Document:

EX-10.3

 

Exhibit 10.3

AGREEMENT AND PLAN OF MERGER

BY AND AMONG

CARLTON-BATES COMPANY

AND

THE SIGNIFICANT SHAREHOLDERS LISTED ON THE SIGNATURE PAGES

HEREOF

AND

THE COMPANY REPRESENTATIVE

AND

WESCO DISTRIBUTION, INC.

AND

C-B WESCO, INC.

AUGUST 16, 2005

 

 

TABLE OF CONTENTS

	 	 	 	 	 	 	 
	ARTICLE I DEFINITIONS	 	 	5	 
	1.1
	 	Defined Terms	 	 	5	 
	ARTICLE II THE MERGER; CLOSING BALANCE SHEET	 	 	13	 
	2.1
	 	The Merger	 	 	13	 
	2.2
	 	The Closing	 	 	14	 
	2.3
	 	Actions at Closing	 	 	14	 
	2.4
	 	Effect of Merger	 	 	14	 
	2.5
	 	Conversion of Stock; Procedure for Payment	 	 	14	 
	2.6
	 	Options; Stock Plans	 	 	16	 
	2.7
	 	Payments	 	 	17	 
	2.8
	 	Working Capital Adjustments	 	 	19	 
	ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY	 	 	22	 
	3.1
	 	Organization and Authority	 	 	22	 
	3.2
	 	Capitalization	 	 	22	 
	3.3
	 	Authority; Validity	 	 	22	 
	3.4
	 	No Violation	 	 	23	 
	3.5
	 	Governmental Party Consents	 	 	23	 
	3.6
	 	Financial Statements	 	 	23	 
	3.7
	 	Tax Matters	 	 	24	 
	3.8
	 	Absence of Certain Changes	 	 	24	 
	3.9
	 	Assets	 	 	25	 
	3.10
	 	Litigation	 	 	25	 
	3.11
	 	Compliance With Laws	 	 	25	 
	3.12
	 	Material Contracts and Commitments	 	 	26	 
	3.13
	 	Labor Matters	 	 	27	 
	3.14
	 	Employee Benefit Plans	 	 	28	 
	3.15
	 	Environmental Matters	 	 	29	 
	3.16
	 	Proprietary Rights	 	 	30	 
	3.17
	 	Property	 	 	30	 
	3.18
	 	Accounts Receivable	 	 	31	 
	3.19
	 	Inventories	 	 	31	 
	3.20
	 	Broker Fees	 	 	31	 
	3.21
	 	Books and Records	 	 	32	 
	3.22
	 	Insurance	 	 	32	 
	3.23
	 	Transactions with Affiliates	 	 	32	 
	3.24
	 	Operation in the Ordinary Course	 	 	32	 
	3.25
	 	Employees	 	 	32	 
	3.26
	 	Product or Service Liability	 	 	33	 
	3.27
	 	Product or Service Warranty	 	 	33	 
	3.28
	 	Disclosure	 	 	33	 
	3.29
	 	Limitation on Representations and Warranties	 	 	34	 
	ARTICLE III A REPRESENTATIONS AND WARRANTIES OF THE SIGNIFICANT SHAREHOLDERS	 	 	34	 
	3a.1
	 	Organization and Power	 	 	34	 
	3a.2
	 	Authorization; Valid and Binding Agreement	 	 	34	 

i

 

	 	 	 	 	 	 	 
	3a.3
	 	Noncontravention	 	 	34	 
	3a.4
	 	Ownership of Shares	 	 	35	 
	3a.5
	 	Transaction Fees	 	 	35	 
	3a.6
	 	Disclosure	 	 	35	 
	ARTICLE IIIB REPRESENTATION AND WARRANTY OF WAYNE PENROD	 	 	35	 
	ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB	 	 	35	 
	4.1
	 	Organization	 	 	35	 
	4.2
	 	No Violation	 	 	36	 
	4.3
	 	Authority; Validity	 	 	36	 
	4.4
	 	Governmental Consents	 	 	36	 
	4.5
	 	Investment/Operational Intent	 	 	36	 
	4.6
	 	Financial Condition	 	 	37	 
	ARTICLE V COVENANTS	 	 	37	 
	5.1
	 	Access to Information and Records	 	 	37	 
	5.2
	 	Conduct of Business Pending the Closing	 	 	37	 
	5.3
	 	HSR Act Filings	 	 	38	 
	5.4
	 	Consents	 	 	38	 
	5.5
	 	Publicity	 	 	39	 
	5.6
	 	Notification of Certain Matters; Supplemental Disclosure	 	 	39	 
	5.7
	 	Merger Sub Shareholder Approval	 	 	39	 
	5.8
	 	Indemnification of Directors and Officers	 	 	39	 
	5.9
	 	Company Representative	 	 	39	 
	5.10
	 	Retention of Records	 	 	41	 
	5.11
	 	Exclusive Dealing	 	 	42	 
	5.12
	 	Agreement to Vote for Merger	 	 	42	 
	5.13
	 	Employee Matters	 	 	42	 
	5.14
	 	Employment Agreements	 	 	42	 
	5.15
	 	Additional Non-Competition Agreements	 	 	43	 
	5.16
	 	Identified Environmental Remediation	 	 	43	 
	ARTICLE VI CONDITIONS PRECEDENT TO PARENT’S AND MERGER SUB’S OBLIGATIONS	 	 	43	 
	6.1
	 	Representations and Warranties True on the Closing Date	 	 	43	 
	6.2
	 	Compliance With Agreement	 	 	43	 
	6.3
	 	Absence of Litigation	 	 	43	 
	6.4
	 	Consents	 	 	43	 
	6.5
	 	HSR Act Waiting Period	 	 	44	 
	6.6
	 	No Material Adverse Change	 	 	44	 
	6.7
	 	Merger Filings	 	 	44	 
	6.8
	 	Dissenting Shares	 	 	44	 
	6.9
	 	Documents to be Delivered by the Company	 	 	44	 
	6.10
	 	Resignation of Officers and Directors	 	 	45	 
	6.11
	 	Affiliate Transactions	 	 	45	 
	6.12
	 	Non-Competition Agreements	 	 	45	 
	6.13
	 	Leased Real Property	 	 	45	 
	6.14
	 	Lien Releases and Termination of Financing	 	 	45	 

ii

 

	 	 	 	 	 	 	 
	6.15
	 	LADD Stock Earn Out	 	 	45	 
	6.16
	 	Termination of Options, etc	 	 	45	 
	6.17
	 	CGW Non-Solicitation Agreement	 	 	46	 
	6.18
	 	Employment Agreements	 	 	46	 
	ARTICLE VII CONDITIONS PRECEDENT TO THE COMPANY’S OBLIGATIONS	 	 	46	 
	7.1
	 	Representations and Warranties True on the Closing Date	 	 	46	 
	7.2
	 	Compliance With Agreement	 	 	46	 
	7.3
	 	Absence of Litigation	 	 	46	 
	7.4
	 	Consents and Approvals	 	 	46	 
	7.5
	 	HSR Act Waiting Period	 	 	46	 
	7.6
	 	Merger Filings	 	 	46	 
	7.7
	 	Documents to be Delivered by Parent and Merger Sub	 	 	46	 
	7.8
	 	Merger Price	 	 	47	 
	ARTICLE VIII SURVIVAL; INDEMNIFICATION	 	 	47	 
	8.1
	 	Survival; Remedies for Breach	 	 	47	 
	8.2
	 	Indemnification By Certain Company
Securityholders and Significant Shareholders	 	 	48	 
	8.3
	 	Indemnification by Parent	 	 	49	 
	8.4
	 	Procedures for Indemnification	 	 	50	 
	8.5
	 	Procedures for Third Party Claims	 	 	51	 
	8.6
	 	Effect of Indemnification	 	 	52	 
	8.7
	 	Arbitration	 	 	52	 
	ARTICLE IX TERMINATION OF AGREEMENT	 	 	52	 
	9.1
	 	Causes	 	 	52	 
	9.2
	 	Effect of Termination	 	 	53	 
	ARTICLE X MISCELLANEOUS	 	 	53	 
	10.1
	 	Further Assurance	 	 	53	 
	10.2
	 	Assignment	 	 	53	 
	10.3
	 	Law Governing Agreement	 	 	53	 
	10.4
	 	Amendment and Modification	 	 	53	 
	10.5
	 	Notice	 	 	54	 
	10.6
	 	Expenses	 	 	55	 
	10.7
	 	Entire Agreement; Binding Effect; No Third Party Rights	 	 	56	 
	10.8
	 	Counterparts	 	 	56	 
	10.9
	 	Headings	 	 	56	 
	10.10
	 	Construction	 	 	56	 
	10.11
	 	Interpretations	 	 	56	 
	10.12
	 	Severability	 	 	56	 

iii

 

AGREEMENT AND PLAN OF MERGER

TABLE OF CONTENTS

(cont.)

Schedules

Disclosure Schedule

Exhibits

	 	 	 
	Exhibit A

	 	Articles of Merger
	Exhibit B

	 	Escrow Agreement
	Exhibit C-1

	 	Non-Solicitation Agreement
	Exhibit C-2

	 	Non-Competition Agreement
	Exhibit C-3

	 	CGW Non-Solicitation Agreement
	Exhibit D

	 	Legal Opinion of Alston & Bird LLP
	Exhibit E

	 	Legal Opinion of Friday, Eldridge & Clark LLP
	Exhibit F

	 	Option Cancellation Agreement

[Disclosure Schedule and Exhibits have been omitted and will be furnished upon request.]

iv

 

AGREEMENT AND PLAN OF MERGER

          THIS AGREEMENT AND PLAN OF MERGER is made as of August 16, 2005, by and among WESCO
DISTRIBUTION, INC., a Delaware corporation (“Parent”), C-B WESCO, INC., a Delaware
corporation (“Merger Sub”), and CARLTON-BATES COMPANY, an Arkansas corporation (the
“Company”), the Company Representative (as defined herein) and the shareholders and/or
optionholders of the Company listed on the signature pages hereof (the “Significant
Shareholders”). The Company and Merger Sub sometimes are referred to collectively herein as
the “Constituent Corporations.”

RECITALS

          A. The Company is engaged in the business of distributing electrical and electronic components
with a special emphasis on automation and electromechanical applications (the “Business”).

          B. Merger Sub is the indirect wholly-owned subsidiary of Parent.

          C. This Agreement contemplates a transaction in which Parent will acquire all of the
outstanding capital stock of the Company for cash through a reverse subsidiary merger of Merger Sub
with and into the Company, whereby all of the outstanding shares of capital stock of the Company
will be converted into the right to receive cash.

          NOW THEREFORE, in consideration of the Recitals and the respective representations,
warranties, covenants, agreements and conditions hereinafter set forth, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties,
intending to be legally bound hereby, do hereby agree as follows:

ARTICLE I

DEFINITIONS

     1.1 Defined Terms. As used in this Agreement, the terms below shall have the following
meanings. Any of such terms, unless the context otherwise requires, may be used in the singular or
plural, depending on the reference.

          “Actual Plan Termination Costs” means the actual costs associated with terminating the
Company’s employee benefit plans at or within 180 days after the Closing.

          “Actual Severance Costs” means the actual Severance Costs incurred or arising (i)
within one year of the Closing Date with respect to William Carlton, Steve Allen and John Wright,
and (ii) in order to comply with Section 5.13 hereof.

          “Adjustment Amount” shall mean $5,000,000, which is the portion of the Escrow Deposit
designated in the Escrow Agreement as a source of funds for any post-closing adjustment in favor of
the Surviving Corporation pursuant to Section 2.8 hereof.

          “Agreement” shall mean this Agreement and Plan of Merger, as the same shall be amended
from time to time in accordance with its terms.

5

 

          “Annual Financial Statements” shall mean the audited financial statements of the
Company consisting of the balance sheets of the Company as of September 30, 2004 and September 30,
2003, and the related statements of income, retained earnings and cash flows for the years then
ended, together with the auditor’s report thereon.

          “Articles of Merger” shall mean the Articles of Merger in substantially the form of
Exhibit A.

          “Business Day” shall mean any day on which national banks are open for business in the
city of Atlanta, Georgia.

          “Buying Group” shall mean, collectively, Parent, Merger Sub and, following the
Closing, the Company as the Surviving Corporation.

          “Claims Amount” shall mean $20,000,000, which is that portion of the Escrow Deposit
designated in the Escrow Agreement as a source of funds for payment of post-closing indemnification
claims made by the Surviving Corporation pursuant to Article VIII hereof, the then current amount
of which shall, on December 31, 2006, be reduced to the sum of $10,000,000, plus the maximum
potential amount of any such indemnification claims which have been made and not yet paid or
resolved on or before December 31, 2006, and the remaining amount of which (less the amount of any
such indemnification claims which have been made and not yet paid or resolved on or before March
31, 2008) shall be released on March 31, 2008, in each case in accordance with the provisions of
the Escrow Agreement; provided, however, that during the period after December 31, 2006 and prior
to March 31, 2008, any amounts above $10,000,000 with respect to pending claims shall be released
promptly after each such claim is finally resolved.

          “Closing” shall mean the conference to be held at 10:00 A.M. Eastern Time, on the
Closing Date at the offices of Alston & Bird LLP, 1201 W. Peachtree Street, Atlanta, Georgia
30309, or such other time and place as the parties may mutually agree to in writing, at which the
transactions contemplated by this Agreement shall be consummated.

          “Closing Amount” shall mean: (A) the Merger Price plus (B) the aggregate
amount of the applicable exercise price under all Options, plus (C) the Estimated Excess Cash
Amount, minus (D) the sum of the Escrow Deposit, the Transaction Expenses that remain
unpaid at Closing and the Indebtedness for Borrowed Money that remains unpaid at Closing,
minus (E) the Plan Stock Price multiplied by the number of shares of Common Stock held in the
Plan.

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

          “Common Stock” shall mean the 250,000 authorized shares of the Company’s Class A
Common Stock, $0.10 par value.

          “Common Stock Price” shall mean an amount equal to (A) the Closing Amount divided by
(B) the sum of the Shares Outstanding, minus the number of shares of Common Stock
held in the Plan, plus the aggregate number of shares of Common Stock issuable under
Options outstanding immediately prior to the Effective Time.

6

 

          “Company Employees” shall mean any individual employed by the Company.

          “Company Optionholder” shall mean any Person who holds in-the-money Options
immediately prior to the Effective Time.

          “Company Securityholder” shall mean a Company Shareholder or a Company Optionholder.

          “Company Shareholder” shall mean any Person who holds any Common Stock or Preferred
Stock immediately prior to the Effective Time.

          “Consent” means with respect to a given Person any approval, authorization, waiver
(including waiver of any right to terminate or otherwise adversely affect the rights of the Company
or the Subsidiaries under any contract to which the Company or any Subsidiary is a party on account
of the transactions contemplated hereby), consent, qualification or registration, or any waiver of
any of the foregoing, required to be obtained by such Person from, or any notice, statement or
other communication required to be filed by such Person with or delivered by such Person to, any
Governmental Authority or any other Person that is party to a contract.

          “Disclosure Schedule” shall mean the Disclosure Schedule, dated the date of this
Agreement, delivered by the Company and the Significant Shareholders to Parent and Merger Sub
contemporaneously with the execution and delivery of this Agreement.

          “Earn Out Shares” shall mean the 29,867.3 additional shares of Common Stock issuable
pursuant to the Stock Earn Out Agreement dated July 16, 2003 by and between the Company and LADD
Industries, Inc. (the “LADD Earn Out Agreement”).

          “Effective Time” shall mean the time and date when the Company and Merger Sub file the
Articles of Merger with the Secretary of State of the State of Delaware and with the Secretary of
State of the State of Arkansas.

          “Environmental Laws” shall mean all Laws in effect on or before the Closing Date
relating to pollution or protection of human health or the environment, including, without
limitation: (i) the Clean Water Act, 33 U.S.C. §§1251 et seq.; (ii) the Clean Air Act, 42 U.S.C.
§§7401 et seq.; (iii) the Solid Waste Disposal Act, as amended by the Resource Conservation and
Recovery Act, 42 U.S.C. §§6901 et seq.; (iv) the Emergency Planning and Community Right to Know
Act, 42 U.S.C. §§11001 et seq.; (v) the Hazardous Materials Transportation Act, 49 U.S.C. §§5101 et
seq.; (vi) the Comprehensive Environmental Response Compensation Liability Act, 42 U.S.C. §§9601 et
seq.; (vii) any state, county, municipal or local Laws similar or analogous to the federal statutes
listed in parts (i) – (vi) of this subparagraph; (viii) any amendments to the Laws listed in parts
(i) – (vii) of this subparagraph now in effect; (ix) any rules, regulations, directives, orders or
the like adopted pursuant to or implementing the Laws and amendments listed in parts (i) – (viii)
of this subparagraph; and (x) any other Law, directive, order or the like relating to
environmental, health or safety matters.

          “ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended.

7

 

          “ERISA Affiliate” means any Person who, together with the Company, is treated as a
single employer within the meaning of Section 414(b), (c), (m), or (o) of the Code or Section
4001(a)(14) of ERISA. Any ERISA Affiliates are listed on Section 1.1 of the Disclosure Schedule.

          “Escrow Agent” shall mean LaSalle Bank National Association.

          “Escrow Agreement” shall mean the Escrow Agreement among Parent, Company, as
predecessor to Surviving Corporation and the Company Representative on behalf of the Company
Shareholders in substantially the form of Exhibit B.

          “Escrow Deposit” shall mean an amount equal to $25,000,000 to be delivered to the
Escrow Agent pursuant to Section 2.7(a) of this Agreement.

          “Estimated Excess Cash Amount” shall mean the Excess Cash Amount as of the close of
business on the day that is three (3) Business Days prior to the Closing Date as estimated in good
faith by the Company, which estimate shall be delivered to Parent by the Company not later than the
close of business on the day that is two (2) Business Days prior to the Closing Date.

          “Estimated Plan Termination Costs” means the estimated costs associated with
terminating the Company’s employee benefit plans at or within 180 days after the Closing, which
estimate shall be mutually determined in good faith by Parent and the Company prior to the Closing.

          “Estimated Severance Costs” means the estimated Severance Costs that will be incurred
or arise (i) within one year of the Closing Date with respect to William Carlton, Steve Allen, and
John Wright, and (ii) in order to comply with Section 5.13 hereof, which estimate shall be mutually
determined in good faith by Parent and the Company prior to the Closing.

          “Excess Cash Amount” shall mean, as of any date on which it is determined, the
aggregate amount of cash and cash equivalents of the Company on hand or on deposit as of the close
of business on such date.

          “Financial Statements” shall mean the Annual Financial Statements and the Interim
Financial Statements, collectively.

          “GAAP” shall mean generally accepted accounting principles as employed in the United
States, applied consistently with prior periods and with the Company’s historical practices and
methods, provided that the Company’s historical practices and methods shall not be consistently
applied to the extent they are not in accordance with GAAP.

          “Governmental Authority” shall mean any federal, state, county, local, foreign or
other governmental authority or public agency, instrumentality, commission, authority, board or
body.

          “HSR Act” shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the rules and regulations promulgated thereunder.

8

 

          “Indemnified Party” shall mean any Party seeking indemnification under Article VIII of
this Agreement.

          “Indemnifying Party” shall mean the Party from whom the indemnification is sought
under Article VIII of this Agreement.

          “Intellectual Property” shall mean (i) trademarks, service marks, Internet domain
names, trade names and trade dress, and all goodwill related thereto, (ii) copyrights in any work
of authorship recognized by foreign or domestic Law, by statute or at common law or otherwise
(including but not limited to databases and computer software, in source code and object code
form), (iii) trade secrets and confidential information, and (iv) patents and patent applications.

          “Interim Financial Statements” shall mean the unaudited, interim monthly financial
statements consisting of the balance sheet of the Company as of June 30, 2005 and the related
statement of income and statement of cash flow for the nine month period ended June 30, 2005.

          “Investments” shall mean the Company’s minority equity interests held directly or
indirectly by the Company, all as described in Section 3.1 of the Disclosure Schedule.

          “Knowledge of the Company” or “Company’s Knowledge” or any similar phrase
shall mean (a) the actual knowledge of William P. Carlton, Steve W. Allen, R. Wayne Penrod, Richard
T. Farnsworth and W. Chris Wadsworth, as well as the knowledge such individuals should reasonably
be expected to have in the exercise in the ordinary course of business of their responsibilities as
officers of the Company, and (b) the actual knowledge of R. David Black, John D. Wright, Max L.
Andrews and J. Chris Mastin.

          “Law” shall mean any federal, state, local or other governmental law, codes,
ordinances, reporting or licensing requirements, statutes, rules or regulations of any kind, and
the rules and regulations promulgated thereunder.

          “Leased Real Property” shall mean any real property leased by the Company.

          “Lien” shall mean any lien, claim, mortgage, security interest, restriction, or other
encumbrance of any type or nature whatsoever, except (i) liens for Taxes not yet due or which are
being contested in good faith by appropriate proceedings as set forth in the Disclosure Schedule,
(ii) municipal and zoning ordinances and easements for public utilities, none of which interfere
with the use of the property as currently utilized, and (iii) minor defects in title, if any, that
do not detract from or impair the utility or value of the particular asset or property or its
saleability.

          “Losses” shall mean damages, liabilities, deficiencies, claims, actions, demands,
judgments, interest, losses, or costs or expenses of whatever kind including reasonable attorneys’
fees; provided, however, that “Losses” shall not include loss of profits, punitive damages or other
special or consequential damages and shall not be calculated by using
a multiple of earnings, book value or other similar measure that may have been used in arriving at or that
may be reflective of the Merger Price.

9

 

          “Material Adverse Effect” shall mean a change (including, without limitation, any
change in the relationship between the Company or any of its Subsidiaries and any significant
customer, supplier or other business relationship), event, violation, inaccuracy or circumstance
the effect of which is both material and adverse to the property, business, operations, assets
(tangible and intangible), or financial condition of the Company and its subsidiaries, taken as a
whole; provided, that, “Material Adverse Effect” shall not include changes in business or economic
conditions affecting the U.S. economy or the Company’s industry generally; changes in stock
markets, credit markets, Tax rates or new Taxes, interest rates, exchange rates or other matters
affecting the economy generally; the enactment or implementation of any new Law or the execution
and delivery of this Agreement (including any announcement relating to this Agreement or the fact
that the Buying Group is acquiring the Company).

          “Merger” shall mean the merger of Merger Sub with and into the Company described in
Article II of this Agreement.

          “Merger Price” shall mean the sum of $250,000,000 minus the Estimated Plan
Termination Costs and the Estimated Severance Costs (it being understood that such Merger Price is
a fixed amount and shall not be increased as a result of share issuances or conversions, option or
warrant exercises, or similar events).

          “Merger Sub Common Stock” shall mean the 1,000 authorized shares of Merger Sub’s
common stock, $0.01 par value.

          “Ordinary Course of Business” whether or not such phrase is capitalized, an action
taken by a Person will be deemed to have been taken in the Ordinary Course of Business only if that
action: (i) is consistent in nature, scope and magnitude with the past practices of such Person
and is taken in the ordinary course of the normal, day-to-day operations of such Person; and (ii)
does not require authorization by the board of directors or shareholders of such Person (or by any
Person or group or Persons exercising similar authority).

          “Party” shall mean the Company, Parent and Merger Sub, collectively, the “Parties”.

          “Per Share Escrow Amount” shall mean an amount equal to (A) the aggregate amount
distributed to the Company Representative pursuant to the terms of the Escrow Agreement divided by
(B) the sum of the Shares Outstanding, plus the aggregate number of shares issuable under Options
outstanding immediately prior to the Effective Time.

          “Per Share Working Capital Excess” shall mean an amount equal to: (A) the Adjustment
Excess, if any, plus that portion of the Adjustment Amount, if any, to be paid to the
Company Securityholders in accordance with Section 2.8 divided by (B) the sum of the Shares
Outstanding, plus the aggregate number of Shares issuable under Options outstanding immediately
prior to the Effective Time.

          “Permit” shall mean any Regulatory Authority approval, authorization, certificate,
easement, filing, franchise, license, notice, permit, or right to which any Person is a party or that

10

 

is or may be binding upon or inure to the benefit of any Person or its securities, assets or
business.

          “Person” shall mean a natural person, corporation, limited liability company, trust,
partnership, government entity, agency or branch or department thereof, or any other legal entity.

          “Plan of Merger” shall mean the Plan of Merger in substantially the form of
Exhibit A to the Articles of Merger.

          “Plan Stock Price” shall mean an amount equal to (A) the sum of the Merger Price
plus the aggregate amount of the applicable exercise price under all Options plus
the Estimated Excess Cash Amount minus (B) the sum of the Adjustment Amount, the Transaction
Expenses that remain unpaid at Closing and the Indebtedness for Borrowed Money that remains unpaid
at Closing divided by (C) the sum of the Shares Outstanding, plus the aggregate number of shares of
Common Stock issuable under Options outstanding immediately prior to the Effective Time.

          “Preferred Stock” shall mean the 250,000 authorized shares of the Company’s Preferred
Stock, $0.01 par value.

          “Regulatory Authority” shall mean any federal, state, county, local, foreign or other
governmental, public or regulatory agencies, authorities (including self-regulatory authorities),
instrumentalities, commissions, boards or bodies having jurisdiction over the Parties and their
respective subsidiaries.

          “Series A Preferred Stock” shall mean the 70,000 shares of Preferred Stock designated
as Series A Redeemable Convertible Preferred Stock.

          “Severance Costs” means all severance, change of control, retention or similar
payments (including, without limitation, the acceleration of the time of payment of or the vesting
or triggering of any payment or funding (through a grantor trust or otherwise) of compensation or
benefits (except with respect to the acceleration and/or payment with respect to the Options under
Section 2.6(b)), or the increase of the amount payable or the triggering of any other payment or
other obligation (including without limitation deferred compensation payments) under or pursuant to
any plan or arrangement providing for compensation or benefits) which any director, officer or
employee of the Company or any Subsidiary could be entitled to as a direct or indirect result of
the transactions contemplated hereby (either alone or together with any other event) whether
arising before or after the Closing or whether contingent on continued employment or not, in each
case only to the extent such payments are by their terms payable in cash or cash equivalents.

          “Shares Outstanding” shall mean the aggregate number of shares of Common Stock issued
and outstanding immediately prior to the Effective Time (including the Earn Out Shares to be issued
pursuant to Section 5.2(d) hereof) plus the aggregate number of shares of Common Stock issuable upon
conversion of the Series A Preferred Stock (including the accrued

11

 

pay-in-kind dividends on the Preferred Stock) outstanding immediately prior to the Effective Time.

