but all of
which shall constitute one instrument, and shall become effective when such separate counterparts
have been exchanged between the parties hereto.

     4.5 Binding on Successors and Assigns. This Agreement shall be binding upon, inure to
the benefit of and be enforceable by and against the parties hereto and their respective successors
and assigns in accordance with the terms hereof. Neither party may assign their interest under
this Agreement without the prior written consent of the other party.

     4.6 Severability. In the event that any one or more of the provisions contained in
this Agreement or any application thereof shall be invalid, illegal or unenforceable in any
respect, the validity, legality or enforceability of the remaining provisions of this Agreement and
any other application thereof shall not in any way be affected or impaired thereby; provided,
however, that to the extent permitted by applicable law, any invalid, illegal, or unenforceable
provision may be considered for the purpose of determining the intent of the parties in connection
with the other provisions of this Agreement.

     4.7 Waivers. The parties may, by written agreement, (a) extend the time for
the performance of any of the obligations or other acts of the parties hereto, (b) waive compliance
with, or modify, any of the covenants or conditions contained in this Agreement, and (c) waive or
modify performance of any of the obligations of any of the parties hereto; provided, that no such
waiver or failure to insist upon strict compliance with such obligation, covenant, agreement or
condition shall operate as a waiver of, or an estoppel with respect to, any subsequent insistence
upon such strict compliance other than with respect to the matter so waived or modified.

6

 

     4.8 Publicity. Any public announcement, press release or similar
publicity with respect to this Agreement or the transactions contemplated herein will be issued, if
at all, at such time and in such manner as the Cutting Tool Business and FSC shall mutually agree
and determine.

     4.9 Headings. The headings in the sections and subsections of this Agreement
and in the Schedules are inserted for convenience only and in no way alter, amend, modify, limit or
restrict the contractual obligations of the parties.

     4.10 List of Schedules and Exhibits. As mentioned in this Agreement, there is
attached hereto or delivered herewith, the following Exhibit:

EXHIBITS

	 	 	 
	Exhibit No.:	 	Caption
	 
	 	 
	A

	 	Information Technology Services

The foregoing Exhibit is incorporated herein by this reference and expressly made a part hereof.

     4.11 Entire Agreement; Law Governing. All prior negotiations and agreements
between the parties hereto concerning the subject matter hereof are superseded by this Agreement
(except with respect to the Confidentiality Agreement described in Section 13.15 of the Stock
Purchase Agreement), and there are no representations, warranties, understandings or agreements
other than those expressly set forth herein or in the Exhibit delivered pursuant hereto, except as
modified in writing concurrently herewith or subsequent hereto. This Agreement shall be governed by
and construed and interpreted according to the internal laws of the State of Illinois, determined
without reference to conflicts of law principles. Each party hereto agrees to personal jurisdiction
over the matters arising under to this Agreement. Any suit, action or proceeding arising out of
or relating to this Agreement shall only be instituted in the State of Illinois. Each party waives
any objection which it may have now or hereafter to the laying of the venue of such action or
proceeding and irrevocably submits to the jurisdiction of any such court in any such suit, action
or proceeding.

     4.12 No Third-Party Rights. This Agreement is not intended and shall not be
construed to create any rights in any persons other than FSC and the Cutting Tool Business, and no
person shall assert any rights as third-party beneficiary hereunder.

     4.13 Expenses. Except as expressly provided otherwise herein, FSC, on the one
hand, and the Cutting Tool Business, on the other, shall pay all costs and expenses incurred by it
or on its behalf in connection with this Agreement.

     4.14 Confidentiality. The Confidentiality Agreement dated September 18,
2006, between FSC and Kennametal is confirmed in its entirety and unaffected hereby.

     4.15 Survivability of Provisions After Termination. If this Agreement is
terminated pursuant to Article III hereof, it shall become null and void and have no further force
and effect, except as provided in Sections 1.3, 2.1, 4.11, 4.14 and this 14.15 which shall survive
termination and except that nothing herein shall relieve any party hereto for a breach by such
party of the

7

 

terms of this Agreement. Upon any termination of this Agreement, each party hereto will return
all documents work papers and all other material of the other party relating to the transactions
contemplated hereby and all covers at such materials, where so obtained before or after the
execution hereof, to the party furnishing the same.

