ASSET PURCHASE AGREEMENT

Exhibit 10.01

 

ASSET PURCHASE AGREEMENT

By and Among

CARAUSTAR INDUSTRIES, INC.,

SPRAGUE PAPERBOARD, INC.,

as Seller

and

CASCADES BOXBOARD GROUP - CONNECTICUT LLC

as Buyer

and

CASCADES INC.

as Guarantor

April 21, 2006

 

TABLE OF CONTENTS

 

 

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TABLE OF CONTENTS

(continued)

 

TABLE OF CONTENTS

(continued)

 

TABLE OF CONTENTS

(continued)

 

SCHEDULES

 

EXHIBITS

 

 

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ASSET PURCHASE AGREEMENT

THIS ASSET PURCHASE AGREEMENT (this “ Agreement ”) made as of the 21st day of April, 2006 by and among Caraustar Industries, Inc., a North Carolina corporation (“ Caraustar ”), Sprague Paperboard, Inc., a Connecticut corporation (“ Sprague ” or “ Seller ” and, hereinafter together with Caraustar, sometimes the “ Caraustar Parties ”), Cascades Boxboard Group—Connecticut LLC, a Delaware limited liability company (“ Buyer ”) and Cascades Inc., a Quebec corporation (the “ Guarantor ”). Capitalized terms used herein and not defined in the specific Section in which they are used, shall have the meanings assigned to such terms in Section 14.01 hereof.

W I T N E S S E T H :

WHEREAS, the Caraustar Parties are engaged in the business of coated recycled boxboard manufacture, marketing and sale (the “ Business ”);

WHEREAS, Sprague conducts the Business at Sprague, Connecticut (the “ Sprague Mill ”).

WHEREAS, Caraustar is directly or indirectly the holder of all of the issued and outstanding shares of capital stock of Sprague;

WHEREAS, Buyer desires to acquire from Sprague all of the Assets and to assume the Assumed Sprague Liabilities, and Caraustar desires to cause Sprague to and Sprague desires to sell, transfer, convey and assign the Assets and the Assumed Sprague Liabilities to Buyer, all on the terms and subject to the conditions hereinafter set forth;

WHEREAS, to induce the parties to enter into this Agreement and perform their respective obligations hereunder, Caraustar has agreed, and has agreed to cause Seller, and each of Caraustar and Seller has agreed to make the representations, warranties, covenants and agreements set forth herein and Buyer has agreed to make the representations, warranties, covenants and agreements set forth herein;

WHEREAS, at the Closing, Buyer, Caraustar and Seller will enter into a transition services agreement (the “ Sprague Transition Services Agreement ”) in form and substance as annexed hereto as Exhibit A ; and

WHEREAS, at the Closing, Buyer and Caraustar will enter into a long-term board supply agreement (the “ Supply Agreement ”) in form and substance as annexed hereto as Exhibit B ; and

WHEREAS, the Guarantor is executing this Agreement as guarantor of the obligations of Buyer pursuant to the terms hereof.

 

NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements hereinafter set forth, and intending to be legally bound, the parties hereto hereby agree as follows:

ARTICLE I

PURCHASE AND SALE OF THE ASSETS

1.01 Purchase and Sale of the Assets .

(a) Assets . Subject to the terms and conditions of this Agreement and on the basis of the representations, warranties, covenants and agreements herein contained, at the Closing, Caraustar shall cause Sprague and Sprague shall sell, assign, convey and deliver to Buyer free and clear of any and all Liens (except for Permitted Liens), and Buyer shall purchase, acquire and accept all of Sprague’s right, title and interest in and to all of the assets, rights and properties of every kind and nature listed below, whether real, personal or mixed, tangible or intangible, whether identifiable or contingent, wherever located, whether or not reflected on the books and records of Sprague, which are used or useful in or in any way related to the Business, other than the Excluded Assets, (collectively, the “ Assets ”):

(i) Current Balance Sheet Assets . All assets shown or reflected on the Current Balance Sheet except for changes in the ordinary course of business since the Current Balance Sheet Date and as otherwise permitted by the terms hereof;

(ii) Real Property . The real property and all Improvements thereon as set forth on Schedule 3.09 , hereinafter (the “ Real Property ”).

(iii) Equipment and Other Tangible Personal Property . All of the fixed assets and other tangible personal property, including, without limitation, machinery, tools, equipment, computers, management information systems (including without limitation all software and hardware related thereto), telephone systems, furniture, fixtures, improvements and supplies owned by Sprague wherever located (collectively, the “ Sprague Personal Property ”), including, without limitation, the Sprague Personal Property set forth on (with locations thereof) Schedule 1.01(a)(iii) hereto and all warranty and warranty rights (implied, expressed, or otherwise) against manufacturers to which Sprague is entitled with respect to any of the Sprague Personal Property (the “ Sprague Warranties ”) and Sprague Personal Property acquired by Sprague through the Closing Date;

(iv) Inventory . All raw materials, components and other parts, work-in-process, finished goods and all other inventory, whether on hand, on order, in transit or held by others on a consignment basis (collectively, the “ Inventory ”) owned by Sprague wherever located, including, without limitation, the Inventory shown or reflected on the Current Sprague Balance Sheet and set forth on (with locations thereof) Schedule 1.01(a)(iv) hereto as of the Current Balance Sheet Date and Inventory acquired by Sprague after the Current Balance Sheet Date and through the Closing Date, excluding only such Inventory as shall have been sold by Sprague in the ordinary course of business from the Current Balance Sheet Date through the Closing Date;

(v) Intellectual Property . All tradenames, tradename rights, trademarks, trademark rights, patents, patent rights, copyrights, copyright rights, service

 