          “Surviving Corporation” shall mean the Company as the survivor of the Merger.

          “Tax” or “Taxes” shall mean any federal, state, county, local, or foreign
taxes, charges, fees, levies, imposts, duties, or other assessments, including income, gross
receipts, excise, employment, sales, use, transfer, recording license, payroll, franchise,
severance, documentary, stamp, occupation, windfall profits, environmental, federal highway use,
commercial rent, customs duties, capital stock, paid-up capital, profits, withholding, Social
Security, single business and unemployment, disability, real property, personal property,
registration, ad valorem, value added, alternative or add-on minimum, estimated, or other tax or
governmental fee of any kind whatsoever, imposed or required to be withheld by the United States or
any state, county, local or foreign government or subdivision or agency thereof, including any
interest, penalties, and additions imposed thereon or with respect thereto, and including any
liability for Taxes of another Person pursuant to a contract, as a transferee or successor, under
Treasury Regulation Section 1.1502-6 or analogous state, local or foreign Law or otherwise.

          “Tax Return” shall mean any report, return, information return, or other information
required to be supplied to a Governmental Authority in connection with Taxes, including any return
of an affiliated or combined or unitary group that includes a party or its subsidiaries.

          “Third Party Claim” shall mean a legal proceeding, action, claim or demand instituted
by any third Person.

          “Transaction Expenses” shall mean the amount representing all fees and expenses
incurred by the Company in connection with the Merger, this Agreement and the transactions
contemplated by this Agreement, including the fees and expenses of counsel, investment bankers,
brokers, accountants and other experts, the amount payable to the Company Representative as
provided in Section 5.9(h), the portion of the fees with respect to filings under the HSR Act
payable by the Company as provided in Section 5.3, and one-half (1/2) of the fees of the Escrow
Agent under the Escrow Agreement. Transaction Expenses will be evidenced by invoices delivered to
the Company on or prior to the Closing Date. For the avoidance of doubt, Transaction Expenses
shall not include payroll taxes payable by the Company with respect to compensation attributable to
the exercise of Options.

          “Working Capital Amount” shall mean, as of any date of determination and without
giving effect to the transactions contemplated by this Agreement, the amount that is equal to the
difference between (x) the sum of the following current assets of the Company as of such date of
determination: trade accounts receivable, vendor accounts receivable, inventory, current deferred
income tax (excluding any current or deferred tax asset arising out of the payment for the Options
as provide in Section 2.6(b)), and other current assets (excluding fair market value of any
interest rate swaps) and (y) the sum of the following current liabilities of the Company as of such
date of determination: accounts payable (including outstanding checks not yet presented for payment),
current income tax liabilities, current deferred tax liabilities and

12

 

other current liabilities (excluding Transaction Expenses paid prior to or at Closing, the
current portion of long-term debt and accrued interest and excluding the liability for payment of
withholding and other payroll taxes relating to the payment for the Options as provided in Section
2.6(b), and any liability for transfer taxes pursuant to Section 2.8(d)). Any determination of
Working Capital Amount shall not give effect to the consummation of the transactions provided for
herein.

          “Other Terms” The following terms shall have the meaning set forth in the Sections of
this Agreement listed on the following table:

	 	 	 	 	 
	Term	 	Page	 
	ABCA
	 	 	14	 
	Actual Closing Date Working Capital
	 	 	 	 
	Amount
	 	 	20	 
	Adjustment Deficit
	 	 	21	 
	Adjustment Excess
	 	 	21	 
	Benefit Plans
	 	 	28	 
	Business
	 	 	5	 
	CERCLA
	 	 	7	 
	CGW
	 	 	43	 
	Closing Date
	 	 	14	 
	Closing Date Balance Sheet
	 	 	19	 
	Closing Date Excess Cash Amount
	 	 	19	 
	Closing Date Review
	 	 	19	 
	Closing Date Working Capital
	 	 	 	 
	Amount
	 	 	19	 
	Company
	 	 	5	 
	Company Representative
	 	 	40	 
	Constituent Corporations
	 	 	5	 
	Cut-Off Date
	 	 	47	 
	DGCL
	 	 	14	 
	Dissenting Shares
	 	 	15	 
	Environmental Permits
	 	 	29	 
	Final Excess Cash Amount
	 	 	20	 
	Firm
	 	 	20	 
	Identified Environmental Conditions
	 	 	43	 
	Indebtedness for Borrowed Money
	 	 	19	 
	LADD Earn Out Agreement
	 	 	7	 
	License
	 	 	27	 
	Material Contracts
	 	 	26	 
	Merger Sub
	 	 	5	 
	Negotiation Period
	 	 	50	 
	Objection Notice
	 	 	19	 
	Option
	 	 	16	 
	Parent
	 	 	5	 
	Per Share Merger Consideration
	 	 	15	 
	Plan
	 	 	14	 
	RCRA
	 	 	7	 
	Remediation Amount
	 	 	43	 
	Significant Shareholders
	 	 	5	 
	Stock Plan
	 	 	16	 
	Subsidiaries
	 	 	22	 
	Surviving Corporation Common
	 	 	 	 
	Stock
	 	 	15	 
	Threshold Amount
	 	 	49	 

ARTICLE II

THE MERGER; CLOSING BALANCE SHEET

     2.1 The Merger. This Agreement provides for the merger of Merger Sub with and into the
Company, whereby it is contemplated that each outstanding share of Merger Sub Common Stock will be
converted into one share of the Common Stock, and each outstanding share of the Common Stock and
the Preferred Stock will be converted into cash as provided in this Agreement. On and subject to
the terms and conditions of this Agreement, as of the Effective Time, Merger Sub will be merged
with and into the Company, which shall continue to be governed by the Laws of the State of
Arkansas, and the separate existence of Merger Sub shall thereupon cease. The Merger shall be
pursuant to the provisions of, and shall be with the

13

 

effect provided in, the Delaware General
Corporation Law (the “DGCL”) and the Arkansas Business Corporation Act (“ABCA”).

     2.2 The Closing. The Parties intend that the Closing shall take place on the later of (i)
the third Business Day following the satisfaction or waiver of all conditions to the obligations of
the Parties to consummate the transactions contemplated hereby (other than conditions with respect
to actions the Parties will take at the Closing itself) and September 30, 2005, or such other time
and date as the Parties may mutually determine (the “Closing Date”).

     2.3 Actions at Closing.

     At the Closing, (i) the Company will deliver to Parent and Merger Sub the various
certificates, instruments and documents referred to in Article VI of this Agreement, (ii) Parent
and Merger Sub will deliver to the Company the various certificates, instruments and documents
referred to in Article VII of this Agreement and (iii) the Articles of Merger shall be executed and
acknowledged by each of Merger Sub and the Company and the Articles of Merger filed with the
Secretary of State of the State of Arkansas and filed with the Secretary of State of the State of
Delaware.

     2.4 Effect of Merger.

          (a) General. The Merger shall become effective at the Effective Time. The Merger
shall have the effect set forth in the DGCL and the ABCA. At the Effective Time, the identity,
existence, rights, privileges, powers, franchises, properties and assets of the Company shall
continue unaffected and unimpaired by the Merger; the separate corporate existence of Merger Sub
shall cease and the Surviving Corporation shall become the owner, without transfer, of all rights
and property of the Constituent Corporations; and the Surviving Corporation shall be subject to all
of the debts and liabilities of the Constituent Corporations as if the Surviving Corporation had
itself incurred them. The Surviving Corporation may, at any time after the Effective Time, take
any action (including executing and delivering any document) in the name and on behalf of either
the Company or Merger Sub in order to carry out and effectuate the transactions contemplated by
this Agreement.

          (b) Articles of Incorporation; Bylaws. The Articles of Incorporation and the Bylaws
of the Company, as in effect immediately prior to the Effective Time, shall be the Articles of
Incorporation and the Bylaws of the Surviving Corporation until amended in accordance with their
respective terms and as provided by applicable Law.

          (c) Directors and Officers. The directors and officers of Merger Sub shall become the
directors and officers of the Surviving Corporation at and as of the Effective Time (retaining
their respective positions and terms of office).

     2.5 Conversion of Stock; Procedure for Payment.

          (a) Common Stock of the Company. As of the Effective Time, by virtue of the Merger
and without any action on the part of the holder of any Common Stock or Preferred Stock, the
Company or Merger Sub, (i) each share of Common Stock held by Carlton-Bates Company 401(k) and
Profit Sharing Plan (the “Plan”) that is issued and outstanding immediately
prior to the Effective Time shall be canceled and extinguished and converted into the right to
receive in cash an amount equal to (A) the Plan Stock Price plus (B) the Per Share Working

14

 

Capital Excess, if any, to be paid in accordance with Section 2.8 and (ii) all other shares of Common Stock
and Preferred Stock that are issued and outstanding immediately prior to the Effective Time
(including all Earn Out Shares issued pursuant to Section 5.2(d) hereof and all accrued pay-in-kind
dividends on the Preferred Stock, but other than (A) Dissenting Shares, and (B) those shares of
Common Stock and Preferred Stock to be canceled pursuant to Section 2.5(b)) shall be canceled and
extinguished and converted into the right to receive in cash an amount equal to (A) the Common
Stock Price, plus (B) subject to Article VIII, the right to receive the Per Share Escrow Amount, if
any, to be paid if and when released in accordance with the Escrow Agreement, plus (C) the Per
Share Working Capital Excess, if any, to be paid in accordance with Section 2.8, in each case
without interest or dividends thereon and less any applicable withholding of taxes (such amount
hereinafter referred to as the “Per Share Merger Consideration”). All such Common Stock
and Preferred Stock, when so converted, shall no longer be outstanding and shall automatically be
canceled and each holder of a certificate or certificates representing any such Common Stock or
Preferred Stock shall cease to have any rights with respect thereto, except the right to receive
the consideration specified in the preceding sentence. For example purposes only, Schedule
II sets forth an example calculation of the Plan Stock Price and Per Share Merger Consideration
assuming for purposes of such calculation certain values for the line items reflected thereon.

          (b) Cancellation of Certain Common Stock and Preferred Stock. As of the Effective
Time, by virtue of the Merger and without any action on the part of the holder of any Common Stock
or Preferred Stock, the Company or Merger Sub, each share of Common Stock and Preferred Stock that
is owned by the Company or any wholly owned subsidiary as treasury stock or otherwise or owned by
Merger Sub shall automatically be canceled and shall cease to exist, and no cash or other
consideration shall be delivered or deliverable in exchange therefor.

          (c) Capital Stock of Merger Sub. As of the Effective Time, each share of Merger Sub
Common Stock issued and outstanding immediately prior to the Effective Time shall, by virtue of the
Merger and without any action on the part of the holder of Merger Sub Common Stock, the Company or
Merger Sub, be converted into one validly issued, fully paid and non-assessable share of common
stock, par value $0.01 per share, of the Surviving Corporation (“Surviving Corporation Common
Stock”). Each certificate that, immediately prior to the Effective Time, represented issued
and outstanding shares of Merger Sub Common Stock shall, from and after the Effective Time,
automatically and without the necessity of presenting the same for exchange, represent the shares
of the Surviving Corporation capital stock into which such shares have been converted pursuant to
the terms hereof; provided, however, that the record holder thereof shall receive, upon surrender
of any such certificate, a certificate representing the shares of Surviving Corporation Common
Stock into which the shares of Merger Sub Common Stock formerly represented thereby shall have been
converted pursuant to the terms hereof.

          (d) Dissenting Shares. Notwithstanding anything in this Agreement to the contrary,
any Common Stock or Preferred Stock issued and outstanding immediately prior to the Effective Time
and held by a holder who timely delivers to the Company such holder’s notice of intent to demand
payment for such holder’s shares if the Merger is effected, thereafter does not vote in favor of
the Merger or consent thereto in writing and who otherwise properly demands appraisal for such
Common Stock or Preferred Stock in accordance with the ABCA (“Dissenting 
Shares”) shall not be converted into a right to receive the Per Share Merger Consideration
at the Effective Time in accordance with Section 2.5(a) hereof, but shall represent and become the
right

15

 

to receive such consideration as may be determined to be due to the holder of such Dissenting
Shares pursuant to the Laws of the State of Arkansas, unless and until such holder fails to perfect
or withdraws or otherwise loses such holder’s right to appraisal and payment under the ABCA. If,
after the Effective Time, such holder fails to perfect or withdraws or otherwise loses such
holder’s right to appraisal, such former Dissenting Shares held by such holder shall be treated as
if they had been converted as of the Effective Time into a right to receive, upon surrender as
provided above, the Per Share Merger Consideration in accordance with Section 2.5(a). The Company
shall give Parent prompt notice of any demands received by the Company for appraisal of Common
Stock, withdrawals of such demands and any other instruments served pursuant to the ABCA and
received by the Company, and the Company shall have the right to direct all negotiations and
proceedings with respect to such demands. The Company shall not make any payment with respect to,
or settle or offer to settle, any such demands, except with the prior written consent of Merger
Sub, such consent not to be unreasonably withheld or delayed.

     2.6 Options; Stock Plans.

          (a) For purposes of this Agreement, the term “Option” means each outstanding
unexercised option to purchase Common Stock, whether or not then vested or fully exercisable,
granted on or prior to the date hereof to any current or former employee or director of the Company
or any Subsidiary or any other Person, whether under any stock option plan or otherwise where the
exercise price immediately prior to the Effective Time is less than the Common Stock Price
(including, without limitation, under the Carlton-Bates Company 2001 Stock Incentive Plan, as
amended (the “Stock Plan”)).

          (b) Simultaneously with the execution of this Agreement, the Board of Directors of the Company
(or, if appropriate, any committee thereof) has adopted resolutions, and the Company hereby agrees
to take all other actions necessary so that (i) immediately prior to the Effective Time, each
outstanding Option granted under the Stock Plan or otherwise held by those holders of record listed
in Section 2.6(b) of the Disclosure Schedule under the heading “Options” shall become immediately
vested and exercisable in full, and (ii) at the Effective Time, all Options shall be canceled, in
each case, in accordance with and pursuant to the terms of the Stock Plan or otherwise under which
such Options were granted as applicable. In consideration of such cancellation, each holder of an
Option canceled in accordance with this Section 2.6(b) who shall execute and deliver to the
Company, at or prior to the Effective Time, an Option Cancellation Agreement substantially in the
form of Exhibit F will be entitled to receive in settlement of such Option:

               (i) immediately following the Effective Time, a cash payment, subject to any required
withholding of taxes, equal to the product of (A) the total number of shares of Common Stock
otherwise issuable upon exercise of such Option and (B) (I) the Common Stock Price less (II) the
applicable exercise price per share of Common Stock otherwise issuable upon exercise of such
Option,

               (ii) if and when distributed, an amount equal to the product of (C) the sum of the Per Share
Working Capital Excess, if any, and (D) the total number of shares of Common Stock otherwise
issuable upon exercise of such Option; and

16

 

               (iii) if and when distributed, an amount equal to the product of (C) the sum of the Per Share
Escrow Amount, if any, and (D) the total number of shares of Common Stock otherwise issuable upon
exercise of such Option.

          (c) Prior to the Effective Time, the Company shall take all actions (including, if
appropriate, amending the terms of the relevant Stock Plan amending or waiving relevant agreements
providing for vesting conditions on Common Stock or Options therefor) that are necessary to give
effect to the transactions contemplated by this Section 2.6. The Company will take all steps
necessary: (i) to ensure that neither the Company nor any of its Subsidiaries is or will be bound
by any Options, other options, warrants, rights or agreements which would entitle any Person to
acquire any capital stock of the Surviving Corporation or any of its subsidiaries or to receive any
payment in respect thereof (except for cash payments to be made as provided in this Section), (ii)
to cause such Options and any other options, warrants, rights or agreements which would entitle any
Person to acquire any capital stock of the Surviving Corporation or any of its Subsidiaries or to
receive any payment in respect thereof to be canceled or cause the holders of the Options or such
other options, warrants, rights or agreements to agree to such cancellation thereof as provided
herein, and (iii) to cause the Company to claim federal and state income tax deductions for the
payments to holders of Options in accordance with Section 2.6(b) hereof so that any tax benefits
accruing therefrom will be for the account of the Surviving Corporation.

          (d) Except as otherwise provided herein or agreed to in writing by Merger Sub and the Company,
the Stock Plan and other stock option plans of the Company shall terminate effective as of the
Effective Time and no participant in the Stock Plan shall thereafter be granted any rights
thereunder to acquire any equity securities of the Company, the Surviving Corporation, or any
subsidiary of any of the foregoing.

     2.7 Payments.

          (a) Deposit with Escrow Agent. At Closing, Parent and Merger Sub shall deposit with
the Escrow Agent by wire transfer of immediately available funds, the Escrow Deposit, to be held by
the Escrow Agent. The Escrow Deposit shall be subject to the claims of indemnification of the
Surviving Corporation to the extent and in the manner provided in the applicable provisions of
Article VIII hereof and in the Escrow Agreement and to payment to the Surviving Corporation or as
provided in Section 2.8 hereof and in the Escrow Agreement in accordance with the Escrow Agreement.
The Escrow Deposit shall not constitute part of the consideration received by the Company
Securityholders in respect of their Common Stock, Preferred Stock or Options, as applicable,
unless and until received by the Company Securityholders, and until so received shall be deemed to
be consideration that is contingent.

          (b) Payment for Shares.

               (i) Immediately following the Effective Time, the Surviving Corporation shall mail or deliver
to each record holder of certificates that immediately prior to the Effective Time represented
either Common Stock or Preferred Stock (A) a notice of the effectiveness of the Merger, (B) a form
letter of transmittal which shall specify that delivery shall be effected, and risk of loss and
good title (subject to no Liens) to the certificates shall pass, only upon proper delivery of the
certificates to the Surviving Corporation, and (C) instructions for use in surrendering such
certificates and receiving the Common Stock Price in respect thereof.

17

 

               (ii) Upon surrender to the Surviving Corporation of a certificate, together with such letter
of transmittal duly executed and completed in accordance with the instructions thereto, the holder
of such certificate shall be entitled to promptly receive, in exchange therefor (other than Common
Stock or Preferred Stock to be canceled pursuant to Section 2.5(b)), cash in an amount equal to
the product of (A) the number of shares of Common Stock or Preferred Stock formerly represented by
such certificate and (B) the Common Stock Price, which amounts shall be paid by the Surviving
Corporation by check or wire transfer in accordance with the instructions provided by such holder.
No interest or dividends will be paid or accrued on the consideration payable upon the surrender of
any certificate. If the consideration provided for herein is to be delivered in the name of a
Person other than the Person in whose name the certificate surrendered is registered, it shall be a
condition of such delivery that the certificate so surrendered shall be properly endorsed or
otherwise in proper form for transfer and that the Person requesting such delivery shall pay any
transfer or other taxes required by reason of such delivery to a Person other than the registered
holder of the certificate, or that such Person shall establish to the satisfaction of the Surviving
Corporation that such tax has been paid or is not applicable. Until surrendered in accordance with
the provisions of this Section 2.7(b)(ii), each certificate (other than certificates representing
Dissenting Shares or Common Stock or Preferred Stock to be canceled pursuant to Section 2.5(b))
shall represent, for all purposes (other than Common Stock or Preferred Stock to be canceled
pursuant to Section 2.5(b)), only the right to receive the Per Share Merger Consideration.

               (iii) After the Effective Time, there shall be no transfers on the stock transfer books of the
Surviving Corporation of any shares of Common Stock or Preferred Stock that were outstanding
immediately prior to the Effective Time. If, after the Effective Time, certificates are presented
to the Surviving Corporation, they shall be canceled and exchanged as provided in this Article 2.

               (iv) In the event any certificate shall have been lost, stolen or destroyed, upon the making
of an affidavit (in form and substance reasonably acceptable to the Surviving Corporation) of that
fact by the Person (who shall be the record owner of such certificate) claiming such certificate to
be lost, stolen or destroyed and, if required by the Surviving Corporation, the posting by such
Person of a bond in such amount as the Surviving Corporation may direct as indemnity against any
claim that may be made against it with respect to such certificate, the Surviving Corporation will
issue in exchange for such lost, stolen or destroyed certificate the Per Share Merger Consideration
deliverable in respect thereof pursuant to this Agreement.

               (v) The Surviving Corporation shall be entitled to deduct and withhold from the consideration
otherwise payable to any holder of Common Stock, Preferred Stock or Options pursuant to this
Agreement such amounts as may be required to be deducted or withheld with respect to the making of
such payment under the Code, or any applicable provision of state, local or foreign tax Law. To
the extent that amounts are so deducted or withheld and paid over to the appropriate taxing
authority by the Surviving Corporation, such amounts shall be treated for all purposes of this
Agreement as having been paid to the Person to whom such amounts would otherwise have been paid.

18

 

          (c) Transaction Expenses; Repayment of Indebtedness. From the date hereof through the
Closing, the Company shall be entitled to utilize any and all available cash of the Company (i) to
pay the Transaction Expenses and (ii) to repay outstanding indebtedness owed by the Company for
borrowed money, including, without limitation, capitalized lease financings, any interest rate
hedging obligations to the extent such obligations are “out-of-the-money,” and any breakage fees or
other costs and expenses in connection with any such repayment (the “Indebtedness for Borrowed
Money”). On the day prior to Closing, the Company shall deliver to the Buying Group a schedule
setting forth all unpaid Transaction Expenses and unpaid Indebtedness for Borrowed Money, and at
Closing, the Company shall pay all then unpaid Transaction Expenses and all then unpaid
Indebtedness for Borrowed Money. The Company shall use the funds provided by the Buying Group upon
payment of the Merger Price to make such payments. In addition, the Company shall obtain a release
on or prior to the Closing of all Liens securing any such Indebtedness for Borrowed Money and shall
terminate the related financing arrangements. The Company Securityholders shall be responsible for
any Transaction Expenses that are invoiced post-Closing, with payment to be made from funds
retained pursuant to Section 5.9(h).

     2.8 Working Capital Adjustments.

          (a) Baseline Working Capital Amount. The “Baseline Working Capital Amount” shall mean
the average of the Working Capital Amount for the three months ended immediately preceding the
Closing (including the month in which the Closing occurs if the Closing Date is the last day of a
calendar month).

          (b) Post-Closing Determination. Within ninety (90) calendar days after the
Closing Date, the Surviving Corporation will conduct a review (the “Closing Date Review”)
of (i) the Working Capital Amount as of the Closing Date but prior to the consummation of the
transactions provided for herein (the “Closing Date Working Capital Amount”) and (ii) the
Excess Cash Amount as of the close of business on the Business Day immediately prior to the Closing
Date less cash used to satisfy payments that were made by the Company at Closing in accordance with
Section 2.7(c) (the “Closing Date Excess Cash Amount”), and will prepare and deliver to the
Company Representative a balance sheet (the “Closing Date Balance Sheet”) and a computation
of the Closing Date Working Capital Amount and the Closing Date Excess Cash Amount. Such Closing
Date Balance Sheet shall be prepared in the same manner as the Reference Balance Sheet and, with
respect to inventory, shall be based on a physical count of the inventory of the Surviving
Corporation and its Subsidiaries. The Surviving Corporation will make available to the Company
Representative all records and work papers used in preparing the Closing Date Balance Sheet. If
the Company Representative disagrees with the computation of the Closing Date Working Capital
Amount, the Closing Date Excess Cash Amount or the items reflected on the Closing Date Balance
Sheet, the Company Representative may, within thirty (30) calendar days after receipt of the
Closing Date Balance Sheet, deliver a notice (an “Objection Notice”) on behalf of the
Company Securityholders to the Surviving Corporation setting forth the Company Representative’s
calculation of the Closing Date Working Capital Amount as of the Closing Date and, if also
disputed, the Closing Date Excess Cash Amount. If the Company Representative does not deliver an
Objection Notice within such thirty (30) calendar day period, then the Closing Date Working Capital
Amount and the Closing Date Excess Cash Amount shall be deemed to be finally determined. If the
Company Representative timely delivers an Objection Notice to the Surviving Corporation, the
Company Representative

19

 

and the Surviving Corporation will use reasonable efforts to resolve any disagreement as to
the computation of the Closing Date Working Capital Amount and/or the Closing Date Excess Cash
Amount as soon as practicable, but if they can not reach a final resolution within thirty (30)
calendar days after the Surviving Corporation has received the Objection Notice, the Surviving
Corporation and the Company Representative on behalf of the Company Shareholders will jointly
retain an independent accounting firm of recognized national standing (the “Firm”) to
resolve their disagreement. If the Surviving Corporation and the Company Representative are unable
to agree on the choice of the Firm, then the Firm will be an independent accounting firm of
recognized national standing selected by lot (after excluding one firm designated by the Surviving
Corporation and one firm designated by the Company Representative). The Surviving Corporation and
the Company Representative will direct the Firm to render a determination within thirty (30)
calendar days of its retention and the Surviving Corporation and the Company Representative and
their respective agents will cooperate with the Firm during its engagement. The Firm will consider
only those items and amounts in the Closing Date Balance Sheet or the calculation of the Closing
Date Excess Cash Amount set forth in the Objection Notice which the Surviving Corporation and the
Company Representative are unable to resolve. In resolving any disputed item, the Firm may not
assign a value to any item greater than the greatest value for such item claimed by either party or
less than the smallest value for such item claimed by either party. The Firm’s determination will
be based on such review as the Firm deems necessary to make its determination, and on the
definition of the Closing Date Working Capital Amount and/or the Closing Date Excess Cash Amount
included herein. The determination of the Closing Date Working Capital Amount and/or the Closing
Date Excess Cash Amount by the Firm will be conclusive and binding upon the Surviving Corporation
and the Company Securityholders. The Surviving Corporation and the Company Securityholders shall
bear the costs and expenses of the Firm based on the percentage which the portion of the contested
amount not awarded to each party bears to the amount actually contested by or on behalf of such
party with the portion of such costs and expenses payable by the Company Securityholders being
deducted from that portion, if any, of the Adjustment Amount to be released to the Company
Securityholders (it being understood that in no event shall the Surviving Corporation be obligated
to pay any portion of the costs and expenses of the Firm attributable to the Company
Securityholders and that in no event shall the costs and expenses of the Firm attributable to the
Company Securityholders be paid from the Claims Amount (unless the requirements of Section
2.8(c)(iii) below shall have been met), or any portion of the Adjustment Amount to be paid to the
Surviving Corporation). The Closing Date Working Capital Amount, as finally determined pursuant to
this Section 2.8(b), is referred to herein as the “Actual Closing Date Working Capital
Amount,” and the Closing Date Excess Cash Amount as finally determined pursuant to this Section
2.8(b) is referred to herein as the “Final Excess Cash Amount.”

