Document:

Exhibit 10.1

                             AFP Imaging Corporation

                           2004 Equity Incentive Plan

ARTICLE 1.  GENERAL PURPOSE OF PLAN; DEFINITIONS.

1.1. Purpose. The purposes of this 2004 Equity Incentive Plan are (a) to enable
     the Company, and the Company's subsidiaries and affiliates, to attract and
     retain highly qualified personnel who will contribute to the success of the
     Company, including the Company's subsidiaries and certain affiliates, and
     (b) to provide incentives to participants in this 2004 Equity Incentive
     Plan that are linked directly to increases in shareholder value which will
     therefore inure to the benefit of all shareholders of the Company.

1.2. Definitions. For purposes of this Plan, except as otherwise defined in this
     Plan, capitalized terms shall have the meanings assigned to them in this
     Section 1.2.

          "Administrator" means the Board or, if and to the extent the Board
     elects to delegate the administration of the Plan or does not administer
     the Plan, the Committee.

          "Affiliate" means any entity or person that directly, or indirectly
     through one or more intermediaries, controls, is controlled by, or is under
     common control with, another entity, where "control" (including the terms
     "controlled by" and "under common control with") means the possession,
     directly or indirectly, of the power to cause the direction of the
     management and policies of the entity, whether through the ownership of
     voting securities, by contract or otherwise.

          "Associated Award" shall have the meaning assigned to the term in
     Section 8.2.

          "Award" means any award granted under the Plan.

          "Award Agreement" means, with respect to each Award, the signed
     written agreement between the Company and the Participant setting forth the
     terms and conditions of the Award.

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

          "Cause" means the commission of any act of a theft, embezzlement or
     fraud involving the Company or any Parent, Subsidiary or Affiliate of the
     Company or otherwise, or a breach of fiduciary duty to the Company or any
     Parent, Subsidiary or Affiliate of the Company. An Award Agreement or any
     employment agreement with an Eligible Recipient may further define the term
     "Cause" with respect to any Award granted under the Plan to such Eligible
     Recipient.

          "Change of Control" shall have the meaning assigned to such term in
     Section 15.2.

          "Code" means the Internal Revenue Code of 1986, as amended from time
     to time, or any successor thereto.

          "Committee" means the compensation committee of the Board or other any
     committee which the Board may appoint to administer the Plan. To the extent
     necessary and desirable, the Committee shall be composed entirely of
     individuals who meet the qualifications referred to in Section 162(m) of
     the Code, Rule 16b-3 under the Exchange Act and the applicable rules of
     Nasdaq, any stock exchange or automated quotation system on which the
     Common Stock is primarily quoted or listed. If at any time or to any extent
     the Board shall not administer the Plan, then the functions of the Board as
     specified in the Plan shall be exercised by the Committee.

          "Common Stock" means the common stock, with a par value $0.01 per
     share as of the date of adoption of the Plan by the Board, of the Company.

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          "Company" means AFP Imaging Corporation, a New York corporation, or
     any successor corporation.

          "Control" shall have the meaning assigned to the term in the
     definition of Affiliate in this Section 1.2.

          "Disability" means the inability of a Participant to perform
     substantially his or her duties and responsibilities to the Company or to
     any Parent, Subsidiary or Affiliate by reason of a physical or mental
     disability or infirmity for a continuous period of six months, as
     determined by the Administrator. The date of such Disability shall be the
     last day of such six-month period or the date on which the Participant
     submits such medical evidence, satisfactory to the Company, that the
     Participant has a physical or mental disability or infirmity that will
     likely prevent the Participant from performing the Participant's work
     duties for a continuous period of six months or longer, as the case may be.
     An Award Agreement or any employment agreement with an Eligible Recipient
     may further define the term "Disability" with respect to any Award granted
     under the Plan to such Eligible Recipient.

          "Eligible Recipient" means an officer, director, employee, consultant
     or advisor of the Company or of any Parent, Subsidiary or Affiliate. For
     purposes of the Plan, the term "employee" shall include all those
     individuals whose service with or for the Company and/or any Parent,
     Subsidiary or Affiliate of the Company, is within the definition of
     "employee" in the "Rule as to the Use of Form S-8" contained in the General
     Instructions for the registration statement on Form S-8 promulgated by the
     Securities and Exchange Commission.

          "Employee Director" means any director of the Company who is also an
     employee of the Company or of any Parent, Subsidiary or Affiliate.

          "Exchange Act" means the Securities Exchange Act of 1934, as amended
     from time to time.

          "Exercise Price" means the per share price at which a holder of an
     Award may purchase the Shares issuable upon exercise of such Award.

          "Fair Market Value" as of a particular date shall mean the fair market
     value of a share of Common Stock as determined by the Administrator;
     provided, however, that Fair Market Value shall mean (i) if the Common
     Stock is listed or admitted to trade on a national securities exchange, the
     closing price of the Common Stock, as published in The Wall Street Journal,
     of the principal national securities exchange on which the Common Stock is
     so listed or admitted to trade, on such date, or, if there is no trading of
     the Common Stock on such date, then the closing price of the Common Stock
     as quoted on the next preceding date on which there was trading in such
     shares; (ii) if the Common Stock is not listed or admitted to trade on a
     national securities exchange but is listed and quoted on Nasdaq, the last
     sale price for the Common Stock on such date as reported by Nasdaq, or, if
     there is no reported trading of the Common Stock on such date, then the
     last sale price for the Common Stock on the next preceding date on which
     there was trading in the Common Stock; (iii) if the Common Stock is not
     listed or admitted to trade on a national securities exchange and is not
     listed and quoted on Nasdaq, the last sale price, or, if a last sale price
     is not quoted, the mean between the closing bid and asked prices for the
     Common Stock on such date, in either case, as furnished by NASD; (iv) if
     the Common Stock is not listed or admitted to trade on a national
     securities exchange, not listed and quoted on Nasdaq and the last sale
     price and closing bid and asked prices are not furnished by the NASD, the
     last sale price, or, if a last sale price is not quoted, the mean between
     the closing bid and asked prices for the Common Stock on such date, in
     either case, as furnished by the Pink Sheets, or similar organization; (v)
     if the stock is not listed or admitted to trade on a national securities
     exchange, not listed and quoted on Nasdaq and if the last sale price and
     bid and asked prices for the Common Stock are not furnished by the NASD,
     Pink Sheets or a similar organization, the value established in good faith
     by the Administrator; and (vi) in the case of a Limited Stock Appreciation
     Right, the Fair Market Value of a share of Common Stock shall be the
     "Change in Control Price" (as defined in the Award Agreement evidencing
     such Limited Stock Appreciation Right) of a share of Common Stock as of the
     date of exercise.

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          "Family Member" means, with respect to any Participant, any of the
     following:
          (a) such Participant's child, stepchild, grandchild, parent,
     stepparent, grandparent, spouse, former spouse, sibling, niece, nephew,
     mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law,
     sister-in-law, including any such person with such relationship to the
     Participant by adoption;
          (b) any person (other than a tenant or employee) sharing such
     Participant's household;
          (c) a trust in which the persons identified in clauses (a) and (b)
     above have more than fifty percent of the beneficial interest;
          (d) a foundation in which the persons identified in clauses (a) and
     (b) above or the Participant control the management of assets; or
          (e) any other entity in which the persons identified in clauses (a)
     and (b) above or the Participant own more than fifty percent of the voting
     interest.

          "Incentive Stock Option" means any Option intended to be designated as
     an "incentive stock option" within the meaning of Section 422 of the Code.

          "Incumbent Board" means (i) all individuals serving on the Board on
     September 23, 2004, to the extent that they continue to serve as members of
     the Board, and (ii) all individuals who become members of the Board after
     September 23, 2004, if such individuals' election or nomination for
     election as directors was approved by a vote of at least a majority of the
     Board prior to such election, to the extent they continue to serve as
     members of the Board.

          "Limited Stock Appreciation Right" means a Stock Appreciation Right
     that can be exercised only in the event of a "Change in Control" (as
     defined in the Award Agreement evidencing such Limited Stock Appreciation
     Right).

          "Maximum Value" shall have the meaning assigned to the term in Section
     8.2.

          "NASD" means the National Association of Securities Dealers, Inc.

          "Nasdaq" means The Nasdaq Stock Market.

          "Non-Employee Director" means a director of the Company who is not an
     employee of the Company or of any Parent, Subsidiary or Affiliate.

          "Non-Qualified Stock Option" means any Option that is not an Incentive
     Stock Option, including, but not limited to, any Option that provides (as
     of the time such Option is granted) that it will not be treated as an
     Incentive Stock Option.

          "Option" means an option to purchase Shares granted pursuant to
     Article 5 of the Plan.

          "Parent" means any corporation (other than the Company) in an unbroken
     chain of corporations ending with the Company, if each of the corporations
     in the chain (other than the Company) owns stock possessing 50% or more of
     the combined voting power of all classes of stock in one of the other
     corporations in the chain.

          "Participant" means any Eligible Recipient selected by the
     Administrator, pursuant to the Administrator's authority to receive grants
     of Options, Stock Appreciation Rights, Limited Stock Appreciation Rights,
     awards of Restricted Stock, Performance Shares, other types of awards, or
     any combination of the foregoing.

          "Performance Grant" shall have the meaning assigned to the term in
     Section 8.1.

          "Performance Grant Actual Value" shall have the meaning assigned to
     the term in Section 8.1.

          "Performance Grant Award Period" shall have the meaning assigned to
     the term in Section 8.3.

          "Performance Shares" means Shares that are subject to restrictions
     based upon the attainment of specified performance objectives granted
     pursuant to Article 8.

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          "Permitted Transfer" means, as authorized by the Plan and the
     Administrator, with respect to an interest in a Non-Qualified Stock Option,
     any transfer effected by the Participant during the Participant's lifetime
     of an interest in such Non-Qualified Stock Option but only such transfers
     which are by gift or pursuant to domestic relations orders. A permitted
     transfer does not include any transfer for value and neither transfers
     under a domestic relations order in settlement of marital property rights
     or to an entity in which more than 50% of the voting interests are owned by
     Family Members or the Participant in exchange for an interest in that
     entity are deemed transfers for value.

          "Pink Sheets" means Pink Sheets, LLC.

          "Plan" means this 2004 Equity Incentive Plan.

          "Related Employment" means the employment or performance of services
     by an individual for an employer that is neither the Company, any Parent,
     Subsidiary nor Affiliate, provided that (i) such employment or performance
     of services is undertaken by the individual at the request of the Company
     or any Parent, Subsidiary or Affiliate, (ii) immediately prior to
     undertaking such employment or performance of services, the individual was
     employed by or performing services for the Company or any Parent,
     Subsidiary or Affiliate or was engaged in Related Employment, and (iii)
     such employment or performance of services is in the best interests of the
     Company and is recognized by the Administrator, as Related Employment. The
     death or Disability of an individual during a period of Related Employment
     shall be treated, for purposes of this Plan, as if the death or onset of
     Disability had occurred while the individual was employed by or performing
     services for the Company or a Parent, Subsidiary or Affiliate.

          "Restricted Stock" means Shares subject to certain restrictions
     granted pursuant to Article 7.

          "Restricted Period" means the period of time Restricted Stock remains
     subject to restrictions imposed on the Award of such Restricted Stock.

          "Rule 16b-3" shall have the meaning assigned to the term in Section
     2.1.

          "Securities Act" means the Securities Act of 1933, as amended from
     time to time.

          "Shares" means shares of Common Stock reserved for issuance under or
     issued pursuant to the Plan, as adjusted pursuant to Article 4, and any
     successor security.

          "Stock Appreciation Right" means the right pursuant to an Award
     granted under Article 6 to receive an amount equal to the excess, if any,
     of (i) the Fair Market Value, as of the date such Stock Appreciation Right
     or portion thereof is surrendered, of the Shares covered by such right or
     such portion thereof, over (ii) the aggregate exercise price of such right
     or such portion thereof as established by the Administrator at the time of
     the grant of such Award (or such other exercise price thereafter
     established by the Administrator with the consent of the Participant
     granted such Award where required by the Plan).

          "Stock Bonus" means an Award granted pursuant to Article 9.

          "Subsidiary" means any corporation (other than the Company) in an
     unbroken chain of corporations beginning with the Company, if each of the
     corporations (other than the last corporation) in the unbroken chain owns
     stock possessing 50% or more of the total combined voting power of all
     classes of stock in one of the other corporations in the chain.

          "Ten Percent Shareholder" shall have the meaning assigned to the term
     in Section 5.4.

          "Termination" or "Terminated" means, for purposes of the Plan with
     respect to a Participant, that such Participant has for any reason ceased
     to provide services as an employee, officer, director, consultant,
     independent contractor, or advisor to the Company or any Parent, Subsidiary
     or Affiliate of the Company. A Participant will not be deemed to have
     ceased to provide services in the case of (i) sick leave, (ii) military
     leave, or (iii) any other leave of absence approved by the Administrator,
     provided, that such leave is for a period of not more than 90 days, unless
     reemployment or reinstatement upon the expiration of such leave is
     guaranteed by contract or statute. In the case of any Participant on an
     approved leave of absence, the Administrator may make such provisions
     respecting suspension of vesting of any Award previously granted to such
     Participant while such Participant is on leave from the Company or any
     Parent, Subsidiary or Affiliate of the Company as the Administrator may
     deem appropriate, except that in no event may an Option be exercised after
     the expiration of the term set forth in the Award Agreement with respect to
     such Option. The Administrator will have sole discretion to determine
     whether a Participant has ceased to provide services and the applicable
     Termination Date.

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          "Termination Date" means the effective date of Termination, as
     determined by the Administrator.

ARTICLE 2. ADMINISTRATION.

2.1. Administration in Accordance with the Code and Exchange Act. The Plan shall
     be administered in accordance with the requirements of Section 162(m) of
     the Code (but only to the extent necessary and desirable to maintain
     qualification of Awards under the Plan under Section 162(m) of the Code)
     and, to the extent applicable, Rule 16b-3 under the Exchange Act ("Rule
     16b-3") or the rules of the Nasdaq, any stock exchange or automated
     quotation system on which the Common Stock is primarily quoted or listed,
     by the Board or, at the Board's sole discretion, by the Committee, which
     shall be appointed by the Board, and which shall serve at the pleasure of
     the Board.

2.2. Administrator's Powers. Subject to the general purposes, terms and
     conditions of this Plan, the Administrator will have full power to
     implement and carry out this Plan. The Administrator will have the
     authority to:
          (a)  construe and interpret this Plan, any Award Agreement and any
               other agreement or document executed pursuant to this Plan;
          (b)  prescribe, amend and rescind rules and regulations relating to
               this Plan or any Award;
          (c)  select persons to receive Awards;
          (d)  determine the form and terms of Awards;
          (e)  determine the number of Shares or other consideration subject to
               Awards;
          (f)  determine whether Awards will be granted singly, in combination
               with, in tandem with, in replacement of, or as alternatives to,
               other Awards under this Plan or any other incentive or
               compensation plan of the Company or any Parent, Subsidiary or
               Affiliate of the Company;
          (g)  grant waivers of Plan or Award conditions;
          (h)  determine the vesting, exercisability and payment of Awards;
          (i)  correct any defect, supply any omission or reconcile any
               inconsistency in the Plan, any Award or any Award Agreement;
          (j)  make any adjustments necessary or desirable as a result of the
               granting of an Award to an Eligible Participant located outside
               the United States;
          (k)  determine whether an Award has been earned; and
          (l)  make all other determinations necessary or advisable for the
               administration of the Plan.

2.3. Administrator's Discretion Final. Any determination made by the
     Administrator with respect to any Award will be made in the Administrator's
     sole discretion at the time of grant of the Award or, unless in
     contravention of any express term of the Plan or Award, at any later time,
     and such determination will be final and binding on the Company and on all
     persons having an interest in any Award under the Plan.

2.4. Administrator's Method of Acting; Liability. The Administrator may act only
     by a majority of its members then in office, except that the members
     thereof may authorize any one or more of their members or any officer of
     the Company to execute and deliver documents or to take any other
     ministerial action on behalf of the Committee with respect to Awards made
     or to be made to Eligible Participants. No member of the Administrator and
     no officer of the Company shall be liable for anything done or omitted to
     be done by such member or officer, by any other member of the Administrator
     or by any officer of the Company in connection with the performance of
     duties under the Plan, except for such member's or officer's own willful
     misconduct or as expressly provided by law.

ARTICLE 3. PARTICIPATION.

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3.1. Affiliates. If a Parent, Subsidiary or Affiliate of the Company wishes to
     participate in the Plan and its participation shall have been approved by
     the Board, the board of directors or other governing body of the Parent,
     Subsidiary or Affiliate, as the case may be, shall adopt a resolution in
     form and substance satisfactory to the Administrator authorizing
     participation by the Parent, Subsidiary or Affiliate in the Plan. A Parent,
     Subsidiary or Affiliate participating in the Plan may cease to be a
     participating company at any time by action of the Board or by action of
     the board of directors or other governing body of such Parent, Subsidiary
     or Affiliate, which latter action shall be effective not earlier than the
     date of delivery to the Secretary of the Company of a certified copy of a
     resolution of the Parent, Subsidiary or Affiliate's board of directors or
     other governing body taking such action. If the participation in the Plan
     of a Parent, Subsidiary or Affiliate shall terminate, such termination
     shall not relieve the Parent, Subsidiary or Affiliate of any obligations
     theretofore incurred by the Parent, Subsidiary or Affiliate, except as may
     be approved by the Administrator.

3.2. Participants. Incentive Stock Options may only be granted to employees
     (including officers and directors who are also employees) of the Company,
     or any Parent, Subsidiary or Affiliate of the Company. All other Awards may
     be granted to employees, officers, directors, consultants, independent
     contractors and advisors of the Company or any Parent, Subsidiary or
     Affiliate of the Company; provided, that such consultants, contractors and
     advisors render bona fide services to the Company or such Parent,
     Subsidiary or Affiliate of the Company not in connection with the offer and
     sale of securities in a capital-raising transaction. An Eligible
     Participant may be granted more than one Award under the Plan.

ARTICLE 4. AWARDS UNDER THE PLAN.

4.1. Types of Awards. Awards under the Plan may include, but need not be limited
     to, one or more of the following types, either alone or in any combination
     thereof:
          (a)  Options;
          (b)  Stock Appreciation Rights;
          (c)  Restricted Stock;
          (d)  Performance Grants;
          (e)  Stock Bonuses; and
          (f)  any other type of Award deemed by the Committee to be consistent
               with the purposes of the Plan (including, but not limited to,
               Awards of, or options or similar rights granted with respect to,
               unbundled stock units or components thereof, and Awards to be
               made to participants who are foreign nationals or are employed or
               performing services outside the United States).

4.2. Number of Shares Available Under the Plan. Subject to Section 4.4, the
     total number of Shares reserved and available for grant and issuance
     pursuant to the Plan will be 600,000. To the extent that any Award payable
     in Shares is forfeited, canceled, returned to the Company for failure to
     satisfy vesting requirements or upon the occurrence of other forfeiture
     events, or otherwise terminates without payment being made thereunder, the
     Shares covered by such Award will no longer be charged against the
     foregoing 600,000 Share maximum limitation and may again be made subject to
     Award(s) under the Plan.

     Shares may consist, in whole or in part, of authorized and unissued shares
     or treasury shares.

     The number of Shares which are transferred to the Company by a Participant
     to pay the exercise or purchase price of an Award will be subtracted from
     the number of Shares issued with respect to such Award for the purpose of
     counting Shares used under the Plan. Shares withheld to pay withholding
     taxes in connection with the exercise or repayment of an Award will be
     counted as used under the Plan. In addition, shares covered by an Award
     which is settled in cash will not be counted as used under the Plan.

4.3. Reservation of Shares. At all times, the Company shall reserve and keep
     available a sufficient number of Shares as shall be required to satisfy the
     requirements of all outstanding Options granted under the Plan and all
     other outstanding but unexercised Awards granted under the Plan.

4.4. Adjustment in Number of Shares Available Under the Plan. In the event that
     the number of outstanding shares of Common Stock is changed by a stock
     dividend, recapitalization, stock split, reverse stock split, subdivision,
     combination, reclassification or similar change in the capital structure of
     the Company without consideration, then (a) the number of Shares reserved
     for issuance under the Plan, (b) the number of Shares that may be granted
     pursuant to the Plan, and (c) the Exercise Prices of and number of Shares
     subject to outstanding Options and other Awards, will be proportionately
     adjusted, subject to any required action by the Board or the shareholders
     of the Company and compliance with applicable securities laws; provided,
     however, that, upon occurrence of such an event, fractions of a Share will
     not be issued upon exercise of an Award but will, upon such exercise,
     either be replaced by a cash payment equal to the Fair Market Value of such
     fraction of a Share on the effective date of such an event or will be
     rounded down to the nearest whole Share, as determined by the
     Administrator.

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4.5. Rights with Respect to Common Shares and Other Securities.

          (a) Unless otherwise determined by the Administrator, a Participant to
     whom an Award of Restricted Stock has been made (and any person succeeding
     to such Participant's rights with respect to such Award pursuant to the
     Plan) shall have, after issuance of a certificate or copy thereof for the
     number of Shares so awarded and prior to the expiration of the Restricted
     Period or the earlier repurchase of such Shares as provided in the Plan or
     Award Agreement with respect to such Award of Restricted Stock, ownership
     of such Shares, including the right to vote the same and to receive
     dividends or other distributions made or paid with respect to such Shares
     (provided that such Shares, and any new, additional or different shares, or
     other securities or property of the Company, or other forms of
     consideration which the Participant may be entitled to receive with respect
     to such Shares as a result of a stock split, stock dividend or any other
     change in the corporate or capital structure of the Company, shall be
     subject to the restrictions of the Plan as determined by the
     Administrator), subject, however, to the options, restrictions and
     limitations imposed thereon pursuant to the Plan. Notwithstanding the
     foregoing, unless otherwise determined by the Administrator, a Participant
     with whom an Award Agreement is made to issue Shares in the future shall
     have no rights as a shareholder with respect to Shares related to such
     Award Agreement until a stock certificate evidencing such Shares is issued
     to such Participant.

          (b) Unless otherwise determined by the Administrator, a Participant to
     whom a grant of Stock Options, Stock Appreciation Rights, Performance
     Grants or any other Award is made (and any person succeeding to such
     Participant's rights pursuant to the Plan) shall have no rights as a
     shareholder with respect to any Shares or as a holder with respect to other
     securities, if any, issuable pursuant to any such Award until the date a
     stock certificate evidencing such Shares or other instrument of ownership,
     if any, is issued to such Participant. Except as provided in Section 4.4,
     no adjustment shall be made for dividends, distributions or other rights
     (whether ordinary or extraordinary, and whether in cash, securities, other
     property or other forms of consideration, or any combination thereof) for
     which the record date is prior to the date such stock certificate or other
     instrument of ownership, if any, is issued.

ARTICLE 5. STOCK OPTIONS.

5.1. Grant; Determination of Type of Option. The Administrator may grant one or
     more Options to an Eligible Participant and will determine (a) whether each
     such Option will be an Incentive Stock Option or a Non-Qualified Stock
     Option, (b) the number of Shares subject to each such Option, (c) the
     Exercise Price of each such Option, (d) the period during which each such
     Option may be exercised, and (e) all other terms and conditions of each
     such Option, subject to the terms and conditions of this Article 5. The
     Administrator may grant an Option either alone or in conjunction with Stock
     Appreciation Rights, Performance Grants or other Awards, either at the time
     of grant or by amendment thereafter. The maximum number of Shares that may
     be granted under Options to any Participant during any calendar year shall
     be limited to 150,000 Shares (subject to adjustment as provided in Section
     4.4).

5.2. Form of Option Award Agreement. Each Option granted under the Plan will be
     evidenced by an Award Agreement which will expressly identify the Option as
     an Incentive Stock Option or a Non-Qualified Stock Option, and will be in
     such form and contain such provisions (which need not be the same for each
     Participant or Option) as the Administrator may from time to time approve,
     and which will comply with and be subject to the terms and conditions of
     the Plan.

5.3. Date of Grant. The date of grant of an Option will be the date on which the
     Administrator makes the determination to grant such Option, unless
     otherwise specified by the Administrator.

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5.4. Exercise Period. Each Option shall be exercisable within the times or upon
     the occurrence of one or more events determined by the Administrator and
     set forth in the Award Agreement governing such Option; provided, however,
     that no Option will be exercisable after the expiration of ten years from
     the date the Option is granted; and provided, further, however, that no
     Incentive Stock Option granted to a person who directly or by attribution
     owns more than 10% of the total combined voting power of all classes of
     stock of the Company or of any Parent, Subsidiary or Affiliate of the
     Company (each, a "Ten Percent Shareholder") will be exercisable after the
     expiration of five years from the date such Incentive Stock Option is
     granted. The Administrator also may provide for an Option to become
     exercisable at one time or from time to time, periodically or otherwise, in
     such number of Shares or percentage of Shares as the Administrator
     determines. Unless otherwise determined by the Administrator, an Option
     shall be exercisable as follows:
          (a)  up to 25% of the number of Shares subject to such Option
               commencing on the first anniversary of the date of grant of such
               Option;
          (b)  up to an additional 25% of the number of Shares subject to such
               Option commencing on the second anniversary of the date of grant
               of such Option;
          (c)  up to an additional 25% of the number of Shares subject to such
               Option commencing on the third anniversary of the date of grant
               of such Option; and
          (d)  up to an additional 25% of the number of Shares subject to such
               Option commencing on the fourth anniversary of the date of grant
               of such Option.

5.5. Exercise Price. The Exercise Price of an Option will be determined by the
     Administrator when the Option is granted and may be not less than 85% of
     the per share Fair Market Value of the Shares subject to such Option on the
     date of grant of such Option; provided, however, that: (a) the Exercise
     Price of an Incentive Stock Option will be not less than 100% of the per
     share Fair Market Value of such Shares on the date of such grant and (b)
     the Exercise Price of any Incentive Stock Option granted to a Ten Percent
     Shareholder will not be less than 110% of the per share Fair Market Value
     of such Shares on the date of such grant. Payment for the Shares purchased
     shall be made in accordance with Article 10 of the Plan.

