Document:

Exhibit 10.1

 

Execution Version

 

 

ASSET PURCHASE
AGREEMENT

 

Dated as of July 2,
2008

 

Between

 

Cellu Tissue
Holdings, Inc., as Buyer

 

and

 

Atlantic Paper & Foil Corp. of N.Y., Atlantic
Lakeside Properties, LLC, Atlantic Paper & Foil, LLC, Atlantic Paper &
Foil of Georgia, LLC and Consumer Licensing Corporation, as Sellers

 

 

 

TABLE OF CONTENTS

 

	
   

  	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  	
   

  
	
  1.

  	
  DEFINITIONS

  	
   

  	
  1

  
	
   

  	
   

  	
   

  	
   

  
	
  2.

  	
  PURCHASE AND SALE OF ASSETS; ASSIGNMENT AND ASSUMPTION
  OF LIABILITIES

  	
   

  	
  1

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.1.

  	
  The Purchase and Sale; Assignment
  and Assumption

  	
   

  	
  1

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.2.

  	
  Purchase Price

  	
   

  	
  2

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.3.

  	
  The Closing

  	
   

  	
  2

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.4.

  	
  Closing Deliveries

  	
   

  	
  2

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.5.

  	
  Working Capital Adjustment

  	
   

  	
  3

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.6.

  	
  Allocation of Purchase Price

  	
   

  	
  6

  
	
   

  	
   

  	
   

  	
   

  
	
  3.

  	
  REPRESENTATIONS AND WARRANTIES
  REGARDING THE BUSINESS

  	
   

  	
  7

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.1.

  	
  Organization

  	
   

  	
  7

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.2.

  	
  Power and Authorization

  	
   

  	
  8

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.3.

  	
  Authorization of Governmental
  Authorities

  	
   

  	
  8

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.4.

  	
  Noncontravention

  	
   

  	
  8

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.5.

  	
  Financial Statements

  	
   

  	
  9

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.6.

  	
  Absence of Certain Developments

  	
   

  	
  9

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.7.

  	
  Assets

  	
   

  	
  10

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.8.

  	
  Accounts Receivables

  	
   

  	
  10

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.9.

  	
  Property

  	
   

  	
  10

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.10.

  	
  Equipment

  	
   

  	
  11

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.11.

  	
  Intellectual Property

  	
   

  	
  11

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.12.

  	
  Permits

  	
   

  	
  12

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.13.

  	
  Employee Benefit Plans

  	
   

  	
  12

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.14.

  	
  Environmental Matters

  	
   

  	
  13

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.15.

  	
  Contracts

  	
   

  	
  14

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.16.

  	
  Affiliate Transactions

  	
   

  	
  15

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.17.

  	
  Customers and Suppliers

  	
   

  	
  15

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.18.

  	
  Employees

  	
   

  	
  16

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.19.

  	
  Litigation; Governmental Orders

  	
   

  	
  16

  

 

ii

 

	
   

  	
  3.20.

  	
  Product Warranties; Defects;
  Liability

  	
   

  	
  17

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.21.

  	
  No Brokers

  	
   

  	
  17

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.22.

  	
  Insurance

  	
   

  	
  17

  
	
   

  	
   

  	
   

  	
   

  
	
  4.

  	
  REPRESENTATIONS AND WARRANTIES OF
  THE BUYER

  	
   

  	
  17

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.1.

  	
  Organization

  	
   

  	
  17

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.2.

  	
  Power and Authorization

  	
   

  	
  17

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.3.

  	
  Authorization of Governmental
  Authorities

  	
   

  	
  18

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.4.

  	
  Noncontravention

  	
   

  	
  18

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.5.

  	
  No Brokers

  	
   

  	
  18

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.6.

  	
  No Other Information

  	
   

  	
  18

  
	
   

  	
   

  	
   

  	
   

  
	
  5.

  	
  COVENANTS

  	
   

  	
  19

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.1.

  	
  Consents

  	
   

  	
  19

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.2.

  	
  Transaction Expenses

  	
   

  	
  19

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.3.

  	
  Confidentiality

  	
   

  	
  19

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.4.

  	
  Publicity

  	
   

  	
  20

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.5.

  	
  Employment

  	
   

  	
  20

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.6.

  	
  Benefit Plans

  	
   

  	
  20

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.7.

  	
  Transfer of Certain Funds Received
  Post-Closing

  	
   

  	
  21

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.8.

  	
  Prohibition on the Use of Name

  	
   

  	
  21

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.9.

  	
  Insurance

  	
   

  	
  21

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.10.

  	
  Further Assurances

  	
   

  	
  21

  
	
   

  	
   

  	
   

  	
   

  
	
  6.

  	
  CONDITIONS TO THE BUYER’S
  OBLIGATIONS AT THE CLOSING

  	
   

  	
  21

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.1.

  	
  Representations and Warranties

  	
   

  	
  21

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.2.

  	
  Performance

  	
   

  	
  22

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.3.

  	
  Compliance Certificate

  	
   

  	
  22

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.4.

  	
  No Material Adverse Change

  	
   

  	
  22

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.5.

  	
  Qualifications

  	
   

  	
  22

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.6.

  	
  Absence of Litigation

  	
   

  	
  22

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.7.

  	
  Consents, etc.

  	
   

  	
  22

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.8.

  	
  Legal Opinion

  	
   

  	
  22

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.9.

  	
  FIRPTA Certificate

  	
   

  	
  22

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.10.

  	
  Proceedings and Documents

  	
   

  	
  23

  

 

iii

 

	
   

  	
  6.11.

  	
  Ancillary Agreements

  	
   

  	
  23

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.12.

  	
  Guaranty Agreements

  	
   

  	
  23

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.13.

  	
  Support Agreements

  	
   

  	
  23

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.14.

  	
  Financing

  	
   

  	
  23

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.15.

  	
  Allocation Statement

  	
   

  	
  23

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.16.

  	
  Release of Liens

  	
   

  	
  23

  
	
   

  	
   

  	
   

  	
   

  
	
  7.

  	
  CONDITIONS TO THE SELLERS’
  OBLIGATIONS AT THE CLOSING

  	
   

  	
  23

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  7.1.

  	
  Representations and Warranties

  	
   

  	
  23

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  7.2.

  	
  Performance

  	
   

  	
  23

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  7.3.

  	
  Compliance Certificate

  	
   

  	
  23

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  7.4.

  	
  Qualifications

  	
   

  	
  24

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  7.5.

  	
  Absence of Litigation

  	
   

  	
  24

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  7.6.

  	
  Proceedings and Documents

  	
   

  	
  24

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  7.7.

  	
  Ancillary Agreements

  	
   

  	
  24

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  7.8.

  	
  Allocation Statement

  	
   

  	
  24

  
	
   

  	
   

  	
   

  	
   

  
	
  8.

  	
  INDEMNIFICATION

  	
   

  	
  24

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  8.1.

  	
  Indemnification by the Sellers

  	
   

  	
  24

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  8.2.

  	
  Indemnity by the Buyer

  	
   

  	
  25

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  8.3.

  	
  Time for Claims

  	
   

  	
  26

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  8.4.

  	
  Third Party Claims

  	
   

  	
  26

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  9.

  	
  TAX MATTERS

  	
   

  	
  29

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  9.1.

  	
  Tax Indemnification

  	
   

  	
  29

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  9.2.

  	
  Tax Sharing Agreements

  	
   

  	
  29

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  9.3.

  	
  Certain Taxes and Fees

  	
   

  	
  29

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  9.4.

  	
  Rev. Proc. 2004-53

  	
   

  	
  29

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  9.5.

  	
  Cooperation on Tax Matters

  	
   

  	
  29

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  9.6.

  	
  Georgia Tax Credits

  	
   

  	
  30

  
	
   

  	
   

  	
   

  	
   

  
	
  10.

  	
  MISCELLANEOUS

  	
   

  	
  30

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  10.1.

  	
  Notices

  	
   

  	
  30

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  10.2.

  	
  Succession and Assignment; No
  Third-Party Beneficiary

  	
   

  	
  31

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  10.3.

  	
  Amendments and Waivers

  	
   

  	
  30

  

 

iv

 

	
   

  	
  10.4.

  	
  Provisions Concerning Sellers’
  Representative

  	
   

  	
  32

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  10.5.

  	
  Entire Agreement

  	
   

  	
  33

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  10.6.

  	
  Schedules; Listed Documents, etc.

  	
   

  	
  33

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  10.7.

  	
  Counterparts

  	
   

  	
  33

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  10.8.

  	
  Severability

  	
   

  	
  33

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  10.9.

  	
  Headings

  	
   

  	
  33

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  10.10.

  	
  Construction

  	
   

  	
  33

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  10.11.

  	
  Governing Law

  	
   

  	
  34

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  10.12.

  	
  Jurisdiction; Venue; Service of
  Process

  	
   

  	
  34

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  10.13.

  	
  Specific Performance

  	
   

  	
  34

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  10.14.

  	
  Waiver of Jury Trial

  	
   

  	
  35

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  10.15.

  	
  Certain Rules of Construction

  	
   

  	
  35

  

 

APPENDICES

 

	
  A

  	
  Certain Defined Terms

  
	
  B

  	
  Certain Defined Terms

  
	
  C

  	
  Certain Retained Assets

  

 

EXHIBITS

 

	
  2.2

  	
  Form of Note

  
	
  2.5.1

  	
  Balance Sheet and
  Working Capital Methodology

  
	
  2.6

  	
  Purchase Price
  Allocation

  
	
  3.5

  	
  Purchased Business
  Financial Statements

  
	
  6.8

  	
  Form of Legal
  Opinion

  
	
  I-1

  	
  Form of Escrow
  Agreement

  
	
  I-2

  	
  Form of Hauppauge
  Lease – Kennedy Drive

  
	
  I-3

  	
  Form of New York
  Lease – Gilpin

  
	
  I-4

  	
  Form of Thomaston
  Lease

  
	
  I-5

  	
  Form of
  Non-Competition, Non-Solicitation and Non-Disclosure Agreement

  
	
  I-6

  	
  Form of Guaranty
  Agreement

  
	
  I-7

  	
  Form of Support Agreement

  
	
  I-8

  	
  List of Personal Belongings Being Retained by Gabbay
  Family

  

 

SCHEDULES

 

	
  I-A-1

  	
  Acquired Assets

  
	
  I-A-2

  	
  Transferred Contracts

  
	
  I-A-3

  	
  Transferred Leases

  

 

v

 

	
  I-A-4

  	
  Tangible Personal
  Property

  
	
  I-A-5

  	
  Transferred Plans

  
	
  I-A-6

  	
  Transferred Insurance

  
	
  I-B-1

  	
  Retained Assets

  
	
  I-B-2

  	
  Retained Automobiles

  
	
  I-C

  	
  Assumed Liabilities

  
	
  I-D

  	
  Excluded Liabilities

  
	
  3.1

  	
  Organization

  
	
  3.3

  	
  Authorization of
  Governmental Authorities

  
	
  3.4

  	
  Noncontravention

  
	
  3.5

  	
  Compliance with GAAP

  
	
  3.6

  	
  Absence of Certain
  Developments

  
	
  3.7

  	
  Encumbrances on
  Acquired Assets

  
	
  3.7.2

  	
  Assets Owned by
  Individual Owners or Affiliates

  
	
  3.7.4

  	
  Document Retention
  Policy of Sellers

  
	
  3.8

  	
  Accounts Receivable

  
	
  3.9

  	
  Real Property

  
	
  3.11

  	
  Intellectual Property

  
	
  3.12.1

  	
  Permits

  
	
  3.12.2

  	
  Exceptions to Permits

  
	
  3.14

  	
  Environmental Matters

  
	
  3.15

  	
  Contracts

  
	
  3.16

  	
  Affiliate Transactions

  
	
  3.17

  	
  Customers and Suppliers

  
	
  3.18

  	
  Employees

  
	
  3.19.1

  	
  Litigation

  
	
  3.19.2

  	
  Governmental Orders

  
	
  3.20

  	
  Product Warranties,
  Defects; Liability

  
	
  3.22

  	
  Insurance

  
	
  5.5

  	
  Offer Employees

  

 

vi

 

ASSET PURCHASE AGREEMENT

 

This
Asset Purchase Agreement dated as of July 2, 2008 (as amended or otherwise
modified, this “Agreement”) is between Cellu Tissue Holdings, Inc.,
a Delaware corporation (the “Buyer”), and Atlantic Paper & Foil
Corp. of N.Y., Atlantic Lakeside Properties, LLC, Atlantic Paper &
Foil, LLC, Atlantic Paper & Foil of Georgia, LLC and Consumer
Licensing Corporation, as Sellers (each a “Seller” and collectively, the
“Sellers”).

 

RECITALS

 

WHEREAS,
the Sellers own and operate a business manufacturing, distributing, and
marketing a broad line of hygienic tissue, polystyrene foam plates, aluminum
foil, and plastic food wrap products for the at-home and away-from-home markets
(the “Business”); and

 

WHEREAS,
the Sellers wish to sell and assign to the Buyer, and the Buyer wishes to
purchase and assume from the Sellers, certain assets and liabilities specified
herein which relate to such business, all on the terms and conditions set forth
in this Agreement; and

 

WHEREAS,
Yahya Gabbay, Helen Gabbay, Shaun Gabbay, Egal Gabbay and Dan Gabbay, as the
owners of the Sellers (the “Individual Owners”), are on this day each
executing and delivering to the Buyer a Support Agreement and a Guaranty
Agreement.

 

AGREEMENT

 

NOW THEREFORE,
in consideration of the premises and mutual promises herein made, and in
consideration of the representations, warranties and covenants herein
contained, the Buyer and the Sellers hereby agree as follows:

 

1.          DEFINITIONS.

 

Capitalized terms used in
this Agreement but not defined herein shall have the meanings given to them in Appendix
A.

 

2.          PURCHASE
AND SALE OF ASSETS; ASSIGNMENT AND ASSUMPTION OF LIABILITIES.

 

2.1.          The Purchase and Sale; Assignment
and Assumption.

 

2.1.1             Purchase and Sale.  Upon the terms and subject to the conditions
contained herein, at the Closing, the Sellers will sell, assign, transfer,
convey and deliver to the Buyer, and the Buyer shall purchase from the Sellers,
the Acquired Assets, free and clear of any Encumbrances except for Permitted
Encumbrances, in exchange for the payment of the Purchase Price and the
assumption by the Buyer of the Assumed Liabilities.

 

2.1.2             Retained Assets.  The Retained Assets shall be excluded from
the Acquired Assets to be sold, assigned, transferred, conveyed and delivered
to the Buyer hereunder and, to the extent in existence on the Closing Date,
shall be retained by the Sellers.

 

 

2.1.3             Assumed Liabilities.  Upon the terms and subject to the conditions
contained herein, at the Closing, the Buyer will assume, effective as of the
Closing, the Assumed Liabilities.

 

2.1.4             Excluded Liabilities.  The Buyer will not assume or perform any
Liabilities of any of the Sellers not specifically assumed by the Buyer under Section 2.1.3,
and the Sellers shall retain and satisfy, and perform as and when due, all
Excluded Liabilities.

 

2.2.          Purchase Price.  The aggregate consideration payable by Buyer
to the Sellers for the Acquired Assets shall be (i) the assumption of the
Assumed Liabilities by the Buyer, (ii) $61,700,000.00 in cash (subject to
adjustment pursuant to Section 2.5) (the “Cash Purchase Price”)
which such amount shall be paid to the Sellers in accordance with the
instructions delivered under Section 2.4(a)(ii) and (iii) one
note in the form attached as Exhibit 2.2 with an aggregate
principal amount of $6,300,000.00 which shall be issued to Atlantic Paper &
Foil Corp. of N.Y. (the “Note” and, together with the Cash Purchase
Price, the “Purchase Price”).

 

2.3.          The Closing.  The purchase and sale of the Acquired Assets
and the assumption of the Assumed Liabilities (the “Closing”) will take
place on the date hereof at the offices of Ropes & Gray LLP in New
York, New York.

 

2.4.          Closing Deliveries.  The parties shall take the actions set forth
in this Section 2.4 at the Closing.

 

(a)        The Buyer will deliver (i) to the
Escrow Agent, $1,500,000 by wire transfer of immediately available federal
funds to the account designated in the Escrow Agreement for purposes of
satisfying amounts owed to the Buyer Indemnified Parties pursuant to Section 8.1
(the “Indemnity Escrow Account”), (ii) to the Sellers, (A) the
Cash Purchase Price, less the aggregate amount delivered to the Escrow
Agent per clause (i) by wire transfer of immediately available federal
funds to the accounts designated in writing to the Buyer not fewer than two
Business Days prior to the scheduled Closing Date and (iii) the Note.

 

(b)        The Buyer and the Sellers will execute
one or more bills of sale, in a form reasonably acceptable to the parties, with
respect to all personal property included in the Acquired Assets.

 

(c)        The Buyer and the Sellers will execute
an Assignment of Trademarks in a form registrable or recordable in the United
States Patent and Trademark Office or applicable foreign offices to the extent
necessary to assign the trademarks included in the Acquired Assets in a form
reasonably acceptable to the parties.

 

(d)        The parties shall execute such other
instruments as shall be reasonably requested by the Buyer to vest in the Buyer
title in and to the Acquired Assets, in accordance with the provisions hereof.

 

(e)        The Buyer and the Sellers will execute
an instrument of assumption in a form reasonably acceptable to the parties with
respect to the Assumed Liabilities.

 

2

 

(f)         The parties will deliver the various
certificates, instruments and documents required of each of them under Sections
6 and 7.

 

(g)        The Sellers shall deliver to Buyer a
letter, in form and substance reasonably satisfactory to Buyer, signed by Ocean
Associates in which Ocean Associates acknowledges and agrees that the Buyer and
its Affiliates have and shall have no liability to Ocean Associates whatsoever
with respect to any liability that any of the Sellers may have to Ocean
Associates and that Ocean Associates has no rights whatsoever to any equipment
or other asset included in the Acquired Assets.

 

(h)        The Sellers shall deliver to the Buyer
originals or copies of all books and records relating to the Acquired
Assets.  For the avoidance of doubt, such
books and records shall not include all corporate seals, minute books, charter
documents, corporate stock record books, registers of other securities, copies
of original tax records of the Sellers, and such other books and records as
pertain only to the organization, existence, share capitalization or debt
financing of the Sellers.

 

2.5.          Working Capital Adjustment.

 

2.5.1             Estimated Balance Sheet,
Estimated Working Capital.  The
Sellers acknowledge and confirm that prior to the Closing Date they have, in
good faith, prepared or caused to be prepared, and provided to the Buyer an
estimated consolidated balance sheet of the Purchased Business as of the
Closing Date (the “Estimated Balance Sheet”), together with a written
statement setting forth in reasonable detail their estimate of the Working
Capital on the Closing Date as reflected on the Closing Balance Sheet (the “Estimated
Working Capital Statement”).  The
Sellers acknowledge and confirm that the Estimated Balance Sheet and the
Estimated Working Capital Statement were prepared in accordance with GAAP and
in accordance with the methodology set forth on Exhibit 2.5.1, provided,
that, in the event of a conflict between GAAP and the methodology set forth on Exhibit 2.5.1,
the methodology set forth on Exhibit 2.5.1 shall control
(collectively, the “Accounting Principles”).  If the Estimated Working Capital exceeds the
Working Capital Target, then the Cash Purchase Price to be delivered by the
Buyer to the Sellers at the Closing pursuant to Section 2.2 will be
increased by such excess.  If the
Estimated Working Capital is less than the Working Capital Target, then the
Cash Purchase Price to be delivered by the Buyer to the Sellers at the Closing
pursuant to Section 2.2 will be decreased by such shortfall.

 

2.5.2             Closing Balance Sheet and
Closing Working Capital.  Within
ninety calendar days after the Closing Date, the Buyer will prepare or cause to
be prepared, and will provide to the Sellers’ Representative, a consolidated
balance sheet of the Purchased Business as of the Closing Date (the “Closing
Balance Sheet”), together with a written statement setting forth in
reasonable detail its determination of the Working Capital on the Closing Date
as reflected on the Closing Balance Sheet (the “Closing Working Capital
Statement”).  The Closing Balance
Sheet and the Closing Working Capital Statement will be prepared in accordance
with the Accounting Principles.  The
Sellers’ Representative and the Sellers’ professional advisors shall have reasonable
access to all documentation reasonably requested by them from the Buyer in
order to review the 

 

3

 

Closing Balance Sheet and the Closing Working Capital
Statement, including the work papers used by the Buyer in the preparation of
the Closing Balance Sheet and the Closing Working Capital Statement.

 

2.5.3             Dispute Notice.  The Closing Balance Sheet and the Closing
Working Capital Statement, and the determination of Working Capital thereon,
will be final, conclusive and binding on the parties unless the Sellers’
Representative provides a written notice (a “Dispute Notice”) to the
Buyer no later than the twentieth Business Day after delivery of the Closing
Balance Sheet and the Closing Working Capital Statement setting forth in
reasonable detail any item on the Closing Balance Sheet and/or the Closing
Working Capital Statement which the Sellers’ Representative believes has not
been prepared in accordance with the Accounting Principles and the correct
amount of such item in accordance with the Accounting Principles; provided,
however, that such twenty Business Day period shall be extended by one
business day for each business day after delivery of the Closing Balance Sheet
and the Closing Working Capital Statement by Buyer to the Sellers’
Representative during which Buyer denies the Sellers’ Representative or his
professional advisors reasonable access to documentation reasonably requested
by them from the Buyer in order to review the Closing Balance Sheet and the
Closing Working Capital Statement pursuant the Sellers’ Representatives rights
under Section 2.5.2 and this Section 2.5.3.  Any item or amount to which no dispute is
raised in the Dispute Notice will be final, conclusive and binding on the
parties.

 

2.5.4             Resolution of Disputes.  The Buyer and the Sellers’ Representative
will attempt to resolve the matters raised in a Dispute Notice in good
faith.  If the Buyer and the Sellers’
Representative shall not have resolved the matters raised in the Dispute Notice
within twenty Business Days after delivery of the Dispute Notice, either the
Buyer or the Sellers’ Representative may provide written notice to the other
that it elects to submit the disputed items to Grant Thornton LLP or, if such
firm is unable or unwilling to serve, another nationally recognized independent
accounting firm chosen jointly by the Buyer and the Sellers’ Representative
(the “Referee”).  The Referee will
promptly, in accordance with the Commercial Arbitration Rules of the
American Arbitration Association, review only those items and amounts
specifically set forth and objected to in the Dispute Notice and resolve the
dispute with respect to each such specific item and amount in accordance with
the Accounting Principles, but within the positions taken by the Closing
Balance Sheet and/or Closing Working Capital Statement and the Dispute
Notice.  The Referee shall allocate its
costs and expenses, and the reasonable legal and accounting costs and expenses
of the Buyer and the Sellers’ Representative, between the Buyer and the Sellers
based upon the percentage of the contested amount submitted to the Referee that
is ultimately awarded to each of the Buyer and the Sellers such that each of
the Buyer and the Sellers bear a percentage of such costs and expenses equal to
the percentage of the contested amount awarded to the other.  For example, if the Sellers claim Working
Capital is $1,000 greater than the amount determined by the Buyer, and the
Buyer contests only $500 of the amount claimed by the Sellers, and if the
Referee ultimately resolves the dispute by awarding the Sellers $300 of the
$500 contested, then the applicable costs and expenses shall be allocated 60%
(i.e. 300/500) to the Buyer and 40% (i.e. 200/500) to the Sellers.  The decision of the Referee with respect to
the items of the Closing Balance Sheet and the Closing Working Capital
Statement submitted to it

 

4

 

will be final, conclusive and binding on the
parties.  Each of the parties to this
Agreement agrees to use its commercially reasonable efforts to cooperate with
the Referee and to cause the Referee to resolve any dispute no later than
thirty Business Days after selection of the Referee.

