Document:

exv10w1

 

Exhibit 10.1

EQUITY PURCHASE AGREEMENT

By and Among

L&W SUPPLY CORPORATION,

JOSEPH GEORGE ZUCCHERO,

JCSG HOLDINGS CORPORATION,

THE JOSEPH G. ZUCCHERO FAMILY TRUST

DATED SEPTEMBER 12, 1988,

and

THE ENTITIES LISTED ON EXHIBIT A-1 HERETO

Dated as of February 25, 2007

 

 

TABLE OF CONTENTS

	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	Page
	ARTICLE I. PURCHASE AND SALE OF SHARES	 	 	2	 
	 

	 	 	1.1	 	 	Purchase and Sale of Shares
	 	 	2	 
	 

	 	 	1.2	 	 	Purchase Price
	 	 	2	 
	 

	 	 	1.3	 	 	Closing Adjustments
	 	 	3	 
	 

	 	 	1.4	 	 	Assignment of Rights
	 	 	3	 
	 

	 	 	1.5	 	 	Phantom Stock and Other Bonus Arrangements
	 	 	4	 
	 

	 	 	1.6	 	 	Release of Escrow
	 	 	4	 
	ARTICLE II. CLOSING	 	 	4	 
	 

	 	 	2.1	 	 	Closing Defined
	 	 	4	 
	 

	 	 	2.2	 	 	Documents To Be Delivered By Sellers
	 	 	5	 
	 

	 	 	2.3	 	 	Payment and Documents To Be Delivered By Buyer
	 	 	7	 
	 

	 	 	2.4	 	 	Other Payments and Documents To Be Delivered
	 	 	8	 
	ARTICLE III. REPRESENTATIONS AND WARRANTIES OF SELLERS AND THE COMPANIES	 	 	9	 
	 

	 	 	3.1	 	 	General Representations and Warranties of Sellers and the Companies
	 	 	9	 
	 

	 	 	3.2	 	 	Environmental Representations, Warranties and Covenants
	 	 	31	 
	 

	 	 	3.3	 	 	Employee Benefit Representations and Warranties
	 	 	35	 
	 

	 	 	3.4	 	 	General
	 	 	37	 
	ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF BUYER	 	 	37	 
	 

	 	 	4.1	 	 	Organization and Standing; Corporate Power and Authority
	 	 	37	 
	 

	 	 	4.2	 	 	Conflicts; Defaults
	 	 	37	 
	 

	 	 	4.3	 	 	Brokers, Finders and Agents; Transaction Costs
	 	 	38	 
	 

	 	 	4.4	 	 	Litigation
	 	 	38	 
	 

	 	 	4.5	 	 	Financial Ability
	 	 	38	 
	 

	 	 	4.6	 	 	No Other Representations or Warranties
	 	 	38	 
	ARTICLE V. CONDITIONS TO CLOSING	 	 	38	 
	 

	 	 	5.1	 	 	Conditions to Buyer’s Obligations
	 	 	38	 
	 

	 	 	5.2	 	 	Conditions to Sellers’ Obligations
	 	 	39	 
	 

	 	 	5.3	 	 	Conditions to Buyer’s and Sellers’ Obligations
	 	 	40	 
	ARTICLE VI. COVENANTS OF COMPANIES AND SELLERS	 	 	40	 

i

 

TABLE OF CONTENTS

(continued)

	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	Page
	 

	 	 	6.1	 	 	Conduct of Business
	 	 	40	 
	 

	 	 	6.2	 	 	Disclosure Supplements
	 	 	43	 
	 

	 	 	6.3	 	 	Closing
	 	 	43	 
	 

	 	 	6.4	 	 	Accounts Receivable
	 	 	44	 
	 

	 	 	6.5	 	 	No Shopping or Disclosure
	 	 	44	 
	 

	 	 	6.6	 	 	Payment of Indebtedness; Releases
	 	 	44	 
	 

	 	 	6.7	 	 	Encumbrances
	 	 	44	 
	 

	 	 	6.8	 	 	Consents
	 	 	44	 
	 

	 	 	6.9	 	 	Sellers Acknowledgement and Waiver
	 	 	44	 
	 

	 	 	6.10	 	 	Retention Agreements
	 	 	45	 
	 

	 	 	6.11	 	 	Customer and Supplier Relationships
	 	 	45	 
	 

	 	 	6.12	 	 	Further Assurances
	 	 	45	 
	ARTICLE VII.CERTAIN ADDITIONAL COVENANTS	 	 	46	 
	 

	 	 	7.1	 	 	Access to Records and Properties
	 	 	46	 
	 

	 	 	7.2	 	 	Maintenance of and Access to Records
	 	 	46	 
	 

	 	 	7.3	 	 	Public Announcements
	 	 	46	 
	 

	 	 	7.4	 	 	Expenses
	 	 	46	 
	 

	 	 	7.5	 	 	Cooperation in the Defense of Claims
	 	 	46	 
	 

	 	 	7.6	 	 	Antitrust Filings
	 	 	47	 
	 

	 	 	7.7	 	 	Tax Matters
	 	 	47	 
	 

	 	 	7.8	 	 	Drilling; Environmental Investigations
	 	 	53	 
	 

	 	 	7.9	 	 	Executive Bonus
	 	 	53	 
	ARTICLE VIII.TERMINATION	 	 	54	 
	 

	 	 	8.1	 	 	Termination
	 	 	54	 
	 

	 	 	8.2	 	 	Effect of Termination
	 	 	55	 
	ARTICLE IX. INDEMNIFICATION	 	 	55	 
	 

	 	 	9.1	 	 	Indemnification by Buyer
	 	 	55	 
	 

	 	 	9.2	 	 	Indemnification by Sellers
	 	 	55	 
	 

	 	 	9.3	 	 	Certain Limitations on Claims for Indemnification
	 	 	58	 
	 

	 	 	9.4	 	 	Notice of Claim; Right to Participate in and Defend Third Party Claim
	 	 	61	 

ii

 

TABLE OF CONTENTS

(continued)

	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	Page
	 

	 	 	9.5	 	 	Adjustment to Purchase Price
	 	 	62	 
	 

	 	 	9.6	 	 	Exclusive Remedy
	 	 	62	 
	 

	 	 	9.7	 	 	No Special Damages
	 	 	62	 
	ARTICLE X. MISCELLANEOUS	 	 	63	 
	 

	 	 	10.1	 	 	Amendments and Waivers
	 	 	63	 
	 

	 	 	10.2	 	 	Entire Agreement
	 	 	63	 
	 

	 	 	10.3	 	 	Governing Law
	 	 	63	 
	 

	 	 	10.4	 	 	Notices
	 	 	63	 
	 

	 	 	10.5	 	 	Counterparts
	 	 	65	 
	 

	 	 	10.6	 	 	Assignment; Affiliates
	 	 	65	 
	 

	 	 	10.7	 	 	Specific Performance
	 	 	65	 
	 

	 	 	10.8	 	 	Arbitration
	 	 	65	 
	 

	 	 	10.9	 	 	Third Parties
	 	 	66	 
	 

	 	 	10.10	 	 	Headings
	 	 	66	 
	 

	 	 	10.11	 	 	Gender and Number
	 	 	66	 
	 

	 	 	10.12	 	 	Construction
	 	 	66	 
	 

	 	 	10.13	 	 	Exhibits and Disclosure Schedules
	 	 	67	 
	 

	 	 	10.14	 	 	Conflict of Interest
	 	 	67	 

iii

 

INDEX OF DEFINED TERMS

(continued)

	 	 	 	 	 
	 	 	Page
	AAA Rules

	 	 	66	 
	Accounting Principles

	 	 	3	 
	Accounts Receivable

	 	 	15	 
	Acquisition Proposal

	 	 	44	 
	Affiliate

	 	 	4	 
	Agreement

	 	 	1	 
	Allocation Schedules

	 	 	51	 
	Balance Sheet Date

	 	 	13	 
	Balance Sheets

	 	 	13	 
	Benefit Arrangement

	 	 	35	 
	Business

	 	 	2	 
	Buyer

	 	 	1	 
	CalPly

	 	 	1	 
	CalPly Balance Sheet

	 	 	12	 
	CalPly Nevada

	 	 	18	 
	CalPly Shares

	 	 	1	 
	CalPly Tax Adjustment

	 	 	49	 
	CERCLA

	 	 	32	 
	Change in Control Agreement

	 	 	4	 
	Closing

	 	 	5	 
	Closing Consents

	 	 	29	 
	Closing Date

	 	 	5	 
	COBRA

	 	 	36	 
	Code

	 	 	7	 
	Companies

	 	 	1	 
	Company Intellectual Property

	 	 	26	 
	Company Shares

	 	 	2	 
	Confidentiality Agreement

	 	 	64	 
	Consents

	 	 	29	 
	Consulting Agreement

	 	 	8	 
	Covered Remedial Action

	 	 	58	 
	Damages

	 	 	56	 
	Disclosure Schedule

	 	 	9	 
	DOJ

	 	 	6	 
	E Foam

	 	 	1	 
	E-Foam Balance Sheet

	 	 	13	 
	Employee Plan

	 	 	35	 
	Employees

	 	 	35	 
	Environment

	 	 	32	 
	Environmental Claim

	 	 	32	 
	Environmental Condition

	 	 	32	 
	Environmental Laws

	 	 	32	 

iv

 

INDEX OF DEFINED TERMS

(continued)

	 	 	 	 	 
	 	 	Page
	Environmental Liability

	 	 	33	 
	Environmental Permits

	 	 	33	 
	Environmental Reports

	 	 	33	 
	Equipment Leases

	 	 	23	 
	ERISA

	 	 	35	 
	ERISA Affiliate

	 	 	37	 
	Escrow Agent

	 	 	3	 
	Escrow Agreement

	 	 	3	 
	Escrowed Funds

	 	 	3	 
	Facilities

	 	 	32	 
	Final S Corp Income Tax Return

	 	 	48	 
	Financial Statements

	 	 	12	 
	First Tax Allocation Schedule

	 	 	51	 
	Foam Agreement

	 	 	1	 
	Foam Shares

	 	 	1	 
	Former Shareholders

	 	 	1	 
	FTC

	 	 	6	 
	GAAP

	 	 	13	 
	Governmental Approvals

	 	 	33	 
	Governmental Authorities

	 	 	12	 
	Hazardous Material

	 	 	33	 
	H-S-R Act

	 	 	6	 
	Individual

	 	 	1	 
	Initial Payment

	 	 	3	 
	Interim Purchase Price

	 	 	3	 
	IRS

	 	 	7	 
	ISSCInc.

	 	 	18	 
	ISSCo

	 	 	18	 
	Laws

	 	 	26	 
	Leased Real Property

	 	 	18	 
	Leases

	 	 	18	 
	Liability

	 	 	33	 
	Liens

	 	 	2	 
	Litigation Conditions

	 	 	62	 
	Loan Agreement

	 	 	7	 
	Location

	 	 	25	 
	Loss Reduction Amount

	 	 	61	 
	Material Contracts

	 	 	22	 
	Material Interest

	 	 	23	 
	Minority Foam Shareholders

	 	 	1	 
	Minority Shares

	 	 	2	 
	Net Debt Limit

	 	 	3	 
	New Lease Agreements

	 	 	8	 
	Noncompetition Agreement

	 	 	8	 

v

 

INDEX OF DEFINED TERMS

(continued)

	 	 	 	 	 
	 	 	Page
	OSHA

	 	 	35	 
	Permits

	 	 	26	 
	Permitted Liens

	 	 	18	 
	Person

	 	 	4	 
	Pre-Closing Breach

	 	 	54	 
	Products

	 	 	2	 
	Purchase Price

	 	 	3	 
	Related Agreements

	 	 	11	 
	Related Party

	 	 	23	 
	Related Party Leases

	 	 	8	 
	Release

	 	 	34	 
	Remedial Action

	 	 	34	 
	Restructuring

	 	 	2	 
	Retention Agreement

	 	 	8	 
	S Corp

	 	 	27	 
	S Corp Tax Adjustment

	 	 	49	 
	Second Tax Allocation Schedule

	 	 	51	 
	Section 338(h)(10) Election

	 	 	48	 
	Section 338(h)(10) Tax

	 	 	48	 
	Seller Holdco

	 	 	1	 
	Seller Material Adverse Change

	 	 	39	 
	Seller Trust

	 	 	1	 
	Sellers

	 	 	1	 
	Seller’s Knowledge

	 	 	25	 
	Shares

	 	 	2	 
	SMRH

	 	 	5	 
	Southwest

	 	 	1	 
	Southwest Balance Sheet

	 	 	13	 
	Southwest Shares

	 	 	1	 
	Statement of Net Debt

	 	 	3	 
	Stockdale

	 	 	1	 
	Stockdale Agreement

	 	 	1	 
	Stockdale Balance Sheet

	 	 	13	 
	Stockdale Shareholder

	 	 	1	 
	Stockdale Shares

	 	 	1	 
	Tax

	 	 	28	 
	Tax Adjustment

	 	 	50	 
	Tax Adjustment Schedule

	 	 	50	 
	Tax Return

	 	 	28	 
	Taxable

	 	 	28	 
	Taxes

	 	 	28	 
	Taxing

	 	 	28	 
	Termination Date

	 	 	54	 
	Third Party Claim

	 	 	61	 

vi

 

INDEX OF DEFINED TERMS

(continued)

	 	 	 	 	 
	 	 	Page
	Threshold Amount

	 	 	60	 
	Transaction

	 	 	12	 
	Unaudited CalPly Balance Sheet

	 	 	13	 
	Unaudited Financial Statements

	 	 	13	 
	Unlimited Section

	 	 	59	 
	Warranty Costs

	 	 	30	 

vii

 

EQUITY PURCHASE AGREEMENT

          THIS EQUITY PURCHASE AGREEMENT (this “Agreement”), dated as of February 25, 2007, is by and
among L&W Supply Corporation, a Delaware corporation (“Buyer”), Joseph G. Zucchero, an individual
resident in the State of California (“Individual”), JCSG Holdings Corporation, a California
corporation (“Seller Holdco”), the Joseph G. Zucchero Family Trust dated September 12, 1988
(“Seller Trust” and, together with Individual and Seller Holdco, “Sellers” ), and each of the
entities listed on Exhibit A-1 hereto (collectively, the “Companies”).

W I T N E S S E T H:

          WHEREAS, Individual owns all of the issued and outstanding shares of capital stock of Seller
Holdco;

          WHEREAS, Individual is a trustee and beneficiary of Seller Trust;

          WHEREAS, Seller Trust owns all of the issued and outstanding shares of capital stock of
California Wholesale Material Supply, Inc., a California corporation (“CalPly” and such shares, the
"CalPly Shares”), and, pursuant to the Restructuring (as hereinafter defined), will transfer such
shares to Seller Holdco prior to the Closing (as hereinafter defined);

          WHEREAS, Individual owns all of the issued and outstanding shares of capital stock of E Foam
Corp., a Nevada corporation (“E Foam” and such shares, the “Foam Shares”), and Southwest Install
and Rework, Inc., a Nevada corporation (“Southwest” and such shares, the “Southwest Shares”);

          WHEREAS, prior to the date hereof, the individuals listed on Exhibit A-2 hereto (the
"Minority Foam Shareholders”) owned Foam Shares in the amounts and until the times indicated on
Exhibit A-3 hereto;

          WHEREAS, on December 22, 2006, as part of the Restructuring, all of the Foam Shares then owned
by the Minority Foam Shareholders were acquired by Individual pursuant to an agreement between the
Minority Foam Shareholders and Individual (the “Foam Agreement”), a copy of which is attached as
Exhibit B hereto, all as indicated on Exhibit A-3 hereto, for the consideration set
forth therein;

          WHEREAS, Individual has entered into an agreement (the “Stockdale Agreement”), a copy of which
is attached as Exhibit C hereto, with the sole shareholder of Stockdale Materials Co.,
Inc., a California corporation (“Stockdale”), whose name appears on Exhibit A-2 hereto (the
"Stockdale Shareholder” and, together with the Foam Shareholders, the “Former Shareholders”) to
purchase all of the issued and outstanding shares of Stockdale (the “Stockdale Shares” and,
together with the Foam Shares previously owned by the Minority Foam Shareholders, the “Minority
Shares”) for the consideration set forth therein;

 

 

          WHEREAS, immediately prior to the Closing and pursuant to the Restructuring, all of the
Stockdale Shares will be purchased from the Stockdale Shareholder by Individual pursuant to the
Stockdale Agreement;

          WHEREAS, the planned or completed acquisitions by Individual or Seller Holdco, as the case may
be, of the Minority Shares and sales of such Minority Shares by the Former Shareholders as set
forth in these recitals are collectively referred to herein as the “Restructuring”;

          WHEREAS, the Restructuring is an integral part of the Transaction (as hereinafter defined);

          WHEREAS, the Companies carry on the business (the “Business”) of selling, distributing and
marketing drywall, metal studs, acoustical ceilings, insulation, hollow metal and commercial
interior doors, trim, access doors, exterior insulation and finish systems, plaster, foam, lumber
and similar products (collectively, the “Products”), producing foam shapes and products, providing
turnkey door installation services and providing stocking services; and

          WHEREAS, Sellers desire to sell to Buyer, and Buyer desires to purchase from Sellers, all of
the issued and outstanding shares of capital stock of the Companies (the “Shares” and, other than
Shares of the Companies issued in the name of another Company, the “Company Shares”);

          NOW, THEREFORE, in consideration of the premises and the mutual covenants hereinafter set
forth and other good and valuable consideration had and received, the parties hereto, on the basis
of, and in reliance upon, the representations, warranties, covenants, obligations and agreements
set forth in this Agreement, and upon the terms and subject to the conditions contained herein,
hereby agree as follows:

ARTICLE I. PURCHASE AND SALE OF SHARES

     1.1 Purchase and Sale of Shares. At the Closing, Sellers will sell, assign, transfer
and deliver to Buyer, and Buyer will purchase from Sellers, the Company Shares, free from any
encumbrance, charge, lien, claim (including any “adverse claim” as such term is defined in the
Uniform Commercial Code), option, call, mortgage, pledge, security interest, right of first
refusal, easement, covenant, reservation, defect in title, encroachment or other restriction of any
kind (collectively, “Liens”) other than registration or similar restrictions on transfer by Buyer
existing under applicable federal or state securities laws.

     1.2 Purchase Price.

     (a) Subject to Section 1.3, the purchase price to be paid by Buyer for the
Company Shares will be Two Hundred Thirty Million Dollars ($230,000,000) (the “Interim
Purchase Price”), subject to adjustment pursuant to Section 1.3, and will be payable
in the manner described in Section 1.2(b).

     (b) Subject to Section 1.3, at the Closing, Buyer will deliver:

2

 

     (i) to Individual, for the benefit of Sellers, Two Hundred Two Million Dollars
($202,000,000) (the “Initial Payment”) in cash by wire transfer of immediately
available funds to an account designated in writing by Seller Holdco at least two
business days prior to the Closing; and

     (ii) to LaSalle Bank National Association, as escrow agent (the “Escrow
Agent”), Twenty-Eight Million Dollars ($28,000,000) (the “Escrowed Funds”), to be
held in an interest-bearing escrow account pursuant to the terms of the Escrow
Agreement substantially in the form attached hereto as Exhibit D (the
“Escrow Agreement”).

     1.3 Closing Adjustments. The Interim Purchase Price set forth in Section 1.2
will be subject to adjustment on the Closing Date (as hereinafter defined) as follows (and for all
purposes subsequent to such adjustments the Interim Purchase Price, as so adjusted, will be deemed
to be the “Purchase Price”):

     (a) Net Debt Adjustment.

     (i) On the Closing Date, Sellers will deliver to Buyer an unaudited statement
of net debt of the Companies presenting the amount of indebtedness of the Companies
and the amount of cash of the Companies as of the close of business on the business
day prior to the Closing Date (the “Statement of Net Debt”), prepared (A)
consistently with the Financial Statements (as hereinafter defined) and (B) on the
basis of and applying the accounting principles set forth in Exhibit E
hereto (the “Accounting Principles”).

     (ii) If the amount of indebtedness of the Companies, as reflected on the
Statement of Net Debt, is greater than an amount equal to the sum of (A) the amount
of cash of the Companies, as reflected on the Statement of Net Debt, and (B) the Net
Debt Limit, the deficiency will be deducted from the Interim Purchase Price.

     (iii) For purposes of this Agreement, “Net Debt Limit” means $50,000,000.

     (b) Payment on Account of Adjustments. The amount of any decrease in the
Interim Purchase Price pursuant to this Section 1.3 will be deducted from the
Initial Payment.

     1.4 Assignment of Rights. Prior to the Closing, Buyer may elect to assign all or part
of its rights and obligations under this Agreement to an existing or newly formed subsidiary or
Affiliate (as hereinafter defined) of Buyer and to cause such subsidiary or Affiliate, as the case
may be, to exercise any or all of the rights and perform any or all of the obligations of Buyer
under this Agreement, including, without limitation, the rights and obligations of Buyer to acquire
the Company Shares pursuant to this Article I; provided, however, that no such
assignment will otherwise vary or diminish any of the rights or obligations of Buyer under this
Agreement. For purposes of this Agreement, “Affiliate” means any individual, corporation, limited
liability company, partnership, trust or other entity or organization (each a “Person” and

3

 

collectively, “Persons”) that directly, or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with, the Person specified.

     1.5 Phantom Stock and Other Bonus Arrangements. Seller Holdco and CalPly will enter
into letter agreements substantially in the form attached as Exhibit F-1 hereto (each a
"Change in Control Agreement”) with the individuals listed on Exhibit F-2 hereto granting
each such individual the right to receive the cash payments set forth therein as a result of the
consummation of the Transaction. As a condition to, and prior to receipt of any such payment, such
individual will execute a written acknowledgement (in substantially the form attached to the Change
in Control Agreement) that the amounts set forth in the Change in the Control Agreement are the
only amounts such individual is entitled to receive in connection with or as a result of the
consummation of the Transaction and will waive his rights, if any, to amounts that may be payable
by the Companies in connection with the Transaction as a result of such individual’s prior
employment by the Companies or ownership of Shares of the Companies. The parties acknowledge and
agree that all payments due to such individuals under the Change in Control Agreements will be paid
directly by Seller Holdco and not the Companies, and that the Companies will have no obligations
whatsoever with respect to such payments.

     1.6 Release of Escrow. In addition to any provision relating to the release of
Escrowed Funds (as defined in the Escrow Agreement) set forth in the Escrow Agreement, if on the
third anniversary of the Closing Date, the Escrow Amount (as defined in the Escrow Agreement) is in
excess of $7,000,000, that excess amount will be released from the Escrowed Funds to Individual, on
behalf of Sellers, if Buyer reasonably determines in good faith that the total mix of the facts
presented or discovered and source of any pending or threatened Third Party Claims (as defined in
the Escrow Agreement) against the Companies relating to any Environmental Liability (as hereinafter
defined) could not reasonably be expected to result in additional Third Party Claims which Buyer
reasonably determines could be significant relating to Environmental Liabilities being brought
against the Companies. For purposes of this Section 1.6, the amount of Unresolved Claims
(as defined in the Escrow Agreement) will be reasonably determined by Buyer in good faith. Buyer
will provide Individual with written notice of its determination within five (5) business days
after the third anniversary of the Closing Date and if such determination results in such excess
amount to be released from the Escrowed Funds, Buyer and Sellers will execute and deliver to the
Escrow Agent joint written instructions providing for such release to Individual, for the benefit
of Sellers, of such excess amount within three (3) business days of the date of Sellers’ notice
referenced herein. Any disputes regarding Buyer’s determination referenced above will be governed
by the laws of the State of (including, without limitation, the Delaware Voluntary Alternative
Dispute Resolutions Act), notwithstanding any choice of law provision contained herein or
elsewhere, and will be submitted to binding arbitration to an arbitrator skilled in the subject
matter of any dispute hereunder mutually agreeable to Sellers and Buyer. Except as otherwise
provided in this Section 1.6, such arbitration will be conducted in accordance with the
provisions of Section 10.8.

ARTICLE II. CLOSING

     2.1 Closing Defined. As used in this Agreement, the “Closing” means the time at which
Sellers consummate the sale of the Company Shares to Buyer by delivery of the certificates referred
to in Section 2.2(a) and the other documents referred to in Section 2.2,

4

 

against delivery by Buyer of the Initial Payment as provided in Section 1.2, and
Sellers, Buyer and the other Persons referred to herein deliver the additional payments and
documents referred to in Sections 2.3 and 2.4. In the absence of prior termination
of this Agreement by Buyer or Sellers in accordance with Article VIII, the Closing will take place
at the offices of Sheppard, Mullin, Richter & Hampton LLP, 333 South Hope Street, 48th Floor, Los
Angeles, California, no later than the third business day following satisfaction or waiver of all
conditions hereunder, including the expiration or early termination of any applicable waiting
period under the H-S-R Act (as hereinafter defined) and any other applicable antitrust laws of any
Governmental Authority (as hereinafter defined), or at such other time and place and on such other
day as is mutually agreed upon in writing by Buyer and Sellers (the “Closing Date”).