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marks, service mark rights, trade secrets, trade secret rights, inventions, innovations, discoveries, improvements, confidential information, mailing lists, customer lists, price lists, supplier lists, market studies, training and equipment manuals, trade dress, designs, patterns, technology, and manufacturing, engineering, technical and any other know how, processes, business opportunities, and businesses, projects and products planned or under development, other intellectual property rights (including without limitation, all goodwill associated with any of the foregoing, licenses in respect of any of the foregoing, applications relating to any of the foregoing and claims for infringement of or interference with any of the foregoing and the right to recover past damages) and other proprietary information owned by Sprague in any case whether domestic or foreign or registered or common law, including without limitation, the exclusive right to use the name “Sprague Paperboard, Inc.” and all variations, simulations and derivations thereof;

(vi) Receivables . All receivables of Sprague, trade accounts and other accounts receivable, loans receivable and advances as at the Current Balance Sheet Date and all receivables acquired or created by Sprague after the Current Balance Sheet Date and through the Closing Date (collectively, the “ Receivables ”), excluding only such Receivables as shall have been collected by Sprague from the Current Balance Sheet Date through the Closing Date;

(vii) Contracts . All Contracts set forth on Schedule 1.01(a)(vii) hereto and all Contracts entered into by Sprague after the date hereof and through the Closing Date, to the extent permitted by the terms hereof, and all customer contracts, excluding only such Contracts as shall have expired by their terms in the ordinary course of business after the date hereof and prior to the Closing Date or as otherwise permitted by the terms hereof or which are Retained Contracts;

(viii) Sprague Customer Lists . All customer lists (including without limitation, all good will associated with any of the foregoing) owned by Sprague, which set forth all of Sprague’s customers, in any case whether domestic or foreign (the “ Sprague Customer Lists ”), including, without limitation, all of Sprague’s customers set forth on Schedule 1.01(a)(viii);

(ix) Intangible Property . All goodwill, other intangible property, and causes of action, actions, claims and rights of any kind owned by Sprague as against others (whether by contract or otherwise) relating to any of the Assets (including without limitation, the Intellectual Property) or the Assumed Sprague Liabilities or the conduct of the Business by Sprague;

(x) Books, Records, and other Data . All books and records (financial, accounting and other), correspondence, and all sales, marketing, advertising, packaging and promotional materials, files, data, software (whether written, on disk, film, tape or other media, and including all computerized data), drawings, engineering and manufacturing data and other technical information and data, and all other business and other records owned by Sprague, in each case arising under, or relating to, the Assets or the Assumed Sprague Liabilities or the conduct of the Business by Sprague;

 

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(xi) Permits . All Permits, including, without limitation, the Permits set forth on Schedules 3.12(b) and 3.12(c) hereto and all Permits issued after the date hereof and through the Closing Date, excluding only such Permits to the extent not legally transferable; provided that Schedules 3.12(b) and 3.12(c) hereto identifies each Permit which is not legally transferable;

(xii) Prepaid Expenses and Deposits . Prepaid expenses, refunds (other than tax and insurance refunds), security and like deposits, securities, instruments and other investments of Sprague listed on Schedule 1.01(a)(xii) ; and

(xiii) Rights, Remedies and Benefits . All rights, remedies and benefits of Sprague arising under or relating to any of the Assets or the Assumed Sprague Liabilities or the conduct of the Business by Sprague, including, without limitation, rights, remedies and benefits arising out of express or implied warranties from manufacturers or suppliers of the Sprague Personal Property or the Inventory (or components thereof), the other Assets or products purchased or ordered by Sprague prior to the Closing Date (and in any case, any component thereof), and all causes and claims of action arising therefrom.

(b) Excluded Assets . Notwithstanding anything to the contrary contained herein, Sprague is not selling, assigning or conveying to Buyer, Buyer is not purchasing, and the Assets shall not include, any and all assets used by Sprague but owned by CMG or Caraustar or any affiliate thereof other than Sprague, and Sprague’s (collectively, the “ Excluded Assets ”):

(i) cash and cash equivalents, all tax and insurance refunds, and all bank accounts;

(ii) the Retained Contracts;

(iii) all rights and obligations in connection with and assets of the Benefit Plans;

(iv) the assets set forth on Schedule 1.01(b)(iv) hereof;

(v) Sprague’s corporate minute books, stock transfer records and corporate seal; and

(vi) The Caraustar Parties’ or any affiliate’s rights under any federal, state or local laws, rules or regulations or under any documents, instruments or agreements or otherwise of contribution, indemnification or reimbursement arising under or relating to any Excluded Liabilities (including, without limitation, Environmental Laws) by reason of conduct of the Business or by any predecessors at any of the real property owned, formerly owned or leased.

 

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(c) Assumed Sprague Liabilities . Subject to the terms and conditions of this Agreement and on the basis of the representations, warranties, covenants and agreements herein contained, at the Closing, Caraustar shall cause Sprague, and Sprague shall assign to Buyer, and Buyer shall assume from Sprague (collectively, the “ Assumed Sprague Liabilities ”):

(i) liabilities or obligations under each of the Contracts but only to the extent that such liabilities or obligations arise after the Closing Date as a result of the operation of the Assets by Buyer;

(ii) all current trade and other accounts payable of Sprague incurred in the ordinary course of business and all current accrued ordinary course operating expenses of Sprague (excluding all payroll-related amounts);

(iii) liabilities or obligations set forth on Schedule 1.01(c)(iii) .

(iv) Liabilities or obligations (including to any third party), with respect to any Environmental Claim arising under Environmental Laws, in each case, relating to, arising out of, or resulting from:

(A) Any acts or activities conducted, or physical conditions created in connection with the Business or at, related to or from the Premises after Closing;

(B) any violation or alleged violation of Environmental Laws or Environmental Permits arising out of Buyer’s ownership of the Premises or operation of the Business, or by any other person or entity at or from the Premises after Closing;

(C) any post-Closing Release of Hazardous Materials (excluding continued migration of any pre-Closing Release) arising out of Buyer’s ownership of the Premises or operation of the Business, or by any other person or entity at or from the Premises after Closing;

(D) any post-Closing Release of Hazardous Materials arising out of Buyer’s ownership of the Premises or operation of the Business, or by any other person or entity at or from the Premises after Closing to an area where Hazardous Materials were first present on or prior to the Closing, but only to the extent that Buyer exacerbates such pre-Closing Release of Hazardous Materials; and

(v) Subject to Section 1.02(b)(x)(vi) , any costs or damages other than those addressed in Section 1.02(b)(x)(v) arising from or associated with closure of the landfill before the end of the landfill’s useful life.