     4.16 No Agency. This Agreement shall not be deemed expressly or by
implication to create an agency, employee, or servant relationship between or among any of the
parties hereto, or any affiliates of the parties hereto for any purpose whatsoever.

     4.17 Force Majeure. Neither party shall be liable for any failure of or
delay in the performance of this Agreement for the period that such failure or delay is due to acts
of God, public enemy, war, strikes or labor disputes, or any other cause beyond the parties’
reasonable control; it being understood that lack of financial resources is not to be deemed a
cause beyond a party’s control. Each party shall notify the other party promptly of the occurrence
of any such cause and carry out this Agreement as promptly as practicable after such cause is
terminated; provided, however, that the existence of any such cause shall not extend the Term of
this Agreement.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

8

 

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly
authorized representatives on the day and year first above written.

	 	 	 	 	 	 	 	 
	MANCHESTER TOOL COMPANY

 	 	FEDERAL SIGNAL CORPORATION

 	 
	By:  	
 	 	By:  	
 	 
	 	Name:  	 	 	 	Name:  	 	 
	 	Title:  	 	 	 	Title:  	 	 

9

 

	 	 	 	 	 

EXHIBIT A

Information Technology Services

During the Term of this Agreement and in a manner substantially consistent with FEDERAL
SIGNAL’s practices immediately prior to the Effective Date, FEDERAL SIGNAL shall provide the
following Information Technology Services (“IT Services”) to KENNAMETAL:

IT Support Services:

	 	1.	 	Provide system availability, performance, support security, access and
information to KENNAMETAL personnel; provided, that all KENNAMETAL users comply with all
applicable FEDERAL SIGNAL policies and procedures.
	 
	 	2.	 	Working with KENNAMETAL to correct significant data entry and processing problems which
are: (a) identified in writing; and (b) are not the result, directly or indirectly, of a
change in business practices by KENNAMETAL or any other action or inaction of KENNAMETAL.
Significant problems are those which prevent KENNAMETAL from functioning as a viable
business concern.
	 
	 	3.	 	Support for transferring payroll processing from the FEDERAL SIGNAL payroll system to
KENNAMETAL’s SAP HR system. Due to the sensitive nature of the information contained in the
FEDERAL SIGNAL HR system and the fact that such system supports other FEDERAL SIGNAL
functions, KENNAMETAL acknowledges and agrees that they will not have direct access to such
system. FEDERAL SIGNAL will provide access to historical data residing in the existing
payroll system by providing KENNAMETAL, at FEDERAL SIGNAL’S sole discretion, with either:
(a) direct access to the system; (b) data in paper format; or (c) electronic files in an
appropriate format. Should the transfer of payroll processing occur after the closing
date, FEDERAL SIGNAL will provide current payroll management and processing services for a
period not to extend beyond the terms of this agreement.
	 
	 	4.	 	Provide KENNAMETAL personnel, who comply with all FEDERAL SIGNAL policies and
procedures, with access to Wide Area Networks for MANCHESTER TOOL and ON TIME MACHINING
COMPANY. FEDERAL SIGNAL will consider requests for network changes and may, at its sole
discretion, comply with such requests for additional fees determined by FEDERAL SIGNAL.
	 
	 	5.	 	Training of KENNAMETAL personnel up to a maximum of twenty (20) hours. KENNAMETAL
acknowledges and agrees that such training will be provided at times and locations, as
determined by FEDERAL SIGNAL at its sole discretion, or as otherwise mutually agreed.
	 
	 	6.	 	From time to time, FEDERAL SIGNAL and/or KENNAMETAL may be required to provide Testing
or other support to accomplish system changes initiated by FEDERAL SIGNAL or KENNAMETAL.

A-1

 

	 	7.	 	FEDERAL SIGNAL will permit KENNAMETAL personnel, who comply with all FEDERAL SIGNAL
policies and procedures, to access and use the following software packages during the
Term of this Agreement:

	 	 	 	 	 
	(d) Name	 	(e) Modules	 	(f) Function
	MCI

	 	WAN, Phone, Data
	 	Network Services through MCI (MTO and OTM only)
	Federal Signal system

	 	Payroll
	 	Payroll

Note: Software vendors prohibit FEDERAL SIGNAL from providing hosting services for third
parties. KENNAMETAL will be responsible for obtaining authorization from the software vendors
for temporary use of the software while running on FEDERAL SIGNAL’S systems. FEDERAL SIGNAL will
work with KENNAMETAL to facilitate the permanent transfer of applicable software licenses
approved by FEDERAL SIGNAL to KENNAMETAL; KENNAMETAL will be responsible for obtaining
authorizations from the software vendors for such transfers.

