Filed by Bowne Pure Compliance





Exhibit 10.3




 





ASSET PURCHASE AGREEMENT




by and among




GRANITE ACQUISITION CORP.

(a Delaware corporation),




and




LION RIBBON COMPANY, INC.

(a Delaware corporation),




and




HAMPSHIRE PAPER CORP.

(a New Hampshire corporation),




and




the SHAREHOLDERS of HAMPSHIRE PAPER CORP.




 






 


 









 







TABLE OF CONTENTS




	 	 	 	 	 
	Section	 	Page	 
	 
	 	 	 	 
	INTRODUCTION
	 	 	1	 
	BACKGROUND
	 	 	1	 
	1. Definitions
	 	 	1	 
	2. Sale and Purchase
	 	 	8	 
	2.1 Agreement to Sell and Purchase
	 	 	8	 
	2.2 Purchase Price
	 	 	10	 
	2.3 Escrow Account
	 	 	10	 
	2.4 Assumption of Liabilities
	 	 	10	 
	2.5 Post-Closing Purchase Price Adjustment
	 	 	11	 
	2.6 Allocation of Purchase Price
	 	 	12	 
	2.7 Consent of Third Parties
	 	 	13	 
	2.8 Guaranty
	 	 	13	 
	3. Closing
	 	 	13	 
	3.1 Location; Date; Deliveries
	 	 	13	 
	4. Representations and Warranties of Seller
	 	 	14	 
	4.1 Organization and Standing
	 	 	14	 
	4.2 Ownership
	 	 	14	 
	4.3 Authority and Binding Effect
	 	 	14	 
	4.4 Consents and Approvals
	 	 	15	 
	4.5 Third-Party Options
	 	 	15	 
	4.6 Financial Statements; Books of Account
	 	 	15	 
	4.7 Taxes
	 	 	16	 
	4.8 Undisclosed Liabilities
	 	 	17	 
	4.9 Accounts Receivable
	 	 	17	 
	4.10 Inventory
	 	 	18	 
	4.11 Title to Purchased Assets and Related Matters
	 	 	18	 
	4.12 Condition and Location of Purchased Assets
	 	 	18	 
	4.13 Real Property
	 	 	18	 
	4.14 Confidential Information; Intellectual Property
	 	 	19	 
	4.15 Contracts
	 	 	22	 
	4.16 Employees/Independent Contractors
	 	 	24	 
	4.17 Governmental Permits
	 	 	24	 
	4.18 Compliance with Law and Court Orders
	 	 	24	 






 


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TABLE OF CONTENTS

(continued)




	 	 	 	 	 
	Section	 	Page	 
	 
	 	 	 	 
	4.19 Litigation
	 	 	25	 
	4.20 Insurance
	 	 	25	 
	4.21 Non-Real Estate Leases
	 	 	25	 
	4.22 Employee Benefit Plans
	 	 	25	 
	4.23 Transactions with Related Parties
	 	 	27	 
	4.24 Absence of Certain Changes
	 	 	28	 
	4.25 Environmental Matters
	 	 	29	 
	4.26 Additional Information
	 	 	30	 
	4.27 Corporate Records
	 	 	30	 
	4.28 Broker’s or Finder’s Fee
	 	 	30	 
	4.29 Relationship With Customers and Suppliers
	 	 	30	 
	4.30 Certain Personal Property
	 	 	31	 
	4.31 Subsidiaries
	 	 	31	 
	4.32 Previous Sales; Warranties
	 	 	31	 
	4.33 Solvency
	 	 	31	 
	4.34 S Corporation Election
	 	 	31	 
	4.35 Statements and Other Documents Not Misleading
	 	 	31	 
	4.36 Consumer Safety Matters
	 	 	32	 
	5. Representations and Warranties of Buyer
	 	 	32	 
	5.1 Organization and Standing
	 	 	32	 
	5.2 Authority and Binding Effect
	 	 	32	 
	5.3 Validity of Contemplated Transactions
	 	 	32	 
	5.4 Broker’s or Finder’s Fee
	 	 	32	 
	6. Pre-Closing Covenants
	 	 	33	 
	6.1 Access
	 	 	33	 
	6.2 No Solicitation
	 	 	33	 
	6.3 Operation of the Business
	 	 	33	 
	6.4 Update of Schedules
	 	 	35	 
	6.5 Employees and Business Relations
	 	 	35	 
	6.6 [RESERVED]
	 	 	35	 
	6.7 Disclosure of Certain Matters
	 	 	35	 
	6.8 Confidentiality
	 	 	35	 
	6.9 [RESERVED]
	 	 	35	 






 


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TABLE OF CONTENTS

(continued)




	 	 	 	 	 
	Section	 	Page	 
	 
	 	 	 	 
	6.10 Transfer of Purchased Assets and Business
	 	 	35	 
	6.11 Fulfillment of Closing Conditions
	 	 	36	 
	6.12 Change of Name
	 	 	36	 
	6.13 Employee Payments
	 	 	36	 
	6.14 Third Party Payments
	 	 	36	 
	6.15 Further Assurances
	 	 	36	 
	6.16 Insurance
	 	 	37	 
	7. Post-Closing Covenants
	 	 	37	 
	7.1 Noncompetition and Nonsolicitation, Confidential Information
	 	 	37	 
	7.2 Satisfaction of Liabilities
	 	 	38	 
	7.3 Transition Period
	 	 	38	 
	7.4 Employees
	 	 	38	 
	7.5 Accounts Receivable
	 	 	39	 
	7.6 Conduct of the Business following the Closing
	 	 	40	 
	7.7 Tax Matters
	 	 	40	 
	8. Conditions Precedent to Obligations of Buyer
	 	 	40	 
	8.1 Representations and Warranties; Performance of Obligations
	 	 	40	 
	8.2 Ancillary Documents
	 	 	41	 
	8.3 Closing Consents
	 	 	41	 
	8.4 Material Adverse Changes
	 	 	41	 
	8.5 Legal Matters
	 	 	41	 
	8.6 Legal Opinion
	 	 	41	 
	8.7 Review of Updated Schedules and Environmental Investigations
	 	 	41	 
	8.8 Manufacturing Lease; Warehouse Lease
	 	 	41	 
	8.9 Seller Employees
	 	 	41	 
	9. Conditions Precedent to Obligations of Seller Parties
	 	 	42	 
	9.1 Representations and Warranties; Performance of Obligations
	 	 	42	 
	9.2 Legal Matters
	 	 	42	 
	9.3 Legal Opinion
	 	 	42	 
	10. Indemnification
	 	 	42	 
	10.1 By the Seller Parties
	 	 	42	 
	10.2 By the Buyer and Parent
	 	 	43	 
	10.3 Procedure for Claims
	 	 	43	 






 


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TABLE OF CONTENTS

(continued)




	 	 	 	 	 
	Section	 	Page	 
	 
	 	 	 	 
	10.4 Claims Period
	 	 	45	 
	10.5 Third Party Claims
	 	 	45	 
	10.6 Right of Offset
	 	 	45	 
	10.7 Effect of Investigation or Knowledge
	 	 	46	 
	10.8 Satisfaction of Indemnification Obligations
	 	 	46	 
	10.9 Contingent Claims
	 	 	46	 
	11. Termination
	 	 	46	 
	11.1 Grounds for Termination
	 	 	46	 
	11.2 Effect of Termination
	 	 	47	 
	12. Other Matters
	 	 	47	 
	12.1 Public Announcements
	 	 	47	 
	12.2 Reasonable Best Efforts
	 	 	47	 
	13. Miscellaneous
	 	 	47	 
	13.1 Contents of Agreement
	 	 	47	 
	13.2 Amendment, Parties in Interest, Assignment
	 	 	47	 
	13.3 Interpretation
	 	 	48	 
	13.4 Sole Remedy
	 	 	48	 
	13.5 Dispute Resolution
	 	 	48	 
	13.6 Expenses
	 	 	49	 
	13.7 Bulk Sales
	 	 	49	 
	13.8 Notices
	 	 	49	 
	13.9 Governing Law
	 	 	50	 
	13.10 Counterparts
	 	 	50	 





 


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ASSET PURCHASE AGREEMENT



INTRODUCTION




This ASSET PURCHASE AGREEMENT, dated as of August 1, 2008, is made and entered into by and
among Granite Acquisition Corp., a Delaware corporation (“Buyer”), Lion Ribbon Company,
Inc., a Delaware corporation, which owns all of the outstanding stock of Buyer (“Parent”),
Hampshire Paper Corp., a New Hampshire corporation (“Seller”), and each of the Persons (as
defined herein) listed on Exhibit A hereto (each, a “Shareholder” and, collectively, the
“Shareholders;” and together with Seller, each, a “Seller Party” and, collectively,
the “Seller Parties”). Buyer, Seller and the Shareholders are each referred to herein as a
“Party” and, collectively, as the “Parties.”



BACKGROUND




Seller owns and operates the Business (defined below). This Agreement sets forth the terms
and conditions upon which Buyer is purchasing the Purchased Assets (defined below) and assuming the
Assumed Liabilities (defined below) from Seller, and Seller is selling the Purchased Assets and
transferring the Assumed Liabilities to Buyer.



NOW, THEREFORE, in consideration of the respective covenants, representations and warranties
herein contained, and intending to be legally bound hereby, the parties hereto agree as follows:



1. Definitions.



For convenience, certain terms used in more than one part of this Agreement are listed in
alphabetical order and defined or referred to below.



“Accounts Receivable” means, as of any specified date, any trade accounts receivable,
notes receivable, bid or performance deposits and other miscellaneous receivables of the Business.




“Action” is defined in Section 10.5.



“Affiliates” means, with respect to a particular party, Persons controlling,
controlled by or under common control with that party, as well as any officers, directors and
majority-owned entities of that party and of its other Affiliates. For the purposes of the
foregoing, ownership, directly or indirectly, of 20% or more of the voting stock or other equity
interest shall be deemed to constitute control.



“Agreement” means this Asset Purchase Agreement, including all schedules, and exhibits
hereto.




“Allocation” is defined in Section 2.6.




“Arbitration” is defined in Section 13.5(c).



“Assets” means all of Seller’s assets, properties, business, goodwill and rights of
every kind and description, real and personal, tangible and intangible, wherever situated and
whether or not reflected on the Current Balance Sheet.




“Assignee” is defined in Section 13.2.




“Assumed Liabilities” is defined in Section 2.4(a).



“Auditor” means Ernst & Young LLP.


 


 









 






“Base Purchase Price” is $10,250,000.



“Bill of Sale, Assignment and Assumption Agreement” means a bill of sale, assignment
and assumption agreement by and between Seller and Buyer in substantially the same form as Exhibit
B.



“Business” means the business, operations and facilities of Seller relating to the
design, marketing, distribution and sale of paper, foil and foil decorative packaging to the
wholesale floral and retail packaging industries, and such other items that are designed, marketed,
distributed or sold by the Seller as of the date hereof, including the goodwill appurtenant to such
business and assets.



“Business Day” means any calendar day which is not a Saturday, Sunday or public
holiday under the laws of the State of New Hampshire.




“Buyer Officer’s Certificate” is defined in Section 9.1.




“Buyer’s Legal Opinion” is defined in Section 9.3.




“Cap” is defined in Section 10.3(c).




“CERCLA” is defined in Section 4.25.



“Charter Documents” means an entity’s certificate or articles of incorporation or
formation, certificate defining the rights and preferences of securities, articles of organization,
bylaws, general or limited partnership agreement, operating agreement, certificate of limited
partnership, joint venture agreement or similar document governing the entity.




“Claim Notice” is defined in Section 10.3(a).




“Claim Response” is defined in Section 10.3(a).




“Closing” is defined in Section 3.1.




“Closing Balance Sheet” is defined in Section 2.5(a).




“Closing Consents” is defined in Section 8.3.




“Closing Date” is defined in Section 3.1.




“Closing Financial Data” is defined in Section 2.5(b).




“Closing Payment” is defined in Section 2.2(a).



“Code” means the US Internal Revenue Code of 1986, as amended, and the rules and
regulations thereunder.



“Confidential Information” means any confidential or proprietary information of Seller
that is used or held for use in the Business, including personnel information, know-how, data,
databases, software, source code, advertising and marketing plans or systems, distribution and
sales methods or systems, pricing lists and pricing formulae, customer and client lists, customer,
client, dealer, distributor, wholesaler and supplier information (including principal contacts,
addresses and telephone numbers, purchasing history, equipment demographics, payment information
and any other information), financial information (including the sales, cost and profit figures
associated with the Business and its products and
services) and any relationships with dealers, distributors, wholesalers, customers, clients,
suppliers and any other Persons who have, or have had, business dealings with the Business.


 


2









 






“Confidentiality Agreement” is defined in Section 4.14(a)(ii).




“Consumer Acts” is defined in Section 4.36.




“Contingent Claim” is defined in Section 10.9.



“Contract” means any written or oral contract, agreement, purchase order, lease,
license, plan, instrument or other document, commitment, arrangement, undertaking, practice or
authorization that is or may be binding on any Person or its property under applicable Law.



“Copyrights” means any copyrights and registrations and applications therefore,
including all renewals and extensions thereof and rights corresponding thereto in both published
and unpublished works throughout the world, owned, used, held for use or licensed by Seller in
connection with the conduct of the Business.



“Court Order” means any judgment, decree, injunction, order or ruling of any federal,
state, local or foreign court or governmental or regulatory body or authority that is binding on
any Person or its property under applicable Law.




“Current Balance Sheet” is defined in Section 4.6(a)(ii).




“Current Balance Sheet Date” is defined in Section 4.6(a)(iii).




“Damages” is defined in Section 10.1(a).



“Default” means (i) a breach, default or violation, (ii) the occurrence of an event
that with or without the passage of time or the giving of notice, or both, would constitute a
breach, default or violation or (iii) with respect to any Contract, the occurrence of an event
that, under the terms of the applicable Contract, would give rise to a right of termination,
renegotiation or acceleration; provided, however, if a Party has a right to cure the breach,
default or violations and does in fact cure within the applicable grace periods, then that breach,
default or violation, or triggering occurrence, shall not constitute a Default.




“Dispute” is defined in Section 13.5(a).




“Effective Date” is defined in Section 3.1.




“Employee Payments” is defined in Section 6.13.




“Employment Agreement” is defined in Section 8.9.



“Encumbrances” means any lien, mortgage, security interest, pledge, restriction on
transferability, defect of title or other claim, charge or encumbrance of any nature whatsoever on
any property or property interest, including any restriction on the use, voting, transfer, receipt
of income or other exercise of any attributes of ownership.




“Environmental Claims” is defined in Section 4.25(i).



“Environmental Laws” is defined in Section 4.25(ii).


 


3









 






“Environmental Permit” is defined in Section 4.25(iii).



“ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and all
regulations and rules issued thereunder, or any successor law.



“ERISA Affiliate” means any person, that together with Seller, is or was at any time
treated as a single employer under Section 414 of the Code or Section 4001 of ERISA.




“Escrow Agent” means LaSalle Bank National Association.



“Escrow Agreement” means the escrow agreement by and among Seller, the Shareholders,
Buyer and the Escrow Agent in substantially the same form as Exhibit C.




“Escrow Funds” is defined in Section 2.2(b)(ii).




“Escrow Payment” is defined in Section 2.2(a).



“Escrow Rate” means the average rate of investment return during the applicable period
on the investment of the Escrow Funds by the Escrow Agent under the Escrow Agreement.



“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules
and regulations thereunder.




“Excluded Assets” is defined in Section 2.1(b).




“Expiration Date” is defined in Section 10.4.



“GAAP” means generally accepted accounting principles in the United States,
consistently applied.



“Governmental Body” means any (a) nation, state, commonwealth, province, territory,
county, municipality, district or other jurisdiction of any nature, or any political subdivision
thereof, (b) federal, state, local, municipal, foreign or other government or (c) governmental or
quasi-governmental authority of any nature (including any governmental division, department,
agency, commission, instrumentality, official, organization, regulatory body or other entity and
any court, arbitrator or other tribunal).



“Governmental Permits” means any permits, licenses, franchises, registrations,
certificates, variances, exemptions, consents, approvals, privileges or other authorizations of any
nature whatsoever, granted, approved or allowed by any Governmental Body.




“Guaranty” is defined in Section 2.8.




“Hazardous Material” is defined in Section 4.25(iv).




“Indemnified Buyer Party” is defined in Section 10.1.




“Indemnified Party” is defined in Section 10.3(a).




“Indemnified Seller Party” is defined in Section 10.2.



“Indemnitor” is defined in Section 10.3(a).


 


4









 





“Information Technology” means all communications systems and computer systems used or
held for use in the conduct of the Business by Seller including all hardware, software, URLs,
websites and domain names.



“Intellectual Property” means all intellectual property used or held for use in the
conduct of the Business by Seller, including without limitation all Copyrights, Patents,
Trademarks, technology rights and licenses, franchises, inventions (whether or not patentable) and
other similar property, including without limitation: (A) all registered and unregistered
trademarks (including without limitation, the right to use the names “Hampshire Paper”, “Mark
Degradable Film Planet Safe”, Mark Bio-degradable Film Planet Safe”, “Mark Oxo-Biodegradable Film
Planet Safe”, “Mark Oxo-Degradable Film Planet Safe”, “Kwik Cover”, “Guardsman”, and
“Krystalphone”), service marks, trade names, trade dress, logos, designs, domain names, URLs or
other marks, including the goodwill associated therewith, and all applications, registrations, and
renewals in connection therewith; (B) copyrights, including all registrations, renewals and
application in connection therewith, copyrightable works, databases, websites, domain names, and
advertisements; (C) software, including object code and source code, and related manuals used by
the Business; (D) inventions (whether patentable or unpatentable and whether or not reduced to
practice), and all patents, patent applications and patent disclosures (and all rights related
thereto, including all reissues, divisions, continuations, continuations-in-part, substitutions,
extensions, or renewals of any of the foregoing); and (E) formulae, trade secrets, know how,
designs, production methods and techniques, samples, catalogs, hard and soft copy design library,
and other proprietary information including, without limitation, all processes used in the
Business.



“Inventory” means all inventory of Seller, including, without limitation, raw
materials, work-in-process, finished goods, products under research and development, office and
other supplies, parts, packaging materials and other accessories related thereto, wherever located,
which are used or held for use by Seller in the conduct of the Business, together with all rights
of Sellers against suppliers of such inventory.



“Law” means any statute, law, ordinance, regulation, order or rule of any federal,
state, local or, foreign governmental or regulatory body or authority, including those covering
environmental, energy, safety, health, information technology, transportation, bribery, record
keeping, zoning, antidiscrimination, antitrust, wage and hour, and price and wage control matters.



“Legal Proceeding” means any action, arbitration, suit, audit, hearing, investigation,
litigation or proceeding (public or private) by or before, or otherwise involving a Governmental
Body or an arbitrator.



“Liability” means any direct or indirect liability, indebtedness, obligation, expense,
debt, claim, loss, damage, deficiency, guaranty or endorsement of any nature, of or by any Person,
whether absolute or contingent, known or unknown, secured or unsecured, recourse or non-recourse,
filed or unfiled, accrued or unaccrued, due or to become due, or liquidated or unliquidated.




“Liquidated Claim Notice” is defined in Section 10.3(a).



“Litigation” means any lawsuit, action, arbitration, administrative or other
proceeding, criminal prosecution or governmental investigation or inquiry.




“Manufacturing Lease” is defined in Section 8.8.



“Manufacturing Property” means the approximately 54,000 square foot manufacturing
facility currently used by the Seller and located at 1 Hampshire Drive, Milford, New Hampshire.