          (c) Payment of Working Capital Adjustments.

               (i) Payment by the Surviving Corporation. If the sum of the Actual Closing Date
Working Capital Amount and the Final Excess Cash Amount exceeds the sum of the Baseline Working
Capital Amount and the Estimated Excess Cash Amount, the Surviving Corporation shall, within five
(5) Business Days after the determination thereof, pay to the Company Representative, for
distribution to the Company Securityholders as hereinafter provided, an amount equal to the amount
by which (A) the sum of the Actual Closing Date Working Capital Amount and the Final Excess Cash
Amount exceeds (B) the sum of the Baseline Working Capital Amount and the Estimated Excess Cash Amount
(the “Adjustment

20

 

Excess”). Such payment shall be made by the Surviving Corporation to the Company
Representative in cash, by cashier’s or certified check, or by wire transfer of immediately
available funds in United States Dollars to an account designated by the Company Representative,
and upon such payment, the Surviving Corporation shall have no further obligation with respect to
the payment of the Adjustment Excess to the Company Securityholders. At the time of such payment,
the Surviving Corporation and the Company Representative shall also jointly instruct the Escrow
Agent to pay to the Company Representative the entire Adjustment Amount, together with all interest
earned thereon as provided in the Escrow Agreement.

               (ii) Payment by the Company Securityholders. If the sum of the Actual Closing Date
Working Capital Amount and the Final Excess Cash Amount is less than the sum of the Baseline
Working Capital Amount and the Estimated Excess Cash Amount, the Surviving Corporation and the
Company Representative shall jointly instruct the Escrow Agent to pay (a) to the Surviving
Corporation, from the Adjustment Amount, an aggregate amount equal to the amount by which (I) the
sum of the Baseline Working Capital Amount and the Final Excess Cash Amount exceeds (II) the sum of
the Actual Closing Date Working Capital Amount and the Estimated Excess Cash Amount (the
“Adjustment Deficit”), and (b) to the Company Representative, the remainder, if any, of the
Adjustment Amount. In the event the sum of the Adjustment Deficit exceeds the Adjustment Amount,
the Surviving Corporation and the Company Representative shall jointly instruct the Escrow Agent to
pay such excess from the Escrow Deposit. Such payments will be made in cash, by cashier’s or
certified check, or by wire transfer of immediately available funds in United States Dollars (x) if
to the Surviving Corporation, to an account designated by the Surviving Corporation, and (y) if to
the Company Representative, to an account designated by the Company Representative.

               (iii) Payment Pending Resolution of Dispute. If, pursuant to Section 2.8(b) above, a
dispute exists as to the final determination of the Actual Closing Date Working Capital Amount or
the Final Excess Cash Amount, the Surviving Corporation and the Company Securityholders shall
promptly pay to the other (or cause to be paid from the Escrow Deposit in the case of the Company
Securityholders), as appropriate in accordance with Sections 2.8(c)(i) and 2.8(c)(ii), such amounts
as are not in dispute, pending final determination of such dispute pursuant to Section 2.8(b).

               (iv) Upon receipt of any payments as provided in subparagraphs (c)(i) or (c)(ii) above, the
Company Representative shall distribute to the Company Securityholders their respective portion of
such payments based on the percentages set forth opposite each Company Shareholder’s and Company
Optionholder’s name on Schedule I attached hereto. Such payment shall be made by wire
transfer to the account which the Company Securityholder has designated in writing to the Company
Representative.

          (d) Transfer Taxes. All transfer, documentary, sales, use, stamp, registration, and
other similar transaction taxes and fees (including any penalties and interest) if any, imposed
solely and directly by reason of the transactions contemplated by this Agreement shall be paid by
the Company Shareholders when due, and the Company Shareholders will, at their own expense, file
all necessary Tax Returns and other documentation with respect to all such transfer, documentary,
sales, use, stamp, registration, and other similar taxes and fees, and, if, required by applicable
Law, the Surviving Corporation will join in the execution of any such Tax Returns
and other documentation.

21

 

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

     All representations and warranties of the Company are made subject to the exceptions that are
noted on the Disclosure Schedule. Subject to the foregoing, the Company hereby represents and
warrants to Parent and Merger Sub as follows:

     3.1 Organization and Authority.

          (a) The Company is a corporation validly existing and in active status under the Laws of the
State of Arkansas. Section 3.1 of the Disclosure Schedules lists all direct and indirect
subsidiaries of the Company (the “Subsidiaries”) and Investments and in each case the
Company’s percentage ownership thereof. Each Subsidiary is a legal entity validly existing and in
active status under the Laws of its jurisdiction of organization which is set forth in Section 3.1
of the Disclosure Schedule. Each of the Company and the Subsidiaries and, to the Knowledge of the
Company, each of the Investments is duly qualified to conduct business, and is in good standing, in
each jurisdiction wherein the character of the properties owned or leased by it, or the nature of
its business, makes such licensing or qualification necessary except where the failure to be so
qualified would not have a Material Adverse Effect. Any states or other jurisdictions other than
Arkansas in which the Company or any Subsidiary of the Company is licensed or qualified to do
business are listed in Section 3.1 of the Disclosure Schedule.

          (b) Each of the Company, its Subsidiaries and its Investments has all requisite corporate
power and authority to own, operate and lease its properties and to carry on its business as and
where such is now being conducted.

     3.2 Capitalization. Section 3.2 of the Disclosure Schedule sets forth: (i) the
authorized capital stock of the Company; (ii) the names of the Company Shareholders; (iii) the
number of shares of capital stock of the Company owned by each Company Shareholder as of the date
hereof and to be owned at Closing; and (iv) the number of shares of Common Stock issuable upon
exercise of outstanding Options (both vested and unvested). All of the outstanding shares of the
Common Stock have been duly authorized and validly issued, are fully paid and nonassessable.
Except as otherwise described in Section 3.2 of the Disclosure Schedule, the outstanding shares of
Common Stock and Preferred Stock are owned by the Company Shareholders free and clear of all Liens.
Except for this Agreement and as set forth in Section 3.2 of the Disclosure Schedule, no shares of
capital stock of, or other ownership interest in, the Company are reserved for issuance and there
are no outstanding options, warrants, rights, subscriptions, claims of any character, agreements or
understandings relating to the capital stock of the Company pursuant to
which the Company is or may become obligated to issue or exchange any shares of its capital
stock.

     3.3 Authority; Validity. The execution and delivery of this Agreement and the other
documents and instruments to be executed and delivered by the Company pursuant hereto and the
consummation by the Company of the transactions contemplated hereby and thereby have been duly
authorized by the Company Shareholders and the Board of Directors of the Company. No further act
or proceeding on the part of the Company or the Company Shareholders is necessary to authorize this
Agreement or the other documents and instruments to be executed and delivered by the Company
pursuant hereto or the consummation by the Company of the

22

 

transactions contemplated hereby and
thereby. This Agreement constitutes, and when executed and delivered, the other documents and
instruments to be executed and delivered by the Company pursuant hereto will constitute, valid and
binding agreements of the Company, enforceable against the Company in accordance with their
respective terms, except as such may be limited by bankruptcy, insolvency, reorganization or other
Laws affecting creditors’ rights generally, and by general equitable principles.

     3.4 No Violation.

          (a) Except as set forth in Section 3.4(a) of the Disclosure Schedule, the execution and
delivery of this Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby will not: (x) cause a breach or violation of or default, under any provision
of: (i) its Articles of Incorporation or Bylaws; (ii) any Material Contract to which either the
Company or any Subsidiary is a party or by which either the Company or any Subsidiary may be bound
(except for any breach or violation that would not have a Material Adverse Effect); (iii) any
decree, order, injunction or other decision of any court, arbitrator or Governmental Authority to
which the Company or any Subsidiary is subject; or (y) result in the creation of any Lien upon the
Common Stock, Preferred Stock or the assets of the Company or any Subsidiary.

          (b) Section 3.4(b) of the Disclosure Schedule lists all Consents necessary or appropriate for
the consummation of the transactions contemplated hereby, including, without limitation, any
consent necessary to cure a breach or violation of a Material Contract identified on Schedule
3.4(a).

     3.5 Governmental Party Consents. Except for the expiration of the applicable waiting
period under the HSR Act and as set forth in Section 3.5 of the Disclosure Schedule, no approval,
authorization, notice, consent or other action by or filing with any governmental body or agency is
required for the Company’s execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby.

     3.6 Financial Statements. Section 3.6 of the Disclosure Schedule contains complete and
accurate copies of the Financial Statements. Except as set forth in Section 3.6 of the Disclosure
Schedule, all of such Financial
Statements (a) have been prepared in accordance with the books and records regularly maintained by
the Company, (b) fairly present the financial condition and results of operations of the Company
and its Subsidiaries and (c) were prepared in accordance with GAAP, subject, in the case of the
Interim Financial Statements, to normal year-end and audit adjustments and any other adjustments
described therein and to the absence of footnotes thereto. The Company has no liabilities of the
type required by GAAP to be reflected on a balance sheet (including unknown or contingent
liabilities that, if known or liquidated would be required to be so reflected) that are not fully
reflected in the Interim Financial Statements other than liabilities incurred in the Ordinary
Course of Business since the date of the Interim Financial Statements, none of which, either
individually or in the aggregate, are material in amount and liabilities disclosed in the
Disclosure Schedule. Except for normal year-end adjustments, none of which individually or in the
aggregate are material, the Company has not received any advice or notification from any certified
public accountants that it has used any improper accounting practice that would have the effect of
not reflecting or incorrectly reflecting in the Financial Statements or the books and records of
the Company, any properties, assets,

23

 

liabilities, revenues or expenses. The books, records and
accounts of the Company accurately and fairly reflect, in reasonable detail, the transactions,
assets and liabilities of the Company. The Company maintains an adequate and effective internal
control structure and procedure for financial reporting purposes.

     3.7 Tax Matters. Except as set forth in Section 3.7 of the Disclosure Schedule:

          (a) The Company and each Subsidiary has filed all Tax Returns required to be filed by it and
all such returns are complete and accurate in all material respects. The Company and each
Subsidiary has paid or made adequate provision for the payment of all Taxes owed, whether or not
shown as due on such Tax Returns. At Closing, the Company shall have recorded on its financial
statements an amount with respect to Taxes for the current fiscal year that is adequate to satisfy
all such liabilities. No Tax Return filed by the Company or any Subsidiary has been audited by any
federal, state or local governmental agency. In the last five (5) years no claim has been made by
an authority in a jurisdiction where either the Company or any Subsidiary has transacted business
or owned or used property and has not and does not file Tax Returns that it is or may be subject to
taxation by that jurisdiction. Neither the nature of the Company’s or any Subsidiary’s business
nor the ownership or use of its properties requires the Company or any Subsidiary to file Tax
Returns in any jurisdiction where the Company does not currently file such returns.

          (b) The Company has not, in the last five (5) years, received from the Internal Revenue
Service or any state or local Taxing authority any written notice of underpayment of Taxes, notice
of deficiency or assessment of additional Taxes which has not been paid, and there is no dispute or
claim concerning any Tax liability of the Company either (i) claimed or raised by any Taxing
authority in writing to the Company or (ii) to the Company’s Knowledge. The Company has not
entered into an agreement or granted any waiver extending the statute of limitations with respect
to any Tax Return. The Company is not currently the beneficiary of any extension of time within
which to file any Tax Return. There is no pending audit by the Internal Revenue Service or any
state or local Taxing authority with respect to any Tax Return.

          (c) Neither the Company nor any Subsidiary has granted a power of attorney with respect to any
Tax matter that is currently outstanding and in effect.

          (d) Neither the Company nor any Subsidiary has been a member of an affiliated group (within
the meaning of Section 1504(a) of the Code) filing a consolidated federal income Tax Return.

          (e) Neither the Company nor any Subsidiary is a party to any Tax allocation or Tax sharing
agreement.

     3.8 Absence of Certain Changes. Except as set forth in Section 3.8 of the Disclosure
Schedule, since June 30, 2005, neither the Company, nor any Subsidiary, as applicable, has: (a)
experienced any change (including, without limitation, any change in the relationship between the
Company or any of its subsidiaries and any significant customer, supplier or other business
relationship) in the business, financial position, or results of operations that has had or could
reasonably be expected to have a Material Adverse Effect; (b) made any declaration, payment or
setting aside of the payment of any dividend or distribution in respect of the Common Stock other
than as set forth in Section 3.8 of the Disclosure Schedule or any redemption, purchase or other
acquisition of any Common Stock; (c) permitted, allowed or suffered any of its properties

24

 

or assets
(real, personal or mixed, tangible or intangible) to be subjected to any Lien; (d) written down or
written up the value of any inventory, except for writedowns and writeups in the Ordinary Course of
Business consistent with past practice; (e) canceled any debts or waived any claims or rights in
excess of $25,000 individually or $100,000 in the aggregate; (f) made any material capital
expenditure or commitment for additions to property, plant, equipment, intangible or capital assets
or for any other purpose, other than for emergency repairs or replacement which emergency repairs
or replacements were not in the Ordinary Course of Business; (g) incurred any indebtedness other
than in the Ordinary Course of Business under existing credit facilities; (h) except for salaries
and benefits paid or provided in the Ordinary Course of Business, paid, loaned, distributed, or
advanced any amounts to, sold, transferred or leased any properties or assets to, purchased,
leased, licensed or otherwise acquired any properties or assets from, or entered into any other
agreement or arrangement with any Company Shareholder or affiliate of a Company Shareholder, except
as set forth in Section 3.8 of the Disclosure Schedule; (i) granted or incurred any obligation for
any increase in the compensation or benefits of any officer or employee of the Company (including
any increase pursuant to any bonus, pension, profit-sharing, retirement or other plan or commitment
or severance arrangement) except for raises to non-director or non-officer employees in the
Ordinary Course of Business consistent with past practice; (j) made any material change in any
method of accounting or accounting principle, practice or policy; (k) suffered any casualty or loss
or damage in excess of $75,000 in the aggregate (whether or not insured against); or (l) taken any
other material action that is not in the Ordinary Course of Business and consistent with past
practice or as provided for in this Agreement.

     3.9 Assets.

          (a) Except as set forth in Section 3.9 of the Disclosure Schedule, each of the Company and its
Subsidiaries has good and marketable title to all of its assets and properties free and clear of
all Liens.

          (b) Except as set forth in Section 3.9 of the Disclosure Schedule, all of the tangible
property of the Company and the Subsidiaries, taken as a whole, is in good operating condition and
repair, subject to normal wear and tear, and is usable in the Ordinary Course of Business and is
sufficient to conduct the Business as presently conducted

     3.10 Litigation. Except as set forth in Section 3.10 of the Disclosure Schedule,
there is no action, suit, arbitration, proceeding or claim, whether civil, criminal or
administrative, pending, or to the Company’s Knowledge, threatened against the Company or any
Subsidiary. To the Company’s Knowledge, no investigation of the Company, any Subsidiary or their
respective businesses is pending or threatened by any Governmental Authority.

     3.11 Compliance With Laws. 

          (a) Compliance. Each of the Company and the Subsidiaries is in compliance in all
material respects with all applicable Laws. The Company is not subject to any order issued by any
court or Regulatory Authority which has had or may result in a Material Adverse Effect.

          (b) Licenses and Permits. Each of the Company and the Subsidiaries has all
governmental licenses, permits, approvals, authorizations and consents and all certifications
required for the conduct of the Business (as presently conducted) and operation of the facilities

25

 

used in the Business other than licenses, permits, approvals, authorizations, consents or
certifications that if not obtained would not have a Material Adverse Effect. All such licenses,
permits, approvals, authorizations, consents and certifications are described in Section 3.11(b) of
the Disclosure Schedule and are in full force and effect. Each of the Company and the Subsidiaries
is and has been in compliance with all such permits, licenses, approvals, authorizations, consents
and certifications, except to the extent that noncompliance would not have a Material Adverse
Effect.

          (c) Certain Payments. In the preceding five (5) years, no director, officer, agent,
or employee of the Company or its Subsidiaries, or any other Person associated with or acting for
or on behalf of the Company or its Subsidiaries, has directly or indirectly (a) made any
contribution, gift, bribe, rebate, payoff, influence payment, kickback, or other payment to any
Person, private or public, regardless of form, whether in money, property, or services in violation
of any Law, or (b) established or maintained any fund or asset with funds or other property of the
Company or any Subsidiary that has not been recorded in the books and records of the Company or any
such Subsidiary.

     3.12 Material Contracts and Commitments.

          (a) Section 3.12 of the Disclosure Schedule sets forth a complete list, indicating the parties
thereto, of each written contract or binding agreement to which any of the Company or the
Subsidiaries is a party (the “Material Contracts”) that constitute:

               (i) a lease of personal property involving annual consideration in excess of $25,000 or with
respect to which the annual consideration in the year ending December 31, 2004 was in excess of
$25,000;

               (ii) a real property lease;

               (iii) an agreement, other than agreements with the parties set forth in Section 3.12(e) or (f)
of the Disclosure Schedule, involving payment or other obligations of more than $50,000 in the
aggregate that is not cancelable with less than twelve (12) months’ notice.

               (iv) a labor union contract;

               (v) a loan agreement, promissory note, letter of credit, or other evidence of indebtedness
(other than advances to Company Employees in the Ordinary Course of Business) whether as a
signatory, guarantor or otherwise;

               (vi) an agreement of the Company or any Subsidiary not to compete in any business or
geographic area;

               (vii) an agreement with a shareholder, officer or director of the Company;

               (viii) an agreement with any Company Employee or consultant providing for annual compensation
in excess of $100,000;

               (ix) a joint venture or similar agreement;

26

 

               (x) a power of attorney;

               (xi) a license to use Intellectual Property owned by any third Person and used in the Business
(other than “shrink-wrap” software licenses) (a “License”);

               (xii) a commitment to make a capital expenditure not part of the capital expenditure budget of
the Company attached as Section 3.12(a)(xii) of the Disclosure Schedule;

               (xiii) any other agreement which was not entered into in the Ordinary Course of Business and
which is material to the Business; or

               (xiv) a distribution agreement providing for annual volume in excess of $1,000,000.

          (b) The Company has made available to Parent true, correct and complete copies of the written
Material Contracts. Section 3.12 of the Disclosure Schedule also indicates which of the Material
Contracts will be terminated on or before Closing.

          (c) All of the Material Contracts are valid, binding and enforceable obligations of the
Company or Subsidiary, as applicable, and, to the Company’s Knowledge, the other parties thereto.
Neither the Company nor any Subsidiary, as applicable, nor, to the Company’s Knowledge, any other
party is in breach or violation of, or default under, any provision of any Material Contract except
for a breach, violation or default that would not have a Material Adverse Effect. Neither the
Company nor any Subsidiary, as applicable, nor any other party has repudiated or waived any
material provision of any Material Contract. To the
Company’s Knowledge, assuming that all applicable Consents have been obtained, no
circumstances exist that would give rise to a right of rescission, termination, revision or
amendment of any Material Contract by any party thereto.

          (d) The Company is not a party to any oral contract or agreement of the type described in
Section 3.12(a) above.

          (e) A list of all parties who either paid the Company or were billed by the Company more than
$50,000 in the year ending September 30, 2004 is set forth in Section 3.12(e) of the Disclosure
Schedule.

          (f) A list of all parties to whom the Company paid more than $50,000 in the year ending
September 30, 2004 is set forth in Section 3.12(f) of the Disclosure Schedule.

     3.13 Labor Matters. Except as set forth in Section 3.13 of the Disclosure Schedule, the
Company is not a party to any labor agreement with respect to its employees with any labor union.
In the last five years, the Company has not experienced any work stoppage due to labor
disagreements. Except to the extent set forth in Section 3.13 of the Disclosure Schedule, (a) the
Company is in compliance in all material respects with all applicable Laws respecting employment
practices; terms and conditions of employment and wages and hours; (b) the Company is not engaged
in any unfair labor practice; (c) there is no unfair labor practice charge or complaint against the
Company pending before the National Labor Relations Board or any similar state agency; and (d)
there are no administrative charges or court complaints against the Company concerning alleged
employment discrimination or other employment related matters pending or, to the Knowledge of the
Company, threatened before the U.S. Equal Employment

27

 

Opportunity Commission or any other government
entity. Except as disclosed in Section 3.13 of the Disclosure Schedule there are no severance,
change of control, retention or similar payments which any directors, officers or employees of the
Company or any Subsidiary could be entitled to as a result of the transactions contemplated hereby
(either alone or together with any other event), whether arising before or after Closing or whether
contingent upon continued employment or not. The consummation of the transactions contemplated
hereby will not (either alone or together with any other event) accelerate the time of payment or
vesting or trigger any payment or funding (through a grantor trust or otherwise) of compensation or
benefits, increase the amount payable or trigger any other material obligation under or pursuant to
any plan or arrangement providing for compensation or benefits to any employees of the Company or
any Subsidiary for which the Surviving Corporation or any other member of the Buying Group will be
liable upon or following the Closing.

     3.14 Employee Benefit Plans.

          (a) Section 3.14 of the Disclosure Schedule sets forth a correct and complete list of all
pension, retirement, profit sharing, deferred compensation, stock option, employee stock ownership,
severance pay, vacation, bonus or other incentive plan, all other employee programs, arrangements,
agreements, or payroll practices, whether formal or informal, qualified or nonqualified, all
medical, vision, dental or other health plans, all life insurance plans, and all other employee
benefit plans or fringe benefit plans, including, without limitation, any “employee benefit plans”
as that term is defined in Section 3(3) of ERISA, providing benefits to
any of the current or former employees of the Company, or an ERISA Affiliate, and/or their
dependents (collectively, the “Benefit Plans”).

          (b) Except as disclosed in Section 3.14 of the Disclosure Schedule, all the Benefit Plans and
the related trusts subject to ERISA comply in all material respects with and have been administered
in substantial compliance with, (i) the provisions of ERISA, (ii) all provisions of the Code
relating to qualification and tax exemption under Code Sections 401(a) and 501(a), and (iii) all
other applicable Laws, and the Company has not received any written notice from any Governmental
Authority questioning or challenging such compliance. The Internal Revenue Service has issued a
favorable determination letter with respect to each Benefit Plan that is intended to be a
“qualified plan” within the meaning of Section 401(a) of the Code and, except as set forth in
section 3.14 of the Disclosure Schedule, there are no known facts or other circumstances that exist
that would result in the loss of such qualification or favorable tax treatment.

          (c) To the Knowledge of the Company, except as disclosed in Section 3.14 of the Disclosure
Schedule, there are no unresolved claims or disputes under the terms of, or in connection with, the
Benefit Plans other than claims for benefits which are payable in the ordinary course, and no
litigation has been commenced with respect to any Benefit Plan.

          (d) All contributions with respect to a Benefit Plan that is subject to Code Section 412 or
ERISA Section 302 have or will be timely made and there is no Lien under Code Section 412(n). No
“prohibited transaction” (as defined in ERISA Section 406) or “reportable event” (as defined in
ERISA 4043) has occurred with respect to any Benefit Plan. Neither the Company nor any ERISA
Affiliate has contributed to or been obligated to contribute to a “multiemployer plan” (within the
meaning of Section 3(37) of ERISA). No Benefit Plan has two or more contributing sponsors at least
two of whom are not under common control, within the

28

 

meaning of Section 4063 of ERISA (a “Multiple
Employer Plan”), nor has the Company at any time contributed to or been obligated to contribute to
a Multiple Employer Plan.

          (e) Except for the continuation of coverage required under Section 4980(B) of the Code or by
applicable state Law or as disclosed on Section 3.14 of the disclosure Schedule, no Benefit Plan
provides life, health, medical or other welfare benefits to former employees, beneficiaries, or
dependents thereof and the Company has no current or projected liability for post employment
health, medical, or life insurance benefits for retired, former or current employees.

     3.15 Environmental Matters. Except as set forth on Section 3.15 of the Disclosure
Schedule:

          (a) The Company and its Subsidiaries have obtained all Permits (“Environmental
Permits”) that are required in connection with the operation of the Business under
Environmental Laws;

          (b) The Company and its Subsidiaries are and at all times during the past five (5) years have
been (i) in material compliance with all terms and conditions of the Environmental Permits, and
(ii) in material compliance with all other limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules and timetables contained in applicable
Environmental Laws or contained in any regulation, code, plan, order, decree, judgment, notice or
demand letter issued, entered, promulgated or approved thereunder;

          (c) The Company and its Subsidiaries have not received notice of any past, present or future
events, conditions, circumstances, activities, practices, incidents, actions or plans which may
materially interfere with or prevent continued material compliance by the Company and its
Subsidiaries with applicable Environmental Laws, or which may give rise to any significant common
law or legal liability, or otherwise form the basis of any material claim or proceeding under
Environmental Laws, or is based on or related to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling, or the emission, discharge, release or
threatened release into the environment, of any hazardous substance;

          (d) There are no hazardous substances or underground storage tanks in, on, or under any real
property owned or leased by the Company and its Subsidiaries as of the date hereof, except those
that are both (i) in material compliance with all applicable Environmental Laws and Environmental
Permits and (ii) disclosed on Section 3.15(d) of the Disclosure Schedule;

          (e) To the Knowledge of the Company and its Subsidiaries, there have been and are currently
no releases or threatened releases of hazardous substances for which the Company or its
Subsidiaries have had or could have any material liability under any applicable Environmental Law
at any real property formerly used, owned, operated or leased by the Company or its Subsidiaries;

          (f) To the Knowledge of the Company, there is no Law which requires any disclosure of
environmental conditions to any Governmental Authority or to Buying Group, or any deed notice or
other filing as a result of the contemplated transaction; and

          (g) The Company and its Subsidiaries have accurately and fully provided to Buying Group, in
writing, any and all material information relating to significant environmental

29

 

conditions in, on,
under, from or about any real property presently or formerly owned or leased by the Company and its
Subsidiaries as of the date hereof that is contained in files and records of the Company or its
Subsidiaries, including but not limited to any reports related to hazardous substances in, on,
under, from or about any real property owned or leased by the Company or its Subsidiaries. All
such information is listed on Section 3.15(g) of the Disclosure Schedule.

     3.16 Proprietary Rights.

          (a) Section 3.16 of the Disclosure Schedule sets forth a complete and accurate list of the
Intellectual Property (including any associated license agreements) used in the conduct of the
Business. Except as set forth on Section 3.16 of the Disclosure Schedule, the Company owns or has
the uncontested right, in each case free from any Lien against the Company, and to the Knowledge of
the Company, against any other Person, to use all Intellectual Property necessary for the conduct
of the Business as presently conducted or as planned to be conducted.