5.6. Method of Exercise. An Option may be exercised only by delivery to the
     Company of an irrevocable written exercise notice (a) identifying the
     Option being exercised, (b) stating the number of Shares being purchased,
     (c) providing any other matters required by the Award Agreement with
     respect to such Option, and (d) containing such representations and
     agreements regarding Participant's investment intent and access to
     information and other matters, if any, as may be required or desirable by
     the Company to comply with applicable securities laws. Such exercise notice
     shall be accompanied by payment in full of the Exercise Price for the
     number of Shares being purchased in accordance with Article 10 and the
     executed Award Agreement with respect to such Option.

5.7. Termination. Unless otherwise provided in an Award Agreement, exercise of
     Options shall be subject to the following:

          (a) If the Participant is Terminated for any reason except death or
     Disability, then the Participant may exercise each of such Participant's
     Options (i) only to the extent that such Options would have been
     exercisable on the Termination Date and (ii) no later than three months
     after the Termination Date (or such longer time period not exceeding five
     years as may be determined by the Administrator, with any exercise beyond
     three months after the Termination Date deemed to be an exercise of an
     Non-Qualified Stock Option), but in any event, no later than the original
     expiration date of such Option;
          (b) If the Participant is Terminated because of Participant's death or
     Disability (or the Participant dies within three months after a Termination
     other than for Cause or because of Participant's Disability), then each of
     such Participant's Options (i) may be exercised only to the extent that
     such Option would have been exercisable by Participant on the Termination
     Date and (ii) must be exercised by Participant (or Participant's legal
     representative or authorized assignee) no later than twelve months after
     the Termination Date (or such longer time period not exceeding five years
     as may be determined by the Administrator, with any such exercise beyond
     (A) three months after the Termination Date when the Termination is for any
     reason other than the Participant's death or Disability or (B) twelve
     months after the Termination Date when the Termination is because of
     Participant's death or Disability, deemed to be an exercise of a
     Non-Qualified Stock Option), but in any event no later than the original
     expiration date of such Option;
          (c) Notwithstanding the provisions in paragraphs 5.7(a) and 5.7(b), if
     a Participant is terminated for Cause, neither the Participant, the
     Participant's estate nor such other person who may then hold an Option
     shall be entitled to exercise such Option whatsoever, whether or not, after
     the Termination Date, the Participant may receive payment from the Company
     or any Parent, Subsidiary or Affiliate of the Company for vacation pay, for
     services rendered prior to the Termination Date, for services rendered for
     the day on which Termination occurs, for salary in lieu of notice, for
     severance or for any other benefits; provided, however, in making such a
     determination, the Administrator shall give the Participant an opportunity
     to present to the Administrator evidence on Participant's behalf that the
     provisions of this paragraph 5.7(c) should not apply and, in the
     alternative, paragraph 5.7(a) or 5.7(b) shall apply; provided, further,
     however, that, for the purpose of this paragraph 5.7(c), Termination shall
     be deemed to occur on the date when the Company dispatches notice or advice
     to the Participant that such Participant is Terminated.

                                       8
<PAGE>

5.8. Limitations on Exercise. The Administrator may specify a reasonable minimum
     number of Shares that may be purchased on any exercise of an Option,
     provided, that such minimum number will not prevent Participant from
     exercising the Option for the full number of Shares for which the Option is
     then exercisable.

5.9. Limitations on Incentive Stock Options. The aggregate Fair Market Value (as
     determined as of the date of grant) of Shares with respect to which an
     Incentive Stock Option are exercisable for the first time by a Participant
     during any calendar year (under the Plan or under any other incentive stock
     option plan of the Company, and any Parent, Subsidiary and Affiliate of the
     Company) will not exceed $100,000. This $100,000 limitation shall be
     applied by taking Options into account in the order in which granted. An
     Incentive Stock Option shall be deemed to be a Non-Qualified Stock Option
     to the extent that the foregoing $100,000 limitation is exceeded. In the
     event that the Code or the regulations promulgated thereunder are amended
     after the effective date of the Plan to provide for a different limit on
     the Fair Market Value of Shares permitted to be subject to Incentive Stock
     Options, such different limit will be automatically incorporated herein and
     will apply to any Options granted after the effective date of such
     amendment.

5.10. Modification, Extension or Renewal. The Administrator may modify, extend
     or renew any outstanding Option and authorize the grant of one or more new
     Options in substitution therefor; provided that any such action may not,
     without the written consent of a Participant, impair any of such
     Participant's rights under any Option previously granted. Any outstanding
     Incentive Stock Option that is modified, extended, renewed or otherwise
     altered will be treated in accordance with Section 424(h) and other
     applicable provisions of the Code.

5.11. No Disqualification. Notwithstanding any other provision in the Plan, no
     term of the Plan relating to an Incentive Stock Option will be interpreted,
     amended or altered, nor will any discretion or authority granted under the
     Plan be exercised, so as to disqualify the Plan under Section 422 of the
     Code or, without the consent of the Participant affected, to disqualify any
     Incentive Stock Option under Section 422 of the Code.

5.12. Prohibition Against Transfer. No Option may be sold, assigned,
     transferred, pledged, hypothecated or otherwise disposed of, except by will
     or the laws of descent and distribution or pursuant to a domestic relations
     order, and a Participant's Option shall be exercisable during such
     Participant's lifetime only by such Participant or such person receiving
     such Option pursuant to a domestic relations order.

ARTICLE 6. STOCK APPRECIATION RIGHTS.

6.1. Grant of Stock Appreciation Rights.
          (a) The Administrator may grant Stock Appreciation Rights either
     alone, or in conjunction with the grant of an Option, Performance Grant or
     other Award, either at the time of grant or by amendment thereafter. Each
     Award of Stock Appreciation Rights granted under the Plan shall be
     evidenced by an instrument in such form as the Administrator shall
     prescribe from time to time in accordance with the Plan and shall comply
     with the following terms and conditions, and with such other terms and
     conditions, including, but not limited to, restrictions upon the Award of
     Stock Appreciation Rights or the Shares issuable upon exercise thereof, as
     the Administrator shall establish.
          (b) The Administrator shall determine the number of Shares to be
     subject to each Award of Stock Appreciation Rights. The number of Shares
     subject to an outstanding Award of Stock Appreciation Rights may be reduced
     on a share-for-share or other appropriate basis, as determined by the
     Administrator, to the extent that Shares under such Award of Stock
     Appreciation Rights are used to calculate the cash, Shares, or other
     securities or property of the Company, or other forms of payment, or any
     combination thereof, received pursuant to exercise of an Option attached to
     such Award of Stock Appreciation Rights, or to the extent that any other
     Award granted in conjunction with such Award of Stock Appreciation Rights
     is paid.

6.2. Prohibition Against Transfer. No Award of Stock Appreciation Rights may be
     sold, assigned, transferred, pledged, hypothecated or otherwise disposed
     of, except by will or the laws of the descent and distribution or pursuant
     to a domestic relations order, and Stock Appreciation Rights Awarded to a
     Participant shall be exercisable during such Participant's lifetime only by
     such Participant or such person receiving such Option pursuant to a
     domestic relations order. Unless the Administrator determines otherwise,
     the Award of Stock Appreciation Rights to a Participant shall not be
     exercisable for at least six months after the date of grant, unless such
     Participant is Terminated before the expiration of such six-month period by
     reason of such Participant's Disability or death.

                                       9
<PAGE>

6.3. Exercise. The Award of Stock Appreciation Rights shall not be exercisable:
          (a) in the case of any Award of Stock Appreciation Rights that are
     attached to an Incentive Stock Option granted to a Ten Percent Employee,
     after the expiration of five years from the date such Incentive Stock
     Option is granted, and, in the case of any other Award of Stock
     Appreciation Rights, after the expiration of ten years from the date of
     such Award. Any Award of Stock Appreciation Rights may be exercised during
     such period only at such time or times and in such installments as the
     Administrator may establish;
          (b) unless the Option or other Award to which the Award of Stock
     Appreciation Rights is attached is at the time exercisable; and
          (c) unless the Participant exercising the Award of Stock Appreciation
     Rights has been, at all times during the period beginning with the date of
     the grant thereof and ending on the date of such exercise, employed by or
     otherwise performing services for the Company or any Parent, Subsidiary or
     Affiliate of the Company, except that
          (i) in the case of any Award of Stock Appreciation Rights (other than
     those attached to an Incentive Stock Option), if such Participant is
     Terminated solely by reason of a period of Related Employment, the
     Participant may, during such period of Related Employment, exercise the
     Award of Stock Appreciation Rights as if such Participant had not been
     Terminated;
          (ii) if such Participant is Terminated by reason of such Participant's
     Disability or early, normal or deferred retirement under an approved
     retirement program of the Company or any Parent, Subsidiary or Affiliate of
     the Company (or such other plan or arrangement as may be approved by the
     Administrator for this purpose) while holding an Award of Stock
     Appreciation Rights which has not expired and has not been fully exercised,
     such Participant may, at any time within three years (or such other period
     determined by the Administrator) after the Termination Date (but in no
     event after the Award of Stock Appreciation Rights has expired), exercise
     the Award of Stock Appreciation Rights with respect to any Shares as to
     which such Participant could have exercised the Award of Stock Appreciation
     Rights on the Termination Date, or with respect to such greater number of
     Shares as determined by the Administrator;
          (iii) if such Participant is Terminated for reasons other than Related
     Employment, Disability, early, normal or deferred retirement or death while
     holding an Award of Stock Appreciation Rights which has not expired and has
     not been fully exercised, such person may exercise the Award of Stock
     Appreciation Rights at any time during the period, if any, which the
     Administrator approves (but in no event after the Award of Stock
     Appreciation Rights expires) following such Participant's Termination Date
     with respect to any Shares as to which such Participant could have
     exercised the Award of Stock Appreciation Rights on such Participant's
     Termination Date or as otherwise permitted by the Administrator; or
          (iv) if any Participant to whom an Award of Stock Appreciation Rights
     has been granted shall die holding an Award of Stock Appreciation Rights
     which has not expired and has not been fully exercised, such Participant's
     executors, administrators, heirs or distributees, as the case may be, may,
     at any time within one year (or such other period determined by the
     Administrator) after the date of death (but in no event after the Award of
     Stock Appreciation Rights has expired), exercise the Award of Stock
     Appreciation Rights with respect to any Shares as to which the decedent
     Participant could have exercised the Award of Stock Appreciation Rights at
     the time of such death, or with respect to such greater number of Shares as
     may be determined by the Administrator.

6.4. Exercise.
          (a) An Award of Stock Appreciation Rights shall entitle the
     Participant (or any person entitled to act under the provisions of clause
     (iv) of Paragraph 6.3(c)) to either (i) exercise such Award and receive
     payment in accordance with such Award or (ii) surrender unexercised the
     Option (or other Award) to which the Stock Appreciation Rights is attached
     (or any portion of such Option or other Award) to the Company and to
     receive from the Company in exchange therefor, without payment to the
     Company, that number of Shares having an aggregate value equal to the
     excess of the Fair Market Value of one Share, at the time of such exercise,
     over the Exercise Price per share, times the number of Shares subject to
     the Award or the Option (or other Award), or portion thereof, which is so
     exercised or surrendered, as the case may be. The Administrator shall be
     entitled to elect to settle the obligation arising out of the exercise of
     Stock Appreciation Rights by the payment of cash or other securities or
     property of the Company, or other forms of payment, or any combination
     thereof, as determined by the Administrator, equal to the aggregate value
     of the Shares the Company would otherwise be obligated to deliver. Any such
     election by the Administrator shall be made as soon as practicable after
     the receipt by the Company of written notice of the exercise of such Stock
     Appreciation Rights. The value of a Share, other securities or property of
     the Company, or other forms of payment determined by the Administrator for
     this purpose shall be the Fair Market Value of a Share on the last business
     day next preceding the date of the election to exercise such Stock
     Appreciation Rights, unless the Administrator determines otherwise and is
     set forth in the Award Agreement with respect to such Stock Appreciation
     Rights.

                                       10
<PAGE>

          (b) An Award of Stock Appreciation Rights may provide that such Stock
     Appreciation Rights shall be deemed to have been exercised at the close of
     business on the business day preceding the expiration date of such Stock
     Appreciation Rights or of the related Option (or other Award), or such
     other date as specified by the Administrator, if at such time such Stock
     Appreciation Rights has a positive value. Such deemed exercise shall be
     settled or paid in the same manner as a regular exercise thereof as
     provided in Paragraph 6.4(a).

6.5. Fractional Shares. No fractional shares may be delivered under this Article
     6, but, in lieu thereof, a cash or other adjustment shall be made as
     determined by the Administrator.

ARTICLE 7. RESTRICTED STOCK.

7.1. Grant. An Award of Restricted Stock is an offer by the Company to sell to
     an Eligible Participant Shares that are subject to restrictions. The
     Administrator will determine to whom an offer will be made, the number of
     Shares the person may purchase, the Exercise Price to be paid, the
     restrictions to which the Shares will be subject, and all other terms and
     conditions of the Restricted Stock Award, subject to the provisions of this
     Article 7.

7.2. Form of Restricted Stock Award. All purchases under an Award of Restricted
     Stock will be evidenced by an Award Agreement that will be in such form
     (which need not be the same for each Award of Restricted Stock or
     Participant) as the Administrator will from time to time approve, and will
     comply with and be subject to the terms and conditions of the Plan. The
     offer of Restricted Stock will be accepted by the Participant's execution
     and delivery of the Award Agreement evidencing the offer to purchase the
     Restricted Stock and full payment for the Shares to the Company within 30
     days from the date such Award Agreement is tendered to such Eligible
     Participant. If such Eligible Participant does not execute and deliver such
     Award Agreement along with full payment for the Shares to the Company
     within such 30 day period, then such offer will terminate, unless otherwise
     determined by the Administrator.

7.3. Purchase Price. The Exercise Price of Shares sold pursuant to an Award of
     Restricted Stock will be determined by the Administrator on the date such
     Award is granted, except in the case of a sale to a Ten Percent
     Shareholder, in which case the Exercise Price will be 100% of the per share
     Fair Market Value on the date such Award is granted of the Shares subject
     to the Award. Payment of the Exercise Price may be made in accordance with
     Article 10 of the Plan.

7.4. Terms of Restricted Stock Awards. Each Award of Restricted Stock shall be
     subject to such restrictions as the Administrator may impose. These
     restrictions may be based upon completion of a specified number of years of
     service with the Company or upon completion of the performance goals as set
     out in advance in the Participant's individual Award Agreement. Awards of
     Restricted Stock may vary from Participant to Participant and between
     groups of Participants. Prior to the grant of an Award of Restricted Stock,
     the Administrator shall:
          (a)  determine the nature, length and starting date of any performance
               period for the Restricted Stock Award;
          (b)  select from among the performance factors to be used to measure
               performance goals, if any; and
          (c)  determine the number of Shares that may be awarded to the
               Participant.

     Prior to the payment of any Restricted Stock pursuant to an Award, the
     Administrator shall determine the extent to which such Restricted Stock
     Award has been earned. Performance periods may overlap and Participants may
     participate simultaneously with respect to Restricted Stock Awards that are
     subject to different performance periods and having different performance
     goals and other criteria.

7.5. Termination During Performance Period. If a Participant is Terminated
     during a performance period with respect to any Award of Restricted Stock
     for any reason, then such Participant will be entitled to payment (whether
     in Shares, cash or otherwise) with respect to the Restricted Stock Award
     only to the extent earned as of the date of Termination in accordance with
     the Award Agreement with respect to such Restricted Stock, unless the terms
     of such Award Agreement provide otherwise or the Administrator determines
     otherwise.

ARTICLE 8. PERFORMANCE GRANTS.

8.1. Award. The Award of a Performance Grant to a Participant will entitle such
     Participant to receive a specified amount (the "Performance Grant Actual
     Value") as determined by the Administrator; provided that the terms and
     conditions specified in the Plan and in the Award of such Performance Grant
     are satisfied. Each Award of a Performance Grant shall be subject to the
     terms and conditions set forth in this Article 8 and such other terms and
     conditions, including, but not limited to, restrictions upon any cash,
     Shares, other securities or property of the Company, or other forms of
     payment, or any combination thereof, issued in respect of the Performance
     Grant, as the Administrator shall establish, shall be embodied in an Award
     Agreement in such form and substance as is approved by the Administrator.

                                       11
<PAGE>

8.2. Terms. The Administrator shall determine the value or range of values of a
     Performance Grant to be awarded to each Participant selected for an Award
     of a Performance Grant and whether or not such Performance Grant is granted
     in conjunction with an Award of Options, Stock Appreciation Rights,
     Restricted Stock or other type of Award, or any combination thereof, under
     the Plan (which may include, but need not be limited to, deferred Awards)
     concurrently or subsequently granted to such Participant (the "Associated
     Award"). As determined by the Administrator, the maximum value of each
     Performance Grant (the "Maximum Value") shall be: (a) an amount fixed by
     the Administrator at the time the award is made or amended thereafter; (b)
     an amount which varies from time to time based in whole or in part on the
     then current Fair Market Value of a Share, other securities or property of
     the Company, or other securities or property, or any combination thereof;
     or (c) an amount that is determinable from criteria specified by the
     Administrator.

     Performance Grants may be issued in different classes or series having
     different names, terms and conditions. In the case of a Performance Grant
     awarded in conjunction with an Associated Award, the Performance Grant may
     be reduced on an appropriate basis to the extent that the Associated Award
     has been exercised, paid to or otherwise received by the participant, as
     determined by the Administrator.

8.3. Award Period. The award period ("Performance Grant Award Period") in
     respect of any Performance Grant shall be a period determined by the
     Administrator. At the time each Performance Grant is made, the
     Administrator shall establish performance objectives to be attained within
     the Performance Grant Award Period as the means of determining the
     Performance Grant Actual Value of such Performance Grant. The performance
     objectives shall be based on such measure or measures of performance, which
     may include, but need not be limited to, the performance of the
     Participant, the Company, one or more Subsidiary, Parent or Affiliate of
     the Company, or one or more of divisions or units thereof, or any
     combination of the foregoing, as the Administrator shall determine, and may
     be applied on an absolute basis or be relative to industry or other
     indices, or any combination thereof. Each Performance Grant Actual Value of
     a Performance Grant shall be equal to the Performance Grant Maximum Value
     of such Performance grant only if the performance objectives are attained
     in full, but the Administrator shall specify the manner in which the
     Performance Grant Actual Value shall be determined if the performance
     objectives are met in part. Such performance measures, the Performance
     Grant Actual Value or the Performance Grant Maximum Value, or any
     combination thereof, may be adjusted in any manner by the Administrator at
     any time and from time to time during or as soon as practicable after the
     Performance Grant Award Period, if it determines that such performance
     measures, the Performance Grant Actual Value or the Performance Grant
     Maximum Value, or any combination thereof, are not appropriate under the
     circumstances.

8.4. Termination. The rights of a Participant in Performance Grants awarded to
     such Participant shall be provisional and may be canceled or paid in whole
     or in part, all as determined by the Administrator, if such Participant's
     continuous employment or performance of services for the Company, any
     Parent, Subsidiary and Affiliate of the Company shall terminate for any
     reason prior to the end of the Performance Grant Award Period, except
     solely by reason of a period of Related Employment.

8.5. Determination of Performance Grant Actual Values. The Committee shall
     determine whether the conditions of Sections 8.2 or 8.3 have been met and,
     if so, shall ascertain the Performance Grant Actual Value of Performance
     Grants. If a Performance Grant has no Performance Grant Actual Value, the
     Award of such Performance Grant shall be deemed to have been canceled and
     the Associated Award, if any, may be canceled or permitted to continue in
     effect in accordance with such Associated Award's terms. If a Performance
     Grant has a Performance Grant Actual Value and:
          (a) was not awarded in conjunction with an Associated Award, the
     Administrator shall cause an amount equal to the Performance Grant Actual
     Value of such Performance Grant to be paid to the Participant or the
     Participant's beneficiary as provided below; or
          (b) was awarded in conjunction with an Associated Award, the
     Administrator shall determine, in accordance with criteria specified by the
     Administrator, whether to (i) to cancel such Performance Grant, in which
     event no amount in respect thereof shall be paid to the Participant or the
     Participant's beneficiary, and the Associated Award may be permitted to
     continue in effect in accordance with the Associated Award's terms, (ii)
     pay the Performance Grant Actual Value to the Participant or the
     Participant's beneficiary as provided below, in which event such Associated
     Award may be canceled, or (iii) pay to the Participant or the Participant's
     beneficiary as provided below, the Performance Grant Actual Value of only a
     portion of such Performance Grant, in which case a complementary portion of
     the Associated Award may be permitted to continue in effect in accordance
     with its terms or be canceled, as determined by the Administrator.

                                       12
<PAGE>

     Such determination by the Administrator shall be made as promptly as
     practicable following the end of the Performance Grant Award Period or upon
     the earlier termination of employment or performance of services, or at
     such other time or times as the Administrator shall determine, and shall be
     made pursuant to criteria specified by the Administrator.

8.6. Payment. Payment of any amount in respect of the Performance Grants which
     the Administrator determines to pay as provided in this Article 8 shall be
     made by the Company as promptly as practicable after the end of the
     Performance Grant Award Period or at such other time or times as the
     Administrator shall determine, and may be made in cash, Shares, other
     securities or property of the Company, or other forms of payment, or any
     combination thereof or in such other manner, as determined by the
     Administrator. Notwithstanding anything in this Article 8 to the contrary,
     the Administrator may determine and pay out a Performance Grant Actual
     Value of a Performance Grant at any time during the Performance Grant Award
     Period.

ARTICLE 9. STOCK BONUSES.

9.1. Awards of Stock Bonuses. A Stock Bonus is an Award of Shares (which may
     consist of Restricted Stock) for services rendered to the Company or any
     Parent, Subsidiary or Affiliate of the Company. A Stock Bonus may be
     awarded for services previously rendered to the Company, or any Parent,
     Subsidiary or Affiliate of the Company, pursuant to an Award Agreement that
     will be in such form (which need not be the same for each Participant) as
     the Administrator will from time to time approve, and will comply with and
     be subject to the terms and conditions of the Plan. A Stock Bonus may be
     awarded upon satisfaction of such performance goals as are set out in
     advance in the Participant's individual Award Agreement that will be in
     such form (which need not be the same for each Participant) as the
     Administrator will from time to time approve, and will comply with and be
     subject to the terms and conditions of the Plan. Stock Bonuses may vary
     from Participant to Participant and between groups of Participants, and may
     be based upon the achievement of the Company, any Parent, Subsidiary or
     Affiliate of the Company and/or individual performance factors or upon such
     other criteria as the Administrator may determine.

9.2. Terms of Stock Bonuses. The Administrator will determine the number of
     Shares to be awarded to the Participant. If the Stock Bonus is being earned
     upon the satisfaction of performance goals set forth in an Award Agreement,
     then the Administrator will:
          (a)  determine the nature, length and starting date of any performance
               period for each Stock Bonus;
          (b)  select from among the performance factors to be used to measure
               the performance, if any; and
          (c)  determine the number of Shares that may be awarded to the
               Participant

     Prior to the payment of any Stock Bonus, the Administrator shall determine
     the extent to which such Stock Bonuses have been earned. Performance
     periods may overlap and Participants may participate simultaneously with
     respect to Stock Bonuses that are subject to different performance periods
     and different performance goals and other criteria. The number of Shares
     may be fixed or may vary in accordance with such performance goals and
     criteria as may be determined by the Administrator. The Administrator may
     adjust the performance goals applicable to the Stock Bonuses to take into
     account changes in law and accounting or tax rules and to make such
     adjustments as the Administrator deems necessary or appropriate to reflect
     the impact of extraordinary or unusual items, events or circumstances to
     avoid windfalls or hardships.

9.3. Form of Payment. The earned portion of a Stock Bonus shall be paid
     currently or on a deferred basis with such interest or dividend equivalent,
     if any, as the Administrator may determine. Payment may be made in the form
     of cash or whole Shares or a combination thereof, either in a lump sum
     payment or in installments, all as the Administrator will determine.

ARTICLE 10. PAYMENT FOR SHARE PURCHASES.

10.1. Payment. Payment for Shares purchased pursuant to this Plan may be made in
     cash (by check) or, where expressly approved for the Participant by the
     Administrator and where permitted by law:
          (a) by cancellation of indebtedness of the Company to the Participant;
          (b) by surrender of shares of Common Stock that either (i) have been
     owned by the Participant for more than six months and have been paid for
     within the meaning of Rule 144 promulgated under the Securities Act (and,
     if such shares were purchased from the Company by use of a promissory note,
     such note has been fully paid with respect to such shares) or (ii) were
     obtained by Participant in the public market;

                                       13
<PAGE>

          (c) by tender of a full recourse promissory note having such terms as
     may be approved by the Administrator and bearing interest at a rate
     sufficient to avoid imputation of income under Sections 483 and 1274 of the
     Code; provided, however, that Participants who are not employees or
     directors of the Company will not be entitled to purchase Shares with a
     promissory note unless the note is secured by collateral other than the
     Shares satisfactory to the Administrator;
          (d) by waiver of compensation due or accrued to the Participant for
     services rendered;
          (e) with respect only to purchases upon exercise of an Option, and
     provided that a public market for the Company's stock exists, (i) through a
     "same day sale" commitment from the Participant and a broker-dealer that is
     a member of the NASD whereby the Participant irrevocably elects to exercise
     the Option and to sell a portion of the Shares so purchased to pay for the
     Exercise Price, and whereby such broker-dealer irrevocably commits upon
     receipt of such Shares to forward the Exercise Price directly to the
     Company, or (ii) through a "margin" commitment from the Participant and
     such broker-dealer whereby the Participant irrevocably elects to exercise
     the Option and to pledge the Shares so purchased to such broker-dealer in a
     margin account as security for a loan from such broker-dealer in the amount
     of the Exercise Price, and whereby such broker-dealer irrevocably commits
     upon receipt of such Shares to forward the Exercise Price directly to the
     Company; or
          (f) by any combination of the foregoing.

