CSS INDUSTRIES INC (Form: 10-Q, Received: 10/31/2008 14:54:49)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

(Mark One)


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2008


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 1-2661

CSS INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)


Delaware		13-1920657

(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1845 Walnut Street, Philadelphia, PA		19103

(Address of principal executive offices)		(Zip Code)

(215) 569-9900

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer o	Accelerated filer þ	Non-accelerated filer o	Smaller reporting company o
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) o Yes þ No

As of October 24, 2008, there were 9,775,081 shares of common stock outstanding which excludes shares which may still be issued upon exercise of stock options or upon vesting of restricted stock unit grants.

CSS INDUSTRIES, INC. AND SUBSIDIARIES

INDEX


	PAGE NO.
PART I — FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

Consolidated Statements of Operations — Three and six months ended September 30, 2008 and 2007		3

Condensed Consolidated Balance Sheets — September 30, 2008 and March 31, 2008		4

Consolidated Statements of Cash Flows — Six months ended September 30, 2008 and 2007		5

Notes to Consolidated Financial Statements		6-13

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		14-18

Item 3. Quantitative and Qualitative Disclosures About Market Risk		18

Item 4. Controls and Procedures		19

PART II — OTHER INFORMATION

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		20

Item 4. Submission of Matters to a Vote of Security Holders		20

Item 6. Exhibits		21

Signatures		22

Exhibit 10.1
Exhibit 10.2
Exhibit 10.3
Exhibit 10.5
Exhibit 10.6
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

CSS INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Unaudited)


	Three Months Ended					Six Months Ended
	September 30,					September 30,
(In thousands, except per share data)	2008		2007			2008			2007

SALES	$	174,161	$	172,882		$	228,808		$	219,684


COSTS AND EXPENSES
Cost of sales		129,454		126,683			167,167			160,202
Selling, general and administrative expenses		27,863		25,158			51,413			45,841
Interest expense (income), net		916		284			1,200			(90	)
Other expense (income), net		36		(159	)		(30	)		(401	)


		158,269		151,966			219,750			205,552


INCOME BEFORE INCOME TAXES		15,892		20,916			9,058			14,132

INCOME TAX EXPENSE		5,388		7,381			3,050			5,024


NET INCOME	$	10,504	$	13,535		$	6,008		$	9,108


NET INCOME PER COMMON SHARE
Basic	$	1.05	$	1.25		$	.59		$	.84

Diluted	$	1.03	$	1.22		$	.58		$	.82


WEIGHTED AVERAGE SHARES OUTSTANDING
Basic		10,043		10,857			10,149			10,869

Diluted		10,156		11,129			10,282			11,161


CASH DIVIDENDS PER SHARE OF COMMON STOCK	$	.15	$	.14		$	.30		$	.28


COMPREHENSIVE INCOME
Net income	$	10,504	$	13,535		$	6,008		$	9,108
Foreign currency translation adjustment		—		1			2			1

Comprehensive income	$	10,504	$	13,536		$	6,010		$	9,109

See notes to consolidated financial statements.

CSS INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


	September 30,		March 31,
(In thousands)	2008		2008
ASSETS

CURRENT ASSETS
Cash and cash equivalents	$	5,783	$	28,109
Accounts receivable, net		139,372		39,144
Inventories		156,359		105,532
Deferred income taxes		6,737		7,276
Assets held for sale		3,461		3,590
Other current assets		13,353		16,242


Total current assets		325,065		199,893


PROPERTY, PLANT AND EQUIPMENT, NET		52,924		50,632


OTHER ASSETS
Goodwill		50,072		48,361
Intangible assets, net		44,987		42,454
Other		3,113		3,701


Total other assets		98,172		94,516


Total assets	$	476,161	$	345,041


LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES
Notes payable	$	102,980	$	—
Current portion of long-term debt		10,400		10,246
Accrued customer programs		10,374		9,438
Other current liabilities		77,782		44,209


Total current liabilities		201,536		63,893


LONG-TERM DEBT, NET OF CURRENT PORTION		10,065		10,192


LONG-TERM OBLIGATIONS		5,439		6,121


DEFERRED INCOME TAXES		2,298		2,482


STOCKHOLDERS’ EQUITY		256,823		262,353


Total liabilities and stockholders’ equity	$	476,161	$	345,041

See notes to consolidated financial statements.

CSS INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Six Months Ended
	September 30,
(In thousands)	2008			2007
Cash flows from operating activities:
Net income	$	6,008		$	9,108

Adjustments to reconcile net income to net cash used for operating activities:
Depreciation and amortization		6,570			6,594
Provision for doubtful accounts		183			243
Deferred tax provision (benefit)		356			(722	)
Gain on sale of assets		(35	)		—
Compensation expense related to stock options		1,390			1,399
Changes in assets and liabilities, net of effects from purchase of a business:
Increase in accounts receivable		(99,313	)		(110,556	)
Increase in inventory		(46,706	)		(57,876	)
Decrease in other assets		2,974			428
Increase in other liabilities		35,823			38,187
Increase in accrued taxes		495			7,185


Total adjustments		(98,263	)		(115,118	)


Net cash used for operating activities		(92,255	)		(106,010	)


Cash flows from investing activities:
Purchase of a business		(10,614	)		—
Final payment of purchase price for a business previously acquired		(2,700	)		—
Purchase of property, plant and equipment		(7,338	)		(2,350	)
Proceeds from sale of assets		102			—


Net cash used for investing activities		(20,550	)		(2,350	)


Cash flows from financing activities:
Payments on long-term obligations		(131	)		(101	)
Borrowings on notes payable		247,280			36,400
Repayments on notes payable		(144,300	)		(16,300	)
Dividends paid		(3,044	)		(3,035	)
Purchase of treasury stock		(9,431	)		(5,676	)
Proceeds from exercise of stock options		99			2,639
Tax benefit realized for stock options exercised		4			345


Net cash provided by financing activities		90,477			14,272


Effect of exchange rate changes on cash		2			1

Net decrease in cash and cash equivalents		(22,326	)		(94,087	)

Cash and cash equivalents at beginning of period		28,109			100,091

Cash and cash equivalents at end of period	$	5,783		$	6,004

See notes to consolidated financial statements.

CSS INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2008

(Unaudited)

(1)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Basis of Presentation -

CSS Industries, Inc. (collectively with its subsidiaries, “CSS” or the “Company”) has prepared the consolidated financial statements included herein pursuant to the rules and regulations of the Securities and Exchange Commission. The Company has condensed or omitted certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States pursuant to such rules and regulations. In the opinion of management, the statements include all adjustments (which include normal recurring adjustments) required for a fair presentation of financial position, results of operations and cash flows for the interim periods presented. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2008. The results of operations for the interim periods are not necessarily indicative of the results for the full year.

Principles of Consolidation -

The consolidated financial statements include the accounts of the Company and all of its subsidiaries. All significant intercompany transactions and accounts have been eliminated in consolidation.

Nature of Business -

CSS is a consumer products company primarily engaged in the design, manufacture, procurement, distribution and sale of seasonal and all occasion products, principally to mass market retailers. These products include gift wrap, gift bags, gift boxes, boxed greeting cards, gift tags, decorative tissue paper, decorations, classroom exchange Valentines, decorative ribbons and bows, floral accessories, Halloween masks, costumes, make-up and novelties, Easter egg dyes and novelties, craft and educational products, memory books, stationery, journals, notecards, infant and wedding photo albums and scrapbooks, and other gift items that commemorate life’s celebrations. The seasonal nature of CSS’ business has historically resulted in lower sales levels and operating losses in the first and fourth quarters and comparatively higher sales levels and operating profits in the second and third quarters of the Company’s fiscal year, which ends March 31, thereby causing significant fluctuations in the quarterly results of operations of the Company.

Foreign Currency Translation and Transactions -

Translation adjustments are charged or credited to a separate component of stockholders’ equity. Gains and losses on foreign currency transactions are not material and are included in other expense (income), net in the consolidated statements of operations.

Use of Estimates -

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Judgments and assessments of uncertainties are required in applying the Company’s accounting policies in many areas. Such estimates pertain to the valuation of inventory and accounts receivable, the assessment of the recoverability of goodwill and other intangible assets, income tax accounting, the valuation of share-based awards and resolution of litigation and other proceedings. Actual results could differ from these estimates.

Inventories -

The Company records inventory when title is transferred, which occurs upon receipt or prior to receipt dependent on supplier shipping terms. The Company adjusts unsaleable and slow-moving inventory to its estimated net realizable value. Substantially all of the Company’s inventories are stated at the lower of first-in, first-out (FIFO) cost or market. The remaining portion of the inventory is valued at the lower of last-in, first-out (LIFO) cost or market. Inventories consisted of the following (in thousands):


	September 30,		March 31,
	2008		2008

Raw material	$	25,285	$	22,836
Work-in-process		23,391		29,827
Finished goods		107,683		52,869

	$	156,359	$	105,532

Assets Held for Sale -

Assets held for sale in the amount of $3,461,000 represents two former manufacturing facilities and a distribution facility which the Company is in the process of selling. The Company expects to sell these facilities within the next 12 months for an amount greater than the current carrying value. The Company ceased depreciating these facilities at the time they were classified as held for sale.

Revenue Recognition -

The Company recognizes revenue from product sales when the goods are shipped, title and risk of loss have been transferred to the customer and collection is reasonably assured. Provisions for returns, allowances, rebates to customers and other adjustments are provided in the same period that the related sales are recorded.

Net Income Per Common Share -

The following table sets forth the computation of basic and diluted net income per common share for the three and six months ended September 30, 2008 and 2007 (in thousands, except per share data):


	Three Months Ended				Six Months Ended
	September 30,				September 30,
	2008		2007		2008		2007
Numerator:
Net income	$	10,504	$	13,535	$	6,008	$	9,108


Denominator:
Weighted average shares outstanding for basic income per common share		10,043		10,857		10,149		10,869
Effect of dilutive stock options		113		272		133		292

Adjusted weighted average shares outstanding for diluted income per common share		10,156		11,129		10,282		11,161


Basic net income per common share	$	1.05	$	1.25	$	.59	$	.84

Diluted net income per common share	$	1.03	$	1.22	$	.58	$	.82

Statements of Cash Flows -

For purposes of the consolidated statements of cash flows, the Company considers all holdings of highly liquid debt instruments with a maturity at time of purchase of three months or less to be cash equivalents.

(2) STOCK-BASED COMPENSATION:

2004 Equity Compensation Plan

Under the terms of the 2004 Equity Compensation Plan (“2004 Plan”), the Human Resources Committee (“Committee”) of the Board of Directors may grant incentive stock options, non-qualified stock options, restricted stock grants, stock appreciation rights, stock bonuses and other awards to officers and other employees. Grants under the 2004 Plan may be made through August 3, 2014. The term of each grant is at the discretion of the Committee, but in no event greater than ten years from the date of grant. The Committee has discretion to determine the date or dates on which granted options become exercisable. All options outstanding as of September 30, 2008 become exercisable at the rate of 25% per year commencing one year after the date of grant. Performance-vested restricted stock units (“RSUs”) vest on the third anniversary of the date on which the award was granted, provided that certain performance metrics have been met during the performance period, and time-vested RSUs vest at a rate of 50% on each of the third and fourth anniversaries of the date on which the award was granted. At September 30, 2008, there were 1,091,625 shares available for grant under the 2004 Plan.

2006 Stock Option Plan for Non-Employee Directors

Under the terms of the CSS Industries, Inc. 2006 Stock Option Plan for Non-Employee Directors (“2006 Plan”), non-qualified stock options to purchase up to 200,000 shares of common stock are available for grant to non-employee directors at exercise prices of not less than fair market value of the underlying common stock on the date of grant. Under the 2006 Plan, options to purchase 4,000 shares of the Company’s common stock will be granted automatically to each non-employee director on the last day that the Company’s common stock is traded in each November until 2010. Each option will expire five years after the date the option is granted and commencing one year after the date of grant, options begin vesting and are exercisable at the rate of 25% per year. At September 30, 2008, there were 156,000 shares available for grant under the 2006 Plan.

The fair value of each stock option granted was estimated on the date of grant using the Black-Scholes option pricing model with the following average assumptions:


	For the Six Months
	Ended September 30,
	2008			2007
Expected dividend yield at time of grant		2.18	%		1.59	%
Expected stock price volatility		36	%		29	%
Risk-free interest rate		3.5	%		4.8	%
Expected life of option (in years)		4.2			4.2

Expected volatilities are based on historical volatility of the Company’s common stock. The expected life of the option is estimated using historical data pertaining to option exercises and employee terminations. The risk-free interest rate is based on U.S. Treasury yields in effect at the time of grant.

The weighted average fair value of stock options granted during the six months ended September 30, 2008 and 2007 was $7.70 and $9.44, respectively. The weighted average fair value of restricted stock units granted during the six months ended September 30, 2008 was $27.50.