 


5









 





“Material Adverse Effect” means a material adverse effect on the Business (measured on
any of a quarterly, annual or long-term basis), including any of the Assets, financial condition,
results of operations, prospects, liquidity, products, competitive position, customers or customer
relations thereof.




“Mediation” is defined in Section 13.5(b).




“Non-Assignable Contract” is defined in Section 2.6.




“Non-Competition Period” is defined in Section 7.1(a).




“Non-Real Estate Leases” is defined in Section 4.21.




“Objection Notice” is defined in Section 2.5(b).




“Off-the-Shelf Software” is defined in Section 4.14(a)(i).



“Ordinary course” or “ordinary course of business” means the ordinary course
of business that is consistent with past practices.




“Party” and “Parties” is each defined above in the Introduction.



“Patents” means any patents together with any extensions, reexaminations and reissues
of such patents, patents of addition, patent applications, divisions, continuations,
continuations-in-part, and any subsequent filings in any country or jurisdiction claiming priority
therefrom, owned, used, held for use or licensed by Seller in connection with the conduct of the
Business.




“PBGC” is defined in Section 4.22(e).



“Person” means any natural person, corporation, partnership, proprietorship,
association, joint venture, trust or other legal entity.




“Plans” is defined in Section 4.22(a).



“Prime Rate” means the prime lending rate as reported in The Wall Street Journal from
time to time as the base rate on corporate loans.




“Purchased Assets” is defined in Section 2.1(a).




“Purchase Price” means is defined in Section 2.2(a).




“Qualified Plan” is defined in Section 4.22(c).




“Real Estate Leases” is defined in Section 4.13.



“Real Property” means all rights and interests in or to real property (including any
real estate, land, building, condominium, town house or other real property of any nature),
including all shares or stock or other ownership interests in cooperative or condominium
associations, fee estates, leaseholds and subleaseholds, purchase options, easements, licenses,
privileges, hereditaments, appurtenances thereto, rights to access and rights of way, easement or
prescriptive right and all Structures, owned by Seller or used in the operation of the Business,
together with any additions thereto or replacements thereof.


 


6









 





“Response Period” is defined in Section 10.3(a).




“Restricted Party” is defined in Section 7.1(a).



“Securities Act” means the Securities Act of 1933, as amended, and the rules and
regulations thereunder.




“Seller Contracts” is defined in Section 4.15(c).




“Seller Financial Statements” is defined in Section 4.6(a)(ii).




“Seller’s Legal Opinion” is defined in Section 8.6.




“Seller Officer’s Certificate” is defined in Section 8.1.




“Seller Party” and “Seller Parties” is each defined in the Introduction.




“Seller Required Consents” is defined in Section 4.4.



“Structures” all buildings, structures, fixtures, facilities and improvements to any
Real Property.



“Tangible Real Assets” all Structures and all structural, mechanical and other
physical systems thereof that constitute part of the Real Property, including the walls, roofs and
structural elements thereof and the heating, ventilation, air conditioning, plumbing, electrical,
communications, mechanical, water, sewer, waste water, storm water, paving and parking equipment,
systems and facilities included therein and other material items at the Real Property.



“Taxes” shall mean all taxes, duties, charges, fees, levies or other assessment
imposed by any taxing authority, including income, gross receipts, value-added, excise,
withholding, personal property, real estate, sale, use, ad valorem, license, lease, service,
severance, stamp, transfer, payroll, employment, customs, duties, alternative, add-on minimum,
estimated and franchise taxes (including any interest, penalties or additions attributable to or
imposed on or with respect to any such assessment).



“Tax Returns” means any and all returns, reports, claims for refund, information
returns, or other statements (including elections, declarations, disclosures, schedules, estimates,
and attachments), including estimates or amendments thereof, required to be filed by a Party with
respect to any Taxes.




“Termination Date” is defined in Section 11.1(b).




“Third Party Payments” is defined in Section 6.14.




“Threshold Amount” is defined in Section 10.3(c).



“Trademarks” means any registered trademarks, registered service marks, trademark and
service mark applications and unregistered trademarks and service marks, brand names, certification
marks, trade names, logos, trade dress, and all goodwill associated with the foregoing throughout
the world and registrations in any jurisdictions of, and applications in any jurisdiction to
register, the foregoing, including any extension, modification or renewal of any such registration
or application, owned, used, held for use or licensed by Seller in connection with the conduct of
the Business.



“Transaction Documents” means this Agreement, the Bill of Sale, Assignment and
Assumption Agreement, the Escrow Agreement, the Manufacturing Lease, the Warehouse Lease, the
Employment Agreement, all schedules and exhibits, and any other certificate, instrument, agreement
or document required to be delivered pursuant to the terms hereof and thereof.


 


7









 





“Transactions” means the purchase and sale of the Purchased Assets and the transfer
and assumption of the Assumed Liabilities at the Closing and the other transactions contemplated by
the Transaction Documents.




“Transferred Employees” is defined in Section 6.5.




“Unassumed Liability” is defined in Section 2.4(b).




“Unliquidated Claim” is defined in Section 10.3(a).




“US” means the United States of America.




“WARN Act” means the Worker Adjustment and Retraining Notification Act, as amended.




“Warehouse Lease” is defined in Section 8.8.



“Warehouse Property” means the approximately 58,000 square foot office facility
current used by the Seller and located at 24 Powers Street, Milford, New Hampshire.




“Year-End Financials” is defined in Section 4.6(a)(i).



2. Sale and Purchase.




2.1 Agreement to Sell and Purchase.



(a) At the Closing, Seller shall grant, sell, convey, assign, transfer and deliver to Buyer,
and Buyer shall purchase from Seller, all right, title and interest in and to all of the Assets,
properties, and rights of every kind, and description, real, personal and mixed, tangible and
intangible, wherever situated, on the Closing Date other than the Excluded Assets (the
“Purchased Assets”), free and clear of all Encumbrances, including the following:



(i) all Accounts Receivable;



(ii) all Inventory;



(iii) all Tangible Real Assets located on or related to the Manufacturing Property or to the
Warehouse Property;



(iv) all fixed assets, furniture, fixtures, automobiles, leasehold improvements, tooling,
machinery and equipment;



(v) all records with respect to suppliers, employees and other aspects of the Business;



(vi) all Confidential Information;



(vii) all telephone numbers and facsimile numbers currently used in the Business;



(viii) all manufacturing, warehouse and office supplies;


 


8









 





(ix) all rights under the Non-Real Estate Leases, and any deposits or other rights pertaining
thereto;



(x) all rights under any Governmental Permits that have been issued or applied for;



(xi) all rights related to any prepaid expenses;



(xii) all the Assets of Seller, whether or not otherwise described in this subsection (a), as
set forth on the Current Balance Sheet, and those Assets of Seller whose ownership by Seller is
implied by the assumptions made in the preparation of the Current Balance Sheet and are set forth
on Schedule 2.1(a)(xii);



(xiii) all rights under any insurance Contracts that are assignable or transferable under the
terms of such Contracts;



(xiv) all Intellectual Property used or otherwise exploited by or in connection with the
Business;



(xv) all rights under any Contracts listed on Schedule 2.1(a)(xv) that are assignable
or transferable under the terms of such Contracts, except to the extent specified in Section
2.4; and



(xvi) all petty cash provided to the Seller’s truck drivers as cash advances.



(b) Notwithstanding the foregoing, the Purchased Assets shall not include any of the following
(the “Excluded Assets”):



(i) all cash and cash equivalents, other than petty cash specified in Section
2.1(a)(xvi);



(ii) the corporate seals, Charter Documents, minute books, stock books, Tax Returns, books of
account or other records having to do with the corporate organization of Seller;



(iii) all rights and obligations under the existing automobile lease for the Seller-provided
vehicle used as of the date of this Agreement by Michael Stepanek



(iv) all rights and obligations under the existing real estate leases for the Manufacturing
Property and for the Warehouse Property;



(v) all rights to the cash surrender value of any life insurance policies in existence as of
the date of this Agreement insuring the lives of the Shareholders;



(vi) all rights to any income tax refund with respect to the Business for taxable periods
ending on or before the Closing Date; and



(vii) the rights that accrue or will accrue to Seller under the Transaction Documents.


 


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2.2 Purchase Price.



(a) In consideration of the grant, sale, conveyance, assignment, transfer and delivery of the
Purchased Assets to Buyer and the assumption by Buyer of the Assumed Liabilities, Buyer shall pay a
total amount (the “Purchase Price”) equal to: (i) $8,450,000 (the “Closing
Payment”), plus (ii) $1,800,000 (the “Escrow Payment”). The Purchase Price shall be
subject to adjustment as set forth in Section 2.5 hereof.



(b) Buyer shall pay the Purchase Price as set forth below:



(i) at the Closing, Buyer shall pay to Seller the Closing Payment by a wire transfer of
immediately available funds, in accordance with written instructions provided by Seller to Buyer
prior to the Closing Date;



(ii) at the Closing, Buyer shall pay the Escrow Payment to the Escrow Agent in accordance with
the Escrow Agreement. Such cash delivered to the Escrow Agent, together with any investment
proceeds thereon and any distributions with respect thereto as provided in the Escrow Agreement,
are referred to collectively herein as the “Escrow Funds;” and



(iii) after the Closing, any adjustment to the Purchase Price, if any, in accordance with
Section 2.5.



2.3 Escrow Account. At the Closing, Buyer and Seller shall enter into the Escrow
Agreement with the Escrow Agent under which the Escrow Agent shall hold the Escrow Funds for
possible claims against the Seller Parties under Section 2.5 and Section 10.




2.4 Assumption of Liabilities.



(a) At the Closing, Buyer shall assume and agree to pay, discharge or perform, as appropriate,
when due only the Liabilities of Seller specifically identified below in this subsection (a) (the
“Assumed Liabilities”):



(i) any post-Closing executory obligations under the Contracts, but only to the extent that
any such obligation relates to an event that occurs after the Closing Date;



(ii) all Liabilities of Seller arising in the ordinary course of business after the Closing
Date related solely to the operation of the Purchased Assets, and with respect to such Liabilities
arising under or related to any Laws, including Environmental Laws, only to the extent such
Liabilities arise from or are related to any event that occurs after the Closing Date; and



(iii) the Seller’s obligations to pay to each Transferred Employee after the Closing Date any
sick pay and any vacation pay attributable to such Transferred Employee which as of the Closing
Date is accrued, earned and unpaid and relates to the period commencing January 1, 2008 and ending
on the Closing Date.


 


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(b) Notwithstanding subsection (a) above or any other provision of this Agreement, Buyer is
not assuming under this Agreement or any other Transaction Document any Liability that is not
specifically identified as an Assumed Liability under subsection (a) above, regardless of when made
or asserted, including any of the following (each, an “Unassumed Liability”): (i)
undisclosed Liabilities; (ii) any product or service liability or similar claim for injury to any
Person or property, regardless of when made or asserted, that arises out of or is based upon any
express or implied representation, warranty,
agreement or guarantee made by Seller, or alleged to have been made by Seller, or that is
imposed or asserted to be imposed by operation of law in connection with any service performed or
product sold or leased by or on behalf of Seller on or prior to the Closing, whether or not billed
as of the Closing Date; (iii) any Federal, state or local income or other Tax payable with respect
to the Business, the Purchased Assets, or other properties or operations of Seller or any Person
that was an affiliate of Seller for a period prior to the Closing Date; (iv) any Liabilities under
or in connection with any Excluded Assets; (v) any Liabilities arising prior to the Closing Date or
as a result of the Closing relating to Seller’s employment of Persons, including any Liabilities
with respect to any employee wages, salaries, benefits or withholding taxes, workers compensation
claim or any other Liability of Seller to its respective employees relating in any way to their
employment by Seller (other than Liabilities accrued in respect thereof on the Closing Balance
Sheet); (vi) any Liabilities of Seller arising or incurred in connection with the negotiation,
preparation and execution of this Agreement and the Transactions, including any Liability to any
broker or finder retained by or on behalf of Seller in connection with the Transactions; (vii) any
Environmental Liability; (viii) Liabilities arising from or related to governmental fines or
penalties arising out of or based upon or incurred during the period prior to the Closing Date;
(ix) any Liabilities for money borrowed, whether direct or contingent; (x) any Liability of Seller
owing to any Person holding an equity interest in Seller, (xi) any proceeding commenced by any
Person claiming that such Person is or was at any time the holder of any equity interest in Seller,
and (xii) any Liabilities arising prior to the Closing Date or as a result of the Closing relating
to the infringement, misappropriation, dilution or other violation of the confidential information,
proprietary information or intellectual property of any Person.



2.5 Post-Closing Purchase Price Adjustment. The Purchase Price shall be subject to
adjustment, if any, as follows.



(a) Draft Estimated Closing Balance Sheet. As soon as practicable following (but not
more than ninety (90) days after) the Closing Date, Buyer shall prepare and deliver to Seller a
consolidated statement of the Purchased Assets and Assumed Liabilities as of the Closing (the
“Estimated Closing Balance Sheet”). The Estimated Closing Balance Sheet shall be prepared
in accordance with GAAP. The Estimated Closing Balance Sheet shall not make any retroactive
adjustments inconsistent with the Seller Financial Statements that would reduce the NAV as of the
Closing Date. All expenses incurred in connection with the preparation of the Estimated Closing
Balance Sheet shall be the responsibility of Buyer.



(b) Review of Estimated Closing Balance Sheet. The Estimated Closing Balance Sheet
shall become final and binding upon the Parties unless, within sixty (60) days following its
submittal to Seller (the “Review Period”), Seller notifies Buyer of its objection thereto, which
objection may only be that the Estimated Closing Balance Sheet was not prepared in accordance with
Section 2.5(a) (except for clear error or mistake, or willful misrepresentation). If Seller so
notifies Buyer of its objection to the Estimated Closing Balance Sheet, Seller and Buyer shall
negotiate in good faith to resolve any differences. If within thirty (30) days following receipt
of such notice by Buyer any such differences have not been resolved, they shall be resolved by the
Auditor, using the methods and criteria and such procedures as that firm may determine in its sole
discretion, and the Auditor’s opinion thereon and the resulting balance sheet shall be final,
binding and not subject to any appeal (except for clear error or mistake, disregard of Section
2.5(a), or willful misrepresentation, in which event the Dispute would be resolved pursuant to
Section 13.5). The fees and expenses of the Auditor shall be paid one-half by Seller and one-half
by Buyer. If Seller does not notify Buyer of any objections during the Review Period, the
Estimated Closing Balance Sheet shall become final and binding. The final and binding balance
sheet, as determined in accordance with this Section 2.5(b), is hereinafter referred to as the
“Closing Balance Sheet.”


 


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(c) Closing Payment Adjustment. Within five (5) days after the final determination of
the Closing Balance Sheet, (i) if the Net Asset Value is less than $6,250,000, then, in accordance
with Section 7 of the Escrow Agreement, Seller and Buyer shall provide joint written directions to
the Escrow Agent for the release to Buyer from the Escrow Funds (as such term is defined in the
Escrow Agreement) as a reduction in the Purchase Price the amount of such deficiency (subject to
adjustment as set forth in the last sentence of this Section 2.5(c)), plus interest on such
deficient amount at the Escrow Rate from the Closing Date until the date paid; provided, however,
that if the amount of the Escrow Funds is insufficient to pay the amount of such deficiency, any
excess deficient amount shall be paid by the Seller Parties, or (ii) if the Net Asset Value is
greater than $6,300,000, then Buyer shall pay Seller in cash as an increase in the Purchase Price
the amount of such excess, plus interest on such excess amount at the Escrow Rate from the Closing
Date until the date paid. For purposes of this Section 2.5(c), “Net Asset Value” means the
sum of (i) the aggregate book value of all of the Purchased Assets set forth on the Closing Balance
Sheet as reflected on Seller’s books and records minus (ii) the aggregate book value of current
Assumed Liabilities set forth on the Closing Balance Sheet as reflected on Seller’s books and
records; as determined in a manner consistent with GAAP. For purposes of clause (i) of this
Section 2.5(c), if the Net Asset Value is less than $6,250,000 and the value of “Inventory -WIP”,
as set forth on the Closing Balance Sheet, is less than $433,000, then the amount to be paid by the
Seller Parties pursuant to this Section 2.5(c) shall be reduced by the lesser of (x) $50,000 or (y)
the difference between $433,000 and the value of “Inventory — WIP” as set forth on the Closing
Balance Sheet.



(d) Nothing in this Section 2.5 shall preclude any party from exercising, or shall adversely
affect or otherwise limit in any respect the exercise of, any right or remedy available to it
hereunder or otherwise for any misrepresentation or breach of warranty hereunder, but neither Buyer
nor Seller shall have any right to dispute the Closing Balance Sheet or any portion thereof (except
as provided in Section 2.5(b)) once it has been finally determined in accordance with this Section
2.5.



2.6 Allocation of Purchase Price. Within thirty (30) days after the final
determination of the Closing Balance Sheet, as provided in Section 2.5 herein, the Buyer
shall deliver to the Seller the Buyer’s proposal for allocation of the Purchase Price among the
Purchased Assets for all purposes (including financial, accounting and tax purposes) in a manner
consistent with Section 1060 of the Code (the “Allocation”). In the event that the Seller
does not object to the Allocation within thirty (30) days of the Seller’s receipt of the
Allocation, then the Seller Parties shall be deemed to have agreed to the Allocation. Buyer and
Seller will endeavor in good faith to resolve any differences with respect to the preparation of
the Allocation. If differences arise with respect to such preparation, and Buyer and Seller have
acted in good faith to resolve such differences, then any remaining disputed matters will be
finally and conclusively determined by the Auditor. The Auditor will determine (based solely on
presentations by Buyer and Seller and not by independent review) only those matters in dispute and
will render a written report as to the disputed matters and the resulting allocation of Purchase
Price (together with the Assumed Liabilities), which report shall be conclusive and binding upon
the Parties, except that any Party may object if the Auditor’s determination disregards the
restrictions imposed by this Section 2.6 (in which event the Dispute would be resolved pursuant to
Section 13.5). Each Party shall fully comply with the reporting requirements of Section 1060 of
the Code relating to allocation rules for certain asset acquisitions. Buyer and Seller shall not,
subject to the requirements of any applicable Tax Law or election, file any Tax Returns and reports
or take any positions before any Governmental Body inconsistent with the Allocation. Buyer and
Seller shall cooperate in the preparation and filing of IRS Form 8594 (as amended) and any required
exhibits thereto with the IRS (and any comparable forms with the appropriate authorities) in a
manner consistent with the Allocation, which the Parties shall each file with the IRS on a timely
basis.


 


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2.7 Consent of Third Parties. Nothing in this Agreement shall be construed as an
attempt by Seller to assign to Buyer pursuant to this Agreement any Contract, permit, franchise,
claim or Asset
included in the Purchased Assets that is by its terms or by law nonassignable without the
consent of any other party or parties, unless such consent or approval shall have been given, or as
to which all the remedies for the enforcement thereof available to Seller would not by law pass to
Buyer as an incident of the assignments provided for by this Agreement (a “Non-Assignable
Contract”). To the extent that any Seller Required Consent in respect of, or a novation of, a
Non-Assignable Contract shall not have been obtained on or before the Closing Date, Seller shall
continue to use its reasonable best efforts to obtain any such Seller Required Consent or novation
after the Closing Date until such time as it shall have been obtained, and Seller shall cooperate
with Buyer in any economically feasible arrangement to provide that Buyer shall receive the
interest of Seller in the benefits under such Non-Assignable Contract, including performance by
Seller as agent if economically feasible; provided that Buyer shall undertake to pay or satisfy the
corresponding Liabilities under the terms of such Non-Assignable Contract to the extent that Buyer
would have been responsible therefor if such consent or approval had been obtained. Seller shall
pay and discharge, and shall indemnify and hold harmless Buyer and its Affiliates from and against,
any and all out-of-pocket costs of seeking to obtain or obtaining any such Seller Required Consent
whether before or after the Closing Date. Nothing contained in this Section 2.7 or
elsewhere in this Agreement shall be deemed a waiver by Buyer of its right to have received on the
Closing Date an effective assignment of all of the Purchased Assets or of the covenant of Seller to
obtain all of the Seller Required Consents, nor shall this Section 2.7 or any other
provision of this Agreement be deemed to constitute an agreement to exclude from the Purchased
Assets any Contracts as to which a Seller Required Consent may be necessary.