10.2. Loan Guarantees. The Company, in its sole discretion, may assist a
     Participant in paying for Shares purchased under the Plan by authorizing a
     guarantee by the Company of a third-party loan to the Participant.

ARTICLE 11. DEFERRAL OF COMPENSATION.

11.1. Deferral of Compensation. The Administrator shall determine whether or not
     an Award to a Participant shall be made in conjunction with deferral of
     such Participant's salary, bonus or other compensation, or any combination
     thereof, and whether or not such deferred amounts may be:
          (a) forfeited to the Company or to other Participants, or any
     combination thereof, under certain circumstances (which may include, but
     need not be limited to, certain types of Termination of employment or
     performance of services for the Company, or any Parent, Subsidiary or
     Affiliate of the Company);
          (b) subject to increase or decrease in value based upon the attainment
     of or failure to attain, respectively, certain performance measures; and/or
          (c) credited with income equivalents (which may include, but need not
     be limited to, interest, dividends or other rates of return) until the date
     or dates of payment of such Award, if any.

ARTICLE 12. DEFERRED PAYMENT OF AWARDS.

12.1. Deferred Payment of Awards. The Administrator may specify that the payment
     of all or any portion of cash, Shares, other securities or property of the
     Company, or any other form of payment, or any combination thereof, under an
     Award shall be deferred until a later date. Deferrals shall be for such
     periods or until the occurrence of such events, and upon such terms, as the
     Administrator shall determine. Deferred payments of Awards may be made by
     undertaking to make payment in the future based upon the performance of
     certain investment equivalents (which may include, but need not be limited
     to, government securities, Shares, other securities, property or
     consideration, or any combination thereof), together with such additional
     amounts of income equivalents (which may be compounded and may include, but
     need not be limited to, interest, dividends or other rates of return, or
     any combination thereof) as may accrue thereon until the date or dates of
     payment, such investment equivalents and such additional amounts of income
     equivalents to be determined by the Administrator.

ARTICLE 13. AMENDMENT OR SUBSTITUTION OF AWARDS UNDER THE PLAN.

13.1. Amendment or Substitution of Awards Under the Plan. The terms of any
     outstanding Award under the Plan may be amended from time to time by the
     Administrator in any manner that the Administrator deems appropriate
     (including, but not limited to, acceleration of the date of exercise of any
     Award and/or payments thereunder, or reduction of the Exercise Price of an
     Award); provided, however, that no such amendment shall adversely affect in
     a material manner any right of a Participant under such Award without the
     Participant's written consent. The Administrator may permit or require
     holders of Awards to surrender outstanding Awards as a condition precedent
     to the grant of new Awards under the Plan.

                                       14
<PAGE>

ARTICLE 14. DESIGNATION OF BENEFICIARY BY PARTICIPANT.

14.1. Designation of Beneficiary by Participant. A Participant may designate one
     or more beneficiaries to receive any rights and payments to which such
     Participant may be entitled in respect of any Award in the event of such
     Participant's death. Such designation shall be on a written form acceptable
     to and filed with the Administrator. The Administrator shall have the right
     to review and approve beneficiary designations. A Participant may change
     the Participant's beneficiary(ies) from time to time in the same manner as
     the original designation, unless such Participant has made an irrevocable
     designation. Any designation of beneficiary under the Plan (to the extent
     it is valid and enforceable under applicable law) shall be controlling over
     any other disposition, testamentary or otherwise, as determined by the
     Administrator. If no designated beneficiary survives the Participant and is
     living on the date on which any right or amount becomes payable to such
     Participant's beneficiary(ies), such payment will be made to the legal
     representatives of the Participant's estate, and the term "beneficiary" as
     used in the Plan shall be deemed to include such person or persons. If
     there is any question as to the legal right of any beneficiary to receive a
     distribution under the Plan, the Administrator may determine that the
     amount in question be paid to the legal representatives of the estate of
     the Participant, in which event the Company, the Administrator, the Board
     and the Committee and the members thereof will have no further liability to
     any person or entity with respect to such amount.

ARTICLE 15. CHANGE IN CONTROL.

15.1. Effect of a Change in Control. An Award Agreement may provide that, upon a
     Change in Control, all or any portion of the Award shall automatically
     become immediately vested and exercisable, that restrictions relating to
     the Award shall lapse or that the Award shall become immediately payable.

15.2. Change of Control. For this purpose, a Change in Control shall be deemed
     to occur when and only when any of the following events first occurs:
          (a) any person who is not currently a shareholder of the Company (or
     does not currently have the right to acquire pursuant to any agreement, or
     upon exercise of conversion rights, warrants, options or otherwise,
     securities of the Company) becomes the beneficial owner, directly or
     indirectly, of securities of the Company representing 50% or more of the
     combined voting power of the Company's then outstanding voting securities;
          (b) members of the Incumbent Board cease to constitute a majority of
     the Board without the approval of the remaining members of the Incumbent
     Board; or
          (c) any merger (other than a merger where the Company is the survivor
     and there is no accompanying Change in Control under clauses (a) or (b) of
     this Section 15.2), consolidation, liquidation or dissolution of the
     Company, or the sale of all or substantially all of the assets of the
     Company.

     Notwithstanding the foregoing, a Change in Control shall not be deemed to
     occur pursuant to clause (a) of this Section 15.2 solely because 50% or
     more of the combined voting power of the Company's outstanding securities
     is acquired by one or more employee benefit plans maintained by the Company
     or by any other employer, the majority interest in which is held, directly
     or indirectly, by the Company. For purposes of this Article 15, the terms
     "person" and "beneficial owner" shall have the meaning set forth in
     Sections 3(a) and 13(d) of the Exchange Act, and in the regulations
     promulgated thereunder.

ARTICLE 16. PLAN AMENDMENT OR SUSPENSION.

16.1. Plan Amendment or Suspension. The Plan may be amended or suspended in
     whole or in part at any time and from time to time by the Board, but no
     amendment shall be effective unless and until the same is approved by
     shareholders of the Company where the failure to obtain such approval would
     adversely affect the compliance of the Plan with Sections 162 and 422 of
     the Code, Rule 16b-3 and/or with any other applicable law, rule or
     regulation. No amendment of the Plan shall adversely affect in a material
     manner any right of any Participant with respect to any Award theretofore
     granted without such Participant's written consent.

ARTICLE 17. PLAN TERMINATION.

17.1. Method of Plan Termination. The Plan shall terminate upon the earlier of
     the following dates or events to occur:
          (a)  upon the adoption of a resolution of the Board terminating the
               Plan; or

                                       15
<PAGE>

          (b)  September 22, 2014.

17.2. Effect of Termination on Outstanding Awards. No termination of the Plan
     shall materially alter or impair any of the rights or obligations of any
     person, without such person's consent, under any Award theretofore granted
     under the Plan, except that subsequent to termination of the Plan, the
     Administrator may make amendments permitted under Article 13.

ARTICLE 18. SHAREHOLDER APPROVAL.

18.1. Shareholder Approval. The Plan shall be submitted to the shareholders of
     the Company for their approval at a meeting of the shareholders of the
     Company to be duly held on or before September 22, 2005.

18.2. Effectiveness of Plan Prior to Shareholder Approval. The Plan shall not be
     effective and no Award shall be made hereunder unless and until the Plan
     has been approved by the shareholders of the Company as provided in Section
     18.1. The shareholders shall be deemed to have approved and adopted the
     Plan only if it is approved at a duly held meeting of the shareholders by
     vote taken in the manner required by the laws of the State of New York and
     the applicable federal securities laws.

ARTICLE 19. TRANSFERABILITY.

19.1. Transferability. Except as may be approved by the Administrator where such
     approval shall not adversely affect compliance of the Plan with Sections
     162 and 422 of the Code and/or Rule 16b-3, a Participant's rights and
     interest under the Plan may not be assigned or transferred, hypothecated or
     encumbered in whole or in part either directly or by operation of law or
     otherwise (except in the event of a Participant's death) including, but not
     by way of limitation, execution, levy, garnishment, attachment, pledge,
     bankruptcy or in any other manner; provided, however, except as may be
     approved by the Administrator, that any Option or similar right (including,
     but not limited to, a Stock Appreciation Right) offered pursuant to the
     Plan shall not be transferable other than by will or the laws of descent or
     pursuant to a domestic relations order and shall be exercisable during the
     Participant's lifetime only by such Participant or such person receiving
     such Option or similar right pursuant to a domestic relations order.

ARTICLE 20. PRIVILEGES OF STOCK OWNERSHIP; RESTRICTIONS ON SHARES.

20.1. Voting and Dividends. No Participant will have any of the rights of a
     shareholder with respect to any Shares subject to or issued pursuant to the
     Plan until such Shares are issued to the Participant. After Shares are
     issued to the Participant, the Participant will be a shareholder and have
     all the rights of a shareholder with respect to such Shares, including the
     right to vote and receive all dividends or other distributions made or paid
     with respect to such Shares; provided, however, that if such Shares are
     Restricted Stock, then any new, additional or different securities the
     Participant may become entitled to receive with respect to such Shares by
     virtue of a stock dividend, stock split or any other change in the
     corporate or capital structure of the Company will be subject to the same
     restrictions as the Restricted Stock; provided, however, further, that the
     Participant will have no right to retain such stock dividends or stock
     distributions with respect to Restricted Stock that is repurchased at the
     Participant's Exercise Price in accordance with an Award Agreement with
     respect to such Restricted Stock.

20.2. Financial Statements. The Company will provide financial statements to
     each Participant prior to such Participant's purchase of Shares under the
     Plan, and to each Participant annually during the period such Participant
     has Awards outstanding; provided, however, that the Company will not be
     required to provide such financial statements to Participants whose
     services in connection with the Company assure them access to equivalent
     information.

20.3. Restrictions on Shares. At the discretion of the Administrator, the
     Company may reserve to itself and/or its assignee(s) in the Award Agreement
     a right to repurchase a portion of or all Shares issued pursuant to such
     Award Agreement and held by a Participant following such Participant's
     Termination at any time within 90 days after the later of Participant's
     Termination Date or the date Participant purchases Shares under the Plan,
     for cash and/or cancellation of purchase money indebtedness, at the
     Participant's Exercise Price or such other price as the Administrator may
     determine at the time of the grant of the Award.

ARTICLE 21. CERTIFICATES.

                                       16
<PAGE>

21.1. Certificates. All Shares or other securities delivered under this Plan
     will be subject to such stock transfer orders, legends and other
     restrictions as the Administrator may deem necessary or advisable,
     including restrictions under any applicable federal, state or foreign
     securities law, or any rules, regulations and other requirements
     promulgated under such laws or any stock exchange or automated quotation
     system upon which the Shares may be listed or quoted and each stock
     certificate evidencing such Shares and other certificates shall be
     appropriately legended.

ARTICLE 22. DEPOSIT OF SHARES; ESCROW.

22.1. Deposit of Shares; Escrow. To enforce any restrictions on a Participant's
     Shares, the Committee may require the Participant to deposit all stock
     certificates evidencing Shares, together with stock powers or other
     instruments of transfer approved by the Administrator, appropriately
     endorsed in blank, with the Company or an agent designated by the Company
     to hold in escrow until such restrictions have lapsed or terminated, and
     the Administrator may cause a legend or legends referencing such
     restrictions to be placed on the certificates. Any Participant who is
     permitted to execute a promissory note as partial or full consideration for
     the purchase of Shares under the Plan will be required to pledge and
     deposit with the Company all or part of the Shares so purchased as
     collateral to secure the payment of Participant's obligation to the Company
     under the promissory note; provided, however, that the Administrator may
     require or accept other or additional forms of collateral to secure the
     payment of such obligation and, in any event, the Company will have full
     recourse against the Participant under the promissory note notwithstanding
     any pledge of the Participant's Shares or other collateral. In connection
     with any pledge of the Shares, Participant will be required to execute and
     deliver a written pledge agreement in such form as the Administrator may
     from time to time approve. The Shares purchased with the promissory note
     may be released from the pledge on a pro rata basis as the promissory note
     is paid.

ARTICLE 23. EXCHANGE AND BUYOUT OF AWARDS.

23.1. Exchange. The Administrator may, at any time or from time to time,
     authorize the Company, with the consent of the respective Participants, to
     issue new Awards in exchange for the surrender and cancellation of any or
     all outstanding Awards.

23.2. Buyout of Awards. The Administrator may, at any time or from time to time,
     authorize the Company to buy from a Participant an Award previously granted
     with payment in cash, Shares (including Restricted Stock) or other
     consideration, based on such terms and conditions as the Administrator and
     the Participant may agree.

ARTICLE 24. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE.

24.1. Compliance with Applicable Laws. An Award will not be effective unless
     such Award is made in compliance with all applicable federal and state
     securities laws, rules and regulations of any governmental body, and the
     requirements of any stock exchange or automated quotation system upon which
     the Shares may then be listed or quoted, as they are in effect on the date
     of grant of the Award and also on the date of exercise or other issuance.
     Notwithstanding any other provision in this Plan, the Company will have no
     obligation to issue or deliver stock certificates for Shares under this
     Plan prior to: (a) obtaining any approvals from governmental agencies that
     the Administrator determines are necessary or advisable; and/or (b)
     completion of any registration or other qualification of such Shares under
     any state or federal law or ruling of any governmental body that the
     Administrator determines to be necessary or advisable.

24.2. No Obligation to Register Shares or Awards. The Company will be under no
     obligation to register the Shares under the Securities Act or to effect
     compliance with the registration, qualification or listing requirements of
     any state securities laws, stock exchange or automated quotation system,
     and the Company will have no liability for any inability or failure to do
     so.

ARTICLE 25. NO RIGHT TO EMPLOYMENT OR CONTINUATION OF RELATIONSHIP.

25.1. No Right to Employment or Continuation of Relationship. Nothing in this
     Plan or any Award granted under the Plan will confer or be deemed to confer
     on any Participant any right to continue in the employ of, or to continue
     any other relationship with, the Company or any Parent, Subsidiary or
     Affiliate of the Company or limit in any way the right of the Company or
     any Parent, Subsidiary or Affiliate of the Company to terminate
     Participant's employment or other relationship at any time, with or without
     cause.

                                       17
<PAGE>

ARTICLE 26. NON-EXCLUSIVITY OF THE PLAN.

26.1. Non-Exclusivity of the Plan. Neither the adoption of the Plan by the
     Board, the submission of the Plan to the shareholders of the Company for
     approval, nor any provision of this Plan will be construed as creating any
     limitations on the power of the Board or the Committee to adopt such
     additional compensation arrangements as the Board may deem desirable,
     including, without limitation, the granting of stock options and bonuses
     otherwise than under the Plan, and such arrangements may be either
     generally applicable or applicable only in specific cases.

ARTICLE 27. MISCELLANEOUS PROVISIONS.

27.1. No Rights Unless Specifically Granted. No Eligible Participant, employee
     or other person shall have any claim or right to be granted an Award under
     the Plan under any contract, agreement or otherwise. Determinations made by
     the Administrator under the Plan need not be uniform and may be made
     selectively among Eligible Participants under the Plan, whether or not such
     Eligible Participants are similarly situated.

27.2. No Rights Until Written Evidence Delivered. No Participant or other person
     shall have any right with respect to the Plan, the Shares reserved for
     issuance under the Plan or in any Award, contingent or otherwise, until
     written evidence of the Award, in the form of an Award Agreement, shall
     have been delivered to the recipient and all the terms, conditions and
     provisions of the Plan and the Award applicable to such recipient (and each
     person claiming under or through such recipient) have been met.

27.3. Compliance with Applicable Law. No Shares, other Company securities or
     property, other securities or property, or other forms of payment shall be
     issued hereunder with respect to any Award unless counsel for the Company
     shall be satisfied that such issuance will be in compliance with applicable
     federal, state, local and foreign legal, securities exchange and other
     applicable requirements.

27.4. Compliance with Rule 16b-3. It is the intent of the Company that the Plan
     comply in all respects with Rule 16b-3 under the Exchange Act, that any
     ambiguities or inconsistencies in construction of the Plan be interpreted
     to give effect to such intention and that if any provision of the Plan is
     found not to be in compliance with Rule 16b-3, such provision shall be
     deemed null and void to the extent required to permit the Plan to comply
     with Rule 16b-3.

27.5. Right to Withhold Payments. The Company and any Parent, Subsidiary and
     Affiliate of the Company shall have the right to deduct from any payment
     made under the Plan, any federal, state, local or foreign income or other
     taxes required by law to be withheld with respect to such payment. It shall
     be a condition to the obligation of the Company to issue Shares, other
     securities or property of the Company, other securities or property, or
     other forms of payment, or any combination thereof, upon exercise,
     settlement or payment of any Award under the Plan, that the Participant (or
     any beneficiary or person entitled to act) pay to the Company, upon its
     demand, such amount as may be requested by the Company for the purpose of
     satisfying any liability to withhold federal, state, local or foreign
     income or other taxes. If the amount requested is not paid, the Company may
     refuse to issue Shares, other securities or property of the Company, other
     securities or property, or other forms of payment, or any combination
     thereof. Notwithstanding anything in the Plan to the contrary, the
     Administrator may permit a Participant (or any beneficiary or person
     entitled to act) to elect to pay a portion or all of the amount requested
     by the Company for such taxes with respect to such Award, at such time and
     in such manner as the Administrator shall deem to be appropriate,
     including, but not limited to, by authorizing the Company to withhold, or
     agreeing to surrender to the Company on or about the date such tax
     liability is determinable, Shares, other securities or property of the
     Company, other securities or property, or other forms of payment, or any
     combination thereof, owned by such person or a portion of such forms of
     payment that would otherwise be distributed, or have been distributed, as
     the case may be, pursuant to such Award to such person, having a fair
     market value equal to the amount of such taxes.

27.6. Expenses of Administration. The expenses of the Plan shall be borne by the
     Company. However, if an Award is made to an individual employed by or
     performing services for a Parent, Subsidiary or Affiliate of the Company:
          (a) if such Award results in payment of cash to the Participant, such
     Parent, Subsidiary or Affiliate shall pay to the Company an amount equal to
     such cash payment unless the Administrator shall otherwise determine;

                                       18
<PAGE>

          (b) if the Award results in the issuance by the Company to the
     Participant of Shares, other securities or property of the Company, other
     securities or property, or other forms of payment, or any combination
     thereof, such Parent, Subsidiary or Affiliate of the Company shall, unless
     the Administrator shall otherwise determine, pay to the Company an amount
     equal to the fair market value thereof, as determined by the Administrator,
     on the date such Shares, other securities or property of the Company, other
     securities or property, or other forms of payment, or any combination
     thereof, are issued (or, in the case of the issuance of Restricted Stock or
     of Shares, other securities or property of the Company, or other securities
     or property, or other forms of payment subject to transfer and forfeiture
     conditions, equal to the fair market value thereof on the date on which
     they are no longer subject to such applicable restrictions), minus the
     amount, if any, received by the Company in respect of the purchase of such
     Shares, other securities or property of the Company, other securities or
     property or other forms of payment, or any combination thereof, all as the
     Administrator shall determine; and
          (c) the foregoing obligations of any such Parent, Subsidiary or
     Affiliate of the Company shall survive and remain in effect and binding on
     such entity even if its status as a Parent, Subsidiary or Affiliate of the
     Company should subsequently cease, except as otherwise agreed by the
     Company and such Parent, Subsidiary or Affiliate.

27.7. Unfunded Plan. The Plan shall be unfunded. The Company shall not be
     required to establish any special or separate fund or to make any other
     segregation of assets to assure the payment of any Award under the Plan,
     and rights to the payment of Awards shall be no greater than the rights of
     the Company's general creditors.

27.8. Acceptance of Award Deemed Consent. By accepting any Award or other
     benefit under the Plan, each Participant and each person claiming under or
     through such Participant shall be conclusively deemed to have indicated
     such Participant's (or other person's) acceptance and ratification of, and
     consent to, any action taken by the Company, Administrator, Board or
     Committee or their respective delegates under the Plan.

27.9. Fair Market Value Determined By the Administrator. Fair market value in
     relation to other securities or property of the Company, other securities
     or property or other forms of payment of Awards under the Plan, or any
     combination thereof, as of any specific time, shall mean such value as
     determined by the Administrator in accordance with the Plan and applicable
     law.

27.10. Use of Terms. For the purposes of the Plan, in the use of any term, the
     singular includes the plural and the plural includes the singular wherever
     appropriate.

27.11. Filing of Reports. The appropriate officers of the Company shall cause to
     be filed any reports, returns or other information regarding Awards
     hereunder or any Shares issued pursuant hereto as may be required by
     Section 13 or 15(d) of the Exchange Act (or any successor provision) or any
     other applicable statute, rule or regulation.

     27.12. Validity; Construction; Interpretation. The validity, construction,
            interpretation, administration and effect of the Plan, and of its
            rules and regulations, and rights relating to the Plan and Award
            Agreements and to Awards granted under the Plan, shall be governed
            by the substantive laws, but not the choice of law rules, of the
            State of New York.

                                       19Exhibit 10.24

                                                    AGREEMENT AND PLAN OF MERGER

================================================================================

                          AGREEMENT AND PLAN OF MERGER

                                  by and among

                      SOVEREIGN SPECIALTY CHEMICALS, INC.,

                               HENKEL CORPORATION

                                       and

                            HENKEL MERGER CORPORATION

                                 October 6, 2004

================================================================================

<PAGE>

                                TABLE OF CONTENTS
                                -----------------
                                                                            Page
                                                                            ----

ARTICLE I.     DEFINITIONS....................................................1
     Section 1.1     Definitions..............................................1
     Section 1.2     Terms Generally..........................................9

ARTICLE II.    THE MERGER.....................................................9
     Section 2.1     The Merger...............................................9
     Section 2.2     Conversion of Securities................................10
     Section 2.3     Escrow Fund.............................................11
     Section 2.4     Payment of Cash for Merger Shares.......................11
     Section 2.5     Treatment of Options....................................13
     Section 2.6     Dissenting Shares.......................................13
     Section 2.7     Effect of Withholding...................................14

ARTICLE III.   THE SURVIVING CORPORATION.....................................14
     Section 3.1     Certificate of Incorporation............................14
     Section 3.2     Bylaws..................................................14
     Section 3.3     Directors and Officers..................................14

ARTICLE IV.    REPRESENTATIONS AND WARRANTIES OF THE COMPANY.................14
     Section 4.1     Corporate Existence and Power...........................14
     Section 4.2     Corporate Authorization.................................15
     Section 4.3     Governmental Authorization..............................15
     Section 4.4     Non-Contravention.......................................16
     Section 4.5     Capitalization..........................................16
     Section 4.6     Subsidiaries of the Company.............................17
     Section 4.7     Reports and Financial Statements........................17
     Section 4.8     Absence of Certain Changes or Events....................18
     Section 4.9     Litigation..............................................20
     Section 4.10    Taxes...................................................20
     Section 4.11    ERISA...................................................22
     Section 4.12    Labor Matters...........................................24
     Section 4.13    Compliance with Laws....................................24
     Section 4.14    Finders' Fees...........................................24
     Section 4.15    Environmental Matters...................................25
     Section 4.16    EINECS and TSCA.........................................25
     Section 4.17    Insurance...............................................26
     Section 4.18    Contracts...............................................26
     Section 4.19    Legal Matters...........................................27
     Section 4.20    Intellectual Property...................................27
     Section 4.21    Related Party Transactions..............................28
     Section 4.22    Real Property...........................................29
     Section 4.23    Products................................................29

                                       i
<PAGE>

ARTICLE V.     REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB.......30
     Section 5.1     Corporate Existence and Power...........................30
     Section 5.2     Corporate Authorization.................................30
     Section 5.3     Governmental Authorization..............................30
     Section 5.4     Non-Contravention.......................................30
     Section 5.5     Finders' Fees...........................................31
     Section 5.6     Adequate Funds..........................................31
     Section 5.7     No Other Information....................................31

ARTICLE VI.    COVENANTS OF THE COMPANY......................................31
     Section 6.1     Conduct of the Company and Its Subsidiaries.............31
     Section 6.2     Access to Information; Right of Inspection..............34
     Section 6.3     Other Potential Acquirers...............................34
     Section 6.4     Resignation of Directors................................34
     Section 6.5     Certificates............................................34
     Section 6.6     Subsequent Filings......................................35
     Section 6.7     Notice under the Delaware Law...........................35
     Section 6.8     Intellectual Property...................................35

ARTICLE VII.   COVENANTS OF PARENT AND MERGER SUB............................36
     Section 7.1     Director and Officer Liability..........................36

ARTICLE VIII.  COVENANTS OF THE PARTIES......................................37
     Section 8.1     Reasonable Best Efforts.................................37
     Section 8.2     Certain Filings.........................................38
     Section 8.3     Public Announcements....................................39
     Section 8.4     Further Assurances......................................39
     Section 8.5     Notices of Certain Events...............................39
     Section 8.6     Disposition of Litigation...............................40
     Section 8.7     Employee Matters........................................40
     Section 8.8     Confidentiality Agreement...............................41

ARTICLE IX.    CONDITIONS TO THE MERGER......................................43
     Section 9.1     Conditions to the Obligations of Each Party.............43
     Section 9.2     Conditions to the Obligations of Parent and Merger Sub..43
     Section 9.3     Conditions to the Obligations of the Company............44

ARTICLE X.     TERMINATION...................................................45
     Section 10.1    Termination.............................................45
     Section 10.2    Effect of Termination...................................45

ARTICLE XI.    MISCELLANEOUS.................................................46
     Section 11.1    Notices.................................................46
     Section 11.2    Survival of Representations and Warranties..............47
     Section 11.3    Amendments No Waivers...................................47
     Section 11.4    Expenses................................................47
     Section 11.5    Transfer Taxes..........................................47
     Section 11.6    Successors and Assigns..................................48
     Section 11.7    Governing Law...........................................48
     Section 11.8    Counterparts; Effectiveness; Third Party Beneficiaries..48
     Section 11.9    Severability............................................48
     Section 11.10   Specific Performance....................................48
     Section 11.11   Entire Agreement........................................48
     Section 11.12   Jurisdiction; Waiver of Jury Trial......................49
     Section 11.13   Authorship..............................................49

                                       ii
<PAGE>

Exhibits
--------

Exhibit A            Transaction Bonuses
Exhibit B            Form of Indemnification and Escrow Agreement

Schedules
4.3(ii)              Governmental Authorization
4.4(iii)             Non-Contravention
4.5                  Capitalization
4.6(a)               Subsidiaries of the Company
4.6(b)               Liens
4.8                  Absence of Certain Changes or Events
4.9                  Litigation
4.10                 Taxes
4.11(a)              ERISA
4.11(c)              ERISA
4.11(e)              ERISA
4.12                 Labor Matters
4.13                 Compliance with Laws
4.14                 Finders' Fees
4.15                 Environmental Matters
4.16                 EINECS and TSCA
4.17                 Insurance Policies
4.18(a)              Contracts
4.18(c)              Contracts
4.20                 Intellectual Property
4.22                 Real Property
4.23                 Products
6.1                  Conduct of the Company and Its Subsidiaries
9.1                  Closing Conditions

                                      iii
<PAGE>

                          AGREEMENT AND PLAN OF MERGER
                          ----------------------------

     This AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and entered
into as of this sixth day of October, 2004 by and among Sovereign Specialty
Chemicals, Inc., a Delaware corporation (the "Company"), Henkel Corporation, a
Delaware corporation ("Parent"), and Henkel Merger Corporation, a Delaware
corporation and direct or indirect subsidiary of Parent ("Merger Sub").