As of September 30, 2008, there was $3,792,000 of total unrecognized compensation cost related to non-vested stock option awards granted under the Company’s equity incentive plans which is expected to be recognized over a weighted average period of 2.2 years. As of September 30, 2008, there was $1,191,000 of total unrecognized compensation cost related to non-vested RSUs granted under the Company’s equity incentive plans which is expected to be recognized over a weighted average period of three years.

Compensation cost related to stock options and RSUs recognized in operating results (included in selling, general and administrative expenses) was $725,000 and $718,000 in the quarters ended September 30, 2008 and 2007, respectively, and was $1,390,000 and $1,399,000 for the six months ended September 30, 2008 and 2007, respectively.

(3)

DERIVATIVE FINANCIAL INSTRUMENTS:

The Company enters into foreign currency forward contracts in order to reduce the impact of certain foreign currency fluctuations. Firmly committed transactions and the related receivables and payables may be hedged with forward exchange contracts. Gains and losses arising from foreign currency forward contracts are recognized in income or expense as offsets of gains and losses resulting from the underlying hedged transactions. As of September 30, 2008, the notional amount of open foreign currency forward contracts was $13,118,000 and the related unrealized gain was $684,000. There were no open foreign currency forward contracts as of March 31, 2008.

(4)

BUSINESS ACQUISITIONS:

On August 5, 2008, a subsidiary of the Company completed the acquisition of substantially all of the business and assets of Hampshire Paper Corp. (“Hampshire Paper”) for approximately $10,250,000 in cash. Hampshire Paper is a manufacturer and supplier of waxed tissue, paper, foil, and foil decorative packaging to the wholesale floral and horticultural industries. A portion of the purchase price is being held in escrow for certain post-closing adjustments and indemnification obligations. The acquisition was accounted for as a purchase and the excess of cost over fair market value of the net tangible and identifiable intangible assets acquired (estimated to be approximately $1,711,000, subject to the completion of appraisals in accordance with Statement of Financial Accounting Standard (“SFAS”) No. 141) was recorded as goodwill in the accompanying condensed consolidated balance sheet. For tax purposes, goodwill resulting from this acquisition is deductible.

On December 3, 2007, the Company completed the acquisition of substantially all of the business and assets of C.R. Gibson, Inc. (“C.R. Gibson”), through a newly-formed subsidiary, C.R. Gibson, LLC, for approximately $73,847,000 in cash, including transaction costs of approximately $200,000. In the first quarter of fiscal 2009, $2,700,000 of the purchase price was paid as settlement of an obligation assumed as contemplated in the Asset Purchase Agreement. C.R. Gibson, headquartered in Nashville, Tennessee, is a designer, marketer and distributor of memory books, stationery, journals, notecards, infant and wedding photo albums and scrapbooks, and other gift items that commemorate life’s celebrations. As of September 30, 2008, a portion of the purchase price is being held in escrow for certain indemnification obligations. The acquisition was accounted for as a purchase and the excess of cost over the fair market value of the net tangible and identifiable intangible assets acquired of $17,409,000 was recorded as goodwill in the accompanying condensed consolidated balance sheet. For tax purposes, goodwill resulting from this acquisition is deductible.

(5)

BUSINESS RESTRUCTURING:

On January 4, 2008, the Company announced a restructuring plan to close the Company’s Elysburg, Pennsylvania production facilities and its Troy, Pennsylvania distribution facility. This restructuring was undertaken as the Company has increasingly shifted from domestically manufactured to foreign sourced boxed greeting cards and gift tags. Under the restructuring plan, both facilities were closed as of March 31, 2008. As part of the restructuring plan, the Company recorded a restructuring reserve of $628,000, including severance related to 75 employees. Also, in connection with the restructuring plan, the Company recorded an impairment of property, plant and equipment at the affected facilities of $1,222,000, which was included in restructuring expenses in the fourth quarter of fiscal 2008. During the quarter and six months ended September 30, 2008, the Company made payments of $68,000 and $306,000, respectively, primarily for costs related to severance. The Company increased the restructuring reserve by $183,000 during the six months ended September 30, 2008 primarily related to the ratable recognition of retention bonuses for employees providing service until their termination. As of September 30, 2008, the remaining liability of $196,000 was classified as a current liability in the accompanying consolidated balance sheet and will be paid in fiscal 2009. The Company expects to incur additional period expenses related to this restructuring program of approximately $347,000 during the remainder of fiscal 2009 and fiscal 2010.

Selected information relating to the aforementioned restructuring follows (in thousands):


	Termination			Other
	Costs			Costs		Total

Restructuring reserve as of March 31, 2008	$	309		$	10	$	319
Cash paid — fiscal 2009		(306	)		—		(306	)
Charges to expense — fiscal 2009		183			—		183

Restructuring reserve as of September 30, 2008	$	186		$	10	$	196

(6)

GOODWILL AND INTANGIBLES:

The Company performs the required annual impairment test of the carrying amount of goodwill and indefinite-lived intangible assets in the fourth quarter of its fiscal year.

The change in the carrying amount of goodwill for the six months ended September 30, 2008 is as follows (in thousands):


Balance as of March 31, 2008	$	48,361
Acquisition of Hampshire Paper		1,711

Balance as of September 30, 2008	$	50,072

With the acquisition of the Hampshire Paper business, the Company recorded a preliminary estimate of intangible assets subject to the completion of appraisals. Such intangible assets recorded as of September 30, 2008 include tradenames that are not subject to amortization in the amount of $1,200,000. Additionally, the Company recorded $1,300,000 relating to customer lists which are being amortized over ten years, $250,000 relating to a covenant not to complete that is being amortized over five years and $200,000 relating to patents that are being amortized over a weighted-average period of 8.5 years.

Included in intangible assets, net in the accompanying condensed consolidated balance sheets are the following acquired intangible assets (in thousands):


	September 30,		March 31,
	2008		2008

Tradenames	$	25,265	$	23,790
Customer relationships, net		19,128		18,480
Non-compete, net		400		184
Patent, net		194		—

	$	44,987	$	42,454

Amortization expense related to intangible assets was $363,000 and $15,000 for the quarters ended September 30, 2008 and 2007, respectively, and was $691,000 and $30,000 for the six months ended September 30, 2008 and 2007, respectively. Based on the current composition of intangibles, amortization expense for the remainder of fiscal 2009 and each of the succeeding four years is projected to be as follows (in thousands):


Fiscal 2009	$	763
Fiscal 2010		1,526
Fiscal 2011		1,526
Fiscal 2012		1,509
Fiscal 2013		1,476

Total	$	6,800

(7)

COMMITMENTS AND CONTINGENCIES:

CSS and its subsidiaries are involved in ordinary, routine legal proceedings that are not considered by management to be material. In the opinion of Company counsel and management, the ultimate liabilities resulting from such legal proceedings will not materially affect the consolidated financial position of the Company or its results of operations or cash flows.

(8)

ACCOUNTING PRONOUNCEMENTS:

In May 2008, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles.” SFAS No. 162 identifies, within the accounting literature established by the FASB, the sources and hierarchy of the accounting principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles. SFAS No. 162 is effective 60 days following the Securities and Exchange Commission’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles.” The Company does not believe that the adoption of SFAS No. 162 will have a significant effect on its financial position or results of operations.

In April 2008, the FASB issued FASB Staff Position (“FSP”) No. 142-3, “Determination of the Useful Life of Intangible Assets.” FSP No. 142-3 amends the factors an entity should consider in developing renewal or extension assumptions used in determining the useful life of recognized intangible assets under FASB Statement No. 142, “Goodwill and Other Intangible Assets.” This new guidance applies prospectively to intangible assets that are acquired individually or with a group of other assets in business combinations and asset acquisitions. FSP No. 142-3 is effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2008. Early adoption is prohibited. The Company does not believe that the adoption of FSP No. 142-3 will have a significant effect on its financial position or results of operations.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities.” SFAS No. 161 requires companies with derivative instruments to disclose information that should enable financial-statement users to understand how and why a company uses derivative instruments, how derivative instruments and related hedged items are accounted for under FASB Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities,” and how derivative instruments and related hedged items affect a company’s financial position, financial performance and cash flows. SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The Company is currently evaluating the impact of adopting SFAS No. 161 on its consolidated financial statements.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS No. 141R”), which replaces SFAS No. 141. The statement retains the purchase method of accounting for acquisitions, but requires a number of changes, including changes in the way assets and liabilities are recognized in the purchase accounting. It also changes the recognition of assets acquired and liabilities assumed arising from contingencies, requires the capitalization of in-process research and development at fair value, and requires the expensing of acquisition-related costs as incurred. SFAS No. 141R is effective for fiscal year beginning after December 15, 2008 (fiscal 2010 for the Company) and will apply prospectively to business combinations completed on or after April 1, 2009.

In March 2007, the FASB ratified Emerging Issues Task Force Issue No. 06-10 “Accounting for Collateral Assignment Split-Dollar Life Insurance Agreements” (EITF 06-10). EITF 06-10 provides guidance for determining a liability for the postretirement benefit obligation as well as recognition and measurement of the associated asset on the basis of the terms of the collateral assignment agreement. EITF 06-10 is effective for fiscal years beginning after December 15, 2007. As previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2008, the Company adopted EITF 06-10 on April 1, 2008 through a cumulative effect of an accounting change which resulted in a reduction to equity of $566,000. The Company does not expect that EITF 06-10 will have a significant impact on future results.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities.” SFAS No. 159 permits companies to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing companies with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. The Company adopted SFAS No. 159 on April 1, 2008 and it did not have an effect on its consolidated financial position or results of operations.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” SFAS No. 157 establishes a framework for measuring fair value in accordance with accounting principles generally accepted in the United States, and expands disclosure about such fair value measurements. In February 2008, the FASB issued SFAS No. 157-2, “Effective Date of FASB Statement No. 157,” which amends SFAS No. 157 by delaying its effective date by one year (until April 1, 2009 for the Company) for non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis. The Company adopted SFAS No. 157 for financial assets and liabilities on April 1, 2008. There was no impact to the Company’s consolidated financial statements upon adoption of SFAS No. 157. See Note 9 for further discussion of the adoption of this Statement. The Company is currently evaluating the impact of adopting the provisions of SFAS No. 157 for non-financial assets and non-financial liabilities.

(9)

FAIR VALUE MEASUREMENTS:

The Company adopted the provisions of SFAS No. 157 on April 1, 2008. SFAS No. 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Market participants are defined as buyers or sellers in the principle or most advantageous market for the asset or liability that are independent of the reporting entity, knowledgeable and able and willing to transact for the asset or liability. There was no impact to the Company’s condensed consolidated financial statements upon adoption of SFAS No. 157.

In accordance with SFAS No. 157, the Company has categorized its financial assets and liabilities, based on the priority of the inputs to the valuation technique, into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure the financial assets and liabilities fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.

The Company’s recurring assets and liabilities recorded on the condensed consolidated balance sheet are categorized based on the inputs to the valuation techniques as follows:

Level 1 – Financial assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that the Company has the ability to access.

Level 2 – Financial assets and liabilities whose values are based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the asset or liability. Examples of Level 2 inputs include quoted prices for identical or similar assets or liabilities in non-active markets and pricing models whose inputs are observable for substantially the full term of the asset or liability.

Level 3 – Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement.

The following table presents the Company’s fair value hierarchy for those financial assets and liabilities measured at fair value on a recurring basis in its condensed consolidated balance sheet as of September 30, 2008.


			Quoted Prices
			In Active		Significant
			Markets for		Other		Significant
			Identical		Observable		Unobservable
	September 30,		Assets		Inputs		Inputs
(in thousands)	2008		(Level 1)		(Level 2)		(Level 3)
Assets
Marketable securities	$	853	$	853	$	—	$	—
Cash surrender value of life insurance policies		822		—		822		—
Foreign exchange contracts		500		—		500		—

Total assets	$	2,175	$	853	$	1,322	$	—

Liabilities
Deferred compensation plans	$	853	$	853	$	—	$	—

Total liabilities	$	853	$	853	$	—	$	—

CSS INDUSTRIES, INC. AND SUBSIDIARIES

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

STRATEGIC OVERVIEW

On December 3, 2007, the Company completed the acquisition of substantially all of the business and assets of C.R. Gibson, which is a designer, marketer and distributor of memory books, stationery, journals and notecards, infant and wedding photo albums and scrapbooks, and other gift items that commemorate life’s celebrations. In consideration, the Company paid approximately $73,847,000 in cash, including transaction costs of approximately $200,000. A portion of the purchase price is being held in escrow for certain indemnification obligations. The acquisition was accounted for as a purchase and the excess of cost over the fair market value of the net tangible and identifiable intangible assets acquired of $17,409,000 was recorded as goodwill in the accompanying condensed consolidated balance sheet.