2.8 Guaranty. Upon the execution of this Agreement, Parent has executed and delivered
to the Seller a guaranty, substantially in the form of Exhibit 2.8 (the “Guaranty”).



3. Closing.



3.1 Location; Date; Deliveries. The closing for the Transactions (the
“Closing”) shall be held at the offices of CSS Industries, Inc. in Philadelphia,
Pennsylvania, on August 4, 2008 or at such other date and place as may be mutually agreed by the
Parties (the “Closing Date”). The Transactions shall become binding and effective upon the
later to occur of receipt of wire transferred funds by (i) Seller, of the Closing Payment, and (ii)
Escrow Agent, of the Escrow Payment (the “Effective Date”). The effective time of the Closing
shall be at 12:01am (Philadelphia time) on the Closing Date, or at such other time as may be
mutually agreed by the Parties. At the Closing and as a condition to Closing:



(a) The Seller Parties shall deliver, or caused to be delivered, to Buyer:



(i) duly executed counterparts to the Transaction Documents;



(ii) all of the Closing Consents and the Seller Required Consents, or in lieu thereof waivers,
obtained prior to the Closing. Such Closing Consents and Seller Required Consents (or in lieu
thereof, waivers) shall (A) be in form and substance reasonably satisfactory to Buyer, (B) not be
subject to the satisfaction of any condition that has not been satisfied or waived, and (C) be in
full force and effect;



(iii) the Seller Officer’s Certificate;



(iv) the Seller’s Legal Opinion;



(v) executed releases of any Encumbrance identified on Schedule 4.11 in forms
satisfactory to Buyer in its sole discretion;


 


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(vi) duly executed assignment documents (reasonably satisfactory to Buyer) assigning to Buyer
all right, title and interest in and to the Confidential Information; and



(vii) such other instruments of conveyance and transfer, in form reasonably satisfactory to
Buyer and its counsel, as shall be necessary and effective to transfer and assign to, and vest in,
Buyer all of Seller’s right, title and interest in and to the Purchased Assets, and such other
documents, instruments, certificates and agreements as may be reasonably required by the Buyer to
consummate and give effect to the Transactions. Simultaneously with such deliveries, all such
steps will be taken by Seller as may be required to put Buyer in actual possession and operating
control of the Purchased Assets.



(b) Buyer shall deliver to the Seller Parties:



(i) duly executed counterparts to the Transaction Documents to which the Buyer is a party;



(ii) the Buyer Officer’s Certificate;



(iii) the Buyer’s Legal Opinion; and



(iv) such other documents, instruments, certificates and agreements as may be reasonably
required by the Seller Parties to consummate and give effect to the Transactions.



(c) Buyer shall deliver the Closing Payment to Seller and the Escrow Payment to the Escrow
Agent in accordance with Section 2.2(b).



4. Representations and Warranties of Seller. The Seller Parties, jointly and severally,
hereby represent and warrant to Buyer as follows:



4.1 Organization and Standing. Seller is a corporation duly organized, validly
existing and in good standing under the Laws of the jurisdiction in which it was incorporated and,
except as specified in Schedule 4.1, is duly qualified or licensed to do business as a
foreign corporation in each jurisdiction where the Business or the ownership of the Purchased
Assets would require it to be so qualified or licensed. The Charter Documents and bylaws of Seller
that have been delivered to Buyer as of the date hereof are effective under applicable Laws and are
current, correct and complete.



4.2 Ownership. The Shareholders are the record and beneficial owners of all of the
issued and outstanding capital stock of Seller. Except for shares of the capital stock of Seller
owned by the Shareholders, (i) there are no other issued or outstanding securities of Seller, (ii)
there are no subscriptions, options, “phantom” stock rights, warrants or other rights of any kind
entitling any Person to acquire or otherwise receive from Seller any shares of capital stock, and
(iii) there are no Contracts of any kind relating to the issuance of any capital stock, convertible
or exchangeable securities, or any options, warrants or similar rights of Seller.




4.3 Authority and Binding Effect.



(a) Seller has the full power and authority to (i) own the Purchased Assets, (ii) carry on the
Business, (iii) execute and deliver each Transaction Document to which it is or will be a party,
(iv) perform the Transactions performed or to be performed by it and (v) satisfy or perform, as the
case may be, its obligations under those Transaction Documents to which it is a party. The
execution, delivery and performance by Seller have been duly authorized by all necessary corporate
or other action, including approval by the Shareholders. Each Transaction Document executed and
delivered by Seller has been
duly executed and delivered by Seller and, assuming due authorization, execution and delivery
by the other parties thereto, constitutes a valid and binding obligation of Seller, enforceable
against Seller in accordance with its terms except to the extent that its enforceability may be
subject to applicable bankruptcy, insolvency, reorganization, moratorium, receivership and similar
laws affecting the enforcement of creditors’ rights generally and to general equitable principles.


 


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(b) Each Shareholder has the legal capacity to (i) execute and deliver each Transaction
Document to which he is or will be a party, (ii) perform the Transactions performed or to be
performed by him, and (iii) satisfy or perform, as the case may be, his obligations under those
Transaction Documents to which he is a party. Each Transaction Document executed and delivered by
each Shareholder has been duly executed and delivered by each such Shareholder and, assuming due
authorization, execution and delivery by the other Parties thereto, constitutes a valid and binding
obligation of each such Shareholder, enforceable against each such Shareholder in accordance with
its terms except to the extent that its enforceability may be subject to applicable bankruptcy,
insolvency, reorganization, moratorium, receivership and similar laws affecting the enforcement of
creditors’ rights generally and to general equitable principles.



4.4 Consents and Approvals. Except for any notices, filings, consents or approvals
specified in Schedule 4.4 (the “Seller Required Consents”), neither the execution
and delivery by Seller or any Shareholder of any of the Transaction Documents to which it is a
party, nor the performance of the Transactions performed or to be performed by Seller or any
Shareholder, require any notice, filing, consent, renegotiation or approval, constitute a Default,
cause any payment obligation to arise, or give any Person the right to challenge any of the
Transactions, under (i) any Law or Court Order which is applicable to Seller or any Shareholder,
(ii) any Contract, Governmental Permit or other document to which Seller or any Shareholder is a
party or by which the properties or other assets of Seller or any Shareholder may be bound or (iii)
the Charter Documents of Seller or any Shareholder.



4.5 Third-Party Options. There are no existing Contracts, options or commitments with
any third party to acquire Seller, any of the Purchased Assets or any interest therein or in the
Business.




4.6 Financial Statements; Books of Account.



(a) Seller has delivered to Buyer prior to the date hereof:



(i) true, complete and correct copies of reviewed balance sheets of Seller as of December 31,
2007, December 31, 2006 and December 31, 2005, and the related statements of income, retained
earnings and cash flows for the time periods then ended (collectively, the “Year-End
Financials”); and



(ii) true, complete and correct copies of the unaudited balance sheet of Seller as of June 30,
2008 (the “Current Balance Sheet Date”) and the related statements of income, retained
earnings and cash flows for the six-month period then ended (the “Current Balance Sheet”,
and together with the Year-End Financials, the “Seller Financial Statements”).



(b) The Seller Financial Statements were prepared in accordance with the Statements on
Standards for Accounting and Review Services, issued by the American Institute of Certified Public
Accountants, and, subject to any qualifications set forth in the applicable notes and schedules,
fairly present in all material respects the results of operations and financial condition of
Seller, and the Purchased Assets and the Assumed Liabilities as of the dates indicated and for the
periods covered.


 


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(c) Except as described in Schedule 4.6, the Current Balance Sheet (i) fairly presents in all
material respects the financial condition of the Business and the Purchased Assets and the Assumed
Liabilities as of the Current Balance Sheet Date and (ii) does not include any Assets that are not
intended to constitute part of the Business or the Purchased Assets after giving effect to the
Transactions. Except as described in Schedule 4.6, all Assumed Liabilities of the Business
at the Current Balance Sheet Date required to be reflected or reserved in accordance with the
Statements on Standards for Accounting and Review Services, issued by the American Institute of
Certified Public Accountants, are fully reflected or reserved for in the Current Balance Sheet.



(d) The books of account of Seller reflect, in accordance with the Statements on Standards for
Accounting and Review Services, issued by the American Institute of Certified Public Accountants,
(i) all transactions relating to the Business or the Purchased Assets and (b) all items of income
and expense, and all items of Assets, Liabilities and accruals relating to Seller. Seller has not
engaged in any material transaction, maintained any bank account or used any corporate funds except
for transactions, bank accounts and funds which have been and are reflected in the normally
maintained books and records of Seller.




4.7 Taxes.



(a) Seller has timely filed all Tax Returns due on or before the Closing Date and all such Tax
Returns are true, correct and complete in all respects.



(b) Except as described on Schedule 4.7(b), Seller has paid in full on a timely basis
all Taxes owed by it, whether or not shown on any Tax Return.



(c) Seller has not waived any statute of limitations in respect of Taxes or agreed to any
extension of time with respect to any Tax assessment or deficiency.



(d) The amount of Seller’s Liability for unpaid Taxes as of the Current Balance Sheet Date did
not exceed the amount of the current Liability accruals for Taxes (excluding reserves for deferred
Taxes) shown on the Current Balance Sheet, and, except as described on Schedule 4.7(d),
the amount of Seller’s Liability for unpaid Taxes for all periods or portions thereof ending on or
before the Closing Date will not exceed the amount of the current Liability accruals for Taxes
(excluding reserves for deferred Taxes) as such accruals are reflected on the books and records of
Seller on the Closing Date.



(e) There are no ongoing examinations or claims against Seller for Taxes, and no written
notice of any audit, examination or claim for Taxes, whether pending or threatened, has been
received.



(f) Except as described on Schedule 4.7(f), Seller has withheld and paid over to the
proper taxing authorities all Taxes required to have been withheld and paid over, and complied with
all information reporting and backup withholding requirements, including maintenance of required
records with respect thereto.



(g) Seller has disclosed on its federal income Tax Returns all positions taken therein that
could give rise to a substantial understatement of federal income Tax within the meaning of section
6662 of the Code. Except as described on Schedule 4.7(g), Seller has not assumed the Tax
Liability of any other Person under any Contract. Seller does not have joint and several liability
for the Taxes of any other Person (including joint and several liability arising under any foreign
Law). Seller does not have transferee or successor liability for the Taxes of any other Person
(including transferee or successor liability arising under any foreign Law). Seller is not
required to make any adjustments to income under
section 481 of the Code for any period ending after the Closing Date or otherwise include in
taxable income any amount that is attributable to a transaction occurring in a period ending on or
prior to the Closing Date.


 


16









 





(h) All copies of (i) any Tax examinations, (ii) extensions of statutory limitations for the
collection or assessment of Taxes and (iii) the Tax Returns of Seller for the last three fiscal
years have been delivered to Buyer.



(i) There are (and as of immediately following the Closing there will be) no Encumbrances on
the Purchased Assets relating to or attributable to Taxes.



(j) To Seller’s knowledge, there is no basis for the assertion of any claim relating to or
attributable to Taxes which, if adversely determined, would result in any Encumbrance on the
Purchased Assets or otherwise have a Material Adverse Effect.



(k) Seller is not, and has not been at any time, a party to a Tax sharing, Tax indemnity, Tax
allocation or similar Contract, and Seller has not assumed the Tax Liability of any other Person
under any Contract.



(l) Schedule 4.7(l) lists all federal, state, local, and foreign jurisdictions in
which income Tax Returns have been filed with respect the Business for the last three fiscal years.



(m) Except as described on Schedule 4.7(m), no claim has ever been made by any
Governmental Body in a jurisdiction where Seller or its partners do not file a Tax Return that
Seller or its partners are or may be subject to taxation by that jurisdiction or that any of them
must file Tax Returns with regard to such jurisdiction.



4.8 Undisclosed Liabilities. Except as described on Schedule 4.8, Seller does
not have any Liabilities except for:



(a) those Liabilities adequately and specifically set forth or reserved for on the Current
Balance Sheet and not heretofore paid or discharged;



(b) those Liabilities arising in the ordinary course of business under any Contract
specifically disclosed on Schedule 4.15 to this Agreement other than Liabilities arising
out of the breach of any such Contract by Seller;



(c) those Liabilities incurred in the ordinary course of business since the Current Balance
Sheet Date and not heretofore paid or discharged, and that, individually or in the aggregate, are
not material to the Business; and



(d) pursuant to this Agreement.



4.9 Accounts Receivable. The Accounts Receivable included in the Purchased Assets are
bona fide Accounts Receivable created in the ordinary course of business. Except as described on
Schedule 4.9, all of the Accounts Receivable included in the Purchased Assets are
collectible within 60 days from the respective dates of sale, without taking into account any
reserve to be included in the determination of the Accounts Receivable specified in the Current
Balance Sheet. To Seller’s knowledge, there is no contest, claim, defense or right of set-off,
other than returns in the ordinary course of business consistent with past practice, of any account
debtor relating to the amount or validity of any Account Receivable. Schedule 4.9 contains
a complete and accurate list of all Accounts Receivable and sets forth
the aging of each such Account Receivable. To Seller’s knowledge, there are no facts or
circumstances that are likely to result in any increase in the uncollectibility of such Accounts
Receivable.


 


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4.10 Inventory. Except as described in Schedule 4.10, the Inventory included
in the Purchased Assets was acquired and has been maintained in the ordinary course of business
consistent with past practice, and consists of items of good, usable and merchantable quality in
all respects and none of such Inventory is damaged or obsolete. Except as described in
Schedule 4.10, since December 31, 2007 (a) all sales of Inventory items have been made by
Seller in the ordinary course of business, and (b) all purchases of Inventory items have been made
by Seller and valued by Seller on its books consistent with past practice. No items which have
previously been written off will be considered as Inventory. The Inventory, including the
Inventory that is the subject of any purchase Contract by Seller, will not be in excess of Seller’s
reasonable requirements (consistent with Seller’s practices in the ordinary course of business
during the period from December 31, 2007 to the date hereof), and such items of Inventory will be
valued on the Closing Balance Sheet in accordance with GAAP (except as described in Schedule
4.10) at actual cost (determined prior to giving effect to any reserve for excess or obsolete
inventory using the same standard costs utilized by Seller in determining the cost of inventory on
the Current Balance Sheet).



4.11 Title to Purchased Assets and Related Matters. Except as otherwise set forth on
Schedule 4.11, to Seller’s knowledge Seller has good and marketable title to, valid
leasehold interest in or valid licenses to use, all the Purchased Assets, free from any
Encumbrances. The use of the Purchased Assets is not subject to any Encumbrances. The use of the
Purchased Assets (excluding the Confidential Information and the Intellectual Property) does not
encroach on the property or the rights of any Person, and to Seller’s knowledge the use of the
Confidential Information and the Intellectual Property does not encroach on the property or the
rights of any Person. Except as otherwise set forth on Schedule 4.11, the Purchased Assets
constitute all the Assets and services required for the continued operation of the Business by
Buyer as operated by Seller during the past 12 months. The Purchased Assets, taken as a whole,
constitute the Assets relating to or used or held for use in connection with the Business during
the past 12 months (except for Inventory sold, cash disposed of, Accounts Receivable collected,
prepaid expenses realized, Contracts fully performed, properties or Assets replaced by equivalent
or superior Assets, in each case in the ordinary course of business, and Excluded Assets). To
Seller’s knowledge, there are no Assets used in the operation of the Business that are owned by any
Person other than Seller that will not be licensed or leased to Buyer under valid, current license
arrangements or leases.



4.12 Condition and Location of Purchased Assets. Except as otherwise set forth on
Schedule 4.12, the equipment and all other tangible assets and properties which are part of
the Purchased Assets are: (i) in good operating condition and repair, ordinary wear and tear
excepted(given the age of each Asset), and are usable in the ordinary course of the business, and
to Seller’s knowledge conform in all respects to all applicable Laws relating to their use and
operation as such Purchased Assets are currently used in the conduct of the Business; and (ii)
located at either the Manufacturing Property or the Warehouse Property. Except pursuant to leases
described on any Schedule hereto, no Person other than Seller owns any vehicles, equipment or other
tangible Assets situated on the facilities used by Seller in the Business which are necessary to
the operation of the Business.



4.13 Real Property. Seller does not own, and has never owned, any Real Property.
Schedule 4.13 contains an accurate and complete list of all Real Property leased by Seller
(the “Real Estate Leases”), showing location, rental cost and landlord. Each of the Real
Estate Leases is in full force and effect, grants to its tenant the exclusive right to use and
occupy the leased premises, is not subject to any Encumbrances and has not been assigned, modified,
supplemented or amended. All Real Property under lease to or otherwise used by Seller is in good
condition, ordinary wear and tear excepted, and is sufficient for the current and currently
contemplated operations of the Business. Seller has peaceful, undisturbed and exclusive possession
of the leasehold estate or other interest created under the Real
Estate Leases, and there are no leases, subleases, licenses, concessions, or



 


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other Contracts
granting to any other Person the right to use or occupy such Real Property. Seller is not, and to
the knowledge of Seller, the landlord thereunder is not, in Default under any Contract or Law with
respect to the occupancy, maintenance or use of any Real Property, and no notice or threat from any
lessor, Governmental Body or other Person has been received by Seller or served upon any such Real
Property claiming any Default or Obligation under, any Contract or Law, or requiring or calling
attention to the need for any work, repairs, construction, alteration, installations or
environmental remediation. No Actions are pending which would affect the zoning or use of any Real
Property occupied, maintained or used by Seller. No portion of any Real Property occupied,
maintained or used by Seller is within an identified flood plain or other designated flood hazard
area as established under any Law or otherwise by any Governmental Body. All Real Property
occupied, maintained or used by Seller has direct legal access to, abuts, and is served by a
publicly maintained road, which road does and shall provide a valid means of ingress and egress
thereto and therefrom, without additional expense. All utilities, including water, gas, telephone,
electricity, sanitary and storm sewers, are currently available to all Real Property occupied,
maintained or used by Seller at normal and customary rates, and are adequate to serve such Real
Property for Seller’s current and currently contemplated use thereof.




4.14 Confidential Information; Intellectual Property.



(a) Confidential Information. To Seller’s actual knowledge, without any further
factual investigation:



(i) The Business, including the products and services of the Business, does not infringe upon,
misappropriate, dilute or otherwise violate any confidential information, proprietary information,
or any intellectual property owned or controlled by any other Person. Except as set forth in
Schedule 4.14(a)(i), no written notice or claim has been received by Seller or any
Shareholder asserting that the Business, including the products or services of the Business,
infringes upon, misappropriates, dilutes or otherwise violates any confidential information,
proprietary information, or any intellectual property owned or controlled by any other Person.