                                    RECITALS
                                    --------

     A. The parties intend that Merger Sub be merged with and into the Company
(the "Merger"), with the Company surviving the Merger as a direct or indirect
subsidiary of Parent (the "Surviving Corporation").

     B. The Board of Directors of the Company has unanimously determined that
the Merger and this Agreement are fair to and in the best interests of the
Company.

     C. The Board of Directors of the Company also has unanimously (i) approved
this Agreement and declared its advisability and (ii) resolved to recommend that
the Company shareholders adopt this Agreement.

     D. The shareholders of the Company, by the vote or written consent of the
holders of at least a majority of the outstanding Common Shares of the Company,
have adopted this Agreement and approved and authorized the Merger.

     E. The Board of Directors of Merger Sub has approved this Agreement and
declared its advisability. Parent, as the sole shareholder of Merger Sub, has
adopted this Agreement and has approved the Merger.

     F. The Company, Parent and Merger Sub desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger and also to prescribe certain conditions to the Merger, as set forth
herein.

                                    AGREEMENT

     NOW, THEREFORE, in consideration of the foregoing and the representations,
warranties, covenants and agreements contained herein, the parties hereto agree
as follows:

                                   ARTICLE I.
                                   DEFINITIONS

     Section 1.1 Definitions. For purposes of this Agreement, the following
terms have the respective meanings set forth below:

     "Affiliate" means, with respect to any Person, any other Person, directly
or indirectly, controlling, controlled by, or under common control with, such
Person. For purposes of this definition, the term "control" (including the
correlative terms "controlling," "controlled by" and "under common control
with") means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of a Person, whether through
the ownership of voting securities, by contract or otherwise.

<PAGE>

     "Affiliated Group" means an affiliated group as that term is defined in
Section 1504(a) of the Code.

     "Aggregate Merger Consideration" means an amount equal to the difference
obtained by subtracting (x) the Option Exercise Amount from (y) the product of
(a) the Merger Consideration times (b) the Total Shares.

     "Aggregate Option Escrow Amount" means an amount equal to the result
obtained by multiplying (a) the Escrow Amount by (b) a fraction, the numerator
of which is the Total Spread and the denominator of which is the Aggregate
Merger Consideration.

     "Balance Sheet" means the audited consolidated balance sheet of the Company
as of December 31, 2003 set forth in the Company 10-K.

     "Balance Sheet Date" means December 31, 2003.

     "Business Day" means any day on which banks are not required or authorized
to close in the City of New York or Dusseldorf, Germany.

     "CERCLA" means the U.S. Comprehensive Environmental Response, Compensation
and Liability Act, as amended by the U.S. Superfund Amendments and
Reauthorization Act.

     "CIP" has the meaning set forth in Section 8.7(d).

     "Closing" has the meaning set forth in Section 2.1(d).

     "Closing Date" has the meaning set forth in Section 2.1(d).

     "Code" means the U.S. Internal Revenue Code of 1986, as amended.

     "Common Shares" means the shares of Common Stock.

     "Common Stock" means the common stock of the Company, par value $0.01 per
share.

     "Company" has the meaning set forth in the Preamble.

     "Company Employees" has the meaning set forth in Section 8.7(a).

     "Company IP" means all Intellectual Property that is used by the Company
and its Subsidiaries in the current conduct of their business.

     "Company Options" means outstanding options to acquire Common Shares,
whether vested or unvested.

     "Company SEC Reports" has the meaning set forth in Section 4.7(a).

                                       2
<PAGE>

     "Company Securities" has the meaning set forth in Section 4.5(b).

     "Company 10-K" means the annual report on Form 10-K of the Company for the
fiscal year ended December 31, 2003.

     "Confidentiality Agreement" means the letter agreement dated January 8,
2004, setting forth the confidentiality undertaking among the Company, AEA
Investors LLC and Henkel KGaA.

     "Contracts" has the meaning set forth in Section 4.18(a).

     "Current Policies" has the meaning set forth in Section 7.1(a).

     "Delaware Law" means the General Corporation Law of the State of Delaware.

     "Disbursing Agent" has the meaning set forth in Section 2.4(b).

     "Disclosure Letter" has the meaning set forth in the preamble to Article
IV.

     "Dissenting Shares" has the meaning set forth in Section 2.6.

     "Effective Time" has the meaning set forth in Section 2.1(b).

     "EINECS" means the European Inventory of Existing Chemical Substances
created by European Community Commission Decision 81/437/EEC, as amended.

     "Employee Benefit Plan" has the meaning set forth in Section 4.11(a).

     "Employee Agreement" means a contract, offer letter or agreement of the
Company or any of its Subsidiaries with or addressed to any individual who is
rendering or has rendered services thereto as an employee or consultant pursuant
to which the Company or any of its Subsidiaries has any liability or obligation
to provide compensation and/or benefits in consideration for past, present or
future services or for refraining from providing any such services.

     "End Date" means the date which is five months after the date of this
Agreement.

     "Environmental Laws" means any and all applicable federal, state, local,
municipal and foreign Laws relating to (a) the protection of the environment,
including, without limitation, pollution, contamination, cleanup, preservation,
and reclamation of natural resources, soil, surface waters, groundwaters,
surface and subsurface soil, and ambient and indoor air; (b) protection of human
health and safety, including, without limitation, the exposure of employees or
other persons to any Hazardous Substances; (c) the presence of or Release of
Hazardous Substances, including, without limitation, the investigation, study,
assessment, monitoring, containment, removal, notification or remediation
thereof, or (d) the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980 (42 U.S.C. ss.ss. 9601 et seq.), the Hazardous Materials
Transportation Act (49 U.S.C. ss. 1801 et seq.), the Resource Conservation and
Recovery Act (42 U.S.C. ss. 6901 et seq.), the Federal Water Pollution Control
Act ( 33 U.S.C. ss. 1251 et seq.), the Clean Air Act (42 U.S.C. ss. 7401 et
seq.), the Toxic Substances Control Act (15 U.S.C. ss. 2601 et seq.), the
Federal Insecticide, Fungicide and Rodenticide Act (7 U.S.C. ss.136 et seq.),
the Occupational Safety and Health Act (29 U.S.C. ss. 651 et seq.) and the
Emergency Planning and Community Right-to-Know Act (42 U.S.C. ss. 11001 et
seq.), each as amended, and any analogous local, state, federal and foreign
laws, statutes and regulations promulgated pursuant thereto.

                                       3
<PAGE>

     "ERISA" means the U.S. Employee Retirement Income Security Act of 1974, as
amended.

     "ERISA Affiliate" means, with respect to any entity, any trade or business
(whether or not incorporated) that is a member of a controlled group including
such entity or that is under common control with such entity within the meaning
of Section 414 of the Code.

     "Escrow Agent" has the meaning set forth in Section 2.3.

     "Escrow Amount" means $15,000,000.

     "Exchange Act" means the U.S. Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.

     "Existing Contracts" has the meaning set forth in Section 6.1(b).

     "401(k) Plans" has the meaning set forth in Section 8.7(c).

     "GAAP" means United States generally accepted accounting principles.

     "Governmental Antitrust Authority" means any Governmental Authority with
jurisdiction over the enforcement of the HSR Act or any Other Antitrust Laws.

     "Governmental Authority" means any agency, public or regulatory authority,
instrumentality, department, commission, court, arbitrator, ministry, tribunal,
body or board of any nation or government or political subdivision thereof,
whether foreign or domestic and whether national, supranational, federal,
tribal, provincial, state, regional, local or municipal.

     "Hazardous Substances" means any chemicals, wastes, pollutants or
contaminants that may give rise to liability under, are regulated under or are
otherwise subject to any Environmental Law, including, without limitation,
wastes, substances or materials which are defined as "hazardous materials,"
"hazardous wastes," "hazardous substances," "wastes" or other similar
designations in any Environmental Laws, including, without limitation, asbestos
and asbestos-containing materials, polychlorinated biphenyls, lead-based paints
and petroleum or petroleum products (including, without limitation, crude oil).

     "HSR Act" means the U.S. Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.

     "Indemnification and Escrow Agreement" has the meaning set forth in Section
2.3.

                                       4
<PAGE>

     "Initial Per Option Consideration" means an amount equal to the result
obtained by dividing (a) the Total Spread less the Aggregate Option Escrow
Amount by (b) the number of Common Shares subject to all of the Company Options
outstanding immediately prior to the Effective Time.

     "Initial Per Share Consideration" means an amount per Common Share equal to
the difference obtained by subtracting (a) the Per Common Share Escrow Amount
from (b) the Merger Consideration.

     "Insurance Policies" means all material fire and casualty, general
liability, business interruption, workers compensation, product liability,
disability, property damage, theft and sprinkler and water damage insurance
policies and other forms of insurance or bonds currently maintained by the
Company or any of its Subsidiaries.

     "Intellectual Property" means all intellectual property and other similar
proprietary rights in any jurisdiction, whether owned or held for use under
license, whether registered or unregistered, including, without limitation, such
rights in and to: (i) trademarks, trade dress, service marks, certification
marks, logos, and trade names, and the goodwill associated with the foregoing
(collectively, "Trademarks"); (ii) patents and patent applications, and any and
all divisions, continuations, continuations-in-part, reissues, continuing patent
applications, reexaminations, and extensions thereof, any counterparts claiming
priority therefrom, utility models, patents of importation/confirmation,
certificates of invention, certificates of registration and like rights
(collectively, "Patents"); inventions, invention disclosures, discoveries and
improvements, whether or not patentable; (iii) writings and other works of
authorship ("Copyrights"); (iv) trade secrets (including, those trade secrets
defined in the Uniform Trade Secrets Act and under corresponding foreign
statutory and common law), business, technical and know-how information,
non-public information, and confidential information and rights to limit the use
or disclosure thereof by any Person (collectively, "Trade Secrets"); (v)
software, including, without limitation, data files, source code, object code,
application programming interfaces, databases and other software-related
specifications and documentation (collectively, "Software"); (vi) domain names
and uniform resource locators; (vii) mask works; (viii) moral rights; and (ix)
claims, causes of action and defenses relating to the enforcement of any of the
foregoing; in each case, including any registrations of, applications to
register, and renewals and extensions of, any of the foregoing with or by any
governmental authority in any jurisdiction.

     "Knowledge," when used in reference to the Company or its Subsidiaries,
shall mean the actual knowledge of the following persons after due inquiry,
including inquiry of the officers and employees of the Company responsible for
the relevant matter: (i) Mr. Norman E. Wells, Jr., (ii) Mr. Terry D. Smith,
(iii) Mr. John R. Knox, (iv) Mr. Louis M. Pace, (v) Mr. Peter Longo, (vi) Mr.
Mark Longo, (vii) Mr. Kevin Johnston and (viii) Mr. Pat Stanton.

     "Law" means applicable statutes, common laws, rules, ordinances,
regulations, codes, orders, judgments, injunctions, writs, decrees, licenses,
permits, rules and bylaws, in each case, of a Governmental Authority.

     "Leased Real Property" has the meaning set forth in Section 4.22.

                                       5
<PAGE>

     "Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest, easement, right-of-way, encroachment, restriction,
condition or encumbrance of any kind in respect of such asset.

     "Licensed Company IP" means all Company IP other than the Owned Company IP.

     "Management Agreement" means the Management Agreement dated as of December
31, 1999 by and between the Company and AEA Investors Inc., as the same may have
been assigned or amended from time to time.

     "Material Adverse Effect on the Company" has the meaning set forth in
Section 4.8(a).

     "Material Employee Agreement" means an Employee Agreement pursuant to which
the Company or any of its Subsidiaries has any obligation to provide base salary
compensation in an amount in excess of $75,000 per year or any obligation for
compensation or benefits in connection with a change in control (whether alone
or together with any other event), including any obligation for retention,
termination, severance or retirement compensation or benefits.

     "Merger" has the meaning set forth in the Recitals.

     "Merger Consideration" means an amount per Common Share equal to the result
obtained by dividing (a) $575,000,000, minus the aggregate principal amount of
debt for borrowed money of the Company outstanding as of the Closing Date, plus
the Option Exercise Amount, plus the Tax Benefit Amount, minus Transaction
Costs, minus Transaction Bonuses by (b) the Total Shares, without interest
thereon.

     "Merger Shares" has the meaning set forth in Section 2.2(c).

     "Merger Sub" has the meaning set forth in the Preamble.

     "Merger Sub Common Shares" means the common stock of Merger Sub, par value
$0.01 per share.

     "New Plans" has the meaning set forth in Section 8.7(b).

     "Non-Voting Common Stock" means the non-voting common stock of the Company,
par value $0.01 per share.

     "Old Plans" has the meaning set forth in Section 8.7(b).

     "Option Exercise Amount" means the aggregate exercise price of all Company
Options outstanding immediately prior to the Effective Time.

     "Other Antitrust Laws" means any Law, other than the HSR Act, enacted by
any Governmental Authority relating to antitrust matters or regulating
competition, including Council Regulation No. 4064/89 of the European Community
and any analogous or similar Laws of any foreign jurisdiction.

                                       6
<PAGE>

     "Owned Company IP" means the Company IP that is owned by the Company and
its Subsidiaries.

     "Owned Real Property" has the meaning set forth in Section 4.22.

     "Parent" has the meaning set forth in the Preamble.

     "Per Common Share Escrow Amount" means an amount equal to the result
obtained by dividing (a) the difference between the Escrow Amount and the
Aggregate Option Escrow Amount by (b) the number of Common Shares outstanding at
the Effective Time.

     "Permits" means any governmental licenses, franchises, permits,
certificates, consents, approvals or other similar authorizations or
notifications required under applicable Law.

     "Permitted Liens" means (i) the liens and security interests set forth in
Section 4.6(b) of the Disclosure Letter, (ii) liens for taxes not yet due and
payable or that are being contested in good faith and by appropriate proceedings
and for which the Company has maintained adequate reserves, (iii) mechanics',
materialmen's or other liens or security interests arising in the ordinary
course of business for sums that are immaterial in amount and not yet due and
payable, or (iv) any other liens, encumbrances, security interests, easements,
rights-of-way, encroachments, restrictions, conditions and similar encumbrances
arising in the ordinary course of business that are not material in amount and
do not materially detract from the value of or materially impair the existing
use of the property affected by such encumbrance.

     "Person" means any individual, corporation, limited liability company,
partnership, association, trust or any other entity, group or organization,
including any government or political subdivision or any agency or
instrumentality thereof.

     "Proceeding" has the meaning set forth in Section 4.9.

     "Product" has the meaning set forth in Section 4.23.

     "Related Parties" has the meaning set forth in Section 4.21.

     "Release" means any emission, spill, seepage, leak, escape, leaching,
discharge, injection, ejection, pumping, pouring, emptying, dumping, disposal,
or release of Hazardous Substances into or upon the environment, including the
air, soil, surface water or groundwater.

     "Replacement Policies" has the meaning set forth in Section 7.1(a).

     "Representative" has the meaning set forth in Section 6.3(a).

     "SEC" means the U.S. Securities and Exchange Commission.

     "Securities Act" means the U.S. Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.

     "SIP" has the meaning set forth in Section 8.7(d).

                                       7
<PAGE>

     "Subsidiary" of a Person means any corporation or other entity of which
securities or other ownership interests representing 50% or more of the total
outstanding securities or other ownership interests is owned, directly or
indirectly, by such Person and/or of which securities or other ownership
interests having ordinary voting power to elect a majority of the Board of
Directors or other persons performing similar functions are at the time owned,
directly or indirectly, by such Person.

     "Surviving Corporation" has the meaning set forth in the Recitals.

     "Tax" (including "Taxes") means all federal, state, local, foreign and
other taxes of any kind, levies or other like kind assessments, customs, duties,
imposts, charges or fees, including net income, gross income, gross receipts,
gains, ad valorem, value added, excise, real or personal property, asset, sales,
use, stock transfer, real estate transfer, documentary, stamp, recording,
license, payroll, transaction, capital, net worth, franchise, employment, social
security, occupation, utility, production, unemployment compensation, windfall
profits and withholding taxes, together with any interest and any penalties,
additions to tax or additional amounts imposed by any Governmental Authority
responsible for the imposition of any such tax (a "Tax Authority" or "Taxing
Authority").

     "Tax Benefit Amount" means an amount equal to thirty percent (30%) of the
sum of (i) the aggregate amount payable to the holders of Company Options
pursuant to Section 2.5(a) of this Agreement including, for this purpose, any
amounts subject to withholding under applicable Tax Law, and (ii) the
Transaction Bonuses.

     "Tax Law" means any Law imposed by any Taxing Authority.

     "Tax Return" means any return, report, statement or other similar filing
required to be filed with any Governmental Authority with respect to Taxes.

     "Third Party" means any Person (which includes a "person" as such term is
defined in Section 13(d)(3) of the Exchange Act) other than Parent, Merger Sub
or their respective Affiliates.

     "Third Party Acquisition" means the occurrence of any of the following
events: (i) the acquisition of the Company by merger or otherwise by any Third
Party, (ii) the acquisition by a Third Party of twenty percent (20%) or more of
the assets of the Company and its Subsidiaries taken as a whole, other than the
sale of products in the ordinary course of business or (iii) the acquisition by
a Third Party of twenty percent (20%) or more of the outstanding Common Shares
or the issuance by the Company of preferred or common stock, other than upon
exercise of Company Options or upon conversion of shares of Non-Voting Stock
into shares of Voting Stock.

     "Total Shares" means the number of Common Shares outstanding at the
Effective Time plus the number of Common Shares issuable upon exercise of all
Company Options outstanding immediately prior to the Effective Time.

     "Total Spread" means an amount equal to the difference obtained by
subtracting (a) the Option Exercise Amount from (b) the product of (x) the
Merger Consideration multiplied by (y) the number of Common Shares subject to
all of the Company Options outstanding immediately prior to the Effective Time.

                                       8
<PAGE>

     "Transaction Bonuses" means the transaction bonuses payable to the
management of the Company in accordance with and subject to the terms and
conditions set forth on Exhibit A hereto.

     "Transaction Costs" means any fees and out-of-pocket expenses incurred by
the Company or any of its Subsidiaries to third party service providers in
connection with the transactions contemplated by this Agreement (including fees
and disbursements of counsel, accountants, investment bankers and other
advisors).

     "Transaction Cost Certification" has the meaning set forth in Section
9.2(d).

     "Transfer Taxes" has the meaning set forth in Section 11.5.

     "TSCA" means the Toxic Substances Control Act of 1976, as amended.

     "TSCA Inventory" means the Chemical Substances Inventory published by the
United States Environmental Protection Agency pursuant to the TSCA.

     "Voting Common Stock" means the voting common stock of the Company, par
value $0.01 per share.

     Section 1.2 Terms Generally. The definitions in Section 1.1 shall apply
equally to both the singular and plural forms of the terms defined. Whenever the
context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms. The words "include," "includes" and "including" shall
be deemed to be followed by the phrase "without limitation," unless the context
expressly provides otherwise. All references herein to Sections, paragraphs,
subparagraphs, clauses, Exhibits or Schedules shall be deemed references to
Sections, paragraphs, subparagraphs or clauses of, or Exhibits or Schedules to,
this Agreement, unless the context requires otherwise. Unless otherwise
expressly defined, terms defined in this Agreement have the same meanings when
used in any Exhibit or Schedule hereto, including when used in the Disclosure
Letter. The words "herein," "hereof," "hereto" and "hereunder" and other words
of similar import refer to this Agreement as a whole (including the Schedules
and Exhibits) and not to any particular provision of this Agreement.

                                  ARTICLE II.
                                   THE MERGER

     Section 2.1 The Merger.

        (a) At the Effective Time, in accordance with the Delaware Law, and upon
the terms and subject to the conditions set forth in this Agreement, Merger Sub
shall be merged with and into the Company, at which time the separate existence
of Merger Sub shall cease and the Company shall survive the Merger as a direct
or indirect subsidiary of Parent.

                                       9
<PAGE>

        (b) As soon as reasonably practicable on the Closing Date, and subject
to the provisions of this Agreement, the Company and Merger Sub will file a
certificate of merger meeting the requirements of the Delaware Law with the
Secretary of State of the State of Delaware. The Merger shall become effective
at such time as the certificate of merger is duly filed with the Secretary of
State of the State of Delaware, or at such later time as the Company and Merger
Sub may agree and specify in the certificate of merger (such time as the Merger
becomes effective, the "Effective Time").

        (c) The Merger shall have the effects set forth in the Delaware Law.
Without limiting the generality of the foregoing, from and after the Effective
Time, the Surviving Corporation shall possess all the rights, powers, privileges
and franchises and be subject to all of the obligations, liabilities,
restrictions and disabilities of the Company and Merger Sub, all as provided
under the Delaware Law.

        (d) The closing of the Merger (the "Closing") shall take place (i) at
the offices of Fried, Frank, Harris, Shriver & Jacobson LLP located at One New
York Plaza, New York, New York, as soon as practicable (but in any event no
later than the fifth Business Day) after the day on which the last condition to
the Merger is satisfied or validly waived (other than those conditions that by
their nature cannot be satisfied until the Closing, but subject to the
satisfaction or valid waiver of such conditions) or (ii) at such other place and
time or on such other date as the Company and Merger Sub may agree in writing
(the actual date of the Closing, the "Closing Date").

     Section 2.2 Conversion of Securities. At the Effective Time, pursuant to
this Agreement and by virtue of the Merger and without any action on the part of
the Company, Parent, Merger Sub or the holders of the Common Stock:

        (a) Each share of Common Stock held by the Company as treasury stock or
owned by Parent, Merger Sub or any Subsidiary of the Company immediately prior
to the Effective Time, if any, shall be canceled and retired and shall cease to
exist, and no payment or distribution shall be made or delivered with respect
thereto.

        (b) Each share of common stock of Merger Sub issued and outstanding
immediately prior to the Effective Time shall be converted into and become one
newly issued, fully paid and non-assessable share of common stock of the
Surviving Corporation, and the foregoing shall constitute the only outstanding
shares of capital stock of the Surviving Corporation.

        (c) Each Common Share issued and outstanding immediately prior to the
Effective Time, other than Common Shares to be canceled pursuant to Section
2.2(a) and, subject to Section 9.2 of this Agreement, Dissenting Shares,
automatically shall be canceled and converted into the right to receive the
Merger Consideration, payable to the holder thereof upon surrender of the stock
certificate formerly representing such Common Share in the manner provided in
Section 2.4. Such Common Shares, other than those canceled pursuant to Section
2.2(a), sometimes are referred to herein as the "Merger Shares."

                                       10
<PAGE>

        (d) If between the date of this Agreement and the Effective Time, the
number of outstanding Common Shares is changed into a different number of shares
or a different class by reason of any stock dividend, subdivision,
reclassification, recapitalization, split-up, combination, exchange of shares or
the like, other than pursuant to the Merger, the amount of Merger Consideration
payable per Common Share shall be correspondingly adjusted.

        (e) The Company Options shall be treated as provided in Section 2.5
below.

     Section 2.3 Escrow Fund. At or prior to the Effective Time, Parent, the
Company and the stockholders of the Company who have submitted a letter of
transmittal prior to such time shall enter into an indemnification and escrow
agreement in substantially the form attached hereto as Exhibit B (the
"Indemnification and Escrow Agreement") with a bank or trust company that is
reasonably satisfactory to the Company (the "Escrow Agent"). At or prior to the
Effective Time, Parent will cause the Escrow Amount to be deposited with the
Escrow Agent in accordance with the terms and provisions of the Indemnification
and Escrow Agreement, which shall represent a portion of the Merger
Consideration payable to each holder of Merger Shares and of the amounts payable
to each holder of Company Options in accordance with this Article II. The Escrow
Amount will be held and disbursed in accordance with the terms and conditions of
the Indemnification and Escrow Agreement.

     Section 2.4 Payment of Cash for Merger Shares.