 

2.5.5                                       Purchase
Price Adjustment.  Promptly, and in
any event no later than the fifth Business Day after final determination of the
Working Capital in accordance with Section 2.5, all payments under this Section 2.5.5
shall be made by wire transfer in immediately available funds, provided that,
if a Dispute Notice is delivered pursuant to Section 2.5.3, any portion of
the purchase price adjustment which is not in dispute shall be paid promptly
after the delivery of such Dispute Notice, and in any event no later than the
fifth Business Day after such delivery.

 

(a)                         If the
Final Working Capital exceeds the Estimated Working Capital, then the Buyer
will pay an amount equal to such excess to the Sellers.

 

(b)                        If the
Final Working Capital is less than the Estimated Working Capital, then the
Sellers shall pay to the Buyer an amount equal to such shortfall.

 

2.5.6                                       Right
to Set-off Against the Note.  In the
event that the Sellers do not pay to the Buyer any amount required by Section 2.5.5
within the required time specified therein, the Buyer may elect, in its sole
discretion, in lieu of receiving such amount in cash, to reduce its remaining
payment obligations under one or more of the Subordinated Notes by an amount
equal in the aggregate for all Subordinated Notes to such amount (provided that
any such offset shall be made against all Subordinated Notes pro rata based on
their respective outstanding principal amounts at the time of such
offset).  In such event, the Buyer shall
also be (x) entitled to repayment of any and all interest that has accrued
and been paid on an amount of principal of the Subordinated Notes equal in the
aggregate to such amount from the date of issuance of the Note until the date
of satisfaction of such amount, and the Buyer may, in its sole discretion,
elect to satisfy such repayment obligation by either further reducing future
its future payment obligations under one or more of the Subordinated Notes in
an amount equal in the aggregate for all Subordinated Notes to the amount of
such interest or requiring the Sellers to pay back to the Buyer all such
interest in cash and (y) relieved of the obligation to pay any and all
interest that has accrued but not yet been paid on an amount of principal of
the Subordinated Notes equal in the aggregate to such amount from the date of
issuance of the Note until the date of satisfaction of such amount.  The Buyer may elect, in its sole discretion,
to exercise its set-off rights under this Section 2.5.6 against the
principal or interest of the Subordinated Notes or any combination thereof
(provided that it makes the same election as to all Subordinated Notes and that
any such offset shall be made against all Subordinated Notes pro rata based on
their respective outstanding principal amounts at the time of such
offset).  This Section 2.5.6 shall
not in any way limit the remedies available to the Buyer should the Sellers
breach their obligations under Section 2.5.5.  The term “Subordinated Notes” shall
mean one or more subordinated notes, in the form of the Note, which may be
issued in respect of any permitted transfer or assignment of the Note or any
Subordinated Note.  It is expressly
acknowledged and agreed that the Note is the only Subordinated Note being
issued or required to be issued at the Closing.

 

5

 

2.6.                              Allocation
of Purchase Price.  Set forth as Exhibit 2.6
hereto is the allocation of the Purchase Price with respect to the Acquired
Assets consisting of property, plant and equipment (“PP&E”) proposed
by the Sellers (the “Sellers’ Proposed Allocation”).  Following the Closing, the Buyer shall
engage, at its expense, a third party accounting, investment banking or
valuation firm of national or regional reputation to perform an appraisal with
respect to the PP&E included in the Acquired Assets (such appraisal, the “Buyer’s
Third Party Appraisal”) so as to permit the Buyer and its Affiliates to
prepare financial statements in accordance with Financial Accounting Standard
Board Statement No. 141 (Business Combinations) and United Stated
Generally Accepted Accounting Principles. 
The parties agree that such Buyer’s Third Party Appraisal shall be
performed by BDO Seidman, LLP, or an affiliate thereof, provided the Buyer is
able to engage such firm for such work on reasonable terms and that the Buyer
may not engage a different firm unless (x) BDO Seidman, LLP and/or such
affiliate (as the case may be) declines the engagement or requires terms and
conditions for the engagement which are commercially unreasonable or not
customary for engagements of this type or (y) another firm offers to
perform the work on substantially better terms than BDO Seidman, LLP and/or
such affiliate (as the case may be).  The
Buyer shall use commercially reasonable efforts to cause the Buyer’s Third
Party Appraisal to be completed within 30 calendar days following the Closing
Date and shall provide a copy of any written materials provided to the Buyer
pursuant to the appraisal engagement by the firm engaged to perform the
appraisal, including the final Buyer’s Third Party Appraisal, to the Sellers’
Representative within a reasonable period of time (not to exceed two Business
Days) after its receipt by the Buyer, provided that the Sellers’ Representative
has provided to the firm who prepared such materials all access letters and/or
waivers reasonably requested by such firm as a condition thereto.  If such final Buyer’s Third Party Appraisal
indicates that the aggregate appraised value of the PP&E included in the
Acquired Assets (the “Covered Assets”) is greater than the value
assigned thereto in the Sellers’ Proposed Allocation, then the Sellers’
Representative shall have a period of three Business Days after its receipt of
such final Buyer’s Third Party Appraisal to notify the Buyer in writing of the
Sellers’ Representative’s determination to engage, at the Sellers’ own expense,
a different third party accounting, investment banking or valuation firm of
comparable reputation and qualifications as the firm who prepared the Buyer’s
Third Party Appraisal to perform a separate appraisal of the Covered Assets
(such appraisal, the “Sellers’ Third Party Appraisal”). Both the Buyer’s Third
Party Appraisal and the Sellers’ Third Party Appraisal shall be required to be
rendered in writing.  The Sellers’
Representative shall use commercially reasonable efforts to cause the Sellers’
Third Party Appraisal to be completed within 30 calendar days following the
date on which the Sellers’ Representative’s notification above is delivered to
the Buyer and shall provide a copy of any written materials provided to the
Seller’s Representative pursuant to the appraisal engagement by the firm
engaged to perform the appraisal, including the final Sellers’ Third Party
Appraisal, to the Buyer within a reasonable period of time (not to exceed two
Business Days) after its receipt by the Sellers’ Representative, provided that
the Buyer has provided to the firm who prepared such materials all access
letters and/or waivers reasonably requested by such firm as a condition
thereto, and in connection therewith the Buyer will give reasonable access to
the PP&E included in the Acquired Assets to the firm engaged to perform the
Seller’s Third Party Appraisal solely to the extent necessary to perform such appraisal.  The Sellers’ Representative shall then have
the right to designate by written notice to the Buyer either the Buyer’s Third
Party Appraisal 

 

6

 

or the Sellers’ Third Party Appraisal as the governing
appraisal (the “Designated Appraisal”) no later than three Business Days
after the Sellers’ Representative’s receipt of the Sellers’ Third Party
Appraisal from the firm who prepared such appraisal, whereupon the Buyer and
the Sellers shall, and shall cause their respective Affiliates and equity
holders to, file all Tax Returns and take positions in all Tax proceedings in a
manner consistent with the information contained in the Designated
Appraisal.  In the event that the Sellers’
Representative fails to engage its own appraiser within the period described
above, fails to deliver the final Sellers’ Third Party Appraisal to the Buyer
within the time period described above or fails to designate one of the
appraisals as the Designated Appraisal within the period described above, the
Buyer’s Third Party Appraisal shall irrevocably be deemed to be the Designated
Appraisal hereunder.  In the event that
the Buyer fails to engage its own appraiser within the period described above
or fails to deliver the final Buyer’s Third Party Appraisal to the Buyer within
the time period described above, the Sellers’ Proposed Allocation shall
irrevocably be deemed to be the Designated Appraisal hereunder.  In the event that the final Buyer’s Third
Party Appraisal indicates that the appraised value of the Covered Assets is
less than or equal to the value assigned thereto in the Sellers’ Proposed
Allocation, then the Buyer’s Third Party Appraisal shall irrevocably be deemed
to be the Designated Appraisal hereunder. 
Notwithstanding anything in this Agreement to the contrary (including
any provision of Article VIII hereof (Indemnification)), the Buyer and
each of the Sellers, and each of their respective Affiliates and direct or
indirect equity holders, each shall have no right to seek recourse against the
other, or any of its Subsidiaries and Affiliates or direct or indirect equity
holders, arising out of or with respect to (i) the utilization of the
Designated Appraisal by the other parties and its Affiliates in accordance with
this Section 2.6 or (ii) the purchase price allocation utilized by
the other party and its Affiliates as to any of the Acquired Assets other than
the Covered Assets, and shall not assert any claim or institute any action
against the other parties, or any of their Subsidiaries and Affiliates or
direct or indirect equity holders, arising out of or relating to (x) such
utilization of the Designated Party Appraisal except in the case of a breach of
this Section 2.6 by such other party or (y) the purchase price allocation
utilized by the other parties and their Affiliates with respect to any of the
Acquired Assets other than the Covered Assets.

 

3.                              REPRESENTATIONS
AND WARRANTIES REGARDING THE BUSINESS.

 

In order to induce the Buyer to enter into and perform
this Agreement and to consummate the Contemplated Transactions, the Sellers
hereby jointly and severally represent and warrant to the Buyer as follows:

 

3.1.                              Organization.  Schedule 3.1 sets forth the
jurisdiction of organization for each Seller. 
Each Seller is (a) duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization and (b) is
duly qualified to do business and in good standing in each jurisdiction in
which it owns or leases real property and in each other jurisdiction in which
the failure to so qualify has not had a Material Adverse Effect. The Sellers
have delivered to the Buyer true, accurate and complete copies of the
Organizational Documents of each Seller and those portions of the minute books
of each Seller which relate to the Contemplated Transactions, including the
resolutions of the board of directors (or other applicable governing body) of
each Seller authorizing such Seller to enter into this 

 

7

 

Agreement and engage in the Contemplated
Transactions.  None of the Sellers has
any Subsidiaries.

 

3.2.                              Power
and Authorization.

 

3.2.1                                       Contemplated
Transaction.  The execution, delivery
and performance by the Sellers of this Agreement and each Ancillary Agreement
to which any Seller is (or will be) a party and the consummation of the
Contemplated Transactions are within the power and authority of each Seller and
have been duly authorized by all necessary action on the part of each Seller.  This Agreement and each Ancillary Agreement
to which any Seller is (or will be) a party (a) has been (or, in the case
of Ancillary Agreements to be entered into at or prior to the Closing, will be)
duly executed and delivered by the applicable Seller and (b) is (or, in
the case of Ancillary Agreements to be entered into at or prior to the Closing,
will be) a legal, valid and binding obligation of the applicable Seller,
Enforceable against such Seller in accordance with its terms.

 

3.2.2                                       Conduct
of Business.  Each Seller has the
full power and authority necessary to own and use its assets and carry on the
Business as currently conducted.

 

3.3.                              Authorization
of Governmental Authorities.  Except
as disclosed on Schedule 3.3, no action by (including any
authorization, consent or approval), or in respect of, or filing with, any
Governmental Authority is required for, or in connection with, the valid and
lawful (a) authorization, execution, delivery and performance by the
Sellers of this Agreement and each Ancillary Agreement to which any Seller is
(or will be) a party or (b) the consummation of the Contemplated
Transactions by the Sellers.

 

3.4.                              Noncontravention.  Except as disclosed on Schedule 3.4,
neither the execution, delivery and performance by each Seller of this
Agreement or any Ancillary Agreement to which it is (or will be) a party nor
the consummation of the Contemplated Transactions will:

 

(a)                         assuming
the taking of any action by (including any authorization, consent or approval),
or in respect of, or any filing with, any Governmental Authority, in each case,
as disclosed on Schedule 3.3, violate any Legal Requirement applicable
to any Seller in any material respect;

 

(b)                        result in
a material breach or violation of, or default under, any material Contractual
Obligation of any Seller;

 

(c)                         require
any action by (including any authorization, consent or approval) or in respect
of (including notice to), any Person under any material Contractual Obligation
of any Seller;

 

(d)                        result in
the creation or imposition of a material Encumbrance upon, or the forfeiture
of, any material Acquired Asset; or

 

(e)                         result in
a breach or violation of, or default under, the Organizational Documents of any
Seller.

 

8

 

3.5.                              Financial
Statements.  Except as disclosed on Schedule
3.5, the audited financials (including any notes thereto) for the Purchased
Business for the years ended December 31, 2007, December 31, 2006 and
December 31, 2005 (the “Audited Financials”), and the unaudited
financials for the Purchased Business for the five (5) months ended May 31,
2008, all of which are attached hereto as Exhibit 3.5, (a) are
complete and correct and have been prepared in accordance with the books and
records of the Sellers, (b) have been prepared in accordance with GAAP,
consistently applied (subject, in the case of the unaudited financials, to
normal year-end audit adjustments), and (c) fairly present the combined
financial position of the Sellers as at the respective dates thereof and the
combined results of the operations of the Sellers and changes in financial
position for the respective periods covered thereby.

 

3.6.                              Absence
of Certain Developments.  Since the
Most Recent Balance Sheet Date, the Business has been conducted in the Ordinary
Course of Business and, except for the matters disclosed on Schedule 3.6:

 

(a)                         no Seller
has amended its Organizational Documents;

 

(b)                        no Seller
has permitted any of the Acquired Assets to become subject to an Encumbrance
other than a Permitted Encumbrance;

 

(c)                         there has
been no (i) material loss, destruction, damage or eminent domain taking
(in each case, whether or not insured) affecting the Purchased Business or any
material Acquired Asset or (ii) shutdown or maintenance of any Facility,
converting equipment, foam extruding or foam forming equipment outside of the
Ordinary Course of Business;

 

(d)                        no Seller
has increased the Compensation payable or paid, whether conditionally or
otherwise, to any Offer Employee, other than in the Ordinary Course of Business
and other than any Compensation paid to a stockholder of any of the Sellers;

 

(e)                         no Seller
has (i) made any material change in its methods of accounting or
accounting practices (including with respect to reserves) except as required by
GAAP or (ii) materially changed its policies or practices with respect to
paying payables or billing and collecting receivables;

 

(f)                           no
Seller has terminated or closed any Facility or business included within the
Purchased Business;

 

(g)                        no Seller
has written up or written down any Acquired Asset which is material to the
Business, or revalued its inventory;

 

(h)                        no Seller
has entered into any Contractual Obligation to do any of the things referred to
elsewhere in this Section 3.6; and

 

(i)                            no
event or circumstance has occurred which has had a Material Adverse Effect.

 

9

 

3.7.                              Assets.

 

3.7.1                                       Ownership
of Assets.  Each Seller has sole and exclusive, good and
marketable title to, or, in the case of property held under a lease or other
Contractual Obligation, a sole and exclusive, Enforceable leasehold interest
in, or right to use, all of its properties, rights and assets, whether real or
personal and whether tangible or intangible, including all assets reflected in
the Most Recent Balance Sheet or acquired after the Most Recent Balance Sheet
Date (except for such assets which (i) are Retained Assets or (ii) have
been sold or otherwise disposed of since the Most Recent Balance Sheet Date in
the Ordinary Course of Business).  Except
as disclosed on Schedule 3.7, none of the Acquired Assets are subject to
any Encumbrance which is not a Permitted Encumbrance.

 

3.7.2                                       Sufficiency
of Assets.  The Acquired Assets
comprise all of the assets, properties and rights of every type and
description, whether real or personal, tangible or intangible, used to conduct
the Business (other than the Retained Assets and individuals employed by the
Business).  Except for the Retained
Assets and except as disclosed on Schedule 3.7.2, no Individual Owner or
any Affiliate of any Individual Owner (other than a Seller) owns any asset,
property or right used to conduct the Business.

 

3.7.3                                       Books
and Records.  Attached as Schedule
3.7.3 is the document retention policy of the Sellers.  The Sellers have complied with such policy and
have not destroyed any books and records in contravention of such policy.

 

3.8.                              Accounts
Receivables.  All accounts and notes
receivable reflected on the Most Recent Balance Sheet and all accounts and
notes receivable arising subsequent to the Most Recent Balance Sheet Date
(other than , in each case, those which are Retained Assets) and on or prior to
the Closing Date, have arisen or will arise in the Ordinary Course of Business,
represent or will represent legal, valid, binding and Enforceable obligations
to a Seller and, subject only to consistently recorded reserves for bad debts
established as of a date prior to the Closing Date in a manner consistent with
past practice.

 

3.9.                              Property.

 

3.9.1                                       Schedule
3.9 sets forth a list of addresses of all real property owned, leased,
subleased or licensed by, or for which a right to use or occupy has been
granted to, each of the Sellers that is used in the Business (the “Real
Property”).  Except as described on Schedule
3.9, there are no written or oral subleases, licenses, concessions,
occupancy agreements or other Contractual Obligations granting to any Person
the right of use or occupancy of the Real Property and there are not
outstanding options, rights of first refusal, rights of first offer or similar
rights to purchase the owned Real Property, or any portion thereof or interest
therein.  Except as set forth in Schedule
3.9, the Sellers have good and clear, record and marketable fee simple title in
and to the owned Real Property, free and clear of all Encumbrances other than
Permitted Encumbrances.

 

3.9.2                                       No
Seller is obligated to pay any leasing or brokerage commission as a result of
the Contemplated Transaction.  There is
no pending or, to Sellers’ Knowledge, threatened eminent domain taking
affecting any of the Real Property.

 

10

 

3.9.3                                       All
material Permits necessary in connection with the construction upon, and
present use and operation of, the Real Property and the lawful occupancy
thereof have been issued by the appropriate Governmental Authorities.  The current use of the Real Property is, in
all material respects, in accordance with the certificates of occupancy
relating thereto and the terms of any material Permits.  All material Permits which are Transferred
Permits will continue in full force and effect immediately after giving effect
to the Contemplated Transactions.  The
Real Property and its current use, occupancy and operation by the Sellers and
the Facilities located thereon do not (a) constitute a nonconforming use
under any applicable building, zoning, subdivision or other land use or similar
Legal Requirements or (b) otherwise violate or conflict with, in any
material respect, any covenants, conditions, restrictions or other Contractual
Obligations, including the requirements of any applicable Encumbrances
thereto.  Except as set forth on Schedule
3.9, no Seller, (a) is in violation of any Legal Requirement relating
to Real Property, including setback requirements, zoning restrictions and
ordinances, building, life, access, safety, health and fire codes and
ordinances affecting the Real Property or (b) has received notice of any
eminent domain, condemnation or similar proceeding pending, or any Government
Order relating thereto.

 

3.9.4                                       The
Sellers have completed the abatement of, and otherwise brought into compliance,
each and every violation set forth in the citations issued by OSHA with respect
to the New York facility, and have otherwise complied fully with each and every
obligation under the Settlement Agreement entered into between the Sellers and
OSHA with respect to the New York facility.

 

3.10.                        Equipment.  All of the fixtures and other improvements to
the Real Property (including any Facilities) and all of the tangible personal
property other than inventory included in the Acquired Assets (the “Equipment”)
are in good working order, except for normal wear and tear.

 

3.11.                        Intellectual
Property.

 

3.11.1                                 The
Sellers are the sole owners of or have the right to use all Company Technology,
and none of the Company Technology owned or purported to be owned by a Seller
is in the possession, custody, or control of any Person other than the Sellers.

 

3.11.2                                 No
Seller, to the Seller’s Knowledge, (a) has interfered with, infringed
upon, misappropriated, or otherwise come into conflict with any Intellectual
Property rights of third parties or (b) has received any charge,
complaint, claim, demand, or notice alleging any such interference,
infringement, misappropriation, or violation (including any claim that a Person
must license or refrain from using any Intellectual Property rights of any
third party in connection with the conduct of the Purchased Business or the use
of the Company Technology), in each case except where any such infringement is
not material.  To the Sellers’ Knowledge,
no third party has interfered with, infringed upon, misappropriated, or
otherwise come into conflict with any Company Technology.

 

3.11.3                                 Schedule
3.11 identifies (a) all registered Intellectual Property which has
been issued to a Seller and is an Acquired Asset, (b) each pending
application for 

 

11

 

registration which any Seller has made with respect to
any Company Technology that is an Acquired Asset, (c) each Contractual
Obligation and under which a Seller has granted any license to any third party
with respect to any Company Technology of (a) or (b) above.  True, accurate and complete copies of all
such registrations, applications and Contractual Obligations, in each case, as
amended, or otherwise modified and in effect, have been made available to the
Buyer, as well as true, accurate and complete copies of all other written
documentation evidencing ownership (if applicable) of each such item.  Each such registration is valid and
subsisting.

 

3.11.4                                 With
respect to each item of Company Technology that is owned by a Seller and
constitutes an Acquired Asset:

 

(a)                         a Seller
possesses all right, title, and interest in and to such item, free and clear of
any Encumbrance;

 

(b)                        such item is
not subject to any outstanding Government Order, and no Action is pending,
which challenges the legality, validity, enforceability, use or ownership of
such item; and

 

(c)                         except as
disclosed on Schedule 3.11, no Seller has agreed or has a Contractual Obligation
to indemnify any Person for or against any interference, infringement,
misappropriation or other conflict with respect to such item except to the
extent such obligation is an Excluded Liability.

 

3.11.5                                 The
Sellers’ use and dissemination of any and all data and information concerning
consumers of its products or users of any web sites operated by any Seller is
in compliance with all applicable material privacy policies, terms of use, and
laws.  The transactions contemplated to
be consummated hereunder as of the Closing will not violate any privacy policy,
terms of use, or Legal Requirements relating to the use, dissemination, or
transfer of such data or information.

 

3.12.                        Permits.  Each Seller has been duly granted all
material Permits under all Legal Requirements necessary for the conduct of the
Purchased Business.  Schedule 3.12.1
lists each Transferred Permit, together with the Governmental Authority or
other Person responsible for issuing such Permit.  Except as disclosed on Schedule 3.12.2,
(a) the Transferred Permits are valid and in full force and effect, (b) no
Seller is in material breach or violation of, or default under, any such
Transferred Permit and (c) the Transferred Permits will continue to be
valid and in full force and effect, on identical terms immediately following
the consummation of the Contemplated Transactions.

 

3.13.                        Employee
Benefit Plans.

 

3.13.1                                 With
respect to each Transferred Plan, the Sellers have delivered to the Buyer true,
accurate and complete copies of each of the following:  (a) if the plan has been reduced to
writing, the plan document together with all amendments thereto, (b) if
the plan has not been reduced to writing, a written summary of all material
plan terms, (c) if applicable, copies of any trust agreements, custodial
agreements, insurance policies, administrative agreements and similar
agreements, and investment management or 

 

12

 

investment advisory agreements, (d) copies of any
summary plan descriptions, employee handbooks or similar employee
communications, (e) in the case of any plan that is intended to be
qualified under Code Section 401(a), a copy of the most recent
determination letter from the IRS and any related correspondence, and a copy of
any pending request for such determination, (f) in the case of any funding
arrangement intended to qualify as a VEBA under Code Section 501(c)(9), a
copy of the IRS letter determining that it so qualifies and (g) in the
case of any plan for which Forms 5500 are required to be filed, a copy of the
two most recently filed Forms 5500, with schedules attached.

 

3.13.2                                 Each
Transferred Plan that is intended to be qualified under Code Section 401(a) is
so qualified.  Each Transferred Plan,
including any associated trust or fund, has been administered in accordance
with its terms and with applicable Legal Requirements, and nothing has occurred
with respect to any Company Plan that has subjected or could subject a Seller
to a penalty under Section 502 of ERISA or to an excise tax under the
Code, or that has subjected or could subject any participant in, or beneficiary
of, a Company Plan to a tax under Code Section 4973.  Each Transferred Plan that is a qualified
contribution plan is an “ERISA Section 404(c) Plan” within the
meaning of the applicable Department of Labor regulations.