(ii) The Confidential Information constitutes all of the Confidential Information that has
been used or held for use, or relied upon in the operation of the Business during the past 36
months or that will be used or relied upon in the operation of the Business as it is currently
contemplated to be operated. No Seller Party has transferred ownership of, nor granted any
exclusive license with respect to, any Confidential Information that is or was material to the
Business, to any other Person, or intentionally caused Seller’s rights in such Confidential
Information to lapse or enter the public domain. Except as described on Schedule
4.14(a)(ii), Seller is the owner of all right, title and interest in and to each item of the
Confidential Information that is or was material to the Business, or, in the case of licensed
Confidential Information, has obtained all licenses necessary to freely use and commercially
exploit the Confidential Information in perpetuity, free and clear of any Encumbrances, and has the
right to use all of the Confidential Information that is or was material to the Business without
payment to a third party. Except as described on Schedule 4.14(a)(ii), all Seller’s right,
title and interest in the Confidential Information is fully transferable, alienable or licensable
by Buyer without restriction and without payment of any kind to any other Person.



(iii) Except as described on Schedule 4.14(a)(iii), all employees of Seller who have
ever been or currently are involved in the design, review, evaluation or development of the
Confidential Information have executed a nondisclosure and assignment agreement, and each such
agreement is enforceable against the employee thereto in accordance with its terms.


 


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(iv) Except as specified on Schedule 4.14(a)(iv), none of the employees or consultants
of Seller is subject to any contractual or legal restrictions that might interfere with the use of
his or her best efforts to promote the interests of the Business. No employee of Seller has
entered into any Contract that restricts or limits in any way the scope or type of work in which
the employee may be engaged or requires the employee to transfer, assign or disclose information
concerning his or her work to anyone other than Seller. Schedule 4.14(a)(iv) lists all
Contracts between or among Seller, any employee thereof and a third party that imparts or that
imparted an obligation of noncompetition, secrecy, confidentiality or non-disclosure upon Seller,
any employee thereof or any third party. Except as described in Schedule 4.14(a)(iv),
Seller has no reason to believe that Seller or any employee thereof either is or was under any
obligation of noncompetition, secrecy, confidentiality or non-disclosure to any third party.



(v) None of Seller, its employees or consultants (A) has used any other Persons’ confidential
information, proprietary information, or intellectual property in the course of his or her work or
(B) is, or is or currently expected to be, in Default under any term of any Contract relating to
the Confidential Information, or any Confidentiality Agreement or any other Contract or any
restrictive covenant relating to the Confidential Information, or the development or exploitation
thereof.



(b) Intellectual Property.



(i) Schedule 4.14(b)(i) contains a complete and accurate list and summary description,
including any royalties paid or received by Seller, of all Contracts relating to the Intellectual
Property to which Seller is a party or by which Seller is bound, except for any license implied by
the sale of a product and perpetual, paid-up royalty free and transferable license rights for
“off-the-shelf” third party application software licensed for use in the Business, in any
individual case, under a license with a maximum payment obligation on the part of Seller of less
than $5,000 (“Off-the-Shelf Software”). There are no outstanding or threatened disputes or
disagreements with respect to any such Contract. To Seller’s actual knowledge without any further
factual investigation, except for any rights under written licenses or other written Contracts
related to the Intellectual Property, no current or former employee of Seller and no other Person
owns or has any proprietary, financial or other interest, direct or indirect, in whole or in part,
and including any right to royalties or other compensation, in any of the Intellectual Property, or
in any application therefor.



(ii) Except as set forth in Schedule 4.14(b)(ii), to Seller’s actual knowledge without
any further factual investigation, no Intellectual Property is subject to any proceeding or
outstanding order or stipulation restricting in any manner the use, transfer, or licensing thereof
by Buyer, or which may adversely affect the validity, use or enforceability of such Intellectual
Property. To Seller’s actual knowledge without any further factual investigation, except as set
forth in Schedule 4.14(b)(ii), each item of Intellectual Property currently used to operate the
Business is valid, subsisting, and enforceable, any necessary registration, maintenance and renewal
fees currently due in connection with such Intellectual Property have been made and all necessary
documents, recordations and certificates in connection with such Intellectual Property have been
filed with the relevant patent, copyright, trademark or other authorities in the US or foreign
jurisdictions, as the case may be, for the purposes of perfecting and maintaining such Intellectual
Property.



(iii) Except as set forth in Schedule 4.14(b)(iii), all former and current employees
of Seller have executed written Contracts with Seller that assign to Seller all rights to all
Intellectual Property, including any inventions (whether or not patentable), improvements,
discoveries or information made during or derived from their relationship to Seller, and, to
Seller’s actual knowledge without any further factual investigation, each such agreement is
enforceable against the employee thereto in accordance with its terms.


 


20









 





(iv) To Seller’s actual knowledge without any further factual investigation, except as set
forth in Schedule 4.14(b)(iv), no Person is infringing, misappropriating, diluting or
otherwise violating, or challenging or threatening in any way, any Intellectual Property. Seller
has not given any indemnification rights to any other Person against infringement,
misappropriation, dilution or other violation of any Intellectual Property.



(v) All Information Technology currently used to operate the Business is owned by Seller free
and clear of any Encumbrances, or is leased or licensed by Seller.



(vi) All Off-the-Shelf Software and similar products currently used to operate the Business
have been duly licensed by Seller and, except as set forth in Schedule 4.14(b)(vi), will be
properly transferred to Buyer.



(vii) Set forth in Schedule 4.14(b)(vii) is a complete and correct list of all URLs,
websites and domain names used or held for use in the operation of the Business and a description
of all of Seller’s rights with respect thereto.



(c) Patents.



(i) Schedule 4.14(c)(i) contains a complete and accurate list and summary description
of all Patents in which Seller has an ownership interest, including the jurisdiction in which each
item is issued or registered or in which any application for issuance or registration has been
filed, and the date of application and issuance or registration of the item. Seller owns all
right, title and interest, including the right to bring actions for infringement or other violation
thereof, in and to each of the Patents, free and clear of any Encumbrances.



(ii) All of the issued Patents are currently in compliance with formal legal requirements
(including payment of filing, examination, and maintenance fees and proofs of working or use), are
valid and enforceable to Seller’s actual knowledge without any further factual investigation, and
are not subject to any maintenance fees or Taxes or actions falling due within 90 days after the
Closing Date.



(iii) No Patent has been or is now involved in any interference, reissue, reexamination, or
opposition proceeding. To Seller’s knowledge, there is no potentially interfering patent or patent
application of any third party.



(iv) To Seller’s knowledge, all products made, used or sold under the Patents have been marked
with the proper patent notice.



(d) Trademarks.



(i) Schedule 4.14(d)(i) contains a complete and accurate list and summary description
of all Trademarks material to the Business in which Seller has an ownership interest, including the
jurisdiction in which each item is issued or registered or in which any application for issuance or
registration has been filed, and the date and issuance or registration of the item. Seller is the
owner of all right, title and interest, including the right to bring actions for infringement or
other violation thereof, in and to each of the Trademarks set forth in Schedule 4.14(d)(i),
free and clear of any Encumbrances.


 


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(ii) All Trademarks that have been registered with the U.S. Patent and Trademark Office are
currently in compliance with all formal legal requirements (including the timely
post-registration applications), are valid and enforceable to Seller’s actual knowledge
without any further factual investigation, and are not subject to any maintenance fees or Taxes or
actions falling due within 90 days after the Closing Date.



(iii) Except as set forth in Schedule 4.14(d)(iii), no Trademark has been or is now
involved in any opposition, invalidation or cancellation and no such action is threatened with
respect to any of the Trademarks.



(iv) To Seller’s knowledge, there is no trademark or trademark application that would
potentially interfere with the ability to use and/or register the Trademarks set forth in
Schedule 4.14(d)(i).



(v) To Seller’s knowledge, all products and materials containing a registered Trademark bear
the proper federal registration notice where permitted by Law.



(e) Copyrights.



(i) Schedule 4.14(e)(i) contains a complete and accurate list and summary description
of all registered Copyrights and unregistered Copyrights that are material to the Business in which
Seller has an ownership interest, including the jurisdiction in which each item is issued or
registered or in which any application for issuance or registration has been filed, and the date of
application and issuance or registration of the item. To Seller’s knowledge, Seller is the owner
of all right, title and interest, including the right to bring actions for infringement or other
violation thereof in and to each of the registered Copyrights and unregistered Copyrights that are
material to the Business, free and clear of any Encumbrances.



(ii) All of the registered Copyrights are currently in compliance with formal legal
requirements, are valid and enforceable to Seller’s actual knowledge without any further factual
investigation, and are not subject to any maintenance fees or Taxes or actions falling due within
90 days after the date of Closing.




4.15 Contracts.



(a) Schedule 4.15 lists all Contracts of the following types to which Seller is a
party or by which it is bound (such Contracts are disclosed on Schedule 4.15 under a
sub-heading corresponding to the subsection of this Section 4.15 to which such disclosure
is applicable and such disclosure sets forth the names of the parties thereto, the date thereof,
annual amount payable or receivable thereunder, and a brief description of the payment terms and,
if any, the termination and renewal provisions thereof):



(i) Contracts with any present or former shareholder, director, officer, employee or partner
of Seller;



(ii) Contracts for the future purchase of, or payment for, supplies or products, or for the
lease of any real or personal property from or the performance of services by a third party, in any
single instance exceeding $25,000, or in the aggregate $100,000, or of a duration of more than
twelve (12) months;



(iii) Contracts to sell or supply products or to perform services, in any single instance
exceeding $50,000, or in the aggregate $100,000, or of a duration of more than twelve (12) months;


 


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(iv) Contracts to lease to or to operate from or for any other party any personal property, in
any single instance exceeding $25,000, or in the aggregate $100,000, or of a duration of more than
twelve (12) months;



(v) Any license, representative, franchise, distributorship, marketing, dealer, sales, agency
or other arrangements, including those that relate in whole or in part to any product marketed,
distributed or sold, or know-how used, in the past 24 months, in any single instance exceeding
$10,000, or in the aggregate $100,000, or of a duration of more than twelve (12) months;



(vi) Any notes, debentures, bonds, conditional sale Contracts, equipment trust Contracts,
letter of credit agreements, reimbursement Contracts, loan Contracts or other Contracts for the
borrowing or lending of money (including loans to or from officers, directors, partners,
stockholders of Seller or any members of their immediate families), Contracts or arrangements for a
line of credit or for a guarantee of, or other undertaking in connection with, the indebtedness of
any other Person;



(vii) Contracts for any capital expenditure or leasehold improvements, in any single instance
exceeding $25,000, or in the aggregate $100,000;



(viii) Contracts with any labor union;



(ix) Contracts restricting the freedom or ability of Seller to engage in the Business or a
business similar to the Business in any geographical area anywhere in the world;



(x) Contracts under which any Encumbrances exist, excluding Contracts under which an
Encumbrance exists on the date hereof relating solely to Seller’s finished goods currently in
transit to the Seller’s customers; and



(xi) Any other Contracts (other than those described in any of clauses (i) through (xii)
above) not made in the ordinary course of business.



(b) Seller has delivered to Buyer complete and correct copies of all written Contracts,
together with all amendments, supplements or modifications thereto, and accurate descriptions of
all material terms of all oral Contracts, set forth or required to be set forth on Schedule
4.15.



(c) The Contracts listed and required to be listed in Schedule 4.15 are referred to
herein as the “Seller Contracts.” Seller is not in Default under any Seller Contracts
(including any Contracts that are leases). Seller has not received any communication from, or
given any communication to, any other party indicating that Seller or such other party, as the case
may be, is in Default under any Seller Contract. To the knowledge of Seller, (i) none of the other
parties to any such Seller Contract is in Default thereunder and (ii) each such Seller Contract is
enforceable against any other parties thereto in accordance with terms thereof. There are no
renegotiations of, attempts to renegotiate or outstanding rights to renegotiate any amounts paid or
payable to Seller under current or contemplated Contracts with any Person having the contractual or
statutory right to demand or require such renegotiation and, to Seller’s knowledge, no such Person
has made any demand for such negotiation.


 


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4.16 Employees/Independent Contractors.



(a) Except as set forth on Schedule 4.16(a), Seller is not (i) a party to, involved in
or, to Seller’s knowledge, threatened by, any labor dispute or unfair labor practice charge, (ii)
currently negotiating any collective bargaining agreement, or (iii) currently a party to any
collective bargaining agreement. Schedule 4.16(a) contains a complete and correct list of
(a) the names and salaries, bonus and
other cash compensation of (1) all employees (including officers) of Seller engaged in
performing services for Seller and (2) all independent contractors engaged in performing services
for Seller whose cash compensation for 2008 is expected to be at least $50,000, and (b) the names
of any Persons who will have a right to receive any cash consideration or other economic benefit as
a result of the consummation of any of the Transactions and the nature and amount of such
consideration or benefit. Seller has not violated the WARN Act or a similar applicable Law.
During the 90 days prior to the date hereof, Seller has terminated 2 employees.



(b) Except as set forth on Schedule 4.16(b), there are no outstanding claims against
Seller (whether under federal, state, local or foreign law, under any employment agreement or
policy, or otherwise) asserted by or on behalf of any present or former employee or job applicant
of Seller on account of or for (i) overtime pay, other than overtime pay for work done in the
current payroll period, (ii) wages or salary for any period other than the current payroll period,
(iii) any amount of vacation pay or pay in lieu of vacation time off, other than vacation time off
or pay in lieu thereof earned in or in respect of the current fiscal year, (iv) any amount of
severance pay or similar benefits, (v) unemployment insurance benefits, (vi) workers’ compensation
or disability benefits, (vii) any violation of any statute, ordinance, order, rule or regulation
relating to plant closings, employment terminations or layoffs, including but not limited to The
Workers Adjustment Retraining and Notification Act, (viii) any violation of any statute, ordinance,
order, rule or regulations relating to employee “whistleblower” or “right-to-know” rights and
protection, (ix) any violation of any statute, ordinance, order, rule or regulations relating to
the employment obligations of federal contractors or subcontractors or (x) any violation of any
statute, ordinance, order, rule or regulation relating to minimum wages or maximum hours of work,
and neither the Seller nor the Shareholders are aware of any such claims which have not been
asserted. No person (including any governmental agency of any kind) has asserted or threatened any
claims against the Seller under or arising out of any statute, ordinance, order, rule or regulation
relating to discrimination or occupational safety in employment or employment practices. As of the
date hereof, Seller has paid to its present or former employees all amounts of sick pay or pay in
lieu of sick time off and vacation pay or pay in lieu of vacation time off that Seller is obligated
to pay to such individuals.



4.17 Governmental Permits. Schedule 4.17 sets forth a complete list of all
material Governmental Permits used in the operation of the Business or otherwise held by Seller.
Seller owns, possesses or lawfully uses in the operation of its Business all Governmental Permits
which are necessary to conduct the Business as now or previously conducted or to the ownership of
the Purchased Assets, free and clear of all Encumbrances. Seller is not in Default, nor has it
received any written notice of, nor is Seller aware of, any claim of Default, with respect to any
such Governmental Permit. Except as otherwise governed by Law, all such Governmental Permits are
renewable by their terms or in the ordinary course of business without the need to comply with any
special qualification procedures or to pay any amounts other than routine filing fees and will not
be adversely affected by the completion of the Transactions. No present or former director,
officer or employee of Seller or any other Person owns or has any proprietary, financial or other
interest (direct or indirect) in any Governmental Permit which Seller owns, possesses, uses or
holds for use.



4.18 Compliance with Law and Court Orders. Seller has received no notice of violation
of, and, except as described in Schedule 4.18, to the best of its knowledge does not
believe that it is in violation of, any Law or Court Order. To Seller’s knowledge, the Purchased
Assets have not been used, and the Purchased Assets and the Business have not been operated, by
Seller or any other Person in violation of any Law or Court Order. All Court Orders to which
Seller is a party or subject are listed in Schedule 4.18. Seller has made all filings or
notifications required to be made by it under any Laws applicable to Seller, the Business or the
Purchased Assets, the failure to file of which would have a Material Adverse Effect on the Business
or results of operations. Neither Seller nor any of its officers, employees, agents or consultants
(a) has used any corporate funds of Seller to make any payment to any
officer or employee of any government, or to any political party or official thereof, where
such payment either (i) was, at the time, unlawful under Laws applicable thereto; or (ii) was, at
the time, unlawful under the Foreign Corrupt Practices Act of 1977, as amended; or (b) has made or
received an illegal payment, bribe, kickback, political contribution or other similar questionable
illegal payment in connection with the operation of the Business.


 


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4.19 Litigation. Except as disclosed in Schedule 4.19, there is no Litigation
pending or to Seller’s knowledge threatened against Seller, the Business or the Purchased Assets.
To the Seller’s knowledge, there is no dispute or disagreement pending or threatened in writing
between Seller and any of its customers, suppliers, employees or consultants, and no event has
occurred, and no claim has been asserted, that might result in Litigation against Seller, the
Business or the Purchased Assets. All pending or threatened Litigation is fully covered by
insurance except to the extent described in Schedule 4.19.



4.20 Insurance. Schedule 4.20 contains a list of (a) all policies or binders
of insurance held by or on behalf of Seller, copies of which have been made available to Buyer and
(b) all claims made by Seller under such insurance during the past two years. All such policies or
binders are in full force and effect and Seller has not committed any Default thereunder. No
written notice of cancellation or non-renewal has been received by Seller with respect to any such
policy or binder. There are no claims currently outstanding under any of the insurance listed in
Schedule 4.20.



4.21 Non-Real Estate Leases. Schedule 4.21 lists all Purchased Assets used in
the Business (other than Real Property) that are possessed by Seller under an existing lease,
including all trucks, automobiles, forklifts, machinery, equipment, furniture and computers.
Schedule 4.21 also lists the leases under which such Assets listed in Schedule 4.21
are possessed. All of such leases are referred to herein as the “Non-Real Estate Leases.”
All Purchased Assets under a Non-Real Estate Lease are in good condition, ordinary wear and tear
excepted, and are sufficient for the current and currently contemplated operations of the Business.
Seller is not in Default under any Non-Real Estate Lease.




4.22 Employee Benefit Plans.



(a) Schedule 4.22 lists all employee benefit plans, all employee welfare benefit
plans, all employee pension benefit plans, all multiemployer plans and all multiple employer
welfare arrangements (as defined in Sections 3(3), (1), (2), (37)
and (40), respectively, of ERISA), which are currently maintained and/or sponsored by
Seller, or to which Seller currently contributes, or has or has had an obligation to contribute in
the past six years (including, any such plan or arrangement created by any agreements, including
any employment agreements and any other agreements containing “golden parachute” provisions and
deferred compensation agreements), together with copies of any trusts related thereto and a
classification of employees covered thereby (collectively, the “Plans”). Schedule
4.22 sets forth each Plan or arrangement that would have been an employee pension or welfare
benefit plan but for its termination within the past three years. Seller has provided Buyer with
complete and accurate copies of all Plans.



(b) Seller has no liability with respect to any benefit plans or arrangements other than the
Plans. All Plans are in compliance with all applicable provisions of ERISA, the Code and the
regulations issued thereunder, as well as with all other applicable Laws, and have been
administered, operated and managed in substantial accordance with their governing documents.


 


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(c) The Plans marked on Schedule 4.22 as “Qualified Plans” are the only Plans
that are intended to meet the requirements of Section 401(a) of the Code (a “Qualified
Plan”). Each of the Qualified Plans have been determined by the Internal Revenue Service to be
so qualified, and copies of the current plan determination letters, most recent actuarial valuation
reports, if any, most recent Form
5500, or, as applicable, Form 5500-C/R filed with respect to each such Qualified Plan or
employee welfare benefit plan and most recent trustee or custodian report have been made available
to Buyer. All reports and other documents required to be filed with any Governmental Body or
distributed to plan participants or beneficiaries (including, annual reports, summary annual
reports, actuarial reports, PBGC-1 Forms, audits or Tax Returns) have been timely filed or
distributed.