          (b) No claim is pending or, to the Knowledge of the Company, threatened, and the Company has
not received any written notice that the conduct of its Business (including without limitation, its
use of any Intellectual Property) infringes upon, misappropriates or conflicts with any rights in
Intellectual Property claimed by any third party. No claim is pending or, to the Knowledge of the
Company, threatened which alleges that any Intellectual Property owned or licensed by or to the
Company or which the Company otherwise has the right to use is invalid or unenforceable by the
Company.

          (c) Except as set forth in Section 3.16 of the Disclosure Schedule, no royalties or fees are
payable by the Company to anyone for use of the Intellectual Property. Correct and complete copies
of all agreements pursuant to which the Company licenses any Intellectual Property have been
delivered to Parent. Except as set forth in Section 3.16 of the Disclosure Schedule, all such
agreements are in full force and effect, and, to the Knowledge of the Company, there are no
existing defaults or events of default, real or claimed, or events which with or without notice or
lapse of time, or both, would constitute defaults under such agreements that would give the
non-defaulting party a right to terminate such agreement or a right to receive any payment pursuant
to such agreement.

     3.17 Property.

          (a) Neither the Company nor any Subsidiary owns any real property.

          (b) Leased Real Property. The Leased Real Property described on Section 3.17(b) of the
Disclosure Schedule constitutes all of the real property leased by the Company and its
Subsidiaries. Except as set forth on Section 3.17(b) of the Disclosure Schedule, the Leased Real
Property leases are in full force and effect, subject to the application of any bankruptcy or
creditor’s rights Laws. The Company has delivered or made available to the Buying Group complete
and accurate copies of each of the leases described on Section 3.17(b) of the Disclosure Schedule,
and none of the leases has been modified in any respect, except to the extent that such
modifications are disclosed by the copies delivered or made available to the Buying Group. Neither
the Company nor any Subsidiary is in default under any of such leases nor has the Company or any
Subsidiary received any notices of default from the lessor or landlord under the leases for the
Leased Real Property. Except as set forth on Section 3.17(b) of the Disclosure Schedule, with
respect to each Leased Real Property:

30

 

               (i) the Company has received no notice of any pending or contemplated, and to the Company’s
Knowledge there are no threatened, condemnation proceedings relating to the Company, the leases or
the Leased Real Property;

               (ii) the use, occupancy and operation of the Leased Real Property in the conduct of the
Business does not violate any applicable Laws or instruments of record or any covenants, conditions
or agreements affecting the Leased Real Property;

               (iii) to the Company’s Knowledge, the Leased Real Property is in material compliance with all
applicable building, zoning, subdivision or other Laws governing the use, occupancy and operation
of the Leased Real Property and all applicable permits, certificates, consents and approvals for
the use, occupancy and operation of the Leased Real Property have been issued to the Company by the
appropriate Governmental Authority and all such permits, certificates, consents and approvals are
valid and in full force and effect; and

               (iv) neither the Company, nor, to its Knowledge, any third party has released any hazardous
substances or other wastes or substances in, on, under, from or about the Leased Real Property and
neither the Company, nor, to its Knowledge, any third party used or conducted operations or engaged
in activities on the Leased Real Property (except in accordance with applicable Laws) involving the
use, generation, manufacture, storage or treatment of any hazardous substances.

     3.18 Accounts Receivable. All accounts receivable shown on the Financial Statements
represent, and the accounts receivable of the Company and the Subsidiaries outstanding on the
Closing Date will represent, sales actually made or services actually performed in the Ordinary
Course of Business in bona fide transactions, and are not subject to any defenses, counterclaims,
or rights of setoff other than those arising in the Ordinary Course of Business and for which
reasonably adequate reserves have been established. The reserves for uncollectible accounts
receivable reflected on the Financial Statements were established in accordance with GAAP and are
adequate in light of all the facts then known to the Company and were determined on a basis
consistent with the Company’s historical methods and practices in establishing such reserves.

     3.19 Inventories. Except as set forth in Section 3.19 of the Disclosure Schedule, all
inventory, except inventory in transit and inventory sold or disposed of in the Ordinary Course of
Business, whether reflected on the Financial Statements or subsequently acquired: (a) is now and
at the Closing Date will be located on the Leased Real Property; (b) has been or will be acquired
by the Company only in bona fide transactions entered into in the Ordinary Course of Business; (c)
is of good and merchantable quality, saleable in the Ordinary Course of Business, except to the
extent adequately reserved for in the balance sheets included in the Financial Statements on which
such inventory is shown, which reserves are determined on a basis consistent with past practice;
and (d) is not now and at the Closing Date will not be subject to any write-down or write-off in
excess of the reserves established based on past practice.

     3.20 Broker Fees. With the exception of amounts payable to Sagent Advisors Inc., the
Company has incurred no liability for any fee, commission or other compensation on account of the
employment of a broker or finder in connection with the transactions contemplated by this
Agreement.

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     3.21 Books and Records. The books of account, minute books, stock record books, and other
records of the Company and each of its Subsidiaries, all of which have been made available to
Buying Group, are complete and correct in all material respects and have been maintained in
accordance with sound business practices including the maintenance of an adequate system of
internal controls. The minute books of the Company and its Subsidiaries contain accurate and
complete records of all meetings held of, and corporate action taken by, the shareholders, the
Boards of Directors, and committees of the Boards of Directors of the Company or any of its
Subsidiaries, as the case may be, and to the Knowledge of the Company, no meeting of any such
shareholders, Board of Directors, or committee of the Company or any of its Subsidiary, as the case
may be, has been held for which minutes have not been prepared and are not contained in such minute
books. At the Closing, all of those books and records will be in the possession of the Company.

     3.22 Insurance. Section 3.22 of the Disclosure Schedule lists each material insurance
policy (including policies providing property, casualty, liability, and workers’ compensation
coverage and bond and surety arrangements) maintained by the Company or any of its Subsidiaries.
All such insurance policies are in full force and effect, and to the Company’s Knowledge, neither
the
Company nor any Subsidiary is in material default with respect to any of its obligations under such
insurance policies, including, without limitation, any default arising from nonpayment of premiums
owed.

     3.23 Transactions with Affiliates. Except as set forth on Section 3.23 of the Disclosure
Schedule and except for employment agreements with certain officers, directors and shareholders
(all of which employment agreements are listed on Section 3.12 of the Disclosure Schedule), to the
Company’s Knowledge, neither the Company nor any of its Subsidiaries has purchased, acquired or
leased any property or services from, or sold, transferred or leased any property or services to,
or loaned or advanced money to, or is owed money from, or borrowed any money from or entered into
or been subject to any management, consulting or similar agreement with, any affiliate, officer,
director, employee or shareholder of the Company or any of its Subsidiaries.

     3.24 Operation in the Ordinary Course. Except as set forth on Section 3.24 of the
Disclosure Schedule, since June 30, 2005, the Company, the Subsidiaries and the Investments have
operated the Business in the ordinary course and in all material respects in accordance with past
practices.

     3.25 Employees. The Company has provided, or otherwise made available, the following
information for each Company Employee: name, title, current salary, target bonus and commissions,
if any, annual bonus and long-term incentive payments, (if any) (including, with respect to stock
options or grants, the number of shares covered by such options and the exercise price), Fair Labor
Standards Act status, date of hire, schedule of regular weekly hours of employment, annual vacation
entitlement, accrued but unused vacation, service date for employee benefit plan purposes, which
Employees are inactive employees due to an approved medical, family or personal leave and, to the
extent known, the date on which each inactive employee is expected to return to active employment.

     Except as indicated in Section 3.25 of the Disclosure Schedule, all of the Company Employees
are employees “at will” whose employment is terminable without liability therefor (other than
liability for severance payments or liability for retention or stay payments).

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     3.26 Product or Service Liability. Except as set forth on Section 3.26 of the Disclosure
Schedule, (i) there is no notice, demand, claim, action, suit, inquiry, hearing, proceeding, notice
of violation or investigation of a civil, criminal or administrative nature by or before any court
or other Governmental Authority against or involving any product, substance or material
(collectively, “Product”), or class of claims or lawsuits involving a Product manufactured,
assembled, produced, distributed, serviced or sold by or on behalf of the Company or any Subsidiary
which is pending or, to the Company’s Knowledge, threatened, on behalf of the purchaser of any
Product, resulting from an alleged defect in design, manufacture, materials or workmanship of any
Product manufactured, assembled, produced, distributed, serviced or sold by or on behalf of the
Company or any Subsidiary, or any alleged failure to warn or from any breach of express or implied
specifications or warranties or representations, and (ii) there has not been, nor is there under
consideration or investigation by the Company, any Product recall or post-sale warning
(collectively, such recalls
and post-sale warnings are referred to as “Recalls”) conducted by or on behalf of the
Company concerning any Product manufactured, assembled, produced, distributed, serviced or sold by
or on behalf of the Company or any Subsidiary or, to the Knowledge of the Company, any Recall
conducted by or on behalf of any entity as a result of any alleged defect in any Product supplied
by the Company or any Subsidiary. Since the date of the Interim Financial Statements, except as
set forth on Section 3.26 of the Disclosure Schedule, to the Knowledge of the Company, no events,
conditions, circumstances, activities, practices, incidents, actions, omissions or plans have
existed or occurred that could reasonably be expected to give rise to any liability or otherwise
form the basis of any claim based on or related to any Product that was or allegedly was
manufactured, assembled, produced, distributed, serviced or sold by or on behalf of the Company or
any Subsidiary.

     3.27 Product or Service Warranty. Except as set forth in Part I of Section 3.27 of the
Disclosure Schedule, each Product manufactured, assembled, produced, distributed, serviced or sold,
and each service provided, by the Company or any Subsidiary has been in material conformity with
all applicable contractual commitments and all express and implied warranties in all material
respects, and neither the Company nor any Subsidiary has any liability for replacement or repair
thereof or other damages in connection therewith in excess of the reserves therefor set forth on
the balance sheet of the Interim Financial Statements with respect to which (x) any claim that has
been asserted, or (y) the Company has knowledge of facts that could reasonably be expected to give
rise to a claim that might be asserted against the Company or any Subsidiary, subject in each case
only to returns of Products or warranty, in each case in the Ordinary Course of Business. Part II
of Section 3.27 of the Disclosure Schedule sets forth all of the terms and conditions of the
applicable guaranty, warranty and indemnity of the Company and its Subsidiaries in connection with
Products manufactured, assembled, produced, distributed, serviced or sold, or services provided, by
the Company or any Subsidiary and, except as described in Part III of Section 3.27 of the
Disclosure Schedule, no Product manufactured, assembled, produced, distributed, serviced or sold,
or service provided, by the Company or any Subsidiary is subject to any guaranty, warranty or other
indemnity by such entity beyond a period of two (2) years from the date of commencement of such
guarantee, warranty or indemnity.

     3.28 Disclosure.

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          (a) To the Knowledge of the Company, no representation or warranty of the Company or any
Significant Shareholder in this Agreement and no statement in the Disclosure Schedule omits to
state a material fact necessary to make the statements herein or therein, in light of the
circumstances in which they were made, not misleading.

          (b) No notice given pursuant to Section 5.6 will contain any untrue statement or omit to state
a material fact necessary to make the statements therein or in this Agreement, in light of the
circumstances in which they were made, not misleading.

     3.29 Limitation on Representations and Warranties. Except as set forth in this Article III, the
Company makes no express or implied warranty of any
kind whatsoever, including with respect to (a) any information furnished by the Company or its
financial advisor, Sagent Advisors Inc., or any of the Company’s other representatives or agents,
(b) the physical condition or value of any of the assets of the Company, (c) the value of the
Common Stock or Preferred Stock, or (d) the future profitability or future earnings performance of
the Company.

ARTICLE III A

REPRESENTATIONS AND WARRANTIES OF THE SIGNIFICANT SHAREHOLDERS

     Each Significant Shareholder represents and warrants to Parent and Merger Sub as follows:

     3a.1 Organization and Power. Such Significant Shareholder has all requisite
power and authority and full legal capacity to execute and deliver this Agreement and to perform
his, her or its obligations hereunder.

     3a.2 Authorization; Valid and Binding Agreement. The execution, delivery and
performance of this Agreement by such Significant Shareholder and any other document delivered by
such Significant Shareholder in connection herewith and the consummation of the transactions
contemplated hereby and thereby have been duly and validly authorized by all requisite action, and
no other proceedings on his, her or its part are necessary to authorize the execution, delivery or
performance of this Agreement. This Agreement has been duly executed and delivered by such
Significant Shareholder, and assuming the due authorization, execution and delivery by the other
Parties hereto, constitutes a legal, valid and binding obligation of such Significant Shareholder,
enforceable in accordance with its terms, except as enforceability may be limited by bankruptcy
Laws, other similar Laws affecting creditors’ rights and general principles of equity affecting the
availability of specific performance and other equitable remedies.

     3a.3 Noncontravention. The execution and the delivery of this Agreement by such
Significant Shareholder, and the consummation of the transactions contemplated hereby, will not (a)
violate or conflict in any way with any Law applicable to the Significant Shareholder, (b) violate
or conflict in any way with any judgment, order, decree, stipulation, injunction, charge or other
restriction of any Governmental Authority to which the Significant Shareholder is subject or, if
the Significant Shareholder is an entity, any provision of the Significant Shareholders’
certificate of incorporation, bylaws, partnership agreement or similar organizational documents, or
(c) conflict with, result in a breach of, constitute a default under (with or without notice or
lapse of time, or both), result in the acceleration of, create in any party the right to
accelerate,

34

 

terminate or cancel, or require any notice, consent or approval under, any lease,
sublease, license, sublicense, franchise, permit, indenture, agreement for borrowed money or other
agreement or instrument to which the Significant Shareholder is a party or by which it is bound.

     3a.4 Ownership of Shares. Such Significant Shareholder is the record owner of the number of shares of capital stock of
the Company, and/or has an Option with respect to the number of shares of Common Stock of the
Company, all as set forth opposite his, her or its name on Section 3.2 of the Disclosure Schedule.
On the Closing Date such Significant Shareholder will have good title to such Significant
Shareholder’s shares of capital stock of the Company, free and clear of all Liens, options,
proxies, voting trusts, commitments or agreements and other restrictions and limitations of any
kind.

     3a.5 Transaction Fees. Such Significant Shareholder has no liability or obligation to
pay any transaction costs associated with the transaction for which any member of the Buying Group
could become liable or otherwise obligated.

     3a.6 Disclosure.

          (a) To the knowledge of such Significant Shareholders, no representation or warranty of such
Significant Shareholder in this Agreement and no statement of such Significant Shareholder in the
Disclosure Schedule or specifically made by such Significant Shareholder in any of the Exhibits
hereto or in documents delivered by such Significant Shareholder omits to state a material fact
necessary to make the statements herein or therein, in light of the circumstances in which they
were made, not misleading; and.

          (b) No notice given by such Significant Shareholder pursuant to Section 5.6 will contain any
untrue statement or omit to state a material fact necessary to make the statements therein or in
this Agreement, in light of the circumstances in which they were made, not misleading.

ARTICLE IIIB

REPRESENTATION AND WARRANTY OF WAYNE PENROD

     3b.1 Penrod Family Investments, Inc. hereby represents and warrants to Parent and Merger Sub
that the Church of the Nazzarene is the record and sole beneficial owner of the number of Shares of
Common Stock of the Company set forth on Section 3.2 of the Disclosure Schedule, and that on the
Closing Date the Church of the Nazzarene will have good title to such shares free and clear of all
Liens, options, proxies, voting trusts, commitments or agreements and other restrictions and
limitations of any kind.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB

     Parent and Merger Sub each represent and warrant to the Company as follows:

     4.1 Organization. Parent is a corporation validly existing and in good standing under the
Laws of the State of Delaware. Parent has all requisite corporate power to enter into this
Agreement and the other documents and instruments to be executed and delivered by Parent and to
carry out the transactions contemplated hereby and thereby. Merger Sub is a corporation duly

35

 

organized,
validly existing and in active status under the Laws of the State of Delaware. Merger Sub has all
requisite corporate power to enter into this Agreement and the other documents and instruments to
be executed and delivered by Merger Sub and to carry out the transactions contemplated hereby and
thereby.

     4.2 No Violation. The execution and delivery of this Agreement by Parent and Merger Sub
and the consummation by Parent and Merger Sub of the transactions contemplated hereby will not
cause a breach or violation of or default under any provision of: (a) the Articles of Incorporation
of Parent or Merger Sub or Bylaws of Parent or Merger Sub; (b) any material contract to which
Parent or Merger Sub is a party or by which Parent or Merger Sub may be bound; or (c) any decree,
order, injunction or other decision of any court, arbitrator or Governmental Authority to which
Parent or Merger Sub may be subject.

     4.3 Authority; Validity. The execution and delivery of this Agreement and the other
documents and instruments to be executed and delivered by Parent and Merger Sub pursuant hereto and
the consummation of the transactions contemplated hereby and thereby have been duly authorized by
the respective Boards of Directors of Parent and Merger Sub. No other corporate act or proceeding
on the part of Parent or Merger Sub is necessary to authorize this Agreement or the other documents
and instruments to be executed and delivered by Parent or Merger Sub pursuant hereto or the
consummation by Parent or Merger Sub of the transactions contemplated hereby and thereby. This
Agreement constitutes, and when executed and delivered, the other documents and instruments to be
executed and delivered by Parent and Merger Sub pursuant hereto will constitute, valid and binding
agreements of Parent or Merger Sub, as the case may be, enforceable against Parent and Merger Sub
in accordance with their respective terms, except as such may be limited by bankruptcy, insolvency,
reorganization or other Laws affecting creditors’ rights generally, and by general equitable
principles.

     4.4 Governmental Consents. Except for the application of the HSR Act, no approval,
authorization, notice, consent or other action by or filing with any governmental body or agency is
required for Parent’s or Merger Sub’s execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby.

     4.5 Investment/Operational Intent.

          (a) Parent and Merger Sub each has sufficient knowledge and experience in financial and
business matters to enable it to evaluate the merits and risks of the transactions contemplated by
this Agreement.

          (b) Parent and Merger Sub have been given access to information requested regarding the
Company, including the opportunity to ask questions of and receive answers from the officers of the
Company concerning the present and proposed activities of the Company and to obtain the information
which Parent or Merger Sub deems necessary or advisable in order to evaluate the merits and risks
of the transactions contemplated by this Agreement, and Parent and Merger Sub have made their own
independent investigation of the Company and the merits and risks of the transactions contemplated
by this Agreement.

          (c) Parent is acquiring the Company for its own account, for investment or operational
purposes, and not with a view to resale or for distribution of all or any portion of the capital
stock.

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     4.6 Financial Condition. Parent has, and Parent will cause Merger Sub to have at the
Effective Time, all funds necessary to consummate the Merger and all other transactions
contemplated hereunder.

ARTICLE V

COVENANTS

     From and after the date of this Agreement, the parties shall comply with the following
covenants:

     5.1 Access to Information and Records.

          (a) From the date hereof through the Closing, the Company shall give Parent, Merger Sub, their
counsel, accountants and other representatives:

               (i) reasonable access during normal business hours to all of the properties, books, records,
contracts and documents of the Company for the purpose of such inspection, investigation and
testing as Parent or Merger Sub deems appropriate (and the Company shall furnish or cause to be
furnished to Parent, Merger Sub and their representatives all information with respect to the
business and affairs of the Company as Parent or Merger Sub may reasonably request);

               (ii) with the prior consent of the Company in each instance, access to employees, agents and
representatives of the Company for the purposes of such meetings and communications as Parent or
Merger Sub reasonably desires; and

               (iii) with the prior consent of the Company in each instance, access to vendors, customers and
others having business dealings with the Company.

     5.2 Conduct of Business Pending the Closing. From the date hereof until the Closing,
except as set forth in this Agreement or as otherwise approved in writing by Parent (which approval
shall not be unreasonably withheld or delayed), the Company shall comply with the following
covenants:

          (a) No Material Changes. The Company will carry on the Business in the ordinary
course and in substantially the same manner as heretofore conducted and will not make or institute
any material changes in its methods of purchase, sale, management, accounting or operation.

          (b) Maintain Organization. The Company will take such action as may be commercially
reasonable to maintain, preserve, renew and keep in favor and effect the existence, rights and
franchises of the Company and will use commercially reasonable efforts to preserve the business
organization of the Company intact, to keep available to the Company the present officers and
Company Employees, and to preserve its present relationships with suppliers and customers and
others having business relationships with the Company.

          (c) Material Contracts. The Company shall not enter into any material contract
outside of the Ordinary Course of Business.

          (d) No Issuance of Common Stock. Except for this Agreement and as contemplated by the
Company’s Articles of Incorporation in effect as of the date hereof, the Company shall not issue,
sell, pledge, encumber, authorize the issuance of, enter into any

37

 

contract to issue, sell, pledge,
encumber, or authorize the issuance of, or otherwise permit to become outstanding, any additional
shares of Common Stock or any other capital stock of the Company, including, without limitation,
pursuant to the exercise of any options, or any stock appreciation rights, or any option, warrant,
conversion, or other right to acquire any such stock, or any security convertible into any such
stock. Notwithstanding the foregoing, immediately prior to the Effective Time, the Company shall
issue the Earn Out Shares in accordance with the terms of the LADD Earn Out Agreement.

          (e) Maintain Employment Terms. The Company shall not grant any increase in
compensation or benefits to the employees or officers of the Company, pay any severance or
termination pay or any bonus other than in the Ordinary Course of Business, enter into or amend any
severance agreements with officers of the Company or grant any material increase in fees or other
increases in compensation or other benefits to directors of the Company.

          (f) Maintain Employee Benefits. The Company shall not adopt any new employee benefit
plan or terminate or withdraw from, or make any material change in or to, any existing employee
benefit plans of the Company other than any such change that is required by Law or that, in the
opinion of counsel to the Company, is necessary or advisable to maintain the tax qualified status
of any such plan, or make any distributions from such employee benefit plans except as required by
Law, the terms of such plans, or consistent with past practice; provided, however, that the Company
shall terminate the Plan not earlier than 5 Business Days nor later than 1 Business Day prior to
the Effective Time.

          (g) Maintain Intellectual Property. The Company shall not sell, transfer, assign,
license, dispose of, or abandon, and shall take commercially reasonable steps to maintain or
prosecute, any Intellectual Property of the Company or any registration or pending application
therefore.

          (h) Capital Expenditure. The Company shall not incur or commit to capital
expenditures in excess of current budgeted amounts individually or in the aggregate.

     5.3 HSR Act Filings. Within ten (10) Business Days following the execution of this
Agreement each Party shall, in cooperation with the other Parties, file or cause to be filed any
notifications required to be filed by it under the HSR Act with the Federal Trade Commission and
the Antitrust Division of the Department of Justice, and shall furnish to the others all such
information in its possession as may be necessary for the completion of the reports or
notifications to be filed by the others. Parent and the Company shall each pay one-half of the
filing fees in connection with all such notifications. Each Party shall consult with the other
Parties with respect thereto prior to making any communication, written or oral, with the Federal
Trade Commission, or the Antitrust Division of the Department of Justice with respect to this
Agreement or the transactions contemplated hereby.

     5.4 Consents. The Company will use commercially reasonable efforts to obtain, prior to the
Closing, all Consents listed on Section 3.4(b) of the Disclosure Schedule or otherwise required to
consummate the transactions contemplated hereby. All such Consents shall be in writing and in form
and substance reasonably satisfactory to Parent, and executed counterparts shall be delivered to
Parent promptly after receipt, but in no event later than the Closing. In any case where a Consent
has not been obtained prior to Closing, the Company Representative shall assist the Buying Group
after Closing in every reasonable effort to obtain such Consents.

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     5.5 Publicity. All general notices, releases, statements and communications to employees,
suppliers, customers, the public and the press relating to the transactions contemplated by this
Agreement shall be made only at such times and in such manner as may be mutually agreed upon by the
Company and Parent; provided, however, that any party may make a public announcement of the
proposed transaction, if, in the written opinion of counsel, such announcement is required to
comply with any Law or any rule or regulation of any securities exchange or securities quotation
system and such Party shall, to the extent practicable, consult with the other Parties with respect
to such announcements and give reasonable prior written notice of its intent to issue such
announcement.

     5.6 Notification of Certain Matters; Supplemental Disclosure.

          (a) Contemporaneously with the execution and delivery of this Agreement, the Company and the
Significant Shareholders are delivering to the Buying Group the Disclosure Schedule, which is an
integral part of this Agreement and modifies the representations, warranties, covenants or
agreements of the Company and the Significant Shareholders contained in this Agreement.
Notwithstanding anything to the contrary contained in the Disclosure Schedule or in this Agreement,
any fact or circumstance that is disclosed in a section of the Disclosure Schedule shall not be
deemed to be disclosed in any other section of the Disclosure Schedule unless a cross-reference to
such fact or circumstance is provided in such other section of the Disclosure Schedule.

          (b) The Company and/or any Significant Shareholder shall give prompt notice to the Buying
Group of any fact, event or circumstance known to the Company and/or any such Significant
Shareholder, as the case may be that (a) is reasonably likely, individually or taken together with
all other facts, events and circumstances known to it, to result in any Material Adverse Effect,
(b) would cause or constitute a material breach of any of its representations, warranties,
covenants or agreements contained herein or (c) would make it impossible for the Company and/or any
such Significant Shareholder, as the case may be to consummate the transactions contemplated by
this Agreement. Notwithstanding anything contained herein to the contrary, no such notice given by
the Company or any such Significant Shareholder shall relieve any breach of the Company or any such
Significant Shareholder hereunder or any obligation under Article VIII hereof.

     5.7 Merger Sub Shareholder Approval. Parent’s execution of this Agreement evidences
Parent’s consent to and approval of the Merger as the sole shareholder of Merger Sub and, if
separately required to further evidence such
consent and approval, Parent agrees to cause the shares of Merger Sub owned by it to be voted in
favor of the Merger subject to the terms and conditions of this Agreement.

     5.8 Indemnification of Directors and Officers. Parent shall cause the Surviving Company to
indemnify each Person who, prior to the Effective Time, served as an officer or director of the
Company or any of its subsidiaries or as a fiduciary of any employee benefit plan maintained by the
Company to the same extent as such Person is indemnified pursuant to indemnification agreements in
effect, or indemnification provisions contained in the Company’s Articles of Incorporation or
Bylaws, immediately prior to the Effective Time.