 

3.13.3                                 All
required contributions to, and premium payments on account of, each Transferred
Plan have been made on a timely basis.

 

3.13.4                                 There
is no pending or, to the Sellers’ Knowledge, threatened Action relating to a
Transferred Plan, other than routine claims in the Ordinary Course of Business
for benefits provided for by the Transferred Plans.  No Transferred Plan is or, within the last
six years, has been the subject of an examination or audit by a Governmental
Authority, is the subject of an application or filing under, or is a
participant in, a government-sponsored amnesty, voluntary compliance,
self-correction or similar program.

 

3.13.5                                 Except
as required under Section 601 et seq. of ERISA,
no Transferred Plan provides benefits or coverage in the nature of health, life
or disability insurance following retirement or other termination of
employment.

 

3.14.                        Environmental
Matters.  Except as set forth in Schedule
3.14, (a) each of the Sellers are, and have been, in compliance with
all Environmental Laws, (b) there has been no release or threatened
release of any pollutant, petroleum or any fraction thereof, contaminant or
toxic or hazardous material (including toxic mold), substance or waste (each a “Hazardous
Substance”) on, upon, into or from any site currently or heretofore owned,
leased or otherwise used by a Seller, (c) there have been no Hazardous
Substances generated by a Seller that have been disposed of or come to rest at
any site that has been included in any published U.S. federal, state or local “superfund”
site list or any other similar list of hazardous or toxic waste sites published
by any Governmental Authority in the United States, (d) there are no
underground storage tanks located on, no PCBs (polychlorinated biphenyls) or
PCB-containing Equipment used or stored on, and no hazardous waste as defined
by the Resource Conservation and Recovery Act stored on, any site owned or
operated by a Seller, 

 

13

 

except for the storage of hazardous waste in
compliance with Environmental Laws and (e) the Sellers have made available
to the Buyer true, accurate and complete copies of all material environmental
records, reports, notifications, certificates of need, permits, pending permit
applications, correspondence, engineering studies, and environmental studies or
assessments in their possession or under their control, in each case as amended
and in effect.

 

3.15.                        Contracts.

 

3.15.1                                 Except
as disclosed on Schedule 3.15, no Seller is bound by or a party to:

 

(a)                         any
Contractual Obligation (or group of related Contractual Obligations) for the
purchase or sale of inventory, raw materials, commodities, supplies, goods,
products, equipment or other personal property, or for the furnishing or
receipt of services, in each case, the performance of which will extend over a
period of more than one year or which provides for annual payments to or by the
Sellers in the aggregate in excess of $50,000;

 

(b)                        (i) any
capital lease or (ii) any other lease or other Contractual Obligation
relating to the Equipment providing for annual rental payments in excess of
$10,000, under which any Equipment is held or used by one or more Sellers;

 

(c)                         any
Contractual Obligation, other than Real Property leases or leases relating to
the Equipment, relating to the lease or license of any Acquired Asset,
including Technology and Intellectual Property, that is not included on Schedule
3.11;

 

(d)                        any
Contractual Obligation relating to the acquisition or disposition of (i) any
business of a Seller (whether by merger, consolidation or other business
combination, sale of securities, sale of assets or otherwise) or (ii) any
asset other than in the Ordinary Course of Business;

 

(e)                         any Contractual
Obligation concerning or consisting of a partnership, limited liability company
or joint venture agreement;

 

(f)                           any
Contractual Obligation (or group of related Contractual Obligations) under
which a Seller has permitted any Acquired Asset to become Encumbered;

 

(g)                        any
Contractual Obligation under which any other Person has guaranteed any Debt of
a Seller;

 

(h)                        any
Contractual Obligation, whether the Seller is subject to or the beneficiary of
such obligations, which (i) relates to confidentiality or (ii) limits
or purports to limit the ability of any Person to compete in any line of
business, with any other Person or in any geographic area;

 

(i)                            any
Contractual Obligation under which a Seller is, or may become, obligated to
incur any severance pay or special Compensation obligations which 

 

14

 

would become payable by reason of, this Agreement or
the Contemplated Transactions;

 

(j)                            any
Contractual Obligation providing for the employment or consultancy with an
individual on a full-time, part-time, consulting or other basis or otherwise
providing Compensation or other benefits to any officer, director, employee or
consultant (other than an Employee Plan);

 

(k)                         any
agency, dealer, distributor, sales representative, marketing or other similar
agreement;

 

(l)                            any
Contractual Obligation that contains most favored customer pricing provisions
or grants any exclusive rights, rights of first refusal, rights of first
negotiation or similar rights to any Person; and

 

(m)                      any
Contractual Obligation with any Governmental Authority.

 

The Sellers have delivered to the Buyer true, accurate
and complete copies of each written Contractual Obligation required to be
listed on Schedule 3.15 or which is otherwise a Transferred Contract,
Transferred Lease or Transferred Insurance, in each case, as amended or
otherwise modified and in effect.  The
Sellers have delivered to the Buyer a written summary setting forth the terms
and conditions of each oral Contractual Obligation required to be listed on Schedule
3.15 or which is otherwise a Transferred Contract, Transferred Lease or
Transferred Insurance.

 

3.15.2                                 To
the Sellers’ Knowledge, each Contractual Obligation which is a Transferred
Contract, Transferred Lease or Transferred Insurance is Enforceable against the
Seller that is party to such Contractual Obligation and, to the Seller’s
Knowledge, against each other Person party thereto, is in full force and effect
and, subject to obtaining any necessary consents disclosed in Schedule 3.4,
will continue to be so Enforceable and in full force and effect immediately
following the consummation of the Contemplated Transactions.  No Seller or, to the Sellers’ Knowledge, any
other party to any Transferred Contract, Transferred Lease or Transferred
Insurance is in material breach or violation of, or default under any
Transferred Contract, Transferred Lease or Transferred Insurance.

 

3.16.                        Affiliate
Transactions.  Except for the matters
disclosed on Schedule 3.16, no Individual Owner or any Affiliate of any
Individual Owner is an officer, director, employee, consultant, competitor,
creditor, debtor, customer, distributor, supplier or vendor of, or is a party
to any Contractual Obligation with, a Seller.

 

3.17.                        Customers
and Suppliers.  The Sellers have
previously provided to the Buyer a list of (a) the 15 largest customers of
the Purchased Business (measured by aggregate billings) during the fiscal year
ended on December 31, 2007 and (b) the 15 largest suppliers of
materials, products or services to the Purchased Business (measured by the
aggregate amount purchased by the Purchased Business) during the fiscal year
ended on December 31, 2007.  Except
with respect to the specific supplier set forth on Schedule 3.17 to the
extent provided thereon, as of the date of this Agreement, the relationships of
the Purchased Business with the customers and suppliers referred to above are
good commercial working

 

15

 

relationships and none of such customers or the
suppliers has canceled, terminated or otherwise materially altered (including
any material reduction in the rate or amount of sales or purchases or material
increase in the prices charged or paid, as the case may be) or notified the
Sellers of any intention to do any of the foregoing or otherwise threatened in
writing to cancel, terminate or materially alter (including any material
reduction in the rate or amount of sales or purchases or material increase in the
prices charged or paid, as the case may be) its relationship with the Purchased
Business.  The Sellers or any of their
Affiliates, and/or the Individual Owners or any of their Affiliates have not
directly or indirectly, given, or agreed to give, any one or more gifts,
contributions, payments or similar benefits in connection with the sale of
products or otherwise to any customer or supplier, either directly or
indirectly, or to any officer, director, shareholder, employee or agent of any
customer or supplier, which in the case of any single customer or supplier, and
its officers, directors, shareholders employees or agents, taken together, is
in excess of $2,500 in the aggregate during a twelve month period which is not
reflected in the Financials.

 

3.18.        Employees.  Except as disclosed on Schedule 3.18,
there is no pending, or to the Sellers’ Knowledge, threatened work slowdown,
lockout, stoppage, picketing or strike pending between the Sellers on the one
hand, and their employees, on the other hand, and there have been no such
troubles since January 1, 2000. 
Except as disclosed on Schedule 3.18, (a) no employee of a
Seller is represented by a labor union, (b) no Seller is a party to, or
otherwise subject to, any collective bargaining agreement or other labor union
contract, (c) no petition has been filed or proceedings instituted by an
employee or group of employees of a Seller with any labor relations board
seeking recognition of a bargaining representative and (d) there is no
organizational effort currently being made or threatened by, or on behalf of,
any labor union to organize employees of a Seller and no demand for recognition
of employees of a Seller has been made by, or on behalf of, any labor
union.   Schedule 3.18 describes
any inspection requests or correspondence from any Governmental Authority since
January 1, 2006 received by any Seller relating to the identity, Social
Security number, or employment authorization of any Transferred employee.  The Sellers have, in a timely matter, acted
upon or responded to any matter required to be set forth on Schedule 3.18
pursuant to the preceding sentence.

 

3.19.        Litigation;
Governmental Orders.

 

3.19.1           Litigation.  Except as disclosed on Schedule 3.19.1,
as of the date of this Agreement, there is no pending, or to the Sellers’
Knowledge, threatened Action to which a Seller is a party (either as plaintiff
or defendant) or to which the Acquired Assets are subject, which may affect the
Purchased Business or a Seller’s ownership of any Acquired Asset or the use or
exercise by the Buyer of any Acquired Asset.

 

3.19.2           Governmental Orders.  Except as disclosed on Schedule 3.19.2,
no Governmental Order has been issued which is applicable to, or otherwise
affects, the Acquired Assets or the Purchased Business.

 

16

 

3.20.        Product Warranties;
Defects; Liability.

 

3.20.1           No Seller has any
material Liability for any damages in connection with any Products, other than
product warranty claims which constitute Excluded Liabilities.

 

3.20.2           Except as disclosed in Schedule
3.20, no Product is subject to any guaranty, warranty, or other indemnity
beyond the applicable standard terms and conditions of sale, lease or license
which are set forth on Schedule 3.20.

 

3.20.3           Except as disclosed on Schedule
3.20, there is no Action to which a Seller is a party pending, or to the
Sellers’ Knowledge, threatened relating to alleged defects in the Products or
services provided by a Seller, or the failure of any such Products or services
to meet certain specifications, other than product warranty claims which
constitute Excluded Liabilities.  Schedule
3.20 sets forth all concluded Actions (including the disposition thereof)
against a Seller since January 1, 2005 relating to, or otherwise involving,
alleged defects in the Products or services provided by a Seller, or the
alleged failure of any such services or Products to meet certain
specifications, other than product warranty claims resulting in payment
obligations of any Sellers (or multiple Sellers taken together) not in excess
of $50,000, all of which constitute Excluded Liabilities.  No Seller has any Liability arising out of
any injury to any Person or property as a result of any services provided by a
Seller, or the ownership, possession, or use of the Products.

 

3.21.        No Brokers.  No Seller has any Liability of any kind to,
or is subject to any claim of, any broker, finder or agent in connection with
the Contemplated Transactions other than those which will be borne by the
Sellers.

 

3.22.        Insurance.  The Sellers have made available to the Buyer
true, accurate and complete copies of all policies which are Transferred
Insurance, in each case, as amended or otherwise modified and in effect.  Except as disclosed on Schedule 3.22,
no insurer with respect to the Transferred Insurance (a) has questioned,
denied or disputed (or otherwise reserved its rights with respect to) the
coverage of any pending claim or (b) has threatened to cancel any
Transferred Insurance.  Except as
disclosed on Schedule 3.22, to the Sellers’ Knowledge, no insurer with
respect to any Transferred Insurance plans to raise the premiums for, or
materially alter the coverage thereunder. 
Except as disclosed on Schedule 3.22, the Transferred Insurance
is transferable to the Buyer without the need for any consent, notice or
filing.  Schedule 3.22 describes
any self-insurance arrangements affecting the Purchased Business.

 

4.          REPRESENTATIONS AND
WARRANTIES OF THE BUYER.

 

The
Buyer represents and warrants to the Sellers that:

 

4.1.          Organization.  The Buyer is duly organized, validly existing
and in good standing under the laws of the jurisdiction of its organization.

 

4.2.          Power
and Authorization.  The execution,
delivery and performance by the Buyer of this Agreement and each Ancillary
Agreement to which it is (or will be) a party and the consummation of the
Contemplated Transactions are within the power and authority of the Buyer and
have been duly authorized by all necessary action on the part of the Buyer.  This Agreement and each Ancillary Agreement
to which the Buyer is (or will be) a party (a) has

 

17

 

been (or, in the case of Ancillary Agreements to be
entered into at or prior to the Closing, will be) duly executed and delivered
by the Buyer and (b) is (or in the case of Ancillary Agreements to be
entered into at or prior to the Closing, will be) a legal, valid and binding
obligation of the Buyer, Enforceable against the Buyer in accordance with its
terms.

 

4.3.          Authorization of Governmental
Authorities.  Except as disclosed on Schedule
4.3, no action by (including any authorization, consent or approval), or in
respect of, or filing with, any Governmental Authority is required for, or in
connection with, the valid and lawful (a) authorization, execution,
delivery and performance by the Buyer of this Agreement and each Ancillary
Agreement to which it is (or will be) a party or (b) the consummation of
the Contemplated Transactions by the Buyer.

 

4.4.          Noncontravention.  Except as disclosed on Schedule 4.4,
neither the execution, delivery and performance by the Buyer of this Agreement
or any Ancillary Agreement to which it is (or will be) a party nor the
consummation of the Contemplated Transactions will:

 

(a)        assuming the taking of any
action by (including any authorization, consent or approval) or in respect of,
or any filing with, any Governmental Authority, in each case, as disclosed on Schedule
4.3, violate any provision of any Legal Requirement applicable to the
Buyer;

 

(b)        result in a breach or
violation of, or default under, any Contractual Obligation of the Buyer;

 

(c)        require any action by
(including any authorization, consent or approval) or in respect of (including
notice to), any Person under any Contractual Obligation; or

 

(d)        result in a breach or
violation of, or default under, the Buyer’s Organizational Documents.

 

4.5.          No Brokers.  The Buyer has no Liability of any kind to any
broker, finder or agent with respect to the Contemplated Transactions for which
the Sellers could be Liable.

 

4.6.          No Other Information.  The Buyer acknowledges that none of the
Sellers make or will make any representations or warranties as to any matter
whatsoever except as expressly set forth in this Agreement or the Ancillary
Agreements, including with respect to any projections, estimates or budgets
discussed with, delivered to or made available to the Sellers or to any of
their respective Affiliates or representatives of future revenues, future
results of operations (or any component thereof), future cash flows or future
financial condition (or any component thereof) of Sellers or the Business or of
the future business and operations of the Business.  The Buyer also acknowledges that none of the
stockholders, directors, officers, advisors or other representatives of the
Sellers make or will make any representations or warranties or other agreements
as to any matter whatsoever except to the extent expressly set forth in this
Agreement or the Ancillary Agreements. 
Notwithstanding the foregoing, nothing in this Section 4.6 shall
limits any rights or remedies that may be available to the Buyer or any other
Buyer Indemnified Party as a result of the fraud or intentional
misrepresentation of any Seller or any Affiliate of a Seller.

 

18

 

5.          COVENANTS.

 

5.1.          Consents.  If the consent of any Governmental Authority
or other Person set forth on Schedule 3.3 and Schedule 3.4 is not obtained
prior to the Closing Date and the Closing occurs notwithstanding the failure to
obtain such consent, the Sellers will use their commercially reasonable efforts
to assist the Buyer in obtaining such consent promptly thereafter.  During such period in which any Acquired
Asset is not capable of being assigned to the Buyer due to the failure to
obtain any required consent or for any other reason, the Sellers will use
commercially reasonable efforts to make such arrangements as many be necessary
to enable the Buyer to receive all of the economics, rights and liabilities
under such Acquired Asset accruing on and after the Closing Date.  Notwithstanding the foregoing, the Buyer
acknowledges that Sellers’ obligations in the immediately preceding two
sentences are limited to such commercially reasonable efforts and does not
include an obligation to indemnify the Buyer in any way.

 

5.2.          Transaction Expenses.  Each Party will bear its costs and expenses
(including legal, accounting, consulting, advisory and brokerage) incurred in
connection with the Contemplated Transactions (such costs and expenses, the “Transaction
Expenses”) and the Buyer will not have any Liability in respect of the
Transaction Expenses of any Seller or Individual Owner, nor will any Seller
have any Liability in respect of the Transaction Expenses of the Buyer, except
that the Buyer on the one hand and the Sellers on the other hand have each paid
50% of the filing fees payable in connection with filings required of either of
them under the HSR Act.

 

5.3.          Confidentiality.

 

5.3.1             Confidentiality of
the Sellers.  Each Seller acknowledges
that the success of the Business after the Closing depends upon the continued
preservation of the confidentiality of certain information possessed by such
Seller, that the preservation of the confidentiality of such information by
such Seller is an essential premise of the bargain between the Sellers on the
one hand, and the Buyer on the other hand, and that the Buyer would be
unwilling to enter into this Agreement in the absence of this Section 5.3.1.  Accordingly, each Seller hereby agrees with
the Buyer that such Seller and its Representatives will not, and that such
Seller will cause its Affiliates not to, at any time on or after the Closing
Date, directly or indirectly, without the prior written consent of the Buyer,
disclose or use, any confidential or proprietary information involving or
relating to the Business, the Acquired Assets or the Assumed Liabilities; provided,
however, that the information subject to the foregoing provisions of
this sentence will not include any information generally available to, or known
by, the public (other than as a result of disclosure in violation hereof); and provided,
further, that the provisions of this Section 5.3.1 will not
prohibit any retention of copies of records or disclosure (i) required by
any applicable Legal Requirement so long as reasonable prior notice is given of
such disclosure and a reasonable opportunity is afforded to contest the same or
(ii) made in connection with the enforcement of any right or remedy
relating to this Agreement or the Contemplated Transactions.  The Sellers agree that they will be
responsible for any breach or violation of the provisions of this Section 5.3.1
by any of their Representatives.

 

19

 

5.3.2             Certain
Confidentiality Agreements.  The
Sellers will, and will use reasonable efforts to cause Lazard Middle Markets
to, assign to the Buyer any rights which such Person may have under any
confidentiality agreement (or similar Contractual Obligation) entered into in
connection with the sale process conducted by them, but only to the extent that
such agreements are assignable.

 

5.4.          Publicity.  No public announcement or disclosure will be
made by any party with respect to the subject matter of this Agreement or the
Contemplated Transactions without the prior written consent of the Buyer and
the Sellers’ Representative; provided, however, that the
provisions of this Section 5.4 will not prohibit (a) any private
disclosure by any prospective provider of the Financing to any such Person’s
Representatives, potential investors or participants, so long as each such
recipient is under an obligation to keep such disclosed information
confidential, (b) any disclosure required by any applicable Legal
Requirements (in which case the disclosing Party will provide the other parties
with the opportunity to review in advance the disclosure) or (c) any
disclosure made in connection with the enforcement of any right or remedy
relating to this Agreement or the Contemplated Transactions.

 

5.5.          Employment.

 

(a)        With respect to each
Business Employee who is employed by any of the Sellers immediately prior to
the Closing and whose name is set forth on Schedule 5.5 (such Business
Employees, the “Offer Employees”), the Buyer shall extend offers of
employment.  All offers of employment
shall, subject to Section 5.5(b), in each case provide for continuing
employment in the same position and at the same wages or salary pursuant to
which each Offer Employee was employed by the Sellers immediately prior to the
Closing.  The Sellers shall take
reasonable action to attempt to cause the Offer Employees to accept such offers
of employment.  All Offer Employees who
accept the Buyer’s offer of employment are referred to as the “Transferring
Employees.”

 

(b)        Notwithstanding anything
to the contrary herein, the Buyer shall retain all rights to alter, amend or
terminate any term or condition of employment, compensation or benefits with
regard to the Transferring Employees, in each case from and after the Closing.

 

5.6.          Benefit Plans.  All Transferring Employees who are
participating in the Transferred Plans as of the Closing shall continue to
participate in the Transferred Plans in which they are participating as of the
Closing.  After the Closing Date, the
Buyer shall have the right to amend or terminate any Transferred Plans in
accordance with the respective terms thereof. 
For purposes of determining a Transferred Employee’s eligibility to
participate in any employee benefits plan maintained by the Buyer on or after
the Closing (other than equity or equity-based plans), and for the purpose of
vesting in and accrual of benefits in any such employee benefit plan maintained
by the Buyer on or after the Closing, years of service with the Seller shall be
taken into account.

 

20

 

5.7.          Transfer of Certain
Funds Received Post-Closing.  With
respect to any and all amounts received or collected by any of the Sellers from
and after the Closing (a) attributable to, or in respect of, any Acquired
Asset and (b) which become the property of the Buyer as a result of the
consummation of the Contemplated Transactions, the Sellers shall provide notice
of such receipt or collection to the Buyer and pay promptly (and in any event
within five Business Days of their receipt or collection) to the Buyer any and
all such amounts so received or collected by wire transfer of immediately
available funds to an account specified by the Buyer or by other means
acceptable to the Buyer.

 

5.8.          Prohibition on the
Use of Name.  From and after the
Closing Date, the Sellers shall not use, and shall cause all of their
Affiliates following the Closing to cease using, directly or indirectly, the
names “Atlantic” or “Atlantic Paper & Foil” in any trademark, trade
name, domain name, address, corporate name, symbol or identifier or any
derivatives thereof or any marks confusingly similar thereto.

 

5.9.          Insurance.  The Sellers shall, prior to the Closing Date,
use their reasonable best efforts to cause the Buyer to be listed as a named
insured, effective from the Closing, on all insurance policies with respect to
the Business which are not Transferred Insurance.  In the event that the Buyer is not listed as
a named insured party on any such policy, and the Buyer would, had it been a
named insured, have been entitled to make a claim after the Closing under such
policy, the Sellers shall, at the Buyer’s request, make such claim and turn
over the insurance proceeds received in respect of such claim to the
Buyer.  With respect to any Transferred
Insurance as to which the Buyer becomes the primary beneficiary, the Buyer
shall be responsible for all premiums due on a given policy for any period
commencing on or after the date on which the Buyer becomes the primary
beneficiary of such policy.

 

5.10.        Further Assurances.  From and after the Closing Date, upon the
request of either the Sellers’ Representative or the Buyer, each of the parties
hereto will do, execute, acknowledge and deliver all such further acts,
assurances, deeds, assignments, transfers, conveyances and other instruments
and papers as may be reasonably required or appropriate to carry out the
Contemplated Transactions.  No Seller or
its Representatives will take any action that is designed or intended to have
the effect of discouraging any lessor, licensor, supplier, distributor or
customer of the Purchased Business or other Person with whom the Purchased
Business has a relationship from maintaining the same relationship with the
Purchased Business after the Closing as it maintained prior to the
Closing.  Each Seller will refer all
customer inquiries relating to the Purchased Business to the Buyer from and
after the Closing.

 

6.          CONDITIONS TO THE BUYER’S
OBLIGATIONS AT THE CLOSING.

 

The
obligations of the Buyer to consummate the Closing are subject to the
fulfillment of each of the following conditions:

 

6.1.          Representations and
Warranties.  The representations and
warranties of the Sellers contained in this Agreement and in any document,
instrument or certificate delivered hereunder (a) that are not qualified
by materiality or Material Adverse Effect will be true and correct in all
material respects at and as of the Closing with the same force and effect as if

 

21

 

made as of the Closing and (b) that are qualified
by materiality or Material Adverse Effect will be true and correct in all
respects at and as of the Closing with the same force and effect as if made as
of the Closing, in each case, other than representations and warranties that
expressly speak only as of a specific date or time, which will be true and
correct as of such specified date or time.