1.02 Excluded Liabilities . (a) Except as specifically provided in Section 1.01(c) hereof with respect to Assumed Sprague Liabilities and as contemplated by Section 10.02(e) hereof, Buyer shall not assume, nor be deemed to assume, and shall have no responsibility or obligation with respect to, any liability or obligation of, or claim against,

 

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Caraustar or Sprague, or of any predecessor, stockholder or other affiliate of Caraustar or Sprague, of any kind or nature relating to or otherwise arising in connection with the Business conducted by Sprague, whether absolute, accrued, contingent or otherwise, and whether due or to become due and whether or not asserted, and whether or not known or unknown, and however arising, all of which liabilities, obligations and claims Caraustar and Sprague, respectively, hereby agree to retain, remain solely responsible for, perform, pay and discharge promptly as and when due.

(b) Without limiting the generality of the foregoing, except as specifically provided in Section 1.01(c) hereof, Buyer shall not assume nor be deemed to assume, and Caraustar and Sprague hereby agree to retain, remain solely responsible for, perform, pay and discharge promptly as and when due each of the following (collectively, the “ Excluded Liabilities ”):

(i) any and all liabilities or obligations relating to, arising under or in respect of the Indebtedness and checks and drafts of Caraustar or Sprague drawn on, prior to or after the Closing Date;

(ii) any and all liabilities or obligations owing by Sprague to Caraustar, or to any affiliate of Sprague or Caraustar;

(iii) any and all liabilities or obligations or claims of any type relating to, arising under, or in respect of, any Benefit Plan or Multiemployer Plan, including without limitation, any and all liabilities or obligations (including costs and expenses incurred by employees of Caraustar or Sprague or by other participants on, prior, or subsequent to the Closing Date) relating to, arising under, or in respect of, all retirement, health, medical, dental and similar plans in which any employee or other participant of Caraustar or Sprague participates or otherwise covering any employee or other participant of Caraustar or Sprague;

(iv) any and all liabilities or obligations relating to, arising under, or in respect of, any and all Products which are covered by, or are the subject of, any product recall program existing at any time prior to the Closing;

(v) any and all liabilities or obligations or claims of any type relating to, arising under, or in respect of, product liability claims (including, without limitation, for personal injury, damage to or loss of property, or consequential or punitive damages) relating to, arising out of or in respect of Products manufactured and sold prior to the Closing.

(vi) any and all other liabilities or obligations or claims of a type covered by insurance (including self insurance) arising out of pre-Closing occurrences or to the extent such occurrences existed pre-Closing (including without limitation, workers’ compensation liabilities or obligations);

(vii) any and all warranty liabilities or obligations or claims of any type relating to, arising under, or in respect of, warranty programs and practices of Caraustar or Sprague in effect prior to the Closing and relating to, arising under, or in respect of, Products manufactured or sold prior to the Closing;

 

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(viii) any and all liabilities or obligations or claims of any type with respect to Taxes, imposed by the United States or by any foreign country or by any state, municipality, sub-division or instrumentality of the United States or of any foreign country, or by any other taxing authority, and any and all interest and penalties thereon, (a) which are due or payable by Caraustar or Sprague (or any of their respective affiliates); (b) which relate to the Assets or the operation or conduct of the Business on or prior to the Closing Date; (c) which are calculated by reference to any Pre-Closing Period; or (d) except as specifically provided in Section 6.13 , which arise out of the sale of the Assets (and any of them) by Sprague, whether or not disputed;

(ix) any and all liabilities or obligations or claims of any type relating to, arising out of, or in respect of, any and all violations of laws, rules, regulations or Permits (excluding Environmental Laws and Environmental Permits which are subject to the provision of subparagraph (x) below) by Caraustar or Sprague, any and all investigations by or before any Governmental Authority, and any and all judgments, claims and litigations pending or threatened against Caraustar, Sprague or the Business, Real Property or other Assets as of the Closing Date, including without limitation any and all claims, litigations and other matters set forth on Schedule 3.25 hereto;

(x) any liability or obligation (including to any third party), with respect to any Environmental Claim, arising under any Environmental Laws, in each case, relating to, arising out of, or resulting from:

(i) any acts or activities conducted, or physical conditions created in connection with the ownership of the Premises or operation of the Business or at or from the Premises by any Caraustar Party, or by any other person or entity, on or prior to the Closing;

(ii) any violation or alleged violation of any Environmental Laws in connection with the ownership of the Premises or operation of the Business by any Caraustar Party, or by any other person or entity, that occurs on or prior to the Closing;

(iii) any presence, generation, treatment, transportation, storage, recycling, discharge, emission, disposal, Release, threatened Release, or suspected Release of any Hazardous Materials, or arrangement for any of the foregoing, in connection with the ownership of the Premises or the operation of the Business, or at or from the Premises by any Caraustar Party, or by any other person or entity, on or prior to the Closing;

(iv) any requirements of any consent order or other order or directive by any Governmental Authority with respect to environmental matters that Caraustar or Sprague were required to complete on or prior to the Closing, but not including post-Closing compliance obligations associated with the Business or the Premises;

 

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(v) all costs associated with any work needed to assess, monitor, improve, permit and/or close the landfill located on the Premises, and, with respect only to post-closure costs, the applicable percentage of post-closure costs based on the number of years Seller utilized the landfill versus the number of years Buyers utilized the landfill;