     2.2 Documents To Be Delivered By Sellers. At the Closing, Sellers will deliver to
Buyer:

     (a) (i) Original certificates representing all of the Company Shares, duly endorsed (or
accompanied by appropriate stock powers duly endorsed) in blank by the appropriate Seller,
as registered holder thereof, for transfer, together with such supporting documents,
endorsements, assignments, affidavits, and other good and sufficient instruments of sale and
transfer, in form and substance satisfactory to Buyer and its counsel, as are necessary to
permit Buyer to acquire the Company Shares free of any Lien other than registration or
similar restrictions on transfer by Buyer existing under applicable federal or state
securities laws;

     (ii) Original certificates representing all of the Shares of the Companies
issued in the name of another Company;

     (b) The original stock books, stock ledgers, minute books and corporate seals of the
Companies;

     (c) An opinion, dated as of the Closing Date, of Sheppard, Mullin, Richter & Hampton
LLP (“SMRH”), counsel for Sellers, addressed to Buyer and substantially in the form attached
as Exhibit G hereto or otherwise acceptable to Buyer;

     (d) Certificates of existence in good standing (or equivalent) for Seller Holdco and
each of the Companies from the jurisdiction in which such entity is incorporated or
organized, each dated not more than 15 business days prior to the Closing Date, together
with fax or internet confirmation, if available, or, if not, oral advice as to good standing
as of the Closing Date from each of the foregoing jurisdictions;

     (e) Certificates of existence in good standing (or equivalent) and qualification to
transact business as a foreign corporation (or similar documents) for each of the Companies
from each state or other jurisdiction in which the failure to so qualify would reasonably be
expected to result in a Seller Material Adverse Change (as hereinafter defined), each dated
not more than 15 business days prior to the Closing Date, together with fax or internet
confirmation, if available, or, if not, oral advice as to good standing and qualification to
transaction business as a foreign corporation as of the Closing Date from each of the
foregoing jurisdictions;

5

 

     (f) Resignations tendered by each of the directors and officers of each of the
Companies, and evidence of payment of any amounts required to be paid to such directors and
officers under applicable Law as a result of such resignations;

     (g) The Articles of Incorporation, or similar organizational documents, of Seller
Holdco and each of the Companies, in each case certified by the Secretary of State, or
equivalent state entity, of Seller Holdco’s or such Company’s jurisdiction of incorporation
or organization, as applicable, which certifications will each be dated not more than 15
business days prior to the Closing Date;

     (h) Certified copies of the Bylaws, or similar organizational documents, of Seller
Holdco and each of the Companies, in each case certified by the Secretary or Assistant
Secretary (or other statutory representative) of Seller Holdco or such Company as of the
Closing Date;

     (i) A copy of (i) the resolutions of the Board of Directors (or equivalent governing
body) of Seller Holdco and each of the Companies authorizing and approving the
Restructuring, this Agreement and all other transactions and agreements contemplated hereby
and (ii) the resolutions of the equity holders of Seller Holdco and each of the Companies
authorizing and approving the Restructuring, this Agreement and all other transactions and
agreements contemplated hereby, each certified by the Secretary or Assistant Secretary (or
other statutory representative) of Seller Holdco or the applicable Company as of the Closing
Date;

     (j) Copies of all Consents (as hereinafter defined) of Governmental Authorities (as
hereinafter defined) and Closing Consents (as hereinafter defined);

     (k) Evidence of the due filing by the Companies with (i) the Federal Trade Commission
(“FTC”) and the Antitrust Division of the Department of Justice (“DOJ”) pursuant to the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the “H-S-R Act”) and (ii) any other
applicable Governmental Authority pursuant to the antitrust laws of such Governmental
Authority and of the satisfaction of all conditions, including the expiration of any
applicable waiting period, thereunder;

     (l) The certificates and other documents required by Sections 5.1(g) and
(h);

     (m) A receipt from Sellers acknowledging receipt of the Initial Payment delivered at
Closing;

     (n) Copies of the documents and instruments evidencing the cancellation of
indebtedness, obligations, guarantees and liabilities, and release of the Liens, required by
Section 6.6;

     (o) Copies of the documents and instruments necessary to allow Buyer to (i) pay,
perform and discharge the indebtedness of the Companies under the Loan and Security
Agreement among CalPly, as borrower, the lenders signatory thereto from time to time and
Union Bank of California, N.A., as agent and a lender (the “Loan

6

 

Agreement”), and (ii) obtain or procure the release of any and all Liens or claims
relating to such indebtedness or otherwise affecting the assets and properties of the
Companies;

     (p) Any materials received or maintained by Sellers or any of the Companies relating to
any inquiries, contacts, proposals or offers described in Section 6.5;

     (q) An affidavit from each Seller, dated as of the Closing Date, sworn under penalty of
perjury and in form and substance required under Treasury Regulations issued pursuant to
Section 1445 of the Internal Revenue Code of 1986, as amended (the “Code”), stating that
such Seller is not a foreign person within the meaning of Section 1445 of the Code;

     (r) Copies of the documents and instruments evidencing the acquisition by (i)
Individual of the Foam Shares and the Stockdale Shares and (ii) Seller Holdco of the CalPly
Shares, each as indicated on Exhibit A-3;

     (s) An aged listing by customer and by Company of the Accounts Receivable (as
hereinafter defined) of the Companies that are outstanding as of the date that is four
business days prior to the Closing Date, together with (i) a list of any notes or other
security relating thereto and (ii) an appropriate notation on such aged listing of those
Accounts Receivable for which no sales have been made by any of the Companies to such
customer during the six months preceding the Closing Date;

     (t) The Statement of Net Debt;

     (u) A copy of (i) the “protective” S election filed for Seller Holdco; (ii) the
“qualified subchapter S subsidiary” election filed for CalPly; and (iii) if received from
the Internal Revenue Service (“IRS”), acknowledgment from the IRS of the foregoing
elections;

     (v) A copy of the application for relief submitted to the IRS under Rev. Proc. 2003-43,
2003-1 C.B. 998, to rectify E Foam’s status as a validly electing subchapter S corporation;
and

     (w) Such other certificates, documents and instruments as Buyer may reasonably request
to evidence or facilitate the Transaction.

     2.3 Payment and Documents To Be Delivered By Buyer. At the Closing, Buyer will
deliver to Sellers:

     (a) The Initial Payment (which will be delivered to Individual, for the benefit of
Sellers, pursuant to Section 1.2(b)(i));

     (b) Evidence of the due filing by Buyer with (i) the FTC and the DOJ pursuant to the
H-S-R Act, and (ii) any other applicable Governmental Authority pursuant to the antitrust
laws of such Governmental Authority and of the satisfaction of all conditions, including the
expiration of any applicable waiting period, thereunder;

7

 

     (c) The certificates required by Section 5.2(d) and (e); and

     (d) Such other certificates, documents and instruments as Sellers may reasonably
request to evidence or facilitate the Transaction.

     2.4 Other Payments and Documents To Be Delivered. At the Closing:

     (a) Each of (i) the individuals listed on Schedule 2.4(a) under the caption
“Noncompetition Agreements” will execute and deliver a Noncompetition Agreement with Buyer
in substantially the forms attached as Exhibit H-1 hereto (for Individual) and
Exhibit H-2 hereto (for the other individuals listed on Schedule 2.4(a)
under the caption “Noncompetition Agreements”) (each, a “Noncompetition Agreement”); (ii)
the individual listed on Schedule 2.4(a) under the caption “Consulting Agreements”
will execute and deliver a Consulting Agreement with Buyer in substantially the form
attached as Exhibit H-3 hereto (each, a “Consulting Agreement”); and (iii) the
individuals listed on Schedule 2.4(a) under the caption “Retention Incentive Bonus
Agreements” will execute and deliver a Retention Incentive Bonus Agreement with Buyer in
substantially the form attached as Exhibit H-4 hereto (each, a “Retention
Agreement”);

     (b) The Companies will execute and deliver a new agreement relating to each Leased Real
Property (as hereinafter defined) listed on Schedule 3.1(l) under the caption
“Related Party Leases” (collectively, the “Related Party Leases”) substantially in the form
attached as Exhibit I-1 hereto, and subject to the terms for each such Related Party
Lease set forth on Exhibit I-2 hereto (collectively, the “New Lease Agreements”),
which New Lease Agreements will replace the leases listed on Schedule 3.1(l) with
respect to such Leased Real Property, and Sellers will provide Buyer with evidence
satisfactory to Buyer that the Leases (as hereinafter defined) with respect to such Leased
Real Property have been terminated; provided, however, that notwithstanding
anything contained in such Leases, in no event will Buyer or the Companies be required to
make any change of control, penalty or other similar payment in connection with such
termination;

     (c) Sellers, Buyer and the Escrow Agent will execute and deliver the Escrow Agreement
and Buyer will deliver the Escrowed Funds to the Escrow Agent;

     (d) The Escrow Agent will execute and deliver a receipt acknowledging receipt of the
Escrowed Funds delivered at Closing;

     (e) Sellers and Buyer will each execute and deliver a certificate showing all sources
and disbursements of funds in connection with the Closing;

     (f) Each individual listed on Schedule 1.5 will execute and deliver the
acknowledgement and waiver referenced in Section 1.5;

     (g) The spouse of Individual and each Former Shareholder will execute and deliver a
consent, in substantially the form attached as Exhibit J hereto, whereby such spouse
will consent to execution and delivery of this Agreement and the Related Agreements to which
such Person is a party and the performance of the Transactions; and

8

 

     (h) Seller Holdco, Individual, each Former Shareholder and each director and officer of
each of the Companies will execute and deliver a waiver, in substantially the form attached
as Exhibit K hereto, whereby such Person will (i) release any claims or other Liens
that such Person may have against Buyer, Sellers or the Companies with respect to the Shares
of the Companies and (ii) acknowledge and agree that such Person has not made any claim for,
and to such Person’s knowledge there are no facts or circumstances that would reasonably be
expected to give rise to any claim in respect of, indemnification or contribution from any
of the Companies or their respective predecessors, including any such rights arising under
any constituent documents of any of the Companies.

ARTICLE III. REPRESENTATIONS AND WARRANTIES OF SELLERS

AND THE COMPANIES

     Except as set forth in the disclosure schedule, dated the date hereof, delivered by the
Companies and Sellers to Buyer herewith (the “Disclosure Schedule”), Sellers and each of the
Companies hereby jointly and severally represent and warrant to Buyer, as of the date hereof and as
of the Closing Date, that:

     3.1 General Representations and Warranties of Sellers and the Companies.

     (a) Organization and Standing. Seller Holdco and each Company is a corporation
duly formed, validly existing and in good standing under the laws of the jurisdiction of its
organization, as set forth on Exhibit A-1 hereto, and has all requisite corporate or
similar power and authority to operate its business, to own or lease its properties and
assets, to carry on its business as now being conducted, and to enter into and perform all
agreements and instruments to be entered into by Seller Holdco or such Company in connection
herewith, and to perform the obligations required to be performed by it thereunder. Seller
Trust has been duly and validly formed and is validly existing under California law and
Individual and Karen S. Zucchero, as trustees of Seller Trust, have full power and authority
to dispose of the CalPly Shares on behalf of Seller Trust. Except as set forth on
Exhibit A-4 hereto, no Seller or Company has any subsidiary corporations, companies
or other entities, or owns, directly or indirectly, any equity interest in any other Person.
Each Company is qualified to do business and in good standing in each jurisdiction in which
the failure to so qualify would reasonably be expected to result in a Seller Material
Adverse Change.

     (b) Authorized Capital; Restructuring.

     (i) As of the date of this Agreement, (A) each Company has an authorized
capital consisting solely of such capital as is set forth on Exhibit A-2
hereto, which Exhibit also sets forth the amount of issued Shares of each Company,
and each of Individual, Seller Trust and the Former Shareholder identified on such
Exhibit is the sole holder of record of such number of Company Shares as are set
forth next to such Person’s name on Exhibit A-2 except that the Foam Shares
have been transferred to Individual pursuant to the Foam Agreement and Individual is
the sole holder of record thereof, and such Persons are the sole

9

 

beneficial owners of all Shares and (B) good, valid and marketable title to
such Shares is held by such Person, free and clear of all Liens other than
registration or similar restrictions on transfer by such Person under applicable
federal and securities laws.

     (ii) As of the date of this Agreement and as of the Closing Date, (A)
Individual is the sole holder of record and beneficial owner of all of the capital
stock of Seller Holdco; (B) no Shares of any Company are held in treasury of any
Company; (C) all of issued and outstanding Shares of each Company are duly
authorized, validly issued, fully paid and non-assessable, and there are no other
securities of such Company of any class issued, reserved for issuance or
outstanding; and (D) there are no outstanding or authorized (1) options, offers,
warrants, conversion rights, subscriptions, exchange rights or agreements or rights
of any kind to subscribe for or to purchase, or commitments to issue (either formal
or informal, firm or contingent), shares of capital stock or other securities of any
Company (whether debt, equity or a combination thereof) or obligating any Company to
grant, extend or enter into any such agreement or commitment, (2) contractual
obligations of any Company (other than in connection with the Restructuring) to
repurchase, redeem or otherwise acquire any shares of capital stock or other
securities of such Company or (3) voting trusts, proxies or similar agreements or
understandings with respect to the voting of the capital stock or membership
interests, as the case may be, of any Company.

     (iii) Set forth on Exhibit A-3 hereto is a description of all
redemptions, acquisitions and other transactions constituting the Restructuring.
Immediately following the Restructuring, the authorized capital and the amount of
issued and authorized but unissued Shares of each Company will be as set forth on
Exhibit A-4 hereto. Sellers and all Former Shareholders have consented to
the Restructuring (and have not revoked or qualified any such consent), and no
Former Shareholder has any claim or other Lien against any Company, including any
claim or other Lien with respect to any right to dissent.

     (iv) As of the Closing Date, (A) each Seller will be the sole holder of record
of such Company Shares set forth on Exhibit A-4 hereto, and Sellers will be
the sole beneficial owners of all Shares, free and clear of all Liens other than
registration or similar restrictions on transfer by such Person under applicable
federal and securities laws and (B) the certificates and other documents
representing the Shares of the Companies to be delivered to Buyer at the Closing,
and the signatures on and endorsements of the Company Shares and stock powers or
powers of attorney delivered therewith, are valid and genuine.

     (c) Good Title to Buyer; Execution of Agreements. Upon delivery by Sellers of
the Company Shares to Buyer as herein contemplated, Buyer will acquire good, valid and
marketable title to, directly or indirectly, all of the issued and outstanding Shares of
each Company, free and clear of all Liens other than registration or similar restrictions on
transfer by Buyer existing under applicable federal or state securities laws. This
Agreement and all of the other agreements and instruments entered into or to be entered

10

 

into by any Seller or any of the Companies in connection herewith (including in
connection with the Restructuring) (collectively, the “Related Agreements”) have been, or
upon execution and delivery will be, duly authorized, executed and delivered by, and
constitute, or upon execution and delivery will constitute, the valid, legal and binding
obligations of, such Seller or Company, as the case may be, enforceable against such Seller
or Company, as the case may be, in accordance with their respective terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation, fraudulent
conveyance and other similar Laws and principles of equity affecting creditors’ rights and
remedies generally.

     (d) Charter Documents. Sellers have delivered to Buyer copies of the Articles
of Incorporation and Bylaws, or similar organizational documents, of each of the Companies
and such documents are true, correct and complete and have not been amended or modified in
any respect from the forms of such documents previously delivered to Buyer. Sellers have
also delivered to Buyer copies of the minute books containing the records of meetings of the
equity holders, boards of directors and any committees thereof, the stock certificate books
and the stock record books of each of the Companies. Such stock certificate books and stock
record books are true, correct and complete, and have not been amended or modified in any
respect from the forms of such documents delivered to Buyer. Such minute books are true,
correct and complete and reflect all material corporate actions of such Company and
correctly record all resolutions of each of the Companies.

     (e) Capacity; Conflicts; Defaults.

     (i) Each Seller and each Company, as the case may be, has all requisite power,
authority and capacity to enter into and perform this Agreement and all Related
Agreements entered into or to be entered into by such Seller or Company in
connection herewith, and to perform the obligations required to be performed by such
Seller or Company hereunder and thereunder.

     (ii) None of the Companies is in violation of its Articles of Incorporation,
Bylaws or similar organizational document as such documents currently exist or as
such documents existed on the date or dates of any Related Agreements entered into
prior to the date hereof.

     (iii) Neither the execution and delivery of this Agreement and the Related
Agreements, nor the performance of the transactions contemplated hereby or thereby
(collectively, the “Transaction”), by Sellers or any of the Companies, (A) has
violated, conflicted with, or constituted a default under or will violate, conflict
with, or constitute a default under, as the case may be, any of the terms of any of
Seller Holdco’s, Seller Trust’s or the Companies’ Articles of Incorporation or
Bylaws, or similar organizational documents, or has violated or will violate, as the
case may be, any order, judgment or decree, relating to any Seller or any of the
Companies, any of the Business or the Shares of the Companies, or by which any
Seller or any of the Companies, the assets of any of the Companies, any Seller or
such Shares of the Companies may be bound, (B) has resulted or will

11

 

result, as the case may be, in the creation or imposition of any Lien in favor
of any third Person upon any assets of any of the Companies or the Shares of the
Companies, (C) has violated or will violate, as the case may be, any Law (as
hereinafter defined) of the United States of America or any other nation, any state
or other political subdivision thereof, or any entity exercising executive,
legislative, judicial, quasi-judicial, regulatory or administrative functions of
government or any agency or department or subdivision of any governmental authority,
including the United States federal government or any state, local or foreign
government (collectively, “Governmental Authorities”) applicable to any Seller or
any of the Companies or (D) has required or will require, as the case may be, on the
part of any of the Companies any filing or registration with, notification to, or
authorization, consent or approval of, any Governmental Authority.

     (iv) Neither the execution and delivery of this Agreement and the Related
Agreements, nor the performance of the Transaction, by Sellers or any of the
Companies has violated, conflicted with, or constituted a default under or will
violate, conflict with, or constitute a default under, any provisions of, or has
resulted in the acceleration, termination or cancellation of, or will give rise to
the right to accelerate, terminate or cancel, or has created or will create, as the
case may be, in any party the right to accelerate, terminate or modify, or require
any notice under, any obligation under any contract, indenture, deed of trust,
lease, agreement or other instrument, including without limitation the Material
Contracts (as hereinafter defined).

     (f) Financial Statements. Sellers have heretofore delivered to Buyer the
following financial statements (together with the notes, supplementary information,
schedules and exhibits thereto and the financial statements to be delivered pursuant to
Section 6.2(b)(i), the “Financial Statements”):

     (i) the (A) audited consolidated balance sheets of CalPly and subsidiary as of
March 31, 2006, together with the footnote disclosure related thereto (collectively,
the “CalPly Balance Sheet”), and (B) audited consolidated statements of income and
comprehensive income, statements of shareholder’s equity and statements of cash
flows of CalPly and subsidiary for the year ended March 31, 2006, together with the
footnote disclosure related thereto;

     (ii) the (A) unaudited statement of assets, liabilities and equity (income tax
basis) of E-Foam, Inc. as of December 31, 2006 (the “E-Foam Balance Sheet”) and (B)
the unaudited statement of revenue and expenses (income tax basis), statement of
accumulated deficit (income tax basis) and statement of general and administrative
expenses (income tax basis) of E-Foam, Inc. for the twelve months ended December 31,
2006;

     (iii) the (A) unaudited balance sheet of Southwest Install and Rework, Inc. as
of December 31, 2006 (the “Southwest Balance Sheet”) and (B) the unaudited statement
of revenue and expenses, statement of accumulated deficit

12

 

and statement of general and administrative expenses of Southwest Install and
Rework, Inc. for the twelve months ended December 31, 2006;

     (iv) the (A) unaudited balance sheet of Stockdale Materials Company Inc. as of
December 31, 2006 (the “Stockdale Balance Sheet” and (B) the unaudited statement of
profit and loss for the twelve months ended December 31, 2006; and

     (v) the unaudited consolidated balance sheets of CalPly and subsidiary as of
December 31, 2006 (the “Unaudited CalPly Balance Sheet” and together with the CalPly
Balance Sheet, the E-Foam Balance Sheet, the Southwest Balance Sheet and the
Stockdale Balance Sheet, the “Balance Sheets”) and the unaudited consolidated
statements of income and comprehensive income, statements of shareholder’s equity
and statements of cash flows of CalPly and subsidiary for the nine months ended
December 31, 2006 (the financial statements described in subclauses (ii) through (v)
being collectively referred to as the “Unaudited Financial Statements”).

Each of the Financial Statements was prepared from the books and records kept by the
Companies and fairly presents in all material respects the financial position of the
Companies as of such dates, and the result of operations and cash flows of the
applicable Companies for the periods then ended in accordance with accounting principles
generally accepted in the United States (“GAAP”) consistently applied (except to the
extent modified by the Accounting Principles), subject to (A) any exceptions to GAAP
disclosed in the notes to the Financial Statements and (B) in the case of the Unaudited
Financial Statements, normal recurring year-end adjustments and the absence of
footnotes. Since March 31, 2006 (the “Balance Sheet Date”), there has been no Seller
Material Adverse Change, nor has there been any event or condition of any character
which would reasonably be expected to result in a Seller Material Adverse Change in the
future. Schedule 3.1(f) sets forth a list of all (x) inventory purchased or
sold outside the ordinary course of business since October 31, 2006, (y) other
properties and assets (other than capital assets) in an amount in excess of $50,000 in
any single instance or $250,000 in the aggregate purchased or sold since October 31,
2006, and (z) capital assets purchased since October 31, 2006 in an amount in excess of
$100,000 in any single instance or $250,000 in the aggregate. Such Schedule
3.1(f) and the Balance Sheets collectively reflect all properties and assets, real,
personal or mixed, which are currently used by the Companies in the Business other than
(x) inventory purchased or sold consistent with past practice in the ordinary course of
business since December 31, 2006, (y) other properties and assets (other than capital
assets) in an amount not in excess of $50,000 in any single instance or $250,000 in the
aggregate purchased or sold since December 31, 2006, consistent with past practices and
in the ordinary course of business and (z) capital assets purchased since December 31,
2006 in an amount not in excess of $100,000 in any single instance or $250,000 in the
aggregate. The Statement of Net Debt will be prepared in accordance with GAAP from the
books and records kept by the Companies and will be true and correct in all respects as
of the close of business on the business day prior to the Closing Date. The Financial
Statements reflect an

13

 

adequate reserve established in accordance with GAAP for all Taxes (as hereinafter
defined) payable by the Companies for all Taxable periods and portions thereof accrued
through the respective dates of such Financial Statements. Deficiencies for Taxes that
have been proposed, asserted or assessed against the Companies that have not been fully
paid are fully reflected as a Liability (as hereinafter defined) in the Financial
Statements, except to the extent such deficiencies are being contested and an adequate
reserve therefor has been established and is fully reflected in such Financial
Statements in accordance with GAAP.

     (g) Undisclosed Liabilities. To Seller’s Knowledge, none of the Companies has
any liabilities or obligations of any nature whatsoever, including any liabilities arising
out of any illegal or concealed conditions, whether absolute, accrued, contingent or
otherwise, and there is no basis for any present or future action, suit, proceeding,
hearing, investigation, charge, complaint, claim or demand against it giving rise to any
liability or obligation, except for those (i) reflected or reserved on the Balance Sheets or
(ii) incurred or accrued since October 31, 2006 consistent with past practices and in the
ordinary course of business in transactions involving the purchase or sale by the Companies
of goods and services in amounts which do not exceed $25,000 in any single instance or
$250,000 in the aggregate or which do not extend for a period of more than three months, and
consistent with the representations, warranties, covenants, obligations and agreements
contained in this Agreement. To the extent a liability or obligation is not disclosed on
Schedule 3.1(g) but would otherwise be required to be disclosed on the Disclosure
Schedules pursuant to the requirements of a representation or warranty included in this
Article III other than this Section 3.1(g) but for the fact that such liability or
obligation does not exceed a materiality or dollar threshold set forth therein, such
liability or obligation will not be deemed to violate this Section 3.1(g).