(d) Seller has not engaged in any transaction prohibited under the provisions of Section 4975
of the Code or Section 406 of ERISA for which an exemption is not available.



(e) No Plan has incurred an accumulated funding deficiency, as defined in Section 412(a) of
the Code and Section 302(a)(2) of ERISA; and Seller does not currently have (nor at the Closing
Date will have) any Liability whatsoever (including being subject to any statutory Encumbrance to
secure payment of any such Liability), to the Pension Benefit Guaranty Corporation (“PBGC”)
with respect to any such Plan under Title IV of ERISA or to the Internal Revenue Service for any
excise tax or penalty with respect to any such Plan.



(f) Neither Seller nor any ERISA Affiliate with Seller (as defined in ERISA Section
4001(a)(3)) currently has (or at the Closing Date will have) any obligation whatsoever to
contribute to any “multiemployer pension plan” (as defined in ERISA Section 4001(a)(14),
nor has any withdrawal Liability whatsoever (whether or not yet assessed) arising under or capable
of assertion under Title IV of ERISA (including, Sections 4201, 4202, 4203, 4204, or 4205 thereof)
been incurred directly or indirectly by Seller.



(g) Seller has made no plan or commitment, whether or not legally binding, to create any
additional Plan or to modify or change any existing Plan. No statement, either written or oral,
has been made by Seller to any person with regard to any Plan that was not in accordance with the
Plan and that could have an adverse economic consequence to Seller. All Seller Plans may be
amended or terminated without penalty by Seller at any time on or after the Closing.



(h) All persons classified by Seller as independent contractors satisfy and have at all times
satisfied the requirements of applicable Law to be so classified; Seller has fully and accurately
reported their compensation on IRS Forms 1099 when required to do so; and Seller has no obligations
to provide benefits with respect to such persons under Plans or otherwise. Seller does not employ
and has not employed any “leased employees” as defined in Section 414(n) of the Code.



(i) Except as set forth on Schedule 4.22:



(i) there have been no terminations, partial terminations or discontinuance of contributions
to any Qualified Plan without notice to and issuance of a favorable determination letter by the
Internal Revenue Service;



(ii) no Plan which is subject to the provisions of Title IV of ERISA has been terminated;



(iii) there have been no “reportable events” (as that phrase is defined in Section
4043 of ERISA) with respect to any Plan which were not properly reported to the PBGC;



(iv) the valuation of assets of any Qualified Plan subject to Title IV of ERISA, as of the
Closing Date, shall exceed the actuarial present value of all accrued pension benefits under such
Qualified Plan in accordance with the assumptions contained in the Laws of the PBGC governing the
funding of terminated defined benefit plans;


 


26









 





(v) with respect to Plans which qualify as “group health plans” under Section
5000(b)(1) of the Code and Sections 607(1) and 733(a) of ERISA and related regulations, Seller has
complied (and on the Closing Date will have complied) with all reporting, disclosure, notice,
election, coverage and other benefit requirements imposed under Sections 4980B and 9801-9833 of the
Code and ERISA and other applicable laws; Seller does not have any direct or indirect Liability and
is not (and will not be) subject to any loss, assessment, excise tax, penalty, loss of federal
income tax deduction or other sanction, arising on account of or in respect of any direct or
indirect failure by Seller, at any time prior to the Closing Date, to comply with any such federal
or state requirement, which is capable of being assessed or asserted before or after the Closing
Date directly or indirectly against Seller or any Shareholder with respect to such group health
plans; and no group health plan provides health or other benefits after an employee’s or former
employee’s retirement or other termination of employment;



(vi) Seller is not now nor within the past five years has it been a member of a
“controlled group” as defined in ERISA Section 4001(a)(14);



(vii) Seller has not incurred any liability for excise, income or other tax or penalty with
respect to any Plan and there is no pending or, to the knowledge of Seller, threatened, Litigation,
investigation, or disputed claim, settlement or adjudication with respect to any Plan, or (other
than routine claims for benefits) with respect to any fiduciary, administrator, party in interest
or sponsor thereof (in their capacities as such);



(viii) each Plan under which Seller has exercised or will exercise discretion necessary or
appropriate to effect the Transactions validly provides Seller with the necessary discretion, and
Seller has validly taken all such discretionary actions necessary under each Plan to allow for the
completion of the Transactions, or will validly take such action prior to Closing;



(ix) no Plan contains any provision or is subject to any Law that would prohibit the
Transactions or that would give rise to any vesting or acceleration of benefits, severance,
termination, or other payments or liabilities as a result of the Transactions, and no payments or
benefits under any Plan or other agreement of Seller will be considered “excess parachute
payments” under Section 280G of the Code;



(x) Seller has paid all amounts that Seller is required to pay as contributions to the Plans
as of the last day of the most recent fiscal year of each of the Plans, and as of the Current
Balance Sheet Date in accordance with the applicable terms of each of the Plans, and, the Seller
Financial Statements as of the Current Balance Sheet Date reflect the approximate total pension,
medical and other benefit expense for all Plans as of the date thereof; and



(xi) Seller has not incurred Liability under Section 4062, 4063 or 4064 of ERISA.



4.23 Transactions with Related Parties. Except as disclosed on Schedule 4.23,
no Shareholder, any director or officer of Seller nor any member of his or her immediate family,
owns or has a controlling ownership interest in any Person that is a party to any Contract or
business arrangement or relationship with respect to the Business. All transactions between any
Seller and any Person disclosed on Schedule 4.23 have been on substantially the same terms
and conditions as similar transactions between non-affiliated parties, except for the Real Estate
Leases, and are properly recorded on the books and records of Seller.




 


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4.24 Absence of Certain Changes. Except as contemplated by this Agreement or as set
forth on Schedule 4.24, since the Current Balance Sheet Date, Seller has conducted its
Business in the ordinary course and, except as set forth on Schedule 4.24, there has not
been with respect to its Business:




(a) any change that has had or could reasonably be expected to have a Material Adverse Effect;



(b) any distribution, dividend or other payment declared or made in respect of its shares of
issued and outstanding capital stock;



(c) any increase in the compensation payable or to become payable to any partner, officer,
employee or agent, except for increases for non-officer employees made in the ordinary course of
business consistent with past practices, nor any other change in any employment or consulting
arrangement;



(d) any action to create or amend any employment retention, severance, change in control or
similar Contract with any Person;




(e) any establishment or amendment of any Plan;



(f) any sale, assignment or transfer of Purchased Assets, or any additions to or transactions
involving any Purchased Assets, other than those made in the ordinary course of business consistent
with past practices;




(g) any mortgage, pledge or Encumbrance of any Purchased Asset;



(h) any waiver or release of any claim or right or cancellation of any debt held, other than
in the ordinary course of business;



(i) to Seller’s knowledge, any allowance of, or agreement to allow the lapse of, any right
with respect to any of the Confidential Information or Intellectual Property;



(j) any payments to any Shareholder or Person related to a Shareholder, other than wages and
reimbursements in the ordinary course of business and consistent with past practices and except as
specified in Schedule 4.24;



(k) any new Contract or amendment to, or termination of, a Contract in any single instance
exceeding $50,000, or in the aggregate $100,000 (whether outside the ordinary course of business,
inconsistent with past practices or otherwise); or



(l) any action or omission that has or could reasonably be expected to have a Material Adverse
Effect.


 


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4.25 Environmental Matters. In addition to the representations and warranties in
Section 4.18, hereof and not in limitation thereof, and except as disclosed on Schedule
4.25 hereto, (a) no releases of Hazardous Materials have occurred at or from any property
during the period it was owned, operated, leased or otherwise used by Seller or, to the knowledge
of Seller at any other time, (b) there are no past, pending, or threatened Environmental Claims
against Seller, (c) there are no underground storage tanks owned by the Seller, or located at any
facility owned or operated by Seller, (d) there are no facts, circumstances, or conditions that
could reasonably be expected to restrict, under any Environmental Law or Environmental Permit in
effect prior to or at the Closing Date, the ownership, occupancy, use or
transferability of any property now owned, operated, leased or otherwise used by Seller, or to
give rise to any legal Liability under the Environmental Laws pertaining to any property now or, to
the knowledge of Seller, at any other time owned, operated, leased or otherwise used by Seller, (e)
none of Seller nor, to Seller’s knowledge, any of the owners of the Manufacturing Property or of
the Warehouse Property has received a request under any of the Environmental Laws for information
relating to any of the property now or at any time owned, operated, leased or otherwise used by
Seller, (f) there are no unsatisfied financial assurance or closure requirements under the
Environmental Laws pertaining to any property on account of Seller’s use or ownership of such
property, (g) any contaminant levels resulting from any releases of Hazardous Materials at or from
the properties now or, to the knowledge of Seller, at any other time owned, operated, leased or
otherwise used by Seller meet applicable remediation standards under any applicable Environmental
Law, (h) to Seller’s knowledge none of the properties owned, operated, leased or otherwise used by
Seller are now or have in the past been listed on the National Priorities List of sites under the
Comprehensive Environmental Response, Compensation and Liability Act, as amended (42 U.S.C. §9601
et seq.) (“CERCLA”), the CERCLA Information System, or any comparable state or local
environmental database, (i) to the knowledge of Seller there is no asbestos-containing material,
lead-based paint or equipment containing polychlorinated biphenyls located at any of the facilities
or properties now used by Seller, (j) Seller has not provided information to any governmental
authority of any actual, threatened or suspected releases of Hazardous Materials or any violation
of an Environmental Permit, term or other requirement of Environmental Laws and (k) there is no
Liability with respect to the cleanup or investigation at any facility or property resulting from
the disposal or treatment (with a transporter or otherwise) of Hazardous Materials by Seller or by
any other Person. As used in this Agreement:



(i) “Environmental Claims” means any and all administrative or judicial actions,
suits, orders, claims, liens, notices, investigations, violations or proceedings related to any
applicable Environmental Law or any Environmental Permit brought, issued or asserted by a
Governmental Body or third party for compliance, damages, penalties, removal, response, remedial or
other action pursuant to any applicable Environmental Law or for personal injury or property damage
resulting from the release of a Hazardous Material at, to or from any facility or property of
Seller or any facility or property at which Seller disposed or arranged for the disposal or
treatment (with a transporter or otherwise) of Hazardous Materials, including Seller employees
seeking damages for exposure to Hazardous Materials;



(ii) “Environmental Laws” means all federal, state and local Laws related to
protection of the environment, natural resources, safety or health or the handling, use, recycle,
generation, treatment, storage, transportation or disposal of Hazardous Materials, and any common
Law cause of action relating to the environment, natural resources, safety, health or the
management of or exposure to Hazardous Materials;



(iii) “Environmental Permit” means all permits, licenses, approvals, authorizations or
consents required by any governmental authority under any applicable Environmental Law and includes
any and all orders, consent orders or binding agreements issued or entered into by a Governmental
Body under any applicable Environmental Law; and


 


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(iv) “Hazardous Material” means any hazardous, toxic or radioactive substance,
material or waste which is regulated as of the Closing Date by any state or local Governmental Body
or the US, including any material or substance that is: (A) defined as a “hazardous
substance,” “regulated substance” or “solid waste” under applicable state law,
(B) petroleum, petroleum products or wastes, (C) asbestos, (D) designated as a “hazardous
substance” pursuant to section 311 of the Federal Water Pollution Control Act, as amended, 33
U.S.C. §1251 et seq. (33 U.S.C. § 1321), (E) defined as a “hazardous waste” pursuant to
section 1004 of the Resource Conservation and Recovery Act, as amended,
42 U.S.C. §6901 et seq. (42 U.S.C. §6903), (F) defined as a “hazardous substance”
pursuant to section 101 of the CERCLA, (G) defined as a “regulated substance” pursuant to
section 9001 of the Resource Conservation and Recovery Act, as amended, 42 U.S.C. §6901 et seq. (42
U.S.C. §6991) or (H) otherwise regulated under the Toxic Substances Control Act, as amended, 15
U.S.C. §2601 et seq., the Clean Air Act, as amended, 42 U.S.C. §7401 et seq., the Hazardous
Materials Transportation Act, as amended, 49 U.S.C. §1801 et seq., or the Federal Insecticide,
Fungicide and Rodenticide Act, as amended, 7 U.S.C. §136 et seq., the Emergency Planning and
Community Right-to-Know Act, as amended, 42 U.S.C. §11001 et seq., the Safe Drinking Water Act, as
amended, 42 U.S.C. §300(f) et seq., and the Occupational Safety and Health Act, as amended, 29
U.S.C. §651 et seq.



4.26 Additional Information. Schedule 4.26 contains accurate lists and
summary descriptions of the following:




(a) the names of all present directors and officers of Seller;



(b) the names and addresses of every bank and other financial institution in which Seller
maintains an account (whether checking, savings or otherwise), lock box or safe deposit box, and
the account numbers and names of Persons having signing authority or other access thereto;



(c) the names of all Persons holding powers of attorney from Seller and a summary statement of
the terms thereof; and



(d) all names under which Seller has conducted any Business or which it has otherwise used
since its formation.



4.27 Corporate Records. The minute book of Seller is current and contains correct and
complete copies of all Charter Documents of Seller, including all amendments thereto and
restatements thereof, and of all minutes of meetings, resolutions and other actions and proceedings
of its shareholders and directors, except as noted in Schedule 4.27.



4.28 Broker’s or Finder’s Fee. No agent, broker, Person or firm acting on behalf of
any Seller Party is, or will be, entitled to any commission or broker’s or finder’s fees from any
of the Seller Parties in connection with this Agreement or any of the Transactions.



4.29 Relationship With Customers and Suppliers. Seller has used reasonable business
efforts to maintain, and currently maintains, good working relationships with all of the customers
and suppliers of the Business. Schedule 4.29 specifies for each year of the three years
ending December 31, 2005, 2006 and 2007 the names of the respective customers that were, in the
aggregate, the ten (10) largest customers in terms of dollar value of products or services, or
both, sold by the Business. Except as specified on Schedule 4.29, none of such customers
has given Seller notice terminating, canceling or threatening to terminate or cancel any Contract
or relationship with Seller. Schedule 4.29 also specifies for each year of the three years
ending December 31, 2005, 2006 and 2007 the names of the respective suppliers that were, in the
aggregate, the ten (10) largest suppliers in terms of dollar value of products or services, or
both, used by Seller. None of such suppliers has given Seller notice terminating, canceling or
threatening to terminate or cancel any Contract or relationship with Seller.


 


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4.30 Certain Personal Property. Schedule 4.30 is a complete schedule of all
fixed assets, describing all items of tangible personal property that were included in the Current
Balance Sheet. Except as specified in Schedule 4.30, since the Current Balance Sheet Date,
Seller has not acquired any items of tangible personal property. All of such personal property
included in Schedule 4.30 is, and any such personal property acquired after the date hereof
in accordance with the terms hereof will be, usable,
ordinary wear and tear excepted (given the age of such personal property), in the ordinary
course of business, and to Seller’s knowledge conforms and will conform with any applicable Laws
relating to its construction, use and operation. Except for those items subject to the Non-Real
Estate Leases, no Person other than Seller owns any vehicles, equipment or other tangible assets
located on the Real Property that have been used in the Business or that are necessary for the
operation of the Business. To Seller’s knowledge, the Purchased Assets that are personalty are
suitable for the purposes for which such Assets are currently used or are held for use, and are in
good working condition, subject to normal wear and tear, and there are no facts or conditions
(other than as set forth in Schedule 4.30) affecting such Purchased Assets that could,
individually or in the aggregate, interfere in any respect with the use, occupancy or operation
thereof as used, occupied or operated for the 12 months preceding the date hereof or their adequacy
for such use.



4.31 Subsidiaries. Seller does not own, directly or indirectly, any interest or
investment (whether equity or debt) in any Person.



4.32 Previous Sales; Warranties. Schedule 4.32 sets forth all express product
warranties made by Seller and all return policies of Seller. Except as set forth on Schedule
4.32, Seller has no knowledge of any anticipated product returns for any reason including,
without limitation, returns due to product defects, changes in plan-o-grams or guaranteed sales.
Except as set forth on Schedule 4.32, Seller has no knowledge of any credits, allowances or
rebates granted by Seller or claimed by any of its customers.




4.33 Solvency.



(a) Seller is not now insolvent and will not be rendered insolvent by any of the Transactions.
As used in this Section, “insolvent” means that the sum of the debts and other probable
Liabilities of Seller exceeds the present fair saleable value of Seller’s assets.



(b) Immediately after giving effect to the consummation of the Transactions: (i) Seller will
be able to pay its Liabilities as they become due in the usual course of its business; (ii) Seller
will not have unreasonably small capital with which to conduct its present or proposed business;
(iii) Seller will have assets (calculated at fair market value) that exceed its Liabilities; and
(iv) taking into account all pending and threatened litigation, final judgments against Seller in
actions for money damages are not reasonably anticipated to be rendered at a time when, or in
amounts such that, Seller will be unable to satisfy any such judgments promptly in accordance with
their terms (taking into account the maximum probable amount of such judgments in any such actions
and the earliest reasonable time at which such judgments might be rendered) as well as all other
obligations of Seller. The cash available to Seller, after taking into account all other
anticipated uses of the cash, will be sufficient to pay all such debts and judgments promptly in
accordance with their terms.



4.34 S Corporation Election. Seller has filed a valid election to be treated as an S
Corporation for federal and state income tax purposes and such election will remain in effect and
continue to be valid through the Closing Date. Seller has filed all Tax Returns consistent with
such elections.



4.35 Statements and Other Documents Not Misleading. Neither this Agreement, including
all schedules and exhibits, nor any other financial statement, document or other instrument
heretofore or hereafter furnished by any Seller Party to Buyer in connection with the Transactions
contains or will contain any untrue statement of any material fact or omits or will omit to state
any material fact required to be stated in order to make such statement, document or other
instrument not misleading. There is no fact known to Seller which may have a Material Adverse
Effect which has not been set forth in this Agreement (including all schedules and exhibits) or the
other documents furnished to Buyer on or prior to the date hereof in connection with the
Transactions.


 


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4.36 Consumer Safety Matters. With respect to products (including all of the
components thereof) manufactured or distributed by Seller, Seller has, to its knowledge, complied
with all applicable requirements relating to materials, design, manufacture, testing, performance,
labeling, packing, holding, marketing, or promotion of such products, and such products are
otherwise not in violation of any applicable laws or regulations, including without limitation the
laws as set forth in the Consumer Product Safety Act, Federal Hazardous Substances Act, Flammable
Fabrics Acts, Poison Prevention Packaging Act, Federal Trade Commission Act, or Textile Fiber
Products Identification Act and all comparable state or local laws (the “Consumer Acts”) or
any applicable regulations, standards, policies, or guidelines promulgated or issued pursuant to
such Consumer Acts, and any similar applicable state or local laws, regulations, policies or
guidelines (other than those causes of action sounding in tort or contract for individual product
liability injuries not related to noncompliance with, or a violation of, any Consumer Acts).



5. Representations and Warranties of Buyer and Parent. Buyer and Parent, jointly and
severally, hereby represent and warrant to Seller as follows:



5.1 Organization and Standing; Ownership. Buyer is a corporation duly organized and
presently subsisting under the laws of the State of Delaware, having all requisite corporate power
and authority to perform its obligations under this Agreement and will be at Closing duly qualified
or licensed to do business in each jurisdiction where the failure to be qualified or licensed would
have a Material Adverse Effect on the Business or the ownership of the Purchased Assets. Parent is
a corporation duly incorporated, validly existing and in good standing under the laws of the State
of Delaware, having all requisite corporate power and authority to perform its obligations under
this Agreement, and is duly qualified or licensed to do business as a foreign corporation in each
jurisdiction where the failure to be qualified would have a Material Adverse Effect on its business
or the ownership of its assets. Parent is the record and beneficial owner of all of the issued and
outstanding capital of Buyer.