 

6.2.          Performance.  Each Seller will have performed and complied
in all material respects, with all agreements, obligations and covenants
contained in this Agreement that are required to be performed or complied with
by them at or prior to the Closing.

 

6.3.          Compliance
Certificate.  The Sellers will have
delivered to the Buyer a certificate as to the matters set forth in Sections
6.1, 6.2 and 6.4 having been satisfied.

 

6.4.          No Material Adverse
Change.  Since the Most Recent
Balance Sheet Date, there will have occurred no events nor will there exist
circumstances which singly or in the aggregate have resulted in a Material
Adverse Effect.

 

6.5.          Qualifications.  No provision of any applicable Legal
Requirement and no Government Order will prohibit the consummation of any of
the Contemplated Transactions.

 

6.6.          Absence of Litigation.  No Action will be pending or threatened in
writing which may result in a Governmental Order (nor will there be any
Governmental Order in effect) (a) which would prevent consummation of any
of the Contemplated Transactions, (b) which would result in any of the
Contemplated Transactions being rescinded following consummation, (c) which
would limit or otherwise adversely affect the right of the Buyer to own the
Business or to operate all or any material portion of either the Business or
the Acquired Assets or of the business or assets of the Buyer or any of its
Affiliates or (d) would compel the Buyer or any of its Affiliates to
dispose of all or any material portion of either the Business or the Acquired
Assets or the business or assets of the Buyer or any of its Affiliates.

 

6.7.          Consents, etc.  All actions by (including any authorization,
consent or approval) or in respect of (including notice to), or filings with,
any Governmental Authority or other Person that are required to consummate the
Contemplated Transactions, as disclosed in Schedule 3.3, Schedule 3.4,
Schedule 4.3, and Schedule 4.4, will have been obtained or made,
in a manner reasonably satisfactory in form and substance to the Buyer, and no
such authorization, consent or approval will have been revoked.

 

6.8.          Legal Opinion.  The Buyer will have received from Steven
Cohn, PC, counsel to the Sellers and the Individual Owners, its opinion with
respect to the Contemplated Transactions, which opinion will be in the form
attached hereto as Exhibit 6.8. 
Such opinion will, at the request of the Buyer, be confirmed to any
provider of the Financing.

 

6.9.          FIRPTA Certificate.  Each Seller will have delivered to the Buyer
a certification (in such form as may be reasonably requested by counsel to the
Buyer) conforming to the requirements of Treasury Regulations 1.1445-2(b)(2) and
stating that “Seller” is not a “foreign person” as defined in Section 1445
of the Code.

 

22

 

6.10.        Proceedings and
Documents.  All corporate and other
proceedings in connection with the Contemplated Transactions and all documents
incident thereto will be reasonably satisfactory in form and substance to the
Buyer and its counsel, and they will have received all such counterpart
original and certified or other copies of such documents as they may reasonably
request.

 

6.11.        Ancillary Agreements.  Each of the Ancillary Agreements will have
been duly executed and delivered to the Buyer by each of the other parties
thereto, and each such agreement shall be in full force and effect in
accordance with its terms.

 

6.12.        Guaranty Agreements.  The Guaranty Agreements shall be in full
force and effect.

 

6.13.        Support Agreements.  The Support Agreements shall be in full force
and effect.

 

6.14.        Financing.  The Buyer will have obtained, on terms and
conditions reasonably satisfactory to it, the Financing and the proceeds
thereof.

 

6.15.        Allocation Statement.  The Allocation Statement shall have been
agreed upon by the Buyer and the Sellers’ Representative.

 

6.16.        Release of Liens.  All liens against any Acquired Asset securing
Debt of any Seller (other than any Transferred Lease constituting Debt to the
extent it is properly and actually assigned to Buyer at the Closing) shall have
been released by the applicable holder of such Debt, and the Sellers shall have
delivered to Buyer a payoff letter evidencing the same in a form reasonably
acceptable to the Buyer.

 

7.          CONDITIONS TO THE
SELLERS’ OBLIGATIONS AT THE CLOSING.

 

The
obligations of the Sellers to consummate the Closing are subject to the
fulfillment of each of the following conditions:

 

7.1.          Representations and
Warranties.  The representations and
warranties of the Buyer contained in this Agreement and in any document,
instrument or certificate delivered hereunder (a) that are not qualified
by materiality or Material Adverse Effect will be true and correct in all
material respects at and as of the Closing with the same force and effect as if
made as of the Closing and (b) that are qualified by materiality or
Material Adverse Effect will be true and correct in all respects at and as of
the Closing with the same force and effect as if made as of the Closing, in
each case, other than representations and warranties that expressly speak only
as of a specific date or time, which will be true and correct as of such
specified date or time.

 

7.2.          Performance.  The Buyer will have performed and complied
with, in all material respects, all agreements, obligations and covenants
contained in this Agreement that are required to be performed or complied with
by the Buyer at or prior to the Closing.

 

7.3.          Compliance
Certificate.  The Buyer will have
delivered to the Sellers’ Representative a certificate as to the matters set
forth in Sections 7.1 and 7.2.

 

23

 

7.4.          Qualifications.  No provision of any applicable Legal
Requirement and no Government Order will prohibit the consummation of any of
the Contemplated Transactions.

 

7.5.          Absence of Litigation.  No Action will be pending or threatened in
writing which may result in Governmental Order, nor will there be any
Governmental Order in effect, (a) which would prevent consummation of any
of the Contemplated Transactions or (b) which would result in any of the
Contemplated Transactions being rescinded following consummation (and no such
Governmental Order will be in effect).

 

7.6.          Proceedings and
Documents.  All corporate and other
proceedings in connection with the Contemplated Transactions and all documents
incident thereto will be reasonably satisfactory in form and substance to the
Sellers’ Representative and to its counsel, and the Sellers will have received
all such counterpart original and certified or other copies of such documents
as it may reasonably request.

 

7.7.          Ancillary Agreements.  Each of the Ancillary Agreements to which the
Sellers or their stockholders are party will have been duly executed and
delivered to the Sellers’ Representative by each of the other parties thereto.

 

7.8.          Allocation Statement.  The Allocation Statement shall have been
agreed upon by the Buyer and the Sellers’ Representative.

 

8.          INDEMNIFICATION.

 

8.1.          Indemnification by
the Sellers.

 

8.1.1             Indemnification.  Subject to the limitations set forth in this Section 8,
the Sellers will jointly and severally indemnify and hold harmless the Buyer and
each of its Affiliates, and the Representatives and Affiliates of each of the
foregoing Persons (each, a “Buyer Indemnified Person”), from, against
and in respect of any and all Actions, Liabilities, Governmental Orders,
Encumbrances, losses, damages, bonds, dues, assessments, fines, penalties,
Taxes, fees, costs (including costs of investigation, defense and enforcement
of this Agreement), expenses or amounts paid in settlement (in each case,
including reasonable attorneys’ and experts fees and expenses), whether or not
involving a Third Party Claim (collectively, “Losses”), incurred or
suffered by the Buyer Indemnified Persons or any of them as a result of,
arising out of or relating to:

 

(a)        any fraud of any of the
Sellers or any of their stockholders or other Affiliates or any breach of, or
inaccuracy in, any representation or warranty made by the Sellers in this
Agreement, any Ancillary Agreement or in the compliance certificate delivered
pursuant to Section 6.3 (in each case, as such representation or warranty
would read if all qualifications as to materiality, including each reference to
the defined term “Material Adverse Effect,” were deleted therefrom);

 

(b)        any breach or violation of
any covenant or agreement of the Sellers to the extent required to be performed
or complied with by the Sellers pursuant to this Agreement;

 

24

 

(c)        any Excluded Liability;
and

 

(d)        any Liability of the Buyer
or any of its Affiliates, whether arising before, on or after the Closing Date,
to the extent resulting from or arising out of the past, present or future
ownership or use of any Retained Assets.

 

8.1.2             Monetary
Limitations.  The Sellers will have
no obligation to indemnify the Buyer Indemnified Persons pursuant to Section 8.1.1(a) in
respect of Losses arising from the breach of, or inaccuracy in, any
representation or warranty described therein unless the aggregate amount of all
such Losses incurred or suffered by the Buyer Indemnified Persons exceeds
$700,000, at which point the Sellers will indemnify the Buyer Indemnified
Persons only for such Losses in excess of $700,000 and the Sellers’ aggregate
liability in respect of claims for indemnification pursuant to Section 8.1.1(a) in
respect of Losses arising from the breach of, or inaccuracy in, any
representation or warranty described therein will not exceed  $4,000,000, provided, however, that the
foregoing limitations will not apply to (a) claims for indemnification
pursuant to Section 8.1.1(a) in respect of breaches of, or
inaccuracies in, representations and warranties set forth in 3.2.1 (Power and
Authorization), 3.4(e) (Breach of Organizational Documents), 3.7.2
(Sufficiency of Assets), and 3.21 (No Brokers), or (b) claims establishing
fraud or intentional misrepresentation. 
Claims for indemnification pursuant to any other provision of Section 8.1.1
are not subject to the monetary limitations set forth in this Section 8.1.2.  For the avoidance of doubt, notwithstanding
the limits set forth in this Section 8.1.2, the aggregate outstanding
principal amount of the Note shall initially be $6,300,000, subject to
reduction as contemplated herein and therein.

 

8.2.          Indemnity by the
Buyer.

 

8.2.1             Indemnification.  Subject to the limitations set forth in this Section 8,
the Buyer will indemnify and hold harmless each Seller and each Seller’s
respective Affiliates, and the Representatives and Affiliates of each of the
foregoing Persons (each, a “Seller Indemnified Person”), from, against
and in respect of any and all Losses incurred or suffered by the Seller
Indemnified Persons or any of them as a result of, arising out of or relating
to:

 

(a)        any fraud of the Buyer or
any of its stockholders or other Affiliates or any breach of, or inaccuracy in,
any representation or warranty made by the Buyer in this Agreement any
Ancillary Agreement or in the compliance certificate delivered pursuant to Section 7.3
(in each case, as such representation or warranty would read if all
qualifications as to materiality, including each reference to the defined term “Material
Adverse Effect,” were deleted therefrom);

 

(b)        any breach or violation of
any covenant or agreement of the Buyer to the extent required to be performed
or complied with by the Buyer pursuant to this Agreement; or

 

(c)        any Assumed Liability.

 

25

 

8.2.2                                                Monetary
Limitations. The Buyer will have no obligation to indemnify the Seller
Indemnified Persons pursuant to Section 8.2.1(a) in respect of Losses
arising from the breach of, or inaccuracy in, any representation or warranty
described therein unless and until the aggregate amount of all such Losses
incurred or suffered by the Seller Indemnified Persons exceeds $700,000 (at
which point the Buyer will indemnify the Sellers Indemnified Persons only for
Losses in excess of $700,000) and the Buyer’s aggregate liability in respect of
claims for indemnification pursuant to Section 8.2.1(a) will not
exceed $4,000,000, provided, however, that the foregoing
limitations will not apply to (a) claims for indemnification pursuant to Section 8.2.1(a) in
respect of breaches of, or inaccuracies in, representations and warranties set
forth in Sections 4.2 (Power and Authorization), 4.4(d) (Breach of
Organizational Documents) or 4.5 (No Brokers) or (b) claims establishing fraud
or intentional misrepresentation. Claims for indemnification pursuant to any
other provision of Section 8.2.1 are not subject to the limitations set
forth in this Section 8.2.2. For the avoidance of doubt, notwithstanding
the limits set forth in this Section 8.2.2, the aggregate outstanding
principal amount of the Note shall initially be $6,300,000, subject to
reduction as contemplated herein and therein.

 

8.3.                              Time
for Claims. No claim may be made or suit instituted seeking indemnification
pursuant to Section 8.1.1(a) or 8.2.1(a) for any breach of, or
inaccuracy in, any representation or warranty unless a written notice
describing such breach or inaccuracy in reasonable detail in light of the
circumstances then known to the Indemnified Party, is provided to the
Indemnifying Party:

 

(a)                                  at
any time, in the case of any breach of, or inaccuracy in, the representations
and warranties set forth in 3.2.1 (Power and Authorization), 3.4(e) (Breach
of Organizational Documents), 3.7.2 (Sufficiency of Assets), 3.21 (No Brokers),
4.2 (Power and Authorization), 4.4(d) (Breach of Organizational Documents)
or 4.5 (No Brokers), subject to the applicable statute of limitations;

 

(b)                                 at
any time, in the case of any claim or suit based upon fraud or intentional
misrepresentation, subject to the applicable statute of limitations; and

 

(c)                                  at
any time prior to the fifteen (15) month anniversary of the Closing Date, in
the case of any breach of, or inaccuracy in, any other representation and
warranty in this Agreement.

 

Claims for
indemnification pursuant to any other provision of Sections 8.1.1 and 8.2.1 are
not subject to the limitations set forth in this Section 8.3.

 

8.4.                              Third
Party Claims.

 

8.4.1                                                Notice
of Claim. If any third party will notify an Indemnified Party with respect
to any matter (a “Third Party Claim”) which may give rise to an
Indemnified Claim against an Indemnifying Party under this Section 8, then
the Indemnified Party will promptly give written notice to the Indemnifying
Party; provided, however, that no delay on the part of the
Indemnified Party in notifying the Indemnifying Party will relieve the

 

26

 

Indemnifying Party
from any obligation under this Section 8, except to the extent such delay
actually and materially prejudices the Indemnifying Party.

 

8.4.2                                                Assumption
of Defense, etc. The Indemnifying Party will be entitled to participate in
the defense of any Third Party Claim that is the subject of a notice given by
the Indemnified Party pursuant to Section 8.4.1. In addition, the
Indemnifying Party will have the right to defend the Indemnified Party against
the Third Party Claim with counsel of its choice reasonably satisfactory to the
Indemnified Party so long as (a) the Indemnifying Party gives written
notice to the Indemnified Party within 15 calendar days after the Indemnified
Party has given notice of the Third Party Claim that the Indemnifying Party
will indemnify the Indemnified Party from and against the entirety of any and
all Losses the Indemnified Party may suffer resulting from, arising out of,
relating to, in the nature of, or caused by the Third Party Claim, (b) the
Indemnifying Party provides the Indemnified Party with evidence reasonably
acceptable to the Indemnified Party that the Indemnifying Party will have
adequate financial resources to defend against the Third Party Claim and
fulfill its indemnification obligations hereunder, (c) the Third Party
Claim involves only money damages and does not seek an injunction or other
equitable relief against the Indemnified Party, (d) the Indemnified Party
has not been advised by counsel that an actual or potential conflict exists
between the Indemnified Party and the Indemnifying Party in connection with the
defense of the Third Party Claim, (e) the Third Party Claim does not
relate to or otherwise arise in connection with Taxes or any criminal or
regulatory enforcement Action, (f) the Indemnifying Party conducts the
defense of the Third Party Claim actively and diligently. The Indemnified Party
may retain separate co-counsel at its sole cost and expense and participate in
the defense of the Third Party Claim; provided, however, that the
Indemnifying Party will pay the fees and expenses of separate co-counsel
retained by the Indemnified Party that are incurred prior to Indemnifying Party’s
assumption of control of the defense of the Third Party Claim.

 

8.4.3                                                Limitations
on Indemnifying Party. The Indemnifying Party will not consent to the entry
of any judgment or enter into any compromise or settlement with respect to the
Third Party Claim without the prior written consent of the Indemnified Party
unless such judgment, compromise or settlement (a) provides for the
payment by the Indemnifying Party of money as sole relief for the claimant, (b) results
in the full and general release of the Buyer Indemnified Persons or Seller
Indemnified Persons, as applicable, from all liabilities arising or relating
to, or in connection with, the Third Party Claim and (c) involves no
finding or admission of any violation of Legal Requirements or the rights of
any Person and no effect on any other claims that may be made against the
Indemnified Party.

 

8.4.4                                                Indemnified
Party’s Control. If the Indemnifying Party does not deliver the notice
contemplated by clause (a), or the evidence contemplated by clause (b), of Section 8.4.2
within 15 calendar days after the Indemnified Party has given notice of the
Third Party Claim, or otherwise at any time fails to conduct the defense of the
Third Party Claim actively and diligently, the Indemnified Party may defend,
and may consent to the entry of any judgment or enter into any compromise or
settlement with respect to, the Third Party Claim in any manner it may deem
appropriate (and the Indemnified Party

 

27

 

need not consult
with, or obtain any consent from, the Indemnifying Party in connection
therewith). If such notice and evidence is given on a timely basis and the
Indemnifying Party conducts the defense of the Third Party Claim actively and
diligently but any of the other conditions in Section 8.4.2 is or becomes
unsatisfied, the Indemnified Party may defend, and may consent to the entry of
any judgment or enter into any compromise or settlement with respect to, the
Third Party Claim; provided, however, that the Indemnifying Party
will not be bound by the entry of any such judgment consented to, or any such
compromise or settlement effected, without its prior written consent (which
consent will not be unreasonably withheld or delayed). In the event that the
Indemnified Party conducts the defense of the Third Party Claim pursuant to
this Section 8.4.4, the Indemnifying Party will (a) advance the
Indemnified Party promptly and periodically for the costs of defending against
the Third Party Claim (including reasonable attorneys’ fees and expenses) and (b) remain
responsible for any and all other Losses that the Indemnified Party may incur
or suffer resulting from, arising out of, relating to, in the nature of or
caused by the Third Party Claim to the fullest extent provided in this Section 8.

 

8.4.5                                                Consent
to Jurisdiction Regarding Third Party Claim. The Buyer and each of the
Sellers, each in its capacity as an Indemnifying Party, hereby consents to the
non-exclusive jurisdiction of any court in which any Third Party Claim may
brought against any Indemnified Party for purposes of any claim which such
Indemnified Party may have against such Indemnifying Party pursuant to this
Agreement in connection with such Third Party Claim, and in furtherance
thereof, the provisions of Section 10.12 are incorporated herein by
reference, mutatis mutandis.

 

8.4.6                                                Remedies
Cumulative. The Parties are in agreement that where one and the same set of
facts qualifies under more than one provision entitling any Buyer Indemnified
Person to a claim or remedy under this Agreement, there shall be only one claim
or remedy and (b) that to the extent the Buyer recovers from the Sellers
the amount of any Loss pursuant to an indemnification claim with respect to a
particular matter, no Buyer Indemnified Party shall have a claim against the
Sellers for indemnification hereunder on the grounds that the value of such
Buyer Indemnified Party’s equity interest in the Buyer was diminished by virtue
of such matter. In particular, the foregoing shall apply if one and the same set
of facts would entitle any Buyer Indemnified Person to rights under this Section 8
and a Purchase Price adjustment pursuant to Section 2.5. For avoidance of
doubt, it is agreed that the Buyer’s sole remedy for claims relating to the
Acquired Assets or Assumed Liabilities of the categories included within
Working Capital shall be as provided in Section 2.5 to the extent taken
into account in the calculation of Final Working Capital.

 

8.4.7                                                Indemnity
Escrow Agreement; Effect of Set-Off. The parties agree that any payments
paid to any Buyer Indemnified Person pursuant to the Indemnity Escrow Account
or by way of set off against the Subordinated Notes (for so long as any of the
Subordinated Notes remain outstanding) shall satisfy the related indemnity
claims for Losses under this Article 8 if and to the extent that the
amount of such payments equals the amount of such losses and, if relating to a
claim under Section 8.1.1(a), shall be deemed to be applied against the
cap on such Losses pursuant to Section 8.1.2. To the

 

28

 

extent a Buyer
Indemnified Person satisfies a claim for indemnification by way of set off
against the Subordinated Notes, the Buyer shall be (x) entitled to
repayment of any and all interest that has been paid on an amount of principal
of the Subordinated Notes equal in the aggregate to the amount of such claim
from the date of issuance of the Note until the date of satisfaction of such
claim and (y) relieved of the obligation to pay any and all interest that
has accrued but not yet been paid on an amount of principal of the Subordinated
Notes equal in the aggregate to the amount of such claim from the date of
issuance of the Note until the date of satisfaction of such claim, and may, in
its sole discretion, either increase the amount of such set-off to also include
the amount of such interest or (in the case of interest that has accrued and
been paid) require the Sellers to pay back to the Buyer all such interest in
cash, in either case without regard to the cap on Losses set forth in Section 8.1.2.
The Buyer may elect, in its sole discretion, to exercise its set-off right
under this Section 8.4.7 against the principal or interest of the
Subordinated Notes or any combination thereof (provided that it makes the same
election as to all Subordinated Notes and that any such offset shall be made
against all Subordinated Notes pro rata based on their respective outstanding
principal amounts at the time of such offset).

 

9.               TAX
MATTERS

 

9.1.                              Tax
Indemnification. Each Seller will jointly and severally indemnify,
exonerate and hold free and harmless each Buyer Indemnified Person from and
against any Losses attributable to all Taxes (or the non-payment thereof) of
any Seller or its stockholders or other Affiliates for any Taxable period.

 

9.2.                              Tax
Sharing Agreements. All Tax sharing agreements or similar agreements and
all powers of attorney that relate in any way to the Acquired Assets will be
terminated prior to the Closing and, after the Closing, no such agreement or
power of attorney will have any effect on the Acquired Assets.

 

9.3.                              Certain
Taxes and Fees. All transfer, documentary, use stamp, registration and
other such Taxes, and any conveyance fees or recording charges incurred in
connection with the Contemplated Transactions, will be paid by the Sellers when
due. The Sellers will, at their own expense, file all necessary Tax Returns and
other documentation with respect to all such Taxes, fees and charges and, if
required by applicable law, the Buyer will (and will cause its Affiliates to)
join in the execution of any such Tax Returns and other documentation.

 

9.4.                              Rev.
Proc. 2004-53. The Buyer shall determine whether to implement either the
standard or the alternate procedure set forth in Revenue Procedure 2004-53, and
the Sellers shall cooperate in such implementation.

 

9.5.                              Cooperation
on Tax Matters. The Buyer and the Sellers will cooperate fully, as and to
the extent reasonably requested by the other party, in connection with any Tax
matters relating to the Acquired Assets (including by the provision of
reasonably relevant records or information). The party requesting such
cooperation will pay the reasonable out-of-pocket expenses of the other party.

 

29

 

9.6.                              Georgia
Tax Credits. The parties agree that the Georgia Jobs Tax Credit under
O.C.G.A. §48-7-40 for which the Sellers have previously received approval from
the State of George (the “Georgia Credit”) are included in the Acquired
Assets and the Buyer may attempt to utilize them if it so elects. To the extent
requested by the Buyer, the parties agree to use commercially reasonable
efforts to permit the Buyer to use the Georgia Credit. For the avoidance of
doubt, the parties agree that the Sellers are making no representation or
warranty as to whether the Georgia Credit is transferable or whether the Buyer
will in fact be able to use it.

 

10.         MISCELLANEOUS

 

10.1.                        Notices.
All notices, requests, demands, claims and other communications required or
permitted to be delivered, given or otherwise provided under this Agreement
must be in writing and must be delivered, given or otherwise provided:

 

(a)                                  by
hand (in which case, it will be effective upon delivery); or

 

(b)                                 by
overnight delivery by a nationally recognized courier service (in which case,
it will be effective on the Business Day after being deposited with such
courier service);

 

in each case, to the address listed below:

 

If to a Seller, to the Sellers’ Representative.

 

If to the Sellers’ Representative, to him at:

 

Shaun
Gabbay

PO Box
222144

Great
Neck, NY 11022

 

with a copy to:

 

Skadden, Arps, Slate, Meagher & Flom LLP

Four Times Square

New York, NY 10036

Telephone number:  (212) 735-2524

Attention:  Randall H. Doud

 

and

 

Steve
Cohn, PC

One Old Country Road

Carle Place, NY 11514

Telephone:  (516) 294-6410

 

30

 

If to the Buyer, to it at:

 

Cellu
Tissue Holdings, Inc.