Conversion Services:

	 	1.	 	FEDERAL SIGNAL will provide up to 160 hours of consultation concerning data, data
structure, processing logic to assist in the conversion to KENNAMETAL’s systems. This
includes consultation on EDI practices that may be unique to KENNAMETAL.
	 
	 	2.	 	FEDERAL SIGNAL will provide up to 160 hours of analysis and programming time to
provide files and reports for conversion to KENNAMETAL’s systems.
	 
	 	3.	 	FEDERAL SIGNAL will provide up to 40 hours of test and validation services to assist
KENNAMETAL in converting to their system(s). KENNAMETAL accepts full responsibility for
any and all data loaded into KENNAMETAL’s system.
	 
	 	4.	 	FEDERAL SIGNAL will provide up to 80 hours of meeting, review and miscellaneous time
to assist in the conversion process.

     KENNAMETAL acknowledges and agrees that all plans and schedules that involve IT Services
are subject to FEDERAL SIGNAL’S prior written approval.

Compensation

In accordance with Section 1.3, Compensation, of this Agreement, KENNAMETAL agrees to pay
FEDERAL SIGNAL the following fees and expenses:

Fees. Pursuant to Section 1.3 of the Agreement, KENNAMETAL agrees to pay FEDERAL SIGNAL the
fixed and variable fees set forth below:

A-2

 

     Fixed Fees:

     (a) Monthly IT Support Services Fee: KENNAMETAL shall pay FEDERAL SIGNAL a fixed monthly fee
equivalent to FEDERAL SIGNAL’S service provider’s cost (the “IT Support Services Fee”) per
month of the Term. The IT Support Services Fee shall be prorated for any month during which this
Agreement is in effect for less than the entire month.

     Variable Fees:

     (a) Additional Services Fees: In addition to the IT Support Services Fee and the Conversion
Services Fee, if FEDERAL SIGNAL performs services in addition to the IT Services listed above,
KENNAMETAL shall pay FEDERAL SIGNAL an additional fee of $60 per hour. Such additional services
may be provided at FEDERAL SIGNAL’S sole discretion; in no event shall FEDERAL SIGNAL be obligated
to provide any such additional services.

Expenses. In addition to the Fees above and in accordance with Section 1.3 of the Agreement,
KENNAMETAL shall be responsible for all (i) all licensing costs, including costs associated with
transferring licenses, and (ii) travel and other out-of-pocket expenses associated with the IT
Services provided hereunder.

A-3exv10w26

 

EXHIBIT 10.26

COMPASS MINERALS INTERNATIONAL, INC.

DIRECTORS’ DEFERRED COMPENSATION PLAN

Amended and Restated Effective as of January 1, 2005

          Compass Minerals International, Inc., a corporation organized under the laws of the state of
Delaware (the “Company”) established the Compass Minerals International, Inc. Directors’
Deferred Compensation Plan (the “Plan”) effective as of the October 1, 2004, for the
benefit of its eligible non-employee directors. The Company now desires to amend and restate the
original Plan in its entirety effective as of January 1, 2005, provided that certain provisions may
have an earlier or later effective date as set forth herein.

ARTICLE I.

DEFINITIONS

          Section 1.1 “Account” shall mean the bookkeeping account created by the
Company pursuant to Article III of this Plan to receive deferred compensation under Article II
hereof.

          Section 1.2 “Affiliate” shall mean with respect to any Person, any other
Person that, directly or indirectly through one or more intermediaries Controls, is Controlled by,
or is under common Control with, such Person and/or one or more Affiliates thereof. The term
“Control” includes, without limitation, the possession, directly or indirectly, of the power to
direct the management and policies of a Person, whether through the ownership of voting securities,
by contract or otherwise.

          Section 1.3 “Board” shall mean the Board of Directors of the Company.