        (a) Prior to the Closing Date, Parent shall designate a bank or trust
company that is reasonably satisfactory to the Company, that is organized and
doing business under the laws of the United States or any state thereof to serve
as the disbursing agent for the Initial Per Share Consideration and payments in
respect of Company Options (the "Disbursing Agent"). At or prior to the
Effective Time, Parent will cause to be deposited with the Disbursing Agent cash
in the amount equal to the difference between Aggregate Merger Consideration and
the Escrow Amount. Pending distribution of the cash deposited with the
Disbursing Agent and subject to the completion of the Merger, such cash shall be
held in trust for the benefit of the holders of Merger Shares and such Company
Options and shall not be used for any other purposes; provided however, that
Parent may direct the Disbursing Agent to invest such cash in obligations of or
guaranteed by the United States of America, as long as no such investments have
maturities that could prevent or delay payments to be made pursuant to Section
2.4(b) or Section 2.5 hereof.

        (b) As promptly as practicable after the date of this Agreement, the
Company shall send, or cause the Disbursing Agent to send, to each record holder
of Merger Shares as of immediately prior to the Effective Time a letter of
transmittal and instructions for exchanging their Merger Shares for the Initial
Per Share Consideration payable therefor. The letter of transmittal will be in
customary form (except that it will include an agreement to be bound by the
terms of the Indemnification and Escrow Agreement) and will specify that
delivery of Merger Shares will be effected, and risk of loss and title will
pass, only upon delivery of the stock certificates representing the Merger
Shares to the Disbursing Agent. In addition to the terms and conditions set
forth in this Section 2.4, the letter of transmittal will include other
customary terms and conditions applicable to the surrender of stock certificates
and payment of the Merger Consideration, including, without limitation, as may
be required under the Delaware Law. Upon surrender of such stock certificate or
certificates to the Disbursing Agent together with a properly completed and duly
executed letter of transmittal and any other documentation as the Disbursing
Agent may reasonably require, the record holder thereof shall be entitled to
receive the Initial Per Share Consideration payable in exchange therefor, less
any amounts required to be withheld under any applicable Tax Law. As promptly as
practicable after such surrender to the Disbursing Agent, the Disbursing Agent
shall pay to the record holder thereof complying with the forgoing, the Initial
Per Share Consideration payable in exchange for the Merger Shares so
surrendered, less any amounts required to be withheld under any applicable Tax
Law. No interest will be paid or accrued on the cash payable upon the surrender
of the certificates representing the Merger Shares. Until so surrendered and
exchanged, each such certificate shall, after the Effective Time, be deemed to
represent only the right, subject to Section 2.3, to receive the Merger
Consideration, and until such surrender and exchange, no cash shall be paid to
the holder of such outstanding certificate in respect thereof.

                                       11
<PAGE>

        (c) If payment is to be made to a Person other than the registered
holder of the Merger Shares represented by the certificate or certificates
surrendered in exchange therefor, it shall be a condition to such payment that
the certificate or certificates so surrendered shall be properly endorsed or
otherwise be in proper form for transfer and that the Person requesting such
payment shall pay to the Parent or Disbursing Agent (as the case may be) any
applicable stock transfer taxes or establish to the satisfaction of the Parent
or Disbursing Agent (as the case may be) that such stock transfer taxes have
been paid or are not payable.

        (d) After the Effective Time, there shall be no further transfers on the
stock transfer books of the Surviving Corporation of the Common Shares that were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, certificates representing Merger Shares are presented to the Surviving
Corporation, such shares shall be canceled and exchanged for the consideration
provided for, and in accordance with the procedures set forth, in this Article
II.

        (e) If any cash deposited with the Disbursing Agent remains unclaimed
six months after the Effective Time, such cash shall be returned to the
Surviving Corporation upon demand, and any such holder who has not surrendered
his Merger Shares certificates for the Initial Per Share Consideration prior to
that time shall thereafter look only to the Surviving Corporation for payment of
the Merger Consideration, but only as general creditors thereof for payment of
their claim for the Merger Consideration, without any interest thereon.
Notwithstanding the foregoing, the Surviving Corporation shall not be liable to
any holder of Merger Shares for an amount paid to a public official pursuant to
any applicable unclaimed property laws. Any amounts remaining unclaimed by
holders of Merger Shares two years after the Effective Time (or, if earlier, as
of a date immediately prior to such time that such amounts would otherwise
escheat to or become property of any Governmental Authority), shall to the
extent permitted by applicable Law, become the property of the Surviving
Corporation free and clear of any claims or interest of any Person previously
entitled thereto.

        (f) No dividends or other distributions with respect to capital stock of
the Surviving Corporation with a record date after the Effective Time shall be
paid to the holder of any unsurrendered certificate for Common Shares.

                                       12
<PAGE>

        (g) From and after the Effective Time, the holders of Common Shares
outstanding immediately prior to the Effective Time shall cease to have any
rights with respect to such Common Shares, other than the right to receive the
Merger Consideration as provided in this Agreement.

        (h) In the event that any Merger Share certificate has been lost, stolen
or destroyed, and upon the making of an affidavit of that fact by the Person
claiming such Merger Share certificate to be lost, stolen or destroyed, in
addition to the posting by such holder of any bond in such reasonable amount as
the Surviving Corporation may direct as indemnity against any claim that may be
made against the Surviving Corporation with respect to such Merger Share
certificate, the Disbursing Agent will issue in exchange for such lost, stolen
or destroyed Merger Share certificate the proper amount of the Initial Per Share
Consideration.

     Section 2.5 Treatment of Options.

        (a) As of the Effective Time, each Company Option will be canceled, and
the holder thereof will receive an amount equal to the Initial Per Option
Consideration times the number of Common Shares subject to the Company Option,
without interest and less any amounts required to be deducted and withheld under
any applicable Tax Law. An amount equal to the Aggregate Option Escrow Amount
shall be held and disbursed in accordance with Section 2.3. All payments of the
Initial Per Option Consideration with respect to canceled Company Options shall
be made by the Disbursing Agent as promptly as reasonably practicable, but in no
event more than five Business Days, after the Effective Time from funds
deposited with the Disbursing Agent by or at the direction of Parent to pay such
amounts.

        (b) Prior to the Effective Time, the Company (i) will cause the
Company's stock option plans to be terminated effective at or prior to the
Effective Time and to otherwise make any amendments permitted by such plans and
the agreements thereunder to the terms of such stock option plans or the grants
made thereunder necessary to effectuate the actions contemplated by this Section
2.5 and (ii) will effectuate the actions contemplated by this Section 2.5. As
soon as reasonably practicable, but not later than five Business Days, after,
and effective as of, the date of this Agreement, the Company will amend the
Company's stock option plans to preclude the grant of any additional stock
options or other awards thereunder.

     Section 2.6 Dissenting Shares. Notwithstanding any provision of this
Agreement to the contrary, but subject to Section 9.2 of this Agreement, Common
Shares that are issued and outstanding immediately prior to the Effective Time
and which are held by holders of such Common Shares who have properly exercised
appraisal rights with respect thereto in accordance with Section 262 of the
Delaware Law ("Dissenting Shares") will not be exchangeable for the right to
receive the Merger Consideration, and holders of such Dissenting Shares will be
entitled to receive payment of the appraised value of such Common Shares in
accordance with the provisions of such Section 262 unless and until such holders
fail to perfect or effectively withdraw or lose their rights to appraisal and
payment under the Delaware Law. If, after the Effective Time, any such holder
fails to perfect or effectively withdraws or loses such rights, such Common
Shares will thereupon be treated as if they had been converted into and to have
become exchangeable for, at the Effective Time, the right to receive the Merger
Consideration, subject to Section 2.3, without any interest thereon. The Company
will give Parent prompt notice of any demands received by the Company for
appraisals of Common Shares prior to the Effective Time. The Company shall not,
except with the prior written consent of Parent, make any payment with respect
to any demands for appraisal or offer to settle or settle any such demands.

                                       13
<PAGE>

     Section 2.7 Effect of Withholding. To the extent any amounts are required
to be deducted and withheld under any applicable Tax Law pursuant to Section
2.3, Section 2.4(b) or Section 2.5(a), such withheld amounts shall be treated
for all purposes as having been paid to the holder from whose Merger
Consideration or payments with respect to Company Options the amounts were so
deducted and withheld.

                                  ARTICLE III.
                            THE SURVIVING CORPORATION

     Section 3.1 Certificate of Incorporation. The certificate of incorporation
of Merger Sub as in effect immediately prior to the Effective Time shall be the
certificate of incorporation of the Surviving Corporation, except that Article I
thereof shall read as follows: "The name of the corporation is Sovereign
Specialty Chemicals, Inc.," until thereafter amended in accordance with the
terms thereof and as provided by applicable Law.

     Section 3.2 Bylaws. The bylaws of Merger Sub in effect at the Effective
Time shall be the bylaws of the Surviving Corporation until thereafter amended
in accordance with the terms thereof and as provided by applicable Law.

     Section 3.3 Directors and Officers. From and after the Effective Time, (i)
the directors of Merger Sub at the Effective Time shall be the directors of the
Surviving Corporation, and (ii) the officers of the Company at the Effective
Time shall be the officers of the Surviving Corporation, in each case until
their respective successors are duly elected or appointed and qualified in
accordance with applicable Law.

                                  ARTICLE IV.
                  REPRESENTATIONS AND WARRANTIES OF THE COMPANY

     Except as set forth in this Agreement, the Company SEC Reports or in the
corresponding sections of the Disclosure Letter delivered to Merger Sub by the
Company prior to entering into this Agreement (the "Disclosure Letter") (it
being understood that any information set forth in a particular section of the
Disclosure Letter shall be deemed to be disclosed to each other section or
subsection thereof or hereof to which the relevance of such information is
reasonably apparent), the Company hereby represents and warrants to Parent and
Merger Sub that:

     Section 4.1 Corporate Existence and Power.

        (a) The Company and each of its Subsidiaries is a corporation duly
incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation. The Company has all corporate powers and
authority required to own, lease and operate its respective properties and to
carry on its business as now conducted. The Subsidiaries of the Company have all
corporate powers and authority required to own, lease and operate their
respective properties and to carry on their business as now conducted, except
where the failure to have such power and authority would not, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect on the
Company.

                                       14
<PAGE>

        (b) Each of the Company and its Subsidiaries is duly qualified to do
business as a foreign corporation and is in good standing in each jurisdiction
where the character of the property owned or leased by it or the nature of its
activities makes such qualification necessary, except where the failure to be so
qualified or in good standing would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on the Company.

        (c) The Company has made available to Parent and Merger Sub true and
complete copies of the currently effective certificate of incorporation and
bylaws or similar organizational and governing documents of the Company and its
Subsidiaries.

     Section 4.2 Corporate Authorization.

        (a) The execution, delivery and performance by the Company of this
Agreement and the consummation by the Company of the Merger and the other
transactions contemplated hereby have been duly and validly authorized by the
Board of Directors and shareholders of the Company, and no other Company
corporate or shareholder action is necessary to authorize this Agreement or to
consummate the Merger and the other transactions contemplated hereby, except for
the filing of the certificate of merger as provided in Section 2.1(b). The only
Company shareholder action required to approve this Agreement is an affirmative
vote in favor, or approval, of this Agreement by the holders of a majority of
the outstanding Common Shares, which shareholder action has been duly taken.

        (b) This Agreement has been duly and validly executed and delivered by
the Company and, assuming the due and valid execution and delivery by Parent and
Merger Sub, constitutes a legal, valid and binding agreement of the Company
enforceable against the Company in accordance with its terms, except (i) as such
enforceability may be limited by bankruptcy, insolvency, moratorium,
reorganization or similar Laws affecting the enforcement of creditors' rights
generally and (ii) as the remedy of specific performance and other forms of
injunctive relief may be subject to equitable defenses and to the discretion of
the court before which any proceeding therefor may be brought.

        (c) On or prior to the date hereof, the Board of Directors of the
Company has unanimously adopted resolutions (i) approving this Agreement, and
declaring that the Merger and the other transactions contemplated by this
Agreement are advisable and (ii) resolving to recommend that the Company
shareholders approve this Agreement. All such resolutions are in full force and
effect and have not been amended or superseded as of the date hereof.

        (d) The shareholders of the Company who have voted in favor of adoption
of this Agreement as of the date hereof are holders of at least 94% of the
Voting Common Shares outstanding as of the date hereof.

     Section 4.3 Governmental Authorization. The execution, delivery and
performance by the Company of this Agreement and the consummation of the Merger
require no action by the Company in respect of, or filing by the Company, or
cooperation in the preparation and submission of any filing with, any
Governmental Authority other than (i) the filing of the certificate of merger
described in Section 2.1(b); (ii) compliance with any applicable requirements of
the HSR Act and any applicable Other Antitrust Laws specified in Section 4.3(ii)
of the Disclosure Letter; (iii) compliance with any applicable requirements of
the Exchange Act and Securities Act; (iv) compliance with any applicable foreign
or state securities or Blue Sky laws; and (v) the filing of appropriate material
documents with the relevant authorities of the jurisdictions in which the
Company is qualified to do business.

                                       15
<PAGE>

     Section 4.4 Non-Contravention. The execution, delivery and performance by
the Company of this Agreement and the consummation by the Company of the
transactions contemplated hereby do not and will not (i) contravene or conflict
with the organizational or governing documents of the Company or any of its
Subsidiaries; (ii) assuming compliance with the matters referenced in Section
4.3, contravene or conflict with or constitute a violation of any provision of
any Law binding upon or applicable to the Company or any of its Subsidiaries or
any of their respective properties or assets; (iii) require any consent, waiver
or approval under, or constitute a default, violation or breach under, or give
rise to a right of termination, cancellation or acceleration of any right or
obligation of the Company or any of its Subsidiaries or to a loss of any benefit
to which the Company or any of its Subsidiaries is entitled under any provision
of any agreement, contract or other instrument applicable to or binding upon the
Company or any of its Subsidiaries or any of their respective properties or
assets except those consents as set forth on Section 4.4(iii) of the Disclosure
Letter or (iv) result in the creation or imposition of any Lien on any asset of
the Company or any of its Subsidiaries (other than any such Lien arising from
any actions taken by Parent or Merger Sub), except, in the case of clauses (iii)
and (iv), as would not, individually or in the aggregate, be reasonably expected
to have a Material Adverse Effect on the Company.

     Section 4.5 Capitalization.

        (a) The authorized capital stock of the Company consists of 2,700,000
shares of Voting Common Stock and 2,100,000 shares of Non-Voting Common Stock,
of which as of the date hereof, there are 2,162,875.98 shares of Voting Common
Stock and no shares of Non-Voting Common Stock issued and outstanding. Except as
set forth in Section 4.5 of the Disclosure Letter, no shares of capital stock
were held in the Company's treasury as of the date hereof. As of the date
hereof, there are outstanding Company Options to purchase an aggregate of
294,600 Common Shares. All outstanding shares of capital stock of the Company
have been duly authorized and validly issued and are fully paid and
non-assessable, and are free of preemptive or similar rights.

        (b) Except as set forth in this Section 4.5 or in Section 4.5 of the
Disclosure Letter and except for changes after the date hereof resulting from
the exercise of Company Options outstanding on such date and the conversion of
shares of Non-Voting Common Stock into shares of Voting Common Stock, there are
no outstanding, and there have not been reserved for issuance, any (i) shares of
capital stock or other voting securities of the Company; (ii) securities of the
Company or any Subsidiary of the Company convertible into or exchangeable for
shares of capital stock or voting securities or other ownership interests of the
Company or any of its Subsidiaries; (iii) Company Options or other rights or
options, warrants or other agreements or commitments to acquire from the Company
or any of its Subsidiaries, or obligations of the Company or any of its
Subsidiaries to issue, any shares of capital stock, voting securities, other
ownership interests, or securities convertible into or exchangeable for shares
of capital stock, voting securities or other ownership interests of the Company
or any Subsidiary, as the case may be; (iv) equity equivalent interests in the
ownership or earnings of the Company or its Subsidiaries, obligations of the
Company or any of its Subsidiaries to make any payment based on the value of any
shares of any Subsidiary of the Company, or other similar rights; or (v)
obligations of the Company or any of its Subsidiaries to grant, extend or enter
into any subscription, warrant, right, convertible or exchangeable security or
other similar agreement or commitment relating to any capital stock, voting
securities or other ownership interests in any of the Company's Subsidiaries
(the items in clauses (i) through (v) collectively, "Company Securities"). There
are no outstanding obligations of the Company or any of its Subsidiaries to
repurchase, redeem or otherwise acquire any Company Securities. There are no
stockholder agreements, voting trusts or other agreements or understandings to
which the Company or any of its Subsidiaries is a party or by which it is bound
relating to the voting or registration of any shares of capital stock of the
Company or any of its Subsidiaries or preemptive rights with respect thereto.

                                       16
<PAGE>

        (c) Except as set forth in Section 4.5 of the Disclosure Letter and
other than the issuance of Common Shares upon exercise of Company Options and
conversion of shares of Non-Voting Common Stock into shares of Voting Common
Stock, since the Balance Sheet Date, the Company has not declared or paid any
dividend or distribution in respect of any Company Securities, and neither the
Company nor any Subsidiary of the Company has issued, sold, repurchased,
redeemed or otherwise acquired any Company Securities, and their respective
Boards of Directors have not authorized any of the foregoing.

     Section 4.6 Subsidiaries of the Company.

        (a) Section 4.6(a) of the Disclosure Letter contains a list of the
Company's Subsidiaries. Each of the Company's Subsidiaries is wholly owned
(directly or indirectly) by the Company, and except for such Subsidiaries of the
Company, the Company and such Subsidiaries do not directly or indirectly own any
equity interest in any other Person.

        (b) All equity interests of the Company's Subsidiaries held by the
Company or any other Subsidiary of the Company are fully paid and non-assessable
and were not issued in violation of any preemptive or similar rights. Except as
set forth in Section 4.6(b) of the Disclosure Letter, all such equity interests
are free and clear of any Liens or any other limitations or restrictions on such
equity interests (including any limitation or restriction on the right to vote,
pledge or sell or otherwise dispose of such equity interests).

     Section 4.7 Reports and Financial Statements.

        (a) The Company has filed with or otherwise furnished to the SEC all
forms, reports, schedules, statements and other documents required to be filed
or furnished by it under the Securities Act or the Exchange Act since January 1,
2000 and prior to the date hereof (such documents, as supplemented or amended
since the time of filing, the "Company SEC Reports"). No Subsidiary of the
Company is required to file with or furnish to the SEC any such forms, reports,
schedules, statements or other documents. As of their respective dates, the
Company SEC Reports, including any financial statements or schedules included or
incorporated by reference therein, at the time filed (i) complied in all
material respects with the applicable requirements of the Securities Act and the
Exchange Act and (ii) did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading.

                                       17
<PAGE>

        (b) The audited and unaudited consolidated financial statements of the
Company included (or incorporated by reference) in the Company SEC Reports
(including any related notes and schedules) fairly present, in all material
respects, the consolidated financial position of the Company and its
Subsidiaries as of the dates thereof and the consolidated results of their
operations and their consolidated cash flows for the periods set forth therein,
and in each case were prepared in accordance with GAAP consistently applied
during the periods involved (except as otherwise disclosed in the notes thereto
and subject, in the case of financial statements for quarterly periods, to
normal year-end adjustments).

        (c) There are no liabilities or obligations of any nature of the Company
or any of its Subsidiaries (whether accrued, contingent, absolute, determined,
determinable or otherwise), whether due or to become due, which would be
required by GAAP to be recorded or reflected on a consolidated balance sheet of
the Company other than (i) liabilities or obligations disclosed or provided for
in the Company SEC Reports or Balance Sheet or disclosed in the notes thereto;
(ii) liabilities or obligations incurred after the Balance Sheet Date in the
ordinary course of business consistent with past practice and (iii) liabilities
under this Agreement or incurred in connection with the transactions
contemplated hereby or disclosed in Section 4.14 of the Disclosure Letter.

     Section 4.8 Absence of Certain Changes or Events.

        (a) Since the Balance Sheet Date, the business of the Company and its
Subsidiaries has been conducted in all material respects in the ordinary course
consistent with past practice, except for the negotiation and delivery of this
Agreement. Since the Balance Sheet Date, there has not been any event,
occurrence or development that, individually or in the aggregate, has had, or
would reasonably be expected to have, a Material Adverse Effect on the Company.
For purposes of this Agreement, "Material Adverse Effect on the Company" means
any state of facts, circumstance, effect, condition, event, change, development
or occurrence that, either individually or in the aggregate with all other
states of facts, circumstances, effects, conditions, events, changes,
developments or occurrences, is or would reasonably be expected to result in a
material adverse effect on (i) the business, results of operations, properties,
assets, liabilities or condition (financial or otherwise) of the Company and its
Subsidiaries, taken as a whole, but excluding any such state of facts,
circumstance, effect, condition, event, change, development or occurrence
resulting from or arising out of (A) general national or international economic
or business conditions, (B) conditions (including changes in economic or
financial market conditions and any change in Law or GAAP) affecting generally
the industries in which the Company and its Subsidiaries participate and not
disproportionately affecting the Company and its Subsidiaries or (C) the
execution, announcement and performance of this Agreement, or any actions taken,
delayed or omitted to be taken by the Company pursuant to this Agreement or at
the written request of Parent, Merger Sub or any of their Representatives; or
(ii) the ability of the Company to consummate the Merger.

                                       18
<PAGE>

        (b) Without limiting the generality of the foregoing Section 4.8(a),
since the Balance Sheet Date and prior to the date hereof, other than in the
ordinary course of business or as set forth in Section 4.8 of the Disclosure
Letter, there has not been:

           (i) any damage, destruction or loss to any of the assets or
properties of the Company or any of its Subsidiaries (whether or not insured)
that, individually or in the aggregate, has had or could reasonably be expected
to have a Material Adverse Effect on the Company;

           (ii) any amendment or change, or proposal to amend or change, the
Company's or any of its Subsidiary's organizational or governing documents;

           (iii) any declaration, setting aside or payment of any dividend or
distribution or capital return in respect of any shares of the Company's or any
of its Subsidiaries' capital stock (other than to another Subsidiary of the
Company) or any redemption, purchase or other acquisition by the Company or any
of its Subsidiaries of any shares of the Company's capital stock or any
amendment of any material term of any outstanding capital stock of the Company
or any of its Subsidiaries;

           (iv) any sale, assignment, transfer, lease or other disposition or
agreement to sell, assign, transfer, lease or otherwise dispose of any material
amount of assets of the Company or any of its Subsidiaries;

           (v) any acquisition (by merger, consolidation, or acquisition of
stock or assets) by the Company or any of its Subsidiaries of any corporation,
partnership or other business organization or division thereof or any equity
interest therein;

           (vi) any material (A) incurrence of or guarantee with respect to or
provision of credit support for any indebtedness for borrowed money by the
Company or any of its Subsidiaries, other than pursuant to the existing credit
facilities of the Company or any of its Subsidiaries in the ordinary course of
business, (B) event of default or default under the existing credit facilities
or outstanding loans of the Company or any of its Subsidiaries, or (C) creation
or assumption by the Company or any of its Subsidiaries of any material Lien on
any material asset, other than Permitted Liens;

           (vii) any change in any method of accounting or accounting principle
or practice used by the Company or any of its Subsidiaries, other than such
changes required by Law or a change in GAAP;

           (viii) any material Tax election or the institution of or any
compromise or settlement of any proceeding or proposed adjustment with respect
to any material Tax liability of the Company and its Subsidiaries;

           (ix) any material loan, advance, payment or capital contribution made
by the Company or any of its Subsidiaries to, or investment in, any Person
(including, but not limited to, any shareholder of the Company or any associated
entity of such shareholder) other than loans, advances or capital contributions
made to a Subsidiary of the Company or by a Subsidiary of the Company to the
Company;

                                       19
<PAGE>

           (x) any amendment, alteration or modification in any material term of
any currently outstanding Company Options, warrants or other rights to purchase
any capital stock or other equity interests in the Company or any securities
exchangeable or exercisable for or convertible into the same;

           (xi) adoption or material amendment of any Employee Benefit Plan,
Employee Agreement or other compensation or benefit plan, agreement or
arrangement with or for the benefit of any current or former director, officer
or employee of the Company or any of its Subsidiaries or material increase in
any manner of the compensation or pension, welfare or fringe benefits of any
such director, officer or employee, in each case, except as required by ERISA or
other applicable Law or by the express terms of any Employee Agreement;

           (xii) (A) payment of any bonus or other incentive compensation or
award to any current or former director, officer or employee of the Company or
any of its Subsidiaries, except pursuant to the express terms of any Employee
Agreement, (B) entering into of any agreement, commitment or obligation to pay
any bonus or other incentive compensation, severance or other termination or
retirement benefit or payment to any current or former director, officer or
employee of the Company or any of its Subsidiaries or (C) entering into of any
Employee Agreement with any current or former director or officer of the Company
or any of its Subsidiaries or any Material Employee Agreement with any current
or former employee of the Company or any of its Subsidiaries; or

           (xiii) any agreement to take any actions specified in this Section
4.8(b), except for this Agreement.

     Section 4.9 Litigation. Except as set forth in Section 4.9 of the
Disclosure Letter, there is no action, suit, claim, investigation, arbitration
or proceeding pending or, to the Knowledge of the Company, threatened against or
affecting or relating to the Company or any of its Subsidiaries or their
respective assets or properties before any arbitrator or Governmental Authority
(a "Proceeding") that, if determined adversely to the Company or any of its
Subsidiaries, would result in an injunction against, or the payment of uninsured
damages in an amount in excess of $100,000 by, the Company or any of its
Subsidiaries, or that relates to exposure to asbestos. Neither the Company nor
any Subsidiary is subject to any outstanding order, writ, injunction or decree
that has had or is reasonably likely to have, individually or in the aggregate,
a Material Adverse Effect on the Company.