1855 Lockeway Drive

Suite 501

Alpharetta, GA 30004

Telephone number:  (678)
393-2651

Attention:  Russell Taylor

 

with a copy to:

 

Ropes &
Gray LLP

1211 Avenue of the Americas

New York, NY 10036-8704

Telephone number:  (212) 841-0697

Attention:  Christopher C. Henry

 

and

 

Weston
Presidio

Pier 1, Bay 2

San Francisco, CA 94111

Telephone number:  (415) 398-0770

Attention:  R. Sean Honey, Therese Mrozek
and Jim Morrone

 

Each of the parties to this Agreement may specify
different address by giving notice in accordance with this Section 10.1 to
each of the other parties hereto.

 

10.2.                        Succession
and Assignment; No Third-Party Beneficiary. Subject to the immediately
following sentence, this Agreement will be binding upon and inure to the
benefit of the parties hereto and their respective successors and permitted
assigns, each of which such successors and permitted assigns will be deemed to
be a party hereto for all purposes hereof. No party may assign, delegate or
otherwise transfer either this Agreement or any of its rights, interests, or
obligations hereunder without the prior written approval of the other parties;
provided, however, that the Buyer may (a) assign any or all of its rights
and interests hereunder to one or more of its wholly owned Subsidiaries or to
any provider of the Financing as collateral security and (b) designate one
or more of its wholly owned Subsidiaries to perform its obligations hereunder,
in each case, so long as the Buyer is not relieved of any Liability hereunder. Except
as expressly provided herein, this Agreement is for the sole benefit of the
parties and their permitted successors and assignees and nothing herein
expressed or implied will give or be construed to give any Person, other than
the parties and such successors and assignees, any legal or equitable rights
hereunder.

 

10.3.                        Amendments
and Waivers. No amendment or waiver of any provision of this Agreement will
be valid and binding unless it is in writing and signed, in the case of an
amendment, by Buyer and the Sellers’ Representative, or in the case of a
waiver, by the party against whom the waiver is to be effective. No waiver by
any party of any breach or violation or, default under or inaccuracy in any
representation, warranty or covenant hereunder, whether intentional or not,
will be deemed to extend to any prior or subsequent

 

31

 

breach, violation, default of, or inaccuracy in, any
such representation, warranty or covenant hereunder or affect in any way any
rights arising by virtue of any prior or subsequent such occurrence. No delay
or omission on the part of any party in exercising any right, power or remedy
under this Agreement will operate as a waiver thereof.

 

10.4.                        Provisions
Concerning Sellers’ Representative.

 

10.4.1                                          Appointment.
Each Seller hereby appoints Shaun Gabbay as the agent, proxy and
attorney-in-fact for such Seller for all purposes under this Agreement
(including full power and authority to act on such Seller’s behalf). Without
limiting the generality of the foregoing, the Sellers’ Representative will be
authorized to:

 

(a)                                  in
connection with the Closing, execute and receive all documents, instruments,
certificates, statements and agreements on behalf of and in the name of the
Sellers necessary to effectuate the Closing and consummate the Contemplated
Transactions;

 

(b)                                 take
all actions on behalf of the Sellers with respect to the matters set forth in Section 2.5;

 

(c)                                  take
all actions on behalf of the Sellers in connection with any claims made under Section 8
to defend or settle such claims, and to make payments in respect of such
claims;

 

(d)                                 take
all actions on behalf of the Sellers in connection with the escrow accounts
established pursuant to the Escrow Agreement (including giving any instructions
to the Escrow Agent, on behalf of the Sellers, to pay from such escrow account
any amounts owed by the Sellers pursuant to this Agreement);

 

(e)                                  execute
and deliver, should it elect to do so in its sole discretion, on behalf of the
Sellers, any amendment to this Agreement so long as such amendment will apply
equally to all Sellers; and

 

(f)                                    take
all other actions to be taken by or on behalf of the Sellers and exercise any
and all rights which the Sellers are permitted or required to do or exercise
under this Agreement.

 

10.4.2                                          Liability.
The Sellers’ Representative will not be liable to any Seller for any action
taken by it in good faith pursuant to this Agreement, and the Sellers will
jointly and severally indemnify the Sellers’ Representative from any Losses
arising out of its serving as the Sellers’ Representative hereunder. The
Sellers’ Representative is serving in that capacity solely for purposes of
administrative convenience, and is not personally liable in such capacity for
any of the obligations of the Sellers hereunder, and the Buyer agrees that it
will not look to the personal assets of the Sellers’ Representative, acting in
such capacity, for the satisfaction of any obligations to be performed by the
Sellers hereunder.

 

32

 

10.4.3                                          Reliance.
The Buyer and the Escrow Agent may rely on any action taken by or on behalf of
the Sellers’ Representative as an action being taken and authorized by the
Sellers.

 

10.5.                        Entire
Agreement. This Agreement, together with the other Ancillary Agreements and
any documents, instruments and certificates explicitly referred to herein,
constitutes the entire agreement among the parties hereto with respect to the
subject matter hereof and supersedes any and all prior discussions,
negotiations, proposals, undertakings, understandings and agreements, whether
written or oral, with respect thereto.

 

10.6.                        Schedules;
Listed Documents, etc. Neither the listing nor description of any item,
matter or document in any Schedule hereto nor the furnishing or availability
for review of any document will be construed to modify, qualify or disclose an
exception to any representation or warranty of any party made herein or in
connection herewith, except to the extent that such representation or warranty
specifically refers to such Schedule and such modification, qualification or
exception is clearly described in such Schedule.

 

10.7.                        Counterparts.
This Agreement may be executed in any number of counterparts, each of which
will be deemed an original, but all of which together will constitute but one
and the same instrument. This Agreement will become effective when duly
executed by each party hereto.

 

10.8.                        Severability.
Any term or provision of this Agreement that is invalid or unenforceable in any
situation in any jurisdiction will not affect the validity or enforceability of
the remaining terms and provisions hereof or the validity or enforceability of
the offending term or provision in any other situation or in any other
jurisdiction. In the event that any provision hereof would, under applicable
law, be invalid or unenforceable in any respect, each party hereto intends that
such provision will be construed by modifying or limiting it so as to be valid
and Enforceable to the maximum extent compatible with, and possible under,
applicable law.

 

10.9.                        Headings.
The headings contained in this Agreement are for convenience purposes only and
will not in any way affect the meaning or interpretation hereof.

 

10.10.                  Construction.
The parties have participated jointly in the negotiation and drafting of this
Agreement. In the event an ambiguity or question of intent or interpretation
arises, this Agreement will be construed as if drafted jointly by the parties
and no presumption or burden of proof will arise favoring or disfavoring any
party by virtue of the authorship of any of the provisions of this Agreement. The
parties intend that each representation, warranty and covenant contained herein
will have independent significance. If any party has breached or violated, or
if there is an inaccuracy in, any representation, warranty or covenant
contained herein in any respect, the fact that there exists another
representation, warranty or covenant relating to the same subject matter
(regardless of the relative levels of specificity) which the party has not
breached or violated, or in respect of which there is not an inaccuracy, will
not detract from or mitigate the fact that the party has breached or violated,
or there is an inaccuracy in, the first representation, warranty or covenant.

 

33

 

10.11.                  Governing Law.
This Agreement, the rights of the parties and all Actions arising in whole or
in part under or in connection herewith, will be governed by and construed in
accordance with the domestic substantive laws of the State of New York, without
giving effect to any choice or conflict of law provision or rule that
would cause the application of the laws of any other jurisdiction.

 

10.12.                  Jurisdiction;
Venue; Service of Process.

 

10.12.1                                    Jurisdiction.
Subject to the provisions of Sections 2.5.4 and 8.4.5, each party to this Agreement,
by its execution hereof, (a) hereby irrevocably submits to the exclusive
jurisdiction of the state courts of  the State of
New York or the United States District Court located in the Southern District
of the State of New York for the purpose of any Action between the parties
arising in whole or in part under or in connection with this Agreement, (b) hereby
waives to the extent not prohibited by applicable law, and agrees not to
assert, by way of motion, as a defense or otherwise, in any such Action, any
claim that it is not subject personally to the jurisdiction of the above-named
courts, that its property is exempt or immune from attachment or execution,
that any such Action brought in one of the above-named courts should be
dismissed on grounds of forum non conveniens,
should be transferred or removed to any court other than one of the above-named
courts, or should be stayed by reason of the pendency of some other proceeding
in any other court other than one of the above-named courts, or that this Agreement
or the subject matter hereof may not be enforced in or by such court and (c) hereby
agrees not to commence any such Action other than before one of the above-named
courts. Notwithstanding the previous sentence a party may commence any Action
in a court other than the above-named courts solely for the purpose of
enforcing an order or judgment issued by one of the above-named courts.

 

10.12.2                                    Venue.
Each party agrees that for any Action between the parties arising in whole or
in part under or in connection with this Agreement, such party bring Actions
only in the Borough of Manhattan. Each party further waives any claim and will
not assert that venue should properly lie in any other location within the
selected jurisdiction.

 

10.12.3                                    Service
of Process. Each party hereby (a) consents to service of process in
any Action between the parties arising in whole or in part under or in
connection with this Agreement in any manner permitted by New York law, (b) agrees
that service of process made in accordance with clause (a) or made by
registered or certified mail, return receipt requested, at its address
specified pursuant to Section 10.1 (with copy to its counsel specified in Section 10.1
at the address for such counsel specified in such section), will constitute
good and valid service of process in any such Action and (c) waives and
agrees not to assert (by way of motion, as a defense, or otherwise) in any such
Action any claim that service of process made in accordance with clause (a) or
(b) does not constitute good and valid service of process.

 

10.13.                  Specific
Performance. Each of the parties acknowledges and agrees that the other
parties would be damaged irreparably in the event any of the provisions of this
Agreement are not performed in accordance with their specific terms or
otherwise are breached or violated. Accordingly, each of the parties agrees
that, without posting bond or other

 

34

 

undertaking, the other parties will be entitled to an
injunction or injunctions to prevent breaches or violations of the provisions
of this Agreement and to enforce specifically this Agreement and the terms and
provisions hereof in any Action instituted in any court of the United States or
any state thereof having jurisdiction over the parties and the matter in
addition to any other remedy to which it may be entitled, at law or in equity. Each
party further agrees that, in the event of any action for specific performance
in respect of such breach or violation, it will not assert that the defense
that a remedy at law would be adequate.

 

10.14.                  Waiver of
Jury Trial. TO THE EXTENT NOT
PROHIBITED BY APPLICABLE LAW THAT CANNOT BE WAIVED, THE PARTIES HEREBY WAIVE,
AND COVENANT THAT THEY WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR
OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY ACTION ARISING IN WHOLE OR IN PART UNDER
OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE CONTEMPLATED TRANSACTIONS,
WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT,
TORT OR OTHERWISE. THE PARTIES AGREE THAT ANY OF THEM MAY FILE A COPY OF
THIS PARAGRAPH WITH ANY COURT AS WRITTEN EVIDENCE OF THE KNOWING, VOLUNTARY AND
BARGAINED-FOR AGREEMENT AMONG THE PARTIES IRREVOCABLY TO WAIVE ITS RIGHT TO
TRIAL BY JURY IN ANY PROCEEDING WHATSOEVER BETWEEN THEM RELATING TO THIS
AGREEMENT OR ANY OF THE CONTEMPLATED TRANSACTIONS WILL INSTEAD BE TRIED IN A
COURT OF COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT A JURY.

 

10.15.                  Certain Rules of
Construction. Except as otherwise explicitly specified to the contrary, (a) references
to a Section, Article, Exhibit or Schedule means a Section or Article of,
or Schedule or Exhibit to this Agreement, unless another agreement is
specified, (b) the word “including” will be construed as “including without
limitation,” (c) references to a particular statute or regulation include
all rules and regulations thereunder and any predecessor or successor
statute, rules or regulation, in each case as amended or otherwise
modified from time to time, (d) words in the singular or plural form
include the plural and singular form, respectively and (e) references to a
particular Person include such Person’s successors and assigns to the extent
not prohibited by this Agreement.

 

35

 

IN WITNESS WHEREOF, each of the undersigned has
executed this Agreement as an agreement under seal as of the date first above
written.

 

 

	
  THE
  BUYER:

  	
  CELLU TISSUE HOLDINGS, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
    /s/
  Russell C. Taylor

  
	
   

  	
   

  	
  Name:
  Russell C. Taylor

  
	
   

  	
   

  	
  Title:President
  and Chief Executive Officer

  

 

 

[Signature Pages Continue]

 

 

Asset Purchase Agreement

 

 

	
  THE SELLERS:

  	
  ATLANTIC PAPER & FOIL CORP. OF N.Y.

  
	
   

  	
   

  
	
   

  	
  By:

  	
      /s/
  Shaun Gabbay

  
	
   

  	
   

  	
  Name:
   Shaun Gabbay

  
	
   

  	
   

  	
  Title:    Secretary

  
	
   

  	
   

  
	
   

  	
  ATLANTIC LAKESIDE PROPERTIES, LLC

  
	
   

  	
   

  
	
   

  	
  By:

  	
      /s/
  Shaun Gabbay

  
	
   

  	
   

  	
  Name:
   Shaun Gabbay

  
	
   

  	
   

  	
  Title:    Member

  
	
   

  	
   

  
	
   

  	
  ATLANTIC PAPER & FOIL, LLC

  
	
   

  	
   

  
	
   

  	
  By:
  Atlantic Paper & Foil Corp. of N.Y.,
  its sole 

  
	
   

  	
  member

  
	
   

  	
   

  
	
   

  	
  By:

  	
      /s/
  Shaun Gabbay

  
	
   

  	
   

  	
  Name:
   Shaun Gabby

  
	
   

  	
   

  	
  Title:    Secretary

  
	
   

  	
   

  
	
   

  	
  ATLANTIC PAPER & FOIL OF GEORGIA, LLC

  
	
   

  	
   

  
	
   

  	
  By:
  Atlantic Paper & Foil Corp. of N.Y.,
  its sole 

  
	
   

  	
  member

  
	
   

  	
   

  
	
   

  	
  By:

  	
      /s/
  Shaun Gabbay

  
	
   

  	
   

  	
  Name:
   Shaun Gabbay

  
	
   

  	
   

  	
  Title:    Secretary

  
	
   

  	
   

  
	
   

  	
  CONSUMER LICENSING CORPORATION

  
	
   

  	
   

  
	
   

  	
  By:

  	
      /s/
  Shaun Gabbay

  
	
   

  	
   

  	
  Name:
   Shaun Gabbay

  
	
   

  	
   

  	
  Title:    President

  
	
   

  	
   

  
	
   

  	
   

  
	
  THE SELLERS’
  REPRESENTATIVE:

  	
      /s/
  Shaun Gabbay

  
	
   

  	
  Shaun Gabbay

  	
   

  
				

 

 

Asset Purchase Agreement

 

 

Appendix A

 

As
used herein, the following terms will have the following meanings:

 

“1933
Act” means the Securities Act of 1933.

 

“Accounting
Principles” is defined in Section 2.5.1.

 

“Action”
means any claim, action, cause of action or suit (whether in contract or tort
or otherwise), litigation (whether at law or in equity, whether civil or
criminal), controversy, assessment, arbitration, investigation, hearing,
charge, complaint, demand, notice or proceeding to, from, by or before any
Governmental Authority.

 

“Acquired
Assets” means all the business, properties, assets, goodwill and rights of
the Sellers  of
whatever kind and nature, real or personal, tangible or intangible, owned,
leased, licensed, used or held for use or license by or on behalf of the Sellers,
including:

 

(a)        All assets reflected on the Most Recent
Balance Sheet which are identified as an “Acquired Asset” in the attached Schedule
I-A-1;

 

(b)        All rights of the Sellers under the
Contractual Obligations listed on Schedule I-A-2 (the “Transferred
Contracts”);

 

(c)        All rights of the Sellers under the
leaseholds listed on Schedule I-A-3 (the “Transferred Leases”);

 

(d)        All tangible personal property owned at
the Closing Date by the Sellers, wherever located, that is used or licensed,
intended to be used, licensed or sold, or held for use, license or sale by or
on behalf of the Sellers, including all tangible personal property listed on Schedule
I-A-4 hereof, whether such tangible personal property is then held by any
Seller, is in transit or is in the possession of a subcontractor, licensee,
consignee, agent or other Person and specifically including all machinery,
equipment (including the Perini Sincro 4.5/5.0), furniture and other office
equipment located in the plants in Hauppauge, New York and Thomaston, Georgia;

 

(e)        All inventory owned by the Sellers at
the Closing Date, wherever located, including finished goods, supply inventory,
goods in transit, work in process, consignment inventory, raw materials and
other inventory;

 

(f)         To the extent transferable, all
Intellectual Property of any Seller used or held for use in the Purchased
Business at the Closing Date;

 

(g)        All accounts receivable of the Sellers
and all other rights of the Sellers to receive payment and all rights in
respect of prepaid items however evidenced, whether by notes, instruments,
chattel paper or otherwise, in each case owned by the Sellers at the Closing
Date;

 

1

 

(h)        To the extent transferable, all rights
of the Sellers under all Permits used in connection with the operation of the
Purchased Business and any and all pending applications relating to any of the
foregoing, in each case to the extent existing at the Closing Date (the “Transferred
Permits”);

 

(i)         To the extent transferable, all rights
of the Seller with respect to the insurance policies and Contractual
Obligations included in or related to the Company Plans solely to the extent
such Company Plans are listed in Schedule I-A-5, including all rights
with respect to the funded assets of such Company Plans and contributions
payable to such plans (the “Transferred Plans”);

 

(j)         To the extent transferable, all rights
of the Sellers in, under and with respect to the insurance policies, contracts
and coverages obtained by the applicable Seller or listing it as an insured
party, a beneficiary or loss payee, solely to the extent listed in Schedule
I-A-6 and in each case to the extent transferable (the “Transferred
Insurance”);

 

(k)        To the extent transferable, all rights
of the Sellers under all confidentiality agreements pursuant to which any third
party has agreed not to disclose any confidential or proprietary information
related to the Purchased Business;

 

(l)         To the extent transferable, all rights
of the Sellers to and in respect of any telephone numbers, web-sites, e- mail
addresses and Internet domain names registered in the name of any Seller or any
other names under which any Seller conducts or has conducted the Purchased
Business (including the names “Atlantic” and “Atlantic Paper & Foil”
and any variations or derivatives thereof);

 

(m)       To the extent transferable, all claims,
prepayments, refunds, causes of action, choses in action, rights of recovery,
rights of set off, defenses, affirmative defenses, rights of defense, and
rights of recoupment of the Sellers related to any other Acquired Asset;

 

(n)        Any security deposit held at the Closing
Date related to any other Acquired Asset;

 

(o)        All business and financial records,
correspondence, lists (including all customer, distributor, supplier and
mailing lists), drawings, notebooks, specifications and creative materials,
whether written or electronically stored or however otherwise recorded,
maintained or stored related to any other Acquired Asset as of the Closing;
provided that copies of the foregoing may be retained by the Sellers and not
constitute Acquired Assets to the extent that such copies will be needed by the
Sellers for Tax or financial reporting purposes and for no other purposes;

 

(p)        All rights of any of the Sellers to the
Georgia Tax Credit;

 

(q)        All goodwill associated with any
trademark, service mark, trade name or trade dress, and any registration or
applications therefor; and

 

2

 

(r)         All other assets of the Sellers of
every kind and description, tangible and intangible which are not Retained
Assets.

 

Notwithstanding
anything to the contrary in this definition or Section 2.1.1, none of the
foregoing property or assets described in this Section 2.1.1 shall include
any Retained Assets.

 

“Affiliate”
means, with respect to any specified Person at any time means, (a) each
Person directly or indirectly controlling, controlled by or under direct or
indirect common control with such specified Person at such time, (b) each
Person who is at such time an officer or director of, or direct or indirect
beneficial holder of at least 20% of any class of the Equity Interests of, such
specified Person, (c) each Person that is managed by a common group of
executive officers and/or directors as such specified Person, (d) the
Members of the Immediate Family (i) of each officer, director or holder
described in clause (b) and (ii) if such specified Person is an
individual, of such specified Person and (e) each Person of which such
specified Person or an Affiliate (as defined in clauses (a) through (d))
thereof will, directly or indirectly, beneficially own at least 20% of any
class of Equity Interests at such time.

 

“Agreement”
is defined in the Preamble.

 

“Ancillary
Agreements” means the Escrow Agreement, the Hauppauge Leases, the Thomaston
Lease, the Guaranty Agreements, the Support Agreements, and the Noncompetition
Agreements.

 

“Assumed
Liabilities” means only the Liabilities of the Sellers described in the
sub-sections below (and, for the avoidance of doubt, shall not include any
other Liability of any Seller):

 

(a)        All Liabilities reflected on the Most
Recent Balance Sheet which are identified as an “Assumed Liability” on Schedule
I-C;

 

(b)        All Liabilities of the Sellers under or
with respect to the Transferred Contracts, the Transferred Leases and the
Transferred Insurance, if and only if duly transferred or assigned to the Buyer
as of the Closing, other than any Liability arising from any breach of or
default under any Transferred Contract, Transferred Lease or Transferred
Insurance, as applicable, occurring prior to the Closing Date;

 

(c)        (i) Accounts payable reflected on
the Most Recent Balance Sheet which are identified as an “Assumed Liability”
and (ii) accounts payable of the type included in clause (i) which
are incurred after the Most Recent Balance Sheet Date in the Ordinary Course of
Business, in each case other than accounts payable in respect of Liabilities of
the Sellers which are Excluded Liabilities;

 

(d)        All Liabilities of the Sellers under or
with respect to the Transferred Permits, if and only if duly transferred or
assigned to the Buyer as of the Closing, other than any Liability arising from
any breach or default with respect thereto occurring prior to the Closing Date;
and

 

(e)        Liabilities of the Sellers under or with
respect to the Transferred Plans, if and only if duly transferred or assigned
to the Buyer as of the Closing, other than any 

 

3

 

Liability arising from any breach or default with
respect thereto occurring prior to the Closing Date.

 

“Audited
Financials” is defined in Section 3.5.

 

“Business”   is
defined in the Recitals.

 

“Business
Day” means any weekday other than a weekday on which banks in New York, New
York are authorized or required to be closed.

 

“Business
Employee” means each person who is a current part-time or full-time
employee of any Seller and who performs services primarily for the benefit of
the Business.

 

“Buyer”
is defined in the Preamble.

 

“Buyer
Indemnified Person” is defined in Section 8.1.

 

“Buyer’s
Third Party Appraisal” is defined in Section 2.6.

 

“Cash
Purchase Price” is defined in Section 2.2.

 

“Closing”
is defined in Section 2.3.

 

“Closing
Balance Sheet” is defined in Section 2.5.2.

 

“Closing
Working Capital Statement” is defined in Section 2.5.2.

 

“Closing
Date” means the date on which the Closing actually occurs.

 

“Code”
means the U.S. Internal Revenue Code of 1986.

 

“Company
Plan” means all Employee Plans as to which a Seller sponsors, maintains,
contributes or is obligated to contribute, or under which a Seller has or may
have any Liability, or which benefits any current or former employee, director,
consultant or independent contractor of a Seller or the beneficiaries or
dependents of any such Person.

 

“Company
Technology” means any and all Technology used or useful in connection with
the Purchased Business and any and all Intellectual Property in any and all
such Technology.

 

“Compensation”
means, with respect to any Person, all salaries, compensation, remuneration,
bonuses or benefits of any kind or character whatever (including issuances or
grants of Equity Interests), made directly or indirectly by a Seller to such
Person or Affiliates of such Person.