On August 5, 2008, a subsidiary of the Company completed the acquisition of substantially all of the business and assets of Hampshire Paper Corp. (“Hampshire Paper”) for approximately $10,250,000 in cash. Hampshire Paper is a manufacturer and supplier of waxed tissue, paper, foil, and foil decorative packaging to the wholesale floral and horticultural industries. A portion of the purchase price is being held in escrow for certain post-closing adjustments and indemnification obligations. The acquisition was accounted for as a purchase and the excess of cost over fair market value of the net tangible and identifiable intangible assets acquired (estimated to be approximately $1,711,000, subject to the completion of appraisals in accordance with SFAS 141) was recorded as goodwill in the accompanying condensed consolidated balance sheet.

Historically, significant growth at CSS has come through acquisitions. Management anticipates that it will continue to utilize acquisitions to stimulate further growth.

Approximately 70% of the Company’s sales are attributable to seasonal (Christmas, Valentine’s Day, Easter and Halloween) products, with the remainder being attributable to everyday products. Seasonal products are sold primarily to mass market retailers, and the Company has relatively high market shares in many of these categories. Most of these markets have shown little or no growth in recent years, and the Company continues to confront significant price pressure as its competitors source certain products from overseas and its customers increase direct sourcing from overseas factories. Increasing customer concentration has augmented their bargaining power, which has also contributed to price pressure.

The Company has taken several measures to respond to cost and price pressures. CSS continually invests in product and packaging design and product knowledge to assure it can continue to provide unique added value to its customers. In addition, CSS maintains an office and showroom in Hong Kong to be able to provide alternatively sourced products at competitive prices. CSS continually evaluates the efficiency and productivity in its North American production and distribution facilities and of its back office operations to maintain its competitiveness domestically. In the last five fiscal years, the Company has closed five manufacturing plants and six warehouses totaling 1,344,000 square feet. Additionally, in fiscal 2007 the Company combined the management and back office support for its Memphis, Tennessee based Cleo gift wrap operation into its Berwick Offray ribbon and bow subsidiary. This action enhanced administrative efficiencies and provided incremental penetration of gift packaging products into broader everyday channels of distribution.

The Company’s everyday craft, trim-a-package, stationery and memory product lines have higher inherent growth potential due to higher market growth rates. Further, the Company’s everyday craft, trim-a-package, stationery and floral product lines have higher inherent growth potential due to CSS’ relatively low current market share. The Company continues to pursue sales growth in these and other areas.

LITIGATION

CRITICAL ACCOUNTING POLICIES

The consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

The significant accounting policies of the Company are described in the notes to the consolidated financial statements included in the Annual Report on Form 10-K for the fiscal year ended March 31, 2008. Judgments and estimates of uncertainties are required in applying the Company’s accounting policies in many areas. Following are some of the areas requiring significant judgments and estimates: revenue; cash flow and valuation assumptions in performing asset impairment tests of long-lived assets and goodwill; valuation reserves for inventory and accounts receivable; income tax accounting; the valuation of share-based awards and resolution of litigation and other proceedings. There have been no material changes to the critical accounting policies affecting the application of those accounting policies as noted in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2008.

RESULTS OF OPERATIONS

Seasonality

The seasonal nature of CSS’ business has historically resulted in lower sales levels and operating losses in the first and fourth quarters and comparatively higher sales levels and operating profits in the second and third quarters of the Company’s fiscal year which ends March 31, thereby causing significant fluctuations in the quarterly results of operations of the Company.

Six Months Ended September 30, 2008 Compared to Six Months Ended September 30, 2007

Sales for the six months ended September 30, 2008 increased 4% to $228,808,000 from $219,684,000 in 2007 primarily due to sales of acquired businesses, primarily C.R. Gibson, which was acquired on December 3, 2007. Excluding sales of acquired businesses, sales declined 9%, primarily due to lower sales in the Christmas gift wrap, gift bag and gift tissue product lines, as well as generally reduced buying patterns of retailers caused by the weak economic environment.

Cost of sales, as a percentage of sales, was 73% in 2008 and 2007 as higher margin sales of C.R Gibson in the current year were substantially offset by higher material and fuel costs compared to the same period in the prior year.

Selling, general and administrative (“SG&A”) expenses increased $5,572,000, or 12%, over the prior year period. The increase was primarily due to incremental costs of C.R. Gibson, partially offset by lower commissions expense as a result of the mix of product shipped during the same period in the prior year.

Interest expense of $1,200,000 in 2008 was unfavorable compared to interest income of $90,000 in 2007. The increase in interest expense was substantially due to increased borrowings during the six months compared to the same period in the prior year, primarily as a result of cash utilized to purchase C.R. Gibson on December 3, 2007 and repurchases of the Company’s common stock, net of cash generated from operations.

Income taxes, as a percentage of income before taxes, were 34% in 2008 and 36% in 2007. The decrease in the effective tax rate was primarily due to a benefit recorded in the current year following the settlement of an outstanding tax audit.

Net income for the six months ended September 30, 2008 was $6,008,000, or $.58 per diluted share compared to $9,108,000, or $.82 per diluted share in 2007. The reduction in net income was primarily the result of reduced Christmas sales, higher material and fuel costs and increased interest expense due to higher borrowings, net of income contributed by acquired businesses. Included in net income per diluted share for the six month period is non-recurring costs of $.05 per diluted share associated with the restructuring related to the closure of three Pennsylvania-based facilities announced in January 2008.

Three Months Ended September 30, 2008 Compared to Three Months Ended September 30, 2007

Sales for the three months ended September 30, 2008 increased 1% to $174,161,000 from $172,882,000 in 2007 primarily due to sales of acquired businesses, primarily C.R. Gibson, which was acquired on December 3, 2007. Excluding sales of acquired businesses, sales declined 10%, primarily due to lower sales in the Christmas gift wrap, gift bag and gift tissue product lines, as well as generally reduced buying patterns of retailers caused by the weak economic environment.

Cost of sales, as a percentage of sales, was 74% in 2008 and 73% in 2007. The increase in cost of sales was primarily due to higher material and fuel costs compared to the same quarter in the prior year.

SG&A expenses increased $2,705,000, or 11%, over the prior year period. The increase was primarily due to incremental costs of C.R. Gibson, partially offset by lower commissions expense as a result of the mix of product shipped during the same period in the prior year.

Interest expense, net of $916,000 in 2008 increased over interest expense, net of $284,000 in 2007 due to higher borrowing levels during the quarter compared to the same quarter in the prior year, primarily as a result of cash utilized to purchase C.R. Gibson on December 3, 2007 and repurchases of the Company’s common stock, net of cash generated from operations.

Income taxes, as a percentage of income before taxes, were 34% in 2008 and 35% in 2007. The decrease in the effective tax rate was primarily due to a benefit recorded in the second quarter of fiscal 2009 following the settlement of an outstanding tax audit.

Net income for the three months ended September 30, 2008 was $10,504,000, or $1.03 per diluted share, compared to $13,535,000, or $1.22 per diluted share in 2007. The decrease in net income was primarily attributable to the impact of lower Christmas sales, higher material and fuel costs and higher interest expense, net of income contributed by acquired businesses. Included in net income per diluted share for the quarter is non-recurring costs of $.02 per diluted share associated with the restructuring related to the closure of three Pennsylvania-based facilities announced in January 2008.

LIQUIDITY AND CAPITAL RESOURCES

At September 30, 2008, the Company had working capital of $123,529,000 and stockholders’ equity of $256,823,000. The increase in accounts receivable from March 31, 2008 reflected seasonal billings of current year Halloween and Christmas accounts receivables, net of current year collections. The increase in inventories and other current liabilities was primarily a result of the normal seasonal inventory build necessary for the fiscal 2009 shipping season. The decrease in stockholders’ equity was primarily attributable to treasury share repurchases and payments of cash dividends, partially offset by year-to-date net income.

The Company relies primarily on cash generated from its operations and seasonal borrowings to meet its liquidity requirements. Historically, a significant portion of the Company’s revenues have been seasonal with approximately 80% of sales recognized in the second and third quarters. As payment for sales of Christmas related products is usually not received until just before or just after the holiday selling season in accordance with general industry practice, short-term borrowing needs increase throughout the second and third quarters, peaking prior to Christmas and dropping thereafter. Seasonal financing requirements are met under a $50,000,000 revolving credit facility with five banks and an accounts receivable securitization facility with an issuer of receivables-backed commercial paper. This facility has a funding limit of $100,000,000 during peak seasonal periods and $25,000,000 during off-peak seasonal periods. In addition, the Company has outstanding $20,000,000 of 4.48% senior notes due ratably in annual $10,000,000 installments through December 2009. These financing facilities are available to fund the Company’s seasonal borrowing needs and to provide the Company with sources of capital for general corporate purposes, including acquisitions as permitted under the revolving credit facility. At September 30, 2008, there was $20,000,000 of long-term borrowings outstanding related to the senior notes and $102,980,000 outstanding under the Company’s short-term credit facilities. In addition, the Company has less than $500,000 of capital leases outstanding. Based on its current operating plan, the Company believes its sources of available capital are adequate to meet its future cash needs for at least the next 12 months.

As of September 30, 2008, the Company’s letter of credit commitments are as follows (in thousands):


	Less than 1		1-3		4-5		After 5
	Year		Years		Years		Years		Total
Letters of credit	$	5,925	$	—	$	—	$	—	$	5,925

The Company has a reimbursement obligation with respect to stand-by letters of credit that guarantee the funding of workers compensation claims and guarantee the funding of obligations to certain vendors. The Company has no financial guarantees or other arrangements with any third parties or related parties other than its subsidiaries.

In the ordinary course of business, the Company enters into arrangements with vendors to purchase merchandise in advance of expected delivery. These purchase orders do not contain any significant termination payments or other penalties if cancelled.

LABOR RELATIONS

With the exception of the bargaining units at the gift wrap facilities in Memphis, Tennessee and the ribbon manufacturing facilities in Hagerstown, Maryland, which totaled approximately 700 employees as of September 30, 2008, CSS employees are not represented by labor unions. Because of the seasonal nature of certain of its businesses, the number of production employees fluctuates during the year. The collective bargaining agreement with the labor union representing Cleo’s production and maintenance employees at the Cleo gift wrap plant and warehouses in Memphis, Tennessee remains in effect until December 31, 2010. The collective bargaining agreement with the labor union representing the Hagerstown-based production and maintenance employees remains in effect until December 31, 2009.

ACCOUNTING PRONOUNCEMENTS

See Note 8 to the Condensed Consolidated Financial Statements for information concerning recent accounting pronouncements and the impact of those standards.

FORWARD-LOOKING STATEMENTS

This report includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including, among others, statements relating to expected future costs of the Company’s restructuring plan involving the closure of its facilities in Elysburg, Pennsylvania and Troy, Pennsylvania; continued use of acquisitions to stimulate further growth; the expected future impact of legal proceedings and changes in accounting principles; and the anticipated effects of measures taken by the Company to respond to cost and price pressures. Forward-looking statements are based on the beliefs of the Company’s management as well as assumptions made by and information currently available to the Company’s management as to future events and financial performance with respect to the Company’s operations. Forward-looking statements speak only as of the date made. The Company undertakes no obligation to update any forward-looking statements to reflect the events or circumstances arising after the date as of which they were made. Actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors, including without limitation, general market conditions; increased competition; increased operating costs, including labor-related and energy costs and costs relating to the imposition or retrospective application of duties on imported products; currency risks and other risks associated with international markets; risks associated with acquisitions, including acquisition integration costs and the risk that the Company may not be able to integrate and derive the expected benefits from such acquisitions; risks associated with the restructuring plan to close the Company’s facilities in Elysburg, Pennsylvania and Troy, Pennsylvania, including the risk that the restructuring related savings may be less than and/or costs may exceed the presently expected amounts and the risk that the closures will adversely affect the Company’s ability to fulfill its customers orders on time; risks associated with the Company’s enterprise resource planning systems standardization project, including the risk that the cost of the project will exceed expectations, the risk that the expected benefits of the project will not be realized and the risk that implementation of the project will interfere with and adversely affect the Company’s operations and financial performance; the risk that customers may become insolvent; costs of compliance with governmental regulations and government investigations; liability associated with non-compliance with governmental regulations, including regulations pertaining to the environment, Federal and state employment laws, and import and export controls and customs laws; and other factors described more fully in the Company’s annual report on Form 10-K for the fiscal year ended March 31, 2008 and elsewhere in the Company’s filings with the Securities and Exchange Commission. As a result of these factors, readers are cautioned not to place undue reliance on any forward-looking statements included herein or that may be made elsewhere from time to time by, or on behalf of, the Company.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to the impact of interest rate changes and manages this exposure through the use of variable-rate and fixed-rate debt. The Company is also exposed to foreign currency fluctuations which it manages by entering into foreign currency forward contracts to hedge the majority of firmly committed transactions and related receivables that are denominated in a foreign currency. The Company does not enter into contracts for trading purposes and does not use leveraged instruments. The market risks associated with debt obligations and other significant instruments as of September 30, 2008 have not materially changed from March 31, 2008 (see Item 7A of the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2008).

