AGREEMENT AND PLAN OF MERGER

Exhibit 2.1

EXECUTION COPY

AGREEMENT AND PLAN OF MERGER

dated as of

July 16, 2005

by and among

GS Holdings Co.,

PIH Acquisition Co.,

PANOLAM INDUSTRIES HOLDINGS, INC.

and

TC GROUP, L.L.C.

TABLE OF CONTENTS

i

ii

iii

Schedules

iv

v

Annexes

vi

AGREEMENT AND PLAN OF MERGER

This Agreement and Plan of Merger (this “ Agreement ”), dated as of July 16, 2005, is entered into by and among GS Holdings Co., a Delaware corporation (“ Acquiror ”), PIH Acquisition Co., a Delaware corporation and a wholly-owned subsidiary of Acquiror ( “ Merger Sub ”), PANOLAM INDUSTRIES HOLDINGS, INC., a Delaware corporation (the “ Company ”), and TC GROUP, L.L.C., a Delaware limited liability company (“ TC Group ”), solely in its capacity as the initial Holder Representative hereunder.

PLAN OF MERGER

A.         Acquiror, Merger Sub and the Company (Merger Sub and the Company sometimes being referred to herein as the “ Constituent Corporations ”) are hereby adopting a plan of merger, providing for the merger of Merger Sub with and into the Company, with the Company being the surviving corporation. This merger (the “ Merger ”) shall be consummated in accordance with this Agreement and evidenced by a Certificate of Merger between Merger Sub and the Company in substantially the form of Annex A hereto (the “ Certificate of Merger ”), such Merger to be consummated as of the Effective Time of the Merger (as defined below).

B.         Upon the Effective Time of the Merger, the separate corporate existence of Merger Sub shall cease and the Company, as the surviving corporation in the Merger (hereinafter referred to for the periods on and after the Effective Time of the Merger as the “ Surviving Corporation ”), shall continue its corporate existence under the Delaware General Corporation Law (the “ DGCL ”) as a wholly-owned subsidiary of Acquiror.

C.         On and after the Effective Time of the Merger, the Surviving Corporation shall thereupon and thereafter possess all of the rights, privileges, powers and franchises, of a public as well as a private nature, of the Constituent Corporations, and shall become subject to all the restrictions, disabilities and duties of each of the Constituent Corporations; and all rights, privileges, powers and franchises of each Constituent Corporation, and all property, real, personal and mixed, and all debts due to each such Constituent Corporation, on whatever account, and all choses in action belonging to each such corporation, shall become vested in the Surviving Corporation; and all property, rights, privileges, powers and franchises, and all and every other interest of the Constituent Corporations shall become thereafter the property of the Surviving Corporation; and the title to any real property vested by deed or otherwise or any other interest in real estate vested by any instrument or otherwise in either of such Constituent Corporations shall not revert or become in any way impaired by reason of the Merger; but all Liens upon any property of either Constituent Corporation shall thereafter attach to the Surviving Corporation and shall be enforceable against it to the same extent as if said Liens had been incurred or contracted by it; all of the foregoing in accordance with the applicable provisions of the DGCL.

D.         At the Effective Time of the Merger, the Certificate of Incorporation and Bylaws of the Surviving Corporation shall be the Certificate of Incorporation and Bylaws of the Merger Sub as in effect immediately prior to the Effective Time of the Merger, until thereafter amended as provided therein and under the DGCL, and the directors and officers of the Surviving Corporation shall be the directors and officers of Merger Sub immediately prior to the

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Effective Time of the Merger.

E.          Concurrently with the execution of this Agreement, stockholders of the Company owning beneficially and of record, more than 94% of the issued and outstanding shares of Company Common Stock have executed a written consent approving this Agreement and the Merger.

F.          For certain limited purposes, and subject to the terms set forth herein, TC Group shall serve as Holder Representative.

G.         Certain capitalized terms used herein and not otherwise defined herein, have the meanings ascribed to such terms in Article I hereof.

AGREEMENT

In order to consummate the Merger, and in consideration of the mutual agreements hereinafter contained, each of Acquiror, Merger, the Company agree as follows:

ARTICLE I.
CERTAIN DEFINITIONS

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

“ Acquiror ” has the meaning specified in the preamble hereto.

“ Acquiror Cure Period ” has the meaning specified in Section 10.1(c).

“ Action ” means any claim, action, suit, audit, assessment, arbitration or inquiry, or any proceeding or investigation, by or before any Governmental Authority.