 

“Contemplated
Transactions” means, collectively, the transactions contemplated by this
Agreement, including (a) the sale and purchase of the Acquired Assets and
the assignment and assumption of the Assumed Liabilities and (b) the
execution, delivery and performance of the Ancillary Agreements.

 

4

 

“Contractual
Obligation” means, with respect to any Person, any contract, agreement,
deed, mortgage, lease, license, commitment, promise, undertaking, arrangement
or understanding, whether written or oral and whether express or implied, or
other document or instrument (including any document or instrument evidencing
or otherwise relating to any Debt,) to which or by which such Person is a party
or otherwise subject or bound or to which or by which any property, business,
operation or right of such Person is subject or bound.

 

“Covered
Assets” is defined in Section 2.6.

 

“Debt”
means, with respect to any Person, all obligations (including all obligations
in respect of principal, accrued interest, penalties, fees and premiums) of
such Person (a) for borrowed money (including overdraft facilities), (b) evidenced
by notes, bonds, debentures or similar Contractual Obligations, (c) for
the deferred purchase price of property, goods or services (other than trade
payables or accruals incurred in the Ordinary Course of Business), (d) under
capital leases (in accordance with GAAP), (e) in respect of letters of
credit and bankers’ acceptances, (f) for Contractual Obligations relating
to interest rate protection, swap agreements and collar agreements and (g) in
the nature of Guarantees of the obligations described in clauses (a) through
(f) above of any other Person.

 

“Designated
Appraisal” is defined in Section 2.6.

 

“Dispute
Notice” is defined in Section 2.5.3.

 

“Employee
Plan” means any plan, program, agreement, policy or arrangement, whether or
not reduced to writing, and whether covering a single individual or a group of
individuals, that is (a) a welfare plan within the meaning of Section 3(1) of
ERISA, (b) a pension benefit plan within the meaning of Section 3(2) of
ERISA, (c) a stock bonus, stock purchase, stock option, restricted stock,
stock appreciation right or similar equity-based plan or (d) any other
deferred-compensation, retirement, welfare-benefit, bonus, incentive or
fringe-benefit plan, program or arrangement.

 

“Encumbrance”
means any charge, claim, community or other marital property interest,
condition, equitable interest, lien, license, option, pledge, security
interest, mortgage, right of way, easement, encroachment, servitude, right of
first offer or first refusal, buy/sell agreement and any other restriction or
covenant with respect to, or condition governing the use, construction, voting
(in the case of any security or equity interest), transfer, receipt of income
or exercise of any other attribute of ownership.

 

“Enforceable”
means, with respect to any Contractual Obligation stated to be Enforceable by
or against any Person, that such Contractual Obligation is a legal, valid and
binding obligation of such Person enforceable by or against such Person in
accordance with its terms, except to the extent that enforcement of the rights
and remedies created thereby is subject to bankruptcy, insolvency,
reorganization, moratorium and other similar laws of general application
affecting the rights and remedies of creditors and to general principles of
equity (regardless of whether enforceability is considered in a proceeding in
equity or at law).

 

“Environmental
Laws” means any Legal Requirement relating to (a) releases or
threatened releases of Hazardous Substances, (b) pollution or protection
of public health or the environment 

 

5

 

or worker safety or health or (c) the
manufacture, handling, transport, use, treatment, storage, or disposal of
Hazardous Substances.

 

“Equipment”
is defined in Section 3.10.

 

“Equity
Interests” means (a) any capital stock, share, partnership or
membership interest, unit of participation or other similar interest (however
designated) in any Person and (b) any option, warrant, purchase right,
conversion right, exchange rights or other Contractual Obligation which would
entitle any Person to acquire any such interest in such Person or otherwise
entitle any Person to share in the equity, profit, earnings, losses or gains of
such Person (including stock appreciation, phantom stock, profit participation
or other similar rights).

 

“ERISA”
means the federal Employee Retirement Income Security Act of 1974.

 

“Estimated
Balance Sheet” is defined in Section 2.5.1.

 

“Escrow
Agent” is defined in the definition of “Escrow Agreement”.

 

“Escrow
Agreement” means the Escrow Agreement among the Buyer, the Sellers, the
Sellers’ Representative and The Bank of New York, as escrow agent (the “Escrow
Agent”), substantially in the form attached as Exhibit I-1.

 

“Estimated
Working Capital” means the estimate of the Working Capital on the Closing
Date as reflected by the Buyer on the Closing Balance Sheet.

 

“Estimated
Working Capital Statement” is defined in Section 2.5.1.

 

“Excluded
Liabilities” means any Liabilities of any of the Sellers not specifically
assumed by the Buyer under Section 2.1.3, including the following
Liabilities:

 

(a)        Any Liabilities reflected on the Most
Recent Balance Sheet which are identified as an “Excluded Liability” on Schedule
I-D;

 

(b)        Any Liability of any Seller under this
Agreement or any Ancillary Agreement;

 

(c)        Any Liability of any Seller arising out
of, relating to or resulting from any Retained Asset;

 

(d)        Any Liability of any Seller arising out
of, relating to or resulting from any Debt of any Seller;

 

(e)        Any Liability of any Seller for Taxes,
including (i) any stamp duty, customs tax, excise tax, transfer tax or
similar tax incurred in connection with this Agreement or transfer of the
Acquired Assets to the Buyer or (ii) any Liability for Taxes imposed on
any Seller as a transferee or successor, by contract or otherwise
(collectively, the “Retained Taxes”);

 

6

 

(f)         Any Transaction Expenses of any Seller;

 

(g)        Any Liability of any Seller for any
breach or default by any Seller under any of its Contractual Obligations,
leases, insurance policies or Permits;

 

(h)        Any Liability of any Seller for any
violation of, or non-compliance with, any Legal Requirement by any Seller
(including any violation of Environmental Laws and violations of the 1933 Act,
any state “blue sky” or securities laws);

 

(i)         Any Liability of any Seller to any
present or former holder of any of any Seller’s Equity Interests or to any of
its present or former directors or officers (including any Liability to
indemnify any such Person by reason of the fact that such Person was a director
or officer of any Seller or was serving at the request of the Seller as a partner,
trustee, director, officer, employee, or agent of another Person);

 

(j)         Any Liability of any Seller to any of
its employees or independent contractors arising out of change of control
agreements, stay-pay agreements, severance agreements or arrangements, special
retention bonus arrangements, sales bonus arrangements or other special
compensation (including any such Liability incurred in connection with the
making and performance of this Agreement and consummation of the transactions
contemplated hereby);

 

(k)        Any Liability for making payments or
providing benefits of any kind to the employees or former employees of any
Seller in respect of work-related employee injuries or worker’s compensation
claims or similar claims arising out of occurrences prior to the Closing;

 

(l)         Any Liability of any Seller arising
under, out of or with respect to any Contractual Obligation (other than
Liabilities under the Transferred Contracts to the extent such Liabilities are
not otherwise covered by this definition);

 

(m)       Any Liability of any Seller arising
under, out of or with respect to any real property lease;

 

(n)        Any Liability of any Seller arising
under, out of or with respect to any Permit (other than Liabilities under the
Transferred Permits to the extent such Liabilities are not otherwise covered by
this definition);

 

(o)        Any Liability of any Seller arising
under, out of or with respect to any insurance policy (other than Liabilities
under the Transferred Insurance to the extent such Liabilities are not
otherwise covered by this definition);

 

(p)        Any Liability of any Seller arising
under, out of or with respect to any Employee Plan (other than Liabilities
under the Transferred Plans to the extent such Liabilities are not otherwise
covered by this definition);

 

(q)        Any Liability of any Seller in respect
of bodily injury, personal injury or property damage;

 

7

 

(r)         Any Liability of any Seller to
indemnify or contribute to the damages suffered by any other Person for Liabilities
arising out of events occurring prior to the Closing Date;

 

(s)        Any Liability of any Seller to indemnity
any third party in connection with the disposition of any formerly owned
Subsidiary, operating business, material asset or property or discontinued
operation;

 

(t)         Any Liability arising out of, relating
to or resulting from any dividend or other distribution authorized or declared
by any Seller with respect to its Equity Interests;

 

(u)        Any Liability arising out of, relating
to or resulting from any defect in any Products, any claim for replacement or
repair of any Products or any failure of any Products to meet required
specifications, to the extent such Products were manufactured, distributed or
sold prior to the Closing;

 

(v)        Any Liability arising out of, relating
to or resulting from the presence of Hazardous Substances at or on the Real
Property as of the Closing Date;

 

(w)       Any Liability of any Seller arising
under, out of or with respect to the Settlement Agreement;

 

(x)         Any Liability to Ocean Associates; and

 

(y)        Any Liability which is not an Assumed
Liability.

 

“Facilities”
means any buildings, plants, improvements or structures located on the Real
Property.

 

“Final
Working Capital” means the Working Capital, as finally determined pursuant
to Sections 2.5.2 through 2.5.4.

 

“Financials”
means the Audited Financials and all unaudited monthly financials delivered to
Buyer by the Sellers pursuant to Section 5.4.2.

 

“Financing”
means the financing required by the Buyer to consummate the Contemplated
Transactions.

 

“GAAP”
means generally accepted accounting principles in the United States as in
effect from time to time.

 

“Georgia
Credit” is defined in Section 10.6.

 

“Government
Order” means any order, writ, judgment, injunction, decree, stipulation, ruling,
determination or award entered by or with any Governmental Authority.

 

8

 

“Governmental
Authority” means any United States federal, state or local or any foreign
government, or political subdivision thereof, or any multinational organization
or authority or any authority, agency or commission entitled to exercise any
administrative, executive, judicial, legislative, police, regulatory or taxing
authority or power, any court or tribunal (or any department, bureau or
division thereof), or any arbitrator or arbitral body.

 

“Guarantee”
means, with respect to any Person, (a) any guarantee of the payment or
performance of, or any contingent obligation in respect of, any Debt or other
Liability of any other Person, (b) any other arrangement whereby credit is
extended to any obligor (other than such Person) on the basis of any promise or
undertaking of such Person (i) to pay the Debt or other Liability of such
obligor, (ii) to purchase any obligation owed by such obligor, (iii) to
purchase or lease assets under circumstances that are designed to enable such
obligor to discharge one or more of its obligations or (iv) to maintain
the capital, working capital, solvency or general financial condition of such
obligor and (c) any liability as a general partner of a partnership or as
a venturer in a joint venture in respect of Debt or other obligations of such
partnership or venture.

 

“Guaranty
Agreement” means a Guaranty Agreement by each Individual Owner in favor of
the Buyer, in the form attached hereto as Exhibit I-6.

 

“Hauppauge
Leases” is defined on Appendix B.

 

“Hazardous
Substance” is defined in Section 3.14.

 

“HSR
Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976.

 

“Immigration
Law” means all immigration laws, statutes, rules, codes, ordinances,
orders, requirements and regulations enacted, adopted, issued or promulgated by
any governmental authority, including, without limitation, the Immigration
Reform and Control Act of 1986, as amended; the Immigration and Nationality
Act, as amended; and the Illegal Immigration Reform and Immigrant
Responsibility Act of 1996, as amended; and any successor statutes, laws,
rules, ordinances and regulations thereto.

 

“Indemnity
Claim” means a claim for indemnity under Section 8.1 or 8.2, as the
case may be.

 

“Indemnity
Escrow Account” is defined in Section 2.4.

 

“Indemnified
Party” means, with respect to any Indemnity Claim, the party asserting such
claim under Section 8.1 or 8.2, as the case may be.

 

“Indemnifying Party” means, with respect to any
Indemnity Claims, the Buyer Indemnified Person or the Seller Indemnified Person
under Section 8.1 or 8.2, as the case may be, against whom such claim is
asserted.

 

“Individual Owners” is defined in the Recitals.

 

9

 

“Intellectual Property” means the entire right,
title and interest in and to all proprietary rights of every kind and nature,
including all rights and interests pertaining to or deriving from:

 

(a)        patents, copyrights, mask work rights,
technology, know-how, processes, trade secrets, algorithms, inventions, works,
proprietary data, databases, formulae, research and development data and
computer software or firmware;

 

(b)        trademarks, trade names, service marks,
service names, brands, trade dress and logos, and the goodwill and activities
associated therewith;

 

(c)        domain names, rights of privacy and
publicity, moral rights, and proprietary rights of any kind or nature, however
denominated, throughout the world in all media now known or hereafter created;

 

(d)        any and all registrations, applications,
recordings, licenses, common-law rights and Contractual Obligations relating to
any of the foregoing; and

 

(e)        all Actions and rights to sue at law or
in equity for any past or future infringement or other impairment of any of the
foregoing, including the right to receive all proceeds and damages therefrom,
and all rights to obtain renewals, continuations, divisions or other extensions
of legal protections pertaining thereto.

 

“Legal
Requirement” means any United States federal, state or local or foreign
law, statute, standard, ordinance, code, rule, regulation, resolution or
promulgation, or any Governmental Order, or any license, franchise, permit or
similar right granted under any of the foregoing, or any similar provision
having the force or effect of law.

 

“Liability”
means, with respect to any Person, any liability or obligation of such Person
whether known or unknown, whether asserted or unasserted, whether determined,
determinable or otherwise, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, whether incurred or
consequential, whether due or to become due and whether or not required under
GAAP to be accrued on the financial statements of such Person.

 

“Losses”
is defined in Section 8.1.

 

“Material
Adverse Effect” means any change in, or effect on, or any development or
circumstance affecting, the operations or condition (financial or otherwise) of
the Business, the Acquired Assets, the Assumed Liabilities or the Sellers
which, when considered either individually or in the aggregate together with
all other adverse changes, effects, developments or circumstances with respect
to which such phrase is used in this Agreement, is, or would be reasonably
expected to be, materially adverse to the operations or condition (financial or
otherwise) of the Business, the Acquired Assets, the Assumed Liabilities or the
Sellers.

 

“Members of the Immediate Family” means, with
respect to any individual, (a) such Person’s spouse, (b) each parent,
brother, sister or child of such Person or such Person’s spouse, (c) the
spouse of any Person described in clause (b) above, (d) each child of
any Person described in clauses (a), (b) or (c) above, (e) each
trust created solely for the benefit of one or more of the Persons described in
clauses (a) through (d) above and (f) each custodian or guardian
of any 

 

10

 

property of one or more of the Persons described in
clauses (a) through (e) above in his capacity as such custodian or
guardian.

 

“Most Recent Balance Sheet” is the audited
balance sheet for the Purchased Business at December 31, 2007.

 

“Most Recent Balance Sheet Date” is December 31,
2007.

 

“Noncompetition
Agreements” means the Non-Competition, Non-Solicitation and Non-Disclosure
Agreement between the Buyer and Dan Gabbay, the Non-Competition,
Non-Solicitation and Non-Disclosure Agreement between the Buyer and Yahya
Gabbay, the Non-Competition, Non-Solicitation and Non-Disclosure Agreement
between the Buyer and Shaun Gabbay, and the Non-Competition, Non-Solicitation
and Non-Disclosure Agreement between the Buyer and Egal Gabbay substantially in
the forms attached as Exhibit I-5.

 

“Note”
is defined in Section 2.2.

 

“Offer Employees” is defined in Section 5.5.

 

“Ordinary Course of Business” means an action
taken by any Person in the ordinary course of such Person’s business which is
consistent with the past customs and practices of such Person (including past
practice with respect to quantity, amount, magnitude and frequency) which is
taken in the ordinary course of the normal day-to-day operations of such
Person.

 

“Organizational
Documents” means, with respect to any Person (other than an individual), (a) the
certificate or articles of incorporation or organization and any joint venture,
limited liability company, operating or partnership agreement and other similar
documents adopted or filed in connection with the creation, formation or
organization of such Person and (b) all by-laws, voting agreements and
similar documents, instruments or agreements relating to the organization or
governance of such Person, in each case, as amended or supplemented.

 

“Permits” means, with respect to any Person,
any license, franchise, permit, consent, approval, right, privilege,
certificate or other similar authorization issued by, or otherwise granted by,
any Governmental Authority or any other Person to which or by which such Person
is subject or bound or to which or by which any property, business, operation
or right of such Person is subject or bound.

 

“Permitted Encumbrance” means (a) statutory
Liens for current Taxes, special assessments or other governmental charges not
yet due and payable or the amount or validity of which is being contested in
good faith by appropriate proceedings and for which appropriate reserves have
been established in accordance with GAAP (it being acknowledged and agreed that
no such Liens are presently being contested), (b) mechanics’, materialmen’s,
carriers’, workers’, repairers’ and similar statutory liens arising or incurred
in the Ordinary Course of Business which liens have not had a Material Adverse
Effect, (c) zoning, entitlement, building and other land use regulations
imposed by governmental agencies having jurisdiction over any Real Property
which are not violated in any material respect by the current use and operation
of the Real Property, (d) deposits or pledges made in connection with, or
to secure payment of, worker’s compensation, unemployment insurance, old age
pension programs mandated under applicable Legal 

 

11

 

Requirements or other social security, (e) covenants,
conditions, restrictions, easements, encumbrances and other similar matters of
record affecting title to but not adversely affecting current occupancy or use
of the Real Property in any material respect and (f) restrictions on the
transfer of securities arising under federal and state securities laws.

 

“Person” means any individual or corporation,
association, partnership, limited liability company, joint venture, joint stock
or other company, business trust, trust, organization, Governmental Authority
or other entity of any kind.

 

“PP&E” is defined in Section 2.6.

 

“Prime Rate” means the average of the U.S.
prime rates of interest published in the “Money Rates” column of the Eastern
Edition of The Wall Street Journal on Business Days
included in the period during which the applicable interest accrued.

 

“Products” means any product manufactured,
sold, leased, licensed, delivered or installed by a Seller.

 

“Purchase Price” is defined in Section 2.2.

 

“Purchased Business” means the portion of the
Business consisting of the Acquired Assets and the Assumed Liabilities, and
excluding the Retained Assets and the Excluded Liabilities.

 

“Real Property” is defined in Section 3.9.1.

 

“Referee” is defined in Section 2.5.4.

 

“Representative” means, with respect to any
Person, any director, officer, employee, agent, consultant, advisor, or other
representative of such Person, including legal counsel, accountants, and
financial advisors.

 

“Retained
Assets” means the following assets, properties and rights:

 

(a)        the assets identified as Retained Assets
on Appendix C;

 

(b)        All rights in, under and with respect to
the assets, any administrative service contracts or funding arrangements
associated with any Employee Plan other than a Transferred Plan;

 

(c)        All rights in and under Permits which
are not Transferred Permits and insurance policies which are Transferred
Policies (subject to the Buyer’s rights under Section 5.9);

 

(d)        All Contractual Obligations with respect
to any right of any Person to acquire any capital stock or other direct or
indirect ownership interest in any Seller;

 

(e)        All corporate seals, minute books,
charter documents, corporate stock record books, registers of other securities,
copies of original tax and financial records 

 

12

 

(the originals of which will be delivered to the Buyer
as part of the Acquired Assets to the extent related to the Acquired Assets) of
the Sellers, and such other books and records as pertain only to the
organization, existence, share capitalization or debt financing of the Sellers;

 

(f)         All rights of the Sellers under any
Contractual Obligation other than Transferred Contracts, Transferred Leases,
Transferred Permits, Transferred Plans, Transferred Insurance and any
Contractual Obligation included in clauses (f), (g), (i), (k), (l), (m) and/or
(n) of the definition of “Acquired Assets”;

 

(g)        All rights under the Settlement
Agreement; and

 

(h)        All cash, cash equivalents, money market
funds and mutual funds in the Sellers’ bank and other depository accounts,
including all interest and dividends receivable with respect thereto.

 

“Retained Taxes” is defined in the definition
of “Excluded Liabilities”.

 

“Seller Indemnified Person” is defined in Section 8.2.

 

“Sellers” is defined in the Preamble.

 

“Sellers’ Knowledge” is defined in Appendix
B.

 

“Sellers’ Proposed Allocation”   is
defined in Section 2.6.

 

“Sellers’ Representative”   means Shaun Gabbay, as representative for the
Sellers.

 

“Sellers’ Third Party Appraisal” is defined in Section 2.6.

 

“Settlement Agreement”is defined on Appendix
B.

 

“Subordinated Notes” is defined in Section 2.6.

 

“Subsidiary” means, with respect to any
specified person, any other Person of which such specified Person will, at the
time, directly or indirectly through one or more Subsidiaries, (a) own at
least 50% of the outstanding capital stock (or other shares of beneficial
interest) entitled to vote generally, (b) hold at least 50% of the
partnership, limited liability company, joint venture or similar interests or (c) be
a general partner, managing member or joint venturer.

 

“Support Agreement” means a Support Agreement,
dated the date of this Agreement, by each Individual Owner in favor of the
Buyer, in the form attached hereto as Exhibit I-7.

 

“Tax” or “Taxes” means (a) any and
all federal, state, local, or foreign income, gross receipts, license, payroll,
employment, excise, severance, stamp, occupation, premium, windfall profits,
environmental, customs duties, capital stock, franchise, profits, withholding,
social security (or similar, including FICA), unemployment, disability, real
property, personal property, sales, use, transfer, registration, value added,
alternative or add-on minimum, estimated, or other tax of any 

 

13

 

kind or any charge of any kind in the nature of (or
similar to) taxes whatsoever, including any interest, penalty, or addition
thereto, whether disputed or not and (b) any liability for the payment of
any amounts of the type described in clause (a) of this definition as a
result of being a member of an affiliated, consolidated, combined or unitary
group for any period, as a result of any tax sharing or tax allocation
agreement, arrangement or understanding, or as a result of being liable for
another person’s taxes as a transferee or successor, by contract or otherwise.

 

“Tax Return” means any return, declaration,
report, claim for refund or information return or statement relating to Taxes,
including any schedule or attachment thereto, and including any amendment
thereof.

 

“Technology” means all inventions, works,
discoveries, innovations, know-how, information (including ideas, research and
development, know-how, formulas, compositions, processes and techniques, data,
designs, drawings, specifications, customer and supplier lists, pricing and
cost information, business and marketing plans and proposals, documentation and
manuals), computer software, firmware, computer hardware, integrated circuits
and integrated circuit masks, electronic, electrical and mechanical equipment
and all other forms of technology, including improvements, modifications, works
in process, derivatives or changes, whether tangible or intangible, embodied in
any form, whether or not protectable or protected by patent, copyright, mask
work right, trade secret law or otherwise, and all documents and other
materials recording any of the foregoing.

 

“Third Party Claim” is defined in Section 8.4.1.

 

“Thomaston Lease” means the lease to be entered
into between Atlantic Lakeside Properties, LLC and the Buyer with respect to
the property located at 1201 Barnesville Street, Thomaston, Georgia 30286
substantially in the form of Exhibit I-4.

 

“Transaction Expenses” is defined in Section 5.2.

 

“Transferred Contracts” is defined in the
definition of “Acquired Assets”.

 

“Transferred Insurance” is defined in the
definition of “Acquired Assets”.

 

“Transferred Leases” is defined in the
definition of “Acquired Assets”.

 

“Transferred Plans” is defined in the
definition of “Acquired Assets”.

 

“Transferring Employees” is defined in Section 5.5.

 

“Treasury Regulations” means the regulations
promulgated under the Code.

 

“Working Capital” means current assets of the
Business (excluding any Retained Assets) 
minus current liabilities of the Business (excluding any Excluded
Liabilities), determined in accordance with the Accounting Principles.

 

“Working Capital Referee” is defined in Section 2.5.4.

 

14

 

“Working Capital Target” is defined on Appendix
B.

 

15Exhibit 10.2

 

THIS NOTE HAS NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION
THEREFROM UNDER SUCH ACT.

 

THIS
INSTRUMENT AND THE RIGHTS AND OBLIGATIONS EVIDENCED HEREBY ARE SUBORDINATED TO
THE PRIOR PAYMENT OF CERTAIN OBLIGATIONS OF THE OBLIGOR TO THE HOLDERS OF
SENIOR INDEBTEDNESS (AS DEFINED HEREIN).