(vi) any costs or damages other than those addressed in Section 1.02(b)(x)(v) arising from or associated with closure of the landfill triggered solely by the actions of International Paper or Sellers (for the avoidance of doubt, but not due to such closure triggered by a Governmental Authority) before the end of the landfill’s useful life provided that such costs or damages shall be limited to: (1) for a landfill closure triggered by the actions of International Paper, the costs and damages recovered by Sellers from International Paper, if any, less the costs and expenses incurred by Sellers in connection with the recovery of such costs and damages (including, but not limited to Sellers’ attorneys’ and consultants’ fees) from International Paper; or (2) for a landfill closure triggered by the actions of Sellers, an amount equal to the cost to Buyer of the lost useful life of the landfill as calculated from the date of the closure of the landfill up through the second anniversary of the Closing Date, which cost shall be calculated on the basis of an annual cost conclusively deemed to be $1,700,000. Buyer shall use best efforts to develop viable alternatives to the use of the landfill and obtain all applicable regulatory approvals, complete construction, and commence commercial operation of its selected alternative before the third anniversary of the Closing Date. This paragraph (vi) and the rights, privileges and obligations set forth herein shall expire on the second anniversary of the Closing Date. In the event that International Paper triggers closure of the landfill as set forth in this paragraph (vi), Seller shall diligently pursue all of its available remedies against International Paper.

For greater certainty, Releases of Hazardous Materials that were first present on the Premises or on an off-site property impacted by a Release of Hazardous Materials from the Premises on or prior to Closing shall be Excluded Liabilities, except for any post-Closing Release of Hazardous Materials arising out of Buyer’s ownership of the Premises or operation of the Business, or by any other person or entity after Closing, to the extent that Buyer exacerbates such pre-Closing Hazardous Materials. Notwithstanding the foregoing, responsibility for any liabilities or obligations with respect to any Releases of Hazardous Materials first present on the Premises or an off-site property impacted by a Release of Hazardous Materials from the Premises on or prior to Closing (excluding Releases of Hazardous Materials occurring or otherwise arising after Closing or pre-Closing Releases of Hazardous Materials that are exacerbated after the Closing, including Releases of Hazardous Materials from the Premises to off-site properties) that are within the coverage of the License for Access and Remediation shall be governed exclusively by the License for Access and Remediation;

 

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(xi) any liabilities or obligations or claims of any type relating to, arising out of, or in respect of The Worker Adjustment and Retraining Notification Act of 1988 (“ WARN Act ”) from acts or omissions taken by a Caraustar Party prior to the Closing; and

(xii) except for the Assumed Sprague Liabilities, all other liabilities and obligations of, or claims against, Caraustar or Sprague, or of any predecessor, stockholder or other affiliate of Caraustar or Sprague, arising out of or related to the ownership of the Assets (or any of them) or the conduct of the Business conducted by Caraustar or Sprague or any affiliate thereof prior to the Closing, of any kind or nature, whether absolute, accrued, contingent or otherwise, whether due or to become due and whether or not asserted, and whether known or unknown, and however arising.

ARTICLE II

THE PURCHASE PRICE

2.01 Purchase Price . The purchase price for the Assets (the “ Purchase Price ”) shall consist of the Closing Purchase Price and the assumption by Buyer of the Assumed Sprague Liabilities. The Purchase Price shall be paid as follows:

(a) an amount equal to $14,500,000 (the “ Closing Purchase Price ”) shall be paid to Sprague, in such allocated amounts as are set forth on Schedule 2.02 , at the Closing; and

(b) by Buyer’s execution and delivery of the instruments respecting the assumption of the Assumed Sprague Liabilities at the Closing.

The payments described in (a) above shall be paid by Buyer on the Closing Date (as defined below) by bank wire transfer of immediately available funds, to an account or accounts designated by the Caraustar Parties at least two (2) days prior to the Closing Date.

2.02 Allocation of Purchase Price . The Purchase Price (including the Assumed Sprague Liabilities) shall be allocated among the Assets as set forth in Schedule 2.02 hereto. The parties hereto agree that the allocation of the Purchase Price is intended to comply with Section 1060 of the Code. The parties shall cooperate to comply with all substantive and procedural requirements of Section 1060 of the Code and any regulations thereunder, and the allocation shall be adjusted and/or supplemented if, and to the extent, necessary to comply with the requirements of Section 1060 of the Code. None of Buyer, Seller or Caraustar will take, nor permit any affiliated person to take, for federal, state or local income tax purposes, any position inconsistent with the allocation set forth in Schedule 2.02 hereto, or, if applicable, such adjusted or supplemental allocation. Each of the Caraustar Parties and Buyer agree that they shall attach to their tax returns for the tax year in which the Closing shall occur an information statement on Form 8594, which shall be completed in accordance with the allocation set forth in Schedule 2.02 hereto, and shall cooperate with each other in preparing and filing any supplements to such form as may be required under Section 1060 of the Code.

 

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ARTICLE III

REPRESENTATIONS AND WARRANTIES

OF CARAUSTAR AND SELLER

Caraustar, jointly and severally, and Seller, severally but not jointly, hereby represent and warrant to Buyer, as of the date hereof and as of the Closing Date, that:

3.01 Organization and Qualification . Caraustar is duly organized, validly existing and in good standing under the laws of the State of North Carolina. Sprague is duly organized, validly existing and in good standing under the laws of Connecticut. Sprague is qualified to do business and in good standing in each jurisdiction in which Sprague is required to be so qualified. Sprague does not have any subsidiaries or own any capital stock or other proprietary interest, directly or indirectly, in any other corporation, association, trust, partnership, limited liability company, joint venture or other entity, or have any agreement with any person, firm, corporation or other entity to acquire any such capital stock or other proprietary interest. Each of the Caraustar Parties has full power, authority and legal right to enter into and consummate the transactions contemplated under this Agreement and under each other instrument and document required to be executed and delivered by Caraustar and Seller pursuant hereto. Sprague has all necessary approvals, permits, licenses and authorizations to own its properties, to conduct its business and to enter into and consummate the transactions contemplated under this Agreement.