ITEM 4. CONTROLS AND PROCEDURES

(a)

Evaluation of Disclosure Controls and Procedures. As of the end of the period covered by this report, the Company’s management, with the participation of the Company’s President and Chief Executive Officer and Vice President — Finance and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures in accordance with Rule 13a-15 of the Securities Exchange Act of 1934 (the “Exchange Act”). Based upon that evaluation, the President and Chief Executive Officer and Vice President — Finance and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in providing reasonable assurance that information required to be disclosed by the Company in reports that it files under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

(b)

Changes in Internal Controls . There was no change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) as promulgated by the Securities and Exchange Commission under the Exchange Act) during the second quarter of fiscal year 2009 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

CSS INDUSTRIES, INC. AND SUBSIDIARIES

PART II — OTHER INFORMATION

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Share Repurchase Program

A total of 264,400 shares were repurchased at an average price of $25.64 in the second quarter of fiscal 2009. As of September 30, 2008, there remained an outstanding authorization to repurchase 134,400 shares of outstanding CSS common stock as represented in the table below.


							Maximum
					Total Number of		Number of Shares
	Total Number				Shares Purchased as		that May Yet Be
	of Shares		Average Price		Part of Publicly		Purchased Under
	Purchased ⁽¹⁾		Paid Per Share		Announced Program ⁽²⁾		the Program ⁽²⁾

July 1 through July 31, 2008		98,800	$	24.93		98,800		300,000
August 1 through August 31, 2008		61,500		26.46		61,500		238,500
September 1 through September 30, 2008		104,100		26.06		104,100		134,400

Total Second Quarter		264,400	$	25.64		264,400		134,400


(1)		All share repurchases were effected in open-market transactions and in accordance with the safe harbor provisions of Rule 10b-18 of the Exchange Act.

(2)		On May 29, 2008, the Company announced that its Board of Directors had authorized the repurchase of up to 500,000 shares of the Company’s common stock (the “Repurchase Program”). As of September 30, 2008, the Company repurchased an aggregate of 365,600 shares pursuant to the Repurchase Program. An expiration date has not been established for the Repurchase Program. As of October 23, 2008, the Company had repurchased the available shares remaining under the Repurchase Program and on that date the Company announced that its Board of Directors had authorized the repurchase of up to an additional 500,000 shares of the Company’s common stock. An expiration date has not been established for the repurchase program announced on October 23, 2008.

Item 4. Submission of Matters to a Vote of Security Holders

	(a)		The annual meeting of stockholders of the Company was held on July 31, 2008. The matters voted upon at the annual meeting were the election of directors, a proposal to approve an Amendment to the Company’s 2004 Equity Compensation Plan and a proposal to approve the Company’s Management Incentive Program.

	(b)		The result of the vote of the stockholders for the election of directors was as set forth in the table that follows. The individuals listed in the table below were elected to serve as Directors of the Company until the next annual meeting and until their successors shall be elected and qualify:


	SHARES OF VOTING STOCK
	FOR		WITHHELD

Scott A. Beaumont		9,450,890		37,612
James H. Bromley		9,414,130		74,372
Jack Farber		9,424,952		63,550
John J. Gavin		9,450,440		38,062
Leonard E. Grossman		9,305,008		183,494
James E. Ksansnak		9,414,475		74,027
Rebecca C. Matthias		9,450,403		38,099
Christopher J. Munyan		9,425,694		62,808

(c)

The result of the vote of the stockholders on the proposal to approve the Amendment to the 2004 Equity Compensation Plan was as follows:


For			8,729,659
Against			263,659
Abstain			3,060
Broker non-votes			492,124

(d)

The result of the vote of the stockholders on the proposal to approve the Company’s Management Incentive Program was as follows:


For			8,958,953
Against			34,223
Abstain			3,202
Broker non-votes			492,124

Item 6. Exhibits

Exhibit 10.1 Amendment to the Amended and Restated Loan Agreement dated July 31, 2008.

Exhibit 10.2 Letter Agreement dated August 1, 2008 between CSS Industries, Inc. and PNC Bank, National Association regarding a $10 million Committed Line of Credit.

Exhibit 10.3 Asset Purchase Agreement dated August 1, 2008 among Granite Acquisition Corp., Lion Ribbon Company, Inc., Hampshire Paper Corp. and the Shareholders of Hampshire Paper Corp.

Exhibit 10.4 2004 Equity Compensation Plan (amended and restated as of July 31, 2008) (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated July 31, 2008).

Exhibit 10.5 Employment Agreement dated as of July 25, 2008 between CSS Industries, Inc. and Paul Quick.

Exhibit 10.6 Amendment to Employment Agreement dated as of September 5, 2008 between CSS Industries, Inc. and Christopher J. Munyan.

Exhibit 31.1 Certification of the Chief Executive Officer of CSS Industries, Inc. required by Rule 13a-14(a) under the Securities Exchange Act of 1934.

Exhibit 31.2 Certification of the Chief Financial Officer of CSS Industries, Inc. required by Rule 13a-14(a) under the Securities Exchange Act of 1934.

Exhibit 32.1 Certification of the Chief Executive Officer of CSS Industries, Inc. required by Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U. S. C. Section 1350.

Exhibit 32.2 Certification of the Chief Financial Officer of CSS Industries, Inc. required by Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U. S. C. Section 1350.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	CSS INDUSTRIES, INC. (Registrant)
Date: October 30, 2008	By:	/s/ Christopher J. Munyan
		Christopher J. Munyan
		President and Chief Executive Officer (principal executive officer)


Date: October 30, 2008	By:	/s/ Clifford E. Pietrafitta
		Clifford E. Pietrafitta
		Vice President – Finance and Chief Financial Officer (principal financial and accounting officer)

EXHIBIT INDEX


Exhibit
Number		Description

	10.1	Amendment to the Amended and Restated Loan Agreement dated July 31, 2008.

	10.2	Letter Agreement dated August 1, 2008 between CSS Industries, Inc. and PNC Bank, National Association regarding a $10 million Committed Line of Credit.

	10.3	Asset Purchase Agreement dated August 1, 2008 among Granite Acquisition Corp., Lion Ribbon Company, Inc., Hampshire Paper Corp. and the Shareholders of Hampshire Paper Corp.

	10.5	Employment Agreement dated as of July 25, 2008 between CSS Industries, Inc. and Paul Quick.

	10.6	Amendment to Employment Agreement dated as of September 5, 2008 between CSS Industries, Inc. and Christopher J. Munyan.

	31.1	Certification of the Chief Executive Officer of CSS Industries, Inc. required by Rule 13a- 14(a) under the Securities Exchange Act of 1934.

	31.2	Certification of the Chief Financial Officer of CSS Industries, Inc. required by Rule 13a- 14(a) under the Securities Exchange Act of 1934.

	32.1	Certification of the Chief Executive Officer of CSS Industries, Inc. required by Rule 13a- 14(b) under the Securities Exchange Act of 1934 and 18 U. S. C. Section 1350.

	32.2	Certification of the Chief Financial Officer of CSS Industries, Inc. required by Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U. S. C. Section 1350.

Exhibit 10.1

AMENDMENT OF LOAN AGREEMENT

THIS AMENDMENT OF LOAN AGREEMENT (this “Amendment”) is made as of this 31st day of July, 2008, by and among CSS INDUSTRIES, INC. (the “Company”), CSS MANAGEMENT LLC (the “Subsidiary Borrower” and, together with the Company, individually, each a “Borrower” and collectively, the “Borrowers”), the lenders from time to time parties to the Loan Agreement defined below (the “Lenders”), and PNC BANK, NATIONAL ASSOCIATION, as Administrative Agent (the “Administrative Agent”) for the Lenders.

Background:

A. The Administrative Agent, the Lenders and the Borrowers entered into an Amended and Restated Loan Agreement dated as of April 23, 2004 (as heretofore modified and amended, the “Loan Agreement”), pursuant to which the Lenders agreed to make Advances from time to time to the Borrowers.

B. The Borrowers have requested and the Administrative Agent and the Lenders have agreed to amend certain of the provisions in the Loan Agreement with respect to Letters of Credit, all on the terms and subject to the conditions set forth herein.

NOW, THEREFORE , in consideration of the foregoing and for good and valuable consideration, the legality and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound hereby, agree as follows:

1. Definitions . Capitalized terms used herein, including in the foregoing recitals, and not otherwise defined herein shall have the meanings assigned to them in the Loan Agreement.

2. Amendments to Loan Agreement . The Loan Agreement is hereby amended effective as of July 31, 2008 (the “Amendment Effective Date”) as follows:

(a) The following new definition of “ Letter of Credit Coverage Requirement ” is added to Section 1.1 in the appropriate alphabetical order:

““ Letter of Credit Coverage Requirement ”: with respect to each Letter of Credit at any time, 102% of the maximum amount available to be drawn thereunder at such time (determined without regard to whether any conditions to drawing could be met at such time).”

(b) The third and fourth sentences of Section 2.2(a) are amended and restated to read in full as follows:

“No standby Letter of Credit shall be issued with an expiry date later than the earlier of: (i) one (1) year from the date of issuance and (ii) except as provided in Section 2.2(h), the Maturity Date. No commercial Letter of Credit shall be issued with an expiry date later than the earlier of: (i) one hundred twenty (120) days from the date of issuance and (ii) except as provided in Section 2.2(h), the Maturity Date.”

“(h) If the expiration date for any Letter of Credit requested by the Borrowers to be issued, or extended or renewed, pursuant to Section 2.2(a) is later than the Maturity Date, the Fronting Lender may nonetheless issue, or extend or renew, such Letter of Credit notwithstanding that such expiration date is later than the Maturity Date, provided that Borrowers shall on or before the day five (5) days prior to the Maturity Date deposit with the Administrative Agent as security for the Obligations, cash in an amount equal to the Letter of Credit Coverage Requirement with respect to each such Letter of Credit which remains outstanding on such date, which cash shall be deposited with, pledged to and held by the Administrative Agent for the benefit of the Lenders in the same manner as provided in Section 8.2(c).”

(d) Section 8.2(c) is hereby amended and restated to read in full as follows:

“(c) Upon the occurrence and during the continuance of an Event of Default and in addition to all other rights and remedies available to the Administrative Agent, the Borrowers shall upon demand of the Administrative Agent, deposit in a non-interest bearing account with the Administrative Agent, as cash collateral for the Obligations, an amount equal to the aggregate Letter of Credit Coverage Requirement, and the Borrowers hereby pledge to the Administrative Agent and the Lenders, and grant to the Administrative Agent and the Lenders a security interest in, all such cash as security for the Obligations. Amounts held in such cash collateral account shall be applied by the Administrative Agent to the payment of drafts drawn under any Letters of Credit, and the unused portion thereof after all the Letters of Credit shall have expired or been fully drawn upon, if any, shall be applied to repay other Obligations of the Borrowers hereunder and under the Notes. After all Letters of Credit shall have expired or been fully drawn upon, all Obligations with respect thereto shall have been satisfied and all other Obligations of the Borrowers hereunder and under the Notes shall have been paid in full, the balance, if any, in such cash collateral account shall be returned to the Borrowers. The Borrowers shall execute and deliver to the Administrative Agent, for the account of the Fronting Bank and the Lenders, such further documents and instruments as the Administrative Agent may request to evidence the creation and perfection of the within security interest in such cash collateral account. Except as expressly provided above in this Section, presentment, demand, protest and all other notices of any kind are expressly waived.”

3. Amendment to the Loan Documents . All references to the Loan Agreement in the Loan Documents shall be deemed to refer to the Loan Agreement as amended hereby.

4. Ratification of the Loan Documents . Notwithstanding anything to the contrary herein contained or any claims of the parties to the contrary, the Administrative Agent, the Lenders and the Borrowers agree that the Loan Documents are in full force and effect and each such document shall remain in full force and effect, as amended by this Amendment and each Borrower hereby ratifies and confirms its obligations thereunder.

5. Representations and Warranties .

(a) Each Borrower hereby certifies that after giving effect to this Amendment, (i) the representations and warranties of such Borrower in the Loan Agreement are true and correct in all material respects as if made on the date hereof and (ii) no Event of Default and no event which could become an Event of Default with the passage of time or the giving of notice, or both, under the Loan Agreement or the other Loan Documents exists on the date hereof.

(b) Each Borrower further represents that such Borrower has all the requisite power and authority to enter into and to perform its obligations under this Amendment, and that the execution, delivery and performance of this Amendment have been duly authorized by all requisite action and will not violate or constitute a default under any provision of any applicable law, rule, regulation, order, writ, judgment, injunction, decree, determination or award presently in effect or of the Certificate of Incorporation or Formation, by-laws or operating agreement or other organizational documents of such Borrower, or of any indenture, note, loan or loan agreement, license or any other agreement, lease or instrument to which such Borrower is a party or by which such Borrower or any of its properties are bound.

(c) Each Borrower also further represents that its obligations to repay the Advances, together with all interest accrued thereon, are absolute and unconditional, and there exists no right of set off or recoupment, counterclaim or defense of any nature whatsoever to payment of the Advances.

(d) Each Borrower also further represents that there have been no changes to the Certificate of Incorporation or Formation, by-laws or operating agreement or other organizational documents of such Borrower since the most recent date true and correct copies thereof were delivered to the Administrative Agent.