     Section 4.10 Taxes.

        (a) Except as set forth in Section 4.10 of the Disclosure Letter, all
federal, state, local and foreign income and other material Tax Returns required
to be filed by the Company or any of its Subsidiaries have been properly and
timely filed with the appropriate Governmental Authorities in all jurisdictions
in which such Tax Returns are required to be filed and all taxes shown as due on
such returns have been paid. To the Company's Knowledge, except as set forth in
Section 4.10 of the Disclosure Letter, all material taxes currently owed by the
Company or any of its Subsidiaries to any Governmental Authorities or to any
third party as a result of indemnification obligations have been paid or
adequately reserved or accrued in accordance with GAAP, except any which are
being contested in good faith by appropriate proceedings and for which adequate
reserves have been established on the books of the Company or any of its
Subsidiaries, as applicable, in accordance with GAAP.

                                       20
<PAGE>

        (b) Except as set forth in Section 4.10 of the Disclosure Letter, the
Company and its Subsidiaries have not requested any extension of time within
which to file any Tax Return, which Tax Return has not since been filed. All Tax
Returns filed by or on behalf of the Company and its Subsidiaries on or prior to
the Closing Date accurately and fairly reflect, in all material respects, the
Taxes of the Company and its Subsidiaries for the periods covered thereby.

        (c) All foreign, state and local jurisdictions where the Company files
material Tax Returns are set forth in Section 4.10 of the Disclosure Letter. To
the Knowledge of the Company, since January 1, 2000 no claim has been made by a
Governmental Authority in a jurisdiction where the Company and its Subsidiaries
do not file Tax Returns that it or they are or may be subject to material
taxation by that jurisdiction.

        (d) Section 4.10 of the Disclosure Letter lists all federal, state,
local, and foreign income Tax Returns filed with respect to the Company and each
of its Subsidiaries for taxable periods ended after December 31, 1999, indicates
those Tax Returns that have been audited, and indicates those Tax Returns that
currently are the subject of audit. In addition to such lists, the Company has
made available to Parent correct and complete copies of all Tax Returns filed,
examination reports, and statements of deficiencies assessed against or agreed
to by the Company and its Subsidiaries since January 1, 2000.

        (e) There is no material Tax deficiency or delinquency asserted or, to
the Knowledge of the Company, threatened against the Company and its
Subsidiaries.

        (f) Except as set forth in Section 4.10 of the Disclosure Letter, no
audit, action or similar proceeding is pending or, to the Knowledge of the
Company, proposed by any Governmental Authority against the Company or any of
its Subsidiaries. No material adjustment relating to any Tax Return of the
Company or any of is Subsidiaries has been proposed in writing by any
Governmental Authority. Except as set forth in Section 4.10 of the Disclosure
Letter, the Company and its Subsidiaries have not granted any extension to any
Governmental Authority of the limitations period during which any Tax liability
may be assessed or collected.

        (g) There are no liens or other encumbrances for Taxes upon the assets
of the Company and its Subsidiaries, except for current Taxes not yet due and
payable and for Taxes being contested in good faith by appropriate proceedings
and for which adequate reserves have been established on the books of the
Company or any of its Subsidiaries, as applicable, in accordance with GAAP.

        (h) The Company and its Subsidiaries have withheld and paid all material
Taxes required to have been withheld and paid in connection with amounts paid or
owing to any employee, independent contractor, creditor, shareholder, or other
third party.

        (i) Except as set forth on Section 4.10 of the Disclosure Letter,
neither the Company nor any of its Subsidiaries is a party to any Tax allocation
or sharing agreement that includes any Person other than the Company or its
Subsidiaries. Neither the Company nor any of its Subsidiaries (i) has been a
member of an Affiliated Group filing a consolidated federal income Tax Return
(other than a group the common parent of which was the Company) since January 1,
2000 and (ii) has liability for the Taxes of any person (other than any of the
Company and its Subsidiaries) under Reg. ss.1.1502-6 (or any similar provision
of state, local, or foreign law), as a transferee or successor, by contract, or
otherwise that has arisen since January 1, 2000.

                                       21
<PAGE>

        (j) Except as set forth in Section 4.10 of the Disclosure Letter, none
of the Company and its Subsidiaries will be required to include any material
item of income in, or exclude any material item of deduction from, taxable
income for any taxable period (or portion thereof) ending after the Closing Date
as a result of any: (i) change in method of accounting elected prior to the
Closing Date for a taxable period ending on or prior to the Closing Date; (ii)
"closing agreement" as described in Section 7121 of the Code (or any
corresponding or similar provision of state, local or foreign income Tax law)
executed prior to the Closing Date; (iii) intercompany transactions entered into
prior to the Closing Date or any excess loss account described in Treasury
Regulations under Section 1502 of the Code (or any corresponding or similar
provision of state, local or foreign income Tax law) accrued prior to the
Closing Date; (iv) installment sale or open transaction disposition made prior
to the Closing Date; or (v) prepaid amount received prior to the Closing Date.

        (k) Since January 1, 1998 neither the Company nor any of its
Subsidiaries has distributed stock of another Person, or has had its stock
distributed by another Person, in a transaction that purported or was intended
to be governed in whole or in part by Section 355 or Section 361 of the Code.

     Section 4.11 ERISA.

        (a) Section 4.11(a) of the Disclosure Letter sets forth a list
identifying (i) each material Employee Benefit Plan and (ii) each Material
Employee Agreement. For purposes of this Agreement, the term "Employee Benefit
Plan" means each employee benefit plan (within the meaning of Section 3(3) of
ERISA), whether or not subject to ERISA, and each bonus, stock option, stock
purchase or other equity based, incentive, deferred compensation, supplemental
retirement, health, life, disability or other welfare, dependent care,
severance, change in control, retention, termination and other similar employee
or retiree compensation or benefit plan, program, policy or arrangement
maintained, contributed to or required to be contributed to by the Company or
any of its Subsidiaries or in respect of which the Company or any of its
Subsidiaries may have any material liability, whether absolute or contingent,
direct or indirect.

        (b) Neither the Company nor any of its ERISA Affiliates sponsors,
maintains, contributes to or has an obligation to contribute to any
multiemployer plan (within the meaning of Section 3(37) of ERISA), whether or
not subject to ERISA, or any plan sponsored by more than one employer within the
meaning of Sections 4063 or 4064 of ERISA or Section 413(c) of the Code, whether
or not subject to ERISA.

        (c) Except as otherwise set forth in Section 4.11(c) of the Disclosure
Letter, each Employee Benefit Plan that is intended to be qualified under
Section 401(a) of the Code has received a determination letter from the Internal
Revenue Service regarding its tax qualified status and covering all Tax Laws
prior to the Economic Growth and Tax Relief Reconciliation Act of 2001, and the
Company has no Knowledge that anything has occurred since the date of such most
recent Internal Revenue Service determination letter or condition exists that
could be reasonably expected to adversely affect the tax-qualified status of any
such Plan. Each Employee Benefit Plan intended to qualify for any special tax
treatment under applicable Tax Laws other than the Code meets all requirements
for such treatment and, to the Company's Knowledge, has timely received all
required certificates and approvals of any Governmental Authority. Each Employee
Benefit Plan has been maintained in compliance with its terms and with the
requirements prescribed by any and all Laws that are applicable to such Employee
Benefit Plan, except for any failures to comply that, individually and in the
aggregate, would not have or result in any material liability to the Company and
its Subsidiaries.

                                       22
<PAGE>

        (d) No Employee Benefit Plan or Employee Agreement provides for the
payment of any amount or benefit and there is no other contract, agreement, plan
or arrangement covering any current or former director, shareholder, officer or
employee of the Company or any of its Affiliates that, individually or
collectively, could give rise to the payment of any amount or benefit that would
not be deductible under Section 280G or 162(m) of the Code or the comparable
provisions of any Tax Law of a jurisdiction other than the United States.

        (e) Except as disclosed in Section 4.11(e) of the Disclosure Letter, no
payment, accrual of additional compensation or benefits, acceleration of any
payments, compensation or benefits, vesting in any compensation or benefits or
funding of any compensation or benefits under any Employee Benefit Plan,
Employee Agreement or similar plan, contract, agreement or arrangement will be
caused, directly or indirectly, by the Company's entering into this Agreement or
by the consummation of the transactions contemplated by this Agreement (either
alone or together with any other event).

        (f) Neither the Company nor any of its Subsidiaries or ERISA Affiliates
has incurred or reasonably expects to incur any material liability pursuant to
Title IV of ERISA or the comparable provisions of the Laws of any jurisdiction
other than the United States and, to the Company's Knowledge, no event,
transaction or condition exists or has occurred that could reasonably be
expected to result in the incurrence of any such liability. Neither the Company
nor any of its Subsidiaries or ERISA Affiliates has incurred or reasonably
expects to incur any liability pursuant to Title I of ERISA, the penalty or
excise tax provisions of the Code relating to employee benefit plans or the
comparable provisions of the Laws of any jurisdiction other than the United
States that remains outstanding that could reasonably be expected to have a
Material Adverse Effect on the Company. Neither the execution of this Agreement
nor the consummation of the transactions contemplated hereby will require (i)
notice to the Pension Benefit Guaranty Corporation or any Governmental Authority
with respect to employee benefits or other matters of any jurisdiction other
than the United States or (ii) consent of any union or works council or other
labor representative.

        (g) All contributions, premiums and expenses required to be paid
pursuant to the terms of any Employee Benefit Plan, Employee Agreement or Law
prior to the date hereof have been timely paid, except where the failure to do
so would not be reasonably expected to result in any material liability to the
Company.

                                       23
<PAGE>

     Section 4.12 Labor Matters. Except as set forth in Section 4.12 of the
Disclosure Letter, the Company is not party to any collective bargaining
agreements or other collective labor contracts or understandings. Except as
would not, individually and in the aggregate, be reasonably expected to result
in any material liability to the Company or any of its Subsidiaries:

        (a) there is not pending or, to the Knowledge of the Company,
threatened, and there has not been since January 1, 2002, any labor strike,
dispute, slowdown, stoppage, lockout or similar labor action against the Company
or any of its Subsidiaries or involving their respective employees;

        (b) none of the employees of the Company or any of its Subsidiaries are
represented by any labor organization except as set forth in Section 4.12 of the
Disclosure Letter, and, to the Knowledge of the Company, there are no current
union organizing activities among the employees of the Company or any of its
Subsidiaries;

        (c) the Company and each of its Subsidiaries are in compliance in all
material respects with all applicable Laws relating to the employment,
termination of employment and terms and conditions of employment of their
respective employees and the requirements with respect to collective bargaining;
and

        (d) there are no pending or, to the Knowledge of the Company, threatened
unfair labor practice charges or complaints or other labor grievances against
the Company or any of its Subsidiaries.

     Section 4.13 Compliance with Laws.

        (a) Except as set forth in Section 4.13 of the Disclosure Letter, the
Company and each of its Subsidiaries is, and within the preceding five years has
been, in compliance in all material respects with all Laws applicable to the
Company, its Subsidiaries and their respective businesses and activities. To the
Company's Knowledge, neither the Company nor any of its Subsidiaries is aware of
its being under investigation with respect to, or has it been threatened in
writing to be charged with or been given notice of any violation of, any
applicable Law which would reasonably be expected to result in any material
liability to the Company and its Subsidiaries.

        (b) The Company and each of its Subsidiaries has and maintains in full
force and effect, and is in compliance in all material respects with, all
material Permits necessary for the Company and each of its Subsidiaries to carry
on their respective businesses as currently conducted and neither the Company
nor any of its Subsidiaries has received notice that the Person issuing or
authorizing any such material Permit intends to terminate or will refuse to
renew or reissue any such material Permit upon its expiration.

     Section 4.14 Finders' Fees. Except as set forth in Section 4.14 of the
Disclosure Letter, there is no investment banker, broker, finder or other
intermediary that has been retained by or is authorized to act on behalf of the
Company or any of its Subsidiaries or its Affiliates and that might be entitled
to any fee or commission from the Company or any of its Affiliates in connection
with the transactions contemplated by this Agreement. The Company has provided
true and complete copies of all engagement letters or other agreements providing
for the payment of the fees and commissions described in Section 4.14 of the
Disclosure Letter, and no such letters or agreements have been amended or
superseded.

                                       24
<PAGE>

     Section 4.15 Environmental Matters. Except as set forth in Section 4.15 of
the Disclosure Letter:

        (a) the Company and its Subsidiaries are, and within the preceding five
years have been, in compliance in all material respects with all Environmental
Laws and with all material Permits issued by any Governmental Authority under
any Environmental Laws;

        (b) there has been and currently is no actual or, to the Company's
Knowledge, threatened Release of Hazardous Substances at or from any real
property that is or, to the Company's Knowledge, has been owned, operated or
leased by the Company or its Subsidiaries that reasonably would, individually or
in the aggregate, be expected to give rise to a significant liability on the
part of the Company and its Subsidiaries under any Environmental Law;

        (c) there is no written notice, demand, request for information,
citation, summons, claim, penalty, assessment, complaint, order, consent decree,
or settlement arising under or related to any Environmental Law pending or, to
the Knowledge of the Company, threatened by any Person against the Company or
any of its Subsidiaries;

        (d) no written notice of an actual or alleged violation of any
Environmental Law or of any actual or potential penalty or other claim for
damages, personal injury or any other relief under any Environmental Law has
been served on, received by or assessed against the Company or any of its
Subsidiaries that has not been fully resolved such that neither the Company nor
any of its Subsidiaries are subject to any outstanding obligations;

        (e) to the Company's Knowledge, neither the Company nor any of its
Subsidiaries has generated, transported, disposed or arranged for the disposal
of any Hazardous Substances at or to any off-site location that reasonably
would, individually or in the aggregate, be expected to give rise to or provide
a basis for a significant liability to the Company and its Subsidiaries as a
result of a demand for remediation, contribution, or cost recovery under any
Environmental Law; and

        (f) the representations set forth in this Section 4.15 and in Section
4.16 below are the sole and exclusive representations of the Company with
respect to matters arising under Environmental Law.

     Section 4.16 EINECS and TSCA. Except as set forth in Section 4.16 of the
Disclosure Letter:

        (a) all chemicals that are currently, or within the preceding five years
have been, used, manufactured for commercial purposes or imported by the Company
and its Subsidiaries that are required to be registered or reported to the
United States Environmental Protection Agency for listing in the TSCA Inventory
have been so registered or reported. The Company and its Subsidiaries have
complied in all material respects with Section 8(c) of TSCA with respect to such
chemicals;

                                       25
<PAGE>

        (b) no report of substantial risk under Section 8(e) of TSCA has been
made or is required to have been made by the Company or any of its Subsidiaries
and no effects have been recorded or required to be recorded or reported under
Section 8(c) of TSCA with respect to any chemicals manufactured by the Company
or any of its Subsidiaries. To the Company's Knowledge, no report of substantial
risk under Section 8(e) of TSCA has been made by a person or entity with respect
to any such chemicals; and

        (c) to the Company's Knowledge, the Company and each of its Subsidiaries
have complied in all material respects with EINECS.

     Section 4.17 Insurance. All Insurance Policies maintained by the Company or
any of its Subsidiaries are with reputable insurance carriers and are in
character and amount at least equivalent to that carried by persons engaged in
similar businesses and subject to the same or similar perils or hazards. All
Insurance Policies are in full force and effect and, to the Company's Knowledge,
no event has occurred which, with notice or the lapse of time, would constitute
a breach or default under any Insurance Policy, or which would permit
termination, material modification, or acceleration under any Insurance Policy.
All premiums payable with respect to such Insurance Policies that are due and
payable as of the date hereof have been paid. Except as set forth on in Section
4.17 of the Disclosure Letter, there is no material pending claim (excluding any
workers' compensation claim) under any Insurance Policy. The Company has not
received any written notice indicating that any insurance will not be renewed or
that the issuer of any Insurance Policy is not willing or able to perform its
obligations thereunder. To the Company's Knowledge, the Insurance Policies of
the Company are sufficient for compliance, in all material respects, with all
applicable legal requirements and contracts to which the Company is a party or
by which it is bound.

     Section 4.18 Contracts.

        (a) Except as set forth in Section 4.18(a) of the Disclosure Letter,
neither the Company nor any of its Subsidiaries is a party to or bound by, as of
the date hereof, any material contract, undertaking, commitment or agreement
(other than contracts, undertakings, commitments or agreements for employee
benefit matters set forth in Section 4.11(a) of the Disclosure Letter, real
property leases set forth in Section 4.22 of the Disclosure Letter and any
vendor contracts entered in the ordinary course of business) of the following
categories (collectively, the "Contracts"):

           (i) contracts requiring annual expenditures by the Company and its
Subsidiaries in excess of $200,000, that have a remaining term in excess of one
year or that are not cancelable (without material penalty, cost or other
liability) within 180 days;

           (ii) promissory notes, loans, agreements, indentures, evidences of
indebtedness or other instruments providing for the borrowing or lending of
money, whether as a borrower, lender or guarantor in excess of $100,000;

           (iii) contracts containing covenants limiting in any material way the
freedom of the Company or any of its Subsidiaries to engage in any line of
business or compete with any Person in any product line or line of business, or
to operate at any location;

                                       26
<PAGE>

           (iv) partnership or joint venture agreements;

           (v) contracts for the acquisition or sale of a material business or
line of products, whether through the purchase of stock, assets or otherwise,
under which the Company or any of its Subsidiaries or any other party thereto
has material continuing rights or obligations; or

           (vi) any other contract, agreement, arrangement or understanding that
is material to the Company or any of its Subsidiaries, in the case of this
clause (vi) the termination, or breach or default of which could, individually
or in the aggregate, reasonably be expected to have a Material Adverse Effect on
the Company.

        (b) As of the date hereof, each of the Contracts is a valid and binding
obligation of the Company (or the Subsidiaries of the Company party thereto),
and to the Company's Knowledge, the other parties thereto, enforceable against
the Company and its Subsidiaries and, to the Company's Knowledge, the other
parties thereto in accordance with its terms, except as enforcement may be
limited by bankruptcy, insolvency, moratorium, reorganization, arrangement or
similar laws affecting creditors' rights generally and by general principles of
equity.

        (c) Except as set forth in Section 4.18(c) of the Disclosure Letter, as
of the date hereof, neither the Company nor any of its Subsidiaries is, nor to
the Knowledge of the Company is any other party, in breach, default or violation
(and no event has occurred or not occurred through the Company's action or
inaction or, to the Knowledge of the Company, through the action or inaction of
any third parties, which with notice or the lapse of time or both could
constitute a breach, default or violation) of any term, condition or provision
of any Contract to which the Company or any of its Subsidiaries is now a party,
or by which any of them or any of their respective properties or assets may be
bound, except for breaches, defaults or violations that would not, individually
or in the aggregate, be reasonably expected to result in any material liability
to the Company and its Subsidiaries.

     Section 4.19 Legal Matters. The Company has taken all action necessary to
exempt the Merger, this Agreement and the transactions contemplated hereby from
Section 203 of the Delaware Law, and, accordingly, neither such Section nor any
other antitakeover or similar statute or regulation in effect as of the date
hereof applies or purports to apply to any such transactions.

     Section 4.20 Intellectual Property.

        (a) Section 4.20(a) of the Disclosure Letter sets forth a complete and
correct list of the following categories of Owned Company IP: (i) all registered
Trademarks, pending Trademark applications and material unregistered Trademarks;
(ii) domain names; (iii) all issued Patents and pending Patent applications;
(iv) all registered Copyrights and registered mask works; and (v) all material
Software (excluding any off-the-shelf shrinkwrap, clickwrap or similar
commercially available non-custom software), in each case listing, as applicable
(A) for any Owned Company IP that are registrations or applications in the U.S.,
the name of the current owner of record, (B) the jurisdiction where the
application/registration is located and (C) the application or registration
number.

                                       27
<PAGE>

        (b) Section 4.20(b) of the Disclosure Letter separately sets forth a
list of (i) all material agreements under which the Company or any of its
Subsidiaries uses any Licensed Company IP and (ii) all material agreements under
which the Company or any of its Subsidiaries has licensed to others the right to
use any of the Company IP.

        (c) The Owned Company IP and the Licensed Company IP is all the
Intellectual Property necessary for the conduct of the business of the Company
and its Subsidiaries as it is currently conducted and as it has been conducted
during the past year.

        (d) Except as set forth in Section 4.20(d) of the Disclosure Letter, the
Company and its Subsidiaries have all right, title and interest in, or the right
to use, all the Company IP free and clear of all Liens other than Permitted
Liens.

        (e) Except as set forth in Section 4.20(e) of the Disclosure Letter, the
Company and each of its Subsidiaries has taken commercially reasonable and
appropriate steps to protect and maintain each item of material Owned Company
IP, and where the Company or any of its Subsidiaries has registered any Owned
Company IP, all such registrations which are material are currently in good
standing and subsisting.

        (f) Except as set forth in Section 4.20(f) of the Disclosure Letter,
except where the assignment of such rights to the Company and its Subsidiaries
is ineffective under applicable Law or except as would not, individually or in
the aggregate, be reasonably expected to have a Material Adverse Effect on the
Company, the Company and each of its Subsidiaries has secured and has a current
policy to secure written assignments from employees who contribute or have
contributed to the creation or development of any of the material Owned Company
IP, of the rights to such contributions that the Company or its Subsidiaries do
not already own by operation of law.

        (g) Except as set forth in Section 4.20(g) of the Disclosure Letter,
there is no action, suit, claim, investigation, arbitration or proceeding
pending or, to the Company's Knowledge, threatened against the Company or any of
its Subsidiaries asserting that the Company's or any of its Subsidiaries' use or
exploitation of any Company IP or that the conduct of the business of the
Company and its Subsidiaries as currently conducted or has been conducted within
the preceding five years infringes upon, misappropriates, violates or conflicts
in any way with the Intellectual Property of any Person.

        (h) Except as set forth in Section 4.20(h) of the Disclosure Letter,
there is no pending claim challenging the validity or enforceability of any item
of Owned Company IP.

        (i) Except as set forth in Section 4.20(i) of the Disclosure Schedule,
to the Company's Knowledge, no person is infringing or misappropriating any
Owned Company IP.

     Section 4.21 Related Party Transactions. Except as will not continue after
the Effective Time, none of (a) any beneficial owner of 5% or more of the
Company's outstanding capital stock, or (b) any officer, director or Affiliate
of the Company or (c) any Person (other than the Company) in which any such
beneficial owner, officer, director or Affiliate owns any beneficial interest
(other than a publicly held corporation whose stock is traded on a national
securities exchange or in the over-the-counter market and less than 5% of the
stock of which is beneficially owned by all such Persons) ((a) through (c)
collectively, "Related Parties") has any interest in: (i) any contract,
agreement, arrangement or understanding with, or relating to, the business or
operations of the Company or any of its Subsidiaries; (ii) any loan,
arrangement, understanding, agreement, contract or similar understanding for or
relating to indebtedness of the Company or any of its Subsidiaries or (iii) any
property (real, personal or mixed), tangible or intangible, used in the business
or operations of the Company or any of its Subsidiaries, excluding any such
contract, arrangement, understanding or agreement constituting an Employee Plan.

                                       28
<PAGE>

     Section 4.22 Real Property. Except as set forth in Section 4.22 of the
Disclosure Letter and except as would not, individually or in the aggregate, be
reasonably expected to have a Material Adverse Effect on the Company, (x) as to
the real property owned in fee by the Company and/or its Subsidiaries (the
"Owned Real Property"), (i) the Company and/or its Subsidiaries has good and
valid fee title to the Owned Real Property; (ii) the Owned Real Property is not
subject to any Liens other than Permitted Liens; (iii) there are no options,
rights of first refusal or first offer or contracts of sale affecting the Owned
Real Property; and (iv) the Company and/or its Subsidiaries is in possession of
the Owned Real Property and there are no leases, tenancies or other occupancies
affecting the Owned Real Property and (y) as to the real property leased by the
Company and/or its Subsidiaries (the "Leased Real Properties"), (i) all of the
leases, licenses, tenancies, subleases and all other occupancy agreements under
which the Company or any of its Subsidiaries is a tenant, subtenant, landlord or
sublandlord, are in full force and effect; and (ii) neither the Company (or the
applicable Subsidiary of the Company), nor to the Knowledge of the Company, any
other party to any of the leases relating to the Leased Real Properties, is in
breach or violation of or default under such leases.

     Section 4.23 Products.

        (a) Except as set forth in Section 4.23 of the Disclosure Letter, there
is no notice, demand, claim, action, suit, inquiry, hearing, proceeding, notice
of violation or investigation from, by or before any Governmental Authority
relating to any product, including the packaging and advertising related
thereto, designed, formulated, manufactured, processed, sold or placed in the
stream of commerce by the Company or any of its Subsidiaries (a "Product"), or
claim or lawsuit involving a Product which is, to the Company's Knowledge,
pending or threatened, by any Person which would reasonably be expected to
result in any material liability to the Company and its Subsidiaries. There has
not been within the preceding five years, nor is there under consideration by
the Company or any of its Subsidiaries as of the date hereof, any Product recall
or post-sale warning of a material nature conducted by or on behalf of the
Company or any of its Subsidiaries concerning any Product. All Products complied
and comply in all material respects with applicable specifications, government
safety standards and Laws, and are or were substantially free from
contamination, deficiencies or defects.

        (b) Except as set forth in Section 4.23 of the Disclosure Letter,
neither the Company nor any of its Subsidiaries has in the past twenty years,
and, to the Company's Knowledge, has ever designed, formulated, manufactured,
processed, sold or placed in the stream of commerce any Product that contains
asbestos or asbestos-containing materials.

                                       29
<PAGE>

                                   ARTICLE V.
                         REPRESENTATIONS AND WARRANTIES
                            OF PARENT AND MERGER SUB

     Parent and Merger Sub hereby represent and warrant to the Company that:

     Section 5.1 Corporate Existence and Power. Each of Parent and Merger Sub is
a corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of organization and has all corporate powers and
authority required to execute and deliver this Agreement and to consummate the
Merger and the other transactions contemplated hereby.