 

THIS
INSTRUMENT AND THE RIGHTS AND OBLIGATIONS EVIDENCED HEREBY ARE SUBJECT TO
RIGHTS OF CANCELLATION AND SETOFF AS SET FORTH IN SECTION 3.6 HEREOF AND
AMENDMENT, WAIVER OR CONSENT BY THE SELLERS’ REPRESENTATIVE AS SET FORTH IN SECTION 8.1
HEREOF.

 

THIS
NOTE MAY NOT BE TRANSFERRED EXCEPT AS PERMITTED IN SECTION 5.1
HEREOF.

 

NO:   S-1

 

CELLU TISSUE HOLDINGS, INC.

 

Subordinated Note Due July 2,
2011

 

	
  $6,300,000.00

  	
   

  	
  July 2,
  2008

  

 

Original Holder: ATLANTIC PAPER &
FOIL CORP. OF NY.

 

FOR VALUE RECEIVED, the undersigned, Cellu Tissue
Holdings, Inc., a Delaware corporation (the “Company”), hereby promises to
pay to the order of Atlantic Paper & Foil Corp. of N.Y. or its
registered and permitted assigns (such original payee or any successor or
permitted assignee from time to time, each a “Noteholder”), on July 2,
2011 (the “Maturity Date”), at the address specified in the Noteholder Register
for such Noteholder (as may be updated pursuant to Section 9.10 hereof),
$6,300,000.00 (subject to adjustment as provided herein) and to pay interest on
the unpaid principal amount of this Note as provided in Section 2 hereof.

 

1.             THE NOTE

 

This Note (this “Note”) is issued pursuant to and in
accordance with the Asset Purchase Agreement, dated as of July 2, 2008
among the Company, Atlantic Paper & Foil Corp of N.Y., Atlantic
Lakeside Properties, LLC, Atlantic Paper & Foil LLC, Atlantic Paper &
Foil of Georgia LLC and Consumer Licensing Corporation (as from time to time in
effect, the “Asset Purchase Agreement”). 
This Note, together with all other subordinated notes which may be
issued 

 

 

hereunder as a result of any
transfer or assignment permitted hereunder (and any notes issued in exchange
therefor), are collectively referred to herein as the “Notes”, and the holders
of Notes are collectively referred to herein as the “Noteholders.”  Capitalized terms used in this Note have the
meanings ascribed thereto herein or in Schedule A attached hereto.

 

2.             INTEREST PROVISIONS

 

Any remaining unpaid principal amount owed under
this Note bears interest at an annual rate equal to 12.0% of such principal
amount outstanding from time to time, and is payable quarterly in arrears on
each March 31, June 30, September 30 and December 31 (each
an “Interest Payment Date”) and on the Maturity Date, with the first such
payment due on September 30, 
2008.  Notwithstanding the
foregoing, the interest rate shall increase to the “Default Rate” (as defined
below) on the following dates and the Default Rate shall continue in effect
until such time as no Event of Default is then continuing or all Events of
Default have been waived in writing by the Sellers’ Representative: (a) on
any Interest Payment Date on which any interest then due on this Note shall not
be paid in full unless all such interest not so paid when due is paid within 10
days following such Interest Payment Date; (b) on the Maturity Date or any
Refinancing Repayment Event if any portion of the remaining principal shall not
be then repaid; and (c) upon the occurrence of any other Event of
Default.  For purposes of this Note, the “Default
Rate” shall be 15% per annum.  On each
Interest Payment Date, subject to the provisions of Section 7 (including
Schedule B), the Company shall pay the accrued and unpaid interest on this Note
in cash.  Notwithstanding any provisions
of this Note, in no event will the amount of interest paid or agreed to be paid
by the Company exceed an amount computed at the highest rate of interest
permissible under applicable law.

 

3.             PAYMENT PROVISIONS

 

The Company covenants that so long as this Note is
outstanding:

 

3.1.               Payment at Maturity or Refinancing Repayment Event.  On the Maturity Date, on any accelerated
maturity of this Note pursuant to the terms hereof or upon any Refinancing
Repayment Event, the Company will pay the principal amount of this Note then
owing, together with all accrued and unpaid interest thereon.

 

3.2.               Optional Redemption. 
At any time and from time to time, the Company may prepay or redeem any
or all Notes, in whole or in part, at any time without premium or penalty at a
price equal to 100% of the principal amount of the Note so prepaid or redeemed,
together with all accrued and unpaid interest thereon.  Any partial redemption shall be allocated as
among the various Notes on a pro rata basis based on their then outstanding
principal amount at the time of such partial redemption.

 

3.3.               Notice of Optional Redemption.  Notice of each optional repayment or
redemption of this Note pursuant to Section 3.2 hereof must be given in
accordance with Section 9.1 hereof not fewer than three Business Days
before the repayment or redemption date, in each case by mailing to the
Noteholder a notice of intention to repay or redeem, which such notice must
specify the date of repayment or redemption, the principal amount of this Note
to be repaid 

 

2

 

or redeemed on such date,
and the accrued and unpaid interest applicable to the portion of the Note
subject to such repayment or redemption.

 

3.4.               Payment and Interest Cut-Off.  Upon each voluntary prepayment or redemption
of any of the Notes, in whole or in part, the Company will pay to the
Noteholder the amount of the Note to be prepaid or redeemed, as set forth in
the notice delivered pursuant to Section 3.3 hereof, together with unpaid
interest in respect thereof accrued to and including the repayment or
redemption date (the “Redemption Price”). 
On the prepayment or redemption date, if requested by the Company, the
Noteholder will deliver this Note to the Company for notation thereon of the
amount of principal so prepaid or redeemed, and in consideration therefor, the
Company shall promptly deliver (x) the Redemption Price to such
Noteholder, which will be payable by wire transfer of immediately available
funds to an account designated with reasonable advance notice by such
Noteholder or by check if requested by the Noteholder and (y) in the case
of a partial redemption, a replacement Note reflecting the remaining
outstanding principal amount after giving effect to the prepayment or
redemption.

 

3.5.            Application of Payments.  All payments made by the Company hereunder must
be applied:  (i) first, to the
payment in full of accrued and unpaid interest and (ii) second, to the
reduction of unpaid principal.

 

3.6.           Cancellation; Offset. 
For so long as this Note is outstanding, notwithstanding anything to the
contrary in this Note, the Company may cancel all or a portion of this Note to
satisfy amounts due to the Company or any Buyer Indemnified Person under
Sections 2.5 or Section 8 of the Asset Purchase Agreement.  The Company, in its sole discretion, may
elect by written notice to the Noteholder to cause any such cancellation to be
applied on a dollar-for-dollar basis to (i) the payment of accrued and
unpaid interest, (ii) the payment of interest which will accrue in the
future and (iii) to the reduction of outstanding principal, or any
combination of the foregoing (provided that the Company makes the same election
as to all Notes and that any such offset shall be made against all Notes pro
rata based on their respective outstanding principal amounts at the time of
such offset).  To the extent the Company
cancels all or a portion of this Note, (x) the Noteholder shall be
obligated to repay to the Company the amount of any and all interest that has
accrued (at the rate of interest set forth in Section 2) and been paid on
an amount of principal equal in the aggregate to the amount of such
cancellation from the original date of issuance of this Note to the date of
such cancellation and, in order to satisfy such repayment obligation of the
Noteholder, the Company may, in its sole discretion, elect by written notice to
the Noteholder either to increase the amount of such cancellation by the amount
of such interest or require the Noteholder to pay back to the Company all such
interest in cash (whether or not the Noteholder was the holder of the Note at
the time such interest was paid) in which event the Noteholder shall repay such
cash amount to the Company within five (5) Business Days of such notice
and (y) the Company shall be relieved of the obligation to pay any and all
interest that has accrued but not yet been paid on an amount of principal of
the Note equal in the aggregate to such amount from the date of issuance of the
Note until the date of satisfaction of such amount.  If this Note is transferred in accordance
with the terms hereof, it will continue to be subject to the provisions of this
Section 3.6 (whether or not the transferee is a Seller under the Asset
Purchase Agreement).  In no event shall
the sum of (a) the aggregate amount of principal and interest with respect
to this Note cancelled by the Company by operation of this Section 3.6 

 

3

 

and (b) the
aggregate amount of principal and interest with respect to all other Notes
cancelled by the Company by operation of Section 3.6 thereof exceed
$2,500,000.00.

 

3.7.           Payments Subject to Subordination.  Notwithstanding the foregoing provisions of
this Section 3, no cash payment of interest or principal or any other
amounts payable under this Section 3 shall be made at any time when the
payment thereof is prohibited by the provisions of Section 7 (including
Schedule B) hereof.

 

4.             DEFAULTS

 

4.1.               An “Event of Default” will exist if any of the
following conditions or events occurs and is continuing:

 

4.1.1.            The Company (i) defaults
in the payment, when due, of any principal amount, when due, or (ii) defaults
in the payment of any portion of the interest obligations under Section 2
when due and such default is not remedied within 10 days after the same becomes
due and payable; or

 

4.1.2.            The Company (i) files,
or consents by answer or otherwise to the filing against it of, a petition for
relief or Reorganization, (ii) makes an assignment for the benefit of its
creditors, (iii) consents to the appointment of a custodian, receiver,
trustee or other officer with similar powers with respect to it or with respect
to any substantial part of its property, (iv) is adjudicated as insolvent
or to be liquidated or (v) takes corporate action for the purpose of
approving a Reorganization with respect to the Company or any of the foregoing;
or

 

4.1.3.            A governmental authority
enters an order appointing, without consent by the Company, a custodian,
receiver, trustee or other officer with similar powers with respect to it or
with respect to any substantial part of its property, or constituting an order
for relief or approving a petition for Reorganization, or any such petition is
filed against the Company and such petition is not dismissed within 60 days; or

 

4.1.4.            The Company increases
the aggregate principal amount outstanding under the Credit Agreements to in
excess of $305 million; or

 

4.1.5.            Any Credit Agreement at any time contains a provision
that prohibits or limits cash payments under Section 2 or 3.1 hereof of
interest or principal on this Note when such payments become due (it being
acknowledged and agreed that the Credit Agreements may contain provisions which
require subordination of such payments to the extent set forth in Section 3.7,
Section 7 and Schedule B of this Note, and, in each case, the existence of
such provisions and their application to such payments shall not constitute an
Event of Default under this Section 4.1.5); or

 

4.1.6.            The Company or any of its subsidiary parties thereto (a) shall
default in the timely payment of rent when due on more than seven
occasions in aggregate for all Leases over any period of twelve consecutive
months, (b) shall fail to make any payment of overdue rent under any of
the Leases within ten calendar days after receiving notice thereof from the
lessor as provided in the applicable Lease or (c)  shall default in the
payment of purchase price payable under any of the Leases.

 

4

 

4.2.               Acceleration. 
Upon the occurrence and during the continuance of any Event of Default
specified in Section 4.1.2  or Section 4.1.3,
this Note will automatically become immediately
due and payable.  Upon the
occurrence and during the continuance of any Event of Default of the type
specified in Section 4.1.1, 4.1.4, 4.1.5 or 4.1.6, subject to Section 7
of this Note (including Schedule B), the Sellers’ Representative may declare
this Note immediately due and payable by
providing written notice thereof to the Company.  Interest on the outstanding principal amount
will continue to accrue at the Default Rate during any period in which an Event
of Default exists pursuant to Section 2 hereof.

 

5.             TRANSFER AND
REPLACEMENTS OF NOTES

 

5.1.               Transfer of Notes.  No Noteholder may transfer all or any portion
of the Notes held by such Noteholder, except as set forth in this Section 5.

 

5.2.               Permitted Transfers.

 

5.2.1.            Any Noteholder to whom
any Notes are issued in connection with the closing under the Asset Purchase
Agreement may transfer any of the Notes held by such Noteholder, as a gift, to an Individual Owner or a
Member of the Immediate Family of an Individual Owner for no consideration.

 

5.2.2.            This Note may not be
transferred in denominations of less than $50,000; provided that if necessary
to enable the registration of a permitted transfer by a Noteholder of its
entire holding of Notes, one Note may be in a denomination of less than
$50,000.

 

5.2.3.            The Company agrees to promptly register
the transfer of this Note made in accordance with this Section 5 in the
Noteholder Register upon written request of the Noteholder.  No transfer or attempted transfer is
effective until entered on the books and records maintained by the
Company.  Any transfer in contravention
of any of the provisions of this Note is void and of no effect and will not
bind nor be recognized by the Company.

 

5.2.4.            In no event may all or any part of this
Note be transferred to a minor or an incompetent except in trust or pursuant to
the Uniform Gifts to Minors Act or by will or the laws of descent and
distribution (in which event all reasonable efforts will be made by the
executor of the estate of such Noteholder to have such Note placed in a trust
for the benefit of the transferee).

 

5.2.5.            Upon surrender of any
Note at the principal executive office of the Company for registration of a
permissible transfer, duly endorsed or accompanied by a written instrument of
transfer duly executed by the registered Noteholder and accompanied by the
address for notices of each transferee of such Note or part thereof, the
Company shall execute and deliver, at the expense of the Company (except as
provided below), one or more new Notes (as requested by the Noteholder thereof)
in exchange therefor, in an aggregate principal amount equal to the unpaid
principal amount of the surrendered Note. 
Each such new Note will be dated and bear interest from the date to
which interest has been paid on the surrendered Note or dated the date of the
surrendered Note if no interest has have been paid thereon.  The Company may require payment (or
reasonably satisfactory evidence of payment) of a sum sufficient to cover any
stamp tax or governmental charge imposed in respect of any such transfer of
Notes.

 

5

 

5.3.               Replacement of
Notes.  Upon receipt by the Company of evidence
reasonably satisfactory to it of the ownership of and the loss, theft,
destruction or mutilation of any Note, and, in the case of loss, theft or
destruction, of indemnity reasonably satisfactory to it, or, in the case of
mutilation, upon surrender and cancellation thereof, the Company shall, at its
own expense, execute and deliver, in lieu thereof, a new Note, dated and
bearing interest from the date to which interest has been paid on such lost,
stolen, destroyed or mutilated Note or dated the date of such lost, stolen,
destroyed or mutilated Note if no interest has been paid thereon.

 

6.             REPRESENTATIONS AND
WARRANTIES OF THE COMPANY

 

The Company represents and warrants as of the date
of this Note that:

 

6.1.               Organization; Power and Authority.  The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Delaware.  The Company has the requisite
power and authority to transact the business it transacts and proposes to
transact, and to execute and deliver this Note.

 

6.2.               Authorization, etc. 
This Note has been duly authorized by all necessary corporate action on
the part of the Company, and this Note constitutes a legal, valid and binding
obligation of the Company enforceable against the Company in accordance with
its terms.

 

6.3.               Non-Contravention. 
The execution, delivery and performance by the Company of this Note will
not (i) contravene, result in any breach of, or constitute a default under
its certificate of incorporation or bylaws or (ii) violate any provision
of any material statute or other rule or regulation of any governmental
authority applicable to the Company or any material debt agreement or other
material agreement of the Company, including without limitation any of the
Credit Agreements as in effect at the date of this Note, complete and accurate
copies of which have been provided to the Seller’s Representative.

 

6.4.               Governmental Authorizations, etc.  No consent, approval or authorization of, or
registration, filing or declaration with, any governmental authority is
required in connection with the execution, delivery or performance by the
Company of this Note.

 

7.             SUBORDINATION

 

Notwithstanding any provision of this Note to the
contrary, this Note and the rights and obligations evidenced hereby are
subordinate and junior to the prior payment in full of all other Senior
Indebtedness of the Company, and are subject to the subordination provisions
set forth in Schedule B hereto.  Each of
the Company and the Noteholder, by its acceptance hereof, covenants that each
of them will comply with the provisions of Schedule B hereto.

 

8.             AMENDMENT
AND WAIVER

 

8.1.               Requirements.  This Note may be amended, and the observance
of this Note may be waived (either retroactively or prospectively) only as follows:

 

6

 

(a)  in the case of a waiver or consent affecting only this
Note, by a written waiver or consent signed by the party against whom the
waiver is to be enforced;

 

(b)  in the case of a waiver or consent affecting all
Notes, by a written waiver or consent signed, in the case of a waiver or
consent to be enforced against the Company, by the Company, and in the case of
a waiver or consent to be enforced against the Noteholders, by the Sellers’
Representative;

 

(c)  in the case of an amendment affecting only this Note,
by a written instrument signed by the Company and the Noteholder; and

 

(d)  in the case of an amendment affecting all Notes, by a
written amendment signed by the Company and the Sellers’ Representative.

 

8.2.               Delivery of
Amendments.  The Company will deliver
true and correct copies of each executed amendment, waiver or consent effected
pursuant to the provisions of this Section 8 that has been consented to by
the Sellers’ Representative and not been signed by the Noteholder to the
Noteholder promptly (but in no event later than 15 Business Days) following the
date on which it is executed and delivered.

 

8.3.               Binding Effect,
etc.   This Note shall have no effect
until it has been countersigned by the Noteholder and a countersigned copy of
the Note has been delivered to the Company. 
Any amendment, waiver or consent consented to as provided in this Section 8
that is specified to apply equally to all Noteholders will apply equally to all
Noteholders and be binding upon each of them and upon each future Noteholder
and upon the Company without regard to whether such Note has been marked to
indicate such amendment or waiver.  No
such amendment or waiver will extend to or affect any obligation, covenant,
agreement, default or Event of Default not expressly amended or waived or
impair any right consequent thereon.  No
course of dealing between the Company and the Noteholders nor any delay in
exercising any rights hereunder or under any Note will operate as a waiver of
any rights of any Noteholder.

 

9.             MISCELLANEOUS

 

9.1.          Notices.  All
notices, requests, demands, claims and other communications required or
permitted to be delivered, given or otherwise provided hereunder must be in
writing and must be delivered, given or otherwise provided:

 

(a)  by hand (in
which case, it will be effective upon delivery); or

 

(b)  by overnight
delivery by a nationally recognized courier service (in which case, it will be
effective on the Business Day after being deposited with such courier service);

 

in each case, to the address listed below:

 

7

 

If to the Noteholder:

 

c/o Shaun Gabbay

PO Box 222144

Great Neck, NY 11022

Telephone:  (516) 317-7776

 

with a copy to:

 

Skadden, Arps, Slate,
Meagher & Flom LLP

Four Times Square

New York, NY 10036

Telephone number:  (212) 735-2524

Attention:  Randall H. Doud

 

and

 

Steve Cohn, PC

One Old Country Road

Carle Place, NY 11514

Telephone:  (516) 294-6410

 

If to the Company, to it at:

 

Cellu Tissue Holdings, Inc.

1855 Lockeway Drive

Suite 501

Alpharetta, GA 30004

Telephone number:  (678)
393-2651

Attention:  Russell Taylor

 

with a copy to:

 

Ropes & Gray LLP

1211 Avenue of the Americas

New York, NY 10036-8704

Telephone number:  (212) 841-0697

Attention:  Christopher C. Henry

 

and

 

Weston Presidio

Pier 1, Bay 2

San Francisco, CA 94111

Telephone number:  (415) 398-0770

Attention:  R. Sean Honey, Therese Mrozek
and Jim Morrone

 

Each of the Noteholder and the Company may specify a
different address for itself by giving notice in accordance with this Section 9.1
to each of the other parties hereto.

 

8

 

Written notices to the holders of Senior
Indebtedness shall be made as specified in Schedule C attached hereto.

 

9.2.          Jurisdiction; Venue; Service of Process.

 

9.2.1.            Jurisdiction. 
The Noteholder and the Company (a) hereby irrevocably submits to
the exclusive jurisdiction of the state courts of  the State of New York or the United States District Court
located in the Southern District of the State of New York for the purpose of
any Action between the parties arising in whole or in part under or in
connection with this Note, (b) hereby waives to the extent not prohibited
by applicable law, and agrees not to assert, by way of motion, as a defense or
otherwise, in any such Action, any claim that it is not subject personally to
the jurisdiction of the above-named courts, that its property is exempt or
immune from attachment or execution, that any such Action brought in one of the
above-named courts should be dismissed on grounds of forum non conveniens, should be transferred or removed to
any court other than one of the above-named courts, or should be stayed by
reason of the pendency of some other proceeding in any other court other than
one of the above-named courts, or that this Note or the subject matter hereof
may not be enforced in or by such court and (c) hereby agrees not to
commence any such Action other than before one of the above-named courts.  Notwithstanding the previous sentence a party
may commence any Action in a court other than the above-named courts solely for
the purpose of enforcing an order or judgment issued by one of the above-named
courts.

 

9.2.2.            Venue.  The
Noteholder and the Company agree that for any Action between the parties
arising in whole or in part under or in connection with this Note, such party
bring Actions only in the Borough of Manhattan. 
Each party further waives any claim and will not assert that venue
should properly lie in any other location within the selected jurisdiction.

 

9.3.               Service of Process. 
Each of the Noteholder and the Company hereby (a) consents to
service of process in any Action between the parties arising in whole or in
part under or in connection with this Note in any manner permitted by New York
law, (b) agrees that service of process made in accordance with clause (a) or
made by registered or certified mail, return receipt requested, at its address
specified pursuant to Section 9.1 (with copy to its counsel specified in Section 9.1
at the address for such counsel specified in such section), will constitute
good and valid service of process in any such Action and (c) waives and
agrees not to assert (by way of motion, as a defense, or otherwise) in any such
Action any claim that service of process made in accordance with clause (a) or
(b) does not constitute good and valid service of process.

 

9.4.               Governing Law.  This Note, the rights of the parties and all Actions
arising in whole or in part under or in connection herewith, will be governed
by and construed in accordance with the domestic substantive laws of the State
of New York, without giving effect to any choice or conflict of law provision
or rule that would cause the application of the laws of any other
jurisdiction.

 

9.5.               Waiver of Jury Trial. 
TO THE EXTENT NOT PROHIBITED BY
APPLICABLE LAW THAT CANNOT BE WAIVED, EACH OF THE COMPANY AND 

 

9

 

THE NOTEHOLDER HEREBY WAIVE, AND
COVENANT THAT THEY WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR
OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY ACTION ARISING IN WHOLE OR IN PART UNDER
OR IN CONNECTION WITH THIS NOTE, WHETHER NOW EXISTING OR HEREAFTER ARISING, AND
WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE.  THE COMPANY AND THE NOTEHOLDER AGREE THAT EACH
OF THEM MAY FILE A COPY OF THIS PARAGRAPH WITH ANY COURT AS WRITTEN
EVIDENCE OF THE KNOWING, VOLUNTARY AND BARGAINED-FOR AGREEMENT AMONG THE
PARTIES IRREVOCABLY TO WAIVE ITS RIGHT TO TRIAL BY JURY IN ANY PROCEEDING
WHATSOEVER BETWEEN THEM RELATING TO THIS NOTE OR ANY OF THE CONTEMPLATED
TRANSACTIONS WILL INSTEAD BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A
JUDGE SITTING WITHOUT A JURY.

 

9.6.               Successors and
Assigns.  All covenants and other
agreements contained in this Note by or on behalf of any of the parties hereto
bind and inure to the benefit of their respective successors and permitted
assigns (including, without limitation, any subsequent Noteholder) whether so
expressed or not; provided, that the Noteholder may not assign its rights and
obligations hereunder except pursuant to a transfer permitted by Section 5
hereof.

 

9.7.               Payments Due on
Non-Business Days.  Anything in this Note
to the contrary notwithstanding, any payment of principal of, or interest on,
any Note that is due on a date other than a Business Day may be made on the
next succeeding Business Day, including the additional days elapsed in the
computation of the interest payable on such next succeeding Business Day.