5.2 Authority and Binding Effect. Each of Buyer and Parent has full power and
authority to execute, deliver and perform this Agreement and the other Transaction Documents to
which it is a party and has taken all actions necessary to secure all approvals required in
connection therewith. The execution, delivery and performance of this Agreement and the
consummation of the Transactions by Buyer and Parent have been duly authorized by all necessary
corporation action. Assuming due authorization, execution and delivery by the Seller Parties, this
Agreement constitutes the legal, valid and binding obligation of Buyer, enforceable against each in
accordance with its terms, except to the extent that its enforceability may be subject to
applicable bankruptcy, insolvency, reorganization, moratorium, receivership and similar laws
affecting the enforcement of creditors’ rights generally and to general equitable principles.



5.3 Validity of Contemplated Transactions. Neither the execution and delivery by
Buyer and Parent of any of the Transaction Documents to which it is a party, nor the performance or
consummation of the Transactions by Buyer and Parent require any notice, filing, consent,
renegotiation or approval, constitute a Default, or give any Person the right to challenge any of
the Transactions, under (i) any Law or Court Order which is applicable to Buyer or Parent, (ii) any
Contract, Governmental Permit or other document to which Buyer or Parent is a party or by which the
properties or other assets of Buyer or Parent may be bound or (iii) the Charter Documents of Buyer
or Parent.



5.4 Broker’s or Finder’s Fee. No agent, broker, Person or firm acting on behalf of
Buyer or Parent is, or will be, entitled to any commission or broker’s or finder’s fees from any of
the Buyer or Parent in connection with this Agreement or any of the Transactions.




 


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 6. Pre-Closing Covenants.


6.1 Access. From the date of this Agreement to the Closing Date, Seller shall give
Buyer and its counsel, accountants and other representatives access during normal business hours to
the premises of the Business, personnel, counsel, accounts and other representatives of Seller and
furnish to Buyer and such representatives all such additional documents and information with
respect to the Business as Buyer may from time to time request. The Seller Parties agree that no
investigation by Buyer or its representatives shall affect or limit the scope of the
representations and warranties of Seller herein or limit the liability of the Seller Parties for
any breach of such representations and warranties; provided, however, that the foregoing shall not
apply to any specific matter that Buyer became aware of during the course of Buyer’s due diligence
investigation that (a) none of the Seller Parties were aware of prior to the date of this
Agreement, and did not become aware of prior to the Closing Date, (b) if not timely corrected by
the Seller, in and of itself would constitute a Material Adverse Effect, and (c) Buyer failed to
disclose to the Seller Parties prior to the Closing Date.




6.2 No Solicitation. Prior to the Closing:



(a) The Seller Parties shall not directly or indirectly make, solicit, initiate, consider,
discuss, respond to or encourage submission of proposals or offers from any Persons (i) relating to
any liquidation, dissolution, recapitalization, merger, consolidation or acquisition or purchase of
all or substantially all of the Assets of, or any equity interest in, Seller or any other similar
transaction or business combination, or (ii) relating to a transaction that would conflict with or
impede the Transactions in any material respect. The Seller Parties shall cease immediately and
cause to be terminated all Contracts, negotiations and communications with third parties with
respect to the foregoing, if any, existing on the date hereof and shall promptly notify Buyer of
each such termination. The Seller Parties shall cause the Seller’s directors, officers, employees,
financial advisors, counsel and any Person retained or engaged by the Seller Parties to assist in
the analysis, the arranging or negotiation of the Transactions to comply with each of the covenants
contained in this Section 6.2; and



(b) The Seller Parties shall not participate, directly or indirectly, in any negotiations
regarding, or furnish to any other Person any information with respect to, or otherwise cooperate
in any way with, or assist, any effort or attempt by any other Person to do or seek any of the
activities referred to in Section 6.2(a) hereof. Should the Seller Parties receive any
proposal, inquiry or contact about the sale of Seller or the Business or any of the other
activities referred to in Section 6.2(a) hereof, the Seller Parties shall by the close of
the next Business Day give written notice thereof to Buyer and also shall promptly provide Buyer
with such information regarding such proposal, inquiry or contact as Buyer may request.



6.3 Operation of the Business. Except as otherwise expressly permitted or required by
this Agreement, between the date of this Agreement and the Closing Date the Seller Parties
acknowledge that:



(a) Seller shall conduct the Business only in the ordinary course and shall continue to
collect all Accounts Receivable in a manner consistent with past practice;



(b) Seller shall maintain in good operating condition (reasonable wear and tear excepted) and
service the Purchased Assets consistent with past practice and preserve intact the Business as it
is currently organized;



(c) Seller shall preserve the goodwill of its suppliers, contractors, licensors, employees,
customers, distributors and others having business relations with the Business;


 


33









 





(d) Seller shall perform in all respects all of its obligations under, and not default or
suffer to exist any event or condition that with notice or lapse of time or both could constitute a
default under, any Contract;



(e) Seller shall, at its own expense, maintain all insurance covering the Business, employees
and Purchased Assets in full force and effect until 12:01 A.M. on the first day following the
Closing Date with responsible companies, comparable in amount, scope and coverage to that in effect
on the date hereof;



(f) each Seller Party will use their reasonable best efforts to obtain in writing as promptly
as possible all Seller Required Consents;



(g) Seller shall not: (i) incur any Liability which would be an Assumed Liability, except in
the ordinary course consistent with past practice; (ii) enter into, amend, modify, terminate
(partially or completely), grant any waiver under or give any consent with respect to any Contract
or incur any Liability outside the ordinary course of business; (iii) Default under, or take or
fail to take any action that (with or without notice or lapse of time or both) would constitute a
Default under any term or provision of any Contract; or (iv) create any Encumbrance on any of the
Purchased Assets;



(h) Seller shall comply with all applicable Laws, ordinances, codes, rules and regulations in
a manner consistent with Seller’s operation of the Business as of the date of this Agreement;



(i) Without the prior written consent of Buyer, Seller shall not (i) declare, set aside or pay
any dividend or make any other distribution in respect of its equity interests or directly or
indirectly redeem, retire, purchase or otherwise reacquire any of its equity interests; (ii) sell,
rent, lease or otherwise dispose of any of its Assets, except in the ordinary course of business
consistent with past practice; (iii) make any payment or distribution to, or enter into any
transaction with, any of Seller’s directors or any Shareholder, other than compensation in the
ordinary course of Business consistent with past practice; (iv) institute any increase or amendment
to any Plan, or adopt any new profit-sharing, bonus, incentive, deferred compensation, insurance,
pension, retirement, medical, hospital, disability, welfare or other employee benefit plan or
arrangement with respect to its employees; or (v) make any change in the accounting, Tax accounting
or cash management policies and practices of Seller or revoke any material Tax elections;



(j) except in the ordinary course of business consistent with past practice, Seller shall not
(i) enter into any Contract, (ii) incur any indebtedness for money borrowed, (iii) make any capital
expenditures or commitments for capital expenditures, (iv) assume, guarantee, endorse or otherwise
become liable or responsible (whether directly, contingently or otherwise) for the obligations of
any other Person, (v) increase the rate of compensation payable or to become payable by it to any
officer or any other executive employee or make any general increase in the compensation or rate of
compensation payable or to become payable to hourly employees or salaried employees, (vi) accrue or
pay to any of its officers or employees any bonus, profit-sharing, retirement pay, insurance, death
benefit, fringe benefit or other compensation, except as disclosed in the Schedules hereto or (vii)
make any advances to its employees;




(k) Seller shall confer with Buyer concerning operational matters of a material nature;



(l) Seller shall otherwise report periodically to Buyer concerning the status of the Business,
operations and finances of Seller; and


 


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(m) no Seller Party shall, without the prior consent of Buyer, take any affirmative action, or
fail to take any reasonable action within their or its control, as a result of which any of the
changes or events listed in Section 4.24 is likely to occur.



6.4 Update of Schedules. Prior to the Closing, the Seller Parties shall promptly
disclose to Buyer in writing any information set forth in the Schedules hereto which has become
inaccurate and any information of the nature of that set forth in the Schedules which arises after
the date hereof and which would have been required to be included in the Schedules if such
information had existed on the date hereof. Buyer’s acceptance of all Schedules and election to
proceed to Closing shall waive and extinguish any rights otherwise arising hereunder for or with
respect to any misrepresentation or breach of warranty by Seller or the Seller Parties’ failure to
fulfill any covenant, agreement or condition contained in this Agreement, caused by the facts or
circumstances that are the subject of the applicable Schedules; provided, however, that the
foregoing shall not limit or otherwise affect Buyer’s rights and remedies hereunder in the event
that any of the Schedules are inaccurate as of the Closing Date.



6.5 Employees and Business Relations. From the date hereof and up to and including
the Closing Date, Seller shall use its commercially reasonable efforts (but shall not be required
to increase wages or benefits) to keep available the services of the current employees and agents
of Seller and to maintain its relations and goodwill with the suppliers, customers, distributors of
Seller and any others having a business relation with Seller. Seller authorizes Buyer to offer
employment, commencing at the Closing Date, to (i) Bruce Stepanek upon the applicable specific
terms and conditions set forth on Exhibit 8.9 hereof, and (ii) to such other of Seller’s employees
as Buyer shall inform Seller in writing, upon specific terms and conditions to be provided to
Seller in writing. Seller shall use its reasonable efforts to cause the execution and delivery of
the Employment Agreement and of the offers of employment between Buyer and the individuals listed
in Section 8.9 on the Closing Date. Seller shall terminate on the Closing the employment of those
employees who have accepted offers of employment from Buyer (the “Transferred Employees”).
In addition, to the extent requested by Buyer, Seller shall introduce Buyer to the customers and
suppliers of the Business and recommend that they continue doing business with Buyer after the
Closing.




6.6 [RESERVED]



6.7 Disclosure of Certain Matters. The Seller Parties on the one hand, and Buyer on
the other hand, shall give Seller Parties and Buyer, respectively, prompt notice of any event or
development that occurs that (a) had it existed or been known on the date hereof would have been
required to be disclosed by such Party under this Agreement, (b) would cause any of the
representations and warranties of such Party contained herein to be inaccurate or otherwise
misleading, or (c) gives any such Party any reason to believe that any of the conditions set forth
in Section 8 or 9 will not be satisfied prior to the Closing Date.



6.8 Confidentiality. If the Transactions are not consummated, each Party shall treat
all information obtained in its investigation of another Party (and, in the case of Buyer or
Parent, any Affiliate thereof), and not otherwise known to them or already in the public domain, as
confidential and shall return to such other Party or Affiliate all copies made by it or its
representatives of Confidential Information provided by such other Party or Affiliate.




6.9 [RESERVED]



6.10 Transfer of Purchased Assets and Business. On and prior to the Closing Date, the
Seller Parties shall take such reasonable steps as may be necessary or appropriate, in the judgment
of Buyer, at and after the Closing so that Buyer shall be placed in actual possession and control
of all of the Purchased Assets and the Business. In furtherance thereof, Seller shall (a) execute
and deliver such additional
instruments of conveyance and transfer as Buyer may reasonably require, in the judgment of
Buyer, in order to more effectively vest in it, and put it in possession of, the Purchased Assets,
(b) amend its Charter Documents and take all other actions necessary to change its name to one
sufficiently dissimilar to Seller’s present name to, in Buyer’s judgment, avoid confusion and (c)
take all actions requested by Buyer to enable Buyer to change its name to Seller’s present name.


 


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6.11 Fulfillment of Closing Conditions. (a) At and prior to the Closing, each Party
shall use reasonable best efforts to fulfill, and to cause each other to fulfill, as soon as
practicable before the Termination Date the conditions specified in Section 8 and
Section 9 to the extent that the fulfillment of such conditions is within its control. In
connection with the foregoing, each Party will (i) refrain from any actions that would cause any of
its representations and warranties to be inaccurate as of the Closing, and take any reasonable
actions within its control that would be necessary to prevent its representations and warranties
from being inaccurate as of the Closing, (ii) execute and deliver the applicable agreements and
other documents referred to in Section 8 and Section 9, (iii) comply with all
applicable Laws in connection with its execution, delivery and performance of this Agreement, the
other Transaction Documents to which it is a party and the Transactions, (iv) use reasonable best
efforts to obtain in a timely manner all necessary waivers, consents and approvals required under
any Laws, Contracts or otherwise, including any Closing Consents and Seller Required Consents in
the case of Seller, and (v) use reasonable best efforts to take, or cause to be taken, all other
actions and to do, or cause to be done, all other things reasonably necessary, proper or advisable
to consummate and make effective as promptly as practicable the Transactions.




6.12 Change of Name.



(a) On or within three (3) Business Days after the Effective Date, Seller shall file the
necessary documentation in its jurisdiction of formation and any jurisdiction where it is
registered to do business to change its name to a name that is dissimilar to its current name and
which shall not contain the words “Hampshire Paper.”



(b) From and after the Effective Date, Seller shall not do business under the name “Hampshire
Paper Corporation” or any name similar thereto in any jurisdiction and each of the Seller Parties
shall execute any documentation necessary for Buyer or any of its Affiliates to use the name
“Hampshire Paper Corporation” or any name similar thereto.



6.13 Employee Payments. Seller shall be solely responsible for and shall pay prior to
the Closing all Liabilities arising out of or related to any severance, change of control or
transaction bonus or other obligations of Seller triggered by or required in connection with the
consummation of the Transactions (collectively, the “Employee Payments”).



6.14 Third Party Payments. Seller shall be solely responsible for and shall timely
pay all Liabilities required or requested by any third party as a condition to consent to the
assignment by Seller of any of the Purchased Assets to Buyer, which consent may be triggered by or
required in connection with the consummation of the Transactions, including, without limitation,
any payments required to be made to any licensors of intellectual property rights licensed to the
Seller (collectively, the “Third Party Payments”).



6.15 Further Assurances. Consistent with the terms and conditions hereof, each Party
hereto shall use its reasonable best efforts to execute and deliver such other documents and take
such other actions as reasonably requested by the other party to fulfill the conditions precedent
to the obligation of the other Party to consummate the purchase and sale of the Business, or as the
other Party hereto may reasonably request in order to carry out this Agreement and the Transactions
contemplated hereby.


 


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6.16 Insurance. Effective as of the Closing Date, Seller shall have named Buyer,
Parent and their respective affiliates as additional insureds on all of Seller’s insurance policies
(except directors and officers liability insurance) under which claims may still be made or that
still provide coverage with respect to the Business. Nothing in this paragraph shall relieve Buyer
or Parent from acquiring and maintaining insurance coverage for the Business for matters arising on
and after the Closing Date.



7. Post-Closing Covenants.




7.1 Noncompetition and Nonsolicitation, Confidential Information.



(a) During the period beginning on the Closing Date and ending on the fifth anniversary
thereof (the “Non-Competition Period”), neither Seller nor any Shareholder (each, a
“Restricted Party”) shall, anywhere in the world, directly or indirectly, in any capacity,
render services, engage or have a financial interest in, any business that shall be competitive
with any of those business activities that have constituted part of the Business at any time during
the past 12 months, nor shall any Restricted Party assist any Person that shall be engaged in any
such business activities, including making available any information or funding to any such Person.
The foregoing restriction shall not be construed to prohibit the ownership by any Shareholder of
not more than five percent (5%) of any class of securities of any corporation which is engaged in
any of the foregoing businesses having a class of securities registered pursuant to the Securities
Exchange Act of 1934, provided that such ownership represents a passive investment and that neither
such Shareholder nor any group of persons including such Shareholder in any way, either directly or
indirectly, manages or exercises control of any such corporation, guarantees any of its financial
obligations, otherwise takes any part in its business, other than exercising his rights as a
shareholder, or seeks to do any of the foregoing.



(b) During the Non-Competition Period, no Restricted Party shall be permitted to solicit the
employment or services of, or hire or engage the services of, any person who is employed by the
Buyer or any of its Affiliates in connection with the Business.



(c) During the Non-Competition Period, each Restricted Party immediately shall inform any
Person that inquires about the Business that the Business has been sold to Buyer, and such
Restricted Party shall promptly inform Buyer of such inquiry. If any Governmental Body determines
that the foregoing restrictions are too broad or otherwise unreasonable under applicable Law,
including with respect to time or space, such Governmental Body is hereby requested and authorized
by the Parties to revise the foregoing restriction to include the maximum restrictions allowable
under applicable Law. Each Restricted Party acknowledges, however, that this Section 7.1 has been
negotiated by the Parties and that the geographical and time limitations, as well as the limitation
on activities, are reasonable in light of the circumstances pertaining to the Business.



(d) No Restricted Party will, at any time, represent that it is continuing to carry on the
Business.



(e) Each Seller Party recognizes and acknowledges that by reason of its involvement with the
Business, it has had access to Confidential Information. Each Seller Party acknowledges that such
Confidential Information is a valuable and unique asset and covenants that it will not allow the
disclosure of any such Confidential Information to any Person for any reason whatsoever, unless
such information is in the public domain through no wrongful act of such Seller Party or such
disclosure is required by applicable Law.



(f) The terms of this Section 7.1 shall apply to any Restricted Party that is not one of the
Parties to the same extent as if it were a party hereto.


 


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(g) In the event of any breach or threatened breach by any Restricted Party of any provision
of this Section 7.1, Buyer shall be entitled to injunctive or other equitable relief, restraining
such party from using or disclosing any Confidential Information in whole or in part, or from
engaging in conduct that would constitute a breach of the obligations of a Restricted Party under
this Section 7.1. Such relief shall be in addition to and not in lieu of any other remedies that
may be available, including an action for the recovery of Damages.



7.2 Satisfaction of Liabilities. After the Closing, each Seller Party shall satisfy,
in accordance with the terms thereof, any and all of its Liabilities that are not Assumed
Liabilities; provided, however, that the foregoing shall not prevent a Seller Party from contesting
in good faith any Liability that is not an Assumed Liability.



7.3 Transition Period. For a period of twelve (12) months after the Closing Date,
each of the Seller Parties shall forward to Buyer (or in accordance with Buyer’s written
instructions) all mail, remittance, receipts or other mailings received by any of them relating to
the Business. In addition, Seller shall make provision for the prompt forwarding to Buyer’s e-mail
server of all e-mail messages received by Seller with respect to the Business or addressed to a
Transferred Employee.



For a period of six (6) months after the Closing Date, Buyer shall provide reasonable
assistance to the Seller Parties to assist the Seller with the processing for payment by the Seller
of all Liabilities of the Seller arising in the ordinary course of business prior to the Closing
Date related to the operation of the Business which are not post-Closing executory obligations
under the Contracts.



For a period of six (6) years after the Closing Date, Seller and its representatives shall
have reasonable access to all of the books and records of the Buyer relating to the Business to the
extent that such access may reasonably be required by the Seller in connection with matters
relating to or affected by the operations of the Seller prior to the Closing Date. Such access
shall be afforded by Buyer upon receipt of reasonable advance notice and during normal business
hours. Seller shall be solely responsible for any costs or expenses incurred by it pursuant to
this paragraph. If Buyer shall desire to dispose of any of such books and records prior to the
expiration of such six year period, Buyer shall, prior to such disposition, give Seller a
reasonable opportunity, at Seller’s expense, to segregate and remove such books and records as
Seller may select.