     Section 5.2 Corporate Authorization. The execution and delivery by Parent
and Merger Sub of this Agreement and the consummation by Parent and Merger Sub
of the transactions contemplated hereby are within the respective corporate
powers of Parent and Merger Sub and have been duly authorized by all necessary
corporate and shareholder action. This Agreement has been duly and validly
executed and delivered by Parent and Merger Sub and, assuming the due and valid
execution and delivery of the Agreement by the Company, constitutes a valid and
binding agreement of each of Parent and Merger Sub, enforceable against Parent
and Merger Sub in accordance with its terms, except (i) as such enforceability
may be limited by bankruptcy, insolvency, moratorium, reorganization or similar
Laws affecting the enforcement of creditors' rights generally and (ii) as the
remedy of specific performance and other forms of injunctive relief may be
subject to equitable defenses and subject to the discretion of any court before
which any proceeding therefor may be brought.

     Section 5.3 Governmental Authorization. The execution, delivery and
performance by Parent and Merger Sub of this Agreement and the consummation of
the Merger will not require any action by Parent or Merger Sub in respect of, or
filing by Parent or Merger Sub with, any Governmental Authority other than (i)
the filing of the certificate of merger in accordance with the Delaware Law,
(ii) compliance with any applicable requirements of the HSR Act and any
applicable Other Antitrust Law, (iii) compliance with any applicable
requirements of the Exchange Act, (iv) compliance with any applicable
requirements of the Securities Act, (v) compliance with any applicable foreign
or state securities or Blue Sky laws and (vi) such other items the failure of
which to do or be obtained would not, individually or in the aggregate,
reasonably be expected to adversely affect in any material respect, or
materially to delay, Parent's or Merger Sub's ability to observe and perform the
respective obligations of each hereunder.

     Section 5.4 Non-Contravention. The execution, delivery and performance by
Parent and Merger Sub of this Agreement and the consummation by Parent and
Merger Sub of the transactions contemplated hereby do not and will not (i)
contravene or conflict with the organizational or governing documents of Parent
or Merger Sub, (ii) assuming compliance with the items specified in Section 5.3,
contravene, conflict with or constitute a violation of any provision of Law
binding upon Parent or Merger Sub or (iii) constitute a default under or give
rise to any right of termination, cancellation or acceleration of any right or
obligation of Parent or Merger Sub or to a loss of any material benefit to which
Parent or Merger Sub is entitled under any agreement, contract or other
instrument.

                                       30
<PAGE>

     Section 5.5 Finders' Fees. Except as otherwise disclosed in writing to the
Company, there is no investment banker, broker, finder or other intermediary
that has been retained by or is authorized to act on behalf of Parent or Merger
Sub or any of their respective Affiliates and that would be entitled to any fee
or commission from the Company, any Subsidiary of the Company or from any of
their respective Affiliates in connection with the transactions contemplated by
this Agreement.

     Section 5.6 Adequate Funds. Parent will have at the Effective Time
sufficient funds for the payment of the aggregate Merger Consideration and to
perform its obligations under this Agreement.

     Section 5.7 No Other Information. Parent and Merger Sub acknowledge that
neither the Company nor any other Person has made or makes any representation or
warranty except as expressly set forth in this Agreement, and specifically that
neither the Company nor any other Person has made or makes any representation or
warranty with respect to (i) any projections, estimates or budgets delivered to
or made available to Parent or Merger Sub or to any of their respective
Affiliates or Representatives of future revenues, future results of operations
(or any component thereof), future cash flows or future financial condition (or
any component thereof) of the Company and its Subsidiaries or of the future
business and operations of the Company and its Subsidiaries or (ii) any other
information or documents made available to Parent or Merger Sub or to any of
their respective Affiliates or Representatives with respect to the Company and
its Subsidiaries or their respective businesses or operations (except as
expressly set forth in this Agreement).

                                  ARTICLE VI.
                            COVENANTS OF THE COMPANY

     Section 6.1 Conduct of the Company and Its Subsidiaries. Except for matters
set forth in Section 6.1 of the Disclosure Letter or as specifically provided in
this Agreement, unless Parent shall otherwise consent in writing (which consent
shall not be unreasonably withheld, conditioned or delayed), from the date of
this Agreement to the Effective Time, the Company shall, and shall cause each of
its Subsidiaries to, conduct their respective businesses in all material
respects in the ordinary and usual course of business consistent with past
practice and shall use its reasonable best efforts to (i) preserve intact the
present business organization of the Company and its Subsidiaries, (ii) maintain
in effect all material Permits that are required for the Company or any of its
Subsidiaries to carry on their respective businesses, (iii) keep available the
services of present officers and key employees (as a group) of the Company and
its Subsidiaries, (iv) maintain the current relationships with its lenders,
suppliers and other Persons with which the Company or its Subsidiaries have
significant business relationships and (v) keep or cause to be kept Insurance
Policies in such amounts and of such kinds comparable to that in effect on the
date hereof (with insurers of substantially the same or better financial
condition), and the Company shall give Parent notice of any material change to
any Insurance Policy. Without limiting the generality of the foregoing, and
except for matters set forth in Section 6.1 of the Disclosure Letter as
expressly contemplated or permitted by this Agreement, without the prior written
consent of Parent (which consent shall not be unreasonably withheld), the
Company shall not, and shall not permit any of its Subsidiaries to:

                                       31
<PAGE>

        (a) enter into any new line of business, discontinue any line of
business or change, adopt, or propose to adopt any amendment or other alteration
to its organizational or governing documents;

        (b) (i) acquire or offer to acquire (by merger, consolidation,
acquisition of stock or assets, joint venture or otherwise) any Person,
business, securities or a material amount of assets, or sell, lease or otherwise
dispose of a material amount of assets (other than the purchase and sale of
inventory and raw materials in the ordinary course of business consistent with
past practice), (ii) waive, release, grant, or transfer any rights of material
value, (iii) modify or change in any material respect, allow to expire or lapse
or fail to renew any material Permit or material Insurance Policy, (iv) incur,
assume or prepay any indebtedness for borrowed money except pursuant to its
existing credit facilities, (v) assume, guarantee, endorse or take any action to
otherwise become liable or responsible (whether directly, contingently or
otherwise) for any indebtedness for borrowed money or trade payables of any
other Person, except with respect to Subsidiaries in the ordinary course of
business consistent with past practice, (vi) make any loans, advances, payments
or capital contributions to, or investments in, any other Person (including, but
not limited to, any shareholder of the Company or any associated entity of such
shareholder), except to a Subsidiary in the ordinary course of business
consistent with past practice or as required by existing contracts to which the
Company or any of its Subsidiaries is a party ("Existing Contracts"), (vii)
authorize any material capital expenditures not included in its current capital
expenditure budget (which budget has been provided to Parent prior to the date
hereof), (viii) pledge or otherwise encumber shares of capital stock or other
voting securities of any of the Company's Subsidiaries, (ix) mortgage or pledge
any of its material assets, tangible or intangible, or create any Lien thereupon
(other than Permitted Liens), (x) enter into any contract or agreement other
than in the ordinary course of business consistent with past practice that would
be material to the Company and its Subsidiaries, taken as a whole or (xi) amend,
modify or waive in any material respects any material right under any material
Existing Contract;

        (c) (i) split, combine or reclassify any Company Securities or shares of
capital stock of any Subsidiary or amend the terms of any Company Securities or
shares of capital stock of any Subsidiary, (ii) declare, set aside or pay any
dividend or other distribution or capital return (whether in cash, stock or
property or any combination thereof) in respect of Company Securities or shares
of capital stock of any Subsidiary other than any distribution by a wholly owned
Subsidiary of the Company to its parent corporation in the ordinary course of
business, or (iii) redeem, repurchase or otherwise acquire or offer to redeem,
repurchase, or otherwise acquire any Company Securities or shares of capital
stock of any Subsidiary, or issue any Company Options or other Company
Securities or shares of capital stock of any Subsidiary, other than in
connection with the exercise of Company Options outstanding on the date hereof
or the conversion of shares of Non-Voting Stock outstanding on the date hereof
into share of Voting Stock;

        (d) adopt or materially amend any Employee Benefit Plan, Employee
Agreement or any other compensation or benefit plan, agreement or arrangement
with or for the benefit of any current or former director, officer or employee
of the Company or any of its Subsidiaries or materially increase in any manner
the compensation or pension, welfare or fringe benefits of any such director,
officer or employee, in each case, except as required by ERISA or other
applicable Law or by the express terms of an Employee Agreement as in effect as
of the date hereof;

                                       32
<PAGE>

        (e) pay any bonus or other incentive compensation or award to any
current or former director, officer or employee of the Company or any of its
Subsidiaries, except pursuant to the express terms of any Employee Agreement as
in effect as of the date hereof, (ii) enter into any agreement, commitment or
obligation to pay any bonus, other incentive compensation, severance or other
termination or retirement benefit or payment to any current or former director,
officer or employee of the Company or any of its Subsidiaries or (iii) enter
into any Employee Agreement with any director or officer of the Company or any
of its Subsidiaries or any Material Employee Agreement with any current or
former employee of the Company or any of its Subsidiaries;

        (f) pay, discharge or satisfy any material claims, liabilities or
obligations (whether absolute, accrued, asserted or unasserted, contingent or
otherwise) except as permitted by clause (j) below;

        (g) make any election relating to Taxes or settle or compromise any
material Tax liability;

        (h) make any change in accounting methods, principles or practices
affecting the reported consolidated assets, liabilities or results of operations
of the Company and its Subsidiaries, except insofar as may have been required by
a change in GAAP or Regulation S-X of the Exchange Act and after consulting with
independent accountants;

        (i) alter the corporate structure or ownership of any of its
Subsidiaries, through merger, liquidation, reorganization, restructuring or any
other fashion;

        (j) settle, pay or discharge, or agree to settle, pay or discharge, any
litigation, investigation, arbitration, proceeding or other claim, liability or
obligation arising from the conduct of business except in the ordinary course of
business consistent with past practice;

        (k) knowingly or recklessly take, or agree to commit to take, or
knowingly or recklessly fail to take any action that would result or is
reasonably likely to result in any of the conditions to the Merger set forth in
Article IX not being satisfied, or would make any representation or warranty of
the Company contained herein inaccurate in any material respect at, or as of any
time prior to, the Effective Time, or that would impair the ability of the
Company to consummate the Merger in accordance with the terms hereof or
materially delay such consummation; or

        (l) authorize, agree or commit to do any of the foregoing.

     Notwithstanding the foregoing, the Company or a Subsidiary of the Company
shall be permitted to pay at the Effective Time any Transaction Costs and
Transactions Bonuses.

                                       33
<PAGE>

     Section 6.2 Access to Information; Right of Inspection. The Company will
provide and will cause its Subsidiaries and its and their respective
Representatives to provide Parent and Merger Sub and their respective authorized
Representatives, during normal business hours and upon reasonable advance notice
(i) access to all employees, offices, properties, books and records of the
Company (so long as such access does not unreasonably interfere with the
operations of the Company) as Parent or Merger Sub may reasonably request, (ii)
all documents that Parent or Merger Sub may reasonably request relating to the
existence of the Company and the authority of the Company for this Agreement and
(iii) such financial and operating data and other information with respect to
the business, properties and personnel of the Company and its Subsidiaries as
Parent or Merger Sub may reasonably request. Notwithstanding the foregoing,
Parent, Merger Sub and their Representatives shall not have access to any books,
records and other information the disclosure of which would, in the Company's
good faith opinion after consultation with legal counsel, result in the loss of
attorney-client privilege with respect to such books, records and other
information or cause the Company or any of its Subsidiaries or Representatives
to violate Law or any contracts to which they are party.

     Section 6.3 Other Potential Acquirers.

        (a) The Company shall immediately terminate, and shall cause its
Affiliates and Subsidiaries and its and their respective officers, directors,
employees, attorneys, accountants, advisors, representatives and agents
(collectively, "Representatives") to immediately terminate, all existing
activities, discussions or negotiations, if any, with any Person (other than
Parent and Merger Sub) with respect to, or that could reasonably be expected to
lead to, a Third Party Acquisition.

        (b) Neither the Company nor any of its Subsidiaries or controlled
Affiliates shall, nor shall the Company authorize or permit any of its or their
respective officers and directors to, and the Company shall use its reasonable
best efforts to cause its and their respective non-controlled Affiliates,
employees, representatives and agents not to, directly or indirectly, encourage,
solicit, initiate, participate or engage in any way in discussions or
negotiations with or provide any non-public information to, or afford access to
any of the properties, books or records of the Company or its Subsidiaries to,
or otherwise take any action or to assist or facilitate, any Third Party or its
representatives concerning any Third Party Acquisition. The Company shall
promptly (and in any event within 24 hours) notify Parent and Merger Sub in the
event it receives any proposal, inquiry, request or communication concerning (or
that could reasonably be expected to lead to) a Third Party Acquisition,
including the material terms and conditions thereof and the identity of the
party making such proposal or inquiry, and shall keep Parent and Merger Sub
apprised on a current basis as to the status and any material developments
concerning the same.

     Section 6.4 Resignation of Directors. Prior to the Effective Time, the
Company shall deliver to Parent and Merger Sub evidence reasonably satisfactory
to Parent and Merger Sub of the resignations (effective as of the Effective
Time) of (i) all directors of the Company and each of its Subsidiaries and (ii)
the officers of the Company and each of its Subsidiaries, as shall be requested
by Parent prior to the Effective Time.

     Section 6.5 Certificates.

                                       34
<PAGE>

        (a) Prior to the Effective Time, (i) the Company shall deliver to Parent
and Merger Sub a certificate signed under penalties of perjury by an officer of
the Company to the effect that the Company is not or has not been a United
States real property holding company, as defined in Section 897(c)(2) of the
Code, during the applicable period described in Section 897(c)(1)(A)(ii) of the
Code.

        (b) The Company shall deliver to Parent at least three Business Days
prior to Closing a certificate from the chief financial officer of the Company
certifying as to the total amount of the Transaction Costs and the Transaction
Bonuses.

     Section 6.6 Subsequent Filings. Until the Effective Time, the Company will
timely file with the SEC each form, report and document required to be filed by
the Company under the Exchange Act and will promptly deliver to Parent and
Merger Sub copies of each such report filed with the SEC. As of their respective
dates, none of such reports shall contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading. The audited consolidated financial statements and
unaudited interim financial statements of the Company included in such reports
shall be prepared in accordance with GAAP applied on a consistent basis (except
as may be permitted by the rules and regulations of the SEC and as indicated in
the notes thereto) and shall fairly present, in all material respects, the
financial position of the Company and its consolidated Subsidiaries as at the
dates thereof and the consolidated results of their operations for the periods
involved (subject, in the case of unaudited statements, to normal year-end audit
adjustments, none of which are anticipated to be, individually or in the
aggregate, material in amount).

     Section 6.7 Notice under the Delaware Law. As soon as practicable and, in
any event, no later than 15 Business Days after the date of this Agreement, the
Company shall prepare and mail to all holders of Common Shares a notice in
accordance with Section 262(d)(2) of the Delaware Law, notifying such holders of
the approval of the Merger and that appraisal rights are available. The Company
shall take such other steps as are necessary under such Section, including the
sending of any subsequent notice required under such Section, so that any demand
or exercise of the right to dissent provided in Section 262, to be effective,
will be received by the Company prior to the Effective Time.

     Section 6.8 Intellectual Property.

        (a) The Company shall use reasonable efforts to identify other
Intellectual Property that are patents, patent applications, trademark
applications and trademark registrations registered or pending in Belgium,
Canada, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Norway,
Spain, Sweden, Switzerland, the United States or the U.K. that are owned in the
name of the Company or any of its Subsidiaries that are not listed in subsection
(a)(i) or (a)(iii) of Section 4.20 of the Disclosure Letter and shall provide
copies of any resulting material identifying such Intellectual Property to
Parent at or prior to Closing.

        (b) With regard to the domain name registrations listed in subsection
(a)(ii) of Section 4.20 of the Disclosure Letter for which the registrant is not
the Company or any of its Subsidiaries, the Company shall take commercially
reasonable steps to transfer ownership of such domain name registrations to the
Company or any of its subsidiaries prior to Closing.

                                       35
<PAGE>

        (c) With regard to the POLYSEAMSEAL U.K. trademark (No. B-858,934)
listed under Section 4.20(a)(i) of the Disclosure Letter, the Company will use
reasonable efforts to provide Parent with an original signed copy of the
assignment document that assigns ownership of such trademark to the Company or
one of its Subsidiaries. With respect to the PL Mexico trademark (No. 508,329)
listed under Section 4.20(a)(i) of the Disclosure Letter, the Company will use
reasonable efforts to obtain an assignment document in recordable form that
assigns ownership of such trademark to the Company or one of its Subsidiaries
and shall promptly provide Parent with a copy of such document once it is
obtained by the Company.

                                  ARTICLE VII.
                       COVENANTS OF PARENT AND MERGER SUB

     Section 7.1 Director and Officer Liability.

        (a) The Surviving Corporation shall, and after the Effective Time Parent
shall cause the Surviving Corporation to, comply with all of the Company's and
its respective Subsidiaries' obligations to indemnify and hold harmless
(including any obligations to advance funds for expenses) the present and former
officers and directors thereof in respect of acts or omissions occurring prior
to the Effective Time to the extent provided under the Company's or such
Subsidiaries' respective organizational and governing documents in effect on the
date hereof, and such obligations shall survive the Merger and shall continue in
full force and effect in accordance with the terms of the Surviving
Corporation's certificate of incorporation and bylaws from the Effective Time
until the expiration of the applicable statue of limitations with respect to any
claims against such directors or officers arising out of such acts or omissions.
Any determination required to be made with respect to whether the conduct of an
individual seeking indemnification has complied with the standards set forth
under applicable Law shall be made by independent counsel mutually acceptable to
the Surviving Corporation and such individual. For a period of six years after
the Effective Time, the Surviving Corporation shall cause to be maintained in
effect the current policies of officers' and directors' liability insurance
maintained by the Company and its respective Subsidiaries (the "Current
Policies"); provided however, that the Surviving Corporation may, and in the
event of the cancellation or termination of such policies the Surviving
Corporation shall, substitute such policies with equally reputable and
financially sound carriers and that are reasonably satisfactory to the covered
persons providing at least the same coverage and amount and containing terms and
conditions that are no less favorable to the covered persons (the "Replacement
Policies") in respect of claims arising from facts or events that existed or
occurred prior to the Effective Time under the Current Policies; provided
further however, that in no event will the Surviving Corporation be required to
expend annually in excess of 300% of the annual premium currently paid by the
Company for such coverage (or to provide more than that amount of coverage as is
available for no more than 300% of such current annual premium); provided
further however, that in lieu of the foregoing insurance coverage, with the
consent of Parent (which consent shall not be unreasonably withheld), the
Company may purchase "tail" insurance coverage that provides coverage no less
favorable than the coverage described above.

                                       36
<PAGE>

        (b) This Section 7.1 shall survive the consummation of the Merger and is
intended to be for the benefit of, and shall be enforceable by, present or
former directors or officers of the Company or its Subsidiaries, their
respective heirs and personal representatives and shall be binding on the
Surviving Corporation, Parent and their respective successors and assigns, and
the agreements and covenants contained herein shall not be deemed to be
exclusive of any other rights to which any such present or former director or
officer is entitled, whether pursuant to Law, contract or otherwise. Nothing in
this Agreement is intended to, shall be construed to or shall release, waive or
impair any rights to directors' and officers' insurance claims under any policy
that is or has been in existence with respect to the Company or any of its
Subsidiaries or their respective officers, directors and employees, it being
understood and agreed that the indemnification provided for in this Section 7.1
is not prior to or in substitution for any such claims under any such policies.

        (c) If Parent or the Surviving Corporation or any of its successors or
assigns (i) consolidates with or merges into any other Person and shall not be
the continuing or surviving corporation or entity or (ii) transfers or conveys
substantially all of its properties and assets to any person, then and in each
case to the extent reasonably necessary, proper provision shall be made so that
the successors and assigns of Parent or the Surviving Corporation shall assume
the obligations set forth in this Section 7.1.

                                 ARTICLE VIII.
                            COVENANTS OF THE PARTIES

     The parties hereto agree that:

     Section 8.1 Reasonable Best Efforts. Subject to the terms and conditions of
this Agreement, each party will (and will cause its Affiliates to) use its
reasonable best efforts to take, or cause to be taken, all actions, to file, or
cause to be filed, all documents and to do, or cause to be done, all things
necessary, proper or advisable to consummate the transactions contemplated by
this Agreement, including but not limited to obtaining all necessary consents,
waivers, approvals, authorizations, Permits or orders from all Governmental
Authorities or other Persons or as required under the terms of the agreements
set forth in Section 4.4(iii) of the Disclosure Letter (other than the Company's
Existing Credit Facilities and the Senior Subordinated Notes); provided that in
no event shall the Company or any of its Affiliates be required to pay prior to
the Effective Time any material fee, penalties or other consideration to any
third party to obtain any consent or approval required for the consummation of
the Merger under any material contracts. Each party shall also (and will cause
its Affiliates to) refrain from knowingly taking, directly or indirectly, any
action (including making acquisitions), that would be reasonably likely to
result in a failure of any of the conditions to the Merger in this Agreement
being satisfied or restrict such party's ability to consummate the Merger and
the other transactions contemplated hereby. Without limiting the foregoing, the
Company shall use its reasonable best efforts (i) to take all action necessary
so that no takeover, anti-takeover, moratorium, "fair price," "control share" or
other similar statute or regulation is or becomes applicable to the Merger or
any of the other transactions contemplated by this Agreement and (ii) if any
such Law is or becomes applicable to any of the foregoing, to take all action
necessary so that the Merger and the other transactions contemplated by this
Agreement may be consummated as promptly as practicable on the terms
contemplated by this Agreement and otherwise to minimize the effect of such
statute or regulation on the Merger and the other transactions contemplated by
this Agreement.

                                       37
<PAGE>

     Section 8.2 Certain Filings.

        (a) The parties shall cooperate with one another (i) in promptly
determining whether any action by or in respect of, or filing with, any
Governmental Authority is required, or any actions, consents, approvals, permits
or waivers are required to be or should be obtained from any parties to any
material contracts, in connection with the consummation of the transactions
contemplated by this Agreement and (ii) in seeking and obtaining any such
actions, consents, approvals, permits or waivers or making any such filings,
furnishing in a timely manner information required in connection therewith;
provided that the conditions to the parties' respective obligations to
consummate the transactions contemplated hereby shall be limited to those
conditions specified in Article IX. The parties shall have the right to review
in advance, and to the extent reasonably practicable each will consult the other
on, all the material information relating to the other and each of their
respective Subsidiaries that appears in any filing made with, or written
materials submitted to, any Governmental Authority in connection with the Merger
and the other transactions contemplated by this Agreement. Each of the Company
and Parent shall promptly notify and provide a copy to the other party of any
written communication received from any Governmental Authority with respect to
any filing or submission or with respect to the Merger and the other
transactions contemplated by this Agreement. Each of the Company and Parent
shall give the other reasonable prior notice of any communication with, and any
proposed understanding, undertaking or agreement with, any Governmental
Authority regarding any such filing or any such transaction. Neither the Company
nor Parent shall, nor shall they permit their respective Representatives to,
participate independently in any meeting or engage in any substantive
conversation with any Governmental Authority in respect of any such filing,
investigation or other inquiry without giving the other party prior notice of
such meeting or conversation and without giving, unless prohibited by such
Governmental Authority, the opportunity of the other party to attend or
participate. The parties to this Agreement will consult and cooperate with one
another in connection with any analyses, appearance, presentations, memoranda,
briefs, arguments, opinions, and proposals made or submitted by or on behalf of
any party to this Agreement in connection with proceedings under or related to
the HSR Act or Other Antitrust Laws.

        (b) The parties (i) shall use their respective reasonable best efforts
to take or cause to be taken such actions as may be required to be taken under
the Exchange Act and state securities or applicable Blue Sky laws in connection
with the Merger and (ii) shall promptly prepare and file all necessary
documentation, effect all necessary applications, notices, petitions and
filings, and use all reasonable efforts to obtain all necessary consents from
any Governmental Authorities necessary to consummate the Merger (including,
without limitation, any filing under the HSR Act or any applicable Other
Antitrust Law).

        (c) If required, each of the Company, Parent and Merger Sub shall take
all action necessary (i) to file as soon as practicable notifications or other
required items under the HSR Act and any applicable Other Antitrust Law, (ii) to
respond as promptly as practicable to any inquiries from the Federal Trade
Commission and the Antitrust Division of the Department of Justice for
additional information or documentation, (iii) to comply with the requirements
of, and respond as promptly as reasonably practicable to all inquiries and
requests for additional information received from any Governmental Authority in
connection with, the HSR Act or Other Antitrust Laws related to the Merger or
the other transactions contemplated by this Agreement and (iv) to use reasonable
best efforts to avoid or eliminate each and every impediment under the HSR Act
or any Other Antitrust Law that may be asserted by any Governmental Authority
with respect to the Merger.

                                       38
<PAGE>

     Section 8.3 Public Announcements. So long as this Agreement is in effect,
the parties will consult with each other before issuing any press release or
making any public statement with respect to this Agreement or the transactions
contemplated hereby and, except for any press release or public statement a
party determines may be required by applicable Law or national securities
exchange, will not issue any such press release or make any such public
statement without the consent of the other parties (not to be unreasonably
delayed, conditioned or withheld).

     Section 8.4 Further Assurances. At and after the Effective Time, the
officers and directors of the Surviving Corporation will be authorized to
execute and deliver, in the name and on behalf of the Company or Merger Sub, any
deeds, bills of sale, assignments or assurances and to take and do, in the name
and on behalf of the Company or Merger Sub, any other actions and things to
vest, perfect or confirm of record or otherwise in the Surviving Corporation any
and all right, title and interest in, to and under any of the rights, properties
or assets of the Company.