 

9.8.               Severability.  Any term or provision of this Note that is invalid or
unenforceable in any situation in any jurisdiction will not affect the validity
or enforceability of the remaining terms and provisions hereof or the validity
or enforceability of the offending term or provision in any other situation or
in any other jurisdiction.  In the event
that any provision hereof would, under applicable law, be invalid or
unenforceable in any respect, each party hereto intends that such provision
will be construed by modifying or limiting it so as to be valid and enforceable
to the maximum extent compatible with, and possible under, applicable law.

 

9.9.               No Third Party Beneficiaries.  Except as set forth in Schedule B hereto,
nothing in this Note may be deemed or construed to give any Person, other than
the Company and the Noteholder and his, her or its respective permitted
successors and assigns, any legal or equitable rights hereunder.

 

9.10.             Noteholder Register. 
For purposes of determining the Noteholders at any time, the Company and
any holder of Senior Indebtedness is entitled to rely on the records of the
Company and, for such purpose, the Company hereby agrees to maintain a register
of Noteholders (the “Noteholder Register”) at its principal office in which the
Company shall provide for registration and transfer of Notes.  Absent demonstrable error, the Noteholder
Register will be conclusive evidence of the ownership of the Noteholders at any
point in time.

 

10

 

IN
WITNESS WHEREOF, the undersigned has caused this Note to be executed by a duly
authorized officer as of the date first written above.

 

	
   

  	
  CELLU TISSUE HOLDINGS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/ Russell C. Taylor

  
	
   

  	
  Name: 

  	
  Russell C. Taylor

  
	
   

  	
  Title:

  	
  President and Chief Executive Officer

  
					

 

 

Accepted and Agreed:

 

Atlantic Paper & Foil Corp.
of N.Y.

 

 

	
  By: 

  	
  /s/ Shaun Gabbay

  	
   

  
	
  Name: 

  	
  Shaun Gabbay

  
	
  Title:

  	
  Secretary

  
				

 

11

 

SCHEDULE A

 

DEFINED TERMS

 

As used herein, the following
terms have the respective meanings set forth below:

 

“Action” means any claim, action,
cause of action or suit (whether in contract or tort or otherwise), litigation
(whether at law or in equity, whether civil or criminal), controversy,
assessment, arbitration, investigation, hearing, charge, complaint, demand,
notice or proceeding to, from, by or before any Governmental Authority.

 

“Affiliate” means, with respect to
any specified Person at any time means, (a) each Person directly or
indirectly controlling, controlled by or under direct or indirect common
control with such specified Person at such time, (b) each Person who is at
such time an officer or director of, or direct or indirect beneficial holder of
at least 20% of any class of the Equity Interests of, such specified Person, (c) each
Person that is managed by a common group of executive officers and/or directors
as such specified Person, (d) the Members of the Immediate Family (i) of
each officer, director or holder described in clause (b) and (ii) if
such specified Person is an individual, of such specified Person and (e) each
Person of which such specified Person or an Affiliate (as defined in clauses (a) through
(d)) thereof will, directly or indirectly, beneficially own at least 20% of any
class of Equity Interests at such time.

 

“Associated Bank Agreement” means
the Amended and Restated Reimbursement Agreement dated as of March 21,
2007 between Cellu Tissue-CityForest LLC (formerly known as CityForest
Corporation) and Associated Bank, National Association, as the same may be
amended, supplemented or otherwise modified from time to time

 

“Business Day” means any weekday
other than a weekday on which banks in New York, New York are authorized or
required to be closed.

 

“Buyer Indemnified Person” shall
have the meaning ascribed to such term in the Asset Purchase Agreement.

 

“Contractual Obligation” means,
with respect to any Person, any contract, agreement, deed, mortgage, lease,
license, commitment, promise, undertaking, arrangement or understanding,
whether written or oral and whether express or implied, or other document or
instrument (including any document or instrument evidencing or otherwise
relating to any Indebtedness,) to which or by which such Person is a party or
otherwise subject or bound or to which or by which any property, business,
operation or right of such Person is subject or bound.

 

“Credit Agent” means (i) the “Agent”
(if any) as defined in the Senior Credit Agreement and (ii) in the absence
of any such Agent, a “Lender” or the “Lenders” as defined in the Senior Credit
Agreement.

 

“Credit Agreement(s)” means the Senior Credit
Agreement, the Indenture, Associated Bank Agreement, any notes or other
instruments issued pursuant to any of the foregoing, any agreement providing
for the replacement or refinancing thereof (whether or not with the same

 

A-1

 

agent or lenders), in each
case as the same may be amended, modified,
extended or renewed, and any document evidending Senior Indebtedness or entered
into or issued in connection with or issued in connection with the issuance of
Senior Indebtedness.

 

“Equity Interests” means (a) any
capital stock, share, partnership or membership interest, unit of participation
or other similar interest (however designated) in any Person and (b) any
option, warrant, purchase right, conversion right, exchange rights or other
Contractual Obligation which would entitle any Person to acquire any such interest
in such Person or otherwise entitle any Person to share in the equity, profit,
earnings, losses or gains of such Person (including stock appreciation, phantom
stock, profit participation or other similar rights).

 

“Excluded Default” means a default
or event of default existing only with respect to Senior Indebtedness that (a) has
an outstanding principal balance of less than $1,000,000 and is not owing under
the Senior Credit Agreement, the Indenture or the Associated Bank Agreement or
any replacement or refinancing of any thereof or (b) is owing to an
Affiliate of the Company.

 

“GAAP” means
generally accepted accounting principles as in effect from time to time in the
United States of America and consistently applied across the periods involved.

 

“Governmental Authority” means any
United States federal, state or local or any foreign government, or political
subdivision thereof, or any multinational organization or authority or any
authority, agency or commission entitled to exercise any administrative, executive,
judicial, legislative, police, regulatory or taxing authority or power, any
court or tribunal (or any department, bureau or division thereof), or any
arbitrator or arbitral body.

 

“Indebtedness” means, with respect to any Person, without
duplication, all obligations (including in respect of principal, accrued
interest, penalties, fees and premiums) of such Person (i) for borrowed
money (including overdraft facilities to the extent drawn on), (ii) evidenced
by notes, bonds, debentures or other similar instruments (other than
performance, surety and appeal bonds arising in the ordinary course of business
in respect of which such Person’s Liability remains contingent), (iii) for
the deferred purchase price of property, goods or services (other than trade
payables or accruals and deferred compensation items incurred in the ordinary
course of business), (iv) under leases that have been, or should have
been, in accordance with GAAP, recorded as capital leases, to the extent
required to be so recorded, (v) in respect of letters of credit and
bankers’ acceptances, (vi) relating to interest rate protection, swap
agreements and collar agreements and (vii) in the nature of guarantees of
the obligations described in clauses (i) through (vi) above of any
other Person.

 

“Indenture” means the Indenture
dated as of March 12, 2004, among Cellu Tissue Holdings, Inc., the
Subsidiary Guarantors party thereto and The Bank of New York, as Trustee, as
the same may be amended, supplemented or otherwise modified from time to time.

 

“Individual Owner” shall have the
meaning ascribed to such term in the Asset Purchase Agreement.

 

“Leases”
mean collectively (i) the lease between Atlantic Paper & Foil,
Corp. of N.Y. and Cellu Tissue – Hauppauge, LLC with respect to the real property
located at 325 Kennedy Drive, Hauppauge, New York 11788, (ii) the lease
between Atlantic Long Island Properties, Inc. and

 

A-2

 

Cellu Tissue – Hauppauge, LLC with respect to the real
property located at 50 Gilpin Avenue, Hauppauge, New York 11788, and (iii) the
lease between Atlantic Lakeside Properties, LLC and Cellu Tissue – Thomaston,
LLC with respect to the property located at 1201 Barnesville Street, Thomaston,
Georgia 30286.

 

“Lenders” means the Credit Agent
(if applicable) and each lender or noteholder under each Credit Agreement.

 

“Liability” means, with respect to
any Person, any liability or obligation of such Person whether known or
unknown, whether asserted or unasserted, whether determined, determinable or
otherwise, whether absolute or contingent, whether accrued or unaccrued,
whether liquidated or unliquidated, whether incurred or consequential, whether
due or to become due and whether or not required under GAAP to be accrued on
the financial statements of such Person.

 

“Members of the Immediate Family”
means, with respect to any individual, (a) such Person’s spouse, (b) each
parent, brother, sister or child of such Person or such Person’s spouse, (c) the
spouse of any Person described in clause (b) above, (d) each child of
any Person described in clauses (a), (b) or (c) above, (e) each
trust created solely for the benefit of one or more of the Persons described in
clauses (a) through (d) above and (f) each custodian or guardian
of any property of one or more of the Persons described in clauses (a) through
(e) above in his capacity as such custodian or guardian.

 

“Non-payment Default” means any
event or condition, other than a Payment Default, that causes, or permits the
holder of any Senior Indebtedness to cause, any Senior Indebtedness to become
due and payable prior to its stated maturity; provided, that “Non-payment
Default” shall not include an Excluded Default.

 

“Payment Default” means any default in the payment
when due (whether at maturity or upon acceleration, mandatory prepayment or
otherwise) of any Senior Indebtedness, including any payment of principal,
interest, premium, letter of credit reimbursement obligations, fees, costs,
expenses or other amounts; provided, that “Payment Default” shall not include
an Excluded Default.

 

“Permitted Junior Securities”
means securities of the Company or any subsidiary or any other Person that are
subordinated in right of payment to all Senior Indebtedness to substantially
the same or greater extent as the Notes are so subordinated as provided in
Schedule B hereto.

 

“Person” means any individual or
corporation, association, partnership, limited liability company, joint
venture, joint stock or other company, business trust, trust, organization,
Governmental Authority or other entity of any kind.

 

“Refinancing Repayment Event”
means any refinancing of the Indebtedness outstanding under the Indenture
which, after giving effect thereto, results in the aggregate principal amount
of Senior Indebtedness outstanding immediately following such refinancing
exceeding $305 million.

 

“Reorganization”
means (i) any insolvency or bankruptcy case or
proceeding, or any receivership, liquidation, reorganization or other similar
case or proceeding in connection

 

A-3

 

therewith,
relative to the Company or its assets or (ii) any liquidation, dissolution
or other winding up of the Company, whether voluntary or involuntary and
whether or not involving insolvency or bankruptcy.

 

“Reorganization Securities” means
shares of stock of the Company or any Affiliate, or their successors, as
reorganized, or other securities of the Company or any Affiliate or any other
Person provided for by a plan of reorganization, the payment of which is subordinated
in right of payment to the payment in full of all Senior Indebtedness, where
such plan of reorganization is either authorized by a court decree or order
that states that effect has been given to the subordination of the Notes to the
Senior Indebtedness or approved by holders of Senior Indebtedness as a class.

 

“Sellers’ Representative” shall
mean the person appointed as such under the Asset Purchase Agreement.

 

“Senior Credit Agreement” means
the Credit Agreement, dated as of June 12, 2006, by and among Cellu Paper
Holdings, Inc., Cellu Tissue Holdings, Inc., Interlake Acquisition
Corporation Limited, the Loan Guarantors party thereto, the lenders party
thereto, JPMorgan Chase Bank, N.A., as US Administrative Agent, and JPMorgan
Chase Bank, N.A., Toronto Branch, as Canadian Administrative Agent, as
previously amended and as may be further amended, supplemented or otherwise
modified from time to time.

 

“Senior Indebtedness” means (i) all
Indebtedness under the Senior Credit Agreement, the Indenture, any notes or
other instruments issued pursuant to either of the foregoing, any agreement
providing for the replacement or refinancing thereof (whether or not with the
same agent or lenders), in each case as the same
may be amended, modified, extended or renewed, (ii) all
Indebtedness under or in respect of the Associated Bank Agreement, and (iii) any other Indebtedness that is
permitted to be incurred under the Senior Credit Agreement or the Indenture and
is specifically designated in the instrument evidencing such Indebtedness as “Senior
Indebtedness” for the purpose of this Note.

 

A-4

 

SCHEDULE B

 

SUBORDINATION PROVISIONS

 

1.1           Notes
Subordinated to Senior Indebtedness.  The
Company covenants and agrees and the Noteholder by his, her or its acceptance
of this Note covenants and agrees for the benefit of the holders of the Senior
Indebtedness that the Notes are subordinated in right of payment as provided in
this Schedule B to the prior payment in full of all Senior Indebtedness.  Until all amounts outstanding under all Credit
Agreements have been paid in full and all obligations thereunder have been
discharged, the Noteholder is not entitled to any payment from the Company on
account of this Note, other than payments of principal and interest pursuant to
Sections 2 and 3.1 of this Note, subject in all cases to the payment blockage
provisions set forth below in this Schedule B.

 

1.2           Payment Over of Proceeds Upon Bankruptcy.

 

(a)           In the
event of (i) any Reorganization or (ii) any general assignment for
the benefit of creditors or any other marshaling of assets or liabilities of
the Company (the events described in the foregoing clauses (i), and (ii) are
referred to collectively as “Proceedings”), then and in any such event the
holders of Senior Indebtedness shall be entitled to receive payment in full of
all Senior Indebtedness, before any Noteholder is entitled to receive any
payment or distribution of any kind or character (excluding Reorganization
Securities and Permitted Junior Securities) on account of the Notes and to that
end the holders of Senior Indebtedness shall be entitled to receive, for
application to the payment of such Senior Indebtedness, any payment or
distribution of assets of the Company of any kind or character (excluding
Reorganization Securities and Permitted Junior Securities) that may be payable
or deliverable in respect of the Notes in connection with any such Proceeding.

 

(b)           If,
notwithstanding Section 1.2(a) of this Schedule B, any Noteholder
shall have received, after the commencement of any Proceeding, any payment or
distribution of assets of the Company of any kind or character in respect of
the Notes before all Senior Indebtedness is paid in full or payment thereof
provided for, then such payment or distribution (excluding Reorganization
Securities and Permitted Junior Securities) shall be paid over or delivered
forthwith upon demand therefor to the holders of Senior Indebtedness for
application to the payment of all Senior Indebtedness remaining unpaid, to the
extent necessary to pay all Senior Indebtedness in full, after giving effect to
any concurrent payment or distribution to or for the holders of Senior
Indebtedness.

 

(c)           Each of the Noteholders
irrevocably authorizes and directs the Lenders and the Credit Agent and its
successors and assigns and any trustee in bankruptcy, receiver or assignee for
the benefit of creditors of the Company, whether in voluntary or involuntary
liquidation, dissolution or reorganization, on its behalf to take such action
as may be necessary or appropriate to effectuate the subordination provisions
and other rights granted to the Credit Agent and the Lenders in Schedule B
(including without limitation to file a proof of claim and to vote upon matters
with respect to which any Noteholder may be able to vote in connection with any
Proceedings relating to the Company) and irrevocably appoints the Lenders and
the Credit Agent and their successors and assigns, acting severally, or any
such trustee, receiver or assignee, each

 

B-1

 

such Noteholder’s attorney- or attorneys-in-fact for
such purposes with full powers of substitution and resubstitution.

 

1.3           Suspension of Payments When Senior
Indebtedness in Default.

 

(a)           After the
occurrence and during the continuation of any Payment Default, the Company
shall not make any payment or distribute any assets of the Company or its
Subsidiaries of any kind or character (other than (x) Reorganization
Securities, (y) Permitted Junior Securities and (z) payment of
interest by capitalizing it and adding it to the principal amount of the Notes)
on account of the Notes unless and until the earliest to occur of (i) such
Payment Default is cured or waived to the satisfaction of the holders of the
Senior Indebtedness as required under the terms of the Senior Indebtedness
under which such Payment Default occurred, (ii) all Senior Indebtedness
with respect to which such Payment Default occurred is discharged in full or (iii) the
benefit of this provision has been waived by the holders of the Senior
Indebtedness as required under the terms of the Senior Indebtedness under which
such Payment Default occurred, after which event under clause (i), (ii) or
(iii) the Company shall resume making any and all required payments in
respect of the Notes, including any payment in arrears at the Default Rate
(provided that, for the avoidance of doubt, the Default Rate shall not apply
during any period when there is no continuing Event of Default).

 

(b)           After the
occurrence and during the continuation of any Non-payment Default and the
receipt by the Company and the Noteholders of a written notice from the holders
of Senior Indebtedness which notice makes reference to the Notes, the
subordination provisions of this Schedule B and states that a Non-payment
Default has occurred, the Company shall not make any payment or distribute any
assets of the Company or its Subsidiaries of any kind or character (other than (x) Reorganization
Securities, (y) Permitted Junior Securities and (z) payment of
interest by capitalizing it and adding it to the principal amount of the Notes)
on account of the Notes unless and until the earliest to occur of (i) such
Non-payment Default is cured or waived to the satisfaction of the required
holders of the Senior Indebtedness under which such Non-payment Default
occurred, (ii) all Senior Indebtedness is discharged in full, (iii) the
required holders of Senior Indebtedness under which such Non-payment Default
occurred waive the benefit of this provision, after which event under clause
(i), (ii) or (iii) the Company shall resume making any and all
required payments in respect of the Notes, including any payments in arrears at
the Default Rate (provided that, for the avoidance of doubt, the Default Rate
shall not apply during any period when there is no continuing Event of
Default), or (iv) 180 days from the date of receipt by the Noteholders of
such notice of the occurrence of a Non-payment Default.

 

(c)           If,
notwithstanding the foregoing, the Company makes any payment to any holder of a
Note prohibited by the foregoing provisions of this Section 1.3 of this
Schedule B, then such payment shall be paid over and delivered forthwith by
such holder to the holders of Senior Indebtedness entitled thereto.

 

(d)           Notwithstanding
any provision of this Section 1.3 to the contrary, the holders of Senior
Indebtedness shall not be permitted to declare a payment blockage with respect
to a Non-payment Default under Section 1.3(b) more than one time in
any 360 day period.

 

B-2

 

1.4           Standstill.  If
any Event of Default occurs and continues, the Noteholders shall not, without
the prior written consent of the holders of all Senior Indebtedness, accelerate
the maturity of, or institute proceedings to enforce or collect, any Note or
commence or join with any other creditor of the Company in commencing any
Proceeding against the Company until the Senior Indebtedness has been
discharged in full or 180 days from the date of receipt by the holders of
Senior Indebtedness of written notice by the Noteholders that an Event of
Default has occurred, whichever first occurs. 
If any Noteholder,
contrary to this Schedule B, commences or participates in any action or
Proceeding against the Company, the holders of the Senior Indebtedness may
intervene and interpose as a defense or dilatory plea the making of this
Note.  Should the Noteholders, contrary
to this Schedule B, in any way attempt to enforce the payment of this Note or
any part thereof, the holders of the Senior Indebtedness may restrain the
Noteholder from so doing, it being understood and agreed that (i) the
damages suffered by the holders of the Senior Indebtedness from the Noteholder’s
actions may at that time be difficult to ascertain and may be irreparable, and (ii) the
Noteholder waives any defense that the holders of the Senior Indebtedness
cannot demonstrate damage and/or can be made whole by the awarding of damages.

 

1.5           Provisions
Solely to Define Relative Rights.  The
provisions of this Schedule B are and are intended solely for the purpose of
defining the relative rights of the Noteholders, on the one hand, and the
holders of Senior Indebtedness, on the other hand.  Nothing contained in this Schedule B or in
the Notes is intended to or shall: (a) impair, as among the Company and
the Noteholders, the obligation of the Company to pay to the Noteholders all
amounts payable under the Notes as and when the same shall become due and
payable, all in accordance with the terms hereof and of the Notes and subject
to the terms and conditions of this Schedule B; (b) prevent the
Noteholders from exercising all remedies otherwise permitted by applicable law
upon default under this Note, subject to the terms and conditions of this
Schedule B; or (c) limit the rights of Noteholders to pursue any rights or
remedies hereunder or under applicable law, subject to the terms and conditions
of this Schedule B.

 

1.6           Payments
Held in Trust.  Should any distribution
or the proceeds thereof, in respect of the Notes, be collected or received by
the Noteholders at a time when the Noteholders are not permitted to receive any
such distribution or proceeds thereof, including, if the same is collected or
received when there is or would be after giving effect to such payment, a
Payment Default or Non-payment Default, then the Noteholders shall forthwith
deliver, or cause to be delivered, the same to the holders of Senior
Indebtedness in precisely the form received by the Noteholders (except for any
necessary endorsement) and until so delivered the same shall be held in trust
by the Noteholders for the benefit of the Lenders and the Credit Agent and
shall not be commingled with other property of the Noteholders.

 

1.7           No Waiver
of Subordination Provisions; Indemnification by Noteholders. No right of any
present or future holder of any Senior Indebtedness to enforce subordination as
herein provided shall at any time in any way be prejudiced or impaired by any
act or failure to act on the part of the Company, or by any act or failure to
act by any such holder, or by any noncompliance by the Company with the terms,
provisions and covenants of this Note, regardless of any knowledge thereof that
any such holder may have or be otherwise charged with.  The Noteholder agrees to indemnify the
holders of the Senior Indebtedness and to hold the holders of the Senior
Indebtedness harmless from and against any and all costs and expenses

 

B-3

 

(including, without limitation, reasonable attorney’s fees and expenses) as
they arise, relating to (i) any actions of the Noteholder taken contrary
to this Schedule B and (ii) the enforcement of this Schedule B by the
holders of the Senior Indebtedness against the Noteholder.

 

1.8           Notices.  The Noteholders hereby agree, and by
accepting delivery of any Note their assigns hereby agree, to provide to the
Company notice in accordance with Section 9.1 of the Note of any change of
address of such holder and the address of any assignee of any Note and the
Company agrees to update the Noteholder Register promptly upon receipt of such
Notice.  In so relying on the Noteholder
Register, and otherwise delivering notice to the Noteholders as required by any
section of this Schedule B, any holder of Senior Indebtedness shall not be
prejudiced and no holder of a Note shall benefit as the result of a failure of
any Noteholder to receive the notice so given due to the holder of Senior
Indebtedness having relied upon any incorrect notice information provided to
such holder by the Company or any failure by the Company to maintain an
accurate Noteholder Register and provide it to any holder of Senior
Indebtedness.

 

1.9           Benefits
of Subordination.  Each holder of Senior
Indebtedness is entitled to rely on this Schedule B and is a beneficiary
hereof, and the holders of Senior Indebtedness are entitled to directly enforce
the provisions of this Schedule B against the Noteholders and the Company
(including having the right to bring an action for specific performance or
other equitable relief, and without requiring that all holders of Senior
Indebtedness or the Notes be named as parties in such action).

 

B-4

 

SCHEDULE C

 

NOTICE ADDRESSES FOR HOLDINGS OF SENIOR INDEBTEDNESS

 

(as of July 2, 2008)

 

JP
Morgan Chase Bank, N.A.

120 S.
LaSalle St., 8th Floor

Chicago,
Illinois 60603

Attention:  Michael Culbertson

Telecopy:  (312) 
661-9604

 

with a
copy to:

 

JP
Morgan Chase Bank, N.A.

One
Chase Square, Tower 25

Rochester,
New York 14643

Attention:  John Hariaczyi

Telecopy:  (585) 258-7440

 

JP
Morgan Chase Bank, N.A.,

  Toronto Branch

200 Bay
Street, Suite 1800

Toronto,
Ontario M5J 2J2

Attention:  Funding Office

Telecopy:  (416) 981-9174

 

The
Bank of New York

101
Barclay Street, Floor 8W

New
York, New York 10286

Attention:  Corporate Trust Administration

Telecopy:  (212) 815-5707

 

Associated
Bank, National Association

200
North Adams Street

Green
Bay, Wisconsin 54301

Attention:  Mr. Stephen E. Pasowicz

Telecopy:  (920) 433-3290

 

C-1

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