For a period of six (6) years after the Closing Date, Buyer, Parent and their respective
representatives shall have reasonable access to all of the books and records of the Seller related
to the Business which Seller or any of the other Seller Parties may retain after the Closing Date.
Such access shall be afforded by Seller or any of the other Seller Parties upon receipt of
reasonable advance notice and during normal business hours. Buyer shall be solely responsible for
any costs or expenses incurred by it pursuant to this paragraph. If Seller or any of the other
Seller Parties shall desire to dispose of any of such books and records prior to the expiration of
such six year period, Seller or such other Seller Party shall, prior to such disposition, give
Buyer a reasonable opportunity, at Buyer’s expense, to segregate and remove such books and records
as Buyer may select.




7.4 Employees.



(a) Seller shall be solely responsible for and shall timely pay all Liabilities arising out of
or related to the actual or constructive termination of employment of any employee of the Business
in connection with the consummation of the Transactions.


 


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(b) For purposes of the WARN Act and applicable state Law, (i) Transferred Employees hired by
Buyer shall become employees of Buyer on the Closing Date and (ii) Buyer shall
assume all responsibility for any 60-day advance WARN Act notice with regard to any layoffs by
Buyer following the Closing; provided, however, that to the extent Buyer lays off
Transferred Employees after the Closing who may be aggregated with employees laid off by Seller
within 90 days prior to the Closing, and the sum total of all such layoffs by Buyer and Seller
constitutes a mass layoff or plant closing under the WARN Act, Buyer shall assume responsibility
for only that portion of WARN Act penalties, if any, arising out of such layoffs due to failure to
provide 60 days’ notice to any Persons who are entitled to such notice attributable to those
Transferred Employees so laid off by Buyer. As of the date of this Agreement, Buyer intends to
extend conditional offers of employment, subject to each offeree’s full satisfaction of Buyer’s
pre-employment qualification requirements, to all of Seller’s full time, active employees on the
date hereof.



(c) Pursuant to the “Standard Procedure” provided in section 4 of Revenue Procedure 2004-53,
(i) Buyer and Seller shall report on a predecessor/successor basis as set forth therein, (ii)
Seller will not be relieved from filing a Form W-2 with respect to any Transferred Employees, and
(iii) Buyer will undertake to file (or cause to be filed) a Form W-2 for each such Transferred
Employee with respect to the portion of the year during which such Transferred Employees are
employed by Buyer that includes the Closing Date, excluding the portion of such year that such
Transferred Employee was employed by Seller.




7.5 Accounts Receivable.



(a) From and after the Closing, if any of the Seller Parties receive or collect any funds
relating to any Accounts Receivable of the Business, such Seller Party shall remit any such amounts
to Buyer within five days of each day on which the Seller Party receives such sum.



(b) Following the Closing, Buyer shall collect the transferred Accounts Receivable in
accordance with Buyer’s normal collection practices, applying all receipts to the oldest account
balance first, unless otherwise specifically directed by the account debtor or unless Buyer has
determined that the account debtor should be placed on a “C.O.D.” or “cash on delivery” status.
Promptly after the six month anniversary of the Closing, the Buyer shall send the Seller a notice
of the amount of the Accounts Receivable which have not been collected, together with such
information relating to such uncollected Accounts Receivable as the Seller may reasonably request.
Within ten (10) days after Seller’s receipt of the foregoing notice, Buyer, in accordance with the
applicable provisions of the Escrow Agreement, shall deliver written directions to the Escrow Agent
and Seller for the release to the Buyer from the Escrow Funds an amount equal to the amount of the
Accounts Receivable which have not been collected, less any reserves specifically established for
such Accounts Receivable and reflected on the Closing Balance Sheet, plus interest on such amount
at the Escrow Rate from the Closing Date until the date paid. If the amount then held in the
Escrow Funds is insufficient to make such payment, then such deficiency shall be paid by the Seller
Parties. Notwithstanding the foregoing, following the six (6) month period after the Closing, (x)
if the Buyer receives notice from a customer that, based upon the results of a customer audit, the
customer requires the Buyer to pay any amounts relating to pricing, rebates or allowances
attributable to product sales made by the Seller on or prior to the Closing, the Buyer shall
promptly notify Seller in writing of such notice, and Seller shall pay Buyer an amount equal to the
required payment either (i) in immediately available funds or (ii) from the Escrow Funds and (y) if
the Buyer actually collects any amounts from an account debtor in payment of a specific uncollected
Accounts Receivable for which Buyer has received any payments from the Escrow Funds or from the
Seller Parties pursuant to this Section 7.5(b), Buyer shall promptly pay the Seller such
amount; provided, however, that in no event will the aggregate amount of such payments for a
specific Accounts Receivable exceed the aggregate amount received by the Buyer from the Escrow
Funds or from the Seller Parties relating to such Accounts Receivable.


 


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7.6 Conduct of the Business following the Closing. Following the Closing, Buyer shall
be entitled to conduct the Business in such manner in its sole discretion as it may deem
appropriate from time to time.




7.7 Tax Matters.



(a) The Seller Parties shall be responsible for, and shall have ultimate discretion with
respect to, (i) all Tax Returns required or permitted by applicable Law to be filed by any Seller
Party with respect to the Business for all taxable periods that end on or before the Closing Date
and (ii) any elections related to such Tax Returns. The Seller Parties will timely file all Tax
Returns with respect to the Business for all taxable periods ending on or before the Closing Date.



(b) Buyer shall be responsible for, and shall have ultimate discretion with respect to, (i)
all Tax Returns required to be filed with respect to the Business for taxable periods that begin
after the Closing Date, and (ii) any elections related to such Tax Returns.



(c) After the Closing Date, Buyer and the Seller Parties shall (i) provide, or cause to be
provided, to each other’s respective subsidiaries, officers, partners, employees, representatives
and Affiliates, such assistance as may reasonably be requested by any of them in connection with
the preparation of any Tax Return or any audit which relates to the Business in respect of which
Buyer or the Seller Parties are responsible hereunder and (ii) retain, or cause to be retained, for
so long as any such taxable years or audits shall remain open for adjustments, any records or
information which may be relevant to any such Tax Returns or audits. The assistance provided for
in this subsection (c) shall include each of Buyer and the Seller Parties (x) making their agents
and employees and the agents and employees of their respective Affiliates available to each other
on a mutually convenient basis to provide such assistance as might reasonably be expected to be of
use in connection with any such Tax Returns or audits and (y) providing, or causing to be provided,
such information as might reasonably be expected to be of use in connection with any such Tax
Returns or audits, including records, returns, schedules, documents, work papers, opinions, letters
or memoranda, or other relevant materials relating thereto.



(d) All transfer, documentary, sales, use, stamp, registration and other such Taxes and fees
(including any penalties and interest) incurred in connection with this Agreement, shall be paid by
the Seller Parties when due, and Seller Parties shall, 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 Taxes and fees, and, if required by applicable Law, Buyer shall, and shall
cause its Affiliates to, join in the execution of any such Tax Returns and other documentation.



(e) For purposes of Section 2.4(b)(iii) with respect to Taxes imposed on a periodic
basis which are payable for a period that includes, but does not end on, the Closing Date, such
Taxes shall be allocated ratably on a daily basis.



8. Conditions Precedent to Obligations of Buyer. All obligations of Buyer to consummate
the Transactions are subject to the satisfaction (or waiver by Buyer) prior thereto of each of the
following conditions:



8.1 Representations and Warranties; Performance of Obligations. All of the
representations and warranties of the Seller Parties contained in this Agreement shall have been
true, correct and complete, according to their terms, when made on the date of this Agreement and
shall be true, correct and complete, according to their terms, on and as of the Closing Date with
the same effect as though such representations and warranties had been made on and as of such date;
all of the terms, covenants, agreements and conditions of this Agreement to be complied with,
performed or satisfied by the Seller
Parties on or before the Closing Date shall have been duly complied with, performed or
satisfied; and Buyer shall have received a certificate dated the Closing Date and signed by Seller
to the foregoing effects (the “Seller Officer’s Certificate”).


 


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8.2 Ancillary Documents. Buyer shall have received from the Seller Parties executed
copies of the respective Transaction Documents to which the Seller Parties are parties.



8.3 Closing Consents. Buyer shall have received the Seller Required Consents and
shall have received or waived the additional consents or approvals set forth on Schedule
8.3 (the “Closing Consents”) without any modification that Buyer deems unacceptable.



8.4 Material Adverse Changes. Since the Current Balance Sheet Date, there has been no
Material Adverse Effect, and there shall be no conditions existing or, to the Seller Parties’
knowledge, threatened, which might be reasonably expected to have a Material Adverse Effect in the
future, and Buyer shall have received a certificate signed by Seller to the foregoing effects.



8.5 Legal Matters. No claim, action, suit, arbitration, investigation or other
proceeding shall be pending or shall have been brought or threatened against Seller which (a), if
decided adversely to Seller, may have in the reasonable judgment of Buyer a Material Adverse Effect
or (b) seeks to restrain or questions the validity or legality of the Transactions. No Law or
Court Order shall have been enacted, entered, promulgated or enforced by any Governmental Body that
is in effect and has the effect of making the purchase and sale of the Purchased Assets illegal or
otherwise prohibiting the consummation of such purchase and sale.



8.6 Legal Opinion. Buyer shall have received a legal opinion of Orr & Reno, P.A.,
PLLC, counsel to Seller and the Shareholders, in substantially the form set forth on Exhibit 8.6
attached hereto and otherwise in form satisfactory to Buyer (the “Seller’s Legal Opinion”).



8.7 Review of Updated Schedules and Environmental Investigations. Buyer shall be
fully satisfied in its sole discretion with the results of its review of all Schedules updated by
the Seller Parties pursuant to Section 6.4 hereof and of the results of any environmental
investigations relating to the Manufacturing Property or the Warehouse Property.



8.8 Manufacturing Lease; Warehouse Lease. The Seller Parties shall have caused the
execution and delivery of a lease of the Manufacturing Property (the “Manufacturing Lease”)
by the owner of the Manufacturing Property, substantially in the form of Exhibit 8.8-1. The Seller
Parties shall have caused the execution and delivery of a lease of the Warehouse Property (the
“Warehouse Lease”) by the owner of the Warehouse Property, substantially in the form of
Exhibit 8.8-2. The Seller Parties also shall have delivered documentation, reasonably acceptable
to Buyer, reflecting that the existing real estate leases for the Manufacturing Property and for
the Warehouse Property have been terminated effective at or prior to the Closing Date.



8.9 Seller Employees. Buyer shall have received an executed counterpart to the
employment agreement with Peter B. Stepanek (the “Employment Agreement”), which shall be
substantially in the form of Exhibit 8.9. In addition, all of the following current employees of
Seller shall have accepted offers of employment from Buyer, commencing on the Closing Date: James
M. O’Toole; David Thill; Wayne S. Sleeper; Michele Haegle; Daniel Day; Carol Cox; and Carrie Smith.


 


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9. Conditions Precedent to Obligations of Seller Parties. All obligations of the Seller
Parties to consummate the Transactions are subject to the satisfaction (or waiver by each Seller
Party to which the
condition relates) prior thereto of each of the following conditions, but any particular condition
that requires action by any Seller Party shall not constitute a condition to the obligations of
such Seller Party:



9.1 Representations and Warranties; Performance of Obligations. All of the
representations and warranties of Buyer contained in this Agreement shall have been true, correct
and complete, according to their terms, when made on the date of this Agreement and shall be true,
correct and complete, according to their terms, on and as of the Closing Date with the same effect
as though such representations and warranties had been made on and as of such date; all of the
terms, covenants, agreements and conditions of this Agreement to be complied with, performed or
satisfied by Buyer on or before the Closing Date shall have been duly complied with, performed or
satisfied; and Seller shall have received a certificate dated the Closing Date and signed by an
appropriate officer of Buyer to the foregoing effects (the “Buyer Officer’s Certificate”).



9.2 Legal Matters. No claim, action, suit, arbitration, investigation or other
proceeding shall be pending or shall have been brought or threatened against Buyer which seeks to
restrain or questions the validity or legality of the Transactions. No Law or Court Order shall
have been enacted, entered, promulgated or enforced by any Governmental Body that is in effect and
has the effect of making the purchase and sale of the Purchased Assets illegal or otherwise
prohibiting the consummation of such purchase and sale.



9.3 Legal Opinion. Seller Parties shall have received a legal opinion of William G.
Kiesling, counsel to Buyer and Parent, in substantially the form set forth on Exhibit 9.3 attached
hereto and otherwise in form satisfactory to the Seller Parties (the “Buyer’s Legal
Opinion”).



10. Indemnification.



10.1 By the Seller Parties. To the extent provided in this Section 10, the
Seller Parties, jointly and severally, shall indemnify and hold Buyer, and its successors and
assigns, and its officers, directors, employees, stockholders, agents, affiliates and any Person
who controls Buyer within the meaning of the Securities Act or the Exchange Act (each, an
“Indemnified Buyer Party”) harmless from and against:



(a) any Liabilities, claims, demands, judgments, losses, costs, damages or expenses whatsoever
(including reasonable attorneys’, consultants’ and other professional fees and disbursements of
every kind, nature and description incurred by such Indemnified Buyer Party in connection
therewith) (collectively, “Damages”) that such Indemnified Buyer Party may sustain, suffer
or incur and that result from, arise out of or relate to:



(i) any inaccuracy of any representation or warranty of the Seller Parties in this Agreement,
the Transaction Documents or any certificate or other writing delivered by or on behalf of any
Seller Party in connection herewith or therewith;



(ii) any nonfulfillment of any covenant or agreement on the part of any Seller Party set forth
in this Agreement or any Transaction Document;




(iii) any Unassumed Liability;



(iv) any Liability of Seller involving Taxes due and payable by, or imposed with respect to
the Business, the Purchased Assets, or other properties or operations of Seller for any all taxable
periods ending on or prior to the Closing Date (whether or not such Taxes have been due and
payable);


 


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(v) any Liability arising out of or related to the actual or constructive termination of any
employee;




(vi) any Liability of Seller involving any Excluded Asset;



(vii) any action or inaction prior to the Closing Date of any of the Seller Parties or of any
director, officer, employee, agent, or representative of the Seller; and



(viii) any Liability arising out of or related to the failure to obtain consent to the
assignment of any Contract.



(b) any and all actions, suits, claims, proceedings, investigations, allegations, demands,
assessments, audits, fines, judgments, costs and other expenses (including reasonable attorneys’
fees and expenses) incident to any of the foregoing or to the enforcement of this Section
10.1.



To the extent that Buyer recovers any Damages hereunder with respect to a breach of the
representation and warranty under Section 4.9 regarding the collectibility of the Accounts
Receivable, and Buyer subsequently receives payment on account of the related Accounts Receivable,
Buyer shall remit such payments to Seller.



10.2 By the Buyer and Parent. To the extent provided in this Section 10, the
Buyer and Parent, jointly and severally, shall indemnify and hold the Seller Parties, and their
successors and assigns (each, an “Indemnified Seller Party”) harmless from and against (a)
any breach of any representation or warranty under Section 5 or under the Buyer Officer’s
Certificate delivered pursuant to Section 9.1; (b) any breach by the Buyer or Parent of any
of their respective covenants or obligations contained in this Agreement; (c) the assertion against
any of the Seller Parties of any Damages relating to or arising out of the Business after the
Closing Date, except for matters for which any Indemnified Buyer Party is entitled to
indemnification under Section 10.1.; or (d) any and all actions, suits, claims,
proceedings, investigations, allegations, demands, assessments, audits, fines, judgments, costs and
other expenses (including reasonable attorneys’ fees and expenses) incident to any of the foregoing
or to the enforcement of this Section 10.2.




10.3 Procedure for Claims.



(a) A Party that desires to seek indemnification under any part of this Section 10 (an
“Indemnified Party”) shall give notice (a “Claim Notice”) to each party responsible or
alleged to be responsible for indemnification hereunder (an “Indemnitor”) prior to any
applicable Expiration Date specified below. Such notice shall briefly explain the nature of the
claim and the parties known to be involved, and shall specify the amount thereof. If the matter to
which a claim relates shall not have been resolved as of the date of the Claim Notice, the
Indemnified Party shall estimate the amount of the claim in the Claim Notice, but also specify
therein that the claim has not yet been liquidated (an “Unliquidated Claim”). If an
Indemnified Party gives a Claim Notice for an Unliquidated Claim, the Indemnified Party shall also
give a second Claim Notice (the “Liquidated Claim Notice”) within 60 days after the matter
giving rise to the claim becomes finally resolved, and the Liquidated Claim Notice shall specify
the amount of the claim. Each Indemnitor to which a Claim Notice is given shall respond to any
Indemnified Party that has given a Claim Notice (a “Claim Response”) within 30 days (the
“Response Period”) after the later of (i) the date that the Claim Notice is given and (ii)
if a Claim Notice is first given with respect to an Unliquidated Claim, the date on which the
Liquidated Claim Notice is given. Any Claim Notice or Claim Response shall be given in accordance
with the notice requirements hereunder, and any Claim Response shall specify whether or not the
Indemnitor giving the Claim Response disputes the claim described in the Claim Notice. If any
Indemnitor fails to give a Claim Response within the Response
Period, such Indemnitor shall be deemed not to dispute the claim described in the related
Claim Notice. If any Indemnitor elects not to dispute a claim described in a Claim Notice, whether
by failing to give a timely Claim Response or otherwise, then the amount of such claim shall be
conclusively deemed to be an obligation of such Indemnitor.


 


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(b) If any Indemnitor shall be obligated to indemnify an Indemnified Party hereunder, such
Indemnitor shall pay to such Indemnified Party within 30 days after the last day of the Response
Period the amount to which such Indemnified Party shall be entitled. If there shall be a dispute
as to the amount or manner of indemnification under this Section 10, the Indemnified Party
may pursue whatever legal remedies may be available for recovery of the Damages claimed from any
Indemnitor, but any dispute shall be resolved in accordance with Section 13.5 to the extent
that it may be applicable. If any Indemnitor fails to pay all or part of any indemnification
obligation when due, then such Indemnitor shall also be obligated to pay to the applicable
Indemnified Party interest on the unpaid amount for each day during which the obligation remains
unpaid at an annual rate equal to the Prime Rate, and the Prime Rate in effect on the first
Business Day of each calendar quarter shall apply to the amount of the unpaid obligation during
such calendar quarter.



(c) Notwithstanding any other provision of this Section 10, except with respect to the
provisions regarding post-closing adjustments in Section 2.5, an Indemnified Buyer Party
shall be entitled to indemnification under Section 10.1(a)(i) only when the aggregate of all
Damages to all Indemnified Buyer Parties exceeds $150,000 (the “Threshold Amount”);
provided, however, that after exceeding such amount, all Damages back to the first
dollar shall be recoverable by the Indemnified Buyer Parties. The calculation of the Threshold
Amount shall include any Damages incurred by an Indemnified Buyer Party for which the Indemnified
Buyer Party would have been entitled to claim indemnification under this Section 10 with respect to
a breach of representation or warranty but for such representation or warranty being qualified by
materiality, the knowledge of a particular party or related exceptions. In no event shall the
Seller Parties be obligated to indemnify the Indemnified Buyer Parties under Section
10.1(a)(i) for an aggregate amount in excess of $1,500,000 (the “Cap”). Notwithstanding
the foregoing, neither the Threshold Amount nor the Cap shall apply to the representations or
warranties set forth in Sections 4.1, 4.2, 4.3, , 4.5,
4.7, 4.11, 4.16, 4.22 and 4.25. Further, notwithstanding
the foregoing, the Cap shall not apply with respect to the representations or warranties set forth
in Section 4.14, however, in no event shall the Seller Parties be obligated to indemnify
the Indemnified Buyer Parties for an aggregate amount in excess of the amount of the Indemnity
Escrow Funds (as such term is defined in the Escrow Agreement). In addition, in the case of a
claim for Damages that may be made based on items set forth in more than one of clauses (a)(i)
through (a)(vi) of Section 10.1(a), an Indemnified Buyer Party make may such claim based on
any one of the clauses in Section 10.1(a), except to the extent that such claim is based
solely on only one of such clauses.