     Section 8.5 Notices of Certain Events. Each of the parties hereto shall
reasonably promptly notify the other party of:

        (a) the receipt by such party of any notice or other communication from
any Person alleging that the consent of such Person is or may be required in
connection with the transactions contemplated by this Agreement;

        (b) the receipt by such party of any notice or other communication from
any Governmental Authority in connection with the transactions contemplated by
this Agreement;

        (c) its learning of any actions, suits, claims, investigations or
proceedings (or communications indicating that the same may be contemplated)
commenced or threatened against, or affecting such party that, if they were
pending on the date of this Agreement, would have been required to be disclosed
pursuant to this Agreement or which relate to the consummation of the Merger or
the other transactions contemplated by this Agreement;

        (d) its learning of the occurrence or non-occurrence of any events,
circumstances, developments or facts that would be likely to make any of the
representations and warranties of such party contained in this Agreement untrue
or any of the covenants or conditions contained in this Agreement incapable of
being complied with or satisfied; and

        (e) any event or occurrence that causes, or would reasonably be likely
to cause, a Material Adverse Effect on the Company.

                                       39
<PAGE>

The delivery of any notice pursuant to this Section 8.5 shall not cure such
breach or non-compliance or limit or otherwise affect the remedies available
hereunder to the party receiving such notice.

     Section 8.6 Disposition of Litigation. The Company will consult with Parent
and Merger Sub with respect to any action by any Third Party to restrain or
prohibit or otherwise oppose the Merger or the other transactions contemplated
by this Agreement and will use reasonable best efforts to resist any such effort
to restrain or prohibit or otherwise oppose the Merger or the other transactions
contemplated by this Agreement. In addition, the Company will not encourage or
cooperate with any Third Party to restrain or prohibit or otherwise oppose the
Merger or the other transactions contemplated by this Agreement, and the Company
will reasonably cooperate with Parent and Merger Sub to resist any such effort
to restrain or prohibit or otherwise oppose the Merger or the other transactions
contemplated by this Agreement.

     Section 8.7 Employee Matters.

        (a) From and after the Effective Time, Parent shall cause the Company
and its Subsidiaries to honor all Employee Benefit Plans and all Employee
Agreements in accordance with their terms as in effect immediately before the
Effective Time, as the same may be amended from time to time thereafter in
accordance with such terms. For a period of not less than one year following the
Effective Time, Parent shall cause to be provided to current employees of the
Company and its Subsidiaries (the "Company Employees") employee benefits that
are, in the aggregate, substantially comparable to those provided to the Company
Employees immediately before the Effective Time, with the exception of those
changes collectively bargained with authorized union representatives. The
foregoing shall not be construed to prevent (i) the amendment or termination of
any particular Employee Benefit Plan or Employee Agreement to the extent
permitted by, and in accordance with, its terms and the terms of any contract
related thereto, as in effect immediately before the Effective Time, as the same
may be amended from time to time thereafter in accordance with such terms, or
(ii) the termination of employment of any Company Employee.

        (b) For all purposes (other than for purposes of benefit accrual) under
the employee benefit plans of Parent and its Subsidiaries providing benefits to
any Company Employees after the Effective Time (the "New Plans"), except as
would result in a duplication of benefits, each Company Employee shall be
credited with all years of service for which such Company Employee was credited
before the Effective Time under any similar Employee Benefit Plan. In addition
and without limiting the generality of the foregoing: (i) each Company Employee
shall be immediately eligible to participate, without any waiting time or
satisfaction of any other eligibility requirements, in any and all New Plans to
the extent coverage under such New Plan replaces coverage under an Employee
Benefit Plan in which such Company Employee participated immediately before the
Effective Time (such plans, collectively, the "Old Plans") and (ii) for purposes
of each New Plan providing medical, dental, pharmaceutical and/or vision
benefits to any Company Employee, Parent shall use commercially reasonable
efforts to cause all pre-existing condition exclusions and actively-at-work
requirements of such New Plan to be waived for such employee and his or her
eligible dependents to the extent such exclusions or requirements would have
been satisfied or inapplicable to such employee or dependent under the similar
Old Plan in which such employee or dependent was a participant immediately prior
to commencement of participation in such New Plan, and any expenses incurred by
any Company Employee and his or her eligible dependents during the portion of
the plan year of the Old Plan ending on the date such employee's participation
in the corresponding New Plan begins to be taken into account under such New
Plan for purposes of satisfying all deductible, coinsurance and maximum
out-of-pocket requirements applicable to such employee and his or her covered
dependents for the applicable plan year as if such amounts had been paid in
accordance with such New Plan.

                                       40
<PAGE>

        (c) Effective as of the Effective Time, Parent shall amend, or shall
cause to be amended, the Sovereign Specialty Chemicals, Inc. 401(k) Retirement
Plan and the Sovereign Specialty Chemicals, Inc. 401(k) Retirement Plan for
Union Employees (collectively, the "401(k) Plans") to provide for full,
accelerated vesting of all Company contributions under the 401(k) Plans made
with respect to an employee participating in either of the 401(k) Plans upon a
termination of the employment of any such employee occurring on or after the
Closing Date and on or prior to December 31, 2005, other than a termination for
cause by the Company or by such employee's resignation other than for good
cause. The Company may amend the 401(k) Plans to effectuate the foregoing prior
to the Effective Time.

        (d) Parent agrees that the Company's Cash Incentive Plan (the "CIP")
shall remain in full force and effect for the year ended December 31, 2004, and
further agrees that payments for participants whose employment terminates, other
than termination by the Company for cause or by the participant's resignation
other than for good reason, (i) on or prior to December 31, 2004, shall be paid,
upon termination, at an amount equal to 150% of such terminated participant's
target bonus, with such amount being prorated to the nearest half-month to the
date of such participant's termination or (ii) after December 31, 2004 and prior
to the payment of the 2004 amounts earned under the CIP, shall be paid, at the
time payments are made to active employees under the CIP for 2004, an amount
equal to the full year bonus earned by such terminated participant for 2004, it
being understood that any payment pursuant to this Section 8.7(d) to a
terminated participant in respect of the CIP shall, to the extent of such
payment, be in satisfaction of any amount to which such participant may
otherwise be entitled in respect of the CIP upon his or her termination of
employment pursuant to the terms of the CIP, any Employee Benefit Plan, Employee
Agreement or other employment or severance agreement or otherwise. Parent also
agrees that the Company's Sales Incentive Plan (the "SIP") shall remain in full
force and effect for the year ended December 31, 2004, and further agrees that
participants whose employment terminates, other than termination by the Company
for cause or by the participant's resignation, will be paid all amounts
projected to be due under the SIP through the last full calendar month in 2004
completed prior to such participant's termination. The Company may amend the CIP
and the SIP to effectuate the foregoing prior to the Effective Time.

     Section 8.8 Confidentiality Agreement.

        (a) The Company and Parent shall use their reasonable best efforts to
cause the Confidentiality Agreement to terminate as of the date hereof.
Subsequent to such termination, the Confidentiality Agreement shall be void and
shall have no further effect, and none of the parties thereto shall have any
liability to the other parties thereto or its Affiliates, directors, officers or
employees, except that nothing in this Section 8.8(a) shall relieve any party
from liability for any willful or intentional breach of the Confidentiality
Agreement prior to the date hereof. Notwithstanding the foregoing, the
obligations contained in paragraph 2 of the Confidentiality Agreement shall
survive until the Effective Date.

                                       41
<PAGE>

        (b) From and after the date hereof, the Company shall, and shall cause
its Affiliates and its and their employees, counsel, financial advisors and
other representatives to, treat as confidential and safeguard any and all
information, knowledge and data of the Parent and its Affiliates that becomes
known to the Company or its Affiliates as a result of the transactions
contemplated hereby except as otherwise agreed to by Parent in writing, in each
case by using the standard of care necessary to prevent the unauthorized use,
dissemination or disclosure of such information, knowledge and data.

        (c) From and after the date hereof until the Closing, Parent shall, and
shall cause its Affiliates and its and their employees, counsel, financial
advisors and other representatives to, treat as confidential and safeguard any
and all information, knowledge and data of the Company and its Affiliates that
becomes known to Parent or its Affiliates as a result of the transactions
contemplated hereby except as otherwise agreed to by the Company in writing, in
each case by using the standard of care necessary to prevent the unauthorized
use, dissemination or disclosure of such information, knowledge and data.

        (d) Parent and the Company acknowledge that the confidentiality
obligations set forth herein shall not extend to information, knowledge and data
that is publicly available or becomes publicly available other than through an
act or omission of the party owing a duty of confidentiality, or becomes
available on a non-confidential basis from a source other than the party owing a
duty of confidentiality so long as such source is not known by such party to be
bound by a confidentiality agreement with or other obligations of secrecy to the
other party. In the event either Parent or the Company or their respective
Affiliates or employees, counsel, financial advisors or other representatives
(i) is requested or required to disclose information, knowledge or data that is
subject to a duty of confidentiality hereunder in connection with any judicial
or administrative proceedings or (ii) receives an opinion of outside counsel
that disclosure of information, knowledge or data that is subject to a duty of
confidentiality hereunder is necessary to avoid violating applicable Law, then
Parent or the Company, as applicable, shall provide the other party with prompt
notice of such requirement in advance of any such disclosure, and shall
cooperate with such other party to the extent it may seek to limit such
disclosure. In such case, in the absence of a protective order or the receipt of
a waiver from the non-disclosing party after a request in writing therefor is
made by the disclosing party, the disclosing party may disclose such
information, knowledge or data without liability hereunder, but such disclosing
party shall disclose only such information as is required to be disclosed and
shall use its reasonable best efforts to obtain a confidentiality order or
undertaking with respect to such information.

        (e) In the event of a breach of the obligations hereunder by Parent or
the Company, the non-breaching party, in addition to all other available
remedies, will be entitled to injunctive relief to enforce the provisions of
this Section 8.8.

        (f) Notwithstanding the foregoing or anything herein or in the
Confidentiality Agreement to the contrary, any party to this Agreement (and
their employees, representatives or other agents) may disclose to any and all
persons, without limitation of any kind, the tax treatment and tax structure of
the transactions contemplated by this Agreement; provided however, that this
sentence shall not permit any disclosure that otherwise is prohibited by this
Agreement or any other confidentiality agreement between or among the parties as
of the date hereof or where such disclosure would result in a violation of
federal or state securities Laws or to the extent not related to the tax aspects
of the transactions contemplated hereby. Moreover, nothing in this Agreement
shall be construed to limit in any way any party's ability to consult any tax
advisor regarding the tax treatment or tax structure of the transactions
contemplated hereby, provided that any such advisor agrees to treat such
information confidentially.

                                       42
<PAGE>

                                  ARTICLE IX.
                            CONDITIONS TO THE MERGER

     Section 9.1 Conditions to the Obligations of Each Party. The respective
obligations of the Company, Parent and Merger Sub to consummate the Merger are
subject to the satisfaction or, where permitted by applicable law, waiver, at or
prior to the Effective Time, of the following conditions:

        (a) any applicable waiting period (and any extension thereof) applicable
to the Merger under the HSR Act shall have expired or been terminated and any
other consents, approvals or authorizations applicable to the Merger under the
Other Antitrust Laws specified in Section 9.1 of the Disclosure Letter shall
have been received or waived by the appropriate Governmental Authority or the
applicable waiting period shall have expired or been terminated; and

        (b) no Law shall have been enacted, adopted, promulgated, issued,
entered or enforced which is then in effect and which prohibits, enjoins or
renders illegal the consummation of the Merger.

     Section 9.2 Conditions to the Obligations of Parent and Merger Sub. The
obligations of Parent and Merger Sub to consummate the Merger are subject to the
satisfaction or waiver, at or prior to the Effective Time, of the following
further conditions:

        (a) (i) the Company shall have performed or complied with in all
material respects all of its obligations and covenants hereunder required to be
performed or complied with by it at or prior to the Effective Time, (ii) the
representations and warranties of the Company contained herein shall be true and
correct (without giving effect to any qualification therein as to "materiality"
or as to whether any matter would or would be expected to have a Material
Adverse Effect on the Company) as of the Closing Date (except that
representations and warranties made as of a specific date are required to be
true and correct only as of such date), except where the failure to be so true
and correct would not, individually or in the aggregate, have or reasonably be
expected to have a Material Adverse Effect on the Company and (iii) Parent and
Merger Sub shall have received a certificate , dated the date of the Closing,
signed by the Chief Executive Officer of the Company, certifying as to the
fulfillment of the conditions specified in this Section 9.2(a);

                                       43
<PAGE>

        (b) since the date of this Agreement, no state of facts, circumstance,
effect, condition, event, change, development or occurrence shall have occurred
that, individually or in the aggregate, has had or is reasonably likely to have
a Material Adverse Effect on the Company, and Parent and Merger Sub shall have
received a certificate, dated the date of the Closing signed by the Chief
Executive Officer of the Company, certifying as to the fulfillment of the
conditions specified in this Section 9.2(b);

        (c) the Management Agreement shall have been terminated and evidence of
such termination shall have been provided to Parent and Merger Sub; and

        (d) Parent shall have received in accordance with Section 6.5(b) a
certificate from the chief financial officer of the Company certifying as to the
total amount and details of the Transaction Costs (the "Transaction Cost
Certification") and the total amount of the Transaction Bonuses;

        (e) there shall not be pending any suit, action or proceeding that is
reasonably likely to be adversely determined and that (A) seeks to restrain or
prohibit the consummation of the Merger or to unwind the Merger after it has
been consummated or (B) seeks to obtain from the Company or any of its
Subsidiaries any damages that could reasonably be expected to have a Material
Adverse Effect on the Company;

        (f) the Indemnification and Escrow Agreement shall have been executed by
shareholders of the Company representing at least 94% of the Common Shares
outstanding immediately prior to the Effective Time; and

        (g) as of the Effective Time, the aggregate number of Dissenting Shares
shall be no more than 6% of the total number of Common Shares outstanding.

     Section 9.3 Conditions to the Obligations of the Company. The obligation of
the Company to consummate the Merger is subject to the satisfaction or waiver,
at or prior to the Effective Time, of the following further conditions:

        (a) Each of Parent and Merger Sub shall have performed or complied with
in all material respects all of its respective obligations and covenants
hereunder required to be performed by it at or prior to the Effective Time;

        (b) the representations and warranties of Parent and Merger Sub
contained herein that are qualified as to materiality shall be true and correct
in accordance with their terms as of the Closing Date, and those that are not
qualified as to materiality will be true and correct in all material respects as
of the Closing Date as if made at and as of such date (provided that
representations made as of a specific date shall be required to be true as of
such date only); and

        (c) the Company shall have received a certificate , dated the date of
the Closing, signed by a senior officer of each of Parent and Merger Sub
certifying as to the fulfillment of the conditions specified in Sections 9.3(a)
and 9.3(b).

                                       44
<PAGE>

                                   ARTICLE X.
                                   TERMINATION

     Section 10.1 Termination. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Time (notwithstanding any
prior approval of this Agreement by the shareholders of the Company):

        (a) by mutual written consent of the Company, on the one hand, and
Parent and Merger Sub, on the other hand;

        (b) by any of the Company, Parent or Merger Sub, if:

           (i) the Merger has not been consummated by the End Date, provided
that no party may terminate this Agreement prior to the date which is nine
months after the date of this Agreement if any Governmental Antitrust Authority
has not completed its review of the transactions contemplated hereby by such
date; provided further that the failure of the Merger to be consummated by the
End Date (or, if extended in accordance with the preceding proviso, such later
date) is not the result of, or caused by, the failure of the party seeking to
exercise such termination right to fulfill any of its obligations under this
Agreement; or

           (ii) there shall be any Law that makes consummation of the Merger
illegal or otherwise permanently prohibited, provided that, in the case of any
such Law issued by a court, it shall be final and non-appealable; provided
however, that the right to terminate this Agreement pursuant to this Section
10.1(b)(ii) shall not be available to any party whose breach of any provision of
this Agreement results in the application or imposition of such Law;

        (c) by the Company, if a breach of or failure to perform any
representation, warranty, covenant or agreement on the part of Parent or Merger
Sub set forth in this Agreement shall have occurred which would cause any of the
conditions set forth in Sections 9.3(a) or (b) to be unable to be satisfied by
the End Date; provided however, that the Company is not then in material breach
of this Agreement; or

        (d) by Parent or Merger Sub, if a breach of or failure to perform any
representation, warranty, covenant or agreement on the part of the Company set
forth in this Agreement shall have occurred which would cause the condition set
forth in Section 9.2(a) to be unable to be satisfied by the End Date; provided
however, that Parent or Merger Sub is not then in material breach of this
Agreement.

The party desiring to terminate this Agreement pursuant to Sections 10.1(b)
through (d) shall give written notice of such termination to the other party in
accordance with Section 11.1 of this Agreement.

     Section 10.2 Effect of Termination. If this Agreement is terminated and the
Merger abandoned pursuant to Section 10.1, this Agreement shall forthwith become
null and void, and there shall be no liability or obligation on the part of the
Company, Parent, Merger Sub or their respective Subsidiaries or Affiliates,
except (i) Sections 8.8, 10.2 and Article XI (other than Sections 11.2, 11.9 and
11.10) will survive the termination hereof and (ii) with respect to any
liabilities for damages incurred or suffered by a party as a result of the
willful breach by any other party of any of its representations, warranties,
covenants or other agreements set forth in this Agreement.

                                       45
<PAGE>

                                  ARTICLE XI.
                                  MISCELLANEOUS

     Section 11.1 Notices. All notices, requests and other communications
hereunder shall be in writing (including facsimile or similar writing) and shall
be given:

               if to Parent or Merger Sub, to:

               Henkel Corporation
               The Triad, Suite 200
               2200 Renaissance Boulevard
               Gulph Mills, PA  19406
               Attention:  Chief Legal Officer
               Facsimile: (610) 270-8165

               with a copy (which shall not constitute notice) to:

               Henkel KGaA
               Henkelstrasse 67
               40191 Dusseldorf
               Germany
               Attention:  General Counsel
               Facsimile:  +49 211 798 13837

               and a copy (which shall not constitute notice) to:

               Cleary, Gottlieb, Steen and Hamilton
               City Place House
               55 Basinghall Street
               London EC2V 5EH
               Attention:   William A. Groll
               Facsimile:   + 44 207 600 1698

               if to the Company, to:

               Sovereign Specialty Chemicals, Inc.
               225 West Washington Street, Suite 1450
               Chicago, Illinois 60606
               Attention:  Terry D. Smith
               Facsimile:  (312) 223-9177

               with a copy (which shall not constitute notice) to:

               Fried, Frank, Harris, Shriver & Jacobson LLP
               One New York Plaza
               New York, New York  1004
               Attention:  Christopher Ewan, Esq.
               Facsimile:  (212) 859-4000

                                       46
<PAGE>

or to such other address or facsimile number as such party may hereafter specify
for by notice to the other parties hereto. Each such notice, request or other
communication shall be effective (i) if given by facsimile, when such telecopy
is transmitted to the telecopy number specified above and the appropriate
facsimile confirmation is received or (ii) if given by any other means, when
delivered at the address specified in this Section 11.1.

     Section 11.2 Survival of Representations and Warranties. The
representations and warranties contained herein and in any certificate or other
writing delivered pursuant hereto shall survive until the date eighteen months
after the date on which the Effective Time occurs, it being understood that in
the event a notice of any claim for indemnification has been given under the
Indemnification and Escrow Agreement within such survival period, the
representations and warranties that are the subject of such indemnification
claim shall survive with respect to such claim until such time as such claim is
finally resolved. This Section 11.2 shall not limit any covenant or agreement of
the parties that by its terms contemplates performance in whole or in part after
the Effective Time. For the avoidance of doubt, the parties agree that the
shareholders of the Company will have no liability to Parent or its Affiliates
with respect to breach of any representation or warranty other than pursuant to
the Indemnification and Escrow Agreement.

     Section 11.3 Amendments No Waivers.

        (a) Any provision of this Agreement may be amended or waived prior to
the Effective Time only by amendment or waiver in writing and signed: (i) in the
case of an amendment to this Agreement, by the Company, Parent and Merger Sub or
(ii) in the case of a waiver, by the party against whom the waiver is to be
effective; provided however, that after the approval of the Agreement by the
shareholders of the Company any proposed amendment that by Law requires further
approval by the shareholders of the Company shall not be effective without such
further shareholder approval.

        (b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any other rights or remedies
herein provided or available at Law or in equity.

     Section 11.4 Expenses. All costs and expenses incurred in connection with
this Agreement shall be paid by the party incurring such cost or expense.

     Section 11.5 Transfer Taxes. Subject to Section 2.4(c), all stock transfer,
real estate transfer, documentary, stamp, recording and other similar taxes
(including interest, penalties and additions to any such taxes) ("Transfer
Taxes") incurred in connection with the transactions contemplated by this
Agreement shall be paid by either Parent, Merger Sub or the Surviving
Corporation.

                                       47
<PAGE>

     Section 11.6 Successors and Assigns. The provisions of this Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, provided that no party may assign, delegate
or otherwise transfer any of its rights or obligations under this Agreement
without the consent of the other parties hereto, and provided further that
Parent or Merger Sub may assign, without consent and in its sole discretion, any
or all of its rights or obligations under this Agreement to any direct, wholly
owned Subsidiary of Parent, but no such assignment shall relieve Parent or
Merger Sub of its obligations hereunder if such assignee does not perform such
obligations. Any purported assignment in violation of this provisions shall be
null and void ab initio.

     Section 11.7 Governing Law. This Agreement shall be governed by and
construed in accordance with the law of the State of Delaware, without giving
effect to the conflicts or choice of law principles thereof.

     Section 11.8 Counterparts; Effectiveness; Third Party Beneficiaries. This
Agreement may be executed by facsimile signatures and in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument. This Agreement
shall become effective only when actually signed by each party hereto and each
such party has received counterparts hereof signed by all of the other parties
hereto. No provision of this Agreement is intended to or shall confer upon any
Person other than the parties hereto any rights or remedies hereunder or with
respect hereto, except with respect to the matters provided in Section 2.4 and
Section 7.1.

     Section 11.9 Severability. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by virtue of any Law, or due
to any public policy, all other conditions and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the economic or
legal substance of the transactions contemplated hereby is not affected in any
manner materially adverse to any party. Upon such determination that any term or
other provision is invalid, illegal or incapable of being enforced, the parties
hereto shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as possible in an acceptable
manner so that the transactions contemplated hereby are fulfilled to the extent
possible.

     Section 11.10 Specific Performance. The parties hereby acknowledge and
agree that the failure of any party to perform its agreements and covenants
hereunder, including its failure to take all actions as are necessary on its
part to consummate the Merger, will cause irreparable injury to the other
parties, for which damages, even if available, will not be an adequate remedy.
Accordingly, each party hereby consents to the issuance of injunctive relief by
any court of competent jurisdiction to compel performance of such party's
obligations and to the granting by any court of the remedy of specific
performance of its obligations hereunder, in addition to any other rights or
remedies available hereunder or at law or in equity.

     Section 11.11 Entire Agreement. This Agreement constitutes the entire
agreement of the parties hereto with respect to its subject matter and
supersedes all oral or written prior or contemporaneous agreements and
understandings among the parties with respect to such subject matter.

                                       48
<PAGE>

     Section 11.12 Jurisdiction; Waiver of Jury Trial. Except as otherwise
expressly provided in this Agreement, the parties hereto agree that any suit,
action or proceeding seeking to enforce any provision of, or based on any matter
arising out of or in connection with, this Agreement or the transactions
contemplated hereby shall be brought exclusively in the Court of Chancery of the
State of Delaware, County of New Castle or, if such court does not have
jurisdiction over the subject matter of such proceeding or if such jurisdiction
is not available, in the United State District Court for the District of
Delaware, and each of the parties hereby irrevocably consents to the exclusive
jurisdiction of those courts (and of the appropriate appellate courts therefrom)
in any suit, action or proceeding and irrevocably waives, to the fullest extent
permitted by Law, any objection that such party may now or hereafter have to the
laying of the venue of any suit, action or proceeding in any of those courts or
that any suit, action or proceeding that is brought in any of those courts has
been brought in an inconvenient forum. Process in any suit, action or proceeding
may be served on any party at the applicable address provided in Section 11.1,
whether within or without the jurisdiction of any of the named courts. Without
limiting the foregoing, each party agrees that service of process on it by
notice as provided in Section 11.1 shall be deemed effective service of process.
Each of the parties to this Agreement hereby irrevocably waives any right it may
have to trial by jury in any court or jurisdiction in respect to any matter
arising out of or relating to this Agreement or the transactions contemplated
hereby.

     Section 11.13 Authorship. The parties agree that the terms and language of
this Agreement were the result of negotiations between the parties, and as a
result, there shall be no presumption that any ambiguities in this Agreement
shall be resolved against any party. Any controversy over construction of this
Agreement shall be decided without regard to events of authorship.

                            [signature page follows]

                                       49
<PAGE>

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

                                 THE COMPANY

                                 SOVEREIGN SPECIALTY CHEMICALS, INC.

                                 By: /s/ Norman E. Wells, Jr.
                                     -------------------------------------------
                                     Name:   Norman E. Wells, Jr.
                                     Title:  Chairman and CEO

                                 PARENT

                                 HENKEL CORPORATION

                                 By: /s/ John E. Knudson
                                     -------------------------------------------
                                     Name:   John E. Knudson
                                     Title:  President and Chief Financial and
                                             Administrative Officer

                                 MERGER SUB

                                 HENKEL MERGER CORPORATION

                                 By: /s/ John E. Knudson
                                     -------------------------------------------
                                     Name:   John E. Knudson
                                     Title:  Chairman of the Board and President

                                       50

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