     (h) Accounts Receivable. All Accounts Receivable of the Companies have been
reflected properly on the books and records of the Companies in accordance with GAAP
consistently applied and have been generated in the ordinary course of business from bona
fide transactions. Except to the extent of Accounts Receivable with respect to which
applicable reserves are set forth on the Financial Statements, all Accounts Receivable of
the Companies outstanding as of the Closing Date are current. To Seller’s Knowledge, there
is no right or claim of any counterclaim or set-off against any Accounts Receivable
currently outstanding other than those occurring in the ordinary course of business. None
of the Companies has experienced or suffered undue delay in its payment of its liabilities
and obligations to its trade creditors (including suppliers) or debt. For purposes of this
Agreement, “Accounts Receivable” means, collectively, all accounts receivable (including
royalties receivable) of the Companies or otherwise relating to the Business, any payments
received with respect thereto after the Closing Date, unpaid interest accrued on any such
accounts receivable and any security or collateral relating thereto.

     (i) Inventories. Except as set forth on Schedule 3.1(i), all of the
Companies’ inventories consist entirely of manufactured, purchased and finished goods, and
are of a quality and quantity usable or salable in the ordinary course of business, and
there are no damaged, defective, slow-moving or obsolete items or items of below standard
quality

14

 

included therein, except for which adequate reserves have been provided in the
Financial Statements. The value at which each of the Companies’ inventories is carried on
the Financial Statements reflects the lower of cost or market on a first-in, first-out
basis, and the value of all such inventories reflects write-offs or write-downs for damaged
or obsolete items or items of below standard quality consistent with the historical
practices of the Companies.

     (j) Changes in Circumstances. Since the Balance Sheet Date, none of the
Companies, considered collectively, has:

     (i) sold, leased, transferred or assigned or otherwise disposed of any of its
material properties or assets, tangible or intangible, outside the ordinary course
of business;

     (ii) mortgaged, pledged or subjected to any Lien (other than Permitted Liens),
any of its properties or assets;

     (iii) acquired any properties or assets outside the ordinary course of
business;

     (iv) experienced or sustained any damage, loss or destruction of or to a
portion of its assets, properties or business (whether or not covered by insurance)
in excess of $50,000;

     (v) entered into any agreement, contract or transaction involving payments in
excess of $50,000 in any twelve-month period, except for ordinary course purchases
and sales of inventory and, subject to (xvii) below, equipment, or otherwise
conducted its Business other than in the ordinary and normal course and consistent
with past practices;

     (vi) granted any salary increase or bonus or permitted any advance to any
officer or director or to any Seller or Former Shareholder or granted any salary
increase to any other employee, except for such salary increases of not more than
$10,000 per year granted in the ordinary course of business, or entered into any
new, or altered, amended or terminated any existing, Employee Plan or Benefit
Arrangement (each as hereinafter defined);

     (vii) entered into any employment contract or collective bargaining agreement,
whether written or oral, or made any material change in employment terms with any of
its directors, officers or employees except for changes in employment terms with
employees in the ordinary course of business;

     (viii) issued any commercial paper or refinanced any existing borrowings,
whether or not in the ordinary course of business;

     (ix) paid any obligation or liability (fixed or contingent), other than
payments in the ordinary course of business and consistent with past practices or in
an amount not in excess of $100,000 in any single instance or $400,000 in the

15

 

aggregate for all Companies considered collectively, or discharged or satisfied
any Lien, or settled any claim, liability or suit brought against it or any of its
properties or assets;

     (x) entered into any new licenses or leases except in the ordinary course of
business and involving payment obligations of not more than $50,000 in any
twelve-month period;

     (xi) made any loans or issued any note, bond or other debt security, or
created, incurred, assumed or guaranteed any indebtedness for borrowed money or
capitalized lease obligation;

     (xii) modified, amended, cancelled or terminated any existing contracts or
commitments under circumstances which would reasonably be expected to result in a
Seller Material Adverse Change;

     (xiii) become or has been party to any agreements, contracts, leases or
licenses for which any counterparty has accelerated, modified or cancelled any
obligation thereunder involving an aggregate amount in excess of $25,000;

     (xiv) imposed or allowed to be imposed any security interest on any of its
properties or assets, tangible or intangible, other than purchase money security
interests with respect to inventory received in the ordinary course of business for
which payment has not yet been made and except for Permitted Liens (as hereinafter
defined);

     (xv) except as contemplated by the Restructuring, issued, sold, purchased,
redeemed, retired or otherwise disposed of or acquired (directly or indirectly) any
of its capital stock, or granted any options, warrants or other rights to purchase
or obtain (including upon conversion, exchange or exercise) any of its capital
stock;

     (xvi) declared, paid or set aside for payment or distribution, or became
obligated to declare, pay or set aside for payment or distribution, any dividend,
payment or other distribution in respect of its capital stock;

     (xvii) made any capital expenditures or commitments either outside the ordinary
course of business or involving an amount in excess of $100,000 in any single
instance or $250,000 in the aggregate;

     (xviii) written down the value of any inventory or written off as uncollectible
any notes or accounts receivable or any portion thereof, except in the ordinary
course of business;

     (xix) delayed or postponed the payments of accounts payable or the liabilities
of any of the Companies outside the ordinary course of business;

16

 

     (xx) made or pledged to make any charitable or other capital contribution
either outside the ordinary course of business or involving an amount in excess of
$1,000 in any single instance or $10,000 in the aggregate;

     (xxi) canceled, compromised, waived or released any debts, rights or claims
outside the ordinary course of business;

     (xxii) made any change in any method of accounting or accounting practice;

     (xxiii) except for the New Lease Agreements and as contemplated by the
Restructuring, entered into any transaction with any Related Party (as hereinafter
defined) involving an aggregate amount in excess of $10,000 for all Companies,
considered collectively; or

     (xxiv) agreed to, or obligated itself to, do anything identified in (i) through
(xxiii) above.

          (k) Assets; Good Title.

     (i) The Companies own or lease all machinery, equipment and other tangible
assets necessary for or used in the conduct of the Business as presently conducted,
and, to Seller’s Knowledge, such assets and properties (including without limitation
the assets and properties reflected on the Financial Statements and any improvements
to real property) are in good operating condition and repair (subject to normal wear
and tear consistent with the age of such properties or assets). The Companies are
the only business organizations through which the Business is or has been conducted.
Each of the Companies has good and marketable title to all properties and assets
used to conduct the Business or reflected on the Balance Sheets or acquired since
the Balance Sheet Date (except to the extent such assets and properties have been
disposed of on arm’s length terms in the ordinary course of business and consistent
with past practices since the Balance Sheet Date), free and clear of any and all
Liens, except (A) Liens for Taxes (as hereinafter defined) and assessments or
governmental charges or levies not yet due and payable, (B) Liens disclosed as
securing specified liabilities on the Financial Statements and notes thereto with
respect to which no default exists, (C) statutory or common law liens in favor of
carriers, warehousemen, mechanics and materialmen to secure claims for labor,
materials or supplies and other similar Liens and (D) Liens disclosed on
Schedule 3.1(k) under the caption “Permitted Liens” (the Liens described in
clauses (A) through (D) being collectively referred to herein as “Permitted Liens”).
Set forth on Schedule 3.1(k) is a true, correct and complete list of all
tooling, equipment and fixed assets used in the Business and valued in excess of
$10,000, whether located at the Companies or at their respective customers or
suppliers. None of the Companies owns any material amount of marketable securities
or other financial instruments other than pursuant to ordinary course of business
cash management. Except as set forth in the

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Financial Statements, none of the Companies owns any derivative instruments or
contracts.

     (ii) CalPly owns all of the assets and properties acquired by CalPly (or a
predecessor) from Interior Systems Supply Co., Inc., an Arizona corporation
(“ISSCo”), pursuant to the Stock Purchase Agreement, dated August 16, 1999, between
California Wholesale Material Supply, Inc., a Nevada corporation (“CalPly Nevada”),
ISSCo and ISSC, Inc., a Nevada corporation (“ISSCInc. ”), free and clear of any and
all Liens. No Seller or Company has any Liability to any of the previous owners of
CalPly Nevada, ISSCo or ISSCInc. with respect to such assets or any capital stock or
other equity interests of CalPly Nevada, ISSCo or ISSCInc.

     (l) Real Property.

     (i) None of the Companies owns any real property.

     (ii) Set forth under the caption “Leased Real Property” on Schedule
3.1(l) is a true, correct and complete list of:

     (A) each lease or similar agreement, including all amendments,
modifications, supplements, renewals, extensions and guarantees related
thereto (collectively, the “Leases”), under which any of the Companies is
lessee of, or holds, uses or operates any real property owned by any third
Person (the “Leased Real Property”);

     (B) the name and address of the landlord for such Lease;

     (C) the base rent and the amount of additional rent payable as of
January 31, 2007 under such Lease;

     (D) except as set forth on the face of such Lease, any rent
escalations, if any, under such Lease;

     (E) the amount of any tenant security deposit held by the landlord as
of January 31, 2007, if any, under such Lease;

     (F) except as set forth on the face of such Lease, the commencement and
expiration dates and any unexercised renewal or expansion rights under such
Lease; and

     (G) except as set forth on the face of such Lease, any right to
purchase or rights of first refusal granted under such Lease.

     (iii) The Related Party Leases are all of the Leases under which any of the
Companies is lessee of, or holds, uses or operates, any Leased Real Property owned,
directly or indirectly, by any Related Party. The Related Party Leases are listed
under the caption “Related Party Leases” on Schedule 3.1(l).

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     (iv) Set forth under the captions “Leasehold Improvements” on Schedule
3.1(l) is a true, correct and complete list of each leasehold improvement made
to any Leased Real Property since March 31, 2005 having a net book value in excess
of $10,000.

     (v) The Leased Real Property comprises all the real property used by the
Companies in the Business.

     (vi) Assuming good fee title is vested in the landlord, and subject to any
defects in or other matters affecting the landlord’s title, each of the Companies
has valid leasehold title in all Leased Real Property used by it, in each case free
and clear of all Liens, except Permitted Liens. With respect to each Lease:

     (A) a true correct, and complete copy of such Lease has been previously
delivered to Buyer;

     (B) such Lease is legal, valid, binding and presently in full force and
effect;

     (C) none of the Companies nor, to Seller’s Knowledge, any other party
to such Lease is in breach or default, and no event has occurred which, with
notice or lapse of time or both, would constitute a breach or default or
permit termination, modification or acceleration thereunder;

     (D) none of the Companies nor, to Seller’s Knowledge, any other party
to such Lease has repudiated any provision thereof;

     (E) there are no disputes, oral agreements or forbearance programs in
effect as to such Lease;

     (F) none of the Companies has assigned, transferred, conveyed,
mortgaged, deeded in trust or encumbered any interest of such Company in the
Leased Real Property; and

     (G) to Seller’s Knowledge, the owners of the Leased Real Property have
good and marketable title to such Leased Real Property, free and clear of
any Liens, except Permitted Liens.

     (vii) All facilities located on the Leased Real Property have received all
approvals of Governmental Authorities (including licenses and Permits (as
hereinafter defined)) required to have been obtained by a Company in connection with
the operation thereof and have been operated and maintained in accordance with
applicable Laws.

     (viii) All facilities located on the Leased Real Property are supplied with
utilities and other services necessary for the operation of said facilities, and
such

19

 

utilities and services are adequate to service the current normal operations of
such facilities.

     (ix) There are no pending or, to Seller’s Knowledge, threatened condemnation
proceedings, lawsuits, or administrative actions relating to the Leased Real
Property or other matters affecting materially and adversely the current use or
occupancy thereof.

     (x) To Seller’s Knowledge, the buildings and improvements are located within
the boundary lines of the described parcels of Leased Real Property, are not in
violation of applicable setback requirements, zoning laws and ordinances (and none
of the properties or buildings or improvements thereon are subject to “permitted
non-conforming use” or “permitted non-conforming structure” classifications) and do
not encroach on any easement which may burden the occupant, and, to Seller’s
Knowledge, the Leased Real Property does not serve any adjoining property for any
purpose inconsistent with the use of the Leased Real Property and is not located
within any flood plain or subject to any similar type restriction for which any
permits or licenses necessary to the use thereof have not been obtained.

     (xi) There are no subleases, licenses, concessions or other agreements, written
or oral, from the Companies granting to any third party or parties the right of use
or occupancy of any portion of the Leased Real Property.

     (xii) Except as set forth in the Leases, there are no outstanding options or
rights of first refusal given to the Companies to purchase the Leased Real Property,
or any portion thereof or interest thereon.

     (xiii) To Seller’s Knowledge, there are no outstanding options or rights of
first refusal given to any Person other than the Companies to purchase the Leased
Real Property, or any portion thereof or interest therein, which interfere with (or
threaten to interfere with) the use of such Leased Real Property by the Companies.

     (xiv) There are no parties (other than the Companies) in possession of the
Leased Real Property.

     (xv) To Seller’s Knowledge, there is no material defect in the condition of, or
physical damage to, the buildings, structures or other improvements located on the
Leased Real Property, or any portion thereof, which has not been corrected or which
will materially impair the operation of the Leased Real Property.

     (m) Contracts. Set forth on Schedule 3.1(m) is a list or description
of:

     (i) each license, contract, agreement, commitment or undertaking (whether
written or oral), or group of related licenses, contracts, agreements, commitments
or undertakings, currently in effect, (A) to which any of the Companies is a party
or by which any of their respective properties are bound

20

 

which (1) involve aggregate future payments in excess of $100,000 in any
twelve-month period or (2) involve aggregate future payments in excess of $25,000
and extend for a period of more than one year and are not terminable without
liability, penalty or premium or (B) between any of the Companies and any
distributors, customers, manufacturers’ agents or selling agents, or pursuant to
which any of the Companies sells or distributes its Products, other than for
purchases and sales of Products in the ordinary course of business and consistent
with past practices;

     (ii) each indenture, note, loan or credit agreement or other contract relating
to the borrowing of money (other than trade credit incurred in the ordinary course
of business) by any of the Companies or to the guarantee or assumption by any of the
Companies of the obligations of any other Person for borrowed money;

     (iii) each mortgage, pledge, security agreement or other document granting any
Lien (including Liens upon properties acquired under conditional sales, capital
lease or other title retention or security devices) relating to any of the Companies
or the Business, or to which any of the Companies is a party;

     (iv) each joint venture, partnership or similar contract involving a sharing of
profits or expenses to which any of the Companies is a party;

     (v) each stock purchase agreement, asset purchase agreement or other
acquisition or divestiture agreement relating to the acquisition, sale, lease or
disposal of any material asset (other than sales of inventory in the ordinary course
of business) entered into since March 31, 2003, or which is either pending or
involves continuing indemnity, earn-out or other contractual, including payment,
obligations, and to which any of the Companies is a party or has an obligation
thereunder;

     (vi) each contract or other agreement presently in effect under which any of
the Companies has agreed to indemnify any party, other than in the ordinary course
of business and consistent with past practices;

     (vii) each contract, agreement, commitment or undertaking relating to capital
stock, bonds or other securities of any of the Companies;

     (viii) each power of attorney given by any of the Companies to any Person that
is currently effective and outstanding;

     (ix) each contract or other agreement concerning confidentiality, other than
those entered into in the ordinary course of business;

     (x) each noncompetition, restrictive covenant, exclusivity covenant or other
agreement that restricts any of the Companies from doing business anywhere in the
world;

21

 

     (xi) each contract, agreement, commitment or arrangement between any of the
Companies, on the one hand, and any Related Party (including any other Company), on
the other hand;

     (xii) unless otherwise described in clause (xi), each contract, agreement,
commitment or undertaking presently in effect by any of the Companies with any
current or former officer, director, other employee (or group of employees) or
equity holder (or group of equity holders) of any of the Companies;

     (xiii) each contract, agreement, commitment or undertaking presently in effect
by any of the Companies with any consultant or independent contractor that involves
aggregate payments in an amount in excess of $50,000 per year;

     (xiv) each contract, agreement, commitment, undertaking or arrangement, whether
formal or informal, involving the payment by any of the Companies of royalties in
amounts in excess of $1,000 per year; and

     (xv) all other contracts, agreements, commitments or undertakings of any of the
Companies which are material to its condition (financial or otherwise), results of
operations, properties, assets, liabilities, business or prospects (the items
described in clauses (i) through (xv), together with the contracts and agreements
set forth on Schedule 3.1(r), are collectively referred to herein as the
“Material Contracts”).

With respect to each such Material Contract, Sellers have used their reasonable efforts to
reference on such Schedule 3.1(m) the applicable clause of this Section
3.1(m) to which such Material Contract relates. True, correct and complete copies of
each Material Contract, as amended to date, and a written summary setting forth the terms
and conditions of each Material Contract that is an oral agreement, have been delivered to
Buyer. Each of the Companies has performed all material obligations required to be
performed by it to date under the Material Contracts, and no Company nor, to Seller’s
Knowledge, any other party to any Material Contract has breached or improperly terminated
any Material Contract, or is in default under any Material Contract. To Seller’s Knowledge,
there exists no condition or event which, after notice or lapse of time or both, would
constitute any such breach, termination or default of any Material Contract. Each of the
Material Contracts is in full force and effect, and is a legal, binding and enforceable
obligation of or against the Company or Companies party thereto and, to Seller’s Knowledge,
the other parties thereto and, to Seller’s Knowledge, no Material Contract will fail to be
the legal, binding and enforceable obligation of or against the parties thereto as a result
of the transactions contemplated by the Transaction. None of the Companies has outstanding
contracts with officers, employees, agents, consultants, advisors, salesmen or sales
representatives that are not cancelable by it on notice of 30 days or less and without
liability, penalty or premium in excess of $25,000 in any single instance. None of the
Companies has received any written notice of the intention of any party to terminate any
Material Contract or repudiate any provision thereof. For purposes of this Agreement, (A)
“Related Party” means (1) any director, officer, trustee, beneficiary or equity holder of
Seller Holdco, Seller Trust or any of the Companies, or

22

 

any Person in which such director, officer, trustee, beneficiary or equity holder has any
Material Interest, (2) Individual, any immediate family member (as such term is used under
Item 404 of Regulation S-K under the Securities Act of 1933, as amended) of Individual or
any Person in which Individual or any immediate family member of Individual has any Material
Interest, (3) any Former Shareholder, any immediate family member of a Former Shareholder or
any Person in which any Former Shareholder or any immediate family member of a Former
Shareholder has a Material Interest, and (4) Seller Holdco, Seller Trust, any of the
Companies or their respective Affiliates; and (B) “Material Interest” means direct or
indirect beneficial ownership (as defined in Rule 13d-3 under the Securities Exchange Act of
1934, as amended) of voting securities or other voting interests representing at least 10%
of the outstanding voting power of a Person or equity securities or other equity interests
representing at least 10% of the outstanding equity securities or equity interests in a
Person.

     (n) Equipment Leases. Set forth on Schedule 3.1(n) is a true, correct
and complete list of all leases for all material equipment utilized by any of the Companies
in the conduct of the Business, including all material motor vehicles and forklifts (the
“Equipment Leases”), true, correct and complete copies of which have previously been
provided to Buyer. With respect to each Equipment Lease:

     (i) the rates and rental payments under any Equipment Lease entered into
between any Company and a Related Party are fair and reasonable (or were, when
entered into, fair and reasonable);

     (ii) no Equipment Lease will fail to be the legal, valid, binding and
enforceable obligation of or against the Company or Companies party thereto or, to
Seller’s Knowledge, the other parties thereto immediately following consummation of
the Transaction;

     (iii) none of the Companies is in breach or default, and no event has occurred
which, with notice or lapse of time or both, would constitute a breach or default by
any of the Companies or permit termination, modification or acceleration thereunder
by any of the other parties thereto;

     (iv) none of the Companies nor, to Seller’s Knowledge, any other party to such
Equipment Lease has repudiated any provision thereof;

     (v) there are no disputes, oral agreements or forbearance programs in effect as
to such Equipment Lease;

     (vi) no Company has assigned, transferred, conveyed, mortgaged, deeded in trust
or encumbered any interest of such Company in the property leased under such
Equipment Lease;

     (vii) all equipment leased thereunder has been operated and maintained in
accordance with all applicable Laws;

23

 

     (viii) the applicable Company is in possession of the equipment leased
thereunder; and

     (ix) to Seller’s Knowledge, such Equipment Lease is not subject to, and does
not relate to equipment that is the subject of, a sublease or a pass-through lease.

     (o) Insurance. Set forth on Schedule 3.1(o) is a true, correct and
complete list of all insurance policies, including but not limited to policies providing
property, casualty and liability coverage, self-insurance policies, workers’ compensation
coverage and bond and surety arrangements, to which any of the Companies is or has been a
party, a named insured or otherwise the beneficiary of such coverage at any time within the
past five years, true, correct and complete copies of which have previously been provided to
Buyer. With respect to each such insurance policy, Schedule 3.1(o) provides a
description of (i) any retroactive premium adjustments or other loss-sharing arrangements
and (ii) any claims made under such policy within the last five years, except as to claims
based on any injury caused or alleged to have been caused by goods or materials purchased or
sold by any of the Companies that contained or were alleged to have contained Hazardous
Materials, for which this disclosure requirement has no time limit. With respect to each
such insurance policy: (A) the application and all other required documentation with respect
thereto have been properly prepared and delivered to the insurer, and the information
contained in such application or other documentation is, or was at the time of delivery,
true and correct; (B) none of the Companies nor, to Seller’s Knowledge, any other party to
such policy is in breach or default (including with respect to the payment of premiums or
the giving of notices), and no event has occurred which, after notice or lapse of time or
both, would constitute a breach or default or permit termination, modification or
acceleration under such policy; and (C) no party to such policy has repudiated any provision
thereof.

     (p) Bank Accounts. Set forth on Schedule 3.1(p) is a true, correct and
complete list of all banks, brokerage firms and other financial institutions in which any of
the Companies, or with respect to the Business, any other Person has accounts or safe
deposit boxes (specifying the locations and identifying numbers) and the names of all
Persons authorized to draw thereon or have access thereto.

     (q) Litigation. None of the Companies is subject to any order of, or written
agreement or memorandum of understanding with, any Governmental Authority. There exists no
litigation, action, suit, proceeding, hearing, demand, investigation, charge or complaint
pending or, to Seller’s Knowledge, threatened against any of the Companies or the Business,
including without limitation claims for product warranty, product liability or other
Liability or obligation relating to products sold by any of the Companies, or which would
adversely affect the Transaction. To Seller’s Knowledge, no Person has threatened or
asserted any claims against any of the Companies which would adversely affect the
Transaction. Set forth on Schedule 3.1(q) is a description of all litigation,
actions, suits, proceedings, hearings, investigations, charges, claims, complaints and
demands asserted, brought or, to Seller’s Knowledge, threatened against any of the Companies
within the five years preceding the date hereof (other than ordinary and

24

 

normal course workers’ compensation claims involving immaterial liabilities), together
with a description of the outcome thereof. None of the matters set forth on Schedule
3.1(q) would reasonably be expected to result in a Seller Material Adverse Change. For
purposes of this Agreement, “Seller’s Knowledge” means the actual knowledge of the Persons
listed on Exhibit L hereto.

     (r) Customers and Suppliers. None of the Companies is involved in any claim or
controversy with any of its customers or suppliers that would reasonably be expected to
result in a Seller Material Adverse Change. Set forth on Schedule 3.1(r) is a
complete list of (i) the ten largest dollar-volume customers at each of the locations where
customers are served and Products are stored (each, a “Location”), (ii) the ten largest
dollar-volume suppliers at each Location, in each case as of the twelve-month period ended
December 31, 2006 and (iii) each current written contract or agreement (other than purchases
and sales in the ordinary course of business and consistent with past practices) between the
Company and (A) the 25 largest dollar-volume customers of the Companies, taken as a whole,
and (B) the ten largest dollar-volume suppliers of the Companies, taken as a whole, in each
case for the twelve-month period ended December 31, 2006. None of the Companies has been
advised in writing by any customer or supplier listed on Schedule 3.1(r) that such
customer or supplier has plans to terminate its relationship with any of the Companies or
would not use any of the Companies’ services in the future. To Seller’s Knowledge, no
supplier or customer relationship will be terminated as a result of the Transaction. All
business placed by any officer or employee of any of the Companies has been placed in the
name of one or more of the Companies and all amounts payable on such business have been paid
to and are the property of the Companies.