“ Adjustment Amount ” has the meaning specified in Section 2.5(c).

“ Affiliate ” means, with respect to any specified Person, any Person that, directly or indirectly, controls, is controlled by, or is under common control with, such specified Person, through one or more intermediaries or otherwise.

“ Aggregate Fully-Diluted Common Shares ” has the meaning specified in Section 2.1(d).

“ Aggregate Option Exercise Price ” has the meaning specified in Section 2.1(d).

“ Agreement ” has the meaning specified in the preamble hereto.

“ Antitrust Authorities ” means the Antitrust Division of the United States Department of Justice, the United States Federal Trade Commission or the antitrust or competition law authorities of any other jurisdiction (whether United States, foreign or multinational).

“ Audited Financial Statements ” has the meaning specified in Section 3.8.

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“ Auditor ” has the meaning specified in Section 2.5(b).

“ Benefit Arrangement ” has the meaning specified in Section 3.13(a)(i).

“ Business Day ” means a day other than a Saturday, Sunday or other day on which commercial banks in New York, New York are authorized or required by law to close.

“ Cash Per Fully-Diluted Common Share ” has the meaning specified in Section 2.1(d).

“ Certificate of Merger ” has the meaning specified in the Section entitled “Plan of Merger.”

“ Certificates ” has the meaning specified in Section 2.2(b).

“ Class A Common Stock ” means the class A common stock, par value $.01 per share, of the Company.

“ Class B Common Stock ” means the class B common stock, par value $.01 per share, of the Company.

“ Closing ” has the meaning specified in Section 8.2.

“ Closing Balance Sheet ” has the meaning specified in Section 2.5(a).

“ Closing Date ” has the meaning specified in Section 8.2.

“ Closing Date Net Working Capital ” has the meaning specified in Section 2.5(a).

“ Closing Payments ” has the meaning specified in Section 2.5(e)(i).

“ Code ” means the Internal Revenue Code of 1986, as amended.

“ Collective Bargaining Agreements ” means all collective bargaining agreements, union contracts, impact or effects bargaining agreements and other similar labor agreements covering employees of the Company or any of its Subsidiaries (including all amendments, side letters and similar documents relating thereto).

“ Commitment Letter ” has the meaning specified in Section 4.6.

“ Common Shares ” has the meaning specified in Section 2.1.

“ Company ” has the meaning specified in the preamble hereto.

“ Company Common Stock ” means the Class A Common Stock and the Class B Common Stock.

“ Company Cure Period ” has the meaning specified in Section 10.1(b).

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“ Company Pension Plan ” has the meaning specified in Section 3.13(c)(i)(C).

“ Company Stockholders Meeting ” has the meaning specified in Section 5.5.

“ Confidentiality Agreement ” has the meaning specified in Section 12.10.

“ Constituent Corporations ” has the meaning specified in the Section entitled “Plan of Merger.”

“ Contracts ” means any contracts, agreements, subcontracts, leases, and purchase orders, whether written or oral.

“ DGCL ” has the meaning specified in the Section entitled “Plan of Merger.”

“ Determination Date ” has the meaning specified in Section 2.5(b).

“ Dissenting Common Shares ” has the meaning specified in Section 2.1(a).

“ Dissenting Stockholders ” has the meaning specified in Section 2.1(a).

“ Effective Time of the Merger ” has the meaning specified in Section 2.3.

“ Employee Options ” has the meaning specified in Section 2.2(b).

“ Employee Plans ” has the meaning specified in Section 3.13(a)(ii).

“ Environmental Laws ” means all applicable foreign, U.S. federal, state or local laws, statutes, ordinances, rules, regulations or other legal requirements relating to pollution or protection of the environment or natural resources, as in effect as of the date of this Agreement (including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act, as amended, the Resource Conservation and Recovery Act, as amended, the Clean Air Act, as amended, and the California Hazardous Waste Control Act, as amended).

“ Equity Contribution ” has the meaning specified in Section 4.6.

“ ERISA ” has the meaning specified in Section 3.13(a)(iii).

“ Escrow Agent ” has the meaning specified in Section 2.5(d).

“ Escrow Agreement ” has the meaning specified in Section 2.5(d).

“ Escrow Amount ” has the meaning specified in Section 2.5(d).

“ Estimated Adjustment Amount ” has the meaning specified in Section 2.4(b).