6. Conditions Precedent . The amendments set forth herein shall be effective as of the Amendment Effective Date upon the fulfillment, to the satisfaction of the Administrative Agent and its counsel, of the following conditions precedent:

(a) Each Borrower shall have delivered to the Administrative Agent the following, all of which shall be in form and substance satisfactory to the Administrative Agent and shall be duly completed and executed:

(i)

counterparts of this Amendment executed by each Borrower, the Majority Lenders and the Guarantors;

(ii)

copies, certified by the Secretary or an Assistant Secretary of each Borrower of resolutions of the board of directors or members of such Borrower in effect on the date hereof authorizing the execution, delivery and performance of this Amendment and the other documents and transactions contemplated hereby; and

(iii)

such additional documents, certificates and information as the Administrative Agent may reasonably request.

(b) After giving effect to this Amendment, the representations and warranties set forth in the Loan Agreement shall be true and correct on and as of the date hereof.

(c) After giving effect to this Amendment, no Event of Default, and no event which, with the passage of time or the giving of notice, or both, would become such an Event of Default shall have occurred and be continuing as of the date hereof.

7. Miscellaneous

(a) To induce the Administrative Agent and the Lenders to enter into this Amendment, each Borrower waives and releases and forever discharges the Administrative Agent and the Lenders and their respective officers, directors, attorneys, agents, and employees from any liability, damage, claim, loss or expense of any kind of which it has knowledge as of the date hereof against any of them arising out of or relating to the Loan Documents. Each Borrower further agrees to indemnify and hold the Administrative Agent, the Lenders and their respective officers, directors, attorneys, agents and employees (collectively, the “Indemnitees”) harmless from any loss, damage, judgment, liability or expense (including reasonable attorneys’ fees), other than any such loss, damage judgment, liability or expense caused by the Indemnitee’s own willful misconduct or gross negligence, suffered by or rendered against any of them on account of any claims arising out of or relating to the Loan Documents. Each Borrower further states that it has carefully read the foregoing release and indemnity, knows the contents thereof and grants the same as its own free act and deed.

(b) All terms, conditions, provisions and covenants in the Loan Documents and all other documents delivered to the Administrative Agent in connection therewith shall remain unaltered and in full force and effect except as modified or amended hereby. To the extent that any term or provision of this Amendment is or may be deemed expressly inconsistent with any term or provision in any Loan Document or any other document executed in connection therewith, the terms and provisions hereof shall control.

(c) This Amendment constitutes the entire agreement of the parties with respect to the subject matter hereof and supersedes all prior and contemporaneous understandings and agreements.

(d) In the event any provisions of this Amendment shall be held invalid or unenforceable by any court of competent jurisdiction, such holding shall not invalidate or render unenforceable any other provision hereof.

(e) This Amendment shall be governed by and construed according to the laws of the Commonwealth of Pennsylvania.

(f) This Agreement shall inure to the benefit of, and be binding upon, the parties hereto and their respective successors and assigns and may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

(g) The headings used in this Agreement are for convenience of reference only, do not form a part of this Amendment and shall not affect in any way the meaning or interpretation of this Amendment.

Each Borrower expressly ratifies and confirms the waiver of jury trial provisions contained in the Loan Documents.

IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the day and year first above written.


CSS INDUSTRIES, INC.
By:
	Name:	Clifford E. Pietrafitta
	Title:	Vice President - Finance


CSS MANAGEMENT LLC
By:
	Name:	Clifford E. Pietrafitta
	Title:	Vice President


		PNC BANK, NATIONAL ASSOCIATION, as a Lender, as Swing Line Lender, as Fronting Lender and as Administrative Agent

		By:

				Name:
				Title:


		WACHOVIA BANK, NATIONAL ASSOCIATION, as a Lender

		By:

				Name:
				Title:


		BANK OF AMERICA, N.A. (formerly FLEET NATIONAL BANK), as a Lender

		By:

				Name:
				Title:


		CITIZENS BANK OF PENNSYLVANIA, as a Lender

		By:

				Name:
				Title:


		REGIONS FINANCIAL CORP. (formerly UNION PLANTERS BANK), as a Lender

		By:

				Name:
				Title:

ACKNOWLEDGMENT AND AGREEMENT

Each of the undersigned hereby acknowledges the provisions of the foregoing Amendment of Loan Agreement (the “Amendment”) and confirms and agrees that its obligations under its Guaranty Agreement in favor of the Lenders referred to in the Amendment shall be unimpaired by the Amendment and are hereby ratified and confirmed in all respects in respect of the Obligations of CSS Industries, Inc. and CSS Management LLC under the Loan Agreement, as amended.


PAPER MAGIC GROUP, INC. (a Pennsylvania corporation)
By:
	Name:	Clifford E. Pietrafitta
	Title:	Vice President

BERWICK DELAWARE, INC.
By:
	Name:	Clifford E. Pietrafitta
	Title:	President

BERWICK OFFRAY LLC
By:
	Name:	Clifford E. Pietrafitta
	Title:	Vice President


CLEO INC.
By:
	Name:	Clifford E. Pietrafitta
	Title:	Vice President


CLEO DELAWARE, INC.
By:
	Name:	Clifford E. Pietrafitta
	Title:	President


PHILADELPHIA INDUSTRIES, INC.
By:
	Name:	Clifford E. Pietrafitta
	Title:	President


LLM HOLDINGS, INC.
By:
	Name:	Clifford E. Pietrafitta
	Title:	President

THE PAPER MAGIC GROUP, INC. (a Delaware corporation)
By:
	Name:	Clifford E. Pietrafitta
	Title:	President

DON POST STUDIOS, INC.
By:
	Name:	Clifford E. Pietrafitta
	Title:	Vice President


LION RIBBON COMPANY, INC.
By:
	Name:	Clifford E. Pietrafitta
	Title:	Vice President


CRYSTAL CREATIVE PRODUCTS, INC.
By:
	Name:	Clifford E. Pietrafitta
	Title:	Vice President


C.R GIBSON, LLC
By:
	Name:	Clifford E. Pietrafitta
	Title:	Vice President

Exhibit 10.2

August 1, 2008

CSS Industries, Inc.
CSS Management LLC
1845 Walnut Street, Suite 800
Philadelphia, PA 19103
Attention: Clifford E. Pietrafitta

Chief Financial Officer

Re: $10,000,000 Committed Line of Credit

Ladies and Gentlemen:

We are pleased to inform you that PNC Bank, National Association (the “Bank” ), has approved your request for a committed line of credit to CSS Industries, Inc. and CSS Management LLC (individually and collectively, the “Borrower” ). All the details regarding your line of credit are outlined in the following sections of this letter.

1. Facility and Use of Proceeds . This is a committed revolving line of credit under which the Borrower may request and the Bank, subject to the terms and conditions of this letter, will make advances to the Borrower from time to time until the Expiration Date, in an amount in the aggregate at any time outstanding not to exceed $10,000,000 (the “Line of Credit” or the “Loan” ). The “Expiration Date” means the earlier of (a) September 29, 2008 (or such later date as may be designated by the Bank by written notice to the Borrower) and (b) the date of the termination of the revolving credit facility under the Senior Loan Agreement (as hereinafter defined). Advances under the Line of Credit will be used for working capital or other general business purposes of the Borrower.

2. Note . The obligation of the Borrower to repay advances under the Line of Credit shall be evidenced by a committed line of credit note (the “Note” ) in form and content satisfactory to the Bank.

This letter (the “Letter Agreement” ), the Note and the other agreements and documents executed and/or delivered pursuant hereto, as each may be amended, modified, extended or renewed from time to time, will constitute the “Loan Documents.” Capitalized terms not defined herein shall have the meaning ascribed to them in the Loan Documents.

3. Interest Rate . Interest on the unpaid balance of the Line of Credit advances will be charged at the rates, and be payable on the dates and times, set forth in the Note.

4. Repayment . Subject to the terms and conditions of this Letter Agreement, the Borrower may borrow, repay and reborrow under the Line of Credit until the Expiration Date, on which date the outstanding principal balance and any accrued but unpaid interest shall be due and payable. Interest will be due and payable as set forth in the Note, and will be computed on the basis of a year of 360 days and paid on the actual number of days that principal is outstanding.

CSS Industries, Inc.
CSS Management LLC
August 1, 2008
Page 2

5. Security . The Borrower must cause to be executed and delivered to the Bank in form and content satisfactory to the Bank as security for the Loan a guaranty and suretyship agreement, under which each of its respective subsidiaries which is a guarantor of the Borrower’s obligations under the Senior Loan Agreement (individually or collectively, the “Guarantor” ) will unconditionally jointly and severally guarantee the due and punctual payment of all indebtedness owed to the Bank by the Borrower under the Loan Documents.

In addition, the Loan will be cross-defaulted with all other present and future obligations of the Borrower to the Bank under that certain Amended and Restated Loan Agreement dated as of April 23, 2004 among the Borrower, the Bank and certain other lenders from time to time parties thereto and the Bank as Administrative Agent for such lenders, as heretofore or hereafter modified or amended (the “ Senior Loan Agreement ”).

6. Covenants . Unless compliance is waived in writing by the Bank, until payment in full of the Loan and termination of the commitment for the Line of Credit:

(a) The Borrower will promptly submit to the Bank such information as the Bank may reasonably request relating to the Borrower’s affairs (including but not limited to the financial information the Borrower is obligated to provide to the Bank pursuant to the Senior Loan Agreement).

(b) The Borrower will notify the Bank in writing of the occurrence of any Event of Default (as such term is defined in the Senior Loan Agreement) or an act or condition which, with the passage of time, the giving of notice or both would become such an Event of Default.

7. Representations and Warranties . To induce the Bank to extend the Loan and upon the making of each advance to the Borrower under the Line of Credit, the Borrower represents and warrants as follows:

(a) The Borrower’s latest financial statements provided to the Bank pursuant to the Senior Loan Agreement are true, complete and accurate in all material respects and fairly present the financial condition, assets and liabilities, whether accrued, absolute, contingent or otherwise, and the results of the Borrower’s operations for the period specified therein. Since the date of the latest Financial Statements provided to the Bank, the Borrower has not suffered any damage, destruction or loss which has materially adversely affected its business, assets, operations, financial condition or results of operations.

(b) There are no actions, suits, proceedings or governmental investigations pending or, to the knowledge of the Borrower, threatened against the Borrower which would result in a material adverse change in its business, assets, operations, financial condition or results of operations and there is no basis known to the Borrower or its officers for any such action, suit, proceedings or investigation.

CSS Industries, Inc.
CSS Management LLC
August 1, 2008
Page 3

(c) The Borrower has filed all returns and reports that are required to be filed by it in connection with any federal, state or local tax, duty or charge levied, assessed or imposed upon the Borrower or its property, including unemployment, social security and similar taxes and all of such taxes have been either paid or adequate reserve or other provision has been made therefor.

(d) Each Borrower is duly organized, validly existing and in good standing under the laws of the state of its incorporation or organization and has the power and authority to own and operate its assets and to conduct its business as now or proposed to be carried on, and is duly qualified, licensed and in good standing to do business in all jurisdictions where its ownership of property or the nature of its business requires such qualification or licensing, except where the failure to be so qualified would not have a material adverse effect upon such Borrower.

(e) Each Borrower has full power and authority to enter into the transactions provided for in this Letter Agreement and has been duly authorized to do so by all necessary and appropriate action and when executed and delivered by such Borrower, this Letter Agreement and the other Loan Documents will constitute the legal, valid and binding obligations of such Borrower, enforceable against such Borrower in accordance with their terms.

(f) There does not exist any default or violation by the Borrower of or under any of the terms, conditions or obligations of: (i) its organizational documents; (ii) any indenture, mortgage, deed of trust, franchise, permit, contract, agreement, or other instrument to which it is a party or by which it is bound; or (iii) any law, regulation, ruling, order, injunction, decree, condition or other requirement applicable to or imposed upon the Borrower by any law or by any governmental authority, court or agency, which default or violation could reasonably be expected to have a material adverse effect on such Borrower.

8. Fees . On the date of the Note, the Borrower shall pay to the Bank a fee of $15,000.

9. Expenses . The Borrower will reimburse the Bank for the Bank’s expenses (including the reasonable fees and expenses of the Bank’s counsel) in documenting and closing this transaction, in connection with any amendments, modifications or renewals of the Loan, and in connection with the collection of all of the Borrower’s Obligations to the Bank, including but not limited to enforcement actions relating to the Loan.

10. Additional Provisions . Before the first advance under the Loan, the Borrower shall execute and deliver to the Bank the Note and the other required Loan Documents and such other instruments and documents as the Bank may reasonably request, such as certified resolutions, incumbency certificates or other evidence of authority. The Bank will not be obligated to make any advance under the Line of Credit if any Event of Default or event which with the passage of time, provision of notice or both would constitute an Event of Default shall have occurred and be continuing.