     (s) Regulatory and Legal Compliance. Each of the Companies has complied in all
material respects with all laws, statutes, rules, regulations, judgments, decrees, orders,
ordinance, regulation, arbitration awards, grants, franchises, permits and licenses or other
legally enforceable requirements of or by any Governmental Authority (including without
limitation zoning ordinances, building codes and civil rights laws) (collectively, “Laws”)
applicable to it and to the conduct of the Business, and, to Seller’s Knowledge, no material
expenditures (except expenditures in the ordinary course of business and consistent with
past practices (with respect to both timing and amount)) are or will be required by any of
the Companies to comply with any Laws. None of the Companies is in default under, and no
event has occurred which, with the lapse of time or action by a third party, would
reasonably be expected to result in default under, the terms of any judgment, decree, order
or writ of any Governmental Authority, whether at law or in equity, issued or entered
against any of the Companies.

     (t) Brokers, Finders and Agents; Transaction Costs. No agent, broker,
investment banker, financial advisor or other firm or Person engaged by any Seller or any of
the Companies is or will be entitled to any brokers’ or finders’ fee or any other commission
or similar fee in connection with the Transaction.

     (u) Company Intellectual Property. Set forth on Schedule 3.1(u) is a
true, correct and complete list of all material patents, trademarks (whether registered or
unregistered), service marks, trade names, service names, brand names, logos, copyrights,

25

 

web addresses, web sites and domain names owned or used by each of the Companies
(collectively, the “Company Intellectual Property”). Each of the Companies owns or has the
right to use such Company Intellectual Property in connection with the operation and conduct
of the Business. Each item of Company Intellectual Property owned or used by the Companies
as of the date hereof and any other Company Intellectual Property owned or used by the
Companies immediately prior to the Closing will be owned or available for use by such
Companies on identical terms and conditions immediately following the Closing. Other than
the Company Intellectual Property, none of the Companies owns or uses any other intellectual
property, other than validly licensed or public domain software and the trademarks of its
suppliers. None of the Companies has interfered with, infringed upon or misappropriated any
intellectual property rights of third Persons. Neither Sellers nor any of the Companies has
ever received any charge, complaint, claim, demand or notice alleging any such interference,
infringement, misappropriation or violation. To Seller’s Knowledge, no third Person has
interfered with, infringed upon, misappropriated or otherwise come into conflict with any
such rights of any of the Companies. None of the Companies has agreed to indemnify any
Person for or against any interference, infringement, misappropriation or other conflict
with respect to any item of Company Intellectual Property. Use of the Company Intellectual
Property will not interfere with, infringe upon, misappropriate or otherwise come into
conflict with any intellectual property rights of third Persons as a result of the continued
operation of the Business of the Companies as presently conducted.

     (v) Permits. Each of the Companies has, and is in material compliance with,
all material permits, permissions, grants, orders, registrations, authorizations,
exemptions, approvals, licenses, registrations, variances, waivers, consents or similar
rights or privileges (“Permits”) which are necessary or required for the operation of its
Business as currently operated and its present activities on the Leased Real Property, all
of which Permits are in full force and effect. Schedule 3.1(v) lists all such
Permits existing as of the date hereof.

     (w) Employees; Employee Relations; Collective Bargaining Agreements. Set forth
on Schedule 3.1(w) is a complete list of: (i) all employees of each of the Companies
as of December 31, 2006, including total compensation (such as salaries, bonuses and
commissions) for each such employee for the preceding twelve months; (ii) all present or
former employees of any of the Companies who have terminated or given notice of their
intention to terminate their employment during the twelve months ending on December 31,
2006; and (iii) any increase during the twelve months ending on December 31, 2006 in the
rate of compensation of any employee (other than immaterial increases made in the ordinary
course of business and consistent with past practices). There have been no material changes
to the information set forth on Schedule 3.1(w) since the dates indicated therein.
All employees of the Companies are employees at will. There are no material claims pending
or, to Seller’s Knowledge, threatened between any of the Companies and any representative of
their respective employees. Each of the Companies has complied and is complying in all
material respects with all Laws relating to the employment of labor, including without
limitation any provision thereof relating to wages, hours, collective bargaining, employee
health, safety, insurance and welfare and the payment of social security and similar taxes.
None of the Companies has experienced any material

26

 

labor difficulties, including without limitation strikes and work stoppages, within the
three years preceding the date hereof. There is no labor strike, dispute, stoppage or
lockout pending or, to Seller’s Knowledge, threatened against any of the Companies. Except
as set forth on Schedule 3.1(w), none of the Companies is a party to, or bound by,
any collective bargaining agreement, contract or other agreement or understanding with a
labor union or labor organization. There exists no current union organizational effort with
respect to any of the Companies’ non-union employees. To Seller’s Knowledge, no executive,
key employee or group of key employees has any plans to terminate employment with any of the
Companies. There is no unfair labor practice or labor arbitration proceeding pending or, to
Seller’s Knowledge, threatened against any of the Companies.

     (x) Taxes. Each of the Companies indicated on Schedule 3.1(x) as being
an “S Corp” (each an “S Corp” and collectively, the “S Corps”) is and has been a validly
electing S corporation within the meaning of Sections 1361 and 1362 of the Code from and
after the dates indicated on such Schedule 3.1(x). Each of the Companies indicated
on Schedule 3.1(x) as being a “Qsub” (each a “Qsub”) is and has been a validly
electing qualified subchapter S subsidiary within the meaning of Section 1361(b)(3)(B) of
the Code from and after the date indicated on such Schedule 3.1(x) and immediately
prior to becoming a Qsub was a validly electing S corporation within the meaning of Sections
1361 and 1362 of the Code from and after the dates indicated on such Schedule
3.1(x). Each of the Companies has timely filed all Tax Returns required to be filed by
it with the appropriate Governmental Authority and all such Tax Returns are true, correct
and complete in all material respects. Each of the Companies has timely paid all Taxes due,
except such Taxes, if any, being contested in good faith. All deficiencies for any Taxes
that have been proposed, asserted, or assessed against the Companies have been fully paid.
Each of the Companies has withheld and paid all Taxes required to have been withheld and
paid in connection with amounts paid or owing to any employee, independent contractor,
creditor, shareholder or other third party. None of the Companies is subject to any
agreement, waiver or other arrangement extending the period for assessment or collection of
any Taxes. None of the Companies is a party to any action or proceeding for the assessment
or collection of any Taxes, nor is any such action or proceeding threatened, and no
deficiency notices or reports have been received by any of the Companies in respect of any
Tax. None of the Companies is a party to or bound by any Tax sharing or allocation
agreement. There are no Liens with respect to Taxes (other than Taxes not yet due and
payable) on any of the assets or properties of any of the Companies. No claim has ever been
made by a Taxing authority in a jurisdiction in which any of the Companies has never filed a
Tax Return that such Company is or may be subject to taxation by that jurisdiction. None of
the Companies (i) is, or has been, a member of an affiliated, consolidated, combined or
unitary group (other than a group the common parent of which was CalPly), or (ii) has any
Liability for the Taxes of any other Person under Treasury Regulation Section 1.1502-6 (or
any similar provision of state, local or foreign law), or as a transferee or successor, or
by contract or otherwise (other than with respect to other members of the affiliated group
of which CalPly is the parent). None of the Companies will be denied a deduction pursuant
to Section 280G of the Code as a result of the Transaction. None of the Companies is or
will be required to include any amount in its gross income or exclude any amount of its
deductions in any Taxable

27

 

period ending after the Closing Date by reason of a change in accounting method in any
Taxable period ending on or before the Closing Date. The Restructuring will not adversely
impact any S Corp’s eligibility to be a validly electing S corporation within the meaning of
Sections 1361 and 1362 of the Code. The term “Tax” (including, with correlative meaning,
the terms “Taxes,” “Taxable” and “Taxing”) means all United States or foreign federal,
state, local net income, gross income, profits, franchise, gross receipts, payroll, sales,
employment, use, occupation, license, value added, property, ad valorem, withholding,
excise, user, fuel, excess or windfall profits, alternative or add-on minimum, gains,
transfer (including without limitation real property transfer taxes), documentary, stamp,
built-in gains and other taxes of any kind whatsoever, together with all interest,
penalties, fines and additions to tax or other amounts imposed with respect thereto. The
term “Tax Return” means any return, report, statement, election, information return or other
document (including schedules or any related or supporting information) filed or required to
be filed with any Governmental Authority in connection with the determination, assessment or
collection of any Tax or the administration of any Laws relating to any Tax.

     (y) Product Warranties; Product Liability.

     (i) Except for written product warranties made by the Companies on any sales
records used within the last five years, true, accurate and complete copies of which
heretofore have been provided to Buyer by Sellers, none of the Companies has created
or granted any express product warranties or guarantees in connection with the
installation, assembly, sale, lease or delivery of its Products. None of the
Companies or any Seller has received any notice and, to Seller’s Knowledge, there is
no claim that any of the Companies has any Liability with respect to the return of,
or failure to properly install, Products other than in the ordinary course of
business and consistent with past practices. Since January 1, 2001, there has not
been, nor is there under consideration or investigation by any of the Companies or
any Seller, any recall, rework, retrofit or post-sale warning concerning any
Product. Except for returns and repairs of Products by customers in the ordinary
course of business and consistent with past practices, each Product installed,
assembled, sold, leased or delivered by the Companies has been in conformity in all
material respects with all applicable contractual commitments and regulatory
requirements and all express and implied warranties, and, to Seller’s Knowledge,
none of the Companies has any material Liability, and there is no reasonable basis
for any present or future action, suit, proceeding, hearing, investigation, charge,
complaint, claim or demand against any of the Companies giving rise to any
Liability, for replacement or repair thereof or other damages in connection
therewith.

     (ii) None of the Companies has any Liability, and, to Seller’s Knowledge, there
is no reasonable basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim or demand against any of the Companies
giving rise to any Liability, arising out of any injury to any individuals or
property as a result of the ownership, possession or use of any Product installed,
assembled, sold, leased or delivered by any of the Companies.

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     (z) Consents and Approvals. Set forth on Schedule 3.1(z) is a true,
correct and complete list of all notices, consents, novations, approvals, authorizations,
waivers and other requirements which must be given, obtained or satisfied by Sellers or any
of the Companies for consummation of the Transaction, including without limitation all
notices, consents, novations, approvals, authorizations, waivers or other requirements which
must be given, obtained or satisfied for the indirect transfer or deemed transfer or
assignment of any of the Companies’ assets, including orders, contracts, agreements, leases,
commitments, licenses, franchises, Permits, authorizations or concessions which are
non-assignable or non-transferable or cannot be subleased to Buyer, or non-assignable or
non-transferable or cannot be subleased without the consent of some other Person, or are
otherwise subject to change-in-control restrictions (collectively, “Consents”). No consent,
novation, approval, filing or authorization is required to be obtained or satisfied for the
continued performance by any of the Companies of any Material Contract except for the
consents marked with an “*” on Schedule 3.1(z) (the “Closing Consents”).

     (aa) Absence of Certain Commercial Practices. No Seller, Company, Former
Shareholder or officer, director, employee, trustee, agent or representative of any of the
foregoing, nor any Person acting on behalf of any of the foregoing, has given or agreed to
give (i) any gift or similar benefit of more than nominal value to any customer, supplier,
Governmental Authority (including any governmental employee or official) or any other Person
who is or may be in a position to help, hinder or assist any of the Companies, the Business
or the Person giving such gift or benefit in connection with any actual or proposed
transaction relating to any of the Business, which gifts or similar benefits would
individually or in the aggregate subject any of the Companies or any officer, director,
employee, agent or representative of any of the Companies to any fine or penalty or to any
criminal sanctions; (ii) illegal receipts from or payments to any governmental officials or
employees; (iii) bribes or kick-backs; (iv) illegal political contributions; or (v) any
receipts or disbursements in connection with any unlawful boycott. No such gift or benefit
is required in connection with the current operation of the Business to avoid any fine,
penalty, cost, expense or Seller Material Adverse Change.

     (bb) Books and Records. The books and records of each of the Companies
maintained in connection with the Business (including without limitation (i) books and
records relating to the purchase of materials and supplies, manufacture or processing of
products, sales of products, dealings with customers, invoices, customer lists, government
procurements, inventories, supplier lists, personnel records and taxes, (ii) the stock
books, stock ledgers and minute books of each of the Companies, and (iii) computer software
and data in computer readable and human readable form used to maintain such books and
records together with the media on which such software and data are stored and all
documentation relating thereto), accurately record all transactions of each of the Companies
in all material respects, and have been maintained consistent with good business practice.

     (cc) Warranty Costs. Set forth on Schedule 3.1(cc) is a description of
all litigation, actions, suits, investigations, claims and proceedings asserted, brought or
to Seller’s Knowledge threatened, against any of the Companies within the year preceding the
date hereof, together with a description of the outcome thereof, relating to any claim

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for Warranty Costs involving individual amounts paid or payable by the Companies in
excess of $25,000. Claims for Warranty Costs since the Balance Sheet Date did not exceed
$25,000 individually or in the aggregate, and there are no outstanding or, to Seller’s
Knowledge, threatened claims for any such costs which would exceed $25,000 individually or
in the aggregate. As used herein, “Warranty Costs” means the costs and expenses of
servicing, repairing and/or replacing, or allowances for service, repair, return or
replacement, of defective or allegedly defective or improperly selected products or parts or
components thereof distributed, manufactured or sold by the Companies and the costs of
materials and expenses of replacing materials or products or correcting any jobs or
materials inadequately performed or manufactured, together with such legal liability, if
any, as may exist under the Uniform Commercial Code in connection with sales of products,
whether such costs and expenses relate to or arise out of claims or causes of action which
assert causes sounding in tort, contract or warranty, or any combination of the foregoing.

     (dd) Pricing Practices. The prices to be received or paid by each of the
Companies under all outstanding contracts, agreements, commitments and undertakings with its
customers and suppliers and others have been determined on an arms’ length basis.

     (ee) Transactions with Related Parties.

     (i) Set forth on Schedule 3.1(ee) is a list of (A) all outstanding
loans to or from any Company, on the one hand, and any Related Party on the other,
(B) any unresolved contractual or other claims, express or implied, of any kind
whatsoever against any of the Companies by any Related Party; (C) any unresolved
contractual or other claims, express or implied, of any kind whatsoever against any
Related Party by any of the Companies; (D) any Lien held currently by a Related
Party with respect to any property or assets used by any of the Companies; or (E)
all other existing transactions (other than employment relationships) between any
Company, on the one hand, and any Related Party on the other.

     (ii) Set forth on Schedule 3.1(ee) is a true, correct and complete list
of any director, officer, employee or equity holder of any of the Companies, and any
Person in which any such director, officer, employee or equity holder has any
Material Interest, owing more than $10,000 to the Business or to any of the
Companies in connection with the Business.

     (iii) Except as set forth in Section 1.5, no amounts have been paid or
may be payable to any Related Party pursuant to any phantom stock, bonus or similar
plan or arrangement in connection with or as a result of the consummation of the
Transaction.

     (ff) Other Businesses. No Seller has any direct or indirect interest in any
Person or business which competes with or conducts any business similar to the Business
conducted by the Companies.

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     (gg) Unclaimed Property. None of the Companies has any assets that may
constitute unclaimed property under applicable Law. Each of the Companies has complied in
all material respects with all applicable unclaimed property Laws. Without limiting the
generality of the foregoing, each of the Companies has established and followed procedures
to identify any unclaimed property and, to the extent required by applicable Law, remit such
unclaimed property to the applicable Governmental Authority.

     (hh) Disclosure. To Seller’s Knowledge, no representation or warranty made by
any of the Companies or any Seller contained in this Agreement, any Related Agreement or any
certificate delivered by any Seller pursuant hereto contains an untrue statement of a
material fact or omits to state a material fact necessary to make the statements and facts
contained herein or therein, in the light of the circumstances in which they were or are
made, not false or misleading. Until the Closing Date, the Companies and Sellers will have
a continuing obligation to supplement the schedules to this Agreement, including the cover
letter thereto, to the extent necessary to comply with this Section 3.1(hh);
provided that in no event will any such supplement relieve any Company or any Seller
of any obligation that may have accrued by reason of any failure to make such disclosure
prior to or contemporaneously with the execution and delivery of this Agreement.

     (ii) No Other Representations or Warranties. Except for the representations
and warranties contained in this Article III, none of the Companies nor any Seller makes any
express or implied representation or warranty on behalf of the Companies or any Seller and
the Companies and Sellers hereby disclaim any such representation or warranty whether by the
Companies, Sellers, any of their respective Affiliates, officers, directors, employees,
agents or representatives or any other Person.

     3.2 Environmental Representations, Warranties and Covenants.

     (a) Definitions. For the purposes of this Agreement, the following terms have
the following definitions:

          ”Environment” means any of the following media: (i) land, including surface land,
sub-surface strata and any natural or man-made structures; (ii) water, including coastal
and inland waters, surface waters, ground waters, and drinking water supplies; and (iii)
air, including indoor and outdoor air, in each case, including any living organism or
system supported by such media.

          ”Environmental Claim” means any notice, claim, demand, action, suit, complaint,
proceeding or communication by any Governmental Authority or other Person alleging (i)
Liability or potential Liability that affects or would reasonably be expected to affect
any of the Companies, the Business or any property currently or formerly owned, operated
or leased by any of the Companies or its predecessors in interest, or any off-site
treatment, storage or disposal facilities used by any of the Companies or its
predecessors in interest (collectively, the “Facilities”), relating to, arising out of,
based on or resulting from any Environmental Law or Environmental

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Permit (each as hereinafter defined) or (ii) Liabilities for any Environmental
Condition under common law or Liabilities under any Environmental Laws of any third
party that any of the Companies has assumed, contractually or by operation of applicable
law.

          ”Environmental Condition” means any actual or threatened bodily injury, property
damage, environmental contamination or pollution arising out of any Release or
threatened Release of or exposure to Hazardous Materials (each as hereinafter defined)
that would reasonably be expected to form the basis for any Environmental Claim against
any of the Companies, the Business or any of the Facilities.

          ”Environmental Laws” means the common law and all applicable federal, state, local
and foreign Laws relating in any manner to contamination, pollution or protection of
human health or the Environment including without limitation: the Clean Air Act, as
amended, U.S.C. §§ 7401 et seq.; the Clean Water Act, as amended, 33 U.S.C. §§ 1251 et
seq.; the Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended (“CERCLA”); the Resource Conservation and Recovery Act, as amended, 42 U.S.C.
§§ 6901 et seq.; the Emergency Planning and Community Right-to-Know Act, 42 U.S.C. §§
11001 et seq.; the Toxic Substances Control Act, 15 U.S.C. §§ 2601 et seq.; the Federal
Insecticide, Fungicide and Rodenticide Act, as amended, 7 U.S.C. §§ 136 et seq.; Rivers
and Harbor Act of 1899, 33 U.S.C. §§ 401 et seq.; Safe Drinking Water Act, 42 U.S.C. §§
300f et seq.; Oil Pollution Act, 33 U.S.C. §§ 2701 et seq.; National Environmental
Policy Act, 42 U.S.C. §§ 4321 et seq.; Hazardous Materials Transportation Act, 49 U.S.C.
§§ 5101 et seq.; Endangered Species Act, 16 U.S.C. §§ 1531 et seq.; and Consumer Product
Safety Act, 15 U.S.C. §§ 2501 et seq. and any applicable state and local Laws, in each
case as in effect as of the Closing Date, that regulate the same subject matter as the
aforementioned Laws.

          ”Environmental Liability” means all Damages (as hereinafter defined) incurred or
suffered by Buyer or any of the Companies after the Closing to the extent relating to,
arising out of, or in respect of any Environmental Condition that existed or occurred or
relates to the operation of the Business or the sale or distribution of Products on or
prior to the Closing Date, including any Environmental Claim in respect of any such
Environmental Condition.

          ”Environmental Permits” means all Permits and other Governmental Approvals (as
hereinafter defined) required to be in effect as of the Closing Date under Environmental
Laws for the conduct of the Business or the ownership or use of the Facilities.

          ”Environmental Reports” means all applications, notifications, reports, studies,
assessments, data and audits that address any assessment or analysis of the Environment,
including without limitation any reports prepared by or for Buyer prior to the Closing
Date which relate to the Facilities, or address any issue of

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noncompliance with, or Liability under, any Environmental Law that may affect any
of the Companies, the Business or the Facilities.

          ”Governmental Approvals” means any consent, approval, authorization, waiver,
permit, grant, franchise, concession, agreement, license, exemption or order of,
registration, certificate, declaration or filing with, or report or notice of or to, any
Governmental Authority.

          ”Hazardous Material” means any pollutant, contaminant, chemical, material,
substance, waste or constituent (including without limitation crude oil or any other
petroleum product and asbestos) subject to regulation under, or which can give rise to
Liability under, any Environmental Law or which was located at any location occupied, or
contained in any Product sold, by any of the Companies.

          ”Liability” or “Liabilities” means any and all liabilities and obligations, whether
such liabilities or obligations relate to payment, performance or otherwise, are known
or unknown, absolute or contingent, accrued or unaccrued, disputed or undisputed,
liquidated or unliquidated, secured or unsecured, joint or several, due or to become
due, vested or unvested, executory, determined, determinable or otherwise, and whether
or not such liabilities or obligations would be required to be reflected on or reserved
against the financial statements of the obligor under GAAP.

          ”Release” means any releasing, spilling, seeping, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, migrating, leaching, dumping or
disposing of any Hazardous Materials into the Environment (including the abandonment or
discarding of barrels, containers, tanks or other receptacles containing Hazardous
Materials).

          ”Remedial Action” means all actions required by any Environmental Law or any
Governmental Authority under any Environmental Law or by any lessor pursuant to a valid
and binding lease of any facility: (i) to clean up, remove, treat, abate or in any other
way address any Environmental Condition; (ii) to prevent the Release or threat of
Release or minimize the further Release of any Hazardous Materials so that it does not
migrate or endanger or threaten to endanger human health or the Environment; and (iii)
to perform pre-remedial sampling, studies and/or investigations in connection with any
Release or threatened Release. Remedial Action also includes any actions, measures or
steps necessary to bring any of the Companies into compliance with Environmental Laws.

     (b) Each of the Companies is in compliance with all Environmental Laws applicable to
them, the Business as presently conducted and the Facilities, and possesses and complies
with all Environmental Permits required under such Environmental Laws except where any
failure to so comply would not reasonably be expected to cause a Seller Material Adverse
Change. A true, correct and complete list of all Environmental Permits held by any of the
Companies is set forth in Schedule 3.2. All such Environmental Permits are in full
force and effect. None of the Companies has received written notice from any Governmental
Authority that any such Environmental Permits will be modified,

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suspended or revoked or cannot be renewed in the ordinary course of business and
consistent with past practices. Each of the Companies has timely taken all action necessary
to renew such Environmental Permits.

     (c) To Seller’s Knowledge, there are no Environmental Conditions that have not been
completely resolved to the satisfaction of applicable Governmental Authorities.

     (d) There is no pending or, to Seller’s Knowledge, threatened Environmental Claim
against any of the Companies relating to the Business or the Facilities for which any of the
Companies may reasonably be expected to have any Liability.

     (e) To Seller’s Knowledge, there are no Hazardous Materials or other conditions at,
under or emanating from, and there has been no Release at, on or adjoining, any of the
Facilities that would reasonably be expected to give rise to an Environmental Claim against
or Liability of any of the Companies under any Environmental Law.

     (f) To Seller’s Knowledge, none of the Facilities are (i) listed or proposed for
listing on the National Priorities List promulgated under CERCLA, (ii) listed on the
Comprehensive Environmental Response, Compensation, and Liability Information System
promulgated under CERCLA, or (iii) listed on any comparable list promulgated or published by
any Governmental Authority. No Lien has been recorded under any Environmental Law with
respect to any of the Facilities.

     (g) None of the Companies is conducting any Remedial Action under any Environmental
Law, nor is any of the Companies obligated under any order, decree or agreement with any
Governmental Authority to conduct any such Remedial Action, in each case related to the
Companies and the Business.

     (h) To Seller’s Knowledge, there are no underground storage tanks or related piping,
surface impoundments, land disposal sites, hazardous waste storage, treatment or disposal
units or facilities or friable asbestos containing material at the Facilities.

     (i) Set forth on Schedule 3.2 is an accurate and complete list of all
Environmental Reports in the possession or control of any Seller, any of the Companies or
any of their respective Affiliates in connection with any Environmental Conditions or
current or planned Remedial Action with respect to the Companies, the Business or the
Facilities. A copy of such Environmental Reports has previously been provided to Buyer.