     5.9 Company Representative.

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          (a) By approving this Agreement, the Company Securityholders hereby irrevocably make,
constitute and appoint Richard L. Cravey, Jr. (the “Company Representative”) as their true
and lawful attorney-in-fact with full power of substitution to do any and all things and execute
any and all documents which may be necessary, convenient or appropriate to facilitate the
consummation of the transactions contemplated by this Agreement, including but not limited to: (i)
make all decisions relating to the determination of the Actual Closing Date Working Capital Amount;
(ii) make all decisions relating to the distribution of any amounts payable or distributable to the
Company Securityholders hereunder; (iii) execution of the Escrow Agreement and any other document
required by this Agreement; (iv) receipt of payments hereunder and under the Escrow Agreement and
the disbursement thereof to the Company Securityholders and others; (v) receipt and forwarding of
notices and communications pursuant to this Agreement and the Escrow Agreement; (vi) administration
of this Agreement and the Escrow Agreement, including the resolution of any dispute or claim, (vii)
the resolution, settlement or compromise of any claim for indemnification asserted against a
Company Securityholder pursuant to Section 8.2(a), and (viii) asserting, on behalf of the Company
Securityholders, claims for indemnification under Section 8.3 and resolving, settling or
compromising all such claims.

          (b) In the event that the Company Representative, with the advice of counsel, is of the
opinion that he requires further authorization or advice from the Company Securityholders on any
matters concerning this Agreement, the Company Representative shall be entitled to seek such
further authorization from the Company Securityholders prior to acting on their behalf. In such
event, each Company Securityholder shall have a number of votes equal to the number of shares of
Common Stock owned by that Company Securityholder on the Closing Date and the authorization of a
majority of such number of such shares shall be binding on all of the Company Securityholders and
shall constitute the authorization by the Company Securityholders.

          (c) Parent and the Escrow Agent shall be fully protected in dealing with the Company
Representative under this Agreement and may rely upon the authority of the Company Representative
to act as the agent of the Company Securityholders. Any payment by Parent or Merger Sub, or both,
to the Company Representative under this Agreement shall be considered a payment by Parent and
Merger Sub to the Company Securityholders. The appointment of the Company Representative is
coupled with an interest and shall be irrevocable by any Company
Securityholder in any manner or for any reason. This power of attorney shall not be affected
by the disability or incapacity of the principal pursuant to any applicable Law.

          (d) If at any time there is more than one Company Representative, any act of the Company
Representative shall require the act of a majority of the Company Representatives. Any Company
Representative may resign from his or her capacity as a Company Representative at any time by
written notice delivered to the other Company Representative, if any, and to Parent. If there is a
vacancy at any time in any of the positions of Company Representative for any reason, the remaining
Company Representative may act with full power and authority until such time as the remaining
Company Representative shall select a successor to fill such vacancy. If at any time there is no
person acting as a Company Representative for any reason, the Company Securityholders shall select
a Company Representative. Each Company Securityholder shall have a number of votes equal to the
number of shares of Common Stock owned by that Company Securityholder on the Closing Date and the
authorization of a majority

40

 

of such number of such shares shall be binding on all of the Company
Securityholders and shall constitute the authorization by the Company Securityholders.

          (e) The Company Representative acknowledges that he has carefully read and understands this
Agreement, hereby accepts such appointment and designation, and represents that he will act in his
capacity as a Company Representative in strict compliance with and conformance to the provisions of
this Agreement.

          (f) The Company Representative shall not be liable to Parent, Merger Sub, the Company
Securityholders or the Escrow Agent for any error of judgment, or any act done or step taken or
omitted by him in good faith or for any mistake in fact or Law, or for anything that he may do or
refrain from doing in connection with this Agreement, except for his own bad faith or willful
misconduct. The Company Representative may seek the advice of legal counsel in the event of any
dispute or question as to the construction of any of the provisions of this Agreement or his duties
hereunder, and he shall incur no liability to Parent, Merger Sub, the Company Securityholders or
the Escrow Agent and shall be fully protected with respect to any action taken, omitted or suffered
by him in good faith in accordance with the opinion of such counsel.

          (g) Any expenses incurred by the Company Representative in connection with the performance of
his duties under this Agreement (including any fees and expenses of legal counsel retained by the
Company Representative) shall not be the personal obligations of the Company Representative but
shall be payable: (i) prior to the Effective Time, by the Company; and (ii) after the Effective
Time, by the Company Securityholders, pro rata in accordance with their respective ownership of
Common Stock (or Preferred Stock on an as converted basis) immediately prior to the Effective Time.

          (h) Each Company Securityholder agrees that the Transaction Expenses shall include the sum of
$250,000 to be paid to the Company Representative and to be used by the Company Representative for
the payment of all costs and expenses incurred by the Company Representative in connection with the
exercise by him of the authority granted to him herein (including reasonable attorney fees and
expenses and the fees and expenses of any accountants or other professional advisors retained by
the Company Representative). The Company Representative shall not disburse any portion of such sum
to any Company Securityholder until the lapse of ten (10) Business Days after the determination of
the Actual Closing Date Working Capital Amount, and thereafter may distribute to the Company
Securityholders, pro rata in
accordance with their respective ownership of Common Stock (or Preferred Stock on an as
converted basis) immediately prior to the Effective Time, such portion of such sum as the Company
Representative reasonably determines not to be needed for the payment of such costs and expenses.
Any portion of such sum remaining after the final resolution of all claims asserted against, or
asserted by or on behalf of, the Company Securityholders hereunder or under the Escrow Agreement
and the final distribution to the Company Securityholders of all monies that are or could be
distributable to them hereunder or under the Escrow Agreement, shall be distributed to the Company
Securityholders as provided in Section 2.8(c)(iv).

     5.10 Retention of Records. The Parent shall cause the Surviving Company to retain all
books and records relating to the Company’s pre-closing Tax, accounting or legal matters for a
period of at least six (6) years from the date hereof; provided, however, that at the end of such
six (6) year period any such document or record may be disposed of by the Buying Group if the
Buying Group first offers to surrender possession thereof to the Company Shareholders at their

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expense. The Company Shareholders shall have the right during business hours, upon reasonable
notice to Parent, to inspect and make copies of any such records for any reasonable purpose.

     5.11 Exclusive Dealing. During the period from the date of this Agreement through the
earlier of the Closing or termination of this Agreement pursuant to Article IX hereof, neither the
Company nor any Significant Shareholders shall take or permit any other Person on its behalf to
take, any action to solicit, encourage, initiate or participate in any discussions or negotiations
with, or provide any information to, any Person (other than the Buying Group and its affiliates and
representatives) concerning any purchase of the Company’s Shares Outstanding, any merger involving
the Company, any sale of all or substantially all of the assets of the Company and its Subsidiaries
or similar transaction involving the Company (other than inventory sold in the Ordinary Course of
Business).

     5.12 Agreement to Vote for Merger. Each of the Significant Shareholders agrees to vote the
shares held by such Significant Shareholder for the Merger, whether at a meeting or through the
solicitation of written consent.

     5.13 Employee Matters. At least five business days prior to the Closing, the Company shall
conduct and complete a drug screen and work-related background check for each employee of the
Company and its Subsidiaries as a condition of continuing employment, which drug screen and
background check shall be substantially similar to the drug screen and background check currently
required (including use of service providers) and used by Parent for its employees as a condition
of employment. Prior to the Closing, the Company shall terminate those employees who fail to pass
such drug screen or background check, unless directed by Parent not to terminate any such employee.
Any costs associated with any such termination shall be included within the definition of
Severance Costs under this Agreement.

     5.14 Employment Agreements. Prior to Closing, Parent and Merger Sub (a) shall offer to amend the existing written
employment agreements with William P. Carlton, Steve Allen and John Wright, including to limit the
term thereof to one (1) year following the Effective Time, and (b) may, in its good faith
discretion, offer written employment agreements to Harry V. Bonds, III, Norman Denny, Michael
Hanisch, Shawn Phillips, Sean Robertson, William Wadsworth, Alfred Wright, and Jason Vangilder,
which agreements may contain terms relating to compensation and benefits that are, in the
aggregate, substantially equivalent to the compensation and benefits presently paid or provided by
the Company or its Subsidiaries to such persons or on such other terms and conditions as are
mutually agreeable and (c ) shall offer to amend the existing written employment agreements with R.
Todd Farnsworth, Paul Goldbecker, Rich Halstead, Tim Hahn and Tony Cranfield to limit the term
thereof to two (2) years following the Effective Time. The Company and each Significant
Shareholder shall use their respective commercially reasonable efforts to encourage each of the
above named employees to accept the offer, if made, of Parent and Merger Sub and enter into the
amendment or written employment agreement, as the case may be. Prior to Closing, Parent and Merger
Sub acknowledge and agree that they will not seek to amend the existing employment agreements with
Max Andrews, Chris Mastin, Daniel Penrod and R. Wayne Penrod, and that such employment agreements
shall continue in accordance with their respective terms.

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     5.15 Additional Non-Competition Agreements. Prior to Closing, the Company shall use its
commercially reasonable efforts to encourage (a) each of the Persons identified on Section 5.15 of
the Disclosure Schedule to execute and deliver a Non-Solicitation Agreement in the form attached
hereto as Exhibit C-1, (b) each of the Persons identified on Section 6.12 of the Disclosure
Schedule to execute and deliver a Non-Competition Agreement in the form attached hereto as Exhibit
C-2, and (c) CGW Southeast Partners, L.P. (“CGW”), to execute and deliver the CGW
Non-Solicitation Agreement in the form attached hereto as Exhibit C-3.

     5.16 Identified Environmental Remediation. Parent has identified certain environmental
conditions presently existing on property owned or leased by the Company for which the Company may
be required to incur costs of remediation. Within ten (10) days after the date hereof, Parent
shall advise the Company in writing of the nature of all such conditions, and the conditions so
identified are herein called the “Identified Environmental Conditions.” Following such
notification, the Company and Parent shall negotiate in good faith towards agreement as to the
reasonable cost of remediation of all Identified Environmental Conditions, and the amount of
remediation costs as so agreed upon, which shall in no event exceed $250,000, is herein referred to
as the “Remediation Amount.”

ARTICLE VI

CONDITIONS PRECEDENT TO PARENT’S AND MERGER SUB’S OBLIGATIONS

Each and every obligation of Parent and Merger Sub to be performed on the Closing Date shall be
subject to the satisfaction prior to or at the Closing of each of the following conditions:

     6.1 Representations and Warranties True on the Closing Date. Each of the representations and
warranties made by the Company and the Significant Shareholders
in this Agreement shall be true and correct in all material respects when made and shall be true
and correct in all material respects at and as of the Closing Date as though such representations
and warranties were made or given on and as of the Closing Date, except for any changes permitted
by the terms of this Agreement or consented to by Parent or Merger Sub, provided that for purposes
of this Section 6.1, if any representation or warranty includes a materiality qualifier, such
qualifier shall be disregarded.

     6.2 Compliance With Agreement. The Company and the Significant Shareholders shall have in
all material respects performed and complied with all of its agreements and obligations under this
Agreement that are to be performed or complied with by it prior to or on the Closing Date.

     6.3 Absence of Litigation. No litigation shall have been commenced, pending or threatened
which seeks to enjoin, restrain or prohibit Parent, Merger Sub, the Company, the Company
Shareholders or any of the affiliates, officers or directors of any of them, from consummating the
transactions contemplated herein.

     6.4 Consents.

          (a) All Consents listed in Section 3.4(b) of the Disclosure Schedule (other than Consents
under any contract which is not a Material Contract, which shall be governed by subsection (b)
below) shall have been received, and executed counterparts thereof shall have been delivered to
Parent or Merger Sub at or prior to the Closing.

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          (b) The contracts of the Company which are not Material Contracts under which required
Consents have not been obtained, shall not, in the aggregate, provide for annual payments or other
consideration from or to the Company in excess of $300,000.

     6.5 HSR Act Waiting Period. All applicable waiting periods related to the HSR Act shall
have expired.

     6.6 No Material Adverse Change. During the period from the date hereof to the Closing
Date, there shall not have been any occurrence or any event that has had or is reasonably likely to
have a Material Adverse Effect.

     6.7 Merger Filings. The Articles of Merger shall have been filed with the Delaware and
with the Secretary of State of the State of Arkansas.

     6.8 Dissenting Shares. Dissenting Shares shall not be more than 5% of the Shares
Outstanding.

     6.9 Documents to be Delivered by the Company. At the Closing, the Company shall have
delivered to Parent and Merger Sub the following documents, in each case duly executed or otherwise
in proper form:

          (a) Compliance Certificate. A certificate signed by the Chief Executive Officer of
the Company that (i) each of the representations and warranties made by the Company in this
Agreement is true and correct in all material respects on and as of the Closing Date with the same
effect as though such representations and warranties had been made or given on and as of the
Closing Date (except for any changes permitted by the terms of this Agreement or consented to in
writing by Parent), provided that for purposes of such certificate, if any representation or
warranty includes a materiality qualifier, such qualifier shall be disregarded, and (ii) the
Company has performed and complied in all material respects with all of its obligations under this
Agreement that are to be performed or complied with on or prior to the Closing Date.

          (b) Certified Resolutions. Certified copies of the resolutions of the Board of
Directors and the Company Shareholders, authorizing and approving this Agreement and the
consummation of the transactions contemplated by this Agreement.

          (c) Escrow Agreement. The Escrow Agreement.

          (d) Articles; Bylaws. A copy of the Articles of Incorporation of the Company
certified by the Secretary of State of Arkansas and a copy of the Bylaws of Company certified by
the Secretary of the Company.

          (e) Incumbency Certificate. Incumbency certificates relating to each person executing
any document executed and delivered to Parent or Merger Sub by the Company pursuant to the terms
hereof.

          (f) Legal Opinion. An opinion of each of (i) Alston & Bird, LLP, counsel to the
Company and CGW Southeast Partners IV, L.P., dated the Closing Date, substantially in the form
attached hereto as Exhibit D and (ii) Friday, Eldridge & Clark LLP, counsel to the Company, dated
the Closing Date, substantially in the form attached hereto as Exhibit E, which opinion will
include an opinion as to the enforceability of Section 5.9 hereof.

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          (g) Other Documents. All other documents, instruments or writings reasonably required
to be delivered to Parent or Merger Sub at or prior to the Closing pursuant to this Agreement and
such other certificates of authority and documents as Parent or Merger Sub may reasonably request.

     6.10 Resignation of Officers and Directors. Except as may be requested by Parent or Merger
Sub, at the Closing each of the officers and directors of the Company and each of its Subsidiaries
shall have resigned as an officer or director.

     6.11 Affiliate Transactions.

          (a) With respect to each of the transactions listed on Section 3.23 of the Disclosure Schedule
one or more of the following shall occur: (i) such transaction and each agreement relating thereto
with respect to amounts owed to the Company or any Subsidiary (whether or not due on or before the
Closing Date) shall have been paid in full, (ii) such transaction shall have been terminated on
terms satisfactory to the Parent and Merger Sub, or (iii)
such transaction and each agreement relating thereto shall have been approved by the Parent
and Merger Sub in writing, including after any amendment requested by Parent.

          (b) With respect to the leases for the Leased Real Property set forth on Section 6.11 of the
Disclosure Schedule, the Company shall, at the option of the Parent and Merger Sub, cause the
landlord of such Leased Real Property to modify such leases as described on such Schedule.

     6.12 Non-Competition Agreements. Each of the Persons designated on Section 6.12 of the
Disclosure Schedule shall have executed and delivered a Non-Competition Agreement in the form
attached hereto as Exhibit C-2.

     6.13 Leased Real Property. The Company shall use its commercially reasonable efforts to
cause each landlord of Leased Real Property to enter into such access agreements, estoppels and
similar customary arrangements as are required by the Parent’s lenders under its inventory
securitization facility.

     6.14 Lien Releases and Termination of Financing. The Company shall have provided evidence
satisfactory to the Parent and Merger Sub that all Liens on the assets of the Company and the
Subsidiaries have been released and that all related financing arrangements have been terminated.

     6.15 LADD Stock Earn Out. The Company shall deliver a certificate from Penrod Family
Investments, Inc. (formerly known as LADD Industries, Inc.) in form and substance satisfactory to
Parent that all of the obligations of the Company to Penrod Family Investments, Inc. under and in
connection with the Carlton-Bates Company Stock Earn Out Agreement dated July 16, 2003 in favor of
Penrod Family Investments, Inc., as grantee, have been satisfied in full.

     6.16 Termination of Options, etc. All stock option plans, outstanding options, warrants,
conversion rights, and similar obligations shall be satisfied and terminated in a form and manner
satisfactory to Parent and Merger Sub with no further obligations or liabilities on the part of the
Surviving Corporation.

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     6.17 CGW Non-Solicitation Agreement. CGW shall have executed and delivered the CGW
Non-Solicitation Agreement in the form attached hereto as Exhibit C-3.

     6.18 Employment Agreements. Each of R. Todd Farnsworth, Paul Goldbecker, Rich Halstead,
Tim Hahn and Tony Cranfield shall have entered into the employment agreement amendments
contemplated by Section 5.14(c); provided, however, that if this condition shall not be satisfied
prior to Closing, Parent and Merger Sub shall waive this condition upon receipt from the
Significant Shareholders of an agreement to indemnify the Surviving Corporation for all severance
and other similar benefits to which any of such employees may become entitled under the existing
written employment agreements.

ARTICLE VII

CONDITIONS PRECEDENT TO THE COMPANY’S OBLIGATIONS

     Each and every obligation of the Company to be performed on the Closing Date shall be subject
to the satisfaction prior to or at the Closing of the following conditions:

     7.1 Representations and Warranties True on the Closing Date. Each of the representations
and warranties made by Parent and Merger Sub in this Agreement shall be true and correct in all
material respects when made and shall be true and correct in all material respects at and as of the
Closing Date as though such representations and warranties were made or given on and as of the
Closing Date, provided that for purposes of this Section 7.1, if any representation or warranty
includes a materiality qualifier, such qualifier shall be disregarded.

     7.2 Compliance With Agreement. Parent and Merger Sub shall have in all material respects
performed and complied with all of their agreements and obligations under this Agreement that are
to be performed or complied with by them prior to or on the Closing Date.

     7.3 Absence of Litigation. No litigation shall have been commenced, pending or threatened
which seeks to enjoin, restrain or prohibit Parent, Merger Sub, the Company, the Company
Shareholders or any of the affiliates, officers or directors of any of them, from consummating the
transactions contemplated herein.

     7.4 Consents and Approvals. All approvals, consents and waivers listed in Section 3.4 of
the Disclosure Schedule that are required to effect the transactions contemplated hereby shall have
been received.

     7.5 HSR Act Waiting Period. All applicable waiting periods related to the HSR Act shall
have expired.

     7.6 Merger Filings. The Articles of Merger shall have been filed with the Delaware and
with the Secretary of State of Arkansas.

     7.7 Documents to be Delivered by Parent and Merger Sub. At the Closing, Parent and Merger
Sub shall deliver to the Company the following documents, in each case duly executed or otherwise
in proper form:

          (a) Compliance Certificates. A certificate signed by the Chief Executive Officer of
Parent and a certificate signed by the Chief Executive Officer of Merger Sub that (i) each of the
representations and warranties made by Parent and Merger Sub in this Agreement are true and correct
in all material respects on and as of the Closing Date with the same effect as though such
representations and warranties had been made or given on and as of the Closing Date (except for any
changes permitted by the terms of this Agreement or consented to in writing by Company), provided
that for purposes of such certificate, if any representation or warranty

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includes a materiality
qualifier, such qualifier shall be disregarded, and (ii) Parent and Merger
Sub have each performed and complied in all material respects with all of their obligations
under this Agreement that are to be performed or complied with on or prior to the Closing Date.

          (b) Certified Resolutions. A certified copy of the resolutions of the Board of
Directors of Parent and Merger Sub, of the Parent as the sole shareholder of Merger Sub, and if
required, the shareholders of Parent authorizing and approving this Agreement and the consummation
of the transactions contemplated by this Agreement.

          (c) Incumbency Certificates. Incumbency certificates relating to each person
executing any document executed and delivered to the Company by Parent or Merger Sub pursuant to
the terms hereof.

          (d) Other Documents. All other documents, instruments or writings reasonably required
to be delivered to the Company at or prior to the Closing pursuant to this Agreement and such other
certificates of authority and documents as the Company may reasonably request.

     7.8 Merger Price. Parent or Merger Sub shall have paid the Merger Price in accordance with
the provisions of Article II of this Agreement and of the Plan of Merger.

ARTICLE VIII

SURVIVAL; INDEMNIFICATION

     8.1 Survival; Remedies for Breach.

          (a) Each and every representation and warranty made by the Company, the Significant
Shareholders, Parent or Merger Sub in this Agreement or in any exhibit, schedule, instrument of
transfer or other document delivered pursuant hereto or in connection herewith shall survive the
Closing, but except as otherwise provided in this Section 8.1, shall terminate on March 31, 2008
(the “Cut-Off Date”) and thereafter be of no further force or effect. Each and every
covenant and agreement of a Party set forth herein shall survive the Closing without limitation as
to time.

          (b) Any representation or warranty that would otherwise terminate at the Cut-off Date with
respect thereto shall survive if notice of the breach, inaccuracy or nonperformance thereof shall
have been given on or prior to the Cut-Off Date with respect thereto to the Party against whom
indemnification may be sought but only to the extent related to such breach, inaccuracy or
nonperformance.

          (c) After the Closing, the indemnities set forth in this Article VIII shall be the exclusive
remedies (except in the case of fraud) of the Company, Parent and Merger Sub for the breach of any
covenant, agreement, representation or warranty in this Agreement by the Company, Parent and Merger
Sub, as the case may be; provided, however, that this Article VIII shall not be the exclusive
remedy for the breach of representations and warranties of a Significant Shareholder set forth in
Section 3a.4 or of Penrod Family Investments, Inc. set forth in Section 3b.1, and Parent and Merger
Sub shall have such rights as may be available at law or in equity with respect to a breach of any
such representation and warranty.

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     8.2 Indemnification By Certain Company Securityholders and Significant Shareholders.

          (a) Company Securityholders. Subject to the provisions of this Section and the other
Sections of this Article VIII, the Company Representative, on behalf of each of the Company
Securityholders other than the Plan, severally as to such Company Securityholder’s share of the
Claims Amount, agrees to indemnify and hold harmless each member of the Buying Group, and their
respective officers, directors, agents and representatives from and against any and all Losses
incurred or sustained by or imposed upon them with respect to or by reason of:

               (i) any failure, breach or inaccuracy on the part of the Company of any of its representations
or warranties under this Agreement or contained in any certificate, document or instrument
delivered by the Company hereunder;

               (ii) any breach, default or lack of performance on the part of the Company of any of its
covenants or agreements under this Agreement;

               (iii) all Taxes for periods up through the Effective Time not otherwise paid or adequately
accrued in the Closing Date Balance Sheet, including without limitation failure to withhold taxes
with respect to employee and officer use of planes and vehicles;

               (iv) any payments made in connection with Dissenting Shares in excess of the Per Share Merger
Consideration and any costs (including legal, accounting and other professional fees) incurred in
connection with the proceedings related to such Dissenting Shares;

               (v) the extent to which the Actual Plan Termination Costs exceed the Estimated Plan
Termination Costs;

               (vi) the extent to which the Actual Severance Costs exceed the Estimated Severance Costs;

               (vii) costs actually and reasonably incurred by the Company or Parent for the remediation of
the Identified Environmental Conditions, but in no event to exceed the Remediation Amount; and

               (viii) the action styled Glenda Johnson v. Carlton-Bates Company, Case Number 4-05 CV0000908,
filed on June 23, 2005 in the United States District Court, Eastern District of Arkansas, Western
Division, including any punitive class action that may be asserted in connection therewith and,
notwithstanding anything in the Agreement to the contrary, any punitive damages relating thereto.

          (b) Significant Shareholders. Subject to the provisions of this Section and the other
Sections of this Article VIII, each Significant Shareholder, severally as to such Significant
Shareholder’s share of the Claims Amount, agrees to indemnify and hold harmless each member of the
Buying Group, and their respective officers, directors, agents and representatives, from and
against any and all Losses incurred or sustained by or imposed upon them with respect to or by
reason of:

               (i) any failure, breach or inaccuracy on the part of such Significant Shareholder of any of
its representations or warranties under Article IIIA of this Agreement or

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contained in any certificate, document or instrument delivered by the such Significant
Shareholder hereunder; and

               (ii) any breach, default or lack of performance on the part of such Significant Shareholder of
any of its covenants or agreements under this Agreement (other than the agreements contained in
Section 8.2(a)).

          (c) Notwithstanding anything to the contrary in this Agreement, no member of the Buying Group
shall be entitled to indemnification under Section 8.2(a)(i) for any Losses as to which a member of
the Buying Group otherwise may be entitled to indemnification hereunder (without giving effect to
this paragraph (c)), until the aggregate amount of such indemnifiable Losses exceeds $250,000 (the
“Threshold Amount”), provided that after the aggregate of all indemnifiable Losses exceeds
the Threshold Amount, the Buying Group shall, in the aggregate, be entitled to indemnification
under Section 8.2(a)(i) only to the extent the aggregate amount of all such Losses exceeds the
Threshold Amount but is less than the Escrow Deposit.

          (d) To induce Parent and Merger Sub to enter into this Agreement and to consummate the Merger,
the Company has agreed, and by approving this Agreement the Company Shareholders have agreed, that,
subject to the provisions of this Section and the other Sections of this Article VIII, the Escrow
Deposit shall be withheld and placed in escrow at Closing for the purpose of satisfying the
indemnification obligations to the Buying Group under Section 8.2(a). The Escrow Deposit shall be
withheld and placed in escrow at the Closing with the Escrow Agent who shall hold and administer
the Escrow Deposit in accordance with the terms of the Escrow Agreement. ALL INDEMNITY PAYMENTS TO
THE BUYING GROUP UNDER SECTION 8.2(a) SHALL BE PAID FROM AND LIMITED TO, AND SHALL IN NO
CIRCUMSTANCES EXCEED, THE PRINCIPAL OF THE ESCROW DEPOSIT. SUCH INDEMNITY PAYMENTS FROM THE ESCROW
DEPOSIT SHALL BE THE SOLE SOURCE OF PAYMENT FROM, AND THE SOLE REMEDY AGAINST, THE COMPANY
SECURITYHOLDERS AND THE SIGNIFICANT SHAREHOLDERS FOR INDEMNIFICATION UNDER SECTION 8.2(a). NEITHER
THE COMPANY NOR ANY COMPANY SECURITYHOLDER SHALL HAVE ANY RESPONSIBILITY FOR AMOUNTS THAT MAY
BECOME PAYABLE HEREUNDER PURSUANT TO SECTION 8.2(a) EXCEPT TO THE EXTENT OF THEIR PROPORTIONATE
SHARE OF THE ESCROW DEPOSIT.