          Section 1.4 “Change in Control” shall mean a change in ownership or control of
the Company effected through a transaction or series of transactions (other than an offering of
Common Stock to the general public through a registration statement filed with the Securities and
Exchange Commission) whereby any “person” or related “group” of “persons” (as such terms are used
in Sections 13(d) and 14(d)(2) of the Exchange Act) (other than the Company, any of its
subsidiaries, an employee benefit plan maintained by the Company or any of its subsidiaries, or a
“person” that, prior to such transaction, directly or indirectly controls, is controlled by, or is
under common control with, the Company) directly or indirectly acquires beneficial ownership
(within the meaning of Rule 13d-3 under the Exchange Act) of securities of the Company possessing
more than 35% of the total combined voting power of the Company’s securities outstanding
immediately after such acquisition.

          Section 1.5 “Common Stock” shall mean the common stock of the Company, par
value $0.01 per share.

          Section 1.6 “Company” shall have the meaning set forth in the recitals hereto.

          Section 1.7 “Deferred Stock Unit” shall mean the right of a Director to
receive one share of Common Stock upon a distribution of his Account in accordance with Article IV.

 

 

          Section 1.8 “Deferred Fees” shall mean all or a portion of the Fees that are
deferred under the Plan pursuant to Section 2.1.

          Section 1.9 “Director” shall mean a member of the Board who is not an employee
of the Company or any of its subsidiaries.

          Section 1.10 “Exchange Act” means the Securities Exchange Act of 1934,
as amended.

          Section 1.11 “Fair Market Value” of a share of Common Stock as of any date
shall be the average of the high and low trading prices for a share of Common Stock as reported on
the New York Stock Exchange (or on any national securities exchange on which the Stock is then
listed) for the immediately preceding date or, if no such prices are reported for that date, the
average of the high and low trading prices on the next preceding date for which such prices were
reported.

          Section 1.12 “Fees” shall mean amounts payable to a Director for serving as a
member of the Board, including without limitation any (a) annual or other periodic retainer
payments; (b) fees payable for meeting attendance; (c) fees payable for committee membership; and
(d) fees payable for Board or committee chairmanship.

          Section 1.13 “Fund” shall have the meaning set forth in Section 3.4.

          Section 1.14 “Plan” shall have the meaning set forth in the recitals hereto.

          Section 1.15 “Year” shall mean calendar year.

ARTICLE II.

ELECTION TO DEFER

          Section 2.1 A Director may elect, on or before December 31 of any Year, to defer
payment of all or a specified part of all Fees earned during the Year following such election and
in any succeeding Years (until the Director ceases to be a Director); provided, however, that with
respect to Year 2004 a Director may elect, within thirty days after the effective date of this
Plan, to defer all or a specified part of all Fees payable on or after the effective date of this
Plan. Any person who shall become a Director during any Year, and who was not a Director of the
Company on the preceding December 31, may elect, no later than seven days after the Director’s term
begins, to defer payment of all or a specified part of such Fees payable during the remainder of
such Year and for any succeeding Years. Any Fees deferred pursuant to this Paragraph shall be paid
to the Director at the time(s) and in the manner specified in Article IV hereof, as designated by
the Director.

          Notwithstanding the foregoing or any other provision in this Plan to the contrary, effective
for Years commencing on or after January 1, 2006, a Director’s election to defer or not defer his
Fees shall be limited to the cash retainer portion of such Fees, and the portion of such Fees
payable in Common Stock of the Company shall be automatically deferred under the Plan.

 

 

          Section 2.2 The election to participate in the Plan and manner of payment shall be
designated by submitting a deferral election form in substantially the form attached hereto as
Exhibit A to the Vice President, Human Resources of the Company.

          Section 2.3 A Director’s election shall continue from Year to Year unless the Director
terminates it by written request delivered to the Vice President, Human Resources of the Company
prior to the commencement of the Year for which the termination is first effective.

ARTICLE III.

DEFERRED COMPENSATION ACCOUNTS

          Section 3.1 The Company shall maintain a separate bookkeeping account to reflect each
Director’s benefit under the Plan.

          Section 3.2 As of the date that any Deferred Fees would otherwise have been payable to
a Director, the Company shall credit such Director’s Account with that number of Deferred Stock
Units equal to the ratio of (a) the aggregate value of such Deferred Fees, to (b) the Fair Market
Value per share of Common Stock as of such date.

          Section 3.3 As of the date the Company pays any dividend (whether in cash or in kind)
on shares of Common Stock, each Director’s Account shall be credited with that number of Deferred
Stock Units equal to the ratio of (a) the aggregate value of the dividend that would have been
payable on the Deferred Stock Units held by the Director immediately prior to such payment date had
the shares of Common Stock represented by such Deferred Stock Units been outstanding as of such
payment date to (b) the Fair Market Value per share of Common Stock as of such date.