3.02 Authority . The execution and delivery by Caraustar and Seller of this Agreement and by Caraustar and Seller of each other instrument or document required to be executed and delivered by such entity or individual pursuant hereto, the performance by such entity or individual of their respective covenants and agreements hereunder and thereunder and the consummation by such entity or individual of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate and other action, including all board of director and stockholder approvals. This Agreement and each other instrument or document required to be executed and delivered by Caraustar and Seller pursuant hereto, constitutes a valid and legally binding obligation of Caraustar and Seller party thereto, enforceable against Caraustar and Seller party thereto in accordance with their respective terms, except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or other laws of general application affecting creditors’ rights, (b) as limited by general principles of equity that restrict the availability of equitable remedies, and (c) to the extent that the enforceability of indemnification provisions may be limited by applicable laws (the “ Enforceability Exceptions ”).

3.03 No Violation; No Conflicts . Except as set forth on Schedule 3.03 hereto, neither the execution and delivery of this Agreement or any other instrument or document required to be executed and delivered by Caraustar or Seller pursuant hereto, nor the consummation of the transactions contemplated hereby or thereby, violates any provision of the certificate of incorporation or bylaws of Caraustar or Seller, or, any statute, ordinance, regulation, order, judgment or decree of any Governmental Authority, or conflicts with or will result in any breach of any of the terms of or constitute a default under or result in the termination of or the creation of any Lien pursuant to the terms of or require the payment of any

 

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fee under or otherwise prevent the continuation, validity or effectiveness of any Permit or any contract or agreement to which Caraustar or Seller is a party or by which Caraustar or Seller or any of the Assets is bound. Except as set forth on Schedule 3.03 hereto, and except as has already been obtained, no consents, approvals or authorizations of, or filings with, any Governmental Authority, or any other person or entity are required in connection with the execution and delivery of this Agreement, or any other instrument or document required to be executed and delivered by Caraustar, or Seller pursuant hereto, or the consummation of the transactions contemplated hereby or thereby.

3.04 Capitalization . All of the issued and outstanding shares of capital stock of Sprague are owned beneficially and of record directly or indirectly by Caraustar, and such shares constitute all of the issued and outstanding shares of capital stock of all classes of Sprague.

3.05 Financial Statements; No Undisclosed Liabilities .

(a) Caraustar and Seller have delivered to Buyer, Sprague’s balance sheet as at December 31, 2005 (the “ Current Balance Sheet ”), December 31, 2004 and December 31, 2003, and the related statements of income, for the years then ended (all of the aforementioned financial statements referred to in this Section 3.05(a) are hereinafter referred to collectively as the “ Financial Statements ”). The Financial Statements are complete and correct, have been prepared from the books and records of Sprague, in accordance with GAAP consistently applied throughout the periods indicated (except as otherwise specifically set forth on Schedule 3.05 hereto), and fairly present in all material respects the financial condition of Sprague, as at their respective dates and the results of its operations for the periods covered thereby. The Financial Statements include all adjustments, which consist only of normal recurring accruals, necessary for such fair presentation.

(b) Except to the extent set forth in or reserved against in the Current Balance Sheet or as identified in Schedule 3.05 hereto, and except for current liabilities (determined in accordance with GAAP) incurred in the ordinary course of business consistent with past practices since the Current Balance Sheet Date, Sprague does not have any liabilities or obligations of any nature that would be required by GAAP to be reflected on a balance sheet, whether accrued, absolute, known or unknown, contingent or otherwise, whether due or to become due, whether properly reflected under GAAP as a liability or a charge or reserve against an asset or equity account, and whether the amount thereof is readily ascertainable or not.

3.06 Accounts Receivable; Inventories .

(a) All Receivables of Sprague are valid and have arisen only from bona fide arm’s-length transactions in the ordinary course of the Business conducted by Sprague, in the aggregate face amounts thereof (subject to the reserve for doubtful accounts reflected on the Current Balance Sheet with respect to the period covered thereby). Neither Caraustar nor Sprague has any Knowledge that any basis exists for the assertion of any counterclaim or set-off or the repayment of any Receivables or payments heretofore received by Sprague.

(b) All items of Inventories of Sprague are sufficient for the requirements of the Business conducted by Sprague in the ordinary course, and consist of items of a quality and

 

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quantity which are merchantable and fully usable in the normal course of the Business conducted by Sprague. The values at which such Inventories are carried on the Current Balance Sheet, or in the case of Inventory acquired following the Current Balance Sheet Date on the books and records of Sprague, reflect the normal inventory valuation policy of Sprague (including the writing down of or reserving against the value of slow-moving or obsolete inventory) and stating Inventories at the lower of cost or market (on a first-in, first-out method) in accordance with GAAP consistently applied.

3.07 Accounts Payable; Indebtedness . Since the Current Balance Sheet Date, the accounts and notes payable and accrued expenses of Sprague with respect to the Business conducted by Sprague have been paid when due and otherwise in the ordinary course of business and in a manner consistent with past practice. Sprague has no obligation (contingent or otherwise) to (a) purchase, redeem or otherwise acquire or dispose of any share of its capital, or (b) pay any dividends or make any other distribution of any kind.