     (j) Each of the Facilities owned or leased by the Companies is in compliance with the
Occupational Safety and Health Act, as amended (“OSHA”), and all other applicable Laws with
respect to occupational safety and health. There are no actions, suits, claims, notices of
potential claims, regulatory proceedings or other litigation, proceedings or governmental
investigations pending or, to Seller’s Knowledge, threatened against or affecting the
Business or any of such Facilities, in each case based upon an alleged violation of OSHA or
any other applicable Law with respect to occupational safety and health.

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     3.3 Employee Benefit Representations and Warranties.

     (a) Set forth on Schedule 3.3 is a true, correct and complete list of all the
following: (i) each “employee benefit plan,” as such term is defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended (“ERISA”), pursuant to which any
of the Companies has any Liability in respect of current or former employees, directors,
officers or independent contractors of any of the Companies (“Employees”) or any
beneficiaries or dependents of any Employees (each, an “Employee Plan”), and (ii) each other
plan, program, simple retirement account, policy, contract or arrangement providing for
bonuses, pensions, deferred pay, stock or stock related awards, severance pay, salary
continuation or similar benefits, hospitalization, medical, dental or disability benefits,
life insurance or other employee benefits, or compensation to or for any Employees or any
beneficiaries or dependents of any Employees (other than directors’ and officers’ liability
policies), whether or not insured or funded, (A) pursuant to which any of the Companies has
any Liability or (B) constituting an employment or severance agreement or arrangement with
any officer or director of any of the Companies or with any Seller (each, a “Benefit
Arrangement”). Each of the Companies has provided to Buyer with respect to each Employee
Plan and Benefit Arrangement: (i) a true, correct and complete copy of all written documents
comprising such Employee Plan or Benefit Arrangement and any related trust agreement,
insurance contract or other funding vehicle (including amendments and individual agreements
relating thereto, or, if there is no such written document, an accurate and complete
description of such Employee Plan or Benefit Arrangement); (ii) the most recent Form 5500 or
Form 5500-C/R (including all schedules thereto), if applicable; (iii) the most recent
financial statements and actuarial reports or valuations, if any; (iv) the summary plan
description currently in effect and all material modifications thereof, if any; and (v) the
most recent Internal Revenue Service determination or opinion letter, if any.

     (b) Each Employee Plan and Benefit Arrangement has been established, operated and
maintained in accordance with its terms and in compliance in all material respects with
applicable Laws and the rules and regulations thereunder, including, but not limited to,
ERISA and the Code. The Companies have complied with the continuation coverage requirements
of Section 601 et seq. of ERISA and Section 4980B of the Code (“COBRA”).

     (c) All contributions and other payments required to be made with respect to any
Employee Plan and Benefit Arrangement (or to any person pursuant to the terms thereof) which
are due have been made or paid in a timely fashion, and all contributions or other payments
for any period ending on or before the Closing Date which are not yet due have been accrued
in the appropriate Financial Statements to the extent required by GAAP. All premiums or
other payments due on or before the Closing Date have been paid with respect to each such
Employee Plan or Benefit Arrangement.

     (d) Each Employee Plan that is intended to be qualified under Section 401(a) of the
Code is so qualified with respect to any qualification requirement for which the applicable
remedial amendment period has closed and has been determined by the Internal Revenue Service
to be so qualified, and no circumstances exist that are

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reasonably expected by any of the Companies or any Seller to result in the revocation
of any such determination.

     (e) All required reports and descriptions of each Employee Plan and Benefit Arrangement
(including without limitation IRS Form 5500 Annual Reports, Summary Annual Reports and
Summary Plan Descriptions) have been timely filed and distributed.

     (f) Any notices required by ERISA or the Code or any other state or federal law or any
ruling or regulation of any state or federal administrative agency with respect to any
Employee Plan or Benefit Arrangement has been appropriately given.

     (g) Each Employee Plan and Benefit Arrangement may be terminated by the Companies at
any time.

          (h) With respect to each Employee Plan and Benefit Arrangement:

     (i) There has been no “prohibited transaction” (within the meaning of Section
4975 of the Code or Section 406 of ERISA) that is not exempt under Section 408 of
ERISA, nor fiduciary breach within the meaning of Section 404 or 409 of ERISA, with
respect to which any of the Companies could have or has any Liability. No action,
suit, proceeding, hearing, audit or investigation with respect to the administration
or the investment of the assets of any Employee Plan or Benefit Arrangement (other
than routine claims for benefits) is pending or, to Seller’s Knowledge, threatened.
None of the Companies (including but not limited to the employees with
responsibility for employee benefits matters), to Seller’s Knowledge, any basis for
any such action, suit, proceeding, hearing, audit or investigation.

     (ii) None of the Companies nor any Seller has incurred, expects to incur or has
any knowledge of any facts pursuant to which any of the Companies or any Seller
might incur any excise tax imposed by Chapter 43 of the Code.

     (iii) No Employee Plan or Benefit Arrangement is subject to Title IV of ERISA,
and none of the Companies nor any Person required to be treated as a single employer
with any of the Companies pursuant to Code Sections 414(b), (c), (m) or (o) (“ERISA
Affiliate”) has ever maintained or contributed to any plan, policy or arrangement
subject to Title IV of ERISA, and none of the Companies nor any ERISA Affiliate has
any liability under (A) Title IV of ERISA, (B) Section 302 of ERISA or (C) Sections
412 and 4971 of the Code.

     (i) No Employee Plan is a “multiemployer plan” as that term is defined in Section 3(37)
of ERISA or a “multiple employer plan” described in Section 4063(a) of ERISA, nor has any of
the Companies or any ERISA Affiliate ever contributed to or been obligated to contribute to
such a multiemployer plan or multiple employer plan. No Employee Plan is a plan maintained
by more than one employer described in Section 413(b) or (c) of the Code.

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     (j) None of the Companies maintains or ever has maintained or contributed or been
required to contribute to any Employee Plan or Benefit Arrangement providing medical, health
or life insurance or other welfare-type benefits for current or future retired or terminated
employees, their spouses, or their dependents, other than as required under COBRA.

     (k) Neither the execution or delivery of this Agreement, the Restructuring nor the
consummation of the Transaction (either alone or together with any additional or subsequent
events related thereto), constitutes an event under any Employee Plan, Benefit Arrangement,
loan to, or individual agreement or contract with, an Employee that may result in any
payment (whether of severance pay or otherwise), acceleration of payment or vesting,
increase in benefits or compensation, or required funding, with respect to any Employee, or
the forgiveness of any loan or other commitment of any Employee. Each of the Companies has
reserved the right to amend or terminate any Employee Plan or Benefit Arrangement at any
time without the consent of any Person.

     3.4 General. Except as set forth in Section 6.2(a), the representations and
warranties of the parties hereto made in this Agreement, subject to the exceptions therein or in
the Disclosure Schedule hereto, will not be affected by any information furnished to, or any
investigation conducted by, any of them or their representatives in connection with the subject
matter of this Agreement. The representations and warranties made in this Agreement or in any
instrument delivered pursuant to this Agreement will survive the Closing for the respective periods
set forth in Section 9.3(a).

ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF BUYER

     Buyer represents and warrants to Sellers, as of the date hereof and as of the Closing Date,
that:

     4.1 Organization and Standing; Corporate Power and Authority. Buyer is a corporation
duly organized, validly existing and in good standing under the laws of the State of Delaware and
has full corporate power and authority to execute and deliver this Agreement and the Related
Agreements entered into by it in connection herewith, and to perform the obligations required to be
performed by it hereunder and thereunder. This Agreement and the Related Agreements entered into
by Buyer in connection herewith have been duly executed and delivered by Buyer. This Agreement and
the Related Agreements entered into or to be entered into by Buyer in connection herewith have been
duly approved by the Board of Directors of Buyer, and constitute, or upon execution and delivery by
Buyer will constitute, the valid, binding and enforceable obligations of Buyer, subject to
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation, fraudulent conveyance
and other similar Laws and principles of equity affecting creditors’ rights and remedies generally.

     4.2 Conflicts; Defaults. Neither the execution and delivery of this Agreement and the
Related Agreements executed and delivered, or to be executed and delivered, in connection herewith
by Buyer, nor the performance of the Transaction by Buyer, will (a) violate, conflict with or
constitute a default under any of the terms of Buyer’s Certificate of Incorporation or Bylaws, (b)
violate any Law of any Governmental Authority applicable to Buyer, (c) require any

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consent to be obtained from, filed with or delivered to any Governmental Authority or any
other Person or (d) materially violate or constitute a material default under any agreement,
indenture or other instrument to which Buyer or any Affiliate of Buyer is a party or by which Buyer
may be bound, or any order, judgment or decree applicable to Buyer or any Affiliate of Buyer, in
each case that would adversely affect the consummation of the Transaction on substantially the
terms set forth herein.

     4.3 Brokers, Finders and Agents; Transaction Costs. No agent, broker, investment
banker, financial advisor or other firm or Person engaged by Buyer is or will be entitled to any
brokers’ or finders’ fee or any other commission or similar fee in connection with the Transaction.

     4.4 Litigation. There is no action, suit or proceeding pending or, to the knowledge
of Buyer, threatened against Buyer or any Affiliate of Buyer that would adversely affect the
consummation of the Transaction on substantially the terms set forth herein.

     4.5 Financial Ability. Buyer has the financial resources necessary to consummate the
Transactions, including, without limitation, the ability to pay the Purchase Price at Closing.

     4.6 No Other Representations or Warranties. Buyer acknowledges that the Companies and
Sellers have disclaimed any representations or warranties, whether express or implied, made by the
Companies and Sellers (or their Affiliates, officers, directors, employees, agents and
representatives, as applicable) that are not expressly set forth herein, whether or not such
representations, warranties or statements were made in writing or orally.

ARTICLE V. CONDITIONS TO CLOSING

     5.1 Conditions to Buyer’s Obligations. The obligation of Buyer to consummate the
Transaction is subject to the satisfaction, on or prior to the Closing Date, of each of the
following conditions, any of which may be waived by Buyer except for the conditions set forth in
Sections 5.1(e) (as to Consents of Governmental Authorities) and (f):

     (a) Representations and Warranties. Each of the representations and warranties
of Sellers and the Companies made in Article III of this Agreement must be true and correct
in all material respects (provided that any such representation or warranty that is
qualified by a materiality standard will not be further qualified hereby) both on the date
hereof and as of the Closing Date as though made at such time except for such
representations and warranties that are explicitly limited to other dates, which
representations and warranties must have been true and correct in all material respects as
of such dates (provided that any such representation or warranty that is qualified by a
materiality standard will not be further qualified hereby).

     (b) Covenants. Each Seller and each of the Companies must have performed and
complied in all material respects with all covenants and agreements hereunder (including
without limitation those contained in Sections 6.2(b) and 7.1) required to
be performed or complied with by each of them at or prior to the Closing Date.

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     (c) Seller Material Adverse Change. Since the date hereof, there must not have
been any Seller Material Adverse Change or any event, condition or occurrence reasonably
likely to result in a Seller Material Adverse Change. For purposes of this Agreement,
“Seller Material Adverse Change” means a material adverse change in the condition (financial
or otherwise), results of operations, properties, assets, liabilities, business or prospects
of the Companies or their respective Businesses, taken as a whole, other than changes (a)
generally affecting the industries in which the Companies operate and (b) resulting
primarily from the announcement or the execution of this Agreement or the pendency or
consummation of the Transaction.

     (d) Litigation. No action, suit or proceeding shall be pending or threatened
before any Governmental Agency or before any arbitrator wherein an unfavorable injunction,
judgment, order, decree, ruling or charge would (i) prevent the Restructuring or the
consummation of the Transaction, (ii) cause the Restructuring or the Transaction to be
rescinded following consummation or (iii) affect adversely the right of Buyer to the Shares
and the Companies.

     (e) Consents. All Consents of Governmental Authorities and Closing Consents
must have been obtained, waived or satisfied.

     (f) Antitrust Proceeding or Litigation. No litigation under the United States
federal antitrust laws or the antitrust laws of any other Governmental Authority challenging
the legality of the Transaction shall have been instituted by the federal government or such
other Governmental Authority and not settled or otherwise terminated.

     (g) Certificate of Sellers and the Companies. At the Closing, Individual, the
President or Chief Executive Officer and the Secretary or Assistant Secretary of Seller
Holdco and each of the Companies and the trustee or trustees of Seller Trust having
authority to act on behalf of Seller Trust must have executed and delivered to Buyer a
certificate, dated the Closing Date, to the effect that the conditions specified in
Sections 5.1(a), (b) and (c).

     (h) Certificates; Documents. Sellers and other Persons must have delivered the
certificates, opinions of counsel and other documents required by Sections 2.2 and
2.4, including, if not previously delivered, documents and instruments satisfactory
to Buyer evidencing the Restructuring.

     5.2 Conditions to Sellers’ Obligations. The obligations of Sellers to consummate the
Transaction are subject to the satisfaction, on or prior to the Closing Date, of each of the
following conditions, any of which may be waived by Sellers except for the conditions set forth in
Section 5.2(c):

     (a) Representations and Warranties. Each of the representations and warranties
of Buyer made in Article IV of this Agreement must be true and correct in all material
respects both on the date hereof and as of the Closing Date as though made at such time.

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     (b) Covenants. Buyer must have performed and complied in all material respects
with all covenants and agreements hereunder required to be performed or complied with by it
at or prior to the Closing Date.

     (c) Antitrust Proceeding or Litigation. No litigation under the United States
federal antitrust laws or the antitrust laws of any other Governmental Authority challenging
the legality of the Transaction shall have been instituted by the federal government or such
other Governmental Authority and not settled or otherwise terminated.

     (d) Certificate of Buyer. At the Closing, Buyer must have delivered to Sellers
a Certificate, signed by the President or a Vice President and the Secretary or Assistant
Secretary of Buyer and dated the Closing Date, to the effect that the conditions specified
in Section 5.2(a) and (b) have been fulfilled.

     (e) Certificates; Documents. Buyer must have delivered the payments,
certificates and other documents required of it by Sections 2.3 and 2.4.

     5.3 Conditions to Buyer’s and Sellers’ Obligations. The obligations of Buyer and
Sellers to consummate the Transaction are subject to the condition that, on or prior to the Closing
Date, any applicable waiting period or similar requirement under the H-S-R Act must have expired or
been terminated, and no action shall have been instituted by the FTC or the DOJ challenging or
seeking to enjoin the consummation of the Transaction, which action shall not have been withdrawn
or terminated.

ARTICLE VI. COVENANTS OF COMPANIES AND SELLERS

     6.1 Conduct of Business. During the period from the date hereof through the Closing,
each of the Companies will, and Sellers will cause each of the Companies to, conduct the Business
and operate their assets only in the ordinary course of business and consistent with past practices
(including without limitation using their commercially reasonable efforts to preserve beneficial
relationships between the Companies and their respective agents, lessors, suppliers and customers)
and continue normal maintenance, marketing, advertising, distributional and promotional
expenditures in connection with the Business. None of the Companies will engage in any
transactions, including transactions relating to the purchase or sale of goods, raw materials,
inventories or other operating or production items, intracorporate or otherwise, with any Related
Party from the date hereof until the Closing other than transactions consistent with past practices
(but not including the entry into, or the amendment of, any contracts or agreements) or approved by
Buyer in writing. Without limiting the generality of the foregoing and except as expressly
provided in this Agreement (including in connection with the Restructuring) or as set forth on
Schedule 6.1, during the period from the date hereof until the Closing, none of the
Companies will, and Sellers will not permit any of the Companies to:

     (a) Obligations for Borrowed Money. Other than indebtedness incurred in the
ordinary course of business and consistent with past practices (i) create, incur or assume
any indebtedness (including obligations in respect of capital leases) or any debt for money
borrowed (whether long- or short-term); (ii) assume, guarantee, endorse or

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otherwise become liable or responsible (whether directly, contingently or otherwise)
for the obligation of any other Person; or (iii) make any loans, advances or capital
contributions to any other Person except for advances to employees for travel and other
customary expenses and loans to employees for relocation expenses in the ordinary course of
business in an aggregate amount not in excess of $25,000;

     (b) Accounts Receivable. Write off as uncollectible any notes or Accounts
Receivable, except write-offs in the ordinary course of business and consistent with past
practices;

     (c) Employee Matters. Adopt or amend any Employee Plan or Benefit Arrangement
or increase in any manner the compensation or fringe benefits of any Employee (other than,
solely with respect to non-executive Employees, in the ordinary course of business), or pay
or fund any benefit not required by any Employee Plan or Benefit Arrangement or change any
actuarial assumptions with respect to any Employee Plan or Benefit Arrangement, or take any
action or grant any benefit not expressly required under the terms of any Employee Plan or
Benefit Arrangement or enter into any contract, agreement, commitment or arrangement to do
any of the foregoing;

     (d) Acquisition or Sale of Assets. Except for inventory in the ordinary course
of business and consistent with past practices, purchase or acquire or sell, transfer,
license or otherwise dispose of or agree to purchase or acquire or sell, transfer, license
or otherwise dispose of, directly or indirectly, any material assets, including without
limitation any failure to maintain any Company Intellectual Property or technology;

     (e) Acquisitions. Acquire (by merger, consolidation or acquisition of stock or
assets) any corporation, partnership or other business organization or division thereof or
any equity interest therein;

     (f) Liquidation. Adopt a plan of complete or partial liquidation or
resolutions providing for or authorizing such liquidation or a dissolution, merger,
consolidation, restructuring, recapitalization or other reorganization;

     (g) Commitments. Enter into any other agreement, commitment, contract or
undertaking, except agreements, commitments, contracts or undertakings made in the ordinary
course of business and consistent with past practices and the representations and warranties
of the Companies and Sellers contained in this Agreement, or amend or modify any Material
Contract where such amendment or modification would reasonably be expected to have a Seller
Material Adverse Change;

     (h) Leased Facilities. Except as contemplated by Section 2.4(b),
terminate, modify or amend any of the leases set forth on Schedule 3.1(l) under the
caption “Leased Real Property”;

     (i) Encumbrances. Encumber, pledge or otherwise grant or create a Lien on any
of their respective assets;

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     (j) Articles and Bylaws. Make or propose any change or amendment in their
respective Articles of Incorporation or Bylaws or similar organizational documents;

     (k) Capital Stock. Issue or sell any shares of capital stock or other
securities or issue any securities convertible into or exchangeable for, or options,
warrants to purchase, scrip, rights to subscribe for, calls or commitments of any character
whatsoever relating to, or enter into any contract, understanding or arrangement with the
respect to the issuance of, any shares of capital stock or any other securities of any of
them or enter into any arrangement or contract with respect to the
purchase or voting of shares of their capital stock, or adjust, split, cancel, combine or reclassify any of their
capital stock or other securities, or make any other changes in their capital structures;

     (l) Dividends. Declare, set aside, pay or make any dividend or other
distribution or payment (whether in cash, stock or other equity interest or property) with
respect to any shares of the capital stock or other equity interest of any of them (except
for cash distributions (i) in the ordinary course of business and consistent with past
practices (with respect to both timing and amount, provided that in no event will such
ordinary course distribution exceed $16,667 per day for the quarterly period to which the
dividend relates) and (ii) to the extent necessary for Sellers to satisfy their income tax
obligations relating to income generated by the Companies), or purchase or redeem any shares
of the capital stock or other equity interest of any of them;

     (m) Insurance. Cause or permit any of the policies of insurance referred to in
Section 3.1(o) to terminate, lapse or be canceled, unless reasonable replacement
policies, without lapse of coverage, have been put in place;

     (n) Litigation. Enter into any compromise or settlement of any litigation,
action, suit, claim, proceeding or investigation to which any of the Companies is a party or
to which any of the Companies is subject, except (i) settlements made in the ordinary course
of business involving disputes with customers or suppliers which do not exceed $50,000
individually or in the aggregate or (ii) other settlements made in the ordinary course of
business which do not exceed $10,000 individually or in the aggregate;

     (o) Taxes. Except with the consent of Buyer (which will not be unreasonably
withheld or delayed), (i) make, revoke or amend any Tax election (other than in the ordinary
course of business) except for the Tax elections contemplated by Section 7.7(k),
(ii) adopt or change any Tax accounting method, (iii) undertake any transaction that
triggers a Tax liability under Section 1374 of the Code, (iv) settle or compromise any
material claim or assessment with respect to Taxes, or (v) consent to any waivers extending
the statutory period of limitations with respect to the collection or assessment of any
Taxes or amend any Tax Returns;

     (p) Subchapter S Corporation Status. Revoke any of the Companies’ election to
be taxed as a subchapter S corporation within the meaning Sections 1361 and 1362 of the Code
or take or allow any action that would result in the termination of any of the Companies’
status as validly electing subchapter S corporations within the meaning Sections 1361 and
1362 of the Code;

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     (q) Inventories. Maintain levels of all products held in inventory, including
raw materials, work in process, supplies and finished goods inventories, at levels that are
inconsistent with current practice in the ordinary course of business;

     (r) Acceleration; Discounts. Accelerate orders or sales, offer any special
terms, discounts or purchase programs (including by providing credit terms) to customers or
suppliers, or accelerate the collection of any receivables, except in the ordinary course of
business and consistent with past practices; or

     (s) Accounting Policies. Make any change in any method of accounting or
accounting practice.

     6.2 Disclosure Supplements.

     (a) From time to time and in no event later than five business days prior to the
Closing Date (except with respect to matters that arise after the fifth business day prior
to the Closing Date, in which case this deadline will be two business days prior to the
Closing Date), Sellers and the Companies will amend and supplement the Disclosure Schedules
with respect to any matter (i) which may arise hereafter and which, if existing or occurring
at or prior to the date hereof, would have been required to be set forth or described in the
Disclosure Schedules, or (ii) which makes it necessary to correct any information in the
Disclosure Schedules or in any representation and warranty of Sellers or the Companies which
has been rendered inaccurate thereby. Any amendment or supplement to the Disclosure
Schedules will be described in the cover letter to the correspondence delivered to Buyer
pursuant to Section 10.4 by which Sellers amend or supplement such Disclosure
Schedules. Any amendment or supplement to the Disclosure Schedules and any delivery of
schedules after the date hereof will not modify, affect or diminish Buyer’s right to
terminate this Agreement pursuant to Section 8.1 or relieve the Companies or Sellers
of any obligation that may have accrued by reason of any failure to make such disclosure
prior to or contemporaneously with the execution and delivery of this Agreement;
provided, however, that if the Closing occurs, Buyer will be deemed to have
waived any right or claim pursuant to Article IX hereof with respect to those matters that
both (A) were disclosed to Buyer in any such supplement or amendment at least five business
days prior to the Closing Date and (B) arose after the date hereof.

     (b) During the period from the date hereof to the Closing, the Companies and Sellers
will promptly (i) furnish or make available to Buyer copies of all operating reports and
monthly, quarterly and other financial statements of the Companies, and (ii) notify Buyer of
(A) the institution or settlement of any litigation, complaint, investigation, action,
suit, claim or proceeding involving any of the Companies or their respective businesses and
of any developments therein, and (B) any development that would reasonably be expected to
result in a material breach of the representations and warranties of the Companies and
Sellers provided herein or a Seller Material Adverse Change.

     6.3 Closing. Sellers, Buyer and the Companies will, to the extent within their
control, use their commercially reasonable efforts to cause the conditions set forth in
Sections 5.1, 5.2 and 5.3 to be satisfied by the Closing Date.

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     6.4 Accounts Receivable. If any Seller or any Affiliate of any Seller receives any
payment relating to any Account Receivable outstanding on or after the Closing Date, such payment
will be the property of, and will be promptly forwarded and remitted to, Buyer. Such Seller or
Affiliate will promptly endorse and deliver to Buyer any cash, checks or other documents received
by such Seller or Affiliate on account of any such Account Receivable.

     6.5 No Shopping or Disclosure. From the date hereof through and until the earlier of
termination of this Agreement pursuant to Article VIII or the Closing, none of the Companies or
Sellers nor any officer, director, employee, trustee, agent or representative of any of the
foregoing will, directly or indirectly, (a) solicit, initiate or encourage any inquiries, proposals
or offers from any Person relating to any acquisition or purchase of all or substantially all of
the assets of, or all or a material amount of any securities of, or any merger, consolidation or
business combination with, any of the Companies (any such inquiry, proposal or offer being
hereafter referred to as an “Acquisition Proposal”), or (b) with respect to any of the foregoing
(i) participate in any discussions or negotiations, (ii) furnish to any other Person any
information with respect to any of the Companies or the Business, or (iii) otherwise cooperate in
any way with, or assist or participate in, or facilitate or encourage any such effort. Sellers
will notify Buyer immediately if any Person makes any inquiry, proposal or offer with respect to
the foregoing. Neither Buyer, any of the Companies or any Seller nor any of their respective
employees, officers, equity holders, agents or representatives will disclose this Agreement or the
Transaction to any third party without the consent of the other parties hereto, except for
disclosure to the attorneys and accountants involved in assisting with the negotiation and
consummation of the Transaction.