Prior to execution of the final Loan Documents, the Bank may terminate this Letter Agreement if a material adverse change occurs with respect to the Borrower, the Guarantor or any collateral for the Loan, or if the Borrower fails to comply with any of the terms and conditions of this Letter Agreement, or if the Bank reasonably determines that any of the conditions cannot be met.

CSS Industries, Inc.
CSS Management LLC
August 1, 2008
Page 4

This Letter Agreement is governed by the laws of the Commonwealth of Pennsylvania. The obligations of the Borrower hereunder are joint and several. No modification, amendment or waiver of any of the terms of this Letter Agreement, nor any consent to any departure by the Borrower therefrom, will be effective unless made in a writing signed by the party to be charged, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. When accepted, this Letter Agreement and the other Loan Documents will constitute the entire agreement between the Bank and the Borrower concerning the Loan, and shall replace all prior understandings, statements, negotiations and written materials relating to the Loan.

The Bank will not be responsible for any damages, consequential, incidental, special, punitive or otherwise, that may be incurred or alleged by any person or entity, including the Borrower and the Guarantor, as a result of this Letter Agreement, the other Loan Documents, the transactions contemplated hereby or thereby, or the use of proceeds of the Loan.

THE BORROWER AND THE BANK IRREVOCABLY WAIVE ANY AND ALL RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR CLAIM OF ANY NATURE ARISING OUT OF THIS LETTER AGREEMENT, THE OTHER LOAN DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED IN ANY OF SUCH DOCUMENTS AND ACKNOWLEDGE THAT THE FOREGOING WAIVER IS KNOWING AND VOLUNTARY.

If and when a loan closing occurs, this Letter Agreement (as the same may be amended from time to time) shall survive the closing and will serve as our loan agreement throughout the term of the Loan.

CSS Industries, Inc.
CSS Management LLC
August 1, 2008
Page 5

To accept these terms, please sign the enclosed copy of this Letter Agreement as set forth below and the Loan Documents and return them to the Bank within [ten] days from the date of this Letter Agreement, or this Letter Agreement may be terminated at the Bank’s option without liability or further obligation of the Bank.


	Very truly yours, PNC BANK, NATIONAL ASSOCIATION
	By:	/s/ Frank Pugliese
		Title: Senior Vice President

ACCEPTANCE

With the intent to be legally bound hereby, the above terms and conditions are hereby agreed to and accepted as of this 1st day of August, 2008.


BORROWER: CSS INDUSTRIES, INC.
By:	/s/ Clifford E. Pietrafitta
	Name:	Clifford E. Pietrafitta
	Title:	Vice President – Finance

CSS MANAGEMENT LLC
By:	/s/ Clifford E. Pietrafitta
	Name:	Clifford E. Pietrafitta
	Title:	Vice President

Exhibit 10.3

ASSET PURCHASE AGREEMENT

by and among

GRANITE ACQUISITION CORP.
(a Delaware corporation),

and

LION RIBBON COMPANY, INC.
(a Delaware corporation),

and

HAMPSHIRE PAPER CORP.
(a New Hampshire corporation),

and

the SHAREHOLDERS of HAMPSHIRE PAPER CORP.

TABLE OF CONTENTS


Section	Page

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

TABLE OF CONTENTS
(continued)


Section	Page

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

TABLE OF CONTENTS
(continued)


Section	Page

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

iii

TABLE OF CONTENTS
(continued)


Section	Page

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

ASSET PURCHASE AGREEMENT

INTRODUCTION

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

BACKGROUND

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

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

1. Definitions .

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

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

“ Action ” is defined in Section 10.5 .

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

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

“ Allocation ” is defined in Section 2.6 .

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

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

“ Assignee ” is defined in Section 13.2 .

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

“ Auditor ” means Ernst & Young LLP.

“ Base Purchase Price ” is $10,250,000.

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

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

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

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

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

“ Cap ” is defined in Section 10.3(c) .

“ CERCLA ” is defined in Section 4.25 .

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

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

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

“ Closing ” is defined in Section 3.1 .

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

“ Closing Consents ” is defined in Section 8.3 .

“ Closing Date ” is defined in Section 3.1 .

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

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

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

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

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

“ Consumer Acts ” is defined in Section 4.36 .

“ Contingent Claim ” is defined in Section 10.9 .

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

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

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

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

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

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

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

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

“ Effective Date ” is defined in Section 3.1 .

“ Employee Payments ” is defined in Section 6.13 .

“ Employment Agreement ” is defined in Section 8.9 .

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

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

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

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

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

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

“ Escrow Agent ” means LaSalle Bank National Association.

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

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

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

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

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

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

“ Expiration Date ” is defined in Section 10.4 .

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

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

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

“ Guaranty ” is defined in Section 2.8 .

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

“ Indemnified Buyer Party ” is defined in Section 10.1 .

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

“ Indemnified Seller Party ” is defined in Section 10.2 .

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

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

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

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

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

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

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

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

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

“ Manufacturing Lease ” is defined in Section 8.8 .

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

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

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

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

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

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

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

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

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

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

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

“ PBGC ” is defined in Section 4.22(e) .

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

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

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

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

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

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

“ Real Estate Leases ” is defined in Section 4.13 .

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

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

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

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

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

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

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

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

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

“ Seller Required Consents ” is defined in Section 4.4 .

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

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

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

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

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

“ Third Party Payments ” is defined in Section 6.14 .

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

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

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

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

“ Transferred Employees ” is defined in Section 6.5 .

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

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

“ US ” means the United States of America.

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

“ Warehouse Lease ” is defined in Section 8.8 .

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

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

2. Sale and Purchase .

2.1 Agreement to Sell and Purchase .

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

(i) all Accounts Receivable;

(ii) all Inventory;

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

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

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

(vi) all Confidential Information;

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

(viii) all manufacturing, warehouse and office supplies;

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

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

(xi) all rights related to any prepaid expenses;

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

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

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

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

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

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

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

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

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

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

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

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

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

2.2 Purchase Price .

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

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

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

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

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

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

2.4 Assumption of Liabilities .

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

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

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

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

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

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

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

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

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

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

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

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

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

3. Closing .

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

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

(i) duly executed counterparts to the Transaction Documents;

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

(iii) the Seller Officer’s Certificate;

(iv) the Seller’s Legal Opinion;

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

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

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

(b) Buyer shall deliver to the Seller Parties:

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

(ii) the Buyer Officer’s Certificate;

(iii) the Buyer’s Legal Opinion; and

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

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

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

4.1 Organization and Standing . Seller is a corporation duly organized, validly existing and in good standing under the Laws of the jurisdiction in which it was incorporated and, except as specified in Schedule 4. 1, is duly qualified or licensed to do business as a foreign corporation in each jurisdiction where the Business or the ownership of the Purchased Assets would require it to be so qualified or licensed. The Charter Documents and bylaws of Seller that have been delivered to Buyer as of the date hereof are effective under applicable Laws and are current, correct and complete.

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

4.3 Authority and Binding Effect .

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

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

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

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

4.6 Financial Statements; Books of Account .

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

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

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

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

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

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

4.7 Taxes .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(d) pursuant to this Agreement.

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

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

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

4.12 Condition and Location of Purchased Assets . Except as otherwise set forth on Schedule 4. 12, the equipment and all other tangible assets and properties which are part of the Purchased Assets are: (i) in good operating condition and repair, ordinary wear and tear excepted(given the age of each Asset), and are usable in the ordinary course of the business, and to Seller’s knowledge conform in all respects to all applicable Laws relating to their use and operation as such Purchased Assets are currently used in the conduct of the Business; and (ii) located at either the Manufacturing Property or the Warehouse Property. Except pursuant to leases described on any Schedule hereto, no Person other than Seller owns any vehicles, equipment or other tangible Assets situated on the facilities used by Seller in the Business which are necessary to the operation of the Business.

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

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

4.14 Confidential Information; Intellectual Property .

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

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

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

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

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

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

(b) Intellectual Property .

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

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

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

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

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

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

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

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

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

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

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

(d) Trademarks .

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

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

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

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

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

(e) Copyrights .

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

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

4.15 Contracts .

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

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

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

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

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

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

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

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

(viii) Contracts with any labor union;

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

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

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

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

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

4.16 Employees/Independent Contractors .

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

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

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

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

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

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

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

4.22 Employee Benefit Plans .

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

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

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

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

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

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

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

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

(i) Except as set forth on Schedule 4.22 :

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(e) any establishment or amendment of any Plan;

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

4.33 Solvency .

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

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

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

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

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

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

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

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

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

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

6. Pre-Closing Covenants .

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

6.2 No Solicitation . Prior to the Closing:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

6.6 [RESERVED]

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

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

6.9 [RESERVED]

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

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

6.12 Change of Name .

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

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

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

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

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

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

7. Post-Closing Covenants .

7.1 Noncompetition and Nonsolicitation, Confidential Information .

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

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

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

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

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

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

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

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

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

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

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

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

7.4 Employees .

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

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

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

7.5 Accounts Receivable .

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

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

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

7.7 Tax Matters .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

10. Indemnification .

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

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

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

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

(iii) any Unassumed Liability;

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

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

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

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

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

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

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

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

10.3 Procedure for Claims .

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

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

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

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

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

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

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

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

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

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

(b) with respect to all other claims for Damages under Section 10. 1 or 10. 2, for the relevant statutory period of limitations applicable to the underlying claim, after giving effect to any waiver or extension thereof.

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

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

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

10.7 Effect of Investigation or Knowledge . Any claim by an Indemnified Party for indemnification shall not be adversely affected by any investigation by or opportunity to investigate afforded to the Indemnified Party, nor shall such a claim be adversely affected by the Indemnified Party’s knowledge on or before the Closing Date of any breach of the type specified in Section 10.1 or Section 10. 2 or of any state of facts that may give rise to such a breach; any such claim shall survive the Closing until the applicable Expiration Date; provided, however, that the foregoing shall not apply to any claim relating to a specific matter that Buyer became aware of during the course of Buyer’s due diligence investigation that (a) none of the Seller Parties were aware of prior to the date of this Agreement, and did not become aware of prior to the Closing Date, (b) if not timely corrected by the Seller, in and of itself would constitute a Material Adverse Effect, and (c) Buyer failed to disclose to the Seller Parties prior to the Closing Date.

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

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

11. Termination .

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

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

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

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

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

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

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

12. Other Matters .

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

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

13. Miscellaneous .

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

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

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

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

13.5 Dispute Resolution .

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

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

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

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

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

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

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

If to Buyer or Parent:

c/o CSS Industries, Inc.
1845 Walnut Street
Philadelphia, PA 19103
Attention: William G. Kiesling, Vice President – Legal and Human Resources

If to any Seller Party:

Hampshire Paper Corp. (or as renamed after Closing)
24 Powers Street
Milford, NH 03055

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

Peter B. Stepanek
18 Chestnut Hill Road
Amherst, NH 03031

Michael J. Stepanek
35 South Merrimack Rd.
Hollis, NH 03049

with a required copy to:

Coolidge & Graves, PLLC
39 Central Square, Suite 173
Keene, NH 03431
Attention: Lawrence D.W. Graves, Esq.

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

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

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


BUYER: GRANITE ACQUISITION CORP.
By:	/s/ Christopher J. Munyan
	Name:
	Title:
PARENT: LION RIBBON COMPANY, INC.
By:	/s/ Clifford E. Pietrafitta
	Name:
	Title:
SELLER: HAMPSHIRE PAPER CORP.
By:	/s/ Peter B. Stepanek
	Name:	Peter B. Stepanek
	Title:	President
SHAREHOLDERS:
/s/ Peter B. Stepanek
Peter B. Stepanek

/s/ Michael J. Stepanek
Michael J. Stepanek

Exhibit 10.5

July 25, 2008

Personal and Confidential

Mr. Paul Quick
4000 West 110 ^th Street
Leawood, KS 66211

Dear Paul:

Subject to and conditioned upon approval by the Human Resources Committee (the “Committee”) of the Board of Directors of CSS Industries, Inc. (“CSS”), we are pleased to extend an offer of employment to you as President of Paper Magic Group, Inc. (“PMG”). You acknowledge and agree that there are no other valid oral or written agreements relating to the terms and conditions of your employment with PMG as its President. You further represent and covenant to PMG that you are not subject or a party to any employment agreement, non-competition covenant, understanding or restriction which would prohibit or restrict you from executing this letter and performing all duties and responsibilities incidental to the position of President of PMG, other than certain non-disclosure and non-solicitation restrictions specifically set forth in a letter, dated June 4, 2008, to you from your former employer, a copy of which you have provided to us. In serving as President of PMG, we understand and expect that you will not disclose or use any proprietary or confidential information, data, developments or trade secrets belonging to your former employer or any of its subsidiary or affiliated companies, and you agree not to disclose or use any such proprietary or confidential information, data, developments or trade secrets.

1. Contract Term — The term of your employment will be three (3) years, commencing September 8, 2008 and ending September 7, 2011, unless terminated earlier by you or by PMG at any time as provided herein. Thereafter, your employment status with PMG will continue to be that of an employee at-will, subject to termination by either you or PMG at any time.