(d) Notwithstanding any other provision of this Section 10, except with respect to the
provisions regarding post-closing adjustments in Section 2.5, an Indemnified Seller Party
shall be entitled to indemnification under Section 10.2 only when the aggregate of all Damages to
all Indemnified Seller Parties exceeds the Threshold Amount; provided, however,
that after exceeding such amount, all Damages back to the first dollar shall be recoverable by the
Indemnified Seller Parties. The calculation of the Threshold Amount shall include any Damages
incurred by an Indemnified Seller Party for which the Indemnified Seller Party would have been
entitled to claim indemnification under this Section 10 with respect to a breach of representation
or warranty but for such representation or warranty being qualified by materiality, the knowledge
of a particular party or related exceptions. In no event shall the Buyer and the Parent be
obligated to indemnify the Indemnified Seller Parties under Section 10.2 for an aggregate
amount in excess of $250,000. Notwithstanding the foregoing, neither the Threshold Amount nor the
maximum indemnification amount set forth in the immediately preceding sentence shall apply to the
representations or warranties set forth in Section 5.


 


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(e) Any claim for indemnity arising solely out of the breach by only one Shareholder of his
obligations under Section 7.1 shall be brought solely against the breaching Shareholder, and Buyer
shall have no remedy against the non-breaching Seller Parties.



10.4 Claims Period. Any claim for indemnification under this Section 10 shall
be made by giving a Claim Notice under Section 10.2 on or before the applicable
“Expiration Date” specified below in this Section 10.4, or the claim under this
Section shall be invalid. “Expiration Date” means: 




(a) with respect to any claim for Damages under Section 10.1(a)(i):



(i) 60 days after the date on which the applicable statute of limitations expires (with
extensions), with respect to any claim for Damages related to a breach of a representation or
warranty set forth in Sections 4.2, 4.3, 4.4, 4.5, 4.7,
4.11, 4.16 or 4.22;



(ii) the first day following the seventh anniversary of the Closing Date, with respect to any
claim for Damages related to a breach of a representation or warranty set forth in Section
4.25; and



(iii) the first day following the second anniversary of the Closing Date, with respect to all
other claims for Damages under Section 10.1(a)(i); and



(b) with respect to all other claims for Damages under Section 10.1 or 10.2,
for the relevant statutory period of limitations applicable to the underlying claim, after giving
effect to any waiver or extension thereof.



So long as an Indemnified Party gives a Claim Notice for an Unliquidated Claim on or before the
applicable Expiration Date, such Indemnified Party shall be entitled to pursue its rights to
indemnification regardless of the date on which such Indemnified Party gives the related Liquidated
Claim Notice.



10.5 Third Party Claims. An Indemnified Party that desires to seek indemnification
under any part of this Section 10 with respect to any actions, suits or other
administrative or judicial proceedings (each, an “Action”) that may be instituted by a
third party shall give each Indemnitor prompt notice of a third party’s institution of such Action.
After such notice, any Indemnitor may, or if so requested by such Indemnified Party, any
Indemnitor shall, participate in such Action or assume the defense thereof, with counsel
satisfactory to such Indemnified Party; provided, however, that such Indemnified Party shall have
the right to participate at its own expense in the defense of such Action; and provided, further,
that the Indemnitor shall not consent to the entry of any judgment or enter into any settlement,
except with the written consent of such Indemnified Party (which consent shall not be unreasonably
withheld). Any failure to give prompt notice under this Section 10.5 shall not bar an
Indemnified Party’s right to claim indemnification under this Section 10, except to the
extent that an Indemnitor shall have been materially harmed by such failure.



10.6 Right of Offset. An Indemnified Party shall be entitled, at its sole discretion,
to recover any Damages payable by the Indemnitor through a reduction of amounts due from the
Indemnitor to the Indemnified Party to the extent any amounts are then or will in the future become
payable by the Indemnitor to the Indemnified Party, including any amounts payable due to a Purchase
Price adjustment as set forth in Section 2.5 hereof.


 


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10.7 Effect of Investigation or Knowledge. Any claim by an Indemnified Party for
indemnification shall not be adversely affected by any investigation by or opportunity to
investigate afforded to the Indemnified Party, nor shall such a claim be adversely affected by the
Indemnified Party’s
knowledge on or before the Closing Date of any breach of the type specified in Section
10.1 or Section 10.2 or of any state of facts that may give rise to such a breach; any
such claim shall survive the Closing until the applicable Expiration Date; provided, however, that
the foregoing shall not apply to any claim relating to a specific matter that Buyer became aware of
during the course of Buyer’s due diligence investigation that (a) none of the Seller Parties were
aware of prior to the date of this Agreement, and did not become aware of prior to the Closing
Date, (b) if not timely corrected by the Seller, in and of itself would constitute a Material
Adverse Effect, and (c) Buyer failed to disclose to the Seller Parties prior to the Closing Date.



10.8 Satisfaction of Indemnification Obligations. Each Indemnified Buyer Party shall
first seek satisfaction of any Damages from the Escrow Funds, but only to the extent that Escrow
Funds are then being held by the Escrow Agent and are not subject to other claims for
indemnification. If such available Escrow Funds fail to fully satisfy the amount of any Damages to
which such Indemnified Buyer Party is entitled to be indemnified hereunder, then the Indemnified
Buyer Party may seek payment of the unsatisfied amount of such Damages directly from the Seller
Parties.



10.9 Contingent Claims. Nothing herein shall be deemed to prevent an Indemnified
Party from making a claim hereunder for potential or contingent claims or demands (a
“Contingent Claim”); provided that the Claim Notice sets forth the specific basis
for any such Contingent Claim to the extent then feasible and the Indemnified Party has reasonable
grounds to believe that such a claim may be made; and provided, further, that in no event
shall an Indemnified Party be entitled to receive any amount under Section 10.1(a) or 10.2
with respect to a Contingent Claim until such claim or demand no longer is potential or
contingent and the amount of such claim or demand is determinable.



11. Termination.



11.1 Grounds for Termination. The Parties may terminate this Agreement at any time
before the Closing as provided below:




(a) by mutual written consent of each of the Seller Parties and Buyer;



(b) by any Party, if the Closing shall not have been consummated on or before August 11, 2008
(the “Termination Date”); provided, however, that the right to terminate this Agreement
under this Section 11.1(b) shall not be available to any Party whose failure to fulfill any
obligation under this Agreement has been the cause of, or resulted in, the failure of the Closing
to occur on or before the Termination Date;



(c) by any Party, if a Governmental Body shall have issued a Court Order (which Court Order
the Parties shall use reasonable best efforts to lift) that permanently restrains, enjoins or
otherwise prohibits the Transactions, and such Court Order shall have become final and
nonappealable;



(d) by Buyer, if any of the Seller Parties shall have breached, or failed to comply with, any
of their respective obligations under this Agreement or any representation or warranty made by the
Seller Parties shall have been incorrect when made, and such breach, failure or misrepresentation,
if susceptible to cure, is not cured within 20 days after notice thereof (but if not susceptible to
cure, upon notice); or



(e) by the Seller Parties, if Buyer or Guarantor shall have breached, or failed to comply with
any of its obligations under this Agreement or any representation or warranty made by it shall have
been incorrect when made, and such breach, failure or misrepresentation is not cured within 20 days
after notice thereof.


 


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11.2 Effect of Termination. If this Agreement is terminated pursuant to this Section
11, the agreements contained in Section 13.6 shall survive the termination hereof and any Party may
pursue any legal or equitable remedies that may be available if such termination is based on a
breach of another Party.



12. Other Matters.



12.1 Public Announcements. Except as and to the extent Buyer may be required by
applicable Law or any applicable stock exchange regulations, without the prior written consent of
the other Party, neither Buyer nor the Seller Parties will, and each will direct and cause its
officers, directors, employees, attorneys, accountants and other agents and representatives not
to, directly or indirectly, make any public disclosure of or statement concerning this Agreement
and the Transactions.



12.2 Reasonable Best Efforts. Between the date of this Agreement and the Closing Date
each Seller Party will use his or its reasonable best efforts to cause the conditions in
Sections 6 and 8 to be satisfied. Between the date of this Agreement and the Closing Date
the Buyer and the Parent will use their reasonable best efforts to cause the conditions in
Section 9 to be satisfied. All Parties make a covenant of good faith and fair dealing as
if this transaction were governed by the Uniform Commercial Code.



13. Miscellaneous.



13.1 Contents of Agreement. This Agreement, together with the exhibits and schedules
attached hereto and incorporated herein by reference, any other financial statement, document or
other instrument heretofore furnished by any Seller Party to Buyer in connection with the
Transactions and specifically referenced herein, and the other Transaction Documents, sets forth
the entire understanding of the parties hereto with respect to the Transactions and supersedes all
prior agreements or understandings among the Parties regarding those matters.



13.2 Amendment, Parties in Interest, Assignment. This Agreement may be amended,
modified or supplemented only by a written instrument duly executed by each of the Parties. If any
provision of this Agreement shall for any reason be held to be invalid, illegal, or unenforceable
in any respect, such invalidity, illegality, or unenforceability shall not affect any other
provision hereof, and this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein. This Agreement shall be binding upon and
inure to the benefit of and be enforceable by the respective heirs, legal representatives,
successors and permitted assigns of the Parties. No Party shall assign this Agreement or any
right, benefit or obligation hereunder, except that Buyer may, without the consent of Seller,
assign any of Buyer’s rights under this Agreement as collateral security for any lender providing
financing to Buyer, and except that Buyer shall be entitled to assign its rights and obligations
hereunder to one or more Persons (an “Assignee”) provided (a) the Assignee executes and
delivers to the Seller Parties a document by which the Assignee agrees to be bound by the terms and
conditions applicable to Buyer under this Agreement, and (b) Buyer shall remain obligated to
purchase the Assets to be purchased by an Assignee hereunder and to fulfill the Assignee’s other
obligations hereunder to the extent that the Assignee fails to do so hereunder. Any term or
provision of this Agreement may be waived at any time by the Party entitled to the benefit thereof
by a written instrument duly executed by such Party. The Parties shall execute and deliver any and
all documents and take any and all other actions that may be deemed reasonably necessary by their
respective counsel to complete the Transactions.


 


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13.3 Interpretation. Unless the context of this Agreement clearly requires otherwise,
(a) references to the plural include the singular, the singular the plural, the part the whole, (b)
references to any gender include all genders, (c) “including” has the inclusive meaning frequently
identified with the
phrase “but not limited to,” (d) references to “hereunder” or “herein” relate to this
Agreement, and (e) references as to whether any Seller Party “knows” or has “knowledge” of a given
fact, circumstance or condition shall mean the knowledge of Peter B. Stepanek, Michael Stepanek,
and James O’Toole, and the terms “knows” or “knowledge” with respect to any such individual, means
an individual shall be deemed to have knowledge of a particular fact or other matter (i) if that
individual is actually aware of that fact or matter after conducting due inquiry, or, failing such
inquiry, (ii) if a prudent individual could have been expected to discover or otherwise become
aware of that fact or matter in the course of conducting a reasonably comprehensive investigation
regarding the accuracy of any representation or warranty contained in this Agreement. The section
and other headings contained in this Agreement are for reference purposes only and shall not
control or affect the construction of this Agreement or the interpretation thereof in any respect.
Section, subsection, schedule and exhibit references are to this Agreement unless otherwise
specified.



13.4 Sole Remedy. The Parties acknowledge that the remedies provided for in this
Agreement shall be the Parties’ sole and exclusive remedy with respect to breaches of the
representations and warranties contained in this Agreement. Notwithstanding any other provision in
this Agreement, any Party shall have the right to seek specific performance or injunctive relief as
a remedy as provided in Section 13.5 to enforce another Party’s performance of any obligations
expressly set forth in this Agreement.




13.5 Dispute Resolution.



(a) Good-Faith Negotiations. Except as otherwise provided in Section 2.5(b), if after
the Closing any dispute arises under this Agreement in connection with any aspect of this Agreement
(a “Dispute”), that is not settled promptly in the ordinary course of business, the Parties
shall seek to resolve any such Dispute between them, first, by negotiating promptly with each other
in good faith in face-to-face negotiations. These face-to-face negotiations shall be conducted by
the respective designated senior management representative of Buyer and a representative of the
Seller Parties. If the Parties are unable to resolve such Dispute between them within 10 Business
Days (or such period as the Parties shall otherwise mutually agree) through these face-to-face
negotiations, then any such Dispute shall be submitted to mediation in the manner set forth in
Section 13.5(b).



(b) Mediation. Except as otherwise provided in Section 2.5(b), in the event that a
Dispute shall not have been resolved pursuant to Section 13.5(a) pursuant to good faith discussions
among the Parties, then the Parties shall submit the Dispute to mediation (“Mediation”),
held in Boston, Massachusetts under the rules of the American Arbitration Association (“AAA”) then
in effect. The mediator shall be selected by mutual agreement of the Parties. The facts and
circumstances of the Dispute shall be presented to the mediator. The Mediation shall be completed
within 30 days after notice by either Party to commence the Mediation. The fees and expenses of
the mediator and the other costs of the Mediation shall be shared equally by Buyer, on the one
hand, and the Seller Parties, on the other hand. If the Parties are unable to resolve such Dispute
between them within 30 days after notice by either Party to commence the Mediation, then any such
Dispute shall be submitted to arbitration in the manner set forth in
Section 13.5(c).


 


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(c) Resolution of Disputes. Except as otherwise provided in Section 2.5(b), in the
event that a Dispute shall not have been resolved pursuant to Sections 13.5(a) or (b), then
the Parties shall submit the Dispute to arbitration as provided in this Section 13.5(c) (the
“Arbitration”). The Arbitration shall be held in Boston, Massachusetts under the
Commercial Rules of Arbitration of the AAA then in effect. The arbitration panel shall consist of
three arbitrators, one of which shall be selected by the Buyer, one of which shall be selected by
the Seller Parties, and the remaining arbitrator (who shall serve as chairperson) shall be selected
by the other two arbitrators; failing such agreement within 30 days of the
initial demand for arbitration, the chair shall be named by the AAA. If any Party shall fail
to select its party-appointed arbitrator, then the AAA shall appoint that arbitrator. Irrespective
of the manner of their appointment or selection, all of the arbitrators shall serve as neutrals
pursuant to the AAA rules. The facts and circumstances of the Dispute shall be presented to the
arbitration panel. The arbitration panel shall consider the Dispute and issue a written decision
setting forth the resolution of the Dispute or the method for determining the resolution of the
Dispute decided upon by such arbitration panel. The arbitration panel shall be empowered to issue
one or more interim decisions prior to a full hearing of the case, requiring a party to the
Arbitration to do or to abstain from doing such acts as shall be specified in the interim decision.
Such interim decision shall be enforceable in the same manner as the final decision, as set forth
herein. The Arbitration shall be completed within 60 days after its commencement. The fees and
expenses of the arbitration panel and the other costs of the Arbitration shall be shared equally by
Buyer, on the one hand, and the Seller Parties, on the other hand. The decision of the arbitration
panel pursuant to this Section 13.5(c) shall be final and binding upon the parties to the
Arbitration, and judgment thereon may be entered in any court having jurisdiction.



The procedural and substantive law governing the Arbitration shall be the law of the Commonwealth
of Pennsylvania. In no event shall the arbitration panel have the discretion to apply the “choice
of law” rules of any jurisdiction, including the situs, whether those rules are deemed to be
procedural or substantive, to vary the applicable procedural and substantive law chosen by the
parties; nor shall the arbitrators have the power to decide contrary to applicable law, ex aequo et
bono, or otherwise depart in scope or means from that to which a judgment of a court of competent
jurisdiction could extend.



13.6 Expenses. The Parties shall pay their own expenses incidental to the preparation
of this Agreement, the carrying out of the provisions of this Agreement and the consummation of the
Transactions. No expenses of the Seller Parties, including the Seller Parties’ legal fees and
expenses, shall be paid by or out of any of the Purchased Assets of Seller, and the other Seller
Parties shall assume all expenses incurred by Seller in connection with the Transactions.



13.7 Bulk Sales. Buyer and the Seller Parties hereby waive compliance with the bulk
sales Laws and any other similar Laws in any applicable jurisdiction in respect of the
Transactions; provided, however, that the Seller Parties shall pay and discharge when due all
claims of creditors asserted against Buyer or the Purchased Assets by reason of such noncompliance,
shall indemnify and hold harmless Buyer and the Purchased Assets against the same, and shall take
promptly all necessary actions required to remove any Encumbrance which may be placed upon any of
the Purchased Assets by reason of such noncompliance.



13.8 Notices. All notices that are required or permitted hereunder shall be in
writing and shall be sufficient if personally delivered or sent by mail or by a
nationally-recognized overnight delivery courier. Any notices shall be deemed given upon the
earlier of the date when received at, or the third day after the date when sent by registered or
certified mail or the day after the date when sent by overnight delivery courier to, the address
set forth below, unless such address is changed by notice to the other Party hereto:




If to Buyer or Parent:




c/o CSS Industries, Inc.

1845 Walnut Street

Philadelphia, PA 19103

Attention: William G. Kiesling, Vice President – Legal and Human Resources


 


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If to any Seller Party:




Hampshire Paper Corp. (or as renamed after Closing)

24 Powers Street

Milford, NH 03055




or, subsequent to the corporate dissolution of Seller, to each Shareholder
at the following addresses:




Peter B. Stepanek

18 Chestnut Hill Road

Amherst, NH 03031




Michael J. Stepanek

35 South Merrimack Rd.

Hollis, NH  03049




with a required copy to:




Coolidge & Graves, PLLC

39 Central Square, Suite 173

Keene, NH 03431

Attention: Lawrence D.W. Graves, Esq.



13.9 Governing Law. This Agreement shall be construed and interpreted in accordance
with the laws of the Commonwealth of Pennsylvania without regard to its provisions concerning
conflict of laws.



13.10 Counterparts. This Agreement may be executed in two or more counterparts and by
facsimile, each of which shall be binding as of the date first written above, and all of which
shall constitute one and the same instrument. Each such copy shall be deemed an original, and it
shall not be necessary in making proof of this Agreement to produce or account for more than one
such counterpart.


 


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IN WITNESS WHEREOF, this Agreement has been executed by the Parties as of the day and year
first written above.



	 	 	 	 	 
	 	
BUYER:



GRANITE ACQUISITION CORP.

 	 
	 	By:  	/s/ Christopher J. Munyan
 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 	

PARENT:





LION RIBBON COMPANY, INC.

 	 
	 	By:  	/s/ Clifford E. Pietrafitta
 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 	

SELLER:





HAMPSHIRE PAPER CORP.

 	 
	 	By:  	/s/ Peter B. Stepanek
 	 
	 	 	Name:  	Peter B. Stepanek 	 
	 	 	Title:  	President 	 
	 	

SHAREHOLDERS:

 	 
	 	/s/ Peter B. Stepanek
 	 
	 	Peter B. Stepanek  	 
	 	 	 
	 	                                               /s/ Michael J. Stepanek
 	 
	 	Michael J. Stepanek