          (e) Each member of the Buying Group hereby waives any right that it may have to make a claim
for indemnification under this Article VIII concerning any matter as to which it is ultimately
determined that Parent (i) had actual knowledge prior to the Closing of facts which clearly and
obviously constitute a breach by the Company of a representation or warranty made in this
Agreement, (ii) has an actual understanding prior to the Closing that such facts constitute a
breach of a representation or warranty by the Company under this Agreement and (iii) fails to
disclose such knowledge to the Company prior to the Closing.

     8.3 Indemnification by Parent.

          (a) Subject to the provisions of this Section and the other Sections of this Article VIII,
Parent agrees to indemnify the Company Shareholders and hold them harmless from and against any
and all Losses incurred or sustained by or imposed upon the Company or
the Company Shareholders with respect to or by reason of: (i) any failure, breach or inaccuracy

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on
the part of Parent or Merger Sub of any of their representations or warranties under this Agreement
or contained in any certificate, document or instrument delivered by Parent or Merger Sub
hereunder; and (ii) any breach, default, inaccuracy or lack of performance on the part of Parent or
Merger Sub of any of their respective agreements or covenants under this Agreement or contained in
any certificate, document or instrument delivered by Parent or Merger Sub hereunder. Subject to
the provisions of this Section and the other Sections of this Article VIII, Parent agrees to
indemnify and hold harmless the Persons identified in Section 5.8 of this Agreement who are
adversely affected by Parent’s failure to comply with such Section 5.8, from and against any and
all Losses incurred or sustained by or imposed upon such Persons by such failure to so comply with
Section 5.8.

          (b) Notwithstanding anything in this Agreement, no member of the Buying Group shall be liable
(i) under Section 8.3(a)(i) for any Losses as to which the Company Shareholders otherwise may be
entitled to indemnification hereunder (without giving effect to this clause (i)), until such
indemnifiable Losses exceed the Threshold Amount, provided that after the aggregate of all
indemnifiable Losses exceeds the Threshold Amount, the Buying Group shall, in the aggregate, be
entitled to indemnification under Section 8.3(a)(i) only to the extent the aggregate amount of all
such Losses exceeds the Threshold Amount; and (ii) under this Article VIII for any Losses which in
the aggregate are in excess of $20,000,000.

     8.4 Procedures for Indemnification.

          (a) If an Indemnified Party shall claim to have suffered a Loss for which indemnification is
available under Section 8.2 or 8.3, as the case may be (for purposes of this Section 8.4,
regardless of whether such Indemnified Party is entitled to receive a payment in respect of such
claim by virtue of paragraph (c)(i) or (ii) of Section 8.2), the Indemnified Party shall notify the
Indemnifying Party in writing of such claim as promptly as practicable, which written notice shall
describe the nature of such claim, the facts and circumstances that give rise to such claim and the
amount of such claim if reasonably ascertainable at the time such claim is made (or if not then
reasonably ascertainable, the maximum amount of such claim reasonably estimated by the Indemnified
Party). In the case of a claim by Parent or the Surviving Corporation, such written notice shall
be provided by the Indemnified Party to the Company Representative, with a copy provided to the
Escrow Agent. In the event that within thirty (30) days after the receipt by the Indemnifying
Party of such a written notice from the Indemnified Party, the Indemnified Party shall not have
received from the Indemnifying Party a written objection to such claim, such claim shall be
conclusively presumed and considered to have been assented to and approved by the Indemnifying
Party following receipt by the Indemnifying Party (and, in the case of a claim by the Parent or the
Surviving Corporation, the Escrow Agent) of a written notice from the Indemnified Party to such
effect.

          (b) If within the thirty (30) day period described in paragraph (a) above the Indemnified
Party (and, in the case of claim by the Parent or the Surviving Corporation, the Escrow Agent)
shall have received from the Indemnifying Party a written notice setting forth the Indemnifying
Party’s objections to such claim and the Indemnifying Party’s reasons for such objection, then the
Parties (including the Company Representative) shall negotiate in good faith for a period of ten
(10) Business Days from the date the Indemnified Party receives such
objection (such period is hereinafter referred to as the “Negotiation Period”). After the

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Negotiation Period, if the Parties still cannot agree on the claim, the Parties (including the
Company Representative) shall follow the procedures set forth in Section 8.7 below with respect to
the resolution of such matter.

          (c) Upon determination of the amount of a claim that is binding on both the Indemnifying Party
and the Indemnified Party, the amount of such claim shall be paid within ten (10) Business Days of
the date such amount is determined. If the Indemnifying Party responsible for payment of such
claim is Parent, such payment shall be made by wire transfer to the Company Representative, who
shall be responsible for distributing any such payment by Parent to accounts of the Company
Securityholders in accordance with their respective percentages opposite the Company
Securityholders’ names on Schedule I hereto. If the Indemnifying Party responsible for
payment of such claim is a Company Securityholder, such payment shall be made by wire transfer by
the Escrow Agent to an account designated by the Buying Group in accordance with the terms of the
Escrow Agreement until such Company Securityholder’s portion of the Escrow Deposit is exhausted and
such Loss shall be shared on a pro rata basis among all Company Securityholders.
Notwithstanding anything contained herein to the contrary, the Parties hereby acknowledge and agree
that the Plan shall not be subject to this Article VIII and therefore shall not share in any loss
or benefit with respect to the Claims Amount of the Escrow Deposit.

     8.5 Procedures for Third Party Claims.

          (a) Any Indemnified Party seeking indemnification pursuant to this Article VIII in respect of
any Third Party Claim shall give the Indemnifying Party from whom indemnification with respect to
such claim is sought (i) prompt written notice (but in no event more than ten (10) days after the
Indemnified Party acquires knowledge thereof) of such Third Party Claim and (ii) copies of all
documents and information relating to any such Third Party Claim within ten (10) days of their
being obtained by the Indemnified Party; provided, that the failure by the Indemnified Party to so
notify or provide copies to the Indemnifying Party shall not relieve the Indemnifying Party from
any liability to the Indemnified Party for any liability hereunder except to the extent that such
failure shall have prejudiced the defense of such Third Party Claim.

          (b) The Indemnifying Party shall have thirty (30) days (or such lesser time as may be
necessary to comply with statutory response requirements for litigation claims that are included in
any Third Party Claim) from receipt of the notice contemplated in Section 8.5(a) to notify the
Indemnified Party whether or not the Indemnifying Party will, at its sole cost and expense, defend
the Indemnified Party against such claim. If the Indemnifying Party timely gives notice that it
intends to defend the Third Party Claim, it shall have the right, except as hereafter provided, to
defend against, negotiate, settle or otherwise deal with the Third Party Claim and to be
represented by counsel of its own choice, and the Indemnified Party will not admit any liability
with respect thereto or settle, compromise, pay or discharge the same without the consent of the
Indemnifying Party, which consent shall not be unreasonably withheld or delayed, so long as the
Indemnifying Party is contesting or defending the same with reasonable diligence and in good faith;
provided, that the Indemnified Party may participate in any proceeding with counsel of its choice
and at its expense; provided further, that the Indemnifying Party may not enter into a settlement
of any such Third Party Claim without the consent of the
Indemnified Party, which consent shall be not unreasonably withheld, unless such settlement

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requires no more than a monetary payment for which the Indemnified Party is fully indemnified by
the Indemnifying Party or involves other matters not binding upon the Indemnified Party; and
provided further that, in the event the Indemnifying Party does not agree in writing to accept the
defense of, and assume all responsibility for, such Third Party Claim as provided above in this
Section 8.5(b), then the Indemnified Party shall have the right to defend against, negotiate,
settle or otherwise deal with the Third Party Claim in such manner as the Indemnified Party deems
appropriate, in its sole discretion, and the Indemnified Party shall be entitled to indemnification
therefor from the Indemnifying Party to the extent provided under this Article VIII.
Notwithstanding the foregoing, if in the reasonable opinion of the Indemnified Party such Third
Party Claim, or the litigation or resolution of such Third Party Claim, involves an issue or matter
that could have a Material Adverse Effect on the Indemnified Party, including the administration of
Tax Returns of the Indemnified Party or a dispute with a significant supplier or customer of the
Indemnified Party, the Indemnified Party shall have the right to control the defense or settlement
of any such claim or demand and its reasonable costs and expenses shall be included as part of the
indemnification obligations of the Indemnifying Party. If the Indemnified Party elects to exercise
such right, the Indemnifying Party shall have the right to participate in, but not control, the
defense or settlement of such claim at its sole cost and expense.

     8.6 Effect of Indemnification. Any indemnity payment made hereunder shall be treated by
the Parties as an adjustment to the Merger Price.

     8.7 Arbitration. All disputes arising under this Article VIII shall be resolved by
arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration
Association. Arbitration shall be by a panel of three arbitrators experienced in the matters at
issue and selected by the parties hereto in accordance with the Commercial Arbitration Rules of the
American Arbitration Association. The arbitration shall be held in such place in Washington, DC as
may be specified by the arbitrators (or any place agreed to by the Parties hereto and the
arbitrators). The decision of the arbitrators shall be final and binding as to any matters
submitted under this Article VIII; provided, however, if necessary, such decision and satisfaction
procedure may be enforced by any Party in any court of record having jurisdiction over the subject
matter or over any of the parties to this Agreement. All costs and expenses incurred in connection
with any such arbitration proceeding (including reasonable attorneys fees) shall be borne by the
Party against which the decision is rendered, or, if no decision is rendered, such costs and
expenses shall be borne equally by the Indemnifying Party as one party and the Indemnified Party as
the other party. If the arbitrators’ decision is a compromise, the determination of which Party or
Parties bears the costs and expenses incurred in connection with any such arbitration proceeding
shall be made by the arbitrators on the basis of the arbitrators’ assessment of the relative merits
of the Parties’ positions.

ARTICLE IX

TERMINATION OF AGREEMENT

     9.1 Causes. This Agreement and the transactions contemplated hereby may be terminated at
any time prior to the completion of the Closing as follows, and in no other manner:

          (a) By mutual consent of the Parties;

          (b) By written notice from Parent to the Company if:

52

 

               (i) any of the conditions provided for in Article VI of this Agreement have not been satisfied
or waived by Parent or Merger Sub in writing and the Closing has not occurred by December 31, 2005
or the date of such notice, whichever is later; or

               (ii) there is or has been a breach or failure to fulfill on the part of the Company or the
Company Shareholders (including any of the Significant Shareholders) any of the representations,
warranties, covenants or agreements set forth in this Agreement, which in the case of any covenant
or agreement is not cured within fifteen (15) days after the Company has been notified of Parent’s
intention to terminate this Agreement.

          (c) By written notice from the Company to Parent and Merger Sub if:

               (i) any of the conditions provided for in Article VII of this Agreement have not been
satisfied or waived by the Company in writing and the Closing has not occurred by December 31, 2005
or the date of such notice, whichever is later; or

               (ii) there has been a breach or failure to fulfill on the part of Parent or Merger Sub any of
the representations, warranties, covenants or agreements set forth in this Agreement, which in the
case of any covenant or agreement is not cured within fifteen (15) days after Parent has been
notified of the Company’s intent to terminate this Agreement.

     9.2 Effect of Termination. In the event of a termination of this Agreement by Parent or
the Company under subparagraphs 9.1(b)(i) or (ii) or 9.1(c)(i) or (ii), the Parties shall have such
rights and remedies as may be provided at law or in equity. In the event of a termination of this
Agreement pursuant to subparagraphs 9.1(a), all Parties shall, except as hereafter provided, be
released from all obligations hereunder. Notwithstanding the foregoing, the respective obligations
of the Parties pursuant to Sections 9.2, 10.3, 10.5 and 10.6 shall survive any termination of this
Agreement.

ARTICLE X

MISCELLANEOUS

     10.1 Further Assurance. From time to time, at a Party’s request and without further
consideration, the other Parties will execute and deliver to the requesting Party such documents
and take such other action as the requesting Party may reasonably request in order to consummate
more effectively the transactions contemplated hereby.

     10.2 Assignment. The rights and obligations of a Party hereunder may not be assigned,
transferred or encumbered, in whole or in part, without the prior written consent of the other
parties; provided, however, Parent may assign its rights hereunder, in whole or in part, for the
benefit of its lenders.

     10.3 Law Governing Agreement. This Agreement shall be construed and interpreted according
to the internal Laws of the State of Arkansas, excluding any choice of law rules that may direct
the application of the Laws of another jurisdiction.

     10.4 Amendment and Modification. Parent, Merger Sub and the Company may amend, modify and
supplement this Agreement, and any of the terms, covenants, representations,

53

 

warranties or
conditions hereof may be waived, only by a written instrument executed on behalf of all of the
Parties hereto or, in the case of a waiver, by the Party waiving compliance.

     10.5 Notice. All notices, requests, demands and other communications hereunder shall be
given in writing and shall be: (a) personally delivered; (b) sent by telecopier, facsimile
transmission or other electronic means of transmitting written documents; or (c) sent to the
parties at their respective addresses indicated herein by registered or certified U.S. mail, return
receipt requested and postage prepaid, or by private overnight mail courier service. The
respective addresses to be used for all such notices, demands or requests are as follows:

	 	 	 	 	 
	 

	 	If to Parent or Merger Sub or	 	 
	 

	 	Surviving Corporation (following	 	 
	 

	 	the Closing), to:
	 	WESCO Distribution, Inc.
	 

	 	 	 	Attn: Stephen A. Van Oss
	 

	 	 	 	225 West Station Square Drive
	 

	 	 	 	Suite 700
	 

	 	 	 	Pittsburgh, Pennsylvania 15219-1122
	 

	 	 	 	Facsimile: (412) 454-2477
	 
	 	 	 	 
	 

	 	 	 	with a copy to:
	 
	 	 	 	 
	 

	 	 	 	WESCO Distribution, Inc.
	 

	 	 	 	Attn: Marcy Smorey-Giger, Esq.
	 

	 	 	 	225 West Station Square Drive
	 

	 	 	 	Suite 700
	 

	 	 	 	Pittsburgh, Pennsylvania 15219-1122
	 

	 	 	 	Facsimile: (412) 454-4236
	 
	 	 	 	 
	 

	 	 	 	with a copy to:
	 
	 	 	 	 
	 

	 	 	 	Reed Smith LLP
	 

	 	 	 	Attn: David L. DeNinno, Esq.
	 

	 	 	 	435 Sixth Avenue
	 

	 	 	 	Pittsburgh, Pennsylvania 15219
	 

	 	 
	 	Facsimile: (412) 288-3063
	 
	 

	 	If to the Company:	 	

(prior to Closing)
	 

	 	 	 	CGW Southeast Partners IV, L.P.
	 

	 	 	 	Attn: Richard L. Cravey, Jr.
	 

	 	 	 	Twelve Piedmont Center
	 

	 	 	 	Suite 210
	 

	 	 	 	Atlanta, Georgia 30305
	 

	 	 	 	Facsimile: (404) 816-3258
	 
	 	 	 	 
	 

	 	 	 	with a copy to:

54

 

	 	 	 	 	 
	 

	 	 	 	Alston & Bird LLP
	 

	 	 	 	Attn: Teri L. McMahon, Esq.
	 

	 	 	 	1201 West Peachtree Street
	 

	 	 	 	Atlanta, Georgia 30309-3424
	 

	 	 	 	Facsimile: (404) 253-8190
	 
	 	 	 	 
	 

	 	If to Company Representative:
	 	Richard L. Cravey, Jr.
	 

	 	 	 	c/o CGW Southeast Partners
	 

	 	 	 	Twelve Piedmont Center
	 

	 	 	 	Suite 210
	 

	 	 	 	Atlanta, Georgia 30305
	 

	 	 	 	Facsimile: (404) 816-3258
	 
	 	 	 	 
	 

	 	 	 	with a copy to:
	 
	 	 	 	 
	 

	 	 	 	Alston & Bird LLP
	 

	 	 	 	Attn: Teri L. McMahon, Esq.
	 

	 	 	 	1201 West Peachtree Street
	 

	 	 	 	Atlanta, Georgia 30309-3424
	 

	 	 	 	Facsimile: (404) 253-8190

     If personally delivered, such communication shall be deemed delivered upon actual receipt; if
electronically transmitted pursuant to this paragraph, such communication shall be deemed delivered
the next Business Day after transmission (and sender shall bear the burden of proof of delivery);
if sent by overnight courier pursuant to this paragraph, such communication shall be deemed
delivered upon receipt; and if sent by U.S. mail pursuant to this paragraph, such communication
shall be deemed delivered as of the date of delivery indicated on the receipt issued by the
relevant postal service, or, if the addressee fails or refuses to accept delivery, as of the date
of such failure or refusal. Delivery to the Company Representative shall constitute delivery to
all Company Shareholders. Any Person may change its address for the purposes of this Agreement by
giving notice thereof in accordance with this Section.

     10.6 Expenses. Regardless of whether or not the transactions contemplated hereby are
consummated:

          (a) Brokerage. Except as to Sagent Advisors Inc. and Brookwood Associates, L.L.C. who
shall be compensated by the Company as part of the Transaction Expenses, the Company, Merger Sub
and Parent each represent and warrant to each other that there is no broker involved or in any way
connected with the transfer provided for herein on their behalf respectively and each agrees to
hold the other harmless from and against all other claims for brokerage commissions or finder’s
fees in connection with the execution of this Agreement or the transactions provided for herein.

          (b) Other. Except as otherwise provided herein, each of the Parties shall bear its
own expenses and the expenses of its counsel and other agents in connection with the transactions
contemplated hereby.

55

 

     10.7 Entire Agreement; Binding Effect; No Third Party Rights. This Agreement embodies the
entire agreement between the Parties hereto with respect to the transactions contemplated herein,
and there have been and are no agreements, representations or warranties between the Parties other
than those set forth or provided for herein or executed contemporaneously or in connection
herewith. Except as expressly provided in this Agreement
including as specifically contemplated by Section 5.8 and Article VIII hereof, nothing expressed or
referred to in this Agreement will be construed to give any Person other than the parties hereto
any rights, remedies or claims under or with respect to this Agreement. This Agreement shall be
binding upon and shall inure to the benefit of the Parties hereto and their respective legal
representatives, successors and permitted assigns.

     10.8 Counterparts. This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute one and the same
instrument.

     10.9 Headings. The headings in this Agreement are inserted for convenience only and shall
not constitute a part hereof.

     10.10 Construction. Where any group or category of items or matters is defined
collectively in the plural number, any item or matter within such definition may be referred to
using such defined term in the singular number.

     10.11 Interpretations. Neither this Agreement nor any uncertainty herein shall be
construed or resolved against any Party, whether under rule of construction or otherwise. No Party
to this Agreement shall be considered the draftsman. The Parties acknowledge and agree that this
Agreement has been reviewed, negotiated, and accepted by all Parties, and their attorneys and shall
be construed and interpreted according to the ordinary meaning of the words used so as fairly to
accomplish the purposes and intentions of all Parties hereto.

     10.12 Severability. Any term or provision of this Agreement which is invalid or
unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of
such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms
and provisions of this Agreement or affecting the validity or enforceability of any of the terms
and provisions of this Agreement in any other jurisdiction. If any provision of this Agreement is
so broad as to be unenforceable, the provision shall be interpreted only so broad as enforceable.

(Signatures on the Following Page)

56

 

          IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first
above written.

	 	 	 	 	 	 	 
	 	 	CARLTON-BATES COMPANY
	 
	 	 	 	 	 	 
	 	 	By:	 	/s/ William P. Carlton	 	 
	 	 	 	 	 	 	 
	 	 	Title: President
	 
	 	 	 	 	 	 
	 	 	WESCO DISTRIBUTION, INC.
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Stephen A. Van Oss	 	 
	 

	 	 	 	 	 	 
	 	 	Title: Senior Vice President and
	 	 	Chief Financial and Administrative
	 	 	Officer
	 
	 	 	 	 	 	 
	 	 	C-B WESCO, INC.
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Stephen A. Van Oss	 	 
	 

	 	 	 	 	 	 
	 	 	Title: President
	 
	 	 	 	 	 	 
	 	 	COMPANY REPRESENTATIVE
	 
	 	 	 	 	 	 
	 	 	   /s/ Rick Cravey	 	 
	 	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	WILLIAM P. CARLTON, individually
	 	 	 	 	and as Trustee for the Joanna C.
	 	 	 	 	Kronbach Trust and the John W.
	 	 	 	 	Carlton Trust
	 
	 	 	 	 	 	 
	 	 	   /s/ William P. Carlton	 	 
	 	 	 	 	 

57

 

	 	 	 	 	 	 	 
	 	 	CGW SOUTHEAST PARTNERS IV,
	 	 	 	 	L.P.
	 
	 	 	 	 	 	 
	 	 	By:	 	/s/ Rick Cravey	 	 
	 	 	 	 	 	 	 
	 	 	Title: Partner
	 
	 	 	 	 	 	 
	 	 	PENROD FAMILY INVESTMENTS,
	 	 	 	 	INC.	 	 
	 
	 	 	 	 	 	 
	 	 	By:	 	/s/ R. Wayne
Penrod by [illegible] POA	 	
	 	 	 	 	 	 	 
	 	 	Title: President
	 
	 	 	 	 	 	 
	 	 	/s/ Janice L. Walters
    [notarial seal]
	 	 	Janice L. Walters, Notary Public
	 	 	in and for the State of Ohio
	 	 	My commission expires: Oct. 7, 2008

58Exhibit 10.1

 

Exhibit 10.1

Amendment No. 5 To The International Operating Agreement

Dated As Of September 29, 2005

General
Electric Capital Corporation

NACCO Materials Handling Group, Inc.

 

 

Amendment No. 5 To The International Operating Agreement

Dated As Of September 29, 2005 (the “Effective Date”)

Between

	(1)	 	General Electric Capital Corporation (“GE Capital”), a Delaware corporation with a
principal address at 10 Riverview Drive, Danbury, CT 06810; and

	(2)	 	NACCO Materials Handling Group, Inc. (“NMHG”), a Delaware corporation with a principal
address at 650 N.E. Holladay Street, Suite 1600, Portland, Oregon 97232.

BACKGROUND

GE Capital and NMHG are parties to the International Operating Agreement dated as of April 15,
1998, as previously amended (“Original IOA”). GE Capital and NMHG have agreed that in order to
most effectively promote the development of international financing programs involving their
respective Affiliates, it is advisable for such Affiliates to enter into Regional Agreements and/or
Master Regional Operating Agreements (as such terms are hereinafter defined) for countries in which
such financing activities will be conducted. GE Capital and NMHG have further agreed to amend the
Original IOA in order to better define the activities to be conducted by the International
Executive Committee, as such activities relate to the business of the various Master Regional
Operating Agreements and Regional Agreements, and to otherwise supplement the Original IOA by
setting forth certain general principles and objectives that shall govern the conduct of the
parties with respect to the International Program (as such term is hereinafter defined).

NOW THEREFORE, in consideration of the above premises and of the representations, warranties and
agreements contained herein, the parties, intending to be legally bound, agree to amend and
supplement the Original IOA as follows:

	1	 	Definitions
	 
	1.1	 	In this Amendment the following definitions apply:
	 
	 	 	Affiliate means any party that is Controlled By or under common Control with a party to the
Agreement.
	 
	 	 	Agreement means the Original IOA, as amended and supplemented pursuant to this Amendment to
International Operating Agreement, and all exhibits, addendums, riders and schedules
thereto, as the same may be further amended from time to time by a writing duly executed by
the parties hereto.
	 
	 	 	Annual Operating Plan means for each calendar year during the Term the plan agreed upon by
members of a Regional Working Committee for the conduct and development of a Regional
Program in a Program Country.
	 
	 	 	Arbitral Tribunal shall have the meaning given to it in Section 5.22.
	 
	 	 	Bankruptcy Event means with respect to any Person:

	 	(a)	 	the commencement by such Person of a voluntary case under any bankruptcy,
insolvency, reorganization or similar law now or hereafter in effect,
	 
	 	(b)	 	the consent by such Person to the appointment of, or taking possession by, a
receiver, custodian, liquidator, assignee or trustee of such Person or of a substantial
part of its property,
	 
	 	(c)	 	the making of a general assignment by such Person for the benefit of its
creditors,

page 2

 

	 	(d)	 	the admission in writing of such Person of its inability to pay its debts as
they become due or the general failure on the part of such Person to pay its debts as
they become due,
	 
	 	(e)	 	the commencement by any other Person of an involuntary case under any
bankruptcy, insolvency, reorganization or similar law now or hereafter in effect or for
the appointment of, or taking possession by, a receiver, custodian, liquidator,
assignee or trustee of such Person or of a substantial part of its property, and the
continuance of any such voluntary or involuntary case, appointment, assignment,
admission or order unstayed and in effect for a period of sixty (60) days,
	 
	 	(f)	 	any dissolution or liquidation of such Person; or
	 
	 	(g)	 	any event occurs or proceeding is taken with respect to that Person in any
jurisdiction to which it is subject which has an effect equivalent or similar to any of
the events mentioned in paragraphs (a) to (f).

	 	 	Business Day means, with respect to any obligation of GE Capital, NMHG, a GE Affiliate or an
NMHG Affiliate to which this term applies, any day other than a Saturday, Sunday or a day on
which banking institutions in the country in which GE Capital, NMHG, the relevant GE
Affiliate or the relevant NMHG Affiliate has its principal place of business are authorized,
or required, to be closed.
	 
	 	 	Change of Control means, with respect to a Person, the occurrence of any of the following
events: the consummation of a merger or consolidation of the Person with any other entity
resulting in holders of the Person’s voting securities receiving less than fifty per cent
(50%) of the voting securities of the surviving entity; (b) the sale, lease, exchange or
transfer of all or substantially all of the Person’s assets; (c) the approval by the holders
of the Person’s voting securities of any plan or proposal for the liquidation or dissolution
of the Person; (d) the acquisition by any other Person of more than fifty per cent (50%) of
the outstanding voting power of the Person’s securities, other than in the case of NMHG any
Change of Control where after such Change of Control the ultimate holding company of NMHG
remains NACCO Industries, Inc., or other than in the case of GE Capital any Change of
Control where after such Change of Control the ultimate holding company of GE Capital
remains General Electric Company.
	 
	 	 	Control or Controlled By means the direct or indirect (a) ownership of a majority of the
voting power of all classes of voting stock of a Person, (b) ownership of a majority of the
beneficial interests in income and/or capital of a Person or (c) possession of power to
direct, or cause the direction of, management or policies of a Person (whether through
ownership of securities or other interests in a Person, by contract or otherwise).
	 