     6.6 Payment of Indebtedness; Releases. Except for (a) indebtedness under the Loan
Agreement, (b) current trade payables incurred in the ordinary course of business and consistent
with past practices and (c) as set forth on Schedule 6.6, on or before the Closing Date,
each of the Companies will, and Sellers will cause each of the Companies to, (i) pay, perform and
discharge any and all Liabilities for indebtedness of the Companies, whether fixed, contingent or
otherwise, and (ii) obtain or procure the release of any and all Liens (including any guarantees of
any Company) or claims relating to such indebtedness or otherwise affecting the assets and
properties of the Companies.

     6.7 Encumbrances. After the date hereof and prior to the Closing, Sellers will not
pledge or otherwise encumber any of the Shares of the Companies owned by Sellers or permit any
other Shares of any of the Companies to be pledged or otherwise encumbered, in each case except as
contemplated by the Restructuring.

     6.8 Consents. After the date hereof and prior to the Closing, Sellers will (a) obtain
any Consents of any Related Party and (b) use its commercially reasonable efforts to obtain all
Consents of Governmental Authorities and Closing Consents (other than those described under
subsection (a) hereof).

     6.9 Sellers Acknowledgement and Waiver. From and after the Closing, Sellers will not
assert, and hereby waive or agree to cause to be waived as of the Closing, any and all claims by
any Seller (including in such Seller’s capacity, if any, as an officer, employee or director of any
of the Companies) against any of the Companies and their respective directors and officers

44

 

arising out of or relating to events, circumstances, acts or omissions occurring prior to
Closing (including but not limited to any appraisal rights with respect to the Shares of any of the
Companies), but not including (a) claims for which such Seller is entitled to indemnification under
any of the Companies’ Articles of Incorporation, Bylaws or similar organizational documents or
applicable state Law governing corporations, (b) claims that such Individual may have relating to
amounts payable with respect to the employment-based bonus described in Section 7.9, or (c)
any unpaid salary or benefit accrued prior to the Closing Date.

     6.10 Retention Agreements. After the Closing Date, Sellers will use their
commercially reasonable efforts to obtain from each of the individuals as is reasonably requested
by Buyer an executed Retention Incentive Bonus Agreement with Buyer and CalPly in substantially the
form attached as Exhibit M hereto.

     6.11 Customer and Supplier Relationships. From the Closing Date, Sellers will use
their commercially reasonable efforts, at Buyer’s request and expense but without compensation to
Sellers, to assist in the transfer to Buyer of the goodwill and reputation associated with the
Companies’ Business and the Companies’ personnel, suppliers, manufacturers’ representatives and
customer relationships. Sellers will use their commercially reasonable efforts, at Buyer’s request
and expense but without compensation to Sellers, to assure that the Companies’ current customers
and suppliers will continue to do business with the Companies and Buyer in accordance with the
terms and for the periods of time set forth in any contract, agreement, commitment or undertaking
(including the Material Contracts), whether oral or written, and whether currently in effect or
proposed to be entered into by any of the Companies. Notwithstanding the foregoing, in no event
will Sellers be require to expend a material amount of time or effort in furtherance of this
Section 6.11.

     6.12 Further Assurances. From time to time, including without limitation after the
Closing, upon request of Buyer and without further consideration hereunder, Sellers will: (a)
execute, acknowledge and deliver, or cause to be executed, acknowledged and delivered, such other
instruments of sale, assignment, conveyance and transfer and will take all such other action as may
be required for the Restructuring or the consummation of the Transaction, and to more effectively
transfer to and vest in Buyer, and to put Buyer in possession of, the Companies’ Business and the
Shares of the Companies, free and clear of any and all Liens, including without limitation at
Sellers’ expense, all actions required to assure that title to any Company Intellectual Property
rights owned, or purported to be owned, by any of the Companies or their respective predecessors in
interest is properly transferred to, and registered in the name of, such of the Companies or such
other Persons as Buyer may designate; (b) use its commercially reasonable efforts to secure, or to
assist Buyer in securing, any Consent from any Person or Governmental Authority which may be
required for the Restructuring and the consummation of the Transaction and the continued operation
of the Companies’ Business after the Closing; and (c) not take any action designed or intended to
have the effect of discouraging any employee, lessor, licensor, customer or supplier of any of the
Companies from maintaining the same business relationships after the Closing as it maintained with
the Companies prior to the Closing. Notwithstanding the foregoing, in no event will Sellers be
require to expend a material amount of time or effort in furtherance of this Section 6.12.

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ARTICLE VII. CERTAIN ADDITIONAL COVENANTS

     7.1 Access to Records and Properties. Prior to the Closing, Sellers and the Companies
will (a) provide Buyer and its agents and representatives, including its independent accountants,
internal auditors and attorneys, upon reasonable notice, access to all the facilities and offices
of the Companies, and to all of the books and records of the Companies (including work papers of
any independent accountant) during normal business hours, and upon Individual’s consent (which will
not be unreasonably withheld or delayed), the Companies’ personnel and (b) furnish Buyer with such
other financial and operating data (including interim, monthly and quarterly financial information)
and other information with respect to the condition (financial or otherwise), results of
operations, properties, assets, liabilities, business or prospects of the Companies or the Business
as Buyer reasonably requests.

     7.2 Maintenance of and Access to Records. Buyer will preserve and maintain the
records relating to the Business that are part of the Companies’ assets as of the Closing in
accordance with Buyer’s normal document retention policy but in any event for at least two years
after the Closing Date for purposes of (a) permitting Sellers to satisfy their Tax requirements,
(b) the defense or prosecution of litigation (including arbitration and mediation), and (c) any
other reasonable need of Sellers to consult such books and records. Following the second
anniversary of the Closing Date up to and including the seventh anniversary of the Closing Date,
prior to the destruction of any records of the Company relating to Taxes for any period or portion
thereof ending on or before the Closing Date, Buyer will notify Sellers of its intent to destroy
such records and afford Sellers the opportunity, at Sellers’ expense and to the extent reasonably
necessary, to take possession of such records.

     7.3 Public Announcements. None of the parties hereto will issue any press release or
make any similar public announcement relating to the subject matter of this Agreement prior to
Closing except as may be required by applicable law, in which case the party proposing to issue
such press release or make such public announcement will consult in good faith with the other
parties before issuing any such press release or making any such public announcement.

     7.4 Expenses. Except as otherwise provided herein, Sellers and Buyer will each pay
all of their own legal, accounting, investment banking and other fees, costs and expenses incurred
by each such party in connection with this Agreement, the Related Agreements and the Transaction,
including but not limited to their fees relating to the any filings pursuant to the H-S-R Act. In
addition, Sellers will pay all accounting, consulting, brokers’ or finders’ fees, investment
banking, or other fees, expenses or charges incurred by any of the Companies in connection with the
negotiation, preparation, execution or performance of the Restructuring, this Agreement, the
Related Agreements and the Transaction.

     7.5 Cooperation in the Defense of Claims. If and for so long as any party to this
Agreement is actively contesting or defending against any action, suit, proceeding, hearing,
investigation, charge, complaint, claim or demand in connection with the Restructuring, the
Transaction or any fact, situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act or transaction on or prior to the Closing Date
involving any of the Companies, each of the other parties to this Agreement will reasonably
cooperate with him, her or it and his, her or its counsel or insurers in the contest or defense,
make

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available their personnel and provide such testimony and access to their books and records as
may be reasonably necessary in connection with the contest or defense, all at the sole cost and
expense of the contesting or defending party unless the contesting or defending party is entitled
to indemnification therefor under Article IX or otherwise.

     7.6 Antitrust Filings. Within two business days following the date of this Agreement,
the Companies and Buyer will file with the FTC, the DOJ and all other applicable Governmental
Authorities pursuant to any antitrust or similar Laws relating to competition, including without
limitation the H-S-R Act, the notification and documentary material required in connection with the
acquisition of the Shares of the Companies by Buyer pursuant to this Agreement. Sellers will cause
the Companies to, and Buyer will promptly, file any additional information requested in connection
therewith as soon as practicable after receipt of a request for additional information. Buyer and
Sellers will use commercially reasonable efforts to satisfy all conditions, including obtaining
early termination of the applicable waiting periods, under any such Laws, including the H-S-R Act.
None of the parties hereto will extend any waiting period under the H-S-R except with the prior
consent of the other parties (which will not be unreasonably withheld or delayed). The parties
hereto will coordinate and cooperate with one another in exchanging such information and providing
such reasonable assistance as may be requested in connection with such filings. Pursuant to
Section 7.4, Sellers and Buyer will each pay all of their own fees relating to the any
filings pursuant to the H-S-R Act.

     7.7 Tax Matters.

          (a) Section 338(h)(10) Election.

     (i) At Buyer’s option, Individual will join with Buyer in making an election
under Section 338(h)(10) of the Code (and any corresponding election under state or
local law with respect to the purchase and sale of the Shares of any of the S Corps
hereunder (with respect to each S Corp, the “Section 338(h)(10) Election” and
collectively, the “Section 338(h)(10) Elections”)). Buyer will notify Individual in
writing of each Section 338(h)(10) Election within two months after the Closing.
With respect to each S Corp for which Buyer notifies Individual of its election to
make a Section 338(h)(10) Election, Buyer will prepare and provide to Individual an
IRS Form 8023, which Individual will then sign and return to Buyer within 30 days
after receiving notification from Buyer regarding each such Section 338(h)(10)
Election, and will take all other actions reasonably necessary to effect the Section
338(h)(10) Election, including without limitation that Individual will include any
income, gain, loss, deduction or other Tax item resulting from the Section
338(h)(10) Election on Individual’s Tax Return to the extent required by Law.

     (ii) Individual will cooperate with Buyer and use commercially reasonable
efforts to provide to Buyer such information and documentation as Buyer reasonably
requests to calculate the value of the Tax benefits to Buyer of making the Section
338(h)(10) Elections and the amount of additional Taxes that would be owed by
Individual and the S Corps as a result of making the Section 338(h)(10) Elections,
including without limitation information about the adjusted

47

 

tax basis in the Shares of the S Corps and the adjusted tax basis of the S
Corps’ assets.

     (iii) Whether or not a Section 338(h)(10) Election is made for any of the
Companies, Individual will prepare and file the final federal income Tax Return (and
any corresponding final state income Tax Returns) for each S Corp for its last
taxable year as an S corporation (collectively, with respect to each S Corp, the
“Final S Corp Income Tax Return”), and Individual will pay any Taxes shown as due on
each such Final S Corp Income Tax Return (including any Tax imposed on the S Corp
attributable to the making of the Section 338(h)(10) Election, including (A) any Tax
imposed under Section 1374 of the Code or any similar provision of state or local
Law and (B) any state or local Tax imposed on the S Corp’s gain such as the 1.5%
California corporate franchise Tax corporation (the “Section 338(h)(10) Tax”).
Individual will cause each such Final S Corp Income Tax Return to be prepared and
filed in accordance with applicable Law and consistent with past practices.
Individual will permit Buyer to review and comment on each such Final S Corp Income
Tax Return prior to filing. With respect to each S Corp for which a Section
338(h)(10) Election is made and no later than sixty (60) days prior to the due date
for filing its Final S Corp Income Tax Return, Individual will provide to Buyer a
draft schedule showing the amount of Section 338(h)(10) Taxes imposed on the S Corp
(computed in accordance with the allocations made on the Second Allocation
Schedule). During the thirty (30) calendar days following receipt by Buyer of such
draft schedule, Individual and Buyer will meet and confer and attempt in good faith
to agree upon the amount of the Section 338(h)(10) Tax due. If the parties cannot
agree, the disagreement will then be submitted, as promptly as practicable, to an
arbitrator pursuant to Section 10.8, whose decision as to such question or
questions in dispute will (1) be reached within fifteen (15) calendar days after
submission thereof, (2) be limited to choosing the position either of Individual or
Buyer with respect to each disagreement, and (3) be final and binding upon
Individual and Buyer. The fees of the accounting arbitrator will be borne by
Individual, on the one hand, and Buyer on the other hand, in such amount(s) as
determined by the arbitrator pursuant to Section 10.8. Buyer will reimburse
Individual for the amount of such Taxes within 10 days of the payment of such Taxes
made with the filing of the Final S Corp Income Tax Returns.

     (iv) Buyer will pay or cause to be paid to Individual, in cash, the amount of
additional consideration necessary to cause the after-Tax net proceeds that Seller
Holdco realizes from the sale of the CalPly Shares (treating Taxes incurred by
Individual as a result of such sales as though such Taxes were incurred by Seller
Holdco for purposes of calculating such after-Tax net proceeds to Seller Holdco) to
be equal to the after-Tax net proceeds that Individual would have received had
Individual not transferred the CalPly Shares to Seller Holdco pursuant to the
Restructuring and, instead, sold the CalPly Shares directly to Buyer without making
a Section 338(h)(10) Election for CalPly (the “CalPly Tax Adjustment”);
provided, however, in no event will the CalPly Tax Adjustment be a
negative number. In calculating the CalPly Tax Adjustment, there will be taken

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into account only the effects upon Individual of realizing items of income,
gain, deduction, loss and expense arising out of the deemed sale of assets under
Treas. Reg. § 1.1361-5(b) resulting from the sale by Seller Holdco of the CalPly
Shares, as compared to the effects upon Individual of realizing gain from the direct
sale of CalPly Shares to Buyer without having transferred the CalPly Shares to
Seller Holdco pursuant to the Restructuring (including without limitation
realization of income, gain, deduction or loss or change in character thereof). For
avoidance of doubt, in each case the calculations made pursuant to the immediately
preceding sentence will be made disregarding any deduction, expense or loss realized
by Seller Holdco or CalPly to the extent attributable to amounts paid or payable
pursuant to Section 1.5.

     (v) If a Section 338(h)(10) Election is made with respect to any S Corp, Buyer
and each of the S Corps, jointly and severally, will pay or cause to be paid to
Individual, in cash, the amount of additional consideration necessary to cause the
after-Tax net proceeds that Individual realizes from the sale of the Company Shares
for all S Corps for which a Section 338(h)(10) Election is made to be equal to the
after-Tax net proceeds that Individual would have received had no Section 338(h)(10)
Election been made for any of such S Corps (the “S Corp Tax Adjustment”);
provided, however, in no event will the S Corp Tax Adjustment be a
negative number. In calculating the S Corp Tax Adjustment, there will be taken into
account only the effects upon Individual of realizing items of income, gain,
deduction, loss and expense arising out of the hypothetical sale of assets and
liquidation resulting from the all the Section 338(h)(10) Elections, as compared to
the effects upon Individual of realizing gain from a sale of Company Shares of the S
Corps for which a Section 338(h)(10) Election is made without such Section
338(h)(10) Election (including without limitation realization of income, gain,
deduction or loss or change in character thereof).

     (vi) No later than April 10, 2008, Buyer and each of the Companies, jointly and
severally, will pay or cause to be paid to Individual by wire transfer of
immediately available funds the full amount the CalPly Tax Adjustment and the S Corp
Tax Adjustment (collectively, the “Tax Adjustment”); provided,
however, if a dispute regarding the amount of the Tax Adjustment is pending
on April 10, 2008, then Buyer and each of the Companies, jointly and severally, will
pay or cause to be paid to Individual by wire transfer of immediately available
funds (i) the undisputed portion of the Tax Adjustment no later than April 10, 2008
and (ii) any remainder of the Tax Adjustment within five days after resolution of
any such dispute. The Tax Adjustment will be increased if required due to any final
“determination” (as defined in Section 1313(a) of the Code and any corresponding
provision of state or local Law), and the obligations of Buyer and each of the
Companies to pay the Tax Adjustment will survive until the expiration of all
applicable statutes of limitation with respect to Individual and each S Corp for
which a Section 338(h)(10) Election is made for all taxable years during which
either Closing occurs or any portion of the Purchase Price or the Tax Adjustment is
paid or payable. Within thirty (30) days after all Allocation Schedules have become
final pursuant to Section 7.7(b), Individual will deliver to

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Buyer
a draft schedule computing the amount of the Tax Adjustment (as finally determined
pursuant hereto, the “Adjustment Schedule”). During the thirty (30) calendar days
following receipt by Buyer of such draft Tax Adjustment Schedule, Individual and
Buyer will meet and confer and attempt in good faith to agree upon and finalize the
Tax Adjustment Schedule. Within ten (10) calendar days after the expiration of such
30-day period, Individual will deliver to Buyer a further draft Tax Adjustment
Schedule with any revisions so agreed. Within ten (10) calendar days after receipt
of such further draft Tax Adjustment Schedule, Buyer will notify Individual whether
Buyer concurs or disagrees with such further draft Tax Adjustment Schedule and, if
applicable, Buyer’s disagreements. If such disagreements cannot be resolved between
Individual and Buyer within ten (10) calendar days after delivery of such notice by
Buyer to Individual, the disagreement will then be submitted, as promptly as
practicable, to an arbitrator pursuant to Section 10.8, whose decision as to
such question or questions in dispute will (1) be reached within fifteen (15)
calendar days after submission thereof, (2) be limited to choosing the position
either of Individual or Buyer with respect to each disagreement, and (3) be final
and binding upon Individual and Buyer. The fees of the accounting arbitrator will
be borne by Individual, on the one hand, and Buyer on the other hand, in such
amount(s) as determined by the arbitrator pursuant to Section 10.8.

     (b) Purchase Price Allocation. Set forth on Schedule 7.7(b) is an
allocation schedule showing the allocation of the Purchase Price among the Company Shares
for all the Companies (the “First Tax Allocation Schedule”). Within 90 days after the
Closing Date, Buyer will prepare and deliver to Individual, with respect to each S Corp for
which a Section 338(h)(10) Election is made (and with respect to CalPly), an allocation
schedule showing the allocation among the assets of each such S Corp (and CalPly) of the
portion of the Purchase Price (and separately showing any and all other capitalized costs)
allocated to that S Corp (and CalPly) under the applicable First Tax Allocation Schedule and
the liabilities of such S Corp (and CalPly) taken into account as part of the consideration
for the assets of such S Corp (and CalPly) in the hypothetical sale of assets pursuant to
Section 338(h)(10) of the Code (and under Treas. Reg. 1.1361-5(b) in a manner consistent
with Sections 338 and 1060 of the Code and the Treasury Regulations thereunder and other
applicable Law (as finalized pursuant hereto, the “Second Tax Allocation Schedule” and
together with the First Tax Allocation Schedule, the “Allocation Schedules”). Any amount
paid to Sellers out of Escrowed Funds will be allocated to good will and going concern value
of CalPly. The allocations set forth in the Second Tax Allocation Schedule will be binding
upon Sellers except to the extent (i) determined otherwise pursuant to a final determination
(as defined in Section 1313(a) of the Code or corresponding provisions of state or local
Law, as applicable) or (ii) Sellers receive a written opinion of a nationally recognized law
firm or accounting firm to the effect that compliance with the Second Tax Allocation
Schedule would subject Sellers to Tax penalties. Buyer and Sellers will report and file Tax
Returns (including IRS Form 8883) in all respects and for all purposes consistent with such
Allocation Schedules. Sellers and Buyer will use commercially reasonable efforts to provide
each other with such information and documentation as reasonably required to prepare any
Allocation Schedule. Neither Buyer nor Sellers will take any position (whether in audits,
Tax

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Returns or otherwise) that is inconsistent with such Allocation Schedules unless
required to do so by Law.

     (c) Information Reporting. On or before the Closing Date, Sellers will provide
Buyer with all information needed by Buyer to comply with the reporting provisions of new
Section 6043A of the Code and Buyer will timely prepare and file all reports required
thereunder consistent with such information provided by Sellers and the Allocation
Schedules.

     (d) Tax Returns. Buyer will prepare and file, or cause to be prepared and
filed, all Tax Returns (other than the Final S Corp Income Tax Returns and any other income
Tax Return for any S Corp for any taxable year or portion thereof ending on or before the
Closing Date, as to which the provisions of Section 7.7(a) apply) for each of the
Companies required to be filed ending after the Closing Date. In connection therewith,
Sellers will be responsible for and reimburse Buyer for any Taxes for which Sellers have
agreed to indemnify Buyer pursuant to Sections 9.2(a)(iv) and (v). In the
case of Tax Returns for periods starting before and ending after the Closing Date, Buyer
will provide Sellers with an opportunity to review and comment on such Tax Returns no less
than 15 days prior to the due date thereof and will make such revisions as may be reasonably
requested by Sellers. In addition to the Final S Corp Income Tax Returns and the other
income Tax Returns of the S Corps for any taxable year ending on or before the Closing Date,
Sellers will prepare and file, or cause to be prepared and filed, all Tax Returns required
to be filed by each of the Companies on or before the Closing Date.

     (e) Cooperation on Tax Matters. Buyer, the Companies and Sellers will
cooperate fully, to the extent reasonably requested by another party, in connection with the
filing of Tax Returns and any audit, litigation or other proceeding with respect to Taxes.
Such cooperation will include (i) the retention and (upon the other party’s request) the
provision of records and information reasonably relevant to any such audit, litigation or
other proceeding, (ii) making employees available on a mutually convenient basis to provide
additional information and explanation of any material provided hereunder, (iii) furnishing
the other with copies of all correspondence received from any Taxing authority in connection
with any Tax audit or information request relating to Taxes for which either of the parties
is entitled to Indemnification, and (iv) in the case of any federal, state, county, local or
foreign Tax audit claim or assessment relating to any payroll withholding Tax liability
asserted against any of the Companies, promptly seeking abatement of liability pursuant to
Section 3402(d) of the Code (and, in that connection, requesting each affected employee to
provide an affidavit or other proof that the relevant compensation was included in taxable
income and any applicable Taxes thereon were paid), making filings required for adjustments
without interest pursuant to Section 6205(a)(1) of the Code, and taking appropriate action
under similar provisions of state or local law. Sellers, on the one hand, and Buyer and the
Companies, on the other hand, will (i) retain all books and records with respect to Tax
matters pertinent to the Companies relating to any Taxable period beginning before the
Closing Date until expiration of the statute of limitations (and, to the extent notified by
Buyer or Sellers, any extensions thereof) of the respective Taxable periods, and to abide by
all record retention agreements entered into with any Taxing authority, and (ii) give the
other party

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reasonable written notice prior to transferring, destroying or discarding any such
books and records and, if such other party so requests, the party giving such notice will
allow the other party to take possession of such books and records.

     (f) Tax Sharing Agreements. Any Tax sharing agreements or similar agreements
with respect to or involving the Companies and any Person other than the Companies will be
terminated as of the Closing Date and, after the Closing Date, the Companies will not be
bound thereby or have any Liability thereunder.

     (g) Proceedings. Notwithstanding any other provision of this Agreement or the
Escrow Agreement, whenever any Taxing authority asserts a claim, makes an assessment or
otherwise disputes the amount of Taxes for which Buyer is entitled to indemnification under
this Agreement or for which Sellers are otherwise responsible, Buyer will promptly inform
Sellers, and Sellers will have the right to control any resulting administrative and
judicial proceedings or determinations and to determine whether and when to settle any such
claim, assessment or dispute to the extent such proceedings or determinations affect the
amount of Taxes for which Buyer is entitled to indemnification under this Agreement or for
which Sellers are otherwise responsible. Whenever any Taxing authority asserts a claim,
makes an assessment or otherwise disputes the amount of Taxes for which Sellers are entitled
to indemnification under this Agreement or for which Buyer is otherwise responsible, Buyer
will have the right to control any resulting administrative and judicial proceedings and to
determine whether and when to settle any such claim, assessment or dispute to the extent
such proceedings or determinations affect the amount of Taxes for which Sellers are entitled
to indemnification under this Agreement or for which Buyer is otherwise responsible.

     (h) Transfer Taxes. Notwithstanding any other provision of this Agreement to
the contrary, Sellers will be liable for, and will timely pay, any and all gains, transfer,
sales, use, bulk sales, recording, registration, documentary, stamp and other Taxes that may
result solely from the transfer of Shares of the Companies to Buyer hereunder (other than
any such Taxes that are payable as a result of making a Section 338(h)(10) Election).

     (i) Refunds. Except to the extent any such refund was reflected as an asset on
the Financial Statements as of Closing, all refunds of Taxes for any taxable period or
portion thereof ending on or before the Closing Date (other than Taxes that Buyer is
responsible to pay under this Agreement) will belong to Sellers, and any such refund
received by or credited to Buyer will be promptly paid by Buyer to Sellers.