3.08 Absence of Certain Changes . Except as set forth in Schedule 3.08 hereto, subsequent to the Current Balance Sheet Date, there has not been any (a) material adverse change in the condition, financial or otherwise, or in the results of the operations, assets, properties or business of the Business conducted by Sprague, provided that such change shall not include any effect resulting from clauses (i) through (iv) of the definition of Material Adverse Effect; (b) material damage or destruction (whether or not insured) affecting any of the Assets or the Business conducted by Sprague; (c) labor dispute or threatened labor dispute or any work stoppage or strike involving the employees of Sprague; (d) actual material dispute or, to the Knowledge of Caraustar or Sprague threatened material dispute pertaining to Sprague or the Business conducted by Sprague with any customer or supplier, or actual or, to the Knowledge of Caraustar or Sprague, threatened loss of material business from any of the ten largest customers or suppliers of Sprague or the Business conducted by Sprague; (e) changes in the methods or procedures for billing or collection of customer accounts or recording of customer accounts receivable or reserves for doubtful accounts with respect to Sprague or the Business conducted by Sprague; (f) addition to or modification of any of the employee benefit plans, arrangements or practices of Sprague (including, without limitation, those listed on Schedule 3.16 hereto) other than contributions made in the ordinary course of business consistent with past practices; (g) sale, assignment or transfer of any of the Assets except in the ordinary course of business and consistent with past practice; (h) cancellation of any debts of Sprague or waivers of any claims or rights of substantial value of Sprague; (i) unexpended commitments in respect of capital expenditures in excess of $50,000 in the aggregate for repairs or additions to property, plant, equipment or tangible capital assets of the Business conducted by Sprague; (j) change in any method of accounting or accounting principles of Sprague; (k) change in the methods of purchasing any of the Inventory, Real Property or other Assets; (l) change in the methods of selling any of the Inventory; (m) failure to replenish raw materials, parts, inventories or supplies of Sprague in a normal and customary manner consistent with its past practice; (n) purchase commitment in excess of the normal, ordinary and usual requirements of the Business as conducted by Sprague or at any price in excess of then current market price; (o) mortgage, pledge, charge, security interest or any other Lien (other than a Permitted Lien) with respect to any of the Assets; (p) failure to pay in full in a timely manner all normal and recurring installments and other payments (i) under each of the Contracts, (ii) of Indebtedness, and (iii) of other amounts due and payable by Sprague to any person or entity; (q) agreement or commitment

 

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by any of the Caraustar Parties to do any of the foregoing, or (r) other event or condition of any character, not disclosed in this Agreement pertaining to and materially affecting any of the Assets or Business conducted by Sprague, provided that such event or condition shall not include any effect resulting from clauses (i) through (iv) of the definition of Material Adverse Effect.

3.09 Real Property . (a) Sprague owns, and will on the Closing Date own, of record and free and clear of all encumbrances, except Permitted Liens, the Real Property and all buildings, structures, fixtures and other improvements (the “ Improvements ”) thereon, as listed on Schedule 3.09 hereto.

(b) None of the Improvements on the Real Property listed on Schedule 3.09 , including the easements, violates any restrictive covenant or the terms, conditions or restrictions of an easement of record which grants rights to third parties, such that a third party could require the Buyer to remove, or to suspend operation of, any of the Improvements after the Closing Date.

(c) The Real Property listed on Schedule 3.09 , and the Improvements thereon (all such Real Property and improvements thereon, hereinafter referred to collectively as the “ Premises ”) are not subject to any recorded or unrecorded lease, sublease, or similar contract or arrangement.

(d) No instrument of record, license, use restriction, or applicable building, zoning or redevelopment law prohibits or materially limits, impairs or interferes with the current use, operation or maintenance of, or access to the Premises.

(e) Other than this Agreement, Sprague is not party to any contract for the sale or other disposition of rights to any portion of the Premises.

(f) Since April 8, 1999, there have been no recorded or unrecorded conveyances of real property constituting any portion of the Premises, other than such conveyances as set forth on Schedule 3.09 hereto, and such conveyances did not convey any real property used by Sprague in the conduct of the Business subsequent to such date.

(g) No third party holds any unrecorded rights to use or occupy any portion of the Premises, whether by lease, easement, license agreement or otherwise, except as set forth on Schedule 3.09 hereto.

3.10 Title to Assets; Condition, Sufficiency and Location of Property . (a) Except as set forth in Schedule 3.10 (Title) hereto, Sprague has good and valid marketable title to each and all of the Assets, in each case free and clear of all Liens, except for (i) Permitted Liens and (ii) the Liens arising under the Debt Documents as of the date of this Agreement all of which shall be discharged, terminated and released in full prior to or at the Closing. Neither Sprague nor any other affiliate of Sprague or any other person or entity has any right to or interest in any of the Assets. Except as set forth in Schedule 3.10 (Sufficiency) hereto, the Assets constitute all of the assets used in the operations of, and necessary to operate, the Business as presently conducted by Sprague and previously conducted by Sprague during the past three years. Sprague has the right, power and authority to sell and transfer each and all of the Assets to Buyer, and upon such sale and transfer Buyer will acquire good and valid marketable title to each and all of the Assets, in all cases free and clear of all Liens, except for Permitted Liens and Liens created by the Buyer.

 

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(b) Except as set forth on Schedule 3.10 (Condition) hereto, all of the Assets are in good operating condition and repair, normal wear and tear excepted, have been maintained and serviced in accordance with the prudent conduct of business and each of the Assets is suitable for the purposes for which it presently is being used. None of the Assets (or uses to which they are put) fails to conform in any material respect with any applicable agreement, law, ordinance or regulation. Except as set forth on Schedule 3.10 (Products) hereto, there are no defects in the design or manufacture of any of the Products sold by Sprague or on hand to be sold which could give rise to any liabilities or obligations, including under product recall programs. All of the Inventory, material Sprague Personal Property and other tangible material Assets are located at the Premises and identified on Schedule 1.01(a)(iii) , 1.01(a)(iv) and 3.09 hereto.