	 	 	CPR shall have the meaning given it in Section 5.18.
	 
	 	 	Customer means a Person domiciled outside of the United States who acquires Equipment for
purposes of its business pursuant to a Transaction with a GE Affiliate and/or any guarantor
of the obligations of such Person.
	 
	 	 	Danbury International Executive Committee Member shall have the meaning given to it in
Section 5.8.
	 
	 	 	Dealer means an authorized distributor domiciled outside of the United States of Equipment
manufactured or distributed by NMHG and/or an NMHG Affiliate that may participate in a
Regional Program.
	 
	 	 	Dispute shall have the meaning given to it in Section 5.1.
	 
	 	 	Effective Date means the date first written above.
	 
	 	 	Equipment means new or used Equipment manufactured or distributed by NMHG, an NMHG Affiliate
or a Dealer.
	 
	 	 	Executive Officers shall have the meaning given to it in Section 5.16.

page 3

 

	 	 	GE Affiliate means an Affiliate of GE Capital that shall have entered into a Regional
Agreement and/or a Master Regional Operating Agreement.
	 
	 	 	Governmental Entity means a national, supranational, federal, state, provincial, local,
country, municipal or other governmental or regulatory authority, administrative agency,
department, commission, board, bureau or other authority or instrumentality, domestic or
foreign, or any political subdivision thereof.
	 
	 	 	Initial Term shall have the meaning given to it in Section 11.1.
	 
	 	 	International Executive Committee shall have the meaning given to it in Section 2.1.
	 
	 	 	International Executive Committee Member shall have the meaning given to it in Section 2.1.
	 
	 	 	International Program means the general framework established to govern the International
Relationships among GE Capital, NMHG, the GE Affiliates and the NMHG Affiliates pursuant to
the terms of the Agreement, as it relates to the various Master Regional Operating
Agreements and Regional Agreements entered into from time to time.
	 
	 	 	International Relationships means the relationships to be established between or among GE
Capital, NMHG, GE Affiliates and/or NMHG Affiliates outside the United States with respect
to the financing activities to be conducted outside the United States and evidenced by
Master Regional Operating Agreements and Regional Agreements entered into from time to time.
	 
	 	 	Master Regional Operating Agreement means an umbrella agreement entered into by a GE
Affiliate and an NMHG Affiliate that contains certain governance, profit sharing and related
provisions that shall apply to the various Regional Agreements that are subject to such
Master Regional Operating Agreement.
	 
	 	 	Original IOA shall have the meaning given to it in the Background recitals.
	 
	 	 	NMHG Affiliate means an Affiliate of NMHG that shall have entered into a Regional Agreement
and/or a Master Regional Operating Agreement.
	 
	 	 	OIED shall have the meaning given to it in Section 5.2.
	 
	 	 	OIED Response shall have the meaning given to it in Section 5.6.
	 
	 	 	Person means an individual, a partnership, a joint venture, a corporation, a limited
liability company, a limited liability partnership, a trust, an unincorporated organization,
a Governmental Entity or any other entity.
	 
	 	 	Program Country means a country in which a Regional Program is implemented pursuant to a
Regional Agreement and/or a Master Regional Operating Agreement.
	 
	 	 	Recourse Transaction means any Wholesale Account or other Transaction subject to recourse or
other credit enhancement provided by NMHG and/or an NMHG Affiliate to and for the benefit of
GE Capital and/or a GE Affiliate.
	 
	 	 	Regional Agreement means an agreement implementing a Regional Program in a Program Country.
	 
	 	 	Regional Program means a financing program to support the sale and distribution of Equipment
that is provided by a GE Affiliate to Customers and Dealers who are located in the
applicable Program Country.
	 
	 	 	Regional Working Committee shall mean the committee established to govern the activities of
the GE Affiliates and NMHG Affiliates that are participants in a Regional Program.
	 
	 	 	Regional Working Committee Member shall have the meaning given to it in Section 5.2.

page 4

 

	 	 	Renewal Term shall have the meaning given to it in Section 11.1.
	 
	 	 	Term shall have the meaning given to it in Section 11.1.
	 
	 	 	Transaction means a financing of Equipment by a GE Affiliate in a Program Country under a
form of contract approved for use under the applicable Regional Program.
	 
	 	 	Wholesale Account means any loan or other extension of credit, now or hereafter, by a GE
Affiliate to either (i) a Dealer (whether or not owned by NMHG or an NMHG Affiliate) or (ii)
NMHG or an NMHG Affiliate, whether secured by Equipment (regardless of whether such
Equipment is purchased directly with the proceeds of such loan or other extension of credit
or is held as inventory for sale or as part of the applicable party’s rental fleet) or any
other form of collateral.
	 
	1.2	 	Interpretation
	 
	 	 	In the Agreement:

	 	(a)	 	headings are for ease of reference only and shall not be taken into account in
construing the Agreement;
	 
	 	(b)	 	references to the Agreement or any other document shall be construed as
references to the Agreement or that other document, as amended, varied, novated,
supplemented or replaced from time to time;
	 
	 	(c)	 	the expression this Section shall, unless followed by reference to a specific
provision, be deemed to refer to the whole Section (not merely the sub-Section,
paragraph or other provision) in which the expression occurs;
	 
	 	(d)	 	references to any statute or statutory position include any statute or
statutory provision which amends, extends, consolidates or replaces the same, or which
has been amended, extended, consolidated or replaced by the same, and shall include any
orders, regulations, instruments or other subordinate legislation made under the
relevant statute;
	 
	 	(e)	 	references to a party means a party to the Agreement including that party’s
successors in title and assigns or transferees permitted in accordance with the terms
of the Agreement;
	 
	 	(f)	 	the words include, including and in particular shall be construed as being by
way of illustration or emphasis only and shall not be construed as, nor shall they take
effect as, limiting the generality of any preceding words; and
	 
	 	(g)	 	the word loss includes any loss however described or characterized and whenever
and however arising (including loss of profit, loss of revenue, loss of use, loss of
contract, loss of goodwill, and indirect and consequential loss, including economic
loss), cost (including any cost of enforcement), expense, payment, liability, claim,
demand, damage, proceedings, penalty, fine, fee, rates, levy, charge, royalty,
interest, insurance premium, call, judgment, order or other sanction or amount payable
and the amount by which any right or entitlement to an amount has been reduced as a
result of the matter in question.

	2	 	International Executive Committee
	 
	2.1	 	Executive Oversight

	 	(a)	 	The executive oversight of the International Program will be subject to the
review and direction of a committee (the International Executive Committee) which shall
perform the duties specified below.
	 
	 	(b)	 	GE Capital and NMHG shall each appoint four (4) employees (or such other number
as may be mutually agreed to by the parties) as their respective representatives on the
International Executive Committee (each, an “International Executive Committee
Member”). The

page 5

 

	 	 	 	names of the current International Executive Committee Members are set forth in Exhibit A hereto.

	2.2	 	Meetings of International Executive Committee
	 
	 	 	Meetings of the International Executive Committee will be held at least two (2) times per
year at locations to be determined by mutual agreement of the International Executive
Committee Members. Notwithstanding the foregoing, either GE Capital or NMHG may, on five (5)
Business Days’ written notice, request that the International Executive Committee meet to
discuss a Dispute pursuant to Section 5 or review another issue within its jurisdiction.
The written notice that will proceed each meeting of the International Executive Committee
will designate the time and place for the meeting (which may be held telephonically), the
topic for discussion and will include any background materials relevant to the topic to be
discussed.
	 
	2.3	 	Co-Chairpersons
	 
	 	 	NMHG and GE Capital will each designate individuals to serve as co-chairpersons of the
International Executive Committee who, after due consultation with the other International
Executive Committee Members, will be responsible for establishing agendas for, and
conducting meetings of, the International Executive Committee.
	 
	2.4	 	Voting
	 
	 	 	NMHG and GE Capital will each have one vote on the International Executive Committee. Any
approval, recommendation or action by the International Executive Committee must be by
unanimous vote or written consent of NMHG and GE Capital.
	 
	2.5	 	Quorum
	 
	 	 	A quorum for the conduct of business at any International Executive Committee meeting will
consist of two (2) International Executive Committee Members appointed by NMHG and two (2)
International Executive Committee Members appointed by GE Capital. All other rules and
procedures of the International Executive Committee will be as agreed by the International
Executive Committee Members from time to time.
	 
	2.6	 	Functions of the International Executive Committee
	 
	 	 	The International Executive Committee will perform the following functions, in addition to
any additional functions as NMHG and GE Capital may agree from time to time:

	 	(a)	 	provide oversight and review the performance and strategic direction of the
International Program, including, without limitation, international finance penetration
levels, international credit line exposure, entry into new Master Regional Operating
Agreements and Regional Agreements and new business opportunities and, where
applicable, recommend appropriate corrective actions and/or performance targets;
	 
	 	(b)	 	provide oversight and review the financial and operational performance and
strategic direction of each Regional Program including, without limitation, the general
structure and profitability of each Regional Program (including origination and
remarketing activities), finance penetration levels, credit line exposure, portfolio
performance (including delinquencies, defaults and performance of Recourse
Transactions), Annual Operating Plans, service levels and new business opportunities,
and, where applicable, recommend appropriate corrective actions and/or performance
targets;
	 
	 	(c)	 	review the operation of the exclusivity provisions in the various Master
Regional Operating Agreements and Regional Agreements and resolve any issues regarding
exclusivity referred to it under any Master Regional Operating Agreement and/or
Regional Agreement. Such issues may include, but not be limited to, the identity of,
and amendments to, the countries in which the exclusivity provisions shall apply under
each Master Regional Operating Agreement and/or Regional Agreement and the identity of,
and amendments to, the

page 6

 

	 	 	 	“Competitors” referenced in the exclusivity provisions of each Master Regional
Operating Agreement and/or Regional Agreement;
	 
	 	(d)	 	review the operation of the recourse provisions in the various Master Regional
Operating Agreements and Regional Agreements as they relate to Recourse Transactions
and review the timely performance on the part of NMHG and/or the applicable NMHG
Affiliate of all related recourse obligations and, where applicable, recommend
appropriate corrective actions and/or process improvements with respect thereto;
	 
	 	(e)	 	receive and review proposals for amendments to the Agreement and make
recommendations with respect thereto;
	 
	 	(f)	 	approve the ongoing development priorities for the International Program; and
	 
	 	(g)	 	endeavor to resolve any Disputes referred to it in accordance with Section 5.

	3	 	Representations and Warranties of NMHG
	 
	3.1	 	NMHG hereby represents and warrants to GE Capital, as of the Effective Date and throughout
the Term, that:

	 	(a)	 	NMHG is duly organized, validly existing and in good standing under the laws of
the jurisdiction of its formation, is duly qualified to do business in each other
jurisdiction where it is necessary to be so qualified and has full power to enter into
the Agreement and to carry out the transactions contemplated hereby;
	 
	 	(b)	 	the execution and delivery of the Agreement and the performance by NMHG of the
transactions contemplated hereby have been duly authorized by all necessary action of
NMHG;
	 
	 	(c)	 	the Agreement constitutes a legal, valid and binding obligation of NMHG
enforceable in accordance with its terms except as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, or other laws of general application affecting
the enforcement of creditors’ rights generally and the effect of rules of law governing
equitable remedies;
	 
	 	(d)	 	neither the execution or delivery of the Agreement nor the consummation of the
transactions contemplated hereby will:

	 	(i)	 	conflict with NMHG’s organizational or governance documents, as
such documents may be amended from time to time;
	 
	 	(ii)	 	constitute a material violation of any applicable statute, rule
or decree of any Governmental Entity; or
	 
	 	(iii)	 	conflict in any material respect with, constitute a material
default under, or result in termination or acceleration of any indenture, loan
agreement or other material document, instrument or agreement by which NMHG is
bound;

	 	(e)	 	no notices, reports or other filings are required to be made by NMHG with, nor
are any consents, licences, permits, authorizations or approvals required to be
obtained by NMHG from, any Governmental Entity or any other Person in connection with
the execution, delivery or performance of the Agreement or any other agreements,
instruments or document to be executed or delivered in connection herewith or the
consummation by NMHG of the transactions contemplated hereby; and
	 
	 	(f)	 	there are no suits or proceedings pending or, to the knowledge of NMHG,
threatened in any court or before any Governmental Entity against or affecting NMHG
which could materially impair NMHG’s ability to perform its obligations under the
Agreement.

page 7

 

	4	 	Representations and Warranties of GE Capital
	 
	4.1	 	GE Capital hereby represents and warrants to NMHG, as of the Effective Date and throughout
the Term, that:

	 	(a)	 	GE Capital is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its formation, is duly qualified to do business in each
other jurisdiction where it is necessary to be so qualified and has full power to enter
into the Agreement and to carry out the transactions contemplated hereby;
	 
	 	(b)	 	the execution and delivery of the Agreement and the performance by GE Capital
of the transactions contemplated hereby have been duly authorized by all necessary
action of GE Capital;
	 
	 	(c)	 	the Agreement constitutes a legal, valid and binding obligation of GE Capital
enforceable in accordance with its terms except as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, or other laws of general application affecting
the enforcement of creditors’ rights generally and the effect of rules of law governing
equitable remedies;
	 
	 	(d)	 	neither the execution or delivery of the Agreement nor the consummation of the
transactions contemplated hereby will:

	 	(i)	 	conflict with GE Capital’s organizational or governance
documents, as such documents may be amended from time to time;
	 
	 	(ii)	 	constitute a material violation of any applicable statute, rule
or decree of any Governmental Entity; or
	 
	 	(iii)	 	conflict in any material respect with, constitute a material
default under, or result in termination or acceleration of any indenture, loan
agreement or other material document, instrument or agreement by which GE
Capital is bound;

	 	(e)	 	no notices, reports or other filings are required to be made by GE Capital
with, nor are any consents, licences, permits, authorizations or approvals required to
be obtained by GE Capital from, any Governmental Entity or any other Person in
connection with the execution, delivery or performance of the Agreement or any other
agreements, instruments or document to be executed or delivered in connection herewith
or the consummation by GE Capital of the transactions contemplated hereby; and
	 
	 	(f)	 	there are no suits or proceedings pending or, to the knowledge of GE Capital,
threatened in any court or before any Governmental Entity against or affecting GE
Capital which could materially impair GE Capital’s ability to perform its obligations
under the Agreement.

	5	 	Dispute Resolution
	 
	5.1	 	Any dispute arising out of or relating to the Agreement, any Master Regional Operating
Agreement or any Regional Agreement or the relationship of the parties to the Agreement, any
Master Regional Operating Agreement or any Regional Agreement or the Regional Program
established under any Master Regional Operating Agreement or any Regional Agreement, including
the breach, termination, validity, interpretation or performance thereof (any of the
foregoing, a “Dispute”) shall be resolved in accordance with the procedures specified in this
Section, which shall constitute the exclusive method for the resolution of the Dispute.
	 
	5.2	 	Upon the discovery of a Dispute arising out of or relating to a Master Regional Operating
Agreement or any Regional Agreement or the relationship of the parties thereto or the Regional
Program established thereunder, members of the relevant Regional Working Committee will meet
and in good faith endeavor to resolve the Dispute in a manner that is acceptable to members of
the Regional Working Committee. Said meeting will occur within twenty (20) Business Days
following the identification of the Dispute. Any member of the relevant Regional Working
Committee (a “Regional Working Committee Member”) may request that an Open Issue Elevation
Document

page 8

 

	 	 	(“OIED”) be submitted prior to convening said meeting and any member of the Regional Working
Committee whose position is adverse to the position of the Regional Working Committee Member
who circulated the OIED may submit an OIED Response (as such term is defined below) prior to
the Regional Working Committee convening said meeting; provided, however, that circulation
of an OIED and OIED Response will occur in such a timeframe as will permit the meeting of
the Regional Working Committee to proceed within twenty (20) Business Days following the
identification of the Dispute (or such other period mutually agreed to by all members of the
Regional Working Committee). Danbury International Executive Committee Members and Portland
International Executive Committee Members as well as any International Executive Committee
Members who represent the applicable region or country involved in the Dispute shall also
receive copies of the OIED and OIED Response before the meeting of the relevant Regional
Working Committee is convened.
	 
	5.3	 	If the Regional Working Committee is unable to resolve the Dispute at the meeting convened
for such purpose, a Regional Working Committee Member will circulate an OIED to all Regional
Working Committee Members and all International Executive Committee Members. Such OIED may be
identical to the OIED originally submitted to the Regional Working Committee or may contain
additional facts elicited as a result of the meeting of the Regional Working Committee
described above.
	 
	5.4	 	Upon the discovery of a Dispute arising out of or relating to the Agreement or the
relationship of the parties hereto, an International Executive Committee Member will circulate
an OIED to all International Executive Committee Members and, if the Dispute implicates a
Master Regional Operating Agreement and/or any related Regional Agreement or Regional Program
for which executive oversight is provided hereunder, all members of the relevant Regional
Working Committee.
	 
	5.5	 	Each OIED shall contain the following information: (i) a complete description of the
Dispute, which shall include a chronology of the events leading up to the Dispute, the subject
matter of the Dispute and the actions taken by the relevant parties to the Dispute, (ii) the
position of the Regional Working Committee Member or International Executive Committee Member
who is submitting the OIED for the Dispute, which shall include all pertinent information to
support such position, (iii) an assessment of the materiality of the Dispute for the relevant
Master Regional Operating Agreement and/or any Regional Agreement and Regional Program and the
Agreement, if applicable, and (iv) an assessment of the likelihood of resolving the Dispute
through the actions to be undertaken by the International Executive Committee, if applicable,
that are described below.
	 
	5.6	 	Each party whose position is adverse to the position of the Regional Working Committee Member
or International Executive Committee Member who circulated an OIED will have a period of ten
(10) Business Days to formulate a response to the OIED (“OIED Response”) and circulate the
OIED Response to all Regional Working Committee Members and/or International Executive
Committee Members, as applicable.
	 
	5.7	 	Each OIED Response shall contain the following information: (i) a complete description of
the Dispute, which shall include clarifications, corrections or changes regarding the
chronology of the events leading up to the Dispute, the subject matter of the Dispute and the
actions taken by the relevant parties to the Dispute, (ii) the position of the Regional
Working Committee Member or International Executive Committee Member who is submitting the
OIED Response, which shall include all pertinent information to support such position, (iii)
an assessment of the materiality of the Dispute for the relevant Master Regional Operating
Agreement and/or any Regional Agreement and Regional Program and the Agreement, if applicable,
and (iv) an assessment of the likelihood of resolving the Dispute through the actions to be
undertaken by the International Executive Committee that are described below.
	 
	5.8	 	Within five (5) Business Days following receipt of an OIED Response issued to International
Executive Committee Members or fifteen (15) Business Days following receipt of an OIED issued
to

page 9

 

	 	 	International Executive Committee Members, whichever is earlier (or within such other period
as the parties to the Agreement may otherwise mutually agree to in writing), those
International Executive Committee Members who are located in Danbury, Connecticut and who
represent GE Capital and the GE Affiliates (“Danbury International Executive Committee
Members”) and those International Executive Committee Members who are located in Portland,
Oregon and who represent NMHG and the NMHG Affiliates (“Portland International Executive
Committee Members”) shall determine if the Dispute is confined to a particular Master
Regional Operating Agreement and/or any Regional Agreement and Regional Program or if it
implicates or establishes a precedent for any other Master Regional Operating Agreements
and/or any Regional Agreements and Regional Programs or otherwise impacts the relationship
of the parties to the Agreement.
	 
	5.9	 	Within ten (10) Business Days of the decision described in the preceding paragraph being
rendered and communicated to all International Executive Committee Members, the International
Executive Committee will convene either in person or via teleconference to attempt to resolve
the Dispute.
	 
	5.10	 	If the Danbury International Executive Committee Members and the Portland International
Executive Committee Members determine that the Dispute is confined to a particular Master
Regional Operating Agreement and/or any Regional Agreement and Regional Program, the only
International Executive Committee Members who shall participate in the International Executive
Committee meeting that attempts to resolve the Dispute will be: (i) those International
Executive Committee Members who represent the relevant Regional Working Committee (whether
they are members of such Regional Working Committee or not) and who shall be equally
represented by one member representing the interests of GE Capital and/or the relevant GE
Affiliate on the relevant Regional Working Committee and one member representing the interests
of NMHG and/or the relevant NMHG Affiliate on the relevant Regional Working Committee,
respectively, (ii) the Danbury International Executive Committee Members and (iii) the
Portland International Executive Committee Members.
	 
	5.11	 	If the Danbury International Executive Committee Members and the Portland International
Executive Committee Members determine that the Dispute implicates or establishes a precedent
for any other Master Regional Operating Agreements and/or any Regional Agreements and Regional
Programs or otherwise impacts the relationship of the parties to the Agreement, the entire
membership of the International Executive Committee will be invited to participate in the
International Executive Committee meeting that attempts to resolve the Dispute.
	 
	5.12	 	Members of the relevant Regional Working Committee who are not members of the International
Executive Committee, as well as other individuals who have special knowledge of the events
surrounding the Dispute, may be invited to participate in the meeting of the International
Executive Committee, but shall not be entitled to participate in any vote that may be taken by
International Executive Committee Members to attempt to resolve the Dispute.
	 
	5.13	 	All International Executive Committee Members that represent GE Capital and GE Capital
Affiliates will collectively have one vote in any vote that may be taken by the International
Executive Committee to attempt to resolve the Dispute and all members of the International
Executive Committee that represent NMHG and NMHG Affiliates will collectively have one (1)
vote in any vote that may be taken by the International Executive Committee to attempt to
resolve the Dispute.
	 
	5.14	 	International Executive Committee Members will in good faith endeavour to resolve the Dispute
at the meeting that is convened for such purpose in a manner that is acceptable to both GE
Capital and the GE Affiliates and NMHG and the NMHG Affiliates.
	 
	5.15	 	If the International Executive Committee is able to resolve the Dispute, the resolution will
be documented and circulated to all International Executive Committee Members as well as to
all Regional Working Committee Members in the case of a confined regional Dispute, and will
also be circulated to members of the other Regional Working Committees if the International
Executive Committee determines that the Dispute implicates or establishes a precedent for
other Master Regional Operating Agreements and/or any Regional Agreements and Regional
Programs.
	 
	5.16	 	If the International Executive Committee is unable to resolve the Dispute, the Dispute will
be referred to the General Manager of the Vendor Financial Services division of GE Capital and
to the Chief

page 10

 

	 	 	Executive Officer of NMHG (collectively, the “Executive Officers”) who will in good faith
endeavour to resolve the Dispute within thirty (30) Business Days after it is referred to
them (or within such other period as the parties to the Agreement may otherwise mutually
agree to in writing) in a manner that is acceptable to both GE Capital and the GE Affiliates
and NMHG and the NMHG Affiliates. The Executive Officers shall be provided with copies of
all relevant OIEDs, OIED Responses, the minutes of the International Executive Committee
meeting in which a resolution of the Dispute was attempted, together with any other relevant
materials they may reasonably request. The Executive Officers shall meet either in person
or via teleconference to attempt to resolve the Dispute.
	 
	5.17	 	If the Executive Officers are able to resolve the Dispute, the resolution will be documented
and circulated to all International Executive Committee Members as well as to all members of
the relevant Regional Working Committee in the case of a confined regional Dispute, and will
also be circulated to members of the other Regional Working Committees if the International
Executive Committee determines that the Dispute implicates or establishes a precedent for any
other Master Regional Operating Agreements and/or any Regional Agreements and Regional
Programs.
	 
	5.18	 	If the Executive Officers are unable to resolve the Dispute within thirty (30) Business Days
following the date it is referred to them (or within such other period as the parties to the
Agreement may otherwise mutually agree to in writing), the parties will endeavour to settle
the Dispute by mediation conducted by the CPR Institute for Dispute Resolution (“CPR”) under
the CPR Mediation Procedure then currently in effect. Unless otherwise agreed to in writing,
the parties will select a mediator from the CPR Panels of Distinguished Neutrals and, if they
are unable to agree upon a mediator, shall notify the CPR to initiate a selection process for
a mediator. Any mediator so selected shall be experienced in resolving disputes of a
commercial nature similar to the Dispute.
	 
	5.19	 	All communications that occur under the preceding paragraphs of this Section are confidential
and shall be treated as compromise and settlement negotiations for purposes of applicable
rules of evidence and any additional confidentiality and professional secrecy protections
provided by applicable law.
	 
	5.20	 	Each party shall endeavour in good faith to resolve the Dispute through mediation. At least
one (1) employee of GE Capital and NMHG who is authorized by such party to settle the Dispute
shall attend and participate in the mediation. The mediation will be held in New York City
(or such other locations as the parties mutually agree upon). The mediation proceedings shall
be conducted in English. Each party may submit a brief, if it so elects, to the opposing
party and to the mediator at least five (5) Business Days prior to the commencement of the
mediation. If resolution of a Dispute is not reached in the initial mediation session, the
parties may elect to authorize a follow-up mediation session. No settlement reached pursuant
to mediation shall be binding upon the parties until it is reduced to a writing signed on
behalf of each party. Any requirement to file a notice of claim with respect to the Dispute
submitted to mediation shall be suspended until the conclusion of the mediation process.
	 
	5.21	 	Neither party shall be entitled to unilaterally terminate the mediation prior to forty (40)
Business Days following appointment of a mediator. If the Dispute has not been resolved by
mediation within forty (40) Business Days following appointment of a mediator (or within such
other period as the parties to the Agreement may otherwise mutually agree to in writing), then
either party may submit the Dispute to arbitration as the exclusive means of resolving it in
accordance with the following paragraphs. Each party will pay one-half of the fees and
expenses of the mediator. All other expenses in connection with the mediation shall be the
responsibility of the party incurring such expense.
	 
	5.22	 	The Dispute shall be finally settled under the Rules of Arbitration of the International
Chamber of Commerce (“ICC”) by an arbitral tribunal (“Arbitral Tribunal”) appointed in
accordance with said Rules. The Arbitral Tribunal shall be comprised of three arbitrators,
one appointed by each of the parties and the third arbitrator, who shall serve as the Chair of
the Arbitral Tribunal, appointed by the other two arbitrators. If either party fails to
appoint an arbitrator within fifteen (15) days of the referral of the Dispute to arbitration,
then such arbitrator shall be appointed by the ICC.
	 
