EX-10.3 AGREEMENT AND PLAN OF MERGER

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

AGREEMENT AND PLAN OF MERGER
TABLE OF CONTENTS
(cont.)

Schedules

Disclosure Schedule

Exhibits

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

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.

          “ 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.

          “ 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.

          “ 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.

          “ 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.

          “ 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

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

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

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:

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

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

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

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

               (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.

               (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.

          (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

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

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.

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

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,

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.

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