     (j) Timing Adjustments. If (i) a Section 338(h)(10) Election is not made with
respect to a Company (and in any event to the extent relevant with respect to California
corporate franchise tax) and (ii) the Tax liability of any of the Companies and/or Sellers
for a taxable period or portion thereof ending on or before the Closing Date is increased or
decreased because of the correction of the timing of an item of income, deduction, or
credit, which when corrected produces a Tax benefit or detriment available to Buyer, any of
the Companies or a successor to any of the Companies after the Closing Date, Buyer will pay
to Sellers, or Sellers will pay to Buyer, as the case may be, from time to time, without
duplication, upon receipt, payment, or application of all or any portion of such

52

 

Tax benefit or detriment or portion thereof by Buyer, any of the Companies or any
successor of any of the Companies, an amount equal to such Tax benefit or detriment or
portion thereof received, paid or applied.

     (k) S Election/Qsub Election. Prior to Closing and pursuant to the
Restructuring, Sellers will file a “protective” S election for Seller Holdco and a qualified
subchapter S subsidiary election for CalPly, which (with the transfer by Seller Trust of the
CalPly Shares to Seller Holdco) Sellers will treat for Tax purposes as a reorganization
under Section 368(a)(1)(F) of the Code so that Seller Holdco will be treated as a
continuation of CalPly and CalPly’s original S election will be treated as never having
terminated. To the extent not received from the IRS prior to the Closing Date, Sellers will
promptly provide Buyer with a copy of the IRS acknowledgment of such elections following
their receipt from the IRS.

     (l) E Foam S Election Relief. Prior to Closing, Sellers will file an
application for relief under Rev. Proc. 2003-43, 2003-1 C.B. 998, so that E Foam will be a
validly electing S corporation as of the Closing Date.

     (m) Section 453A Reimbursement. Buyer will reimburse Sellers for interest
paid by Sellers under Section 453A(c) of the Code, up to $275,000, resulting from a portion
of the Purchase Price being held in an escrow account (as specified in Section
1.2(b)(ii)). Within ten days of Sellers providing proof of payment of such interest,
Buyer will pay or cause to be paid to Sellers, in cash, the amount of such interest paid, up
to a total of $275,000. Proof of payment may be made by Sellers providing to Buyer a
certification to Buyer of such payment by a certified public accountant on behalf of
Sellers.

     7.8 Drilling; Environmental Investigations. For a period of five years following the
Closing Date, Buyer will not, and will cause the Companies not to, and will not allow any Person
acting on Buyer’s or the Companies’ behalf to (a) drill or bore on or through the surface of any
Leased Real Property or (b) conduct any environmental testing or sampling at any Leased Real
Property, in each case without either (i) a valid business reason for such activity or (ii)
Sellers’ consent (which will not be unreasonably withheld or delayed). The parties acknowledge and
agree that any such activity the primary purpose of which is to create an opportunity to make a
claim for indemnification under Article IX hereto, or any other activity that cannot reasonably be
justified absent Sellers’ obligations under Article IX hereof, will not be deemed to have a valid
business reason.

     7.9 Executive Bonus. Buyer will cause the Companies to pay Individual any
employment-based bonus earned by Individual with respect to the fiscal year ending March 31, 2007,
and, in the event the Closing Date occurs after March 31, 2007, with respect to the period between
March 31, 2007 and the Closing Date, all in accordance with the terms and conditions of the
Executive Bonus Agreement of event date herewith between Individual and CalPly.

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ARTICLE VIII. TERMINATION

     8.1 Termination. This Agreement and the Transaction may be terminated at any time
prior to the Closing:

     (a) Mutual Consent. By mutual written consent of Sellers and Buyer;

     (b) Closing Date. By Sellers or Buyer if the Closing has not occurred on or
before 90 days from the date of this Agreement (the “Termination Date”) (other than on
account of the failure of the party seeking to terminate this Agreement to comply with his,
or its (or, in the case of Sellers, any Company’s) obligations under this Agreement);

     (c) Seller Misrepresentation or Breach. By Buyer, if there has been a breach
by any of the Companies or by Sellers of any representations, warranties, covenants,
obligations or agreements of any of the Companies or Sellers set forth in this Agreement or
in any writing delivered pursuant hereto by any of the Companies or any Seller (“Pre-Closing
Breach”) which failure to comply, if it is capable of being cured, has not been cured within
ten (10) days following receipt by Individual of notice of such failure to comply and such
Pre-Closing Breach would reasonably be expected to result in a Seller Material Adverse
Change;

     (d) Buyer Misrepresentation or Breach. By Sellers, if there has been a breach
by Buyer of any of its representations, warranties, covenants, obligations or agreements set
forth in this Agreement or in any writing delivered pursuant hereto by Buyer which failure
to comply, if it is capable of being cured, has not been cured within ten (10) days
following receipt by Buyer of notice of such failure to comply and such breach would
reasonably be expected to have a material adverse effect on Buyer’s ability to consummate
the Transaction in accordance with the terms of this Agreement;

     (e) Court Order. By Sellers or Buyer if consummation of the Transaction will
violate any non-appealable final order, decree or judgment of any court or Governmental
Authority having competent jurisdiction;

     (f) Seller Material Adverse Change. By Buyer, if since the date hereof there
has been a Seller Material Adverse Change or the occurrence of a condition or event which
would reasonably be expected to result in a Seller Material Adverse Change;

     (g) Buyer’s Conditions. By Buyer, if any condition precedent to Buyer’s
obligation to effect the Closing as set forth in Section 5.1 is not satisfied or
incapable of being satisfied (other than on account of the failure of Buyer to comply with
its obligations under this Agreement) and such condition is not waived, if waivable, by
Buyer on or prior to the Termination Date;

     (h) Sellers’ Conditions. By Sellers, if any condition precedent to Sellers’
obligation to effect the Closing as set forth in Section 5.2 is not satisfied or
incapable of being satisfied (other than on account of the failure of the Companies or any
Seller to comply with their respective obligations under this Agreement) and such condition
is not waived, if waivable, by Sellers on or prior to the Termination Date; and

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     (i) Acquisition Proposal. By Buyer if any Company or Seller has entered into
any agreement with respect to an Acquisition Proposal other than this Agreement.

     8.2 Effect of Termination. If this Agreement is terminated pursuant to Section
8.1, this Agreement will thereafter become void and have no further force and effect and all
further obligations of the Companies, Sellers and Buyer under this Agreement will terminate without
further liability of the Companies, Sellers and Buyer, and no party will be entitled to any
monetary damages or injunctive relief (including specific performance) as a result of such
termination, or any indemnification under Article IX, except that (a) the obligations of the
Companies, Sellers and Buyer under Section 7.4 and under the Confidentiality Agreement (as
hereafter defined) relating to the Restructuring and the Transaction will survive such termination
and (b) in no event will any termination of this Agreement limit or restrict the rights and
remedies of any party hereto against any other party which has willfully or recklessly breached any
of the agreements or other provisions of this Agreement prior to termination thereof.
Notwithstanding the foregoing, nothing set forth in this Section 8.2 will be deemed to
modify, affect or diminish any party’s right to terminate this Agreement pursuant to Section
8.1.

ARTICLE IX. INDEMNIFICATION

     9.1 Indemnification by Buyer. Buyer will indemnify, defend and hold Sellers harmless
from and against any and all claims, actions, suits, demands, assessments, interest, penalties,
fines, judgments, losses, liabilities (including strict liabilities), damages, costs and expenses
(including without limitation reasonable attorneys’ fees to the extent permitted by Law, advisors’
and consultants’ fees and expenses, accounting fees, and defense and investigation costs) and of
any settlement, of whatever kind or nature, contingent or otherwise, matured or not matured,
foreseeable or unforeseeable (collectively, “Damages”) that may be incurred by Sellers arising out
of or relating to any breach of any (a) representation or warranty set forth in Article IV or (b)
covenant, obligation or agreement of Buyer contained herein.

     9.2 Indemnification by Sellers.

     (a) Except with respect to any Environmental Liabilities arising out of, or relating
to, Environmental Conditions, with respect to which Section 9.2(b) will govern,
Sellers will jointly and severally indemnify, defend and hold Buyer and the Companies
harmless from and against any and all Damages incurred by Buyer or any of the Companies
arising out of, or relating to:

     (i) any breach of any representation or warranty contained in Sections
3.1 or 3.3;

     (ii) any breach of any covenant, obligation or agreement of any of the
Companies or any Seller contained herein;

     (iii) any litigation, action, suit, proceeding, claim or demand against any of
the Companies or Buyer, whether pending or threatened, arising out of events
occurring on or before the Closing Date that is brought or asserted by any Person
who was, at any time prior to the Closing Date, a holder or purported holder of
securities, including equity securities, or membership or other interests,

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in any of the Companies, with respect to such holder or purported holder’s
rights as a holder of equity securities, membership interests or other similar
equity interests;

     (iv) all Taxes, whether imposed by assessment, withholding or otherwise, (A)
subject to the obligations of Buyer and the Companies under Section 7.7,
that are imposed on any Seller as a result of the Transaction, (B) that any Seller
is required to pay pursuant to Section 7.7(h) of this Agreement, or (C) that
are imposed on any Seller, any of the Companies or their Affiliates or beneficiaries
solely as a result of the Restructuring;

     (v) all Taxes of any of the Companies payable for any Taxable year or Taxable
period ending on or before the Closing Date and the portion through the end of the
Closing Date for any Taxable year or period that includes (but does not end on) the
Closing Date, but only to the extent such Taxes exceed the amount of Taxes that have
been reserved therefor on the Balance Sheets (but not including any Taxes imposed on
any of the Companies as a result of any Section 338(h)(10) Election);

     (vi) the failure of any Seller to sign a Section 338(h)(10) Election;

     (vii) the invalidity of a Section 338(h)(10) Election due to failure of a
Company to qualify as a validly electing S corporation within the meaning of
Sections 1361 and 1362 of the Code as of the Closing Date;

     (viii) the failure of the sale of the CalPly Shares to be treated as an asset
sale under Treas. Reg. § 1.1361-5(b) due to (A) a failure of Seller Holdco to
qualify as a validly electing S corporation within the meaning of Sections 1361 and
1362 of the Code as of the Closing Date or (B) a failure of CalPly to be treated as
a qualified subchapter S subsidiary within the meaning of Section 1361(b)(3)(B) of
the Code as of the Closing Date;

     (ix) the failure of the transfer by Seller Trust of the CalPly Shares to Seller
Holdco pursuant to the Restructuring (along with the election by CalPly to be
treated as a qualified subchapter S subsidiary within the meaning of Section
1361(b)(3)(B) of the Code) to qualify as a reorganization within the meaning of
Section 368(a)(1)(F);

     (x) any claims by any Affiliate of any Seller against any of the Companies or
their respective directors and officers arising out of or relating to events,
circumstances, acts or omissions occurring prior to the Closing; and

     (xi) any litigation, action, suit, proceeding, claim or demand by any employee
or former employee in respect of any success, severance, stay or similar bonus paid
or payable as a result of the Transaction.

     For purposes of Section 9.2(a)(v), with respect to any period that includes but
does not end on the Closing Date, (A) liability for any Taxes determined by reference to

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income, capital gains, gross income, gross receipts, sales, net profits, windfall
profits or similar items or resulting from a transfer of assets will be allocated between
the part of the period ending on or before the Closing Date and the part of the period
thereafter based on a closing of the books as of the end of the Closing Date; and (B)
liability for all other Taxes will be allocated between the part of the period ending on or
before the Closing Date and the part of the period thereafter, pro rata based on the number
of days in the Taxable period; provided, however, that no part of any Taxes
described in this clause (B) will be allocated to the part of the period ending on or before
the Closing Date to the extent attributable to any asset acquired after the Closing Date.

     (b) Environmental Liabilities Indemnification by Sellers.

     (i) Subject to the remaining provisions of this Section 9.2(b) and
notwithstanding any notification by Sellers to Buyer or any of the Companies prior
to the Closing, or any prior knowledge of Buyer or any of the Companies, Sellers
will jointly and severally indemnify, defend and hold Buyer and the Companies
harmless from and against any and all (A) Environmental Liabilities and (B) Damages
incurred by Buyer or any of the Companies arising out of, or relating to, any breach
of any representation or warranty contained in Section 3.2.

     (ii) Notwithstanding the foregoing, Sellers will have no obligation to
indemnify, defend or hold harmless Buyer or the Companies from or against any
Environmental Liability to the extent such Environmental Liability (A) has been
caused by any negligence, recklessness or willful misconduct of Buyer or,
post-Closing, any of the Companies; provided, however, that any
construction, erection, removal, repair, maintenance, demolition, alteration,
modification or relocation of the Leased Real Property, the other assets of the
Companies or the Business will not be considered “acts, negligent omissions,
negligence, recklessness or willful misconduct” under this Section
9.2(b)(ii) if such activities are performed (other than at the request of Buyer)
or required to be performed by the owner of the facility (if other than Buyer),
Sellers (or any Affiliate of any Seller) or any Former Shareholder, (B) arises out
of, or relates to, any Environmental Condition at a Leased Real Property that is not
the subject of a Related Party Lease that does not arise out of, or relate to, the
operations of the Companies at such Leased Real Property on or prior to the Closing
Date or (C) has been discovered or identified as a result of a breach of Section
7.8.

     (iii) From and after the Closing, as long as Sellers have an obligation to
indemnify Buyer pursuant to this Section 9.2(b) and provided that the
Litigation Conditions (as hereinafter defined) are satisfied, Sellers will control
all Remedial Action and negotiations with any Governmental Authority in respect of
all Environmental Conditions. Any such Remedial Actions with respect to which
Sellers will have an indemnification obligation hereunder (a “Covered Remedial
Action”) will be performed in a commercially reasonable manner, including, to the
extent allowed or authorized by applicable Environmental Law or the Governmental
Authority with jurisdiction over a Covered Remedial Action, the use of applicable
numeric or narrative standards to which Hazardous Materials in,

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on or around land must be remediated as established pursuant to Environmental
Laws by the Governmental Authority with jurisdiction over such land. Sellers will
select consultants and contractors to implement such Covered Remedial Action (not
reasonably objected to by Buyer). Sellers, their consultants and their contractors
will be allowed, during normal business hours and upon Buyer’s consent (which will
not be unreasonably withheld or delayed), to implement such Covered Remedial Action
and to the extent such use would not unreasonably interfere with Buyer’s or the
Companies’ business, use, at Sellers’ cost and during normal business hours and upon
Buyer’s consent (which will not be unreasonably withheld or delayed), any systems,
equipment or utilities at such location reasonably necessary to conduct any Covered
Remedial Action, including but not limited to any systems, equipment and utilities
reasonably necessary for the proper or effective operation of any remedial system
(including the sanitary sewer system and those systems necessary for the supply of
gas, water, compressed air and electricity). Buyer will provide Sellers and their
environmental consultants, if any, with copies of all non-privileged Environmental
Reports, analytical data, correspondence, directives, orders and documents submitted
to or received by Buyer or any of the Companies from any Governmental Authority in
connection with the Covered Remedial Action, and other non-privileged documents
created or received by or on behalf of Buyer or any of the Companies in connection
with the Covered Remedial Action.

     (iv) Buyer will inform Sellers promptly in writing of any Environmental
Condition or Environmental Claim in respect of which Sellers may have an
indemnification obligation under this Section 9.2(b), and Sellers will
inform Buyer promptly in writing upon being served with any summons, citation,
subpoena, complaint, indictment, information, notice of violation or other document
relating to any Environmental Condition or Remedial Action with respect to the
Facilities, whether civil, criminal or investigative; provided,
however, that the failure of a party to give such notice will not adversely
affect the party’s rights under this Agreement except to the extent (if any) that
the party who is not promptly informed will have been materially prejudiced as a
result of such failure.

     9.3 Certain Limitations on Claims for Indemnification.

     (a) Time Limitations.

     (i) The right of Buyer to indemnification under Section 9.2 will apply
only to those claims for indemnification which are given pursuant to this Agreement
on or before the respective dates set forth below:

     (A) Any claim for indemnification under Section 9.2(a)(i)
relating to any breach of the representations and warranties set forth in
Sections 3.1(x) or 3.3 (to the extent any such
representation and warranty set forth in Section 3.3 relates to
compliance with the Code), or any claim for indemnification under
Sections 9.2(a)(iv), (v), (vi), (vii),
(viii) or (ix)

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will be made on or before 90 days after the expiration of the
applicable statute of limitations (and any extensions thereof) applicable to
any claim arising in connection with any breach of any such representations
and warranties or the subject of such indemnity.

     (B) No time limit will apply to any right to indemnification under
Section 9.2(a)(i) relating to any breach of any representation or
warranty contained in Sections 3.1(a), (b) or (c),
subsections (i), (ii) or part (A) of (iii) of
Section 3.1(e) or Section 3.1(k)(ii) (each such section or
subsection, as the case may be, an “Unlimited Section” and collectively, the
“Unlimited Sections”), Section 9.2(a)(iii), Section
9.2(a)(viii) or Section 9.2(a)(ix).

     (C) Any claim for indemnification under Section 9.2(a)(i)
relating to any breach of any representation or warranty set forth in
any subsection of Sections 3.1 or 3.3 (or portion thereof)
not referred to elsewhere in this Section 9.3(a)(i) or under
Section 9.2(a)(ii) will be made on or before the date that is 18
months following the Closing Date.

     (D) Any claim for indemnification under Section 9.2(b) will be
made on or before the fifth anniversary of the Closing Date.

     (ii) Any claims for indemnification under Section 9.1 for any breach of
any representation or warranty set forth in Article IV will be made on or before
the date that is 18 months following the Closing Date.

     (iii) Notwithstanding the foregoing, if a claim for indemnification under
Sections 9.1 or 9.2 is made in a timely manner, the subsequent
expiration of the survival period, if any, of the corresponding representation or
warranty or right of indemnification will not affect the rights and obligations of
the indemnified and indemnifying parties thereunder with respect to such claim.

     (b) Maximum and De minimis Amounts.

     (i) The maximum aggregate amount of indemnification which can be required of
Sellers:

     (A) under Section 9.2(a)(i) relating to any breach of any
representation or warranty contained in the Unlimited Sections or
Section 3.1(f) (with respect to the Statement of Net Debt),
Section 9.2(a)(iii), Section 9.2(a)(x) and Section
9.2(a)(xi) will not exceed an amount equal to the Purchase Price;

     (B) under Section 9.2(a)(i) relating to any breach of any
representation or warranty set forth in any section other than the Unlimited
Sections will not exceed $28,000,000; and

59

 

     (C) under Section 9.2(b) will not exceed $36,000,000;
provided, however, that after the date that is 18 months
following the Closing Date such limit will be reduced to an amount equal to
(1) $28,000,000 plus (2) the total monetary amount of any claim for which
Buyer has sought indemnification from Sellers pursuant to Section
9.2(b) prior to such date.

     (ii) Sellers will not be required to indemnify, defend or hold Buyer or the
Companies harmless from and against any Damages under Section 9.2(b) or
Section 9.2(a)(i) with respect to any breach of any representation or
warranty (other than a breach of any representation and warranty contained in an
Unlimited Section or, with respect to Section 3.1(f) as it pertains to the
Statement of Net Debt), unless and until the aggregate amount of all such Damages
equals $2,800,000 (the “Threshold Amount”), in which event Sellers will be obligated
to indemnify Buyer and the Companies, and Buyer and the Companies may assert their
right to indemnification hereunder to the extent such Damages exceed the Threshold
Amount. For purposes of calculating the amount of Damages incurred by a party
seeking indemnification hereunder arising out of or resulting from, but not for
purposes of determining whether there has occurred, any breach of a representation,
covenant or agreement contained herein, references to an “Seller Material Adverse
Change” or materiality (or other correlative terms) will be disregarded.

     (c) Exception to Limitations. Notwithstanding anything in this Section
9.3, the limitations set forth in Sections 9.3(a) and (b) will not apply
with respect to any fraud or willful or intentional misrepresentation.

     (d) Payment of Damages. If an amount is payable to Buyer pursuant to this
Article IX, such amount will, (i) first, to the extent of available funds, be paid to Buyer
by the Escrow Agent from the Escrowed Funds and, to the extent that the Escrowed Funds are
insufficient, (ii) second, be paid to Buyer directly by Sellers in cash, by cashier’s or
certified check or by wire transfer of immediately available funds to an account designated
by Buyer.

     (e) Calculation of Damages. The amount of any Damages for which
indemnification is provided to any party pursuant to this Article IX will be calculated
giving effect to (net of) (i) any amounts actually recovered by the indemnified party with
respect to such Damages under any insurance policies of the Companies (and, with respect to
claims for indemnification made by Buyer, Buyer agrees to use commercially reasonable
efforts to inquire as to whether any such insurance policies provide coverage for the claim
at issue and, if so, to use commercially reasonable efforts to seek recovery thereunder) or
from any third-party; (ii) any amounts specifically accrued or reserved for as a current
liability or as a deduction from a current asset on the Balance Sheets with respect to such
Damages; and (iii) the amount of any Tax benefits actually received (net of any Tax
detriment suffered) by the indemnified party or its Affiliates (each a “Loss Reduction
Amount”). If the amount of any Damages incurred by an indemnified party at any time
subsequent to the making of a payment by an indemnifying party pursuant to

60

 

this Article IX is reduced by a Loss Reduction Amount, the amount of such Loss
Reduction Amount (less any costs, expenses or premiums incurred in connection therewith)
will promptly be repaid by the indemnified party to the indemnifying party. Sellers hereby
waive any and every claim for recovery from Buyer for any and all Damages which Buyer
recovers as a Loss Reduction Amount. Sellers agree that the waiver hereunder will preclude
the assignment of any such claim by subrogation (or otherwise) to an insurance company (or
any other Person).

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

61

 

purposes of satisfying jurisdictional requirements) to participate in the defense of such
action on its behalf, at the expense of the indemnifying party, to the extent such expenses are
reasonable; and provided further, however, that the indemnifying party will
forfeit the right to control the defense or settlement of any such claim if, at any time after
assuming the defense or settlement thereof, the indemnifying party no longer satisfies the
Litigation Conditions. If the indemnifying party elects not to compromise or defend the Third
Party Claim, fails to notify the indemnified party of its election as herein provided, or fails to
satisfy the Litigation Conditions, the indemnified party may pay, compromise or defend such Third
Party Claim; and provided further, however, that the indemnifying party
will not settle or compromise any Third Party Claim without the indemnified party’s prior written
consent, unless (i) the terms of such settlement or compromise release the indemnified party from
any and all liability with respect to the Third Party Claim, (ii) the indemnifying party will have
available assets (giving effect to the aggregate amount of Escrowed Funds then available)
sufficient to cover the full amount of any judgment or settlement award payable in connection with
such Third Party Claim, and (iii) the indemnifying party will have acknowledged its obligations to
indemnify the indemnified party with respect to such Third Party Claim in accordance with this
Article IX. The indemnified party will be entitled (at the indemnified party’s expense) to
participate in the defense of any Third Party Claim with its own counsel. The parties agree to
cooperate fully with each other and their respective counsel in the defense against any Third Party
Claim. Notwithstanding any other provision of this Section 9.4, if Seller is the
indemnifying party with respect to a Third Party Claim and such Third Party Claim relates to any
actual or alleged Environmental Liability involving Hazardous Material not referred to in
Section 9.2(b)(iii), the indemnified party has the option to either (x) allow Seller to
defend the Third Party Claim pursuant to the terms and conditions of the preceding sentence with
counsel reasonably acceptable to the indemnified party or (y) defend such Third Party Claim,
provided that all legal fees and costs of the indemnified party’s attorneys in connection with the
defense will be paid by such indemnified party and Sellers will not be obligated to indemnify Buyer
with respect to such fees and costs. In the event Sellers and Buyer subsequently agree, in their
reasonable discretion, to the addition of an insurer to cover some or all of the potential
liabilities hereunder, the parties acknowledge that reasonable revisions to the provisions herein
related to defense of Third Party Claims may be necessary in order to accommodate the insurer.

     9.5 Adjustment to Purchase Price. Any payment under this Article IX will be treated
by the parties as an adjustment to the Purchase Price for Tax purposes to the extent permitted by
applicable Law.

     9.6 Exclusive Remedy. Except for any Damages arising out of, or relating to, any
breach of any representation or warranty contained in the Unlimited Sections or with respect to any
fraud or willful or intentional misrepresentation, after the Closing has occurred, the right to
indemnification under this Article IX will be the exclusive remedy of each party hereto in
connection with any breach by the other party of its representations, warranties, covenants or
agreements contained herein.