	5.23	 	The arbitration shall be held in New York City. The arbitration proceedings shall be
conducted in English; provided that either party may submit testimony or documentary evidence
in any language

page 11

 

	 	 	if it furnishes a translation into English of such testimony or documentary evidence. The
Arbitral Tribunal may, at its option, appoint one or more experts to advise it with respect
to any issue in the arbitration. If any expert is so appointed, the parties hereto shall
have the right to examine such expert’s report to the Arbitral Tribunal and to question such
expert at an oral hearing.
	 
	5.24	 	The law governing the arbitration proceedings and the arbitration award shall be the
arbitration law of the place of arbitration. Any arbitral award arising from such arbitration
shall be final and binding upon all parties hereto and no party shall seek recourse to a court
of law or other authorities to appeal for a revision of such arbitral award or any other
ruling of the Arbitral Tribunal. Judgment upon any arbitral award may be entered by any court
having jurisdiction thereof.
	 
	5.25	 	The cost of arbitration shall be borne by the party who does not prevail in the arbitration
or as is otherwise determined by the Arbitral Tribunal. The question of whether a matter
presented for arbitration is governed by these arbitration provisions shall itself be
determined by arbitration.
	 
	5.26	 	The parties agree that the arbitration shall be kept confidential and that the existence of
the proceeding and any element of it (including, but not limited to, any pleadings, briefs or
other documents submitted or exchanged, any testimony or other oral submissions and any
awards) shall not be disclosed beyond the Arbitral Tribunal, the ICC International Court of
Arbitration, the parties, their counsel and any person necessary to the conduct of the
proceedings, except as may be lawfully required in judicial proceedings relating to the
enforcement of any arbitral award.
	 
	5.27	 	Each party is required to continue to perform its obligations under the Agreement and under
each applicable Master Regional Operating Agreement and/or Regional Agreement and Regional
Program pending final resolution of the Dispute.
	 
	6	 	Indemnification
	 
	6.1	 	NMHG will indemnify and hold harmless GE Capital and its employees, officers, directors,
attorneys, representatives and GE Affiliates, from and against any and all losses, claims by
or against GE Capital or GE Affiliates, liabilities, demands and expenses of any nature
whatsoever, including reasonable attorneys’ fees and costs, arising out of or in connection
with:

	 	(a)	 	any breach by NMHG of its representations or warranties under the Agreement;
	 
	 	(b)	 	any failure of NMHG to perform duly and punctually any agreement or obligation
to be performed by NMHG pursuant to the Agreement;
	 
	 	(c)	 	the selection, manufacture, sale, delivery, acceptance or rejection,
installation, use, operation, possession, return, servicing, maintenance or condition
of the Equipment, including any strict liability claims or claims for latent defects
relating to the Equipment; or
	 
	 	(d)	 	any failure of the Equipment to comply with any description, to be fit for its
intended purpose or of satisfactory quality or to comply with any other term (express
or implied) of the related Transaction or of any applicable law; provided that NMHG
will not be liable for any modifications or additions made to any Equipment by Dealers
not Controlled by NMHG or an NMHG Affiliate, other than modifications or additions made
by independent Dealers upon the authorization, instruction or consent of NMHG or an
NMHG Affiliate.

	6.2	 	GE Capital will indemnify and hold harmless NMHG and its employees, officers, directors,
attorneys, representatives and NMHG Affiliates, from and against any and all losses, claims by
or against NMHG or NMHG Affiliates, liabilities, demands and expenses of any nature
whatsoever, including reasonable attorneys’ fees and costs, arising out of or in connection
with:

	 	(a)	 	any breach by GE Capital of its representations or warranties under the
Agreement; or
	 
	 	(b)	 	any failure of GE Capital to perform duly and punctually any covenant,
agreement or obligation to be performed by GE Capital pursuant to the Agreement.

	6.3	 	Each party will notify the other of any event requiring indemnification:

page 12

 

(a) within ten (10) days following the receipt of notice of the commencement of any action
or proceeding or the assertion of any claim; or

(b) within twenty (20) days of the party’s actual discovery of any breach or loss,
giving rise to indemnification.

The failure to give notice in a timely fashion will not result in a waiver of any right to
indemnification hereunder except to the extent that the indemnifying party’s ability to
defend against the event with respect to which indemnification is sought is materially
adversely affected by the failure of the indemnified party to give notice in a timely
fashion.

	6.4	 	The indemnifying party will be entitled (but not obligated) to assume the defense or
settlement of any such action or proceeding and to participate in any negotiations to settle
or eliminate any claim with counsel of its choice; provided that such counsel is reasonably
satisfactory to the indemnified party. If the indemnifying party so elects to assume the
defence or settlement of any such action or proceeding, the indemnified party (and its
counsel) may continue to participate at its own expense in any such action or proceeding.
	 
	6.5	 	If the indemnifying party does not elect in writing within ten (10) days of notification to
assume the defense, the indemnified party may engage counsel to defend, settle or otherwise
dispose of such action or proceeding, and the reasonable fees of that counsel shall constitute
expenses which are covered by Section 6.1 or 6.2 respectively.
	 
	6.6	 	The indemnifying party will not settle, compromise, decline to appeal or otherwise dispose of
any action, proceeding or claim, without the consent of the indemnified party. Such consent
will not be unreasonably withheld or delayed. If the consent of the indemnified party is
withheld, the indemnifying party’s liability will be limited to the amount for which the
indemnifying party and the claimant agreed to settle.
	 
	6.7	 	Notwithstanding the provisions of Sections 6.4, 6.5 and 6.6, NMHG shall either settle,
compromise or defend, at its own expense and option, any claim brought against GE Capital or a
GE Affiliate, to the extent that it is based on a claim that the Equipment or a Trade
Mark/Trade Name infringes any patent, copyright, trade mark or other intellectual property
rights of another Person. NMHG shall pay all losses awarded against or incurred by GE Capital
or a GE Affiliate in any such actions which are attributable to any such claims, but such
defense and payments are conditioned on the following:

	 	(a)	 	that NMHG shall be notified promptly, in writing, by GE Capital or the
applicable GE Affiliate of the assertion of any such claim; and
	 
	 	(b)	 	that NMHG shall have sole control of the defense of any such claim and all
negotiations for its settlement or compromise.

	6.8	 	All indemnities and obligations under this Section 6 will survive the expiration or
termination of the Agreement, and will be payable within ten (10) days of receipt of an
invoice from the indemnified party.

	6.9	 	Neither party will be liable for any punitive, incidental or consequential damages of any
nature whatsoever or for lost profits, for any reason whatsoever, in connection with the
Agreement. Without limiting the generality of the foregoing, if any punitive, incidental or
consequential damages or lost profits are required, as a result of a breach by a party hereto
of the Agreement, to be paid by the other party hereto to any other Person pursuant to a final
judgment, the breaching party shall compensate the other party required to pay such punitive,
incidental or consequential damages or lost profits, and such payment shall be deemed to be
direct damages of the breaching party.

	7	 	Export Control
	 
	7.1	 	GE Capital and NMHG each acknowledges that the Equipment licensed or sold under any Master
Regional Operating Agreement or Regional Agreement may include technology and software that
are subject to the customs and export control laws and regulations of the United States (U.S.)
and

page 13

 

	 	 	may also be subject to the customs and export laws and regulations of the country in which
the Equipment is manufactured and/or received. GE Capital and NMHG each agrees to abide by
those laws and regulations and to cause GE Affiliates and NMHG Affiliates, respectively, to
abide by those laws and regulations. Further, under U.S. law, the Equipment may not be
sold, leased or otherwise transferred to certain restricted end-users or restricted
countries. Without limiting the generality of the foregoing, the Equipment may not be sold,
leased or otherwise transferred to, or utilized by an end-user engaged in activities related
to weapons of mass destruction, including without limitation, activities related to the
design, development, production or use of nuclear weapons, materials or facilities, missiles
or the support of missile projects, and chemical or biological weapons. While NMHG agrees
to abide and to cause NMHG Affiliates to abide by these terms, it cannot be held responsible
for any subsequent decision made by a Customer not Controlled By NMHG or an NMHG Affiliate
to export any Equipment to a particular country or to sell any Equipment to a particular
end-user.
	 
	7.2	 	GE Capital agrees not to provide or cause any GE Affiliate to provide any customs
certifications on behalf of NMHG or an NMHG Affiliate. When applicable and necessary, NMHG or
the applicable NMHG Affiliate will provide GE Capital or the applicable GE Affiliate with all
U.S. export licenses, license designations, and commodity classifications unless otherwise
agreed to in writing by GE Capital or the applicable GE Affiliate and NMHG or the applicable
NMHG Affiliate and unless GE Capital or the applicable GE Affiliate is obligated to obtain the
export licenses under U.S. law.
	 
	8	 	Data Protection
	 
	 	 	Each party undertakes to comply with all applicable laws in relation to the collection
and processing of personal data and shall not sell personal data to any Person.
	 
	9	 	Confidentiality
	 
	 	 	From time to time either NMHG or GE Capital may provide confidential and proprietary
information to the other party relating to NMHG, GE Capital, the International Program,
various Regional Programs, Equipment, Dealers or Customers or other subjects that is
otherwise plainly identified as confidential information. NMHG and GE Capital will take
reasonable steps to preserve the confidential nature of such information and to prevent its
disclosure to third parties other than GE Affiliates and NMHG Affiliates, respectively, and
independent representatives such as certified public accountants firms, attorneys or other
persons with a need to know for purposes of the business or operations of GE Capital, GE
Affiliates, NMHG or NMHG Affiliates. NMHG and GE Capital will be deemed to have fulfilled
their obligations hereunder if they exercise the same degree of care to preserve and
safeguard such confidential information as they use to preserve and safeguard their own
confidential information; provided that (without limitation) confidential information
relating to the International Program or a specific Regional Program may be disclosed by GE
Capital to its representatives and agents in connection with GE Capital’s actual or
potential purchase of insurance with respect to the International Program or the Regional
Programs. In addition, confidential information may be disclosed under the following
circumstances: (a) if required in connection with any litigation, or in response to any
court decree, subpoena, or other legal, administrative or regulatory order (provided that
the disclosing party’s legal counsel delivers a written opinion to the other party stating
that disclosure is reasonably required), (b) if such confidential information was in the
public domain at the time of receipt or subsequently came into the public domain (other than
as a result of an unauthorized disclosure by GE Capital or NMHG), (c) if such confidential
information was independently developed by the recipient or (d) if the disclosure is
approved by the disclosing party or otherwise constitutes a disclosure of a more generic
type of information that is customary in the ordinary course of business.
	 
	10	 	Recourse Transactions
	 
	10.1	 	In the event of a default (as such term is defined in the applicable Master Regional
Operating Agreement and/or Regional Agreement) under a Recourse Transaction, if the applicable
NMHG Affiliate does not honor its recourse obligations to the applicable GE Affiliate, then
NMHG shall, within twenty (20) days of demand, repurchase the applicable Recourse Transaction
and pay GE

page 14

 

	 	 	Capital or the applicable GE Affiliate the amount then owed by such NMHG Affiliate with
respect to such Recourse Transaction.
	 
	10.2	 	NMHG hereby agrees that its obligations under Section 10.1 shall be primary, absolute,
continuing and unconditional, irrespective of, and unaffected by, any of the following actions
or circumstances (regardless of any notice to, or consent of NMHG):

	 	(a)	 	the genuineness, validity, regularity and enforceability of any Recourse
Transaction;
	 
	 	(b)	 	any extension, renewal, amendment, change, waiver or other modification by a GE
Affiliate of any Recourse Transaction;
	 
	 	(c)	 	the absence of, or delay in, any action to enforce the terms of any Recourse
Transaction;
	 
	 	(d)	 	the release of, extension of time for payment or performance by, or any other
indulgence granted to the applicable Dealer or any other Person with respect to any
Recourse Transaction by operation of law or otherwise;
	 
	 	(e)	 	the existence, value, condition, loss, subordination or release (with or
without substitution) of, or failure to have title to or perfect a security interest
in, or the time, place and manner of any sale or other disposition of, any Equipment,
collateral or security given in connection with any Recourse Transaction or any other
impairment (whether intentional or negligent, by operation of law or otherwise) of the
rights of the GE Affiliate to any such Equipment, collateral or security;
	 
	 	(f)	 	any Dealer’s voluntary or involuntary bankruptcy, assignment for the benefit of
creditors, reorganization or similar proceedings affecting the Dealer or any of its
assets; or
	 
	 	(g)	 	any other action or circumstances which might otherwise constitute a legal or
equitable discharge or defense of a surety or guarantor.

	10.3	 	Notwithstanding any provision to the contrary in Section 10.1 or 10.2, NMHG shall have no
obligation to purchase any Recourse Transaction pursuant to Sections 10.1 and 10.2 under any
of the following circumstances:

	 	(a)	 	if a Recourse Transaction proves unenforceable due to the fact that the
documentation evidencing such Recourse Transaction (“Recourse Documentation”) is
incomplete;
	 
	 	(b)	 	solely with respect to Recourse Transactions where a GE Affiliate is
responsible for the perfection of its title or security interest in the respective
Equipment, if any such Recourse Transaction proves unenforceable due to a failure of
such GE Affiliate to obtain and perfect a valid, first priority security interest in
such Equipment; or
	 
	 	(c)	 	if a Recourse Transaction falls into default solely because GE Capital or a GE
Affiliate is in default of its respective obligations under the applicable Recourse
Documentation.

	11	 	Term and Termination
	 
	11.1	 	The initial term of the Agreement shall end on December 31, 2008 (the Initial Term).
Thereafter, the Agreement shall renew for additional terms of one year each (each, a “Renewal
Term”) until either party provides to the other party at least ninety (90) days’ prior written
notice of its intention to terminate the Agreement on the last day of the Initial Term or the
last day of the applicable Renewal Term. If written notice of termination is provided, the
Agreement will terminate on the last day of the Initial Term or Renewal Term in which such
notice of termination is provided. The Initial Term and all Renewal Terms shall together
constitute the “Term” of the Agreement. This Section 11.1 shall replace in its entirety
Section 6.8 of the Original IOA. Any reference to “Base Term” in the Original IOA, including
Section 3.7 thereof, is hereby deleted and replaced with a reference to “Term”.
	 
	11.2	 	The Agreement may be terminated prior to the expiration of the Initial Term or any Renewal
Term:

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	 	(a)	 	by NMHG, upon the occurrence of a material breach by GE Capital of any of its
representations, warranties or obligations under the Agreement which, if capable of
remedy, remains unremedied for ninety (90) days following receipt of notice of the
breach;
	 
	 	(b)	 	by GE Capital, upon the occurrence of a material breach by NMHG of any of its
representations, warranties or obligations under the Agreement which, if capable of
remedy, remains unremedied for ninety (90) days following receipt of notice of the
breach;
	 
	 	(c)	 	by NMHG, by written notice to GE Capital, in the event of any Bankruptcy Event
with respect to GE Capital;
	 
	 	(d)	 	by GE Capital, by written notice to NMHG, in the event of any Bankruptcy Event
with respect to NMHG;
	 
	 	(e)	 	by GE Capital, by written notice to NMHG, upon a Change in Control of NMHG;
	 
	 	(f)	 	by NMHG, by written notice to GE Capital, upon a Change in Control of GE
Capital; or
	 
	 	(g)	 	upon a termination, for whatever reason, of the Restated and Amended Joint
Venture and Shareholders Agreement between GE Capital and NMHG dated as of April 15,
1998, as amended from time to time.

	12	 	Consequences of Termination
	 
	12.1	 	In the event of a termination of the Agreement upon the occurrence of an event described
in Section 11.2, the non-defaulting party will have the right to:

	 	(a)	 	declare all obligations (including all contingent obligations and any recourse
obligations with respect to any Transactions) of the defaulting party under the
Agreement immediately due and payable if permitted under applicable law, whereupon such
obligations will become due and payable by the defaulting party; and
	 
	 	(b)	 	seek any and all other remedies as may be available in law, equity or otherwise.

	12.2	 	A termination of the Agreement shall automatically result in the termination of each Master
Regional Agreement and Regional Agreement.
	 
	12.3	 	If a Regional Agreement or a Master Regional Operating Agreement is terminated such
termination shall not, unless separately agreed to by the International Executive Committee
Members, result in the termination of the Agreement or any other Regional Agreement or Master
Regional Operating Agreement.
	 
	12.4	 	Sections 5, 6, 10, 12, 13, 19.1, 19.3 and 19.4 of this Amendment and the related rights and
obligations of the parties hereto shall survive any termination of the Agreement.
	 
	13	 	Successors and Assigns
	 
	 	 	Neither NMHG nor GE Capital may assign or delegate any of its respective rights or
obligations under the Agreement with the prior written consent of the other party; provided,
however, that GE Capital may assign the Agreement to any Affiliate without the consent of
NMHG. All of the terms and provisions of the Agreement shall inure to the benefit of, and
be binding upon, the parties hereto and their respective successors and permitted assigns.

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	14	 	Business Practices
	 
	14.1	 	NMHG and GE Capital will each:

	 	(a)	 	comply with all laws applicable to the operation of the International Program
and the Regional Programs dealing with improper or illegal payments, gifts or
gratuities;
	 
	 	(b)	 	not pay, promise to pay or authorize the payment of any money or anything of
value, directly or indirectly, to any Person (whether a governmental official or
private individual) for the purpose of illegally or improperly inducing any official or
political party or official thereof to make a buying decision or illegally or
improperly assisting any party hereto or any employee, agent or representative thereof
in connection with obtaining or retaining any licences, qualifications or any business,
or taking any action favourable to any party or any Affiliate, employee, agent or
representative thereof in connection with the Agreement, the International Program or
any Regional Program; and
	 
	 	(c)	 	not take any action, or fail to take any action, which act or failure to act
would subject any other party to the Agreement or any Affiliate thereof to liability or
legal action under the laws of any country dealing with improper payments described in
this Section 13.

	15	 	Application of Original IOA
	 
	 	 	Any financing and related activities occurring in countries in which Affiliates of GE
Capital and NMHG do business without the benefit of a Regional Agreement and/or a Master
Regional Operating Agreement shall continue to be governed by the terms of the Original IOA.
For purposes of the Agreement, the Original IOA shall be deemed to constitute a Master
Regional Operating Agreement that shall govern the activities of all such countries.
Financing and related activities occurring in countries in which Affiliates of GE Capital
and NMHG do business with the benefit of a Regional Agreement and/or a Master Regional
Operating Agreement shall be governed by the terms of the applicable Regional Agreement
and/or Master Regional Operating Agreement and the terms of this Amendment, without regard
to the terms of the Original IOA.
	 
	16	 	Trade Name
	 
	16.1	 	Subject to the terms of this Amendment, NMHG hereby grants GE Capital a non-exclusive,
non-assignable license to use the following business names: (a) “NMHG”, (ii)”Hyster” and (iii)
“Yale” (collectively, the “Trade Marks/Trade Names”) solely for purposes of conducting the
business contemplated in the Agreement. GE Capital assumes responsibility for complying with
any local legal requirements relating to its use of the Trade Marks/Trade Names for the above
cited purpose.
	 
	16.2	 	NMHG represents and warrants that it is the sole owner of the Trade Marks/Trade Names and
holds the legal right to use the Trade Marks/Trade Names in the manner contemplated herein.
GE Capital acknowledges the validity of the Trade Marks/Trade Names and further acknowledges
that GE Capital’s use of the Trade Marks/Trade Names shall inure to the benefit of NMHG, and
GE Capital shall acquire no rights in the Trade Marks/Trade Names as a result of this Section
16. NMHG specifically agrees to indemnify GE Capital under the terms of Section 6 of this
Amendment from any claims asserted by third parties that the use by GE Capital of the Trade
Marks/Trade Names infringes the rights of such third parties.
	 
	16.3	 	GE Capital shall not threaten or undertake any legal action based upon a claim that someone
else’s use of a mark conflicts with or infringes the Trade Marks/Trade Names, but GE Capital
will, upon NMHG’s request, promptly call to NMHG’s attention any conflict with or infringement
of the Trade Marks/Trade Names, and any misuse of the Trade Marks/Trade Names, which comes to
GE Capital’s attention.
	 
	16.4	 	Upon NMHG’s request and at NMHG’s expense, GE Capital will provide reasonable cooperation and
assistance to NMHG in connection with third party conflicts or infringements involving the
Trade Marks/Trade Names, and in connection with any trademark or service mark applications
filed by NMHG.

page 17

 

	16.5	 	GE Capital’s license to use the Trade Marks/Trade Names under this Section shall terminate
upon the termination of the Agreement.
	 
	17	 	Advertising
	 
	 	 	Without the prior written consent of the other party hereto,
neither NMHG nor GE Capital shall advertise in any manner the
financial services to be offered pursuant to the International
Program or a Regional Program (whether by written brochure,
newspaper advertisement, radio commercial, television commercial
or otherwise), even if such advertisement is intended solely for
Dealers and Customers.
	 
	18	 	Notices
	 
	 	 	Any notice or other communication required or permitted under the Agreement shall be
sufficiently given if sent by delivery or registered or certified mail, postage prepaid, by
overnight courier service, or by facsimile, to the relevant party at the address first
stated above or such other address as such party may have provided by notice, copies of each
notice shall be sent to:

	 	(a)	 	GE Capital:
	 
	 	 	 	General Electric Capital Corporation

10 Riverview Drive

Danbury, Connecticut 06810

Facsimile No: (203) 749-2166

Attention: Edward J. Simoneau, Vice President and General Manager, Dealer Financial
Services
	 
	 	(b)	 	NMHG:
	 
	 	 	 	NACCO Materials Handling Group, Inc.

650 N.E. Holladay Street, Suite 1600

Portland, Oregon 97232

Facsimile No: (503) 721-1352

Attention: Jeffrey C. Mattern, Treasurer

The time of delivery of each such notice, request, demand or other communication shall be:

	 	(a)	 	when made or delivered in the case of a delivery by hand during normal business
hours;
	 
	 	(b)	 	in the case of delivery by registered mail or reputable overnight courier
service, at the time shown by the records of such registered mail or delivery service;
or
	 
	 	(c)	 	in the case of a facsimile, upon production of a facsimile transmission report.

	19	 	Miscellaneous
	 
	19.1	 	Time is of the essence in the Agreement. If any sum is not paid when due under the
Agreement, then interest shall accrue thereon, from the applicable due date until paid in full
at a per annum rate equal to the London Interbank Offered Rate for one month dollar deposits
(as published in the “Money Rates” section of The Wall Street Journal, U.S. Eastern Edition,
on the respective due date) plus five percent (5%). If at any time pursuant to the Agreement,
GE Capital or NMHG owes the other party any sum, such sums may be set-off against one another
so that only the party owing the larger sum is required to make payment to the other party.
Such payment need only be made in the amount equal to the difference between the sums which
are due to one another.
	 
	19.2	 	Each party shall be responsible for its own costs and expenses (including legal costs)
incurred in connection with the negotiation of the Agreement and, unless otherwise agreed, in
the implementation of the International Program.

page 18

 

	19.3	 	All sums payable under the Agreement by any party are calculated without regard to any
applicable taxes. Any payor hereunder shall, subject to receipt of a valid invoice, in
addition to, and at the time of payment of, the sums payable hereunder pay any applicable tax
properly payable thereon. Without limiting the generality of the foregoing, if GE Capital or
NMHG makes a payment to the other party on which withholding taxes are due, the payment will
be made net of any withholding taxes. The paying entity will pay all withholding taxes due to
the appropriate Governmental Entity on a timely basis and provide the recipient of the payment
with the original withholding receipt.
	 
	19.4	 	All payments under the Agreement will be made in U.S. dollars by wire transfer in immediately
available funds to the account which GE Capital or NMHG, as the case may be, specifies to the
other party in writing from time to time.
	 
	19.5	 	When a reference is made in the Agreement to Sections, Exhibits or Addendums, that reference
will be to a Section of or Exhibit or Addendum to the Agreement unless otherwise indicated.
The headings contained in the Agreement are for reference purposes only and will not affect in
any way the meaning or interpretation of the Agreement.
	 
	19.6	 	If any provision of the Agreement is held by any court of competent jurisdiction to be
illegal, void or unenforceable, that provision will be of no force and effect, but the
illegality or unenforceability of that provision will have no effect upon and will not impair
the enforceability of any other provision of the Agreement.
	 
	19.7	 	The terms may not be terminated or amended orally, but only in writing duly executed by each
of the parties hereto.
	 
	19.8	 	The failure of any party at any time to require performance of any provision hereof will not
affect the right to require full performance thereof at any time thereafter, and the waiver by
either party of a breach of any provision will not constitute a waiver of any subsequent
breach or nullify the effectiveness of that provision.
	 
	19.9	 	The Agreement may be executed in one or more counterparts, all of which together will
constitute one and the same instrument and will become effective when each of the counterparts
has been signed and delivered to each of the other parties.
	 
	19.10	 	The parties hereto agree to sign such further documents and take such further action as may
reasonably be necessary to effectuate the Agreement.
	 
	19.11	 	NMHG, the NMHG Affiliates, GE Capital and the GE Affiliates have joined in a strategic
alliance to promote their mutual business goals. Nothing contained herein will be construed
to constitute the creation of a partnership entity for legal purposes, or to characterize
NMHG, the NMHG Affiliates, GE Capital and the GE Affiliates as joint venturers or as agents of
the other parties hereto. NMHG, the NMHG Affiliates, GE Capital and the GE Affiliates will at
all times remain independent contractors with respect to the Agreement and otherwise.
	 
	20	 	Governing law
	 
	 	 	The Agreement shall be governed by and construed in accordance with the laws of the
State of New York, without regard to conflict of laws principles.

page 19

 

IN WITNESS WHEREOF, the parties have caused this Amendment to be executed by their respective duly
authorized representatives as of the Effective Date.

	 	 	 	 	 	 	 	 	 	 	 	 	 
	GENERAL ELECTRIC CAPITAL CORPORATION	 	NACCO MATERIALS HANDLING GROUP, INC.
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	BY:

	 	/s/ Edward J. Simoneau
	 	 	BY:
	 	/s/ Reginald R. Eklund	 
	 

	 	 
	 	 	 	 	 	 
	NAME:	 	Edward J. Simoneau	 	 	NAME:	 	Reginald R. Eklund	 
	TITLE:	 	 VP & GM — DFS	 	 	TITLE:	 	President & CEO	 

page 20

 

Exhibit A

International Executive Committee Members

	 	 	 
	NMHG Appointees

	 	GE Capital Appointees
	 
	 	 
	Jeffrey C. Mattern

	 	Edward J. Simoneau
	 
	 	 
	Colin Wilson

	 	Mark Ciamaricone
	 
	 	 
	Mike Smith

	 	Steven Sargent
	 
	 	 
	Donna Baxter

	 	Gerard Moore

page 21

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