          Section 3.4 Deferred Fees and any deemed earnings with respect thereto shall be held
in the general assets of the Company and no separate fund or trust shall be created or moneys set
aside on account of the Account. To the extent that any person acquires a right to receive
distributions from the Company under the Plan, such right shall be no greater than the right of any
unsecured general creditor of the Company. Notwithstanding the foregoing, the Board, in its
discretion, may elect to establish a fund (the “Fund”) containing assets equal to the
amounts credited to Directors’ Accounts, and may elect in its discretion to designate a trustee to
hold the Fund in trust; provided, however, that such Fund shall remain a general asset of the
Company subject to the rights of creditors of the Company in the event of the Company’s bankruptcy
or insolvency as defined in any such trust.

ARTICLE IV.

PAYMENT OF DEFERRED COMPENSATION

          Section 4.1 Subject to Section 4.3, amounts credited to a Director’s Account shall be
distributed in whole shares of Common Stock (with fractional shares paid in cash) as soon as
administratively practicable following the date such Director ceases to be a member of the Board
for any reason. Such payment shall be made or commence in accordance with the Director’s
irrevocable election (made at the time of initial enrollment in the Plan, or no later than December
31, 2005 with respect to a Director who first commenced participation prior to such

 

 

date) in either (i) a single lump sum or (ii) approximately equal annual installments over a
period of not less than two nor more than ten years.

          Section 4.2 Each Director shall have the right to designate a beneficiary who is to
succeed to his or her right to receive payments hereunder in the event of death. Any designated
beneficiary shall receive payments in the same manner as the Director if he or she had lived. In
case of a failure of designation or the death of a designated beneficiary without a designated
successor, the balance of the amounts contained in the Director’s Account shall be paid, in
accordance with Section 4.1, to the Director’s or former Director’s estate in full on the first day
of the Year following the Year in which he or she dies. No designation of beneficiary or change in
beneficiary shall be valid unless it is in writing signed by the Director and filed with the
Secretary of the Company.

          Section 4.3 Notwithstanding the other provisions of the Plan to the contrary, if a
Change in Control occurs prior to the complete distribution of a Director’s Account, then any
portion of such Account that has not theretofore been distributed shall be distributed in a single
lump sum to the Director (or, as applicable, his beneficiary) immediately following the Change in
Control.

ARTICLE V.

ADMINISTRATION; AMENDMENT

          Section 5.1 The Plan shall be administered by the Board. The Board may delegate
certain administrative authority to the Compensation Committee of the Board or to one or more
employees of the Company, but shall retain the ultimate responsibility for the interpretation of,
and amendments to, the Plan. Members of the Board shall not be liable for any of their actions or
determinations made in good faith with respect to the administration of the Plan. Except to the
extent superseded by the laws of the United States, the laws of the State of Delaware, without
regard to its conflict of laws principles, shall govern in all matters relating to the Plan. All
expenses related to plan administration shall be paid by the Company. All decisions made by the
Board with respect to issues hereunder shall be final and binding on all parties.

          Section 5.2 In the event of any stock dividend, stock split, combination or exchange
of shares, merger, consolidation, spin-off, recapitalization or any other corporate event affecting
the Common Stock or the share price of the Common Stock, the Board may, in its sole discretion,
make such equitable adjustments, if any, with respect to the Directors’ Accounts (including,
without limitation, adjusting the number of Deferred Stock Units credited thereto and/or the kind
of securities represented thereby), as the Board may deem necessary or appropriate to prevent
dilution or enlargement of the benefits or potential benefits intended to be made available under
this Plan and to reflect such changes.

          Section 5.3 Except to the extent required by law, the right of any Director or any
beneficiary to any benefit or to any payment hereunder shall not be subject in any manner to
attachment or other legal process for the debts of such Director or beneficiary, and any such
benefit or payment shall not be subject to alienation, sale, transfer, assignment or encumbrance.

 

 

          Section 5.4 The Plan may be amended, suspended or terminated in whole or in part from
time to time by the Board except that no amendment, suspension, or termination shall apply to the
payment to any Director or beneficiary of a deceased Director of any amounts previously credited to
a Director’s Account.