2. Compensation — Subject to and conditioned upon approval by the Committee, the compensation package for this position will be as follows:

A. Base Salary — A base salary in the gross amount of Three Hundred Thousand Dollars ($300,000) per annum payable at such times as PMG pays its executives. There will be an annual performance review thereafter and you will then be considered for an increase in base salary, commencing April 1, 2009, consistent with the then current PMG policy.

B. Incentive Compensation — For PMG’s current fiscal year ending March 31, 2009, you will continue to be eligible to participate in the Management Incentive Plan (“MIP”). For purposes of calculating your potential 2009 fiscal year incentive compensation, and depending on the extent of achievement of certain individual, PMG and CSS objectives, you will have the potential of earning incentive compensation based upon 80% of your base salary specified in Section 2.A. above, prorated for the remaining portion of the 2009 fiscal year.

Paul Quick
July 25, 2008
Page 2

For PMG’s subsequent fiscal years, depending on the extent of achievement of certain individual, PMG and CSS objectives, you will have the potential of earning for a full fiscal year period incentive compensation with a target opportunity of up to 80% of your then base salary. The financial target objectives of your potential subsequent fiscal year incentive compensation will be determined based upon the applicable actual full fiscal year financial results of PMG and of CSS.

C. Stock Option Grant — We will recommend that a stock option will be granted to you to acquire 10,000 shares of CSS Common Stock, which recommendation will be provided to the Committee for consideration at the next available date upon which the Committee considers equity grant recommendations after the date upon which you commence employment with PMG. This grant will in all respects be subject to and in accordance with the provisions of the CSS 2004 Equity Compensation Plan, and the terms of the grant letter to be provided to you at the time of the grant.

D. Company Automobile — You will be provided for your use a PMG-owned or leased automobile comparable to the owned or leased automobiles then made available by CSS’ affiliates to President-level officers of such affiliates.

E. Vacation — You will be eligible to accrue four (4) weeks vacation each calendar year, in accordance with the applicable terms of PMG’s then current vacation policy.

3. Benefits Coverage; Relocation -You will be entitled to participate in those PMG benefit programs available to its officer level personnel in accordance with the applicable terms of these programs.

You agree that, as a part of our extension and your acceptance of an offer of employment to you hereunder, you will relocate your primary residence from 4000 West 110 ^th Street, Leawood, Kansas (the “Current Primary Residence”) to the Scranton, Pennsylvania area within three (3) months after the date hereof. Subject to your commencement of employment with PMG, you will be eligible to be reimbursed for expenses incurred on or after the date hereof associated with the relocation of your primary residence to the Scranton, Pennsylvania area in accordance with the applicable terms of the CSS relocation policy, up to a maximum aggregate amount of $150,000 (which amount shall include all amounts, if any, determined by CSS, at its sole discretion, intended to be a “gross up” for certain federal, state and local taxes to which you may be subject as a result of receiving relocation expense benefits under the CSS relocation policy). Further, in addition to the foregoing relocation expense reimbursement, until the earlier of (a) August 1, 2009 or (b) the date upon which you complete the sale of your Current Primary Residence, you will be eligible to be reimbursed for routine, ordinary course expenses approved in advance by us, up to a maximum aggregate monthly amount of $5,425, associated with your ownership of the Current Primary Residence, including without limitation approved mortgage, utility and routine maintenance expenses. We will reimburse you for the foregoing approved Current Primary Residence expenses promptly after you submit to us appropriate documentation relating to such expenses.

Paul Quick
July 25, 2008
Page 3

4. Employment Status; Severance Payments — Your employment status with PMG is subject to termination by either you or PMG at any time. However, in the event that PMG terminates your employment without cause at any time prior to September 7, 2011, and subject to your compliance with the terms and conditions of this letter agreement, PMG will pay you an amount equal to the greater of (i) one year of your then-current annual base salary (less applicable tax withholdings and payroll deductions) or (ii) an amount equal to your then-current annual base salary (less applicable tax withholdings and payroll deductions) for the period from the effective date of such termination to September 7, 2011, such amount reduced by and to the extent of any earnings and other compensation received by you or accrued for your benefit for your services (whether as an employee or as an independent contractor) during the period commencing on the day following the one year anniversary of your termination. For purposes of this letter agreement, termination “without cause” means termination other than termination resulting from or related to your breach of any of your obligations under this letter agreement, your failure to comply with any lawful directive of PMG’s Chairman and Chief Executive Officer, your failure to comply with CSS’ Code of Ethics, your conviction of a felony or of any moral turpitude crime, or your willful or intentional engagement in conduct injurious to CSS or any of its affiliates.

The foregoing payment obligation is contingent upon (x) receipt by PMG of a valid and fully effective release (in form and substance reasonably satisfactory to PMG) of all claims of any nature which you might have at such time against CSS, its affiliates and their respective officers, directors and agents, excepting therefrom only any payments due to you from PMG pursuant to this Section 4, and (y) your resignation from all positions of any nature which you may then hold with CSS and its affiliates. If you are eligible to receive the foregoing payment, such amount will be paid to you in equal installments, with such installments being paid on the then-applicable paydays for PMG executives, commencing on or about the first such payday following the termination of your employment by PMG without cause and your satisfaction of the conditions specified in the immediately preceding sentence.

Further, if you are eligible to receive the payment set forth in clause (ii) of the first paragraph of this Section 4, you covenant and agree that commencing with the one year anniversary of the date of your termination you will promptly advise PMG in writing on a bi-weekly basis of any earnings and other compensation received by you or accrued for your benefit for your services (whether as an employee or as an independent contractor) during the period commencing on the day following the one year anniversary of your termination.

5. Confidential Information . You recognize and acknowledge that by reason of employment by and service to PMG, you have had and will continue to have access to confidential information of PMG, CSS, and their affiliates, including, without limitation, information and knowledge pertaining to products and services offered, inventions, innovations, designs, ideas, plans, trade secrets, proprietary information, computer systems and software, packaging, advertising, distribution and sales methods and systems, sales and profit figures, customer and client lists, and relationships between or among PMG, CSS and their affiliates and dealers, distributors, wholesalers, customers, clients, suppliers and others who have business dealings with PMG, CSS and such affiliates (“Confidential Information”). You acknowledge that such Confidential Information is a valuable and unique asset of PMG, CSS and/or their affiliates, and covenant that you will not, either during or at any time after your employment with PMG, disclose any such Confidential Information to any person for any reason whatsoever (except as your duties described herein may require) without the prior written consent of the Committee, unless such information is in the public domain through no fault of you or except as may be required by law.

Paul Quick
July 25, 2008
Page 4

6. Non-Competition . During your employment with PMG, and for a period of one year thereafter, you will not, without the prior written consent of the Committee, directly or indirectly, own, manage, operate, join, control, finance or participate in the ownership, management, operation, control or financing of, or be connected as an officer, director, employee, partner, principal, agent, representative, consultant or otherwise with or use or permit your name to be used in connection with, any business or enterprise engaged within any portion of the United States or Canada (collectively, the “Territory”) (whether or not such business is physically located within the Territory) that is engaged in the creation, design, manufacture, distribution or sale of any products or services that are the same or of a similar type then manufactured or otherwise provided by PMG, CSS or by any of their affiliates during your employment with PMG (the “Business”). You recognize that you will be involved in the activity of the Business throughout the Territory, and that more limited geographical limitations on this non-competition covenant (and the non-solicitation covenant set forth in Section 7 of this letter agreement) are therefore not appropriate. The foregoing restriction shall not be construed to prohibit your ownership of not more than five percent (5%) of any class of securities of any corporation which is engaged in any of the foregoing businesses having a class of securities registered pursuant to the Securities Act of 1933, provided that such ownership represents a passive investment and that neither you nor any group of persons including you in any way, either directly or indirectly, manages or exercises control of any such corporation, guarantees any of its financial obligations, otherwise takes any part in business, other than exercising his rights as a shareholder, or seeks to do any of the foregoing.

7. No Solicitation . During your employment with PMG, and for a period of one year thereafter, you agree not to, either directly or indirectly, (i) call on or solicit with respect to the Business any person, firm, corporation or other entity who or which at the time of termination of your employment with PMG was, or within two years prior thereto had been, a customer of PMG, CSS or any of their affiliates, or (ii) solicit the employment of any person who was employed by PMG, CSS or by any of their affiliates on a full or part-time basis at any time during the course of your employment with PMG, unless prior to such solicitation of employment, such person’s employment with PMG, CSS or any of their affiliates was terminated.

8. Equitable Relief .

A. You acknowledge that the restrictions contained in Sections 5, 6 and 7 of this letter agreement are reasonable and necessary to protect the legitimate interests of PMG, CSS and their affiliates, that PMG would not have entered into this letter agreement in the absence of such restrictions, and that any violation of any provision of those Sections will result in irreparable injury to PMG, CSS and their affiliates. You represent that your experience and capabilities are such that the restrictions contained in Sections 5 and 6 hereof will not prevent you from obtaining employment or otherwise earning a living at the same general level of economic benefit as is anticipated by this letter agreement. YOU FURTHER REPRESENT AND ACKNOWLEDGE THAT (i) YOU HAVE BEEN ADVISED BY PMG TO CONSULT YOUR OWN LEGAL COUNSEL IN RESPECT OF THIS LETTER AGREEMENT, (ii) THAT YOU HAVE HAD FULL OPPORTUNITY, PRIOR TO EXECUTION OF THIS LETTER AGREEMENT, TO REVIEW THOROUGHLY THIS LETTER AGREEMENT WITH YOUR COUNSEL, AND (iii) YOU HAVE READ AND FULLY UNDERSTAND THE TERMS AND PROVISIONS OF THIS LETTER AGREEMENT.

Paul Quick
July 25, 2008
Page 5

B. You agree that PMG shall be entitled to preliminary and permanent injunctive relief, without the necessity of proving actual damages, as well as any other remedies provided by law arising from any violation of Sections 5, 6 and 7 of this letter agreement, which rights shall be cumulative and in addition to any other rights or remedies to which PMG may be entitled. In the event that any of the provisions of Sections 5, 6 and 7 hereof should ever be adjudicated to exceed the time, geographic, product or service, or other limitations permitted by applicable law in any jurisdiction, then such provisions shall be deemed reformed in such jurisdiction to the maximum time, geographic, product or service, or other limitations permitted by applicable law.

C. You and PMG irrevocably and unconditionally (i) agree that any suit, action or other legal proceeding arising out of Sections 5, 6 and 7 of this letter agreement, including without limitation, any action commenced by PMG for preliminary or permanent injunctive relief or other equitable relief, may be brought in the United States District Court for the Eastern District of Pennsylvania, or if such court does not have jurisdiction or will not accept jurisdiction, in any court of general jurisdiction in Philadelphia County, Pennsylvania, (ii) consent to the non-exclusive jurisdiction of any such court in any such suit, action or proceeding, and (iii) waive any objection to the laying of venue of any such suit, action or proceeding in any such court.

D. You agree that PMG may provide a copy of Sections 5, 6 and 7 of this letter agreement to any business or enterprise (i) which you may directly or indirectly own, manage, operate, finance, join, participate in the ownership, management, operation, financing, control or control of, or (ii) with which you may be connected with as an officer, director, employee, partner, principal, agent, representative, consultant or otherwise, or in connection with which you may use or permit your name to be used.

9. Governing Law . This letter agreement shall be governed by and interpreted under the laws of the Commonwealth of Pennsylvania without giving effect to any conflict of laws provisions.

10. Section 409A of the Code .

A. Interpretation . This letter agreement shall be interpreted to avoid any penalty sanctions under section 409A of the Internal Revenue Code of 1986, as amended (the “Code”). If any payment or benefit cannot be provided or made at the time specified herein without incurring sanctions under section 409A, then such benefit or payment shall be provided in full at the earliest time thereafter when such sanctions will not be imposed. All payments to be made upon a termination of employment under this letter agreement may only be made upon a ‘separation from service’ under section 409A of the Code. For purposes of section 409A of the Code, each payment made under this letter agreement shall be treated as a separate payment and the right to a series of installment payments shall be treated as the right to a series of separate payments. In no event may you, directly or indirectly, designate the calendar year of payment.