     9.7 No Special Damages. No party to this Agreement will have any liability for any
special, exemplary, punitive or consequential damages (including loss of profit or revenue)
suffered or incurred by any other party; except where a third party has claimed such damages.

62

 

ARTICLE X. MISCELLANEOUS

     10.1 Amendments and Waivers. Buyer and Sellers may, by mutual agreement, amend this
Agreement in any respect, and any party, as to such party, may (a) extend the time for the
performance of any of the obligations of the other party; (b) waive any inaccuracies in
representations and warranties by the other party; (c) waive compliance by the other party with any
of the covenants or agreements contained herein and performance of any obligations by the other
party; and (d) waive the fulfillment of any condition that is precedent to the performance by such
party of any of its obligations under this Agreement. To be effective, any such amendment or
waiver must be in writing and be signed by the party providing such waiver or extension, as the
case may be. Such waiver or failure to insist upon strict compliance with such obligation,
covenant, agreement or condition will not operate as a waiver of, or estoppel with respect to, any
subsequent or other failure. Whenever this Agreement requires or permits consent by or on behalf
of any party hereto, such consent will be given in writing in a manner consistent with the
requirements for a waiver of compliance as set forth in this Section 10.1.

     10.2 Entire Agreement. Reference is made to the Confidentiality Agreement dated
August 17, 2004 (the “Confidentiality Agreement”) between Buyer, CalPly and USG Corporation. This
Agreement, together with the exhibits and Schedules referred to herein, sets forth the entire
understanding of the parties hereto with respect to the subject matter hereof and supersedes all
prior contracts, agreements, arrangements, communications, discussions, representations and
warranties, whether oral or written, between the parties with respect to the subject matter hereof
other than the Confidentiality Agreement.

     10.3 Governing Law. This Agreement, the Related Agreements, and all other agreements,
documents and instruments delivered pursuant hereto incorporated herein, unless otherwise expressly
provided therein, will be governed by, and construed in accordance with, the substantive laws of
the State of Delaware applicable to agreements made and to be performed entirely within such state,
without reference to the conflicts of laws rules of such state.

     10.4 Notices. Any notice, request or other communication required or permitted
hereunder will be in writing and will be deemed to have been duly given (a) when received if
personally delivered, (b) within five days after being sent by registered or certified mail, return
receipt requested, postage prepaid, (c) within twelve hours after being sent by facsimile, with
confirmed answer back, and (d) within one business day of being sent by established overnight
courier, to the parties (and to the persons to whom copies will be sent) at their respective
addresses set forth below.

63

 

If to Buyer or, after the Closing, any of the Companies:

USG Corporation

Legal Department

125 South Franklin Street

Chicago, Illinois 60606

Attention: Ellis A. Regenbogen, Esq., Associate General Counsel

Telephone: (312) 606-5978

Facsimile: (312) 606-4150

With a copy to:

Jones Day

77 W. Wacker Drive

Suite 3500

Chicago, Illinois 60601

Attention: Timothy J. Melton

Facsimile: (312) 782-8585

If to Sellers, or before the Closing, the Companies:

Joseph G. Zucchero

c/o California Wholesale Material Supply, Inc.

Telephone: (562) 433-2613

Facsimile: (562) 438-9263

With a copy to:

Sheppard, Mullin, Richter & Hampton LLP

333 South Hope Street

Forty-Eighth Floor

Los Angeles, California 90071

Attention: Lawrence M. Braun, Esq.

Telephone: (213) 617-4184

Facsimile: (213) 443-2814

and

Allen Ralston, Esq.

P.O. Box 92467

Long Beach, California 90809-2467

Telephone: (562) 494-4104

Facsimile: (562) 597-9527

64

 

Any party by notice given to the other party in accordance with this Section 10.4 may
change the address or the persons to whom notices or copies thereof will be directed.

     10.5 Counterparts. This Agreement may be executed in any number of counterparts (any
of which may be delivered by facsimile or email transmission followed promptly by an executed
original), each of which will be deemed to be an original, and all of which together will
constitute one and the same instrument.

     10.6 Assignment; Affiliates. This Agreement, including without limitation Section
9.2, will be binding upon and inure to the benefit of the successors, heirs, beneficiaries,
representatives and assigns of each party hereto, including without limitation the beneficiaries of
any trust which is a party hereto, but no rights, obligations or liabilities hereunder will be
assignable by any party without the prior written consent of the other party except as provided in
Section 1.4.

     10.7 Specific Performance. Each of the parties acknowledges and agrees that the other
parties would be damaged irreparably in the event any of the provisions of this Agreement are not
performed in accordance with their specific terms or otherwise are breached. Accordingly, each of
the parties agrees that the other parties will be entitled to an injunction or injunctions to
prevent breaches of the provisions of this Agreement and to enforce specifically this Agreement and
the terms and provisions hereof in an arbitration instituted pursuant to Section 10.8.

     10.8 Arbitration.

     (a) Each party hereto, for itself and its successors and assigns, agrees that any
dispute between the parties hereto with respect to any matter covered by or arising out of
this Agreement will be submitted to binding arbitration, before one arbitrator and
administered by the American Arbitration Association in accordance with its Commercial
Arbitration Rules (this “AAA Rules”), to occur in Los Angeles, California. Each party, for
itself and its successors and assigns, irrevocably waives any objection it may have now or
hereafter to binding arbitration under the AAA Rules to occur in Los Angeles, California.
Each party agrees not to commence any action, suit or proceeding relating hereto in any
venue other than arbitration.

     (b) Each party is required to notify the other parties and the Escrow Agent, in
writing, of any dispute. Notice of a dispute for which the party intends to initiate
arbitration will be made by registered or certified mail, postage prepaid, to each party at
its address set forth in Section 10.4 or at such other address of which the other
parties have been notified in accordance with the provisions of Section 10.4.
Within ten days after receipt of a notice of a dispute for which the party intends to
initiate arbitration, Buyer and Sellers will designate in writing one arbitrator to resolve
the dispute; provided, that if Buyer and Sellers cannot agree on an arbitrator
within such ten-day period, the party that provided written notice of the dispute will file
a demand for arbitration with the American Arbitration Association and the arbitrator will
be selected by the American Arbitration Association. The arbitrator so designated will not
be an employee, consultant, officer, director or equity holder of any party hereto or any
Affiliate of any party to this Agreement.

65

 

     (c) The parties will participate in the arbitration in good faith. Each such party
will have the right to be represented by counsel. The arbitration will be governed by the
AAA Rules; provided, that the final arbitration decision is to be rendered as
promptly as practicable but in any event no later than 180 days after first referral to the
arbitrator, and the arbitrator will agree to comply with this schedule before accepting
appointment; provided further, however, that this time limit may be
extended by agreement of the parties and by the arbitrator, if necessary.

     (d) The arbitrator’s decision and award will be made and delivered in writing to each
party and the Escrow Agent and will set forth a reasoned basis for the decision, including
any award of damages or finding of liability. The decision and award of the arbitrator will
be binding and conclusive upon all parties hereto.

     (e) The prevailing party in any arbitration will be entitled to an award of reasonable
attorneys’ fees incurred in connection with the arbitration, and the non-prevailing party
will pay such fees. The non-prevailing party will also be responsible for the payment or
reimbursement of the fees of the arbitrator and the costs and expenses of the arbitration.
The arbitrator will determine which is the prevailing party for purposes of this Section
10.8(e). The arbitrator will also determine the amount of “reasonable attorney’s fees”
to be awarded to the prevailing party.

     (f) Any arbitration award entered pursuant to this Section 10.8 will be binding
and the parties waive any appellate review of the arbitration award absent manifest error.
Judgment upon the award by the arbitrator may be entered in any court having jurisdiction
thereof.

     10.9 Third Parties. Except as provided in Section 1.4, nothing expressed or
implied in this Agreement is intended, or will be construed, to confer upon or give any Person
other than Buyer, Sellers and the Companies any rights or remedies under or by reason of this
Agreement.

     10.10 Headings. The headings in this Agreement are solely for convenience of
reference and will not be given any effect in the construction or interpretation of this Agreement.

     10.11 Gender and Number. The masculine, feminine or neutered gender and the singular
or plural number will each be deemed to include the others whenever the context so indicates.

     10.12 Construction. Buyer and Sellers have participated jointly in the negotiation
and drafting of this Agreement and the Related Agreements. In the event any ambiguity or question
of intent or interpretation arises, this Agreement and the Related Agreements will be construed as
if drafted jointly by Buyer and Sellers, and no presumption or burden of proof will arise favoring
or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement or
the Related Agreements. Any reference to any federal, state, local or foreign statute or law will
be deemed also to refer to all rules and regulations promulgated thereunder, unless the context
requires otherwise. The words “included,” “includes,” or “including” (or any other tense or
variation of the word “include”) in this Agreement will be deemed to be followed by the words
“without limitation.” When reference is made in this Agreement to an Article or

66

 

Section or Schedule, such reference will be to an Article or Section or Schedule of this
Agreement unless otherwise indicated. All accounting terms used but not otherwise defined in this
Agreement will have the meanings determined by GAAP. The words “hereof,” “herein” and “hereunder”
and words of similar import when used in this Agreement will refer to this Agreement as a whole and
not to any particular provision of this Agreement. The definitions contained in this Agreement are
applicable to the singular as well as to the plural forms of such terms and to the masculine as
well as to the feminine and neuter genders of such term. Any agreement, instrument or statute
defined or referred to herein or in any document or instrument that is referred to herein means
such agreement, instrument or statute as from time to time amended, modified or supplemented,
including (in the case of agreements or instruments) by waiver or consent and (in the case of
statutes) by succession of comparable successor statutes.

     10.13 Exhibits and Disclosure Schedules. All exhibits and schedules, including the
Disclosure Schedule, annexed hereto or referred to herein are hereby incorporated in and made a
part of this Agreement as if set forth in full herein. Nothing in the Disclosure Schedule will be
deemed adequate to disclose an exception to a representation or warranty made herein unless the
Disclosure Schedule identifies the exception with reasonable particularity. Without limiting the
generality of the foregoing, the mere listing (or inclusion of a copy) of a document or other item
will not be deemed adequate to disclose an exception to a representation or warranty made herein
(unless the representation or warranty has to do with the existence of the document or other item
itself). Any information disclosed in a particular Schedule will not be deemed disclosed and
incorporated into any other Schedule of the Disclosure Schedule except to the extent the
applicability of the disclosure to such other Schedule is reasonably inferable from the disclosure
made. Except to the extent set forth in the Disclosure Schedule, neither the specification of any
dollar amount in any representation or warranty contained in this Agreement nor the inclusion of
any specific item in any Schedule hereto is intended to vary the definition of “Seller Material
Adverse Change” or to imply that such amount, or higher or lower amounts, or the item so included
or other items, are or are not material, and no party will use the fact, in and of itself, of the
setting forth of any such amount or the inclusion of any such item in any dispute or controversy
between the parties as to whether any obligation, item or matter not described herein or included
in the Disclosure Schedule is or is not material for purposes of this Agreement; provided that
nothing herein is intended to modify any determination with respect to (a) whether a
representation, warranty or covenant in which such amount is set forth has been breached or
defaulted upon or (b) one party’s rights including rights to terminate or obtain indemnification as
a result of such breach or default. Unless this Agreement specifically provides otherwise, except
to the extent set forth in the Disclosure Schedule, neither the specification of any item or matter
in any representation or warranty contained in this Agreement nor the inclusion of any specific
item in the Disclosure Schedule hereto is intended to imply that such item or matter, or other
items or matters, are or are not in the ordinary course of business, and no party will use the
fact, in and of itself, of the setting forth or the inclusion of any such item or matter in any
dispute or controversy between the parties as to whether any obligation, item or matter not
described herein or included in the Disclosure Schedule is or is not in the ordinary course of
business for purposes of this Agreement.

     10.14 Conflict of Interest. If any Seller so desires, and without the need for any
consent or waiver by the Companies or Buyer, SMRH will be permitted to represent such Seller after
the Closing in connection with any matter, including without limitation anything related to the

67

 

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

[Signatures on next page]

68

 

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

	 	 	 	 	 	 	 	 	 
	Buyer:	 	Individual:
	 
	 	 	 	 	 	 	 	 
	L&W SUPPLY CORPORATION	 	 	 	 
	 	 	 	 	 	 	/s/ Joseph George Zucchero

	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Name:
	 	Joseph George Zucchero
	By:	 	/s/ Brendan J. Deely
	 	 	 	 
	 	 	 	 	 	 	 
	 

	 	Name:
	 	Brendan J. Deely	 	 	 	 
	 

	 	Title:
	 	President and Chief Operating Officer	 	 	 	 
	 	 	 	 	 	 	Seller Holdco:
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	JCSG HOLDINGS CORPORATION
	 
	 	 	 	 	 	 	 	 
	By:	 	/s/ John W. Cain
	 	By:	 	/s/ Joseph George Zucchero
	 	 	 	 	 	 	 
	 

	 	Name:
	 	John W. Cain
	 	 	 	Name:
	 

	 	Title:
	 	Executive Vice President,
	 	 	 	Title:
	 

	 	 	 	Business Development, Strategy
and Corporate Relations	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Seller Trust:
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	THE JOSEPH G. ZUCCHERO FAMILY TRUST
DATED SEPTEMBER 12, 1988
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	By:
	 	/s/ Joseph George Zucchero
	 

	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	Joseph George Zucchero, Trustee
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	By:
	 	/s/ Karen S. Zucchero
	 

	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	Karen S. Zucchero, Trustee

 

 

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Companies:
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	CALIFORNIA WHOLESALE MATERIAL SUPPLY,
INC.
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	By:
	 	/s/ Joseph George Zucchero
	 

	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	Name:
	 

	 	 	 	 	 	 	 	Title:
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	STOCKDALE MATERIALS CO., INC.
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	By:
	 	/s/ Joseph George Zucchero
	 

	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	Name:
	 

	 	 	 	 	 	 	 	Title:
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	SOUTHWEST INSTALL AND REWORK, INC.
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	By:
	 	/s/ Joseph George Zucchero
	 

	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	Name:
	 

	 	 	 	 	 	 	 	Title:
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	E FOAM CORP.
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	By:
	 	/s/ Joseph George Zucchero
	 

	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	Name:
	 

	 	 	 	 	 	 	 	Title:
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	DISTRIBUIDORA CALPLY DE MEXICO, S.A
DE C.V.
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	By:
	 	/s/ Joseph George Zucchero
	 

	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	Name:
	 

	 	 	 	 	 	 	 	Title:

 

 

EXHIBITS

	 	 	 
	Exhibit A-1

	 	Companies
	Exhibit A-2

	 	Pre-Restructuring Capitalization
	Exhibit A-3

	 	Restructuring
	Exhibit A-4

	 	Post-Restructuring Capitalization
	Exhibit B

	 	Foam Agreement
	Exhibit C

	 	Stockdale Agreement
	Exhibit D

	 	Form of Escrow Agreement
	Exhibit E

	 	Accounting Principles
	Exhibit F-1

	 	Change of Control Agreement
	Exhibit F-2

	 	Individuals Receiving Change of Control Agreements
	Exhibit G

	 	Form of Opinion of SMRH
	Exhibit H-1

	 	Form of Noncompetition Agreement (Individual)
	Exhibit H-2

	 	Form of Noncompetition Agreement
	Exhibit H-3

	 	Form of Consulting Agreement
	Exhibit H-4

	 	Form of Retention Agreement
	Exhibit I-1

	 	Form of New Lease Agreement
	Exhibit I-2

	 	New Lease Agreement Terms
	Exhibit J

	 	Form of Spousal Consent
	Exhibit K

	 	Form of Waiver
	Exhibit L

	 	Seller’s Knowledge
	Exhibit M

	 	Form of Retention Incentive Bonus Agreementexv10w1

 

EXHIBIT 10.1

FAMOUS DAVE’S OF AMERICA, INC.

FORM OF

PERFORMANCE SHARE AGREEMENT

(2007-2009 Awards)

PERFORMANCE
SHARE AGREEMENT (the “Agreement”) made effective as of
February 21, 2007 by and
between Famous Dave’s of America, Inc., a Minnesota corporation, having a place of business at
12701 Whitewater Drive, Suite 200, Minnetonka, MN 55343 (the “Company”), and ___________________________
(“Employee”).

WITNESSETH:

WHEREAS,
the Company has adopted the Famous Dave’s of America, Inc. [1997 Employee Stock Option Plan][2005 Stock Incentive Plan] (the “Plan”) to
increase shareholder value and to advance the interests of the Company by furnishing a variety of
economic incentives designed to attract, retain and motivate employees; and

WHEREAS, the Compensation Committee of the Board of Directors of the Company (the “Committee”)
believes that entering into this Agreement with Employee is consistent with the stated purposes for
which the Plan was adopted.

NOW, THEREFORE, it is agreed as follows:

	1.	 	Grant of Stock.

Subject to the terms and provisions of this Agreement and the Plan, the Company hereby
grants to Employee an award to be paid in shares of the Company’s common stock, $.01 par value
per share (the “Performance Shares”), on the Vesting Date identified in Exhibit A attached
hereto. The number of Performance Shares granted pursuant to this award is set forth in Exhibit
A and issuance by the Company of such Performance Shares (i) is contingent upon the Company
achieving the performance objectives set forth in Exhibit A; and (ii) is subject to the other
terms and conditions and contingencies set forth in such Exhibit and in the Plan.

	2.	 	Rights of Employee.

Employee shall not have any of the rights of a shareholder with respect to the Performance
Shares except to the extent that such Performance Shares are issued to Employee in accordance
with the terms and conditions of this Agreement and the Plan.

	3.	 	The Plan.

The Performance Share award is granted pursuant to the Plan (including without limitation
Section [9 for the 1997 Employee Stock Option
Plan][6 — for the 2005 Stock Incentive Plan ]thereof) and is governed by the terms thereof,
which are incorporated herein by reference. In the event of any conflict or inconsistency
between the provisions of this Agreement and those of the Plan, the provisions of the Plan shall
govern and control.

	4.	 	Administration.

This Agreement shall at all times be subject to the terms and conditions of the Plan. The
Committee shall have the sole and complete discretion with respect to all matters reserved to it
by the Plan and decisions of the Committee with respect thereto and to this Agreement shall be
final and binding upon Employee. In the event of any conflict between the terms and conditions
of this Agreement and the Plan, the provisions of the Plan shall govern and control.

 

 

	5.	 	Continuation of Employment or Right to Corporate Assets.

Nothing contained in this Agreement shall be deemed to grant Employee any right to continue in
the employ of the Company for any period of time or to any right to continue his or her present
or any other rate of compensation, nor shall this Agreement be construed as giving Employee,
Employee’s beneficiaries or any other person any equity or interests of any kind in the assets
of the Company or creating a trust of any kind or a fiduciary relationship of any kind between
the Company and any such person.

	6.	 	Further Assurances.

Each party hereto agrees to execute such further papers, agreements, assignments or
documents of title as may be necessary or desirable to affect the purposes of this Agreement and
carry out its provisions.

	7.	 	Governing Law.

This Agreement, in its interpretation and effect, shall be governed by the laws of the State of
Minnesota applicable to contracts executed and to be performed therein.

	8.	 	Entire Agreement; Amendments.

This Agreement and the Plan embody the entire agreement made between the parties hereto with
respect to the matters covered herein and shall not be modified except by a writing signed by
the party to be charged.

	9.	 	Counterparts.

This Agreement may be executed in any number of counterparts, each of which shall be deemed an
original, but all of which shall constitute but one and the same agreement.

IN WITNESS WHEREOF, the Company has caused this Agreement to be executed as of the date first
written above.

	 	 	 	 	 	 	 
	 	 	 	FAMOUS DAVE’S OF AMERICA, INC.

 	 
	 	 	 	By:  	 	 
	 	 	 	 	Name:  	 	 
	 	 	 	 	Title:  	 	 
	 
	 	 
	 	 , Employee	 

2

 

	 	 	 	 	 

Exhibit A

to
Performance Share Agreement

(2007 - 2009 Awards)

Additional Terms and Conditions of Performance Shares

	 	 	 	 	 
	 	 	 	 	Total No. of Shares
	 	 	Target Shares*	 	Underlying Grant**
	Number of Performance Shares subject to the Agreement:
	 	 	 	 

 

			
	*	 	Assumes the Company achieves 100% of the Cumulative EPS Goal (as defined below).
	 
	**	 	Assumes the Company achieves 150% of the Cumulative EPS Goal (as defined below).

	•	 	Grants of Performance Shares are contingent upon:

	 	(i)	 	Employee remaining an employee of the Company during all periods prior to the
“Vesting Date” (as defined below); and
	 
	 	(ii)	 	the Company achieving at least the applicable percentage of the cumulative
total of the earnings per share goals (as discussed below) for each
of fiscal 2007,
fiscal 2008 and fiscal 2009 (the “Cumulative EPS Goal”).
	 
	 		 	Employee shall be entitled to receive the percentage of the “Target Shares” amount
set forth above based on the percentage of the Cumulative EPS Goal achieved by the
Company, as set forth on the following schedule:

	 	 	 
	Percentage of	 	Percent of Performance Shares
	Cumulative EPS Goal	 	to which Participant is Entitled
	If the Company fails to
achieve at least 80% of the
Cumulative EPS Goal, then:

	 	Employee shall not be entitled to receive
Performance Shares pursuant to this
Agreement.
	 
	 	 
	If the Company achieves
80-100% of the Cumulative EPS
Goal, then:

	 	Employee shall be entitled to receive a
percentage of the “Target Shares” amount
equal to the percentage of the Cumulative
EPS Goal achieved (e.g., if the Company
achieves 90% of the Cumulative EPS Goal,
then Employee is entitled to receive 90%
of his or her “Target Shares” amount).
	 
	 	 
	If the Company achieves
100-150% of the Cumulative EPS
Goal, then:

	 	Employee shall be entitled to receive 100%
of his or her “Target Shares” amount, plus
an additional percentage of such “Target
Shares” amount equal to twice the
incremental percentage increase in the
Cumulative EPS Goal achieved over 100%
(e.g., if the Company achieves 120% of the
Cumulative EPS Goal, then Employee is
entitled to receive 140% of his or her
“Target Share” amount).

3

 

	 	 	 	 	 
	EPS Performance	 	LTI Payout	 
	80.0%
	 	 	80.0	%
	85.0%
	 	 	85.0	%
	90.0%
	 	 	90.0	%
	95.0%
	 	 	95.0	%
	100.0%
	 	 	100.0	%
	102.5%
	 	 	105.0	%
	105.0%
	 	 	110.0	%
	107.5%
	 	 	115.0	%
	110.0%
	 	 	120.0	%
	112.5%
	 	 	125.0	%
	115.0%
	 	 	130.0	%
	117.5%
	 	 	135.0	%
	120.0%
	 	 	140.0	%
	122.5%
	 	 	145.0	%
	125.0%
	 	 	150.0	%
	127.5%
	 	 	155.0	%
	130.0%
	 	 	160.0	%
	132.5%
	 	 	165.0	%
	135.0%
	 	 	170.0	%
	137.5%
	 	 	175.0	%
	140.0%
	 	 	180.0	%
	142.5%
	 	 	185.0	%
	145.0%
	 	 	190.0	%
	147.5%
	 	 	195.0	%
	150.0%
	 	 	200.0	%

            If these conditions are satisfied, the Company shall issue the Performance Shares
to Employee as soon as reasonably practicable following the Vesting Date (as defined
below).

	•	 	The earnings per share goal for each fiscal year will be
determined by the Committee during the 1st fiscal
quarter of the applicable fiscal year, or earlier, as determined
by the Committee. Following the Committee’s determination of the
earnings per share goal for each fiscal year subject to the
Agreement, the Company shall deliver written notice of such
earnings per share goal to Employee (unless Employee is no longer
of an employee of the Company) and Exhibit B to the Agreement
shall be updated to reflect such earnings per share goal.
	 
	•	 	The actual earnings per share for each fiscal year shall be based
on the fully diluted earnings per share amount for such fiscal
year that is set forth in the audited financial statements filed
with the Company’s corresponding Annual Report on Form 10-K. The
determination regarding whether the Company has achieved the
cumulative total of the earnings per share goals for fiscal 2007,
fiscal 2008 and fiscal 2009 will be made upon filing of the Annual
Report on Form 10-K for fiscal 2009 (the “Vesting Date”).
Performance Shares will be issued, as provided above, if at least
80% of the Cumulative EPS Goal is achieved. No partial issuance
of Performance Shares shall be made if an earnings per share goal
is achieved in any one or more fiscal years but at least 80% of
the Cumulative EPS Goal is not achieved.

4

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