3.11 Taxes . (a) Seller has filed or caused to be filed on a timely basis all federal, state, local, foreign and other tax returns, reports and declarations in connection with the Business conducted by Sprague and the Assets (collectively, “ Tax Returns ”) required to be filed by Seller and have paid all taxes in connection with the Business conducted by Sprague and the Assets, including, but not limited to, income, capital gains, license, gross receipts, net worth, capital stock, profits, stamp, occupation, transfer, value added, excise, franchise, sales, use, property (whether real, personal or mixed), employment, unemployment, disability, withholding, social security and workers’ compensation taxes and estimated income and franchise tax payments, and interest, penalties, fines, costs and assessments (collectively, “ Taxes ”), due and payable with respect to the periods covered by such Tax Returns (whether or not reflected thereon). There are no Tax Liens on any of the Assets (other than Permitted Liens). All such Tax Returns filed by or on behalf of Seller are true, complete and correct and Schedule 3.11 hereto sets forth a complete and accurate list of all jurisdictions in which such Tax Returns are currently required to be filed and the type of such Tax Return. No claim has ever been made by an authority in a jurisdiction where Seller does not file Tax Returns that Seller is or may be subject to taxation by that jurisdiction in connection with the Business conducted by Sprague or the Assets. Except as set forth on Schedule 3.11 hereto, no Tax Returns of Seller have ever been audited. Seller is not the beneficiary of any extension of time within which to file any Tax Return. Sprague has withheld and paid all taxes required to have been withheld and paid in connection with any amounts paid or owing to an employee, independent contractor, creditors, stockholder or other third party.

(b) Since the Current Balance Sheet Date, Sprague has not incurred any tax liability other than in the ordinary course of business. No deficiency in Taxes for any period has been asserted by any taxing authority which remains unpaid at the date hereof. Except as set forth on Schedule 3.11 hereto, no written inquiries or notices have been received by Seller from a taxing authority with respect to possible claims for Taxes which have not been resolved prior to the date hereof and neither Caraustar nor Seller has any Knowledge that such an inquiry or notice is pending or threatened or that there is a basis for any additional claims or assessments for Taxes. Seller has not agreed to the extension of the statute of limitations with respect to any Tax Returns.

 

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(c) Neither Caraustar nor Seller is a foreign person within the meaning of Section 1445 of the Code.

(d) None of the Assumed Sprague Liabilities is an obligation to make a payment that violates Code Section 280G. Sprague is not a party to any Tax allocation or sharing agreement or has any liability of the Taxes of another person under Treasury Regulation §1.1502 6 (or any similar provision of state, local or foreign law) as transferee or successor, by contract or otherwise.

3.12 Compliance with Applicable Law; Permits; Environment .

(a) General . None of the Caraustar Parties is in default under any, nor has any of them failed to comply with any, law, statute, ordinance, regulation, order, judgment or decree of any Governmental Authority, relating to the Business as conducted by Sprague or any of the Assets, and the Premises are in compliance with all laws, statutes, ordinances, regulations, orders, judgments and decrees of any Governmental Authority (other than Environmental Laws which are subject to the provisions of Section 3.12(c) below), in each case in all material respects. None of the Caraustar Parties has any Knowledge of any basis for assertion of any violation of the foregoing or for any claim for compensation or damages or otherwise arising out of any violation of the foregoing. None of the Caraustar Parties has received any notification of any asserted present or past failure to comply with any of the foregoing which has not been satisfactorily responded to in the time period required thereunder.

(b) Permits . Set forth in Schedule 3.12(b) hereto, is a complete and accurate list of all permits, licenses, approvals, franchises, notices and authorizations issued by Governmental Authorities (other than Environmental Permits which are subject to the provisions of Section 3.12(c) below) (collectively the “ Permits ”), held by Caraustar or Seller in connection with Sprague’s conduct of the Business, including the ownership or operation of the Assets. The Permits set forth in Schedule 3.12(b) hereto (other than the Environmental Permits which are subject to the provisions of Section 3.12(c) below), are all the Permits required for the conduct by Sprague of the Business and with respect to the Assets. All the Permits set forth in Schedule 3.12(b) hereto, are in full force and effect, and neither Caraustar nor Sprague has engaged in any activity which would cause or permit revocation or suspension of any such Permit, and no action or proceeding looking to or contemplating the revocation or suspension of any such Permit is pending or threatened. There are no existing defaults or events of default or events or state of facts which with notice or lapse of time or both would constitute a default by Caraustar or Sprague under any such Permit. Except as set forth on Schedule 3.12(b) hereto, the consummation of the transactions contemplated hereby will not prevent the continuation, validity or effectiveness of the Permits set forth in Schedule 3.12(b) hereto, or require the consent of any Governmental Authority, person or entity.

 

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(c) Environment . With respect to the Business conducted by Sprague at the Premises on or prior to Closing, and after March 4, 1999, except as disclosed in Schedule 3.12(c) , and except as would not reasonably be expected to result in a Material Adverse Effect, to the Knowledge of Sprague and Caraustar:

(i) The Business conducted by Sprague is in compliance with, and the Premises are in compliance with all Environmental Laws.

(ii) The Business conducted by Sprague has been issued, all applicable federal, state and local permits, licenses, certificates and approvals required for its operations under applicable Environmental Law (“Environmental Permits”) necessary to operate the Business conducted by Sprague, and all Environmental Permits are in full force and effect.

(iii) Sprague and Caraustar have not received any written notice of, and there are no facts which might give rise to, any Environmental Claim.

(iv) Neither Sprague nor Caraustar has generated, treated, transported, stored, recycled, discharged, emitted, disposed of or released any Hazardous Materials, or arranged for the generation, treatment, transport, storage, recycling, discharge, emission, disposal or Release of any Hazardous Materials at the Premises which has resulted in any Environmental Claim.

(v) Except when such would not be in contravention of Environmental Laws, no polychlorinated biphenyls, radioactive material, urea formaldehyde, lead, asbestos, asbestos-containing material, or aboveground or underground storage tank (active or abandoned), is or has been present at the Premises.

(vi) Neither the Premises, nor any property to which Caraustar or Sprague directly or indirectly, transported or arranged for the transportation of any Hazardous Materials, is listed on the National Priorities List promulgated pursuant to the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (“CERCLA”), or CERCLIS (as referred to in CERCLA) or any similar federal, or state list of sites requiring investigation or remediation.

(vii) Sprague and Caraustar have provided Buyer with access to all material environmental studies, reports, audits or assessments, or occupational health studies, in the possession, custody or control of Caraustar or Sprague, including without limitation such studies and reports prepared by independent engineering firms in connection with any investigations conducted under the Connecticut Transfer Act, with respect to the Business.