* * * * *

          I hereby certify that the Plan was adopted by the Board of Directors of Compass Minerals
International, Inc. on November 3, 2005, effective as of January 1, 2005.

	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	By:	 	/s/ Victoria Heider	 	 
	 

	 	 	 	 	 	 
	 

	 	Title:	 	Vice President, Human Resources	 	 
	 

	 	 	 	 	 	 
	 

	 	Date:	 	November 3, 2005	 	 
	 

	 	 	 	 	 	 

 

 

          

Compass Minerals International, Inc.

Directors’ Deferred Compensation Plan

DEFERRAL ELECTION FORM

SEND COMPLETED FORM TO: Vice President, Human Resources; Compass Minerals
International, Inc.; 9900 College Boulevard, Suite 600, Overland Park, Kansas 66210;
Telephone (913) 344-9308; Facsimile; (913) 338-7928

	 	 	 	 	 	 	 
	 
	Last Name

	 	First Name
	 	MI
	 	Social Security Number
	 
	 	 	 	 	 	 
	 
	Mailing Address

	 	City
	 	State
	 	Zip Code

	 	 	 	 	 	 	 
	 

	 	 	 	 

	 	 
	Telephone

	 	 	 	Email Address	 	 

SECTION 1 — DEFERRAL ELECTION

Pursuant to the Compass Minerals International, Inc. Directors’ Deferred Compensation Plan (as it
may be amended from time to time, the “Plan”), I hereby elect to defer receipt of all or a
portion of the annual cash retainer that would otherwise become payable to me after the effective
date of this election in accordance with the percentages indicated below (such percentage being one
of the following: 0%; 25%; 50%; 75%; or 100%):

                         % of my annual cash retainer shall be credited to my Account as defined in the Plan

I understand that, once effective, such election will remain in effect until modified or revoked in
writing by me in accordance with the Plan and that such modification or revocation will be
effective only for calendar years following the year in which such modification or revocation is
made. I further understand that my deferrals will be credited to my Account under the Plan and
that my rights to my Account are unfunded and unsecured and are no greater than the rights of an
unsecured general creditor of the Company.

Note: Beginning in 2006, your annual stock retainer will be automatically credited to your Plan
Account. You do not have the right to receive payment of your annual stock retainer until you
resign or otherwise cease being a Director for any reason.

SECTION 2 — ACCOUNT DISTRIBUTION

A. Commencement of Distribution

Except as otherwise set forth in Section 2C, below, your Plan Account will be paid or benefits will
commence as soon as administratively practicable following the date you resign or otherwise cease
being a Director for any reason.

B. Form of Distribution

Except as otherwise set forth in Section 2C, below, I irrevocably elect to receive distributions
from my Account in accordance with the following election (check one):

     o In one lump sum; or

     o In                      (insert number) equal annual installments (not less than 2 or more than 10).

 

 

          

I understand that the first distribution from my Account shall be payable as of the date set forth
in Section 2A, above, and that if I elect annual installment payments I will receive an installment
as of each January 1 immediately following the first distribution until my Account has been
distributed in full. I also understand that my election under this Section 2B is irrevocable and
will apply to all future amounts credited to my Plan Account.

C. Change in Control

I understand that, notwithstanding any other provision of this Deferral Election Form to the
contrary, my Account shall automatically be fully distributed to me in one lump sum immediately
following the occurrence of a Change in Control (as defined in the Plan).

SECTION 3 — BENEFICIARY DESIGNATION

If you die before you receive full payment of your Account, the amount remaining in your Account
will be paid to your Beneficiary designated in this Section 3. Payment will be made in the same
manner as specified under Section 2B.

	 	 	 	 	 	 	 
	 
	Social Security Number

	 	Last Name
	 	First Name
	 	MI

	 	 	 	 	 	 	 	 	 
	 
	Mailing Address

	 	City
	 	State
	 	Zip Code
	 	Telephone

SECTION 4 — AUTHORIZATION

I agree that my successors in interest and my assigns and all persons claiming under me shall, to
the extent consistent with applicable law, be bound by the statements contained herein and by the
provisions of the Plan as they now exist and as they may be amended from time to time.

I have read and understand this form and hereby authorize the Administrator to take all actions
indicated on this form.

	 	 	 
	 
	Director’s Signature

	 	Date

For Company use only

	 	 	 	 	 	 	 	 	 
	Date approved:

	 	 	 	By:

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