Paul Quick
July 25, 2008
Page 6

B. Payment Delay . To the maximum extent permitted under section 409A of the Code, the cash severance payments payable under this letter agreement are intended to comply with the ‘short-term deferral exception’ under Treas. Reg. §1.409A-1(b)(4), and any remaining amount is intended to comply with the ‘separation pay exception’ under Treas. Reg. §1.409A-1(b)(9)(iii); provided, however, any amount payable to the Executive during the six-month period following your termination date that does not qualify within either of the foregoing exceptions and is deemed as deferred compensation subject to the requirements of section 409A of the Code, then such amount shall hereinafter be referred to as the ‘Excess Amount.’ If at the time of your termination of employment, you are a ‘specified employee’ (as defined in section 409A of the Code and determined in the sole discretion of CSS (or any successor thereto) in accordance with CSS’s (or any successor thereto) ‘specified employee’ determination policy), then CSS shall postpone the commencement of the payment of the portion of the Excess Amount that is payable within the six-month period following your ‘separation from service’ with CSS (or any successor thereto) for six months following your ‘separation from service’ with CSS (or any successor thereto). The delayed Excess Amount shall be paid in a lump sum to you within thirty (30) days following the date that is six (6) months following the your ‘separation from service’ with CSS (or any successor thereto), and any amount payable to you after the expiration of such six (6) month period under this letter agreement shall continue to be paid to you in accordance with the terms of this letter agreement. If you die during such six-month period and prior to the payment of the portion of the Excess Amount that is required to be delayed on account of section 409A of the Code, such Excess Amount shall be paid to the personal representative of your estate within sixty (60) days after your death, and any amounts not delayed shall be paid to the personal representative of your estate in accordance with the terms of this letter agreement.

C. Reimbursements . All reimbursements provided under this letter agreement shall be made or provided in accordance with the requirements of section 409A, including, where applicable, the requirement that (i) any reimbursement is for expenses incurred during your lifetime (or during a shorter period of time specified in this letter agreement), (ii) the amount of expenses eligible for reimbursement during a calendar year may not affect the expenses eligible for reimbursement in any other calendar year, (iii) the reimbursement of an eligible expense will be made on or before the last day of the calendar year following the year in which the expense is incurred, and (iv) the right to reimbursement is not subject to liquidation or exchange for another benefit.

Please confirm your understanding of the foregoing provisions by executing the enclosed counterpart of this letter and returning this executed counterpart to me.


	Sincerely yours,
	/s/ Christopher J. Munyan
	Christopher J. Munyan
	Chairman and Chief Executive Officer Paper Magic Group, Inc.

Paul Quick
July 25, 2008
Page 7

The aforementioned is confirmed as of this 28th day of July, 2008:


/s/ Paul Quick
Paul Quick

cc: William G. Kiesling

Exhibit 10.6

AMENDMENT TO EMPLOYMENT AGREEMENT

This AMENDMENT TO EMPLOYMENT AGREEMENT (the “Amendment”), dated as of September 5, 2008, amends that certain employment agreement, dated May 12, 2006 (the “Employment Agreement”), between CSS Industries, Inc., a Delaware corporation (“CSS”), and Christopher J. Munyan (“Executive”).

WHEREAS, CSS and the Executive previously entered into the Employment Agreement, which, among other things, provides for the employment of the Executive by CSS in the position of President and Chief Executive Officer;

WHEREAS, as set forth in Section 1 of the Employment Agreement, the original term of such employment arrangement was three (3) years, expiring on June 30, 2009;

WHEREAS, CSS and the Executive desire to extend the term of the Executive’s employment with CSS until June 30, 2011, unless terminated earlier by the Executive or by CSS at any time as provided in the Employment Agreement, and to provide that the term of the Executive’s employment with CSS shall renew each year for a three (3) year term unless either the Executive or CSS gives notice of non-renewal at least ninety (90) days prior to July 1 of each year;

WHEREAS, as set forth in Section 4 of the Employment Agreement, the Executive is eligible to receive certain severance benefits in the event that his employment with CSS is terminated by CSS without cause prior to the end of his employment term set forth in the Employment Agreement;

WHEREAS, CSS and the Executive also desire to modify certain severance benefits, as set forth in this Amendment, for which the Executive may be eligible in the event that his employment with CSS is terminated by CSS without cause prior to the end of his then current employment term set forth in Section 1 of the Employment Agreement;

WHEREAS, CSS and the Executive also desire to amend the Employment Agreement so that it complies with the requirements of section 409A of the Internal Revenue Code of 1986, as amended;

WHEREAS, CSS and the Executive also desire to memorialize the terms and conditions of the Executive’s continued employment by CSS under the terms of the Employment Agreement, as amended by this Amendment;

NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein and for other good and valuable consideration, the receipt and sufficiency of which is acknowledged, the parties hereto, intending to be legally bound, agree as follows:

1. Amendment and Restatement of Section 1. The parties acknowledge and agree that Section 1 of the Employment Agreement shall be deleted in its entirety and replaced with the following:

1. Contract Term — The term of your employment will extend until June 30, 2011, unless terminated earlier by you or by CSS at any time as provided herein. The term of the Executive’s employment with CSS shall renew each year for a three (3) year term unless either the Executive or CSS gives notice of non-renewal at least ninety (90) days prior to July 1 of each year.

2. Amendment and Restatement of Section 4. The parties acknowledge and agree that Section 4 of the Employment Agreement shall be deleted in its entirety and replaced with the following:

4. Employment Status; Severance Pay — Your employment status with CSS will be that of an employee at-will, and thus this employment status is subject to termination by either you or CSS at any time. However, in the event that CSS terminates your employment without cause at any time prior to the end of the Executive’s then current employment term set forth in Section 1 hereof, and subject to your compliance with the terms and conditions of this letter agreement, CSS will pay you an amount equal to the greater of (i) eighteen (18) months of your then-current annual base salary (less applicable tax withholdings and payroll deductions) or (ii) an amount equal to your then-current annual base salary (less applicable tax withholdings and payroll deductions) for the period from the effective date of such termination to the end of the Executive’s then current employment term set forth in Section 1 hereof, such amount reduced by and to the extent of any earnings and other compensation received by you or accrued for your benefit for your services (whether as an employee or as an independent contractor) during the period commencing on the day following the one year anniversary of your termination. In addition to the foregoing, in the event that CSS terminates your employment without cause at any time prior to the end of the Executive’s then current employment term set forth in Section 1 hereof, and subject to your compliance with the terms and conditions of this letter agreement, CSS will make the services of an “outplacement” firm available to you to assist you in finding new employment; provided, however, that CSS’ expenditures to make such services available to you shall not exceed the aggregate amount of $6,500. For purposes of this letter agreement, termination “without cause” means termination other than termination resulting from or related to your breach of any of your obligations under this letter agreement, your failure to comply with any lawful directive of CSS’ Chairman of the Board of Directors or the Board of Directors of CSS, your failure to comply with CSS’ Code of Ethics, your conviction of a felony or of any moral turpitude crime, or your willful or intentional engagement in conduct injurious to CSS or any of its affiliates.

The foregoing payment obligation, and the foregoing obligation to make “outplacement” services available to you, is contingent upon (x) receipt by CSS of a valid and fully effective release (in form and substance reasonably satisfactory to CSS) of all claims of any nature which you might have at such time against CSS, its affiliates and their respective officers, directors and agents, excepting therefrom only any payments due to you from CSS pursuant to this paragraph, and (y) your resignation from all positions of any nature which you may then hold with CSS and its affiliates. If you are eligible to receive the foregoing payment, such amount will be paid to you in equal installments, with such installments being paid on the then-applicable paydays for CSS executives, commencing on or about the first such payday following the termination of your employment by CSS without cause and your satisfaction of the conditions specified in the immediately preceding sentence.

In addition, if you are eligible to receive severance pay under the terms of this letter agreement, and if you elect health care continuation coverage under the Consolidated Omnibus Reconciliation Act (“COBRA”) following termination of your employment, CSS will pay for a portion of the monthly COBRA premium, on the same basis as CSS pays for a portion of such coverage for active employees, until the earlier of the date upon which (a) severance payments are no longer paid to you hereunder, (b) you no longer qualify to receive COBRA benefits, or (c) you elect to discontinue health care continuation coverage under COBRA. If you elect to continue health care continuation coverage under COBRA, normal employee premium deductions will be made from your severance pay.

Further, if you are eligible to receive the payment set forth in clause (ii) of the first paragraph of this Section 4, you covenant and agree that commencing with the one year anniversary of the date of your termination you will promptly advise CSS in writing on a bi-weekly basis of any earnings and other compensation received by you or accrued for your benefit for your services (whether as an employee or as an independent contractor) during the period commencing on the day following the one year anniversary of your termination.

3. Addition of a New Section 10. The parties acknowledge and agree that a new Section 10 shall be added to the Employment Agreement, which new Section 10 shall read as follows:

10. Section 409A of the Code .

(a) Interpretation . This letter agreement shall be interpreted to avoid any penalty sanctions under section 409A of the Internal Revenue Code of 1986, as amended (the “Code”). If any payment or benefit cannot be provided or made at the time specified herein without incurring sanctions under section 409A, then such benefit or payment shall be provided in full at the earliest time thereafter when such sanctions will not be imposed. All payments to be made upon a termination of employment under this letter agreement may only be made upon a ‘separation from service’ under section 409A of the Code. For purposes of section 409A of the Code, each payment made under this letter agreement shall be treated as a separate payment and the right to a series of installment payments shall be treated as the right to a series of separate payments. In no event may you, directly or indirectly, designate the calendar year of payment.

(b) Payment Delay . To the maximum extent permitted under section 409A of the Code, the cash severance payments payable under this letter agreement are intended to comply with the ‘short-term deferral exception’ under Treas. Reg. §1.409A-1(b)(4), and any remaining amount is intended to comply with the ‘separation pay exception’ under Treas. Reg. §1.409A-1(b)(9)(iii); provided, however, any amount payable to the Executive during the six-month period following your termination date that does not qualify within either of the foregoing exceptions and is deemed as deferred compensation subject to the requirements of section 409A of the Code, then such amount shall hereinafter be referred to as the ‘Excess Amount.’ If at the time of your termination of employment, you are a ‘specified employee’ (as defined in section 409A of the Code and determined in the sole discretion of CSS (or any successor thereto) in accordance with CSS’s (or any successor thereto) ‘specified employee’ determination policy), then CSS shall postpone the commencement of the payment of the portion of the Excess Amount that is payable within the six-month period following your ‘separation from service’ with CSS (or any successor thereto) for six months following your ‘separation from service’ with CSS (or any successor thereto). The delayed Excess Amount shall be paid in a lump sum to you within thirty (30) days following the date that is six (6) months following the your ‘separation from service’ with CSS (or any successor thereto), and any amount payable to you after the expiration of such six (6) month period under this letter agreement shall continue to be paid to you in accordance with the terms of this letter agreement. If you die during such six-month period and prior to the payment of the portion of the Excess Amount that is required to be delayed on account of section 409A of the Code, such Excess Amount shall be paid to the personal representative of your estate within sixty (60) days after your death, and any amounts not delayed shall be paid to the personal representative of your estate in accordance with the terms of this letter agreement.

(c) Reimbursements . All reimbursements provided under this letter agreement shall be made or provided in accordance with the requirements of section 409A, including, where applicable, the requirement that (i) any reimbursement is for expenses incurred during your lifetime (or during a shorter period of time specified in this letter agreement), (ii) the amount of expenses eligible for reimbursement during a calendar year may not affect the expenses eligible for reimbursement in any other calendar year, (iii) the reimbursement of an eligible expense will be made on or before the last day of the calendar year following the year in which the expense is incurred, and (iv) the right to reimbursement is not subject to liquidation or exchange for another benefit.

4. Miscellaneous . Except as expressly modified hereby, the Employment Agreement remains in full force and effect. Upon the execution and delivery hereof, the Employment Agreement shall thereupon be deemed to be amended as hereinabove set forth, and this Amendment and the Employment Agreement shall henceforth be read, taken and construed as one and the same instrument. This Amendment may be executed in counterparts, each of which shall be considered an original instrument, but all of which shall be considered one and the same agreement, and shall become binding when one or more counterparts have been signed by each of the parties hereto and delivered to the other party.

IN WITNESS WHEREOF, this Amendment has been executed by CSS and by the Executive as of the date first above written.


	CSS INDUSTRIES, INC. (“CSS”)
	By:	/s/ Jack Farber
		Jack Farber
		Chairman of the Board of Directors

	/s/ Christopher J. Munyan
	Christopher J. Munyan (“Executive”)

Exhibit 31.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Christopher J. Munyan, certify that:

1. I have reviewed this quarterly report on Form 10-Q of CSS Industries, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: October 30, 2008


/s/ Christopher J. Munyan
Christopher J. Munyan,
President and Chief Executive Officer
(principal executive officer)

Exhibit 31.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Clifford E. Pietrafitta, certify that:

1. I have reviewed this quarterly report on Form 10-Q of CSS Industries, Inc.;

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: October 30, 2008


/s/ Clifford E. Pietrafitta
Clifford E. Pietrafitta
Vice President – Finance and Chief Financial Officer
(principal financial officer)

Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of CSS Industries, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2008 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Christopher J. Munyan, President and Chief Executive Officer, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13 (a) or 15 (d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


/s/ Christopher J. Munyan
Christopher J. Munyan
President and Chief Executive Officer
(principal executive officer)

October 30, 2008

Exhibit 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of CSS Industries, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2008 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Clifford E. Pietrafitta, Vice President – Finance and Chief Financial Officer, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13 (a) or 15 (d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


/s/ Clifford E. Pietrafitta
Clifford E. Pietrafitta
Vice President – Finance and Chief Financial Officer
(principal financial officer)

October 30, 2008

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