(viii) This Section 3.12(c) contains the sole and exclusive representations and warranties of the Caraustar Parties with respect to environmental matters, including without limitation any matters arising under or related to Environmental Laws, Environmental Permits, or Hazardous Materials.

 

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3.13 Licenses . Except as set forth on Schedule 3.13 hereto, neither Sprague nor the Business conducted by Sprague produces or distributes any Product, or performs any service, under a license granted by another person or entity.

3.14 Contractual and Other Obligations; Customers and Suppliers . (a) Except for Contracts required to be listed on Schedules 3.13 , 3.15 , 3.16 , 3.19 , 3.21 or 3.26 hereto, set forth in Schedule 1.01(a)(vii) hereto is a complete and accurate list of each contract, agreement, lease, guarantee (or other agreement relating to contingent obligations of Seller with respect to the Assets or the Assumed Sprague Liabilities), arrangement (written or oral) and each other document constituting any part of the Assets to which Sprague is a party or by which Sprague or any of the Assets is bound or subject; all of the foregoing, together with all other contracts, agreements, licenses, purchase orders, plans, contingent and other obligations, or other instruments or documents to which Sprague or any of the Assets is subject or bound, other than the Retained Contracts, being herein collectively referred to as the “ Contracts ” and singularly referred to as a “ Contract ”.

(b) Seller is not in default in the performance of any covenant or condition under any Contract and no claim of such a default has been made and no event has occurred, which with the giving of notice or the lapse of time would constitute such default under any covenant or condition under any Contract, except for defaults (whether individually or in the aggregate) which are not material. All of the Contracts have been entered into in the ordinary course of business of Seller and each Contract is at arm’s length. Except as set forth on Schedule 3.03 hereto, neither the transfer of any of the Assets (including any of the Contracts (other than Retained Contracts)), the execution of this Agreement nor the consummation of the transactions contemplated by this Agreement will prevent the continuation, validity or effectiveness of any of the Contracts under their current terms or result in the breach, termination or modification of the terms thereof or require the consent, waiver, approval, authorization of, notice to, or designation, registration, declaration or filing with, any Governmental Authority, or other person or entity under any such Contract. Caraustar and Seller have delivered to Buyer true and complete copies of each written Contract and true and complete written descriptions of each oral Contract, in each case to the extent set forth on Schedules 1.01(a)(vii), 3.13, 3.15, 3.16, 3.19, 3.21, or 3.26 . Each of the Contracts is in full force and effect and is a legal, valid and binding obligation of Seller party thereto subject to the Enforceability Exceptions.

(c) There exists no actual or, to the Knowledge of Caraustar or Sprague, threatened, termination, cancellation or material reduction of the business relationships of Sprague with any of its ten (10) largest customers (measured by dollar volume of net sales) during the 12-month period ended December 31, 2005 or with any of its ten (10) largest suppliers (measured by dollar volume of expenditures by Sprague) during the 12-month period ended December 31, 2005.

3.15 Compensation . Set forth in Schedule 3.15 hereto, is (a) except for Benefit Plans required to be listed on Schedule 3.16 hereto, a complete and accurate list of all agreements, plans, arrangements or commitments between Sprague and any employee or employees, independent contractor, consultant, or agent with regard to compensation, benefits or perquisites, whether individually or collectively, except oral agreements terminable by Sprague on not more than 30 days’ notice without penalty; and (b) a complete and accurate list of all

 

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employees of Sprague and their respective positions, job categories and salaries. Except as set forth on Schedule 3.15 hereto, neither the execution of this Agreement nor the consummation of the transactions contemplated by this Agreement will result in any liability or obligation of the Assets or Buyer for a bonus payment, severance pay or similar payment or other compensatory requirements to any employee, salesperson, independent contractor, designer, sales representative, consultant, distributor, agent, shareholder or affiliate of Seller.

3.16 Employee Benefit Plans . Except as set forth in Schedule 3.16 hereto:

(a) Sprague does not maintain or sponsor, nor is Sprague required to make contributions to, any pension, profit sharing, bonus, incentive or deferred compensation, severance pay, medical, life insurance or other welfare or employee benefit plan within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (hereinafter referred to as “ ERISA ”) (such plans and related trusts, insurance and annuity contracts, funding media and related agreements and arrangements, other than any “multiemployer plan” (within the meaning of Section 3(37) or Section 4001(a)(3) of ERISA), being herein referred to as the “ Benefit Plans ” and such multiemployer plans being hereinafter referred to as the “ Multiemployer Plans ”). The Benefit Plans have been maintained, operated and administered in all material respects, in accordance with their terms and with all applicable provisions of ERISA, the Code and other applicable Laws and neither Caraustar, the Seller nor any affiliate of Seller or the Business has taken or failed to take any action with respect to the Benefit Plans (including the failure to timely and completely file all required reports, returns and similar documents with applicable Governmental Authorities) which would create any liability on the part of Buyer or on the part of the Business conducted by Sprague which has not otherwise been disclosed. To the Knowledge of Sprague, each “fiduciary” (within the meaning of Section 3(21)(A) of ERISA) as to each Benefit Plan has complied in all material respects with the requirements of ERISA and the Code, including any rules or regulations promulgated thereunder and all other applicable laws, rules and regulations in respect of each Benefit Plan.

(b) Each Benefit Plan intended to qualify under Section 401(a) of the Code has received a currently applicable favorable determination letter from the Internal Revenue Service as to its qualification under Section 401(a) of the Code;

(c) Sprague does not maintain, sponsor or contribute to, and has never maintained, sponsored or contributed to, any “defined benefit plan” (within the meaning of Section 3(35) of ERISA) or any Multiemployer Plan;

(d) There are no contributions required to have been made to trusts in connection with any Benefit Plan that would constitute a “defined contribution plan” (within the meaning of Section 3(34) of ERISA) which have not been made;

(e) Other than claims in the ordinary course for benefits with respect to the Benefit Plans, there are no actions, suits or claims (including claims for income Taxe