“ Estimated Closing Date Net Working Capital ” has the meaning specified in Section 2.4(a).

“ Evaluation Materials ” means this Agreement (together with the Schedules and

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Annexes hereto) and, as to any party hereto, means all other non-public information furnished to such party by the other parties hereto in connection with the transactions contemplated hereby relating to the disclosing party or the disclosing party’s Affiliates, whether furnished orally or in writing or gathered by inspection, together with analyses, compilations, studies or other documents prepared by any party, or by such party’s agents, representatives (including attorneys, accountants and financial advisors) or employees, which contain or otherwise reflect such information, provided that the term Evaluation Materials shall not include information that (i) is or becomes generally available to the public other than as a result of a disclosure in violation of the terms hereof or the Confidentiality Agreement, (ii) was or becomes available to a party hereto on a non-confidential basis from a source other than any other party hereto or their representatives and affiliates, provided that such source is not prohibited from disclosing such information by a contractual, legal or fiduciary obligation to any party hereto or any of their respective representatives, or (iii) has been or is independently developed by the party to which such information was furnished and not derived from the Evaluation Materials.

“ Exchange Agent ” has the meaning specified in Section 2.2(a).

“ Financial Statements ” has the meaning specified in Section 3.8.

“ Financing ” has the meaning specified in Section 4.6.

“ Foreign Plan ” has the meaning specified in Section 3.13(a)(iv).

“ Fully-Diluted Percentage ” means, with respect to any holder of Common Shares and/or Vested Options, a ratio (expressed as a percentage) equal to (x) the sum of the number of Common Shares held by such holder as of the Effective Time of the Merger and the number of Common Shares issuable upon the exercise of any Vested Options held by such holder at the Effective Time of the Merger, divided by (y) the Aggregate Fully-Diluted Common Shares.

“ Funded Debt ” means without duplication, (i) the principal of and premium (if any) and prepayment penalties in respect of (A) indebtedness of such Person for money borrowed and (B) indebtedness evidenced by notes, debentures, bonds or other similar instruments for the payment of which such Person is responsible or liable; (ii) all obligations of such Person issued or assumed as the deferred purchase price of property, all conditional sale obligations of such Person and all obligations of such Person under any title retention agreement (but excluding trade accounts payable and other accrued current liabilities arising in the Ordinary Course of Business); (iii) all obligations of the type referred to in clauses (i) and (ii) of any Persons for the payment of which such Person is responsible or liable, directly or indirectly, as obligor, guarantor or otherwise, including guarantees of such obligations; and (iv) all obligations of the type referred to in clauses (i) through (iii) of other Persons secured by any Lien on any property or asset of such Person (whether or not such obligation is assumed by such Person), excluding, in each case, Funded Debt owing by the Company to any of its Subsidiaries and any Funded Debt of any Subsidiary of the Company owing to the Company or any other Subsidiary of the Company.

“ Funding Amount ” has the meaning specified in Section 2.2(a).

“ GAAP ” has the meaning specified in Section 2.5(a).

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“ Governmental Authority ” means any Federal, state, municipal, local or foreign government, governmental authority, regulatory or administrative agency, governmental commission, department, board, bureau, agency or instrumentality, court, tribunal, arbitrator or arbitral body.

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

“ HSR Act ” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder.

“ Holder Acknowledgment ” means an agreement or certificate signed by a holder of Vested Options acknowledging cancellation of all Options held by such holder in a form attached as Annex B hereto.

“ Holder Allocable Expenses ” has the meaning specified in Section 2.6.

“ Holder Representative ” has the meaning specified in Section 11.1.

“ Intellectual Property ” has the meaning specified in Section 3.21.

“ Interim Financial Statements ” has the meaning specified in Section 3.8.

“ Leased Real Property ” means all real property leased by the Company or any of its Subsidiaries, the lease of which may not be terminated at will, or by giving notice of 90 days or less, without cost or penalty and provides for annual rental payments in excess of $1,000,000.

“ Lien ” means any mortgage, deed of trust, pledge, hypothecation, encumbrance, security interest or other lien of any kind.

“ Losses ” means any and all losses, liabilities, obligations, damages, costs and expenses of any kind.

“ Majority Holders ” has the meaning specified in Section 11.1.

“ Material Adverse Effect ” means, with respect to any Person, (i) any material adverse effect on the business, results of operations or condition (financial or otherwise) of such Person and its subsidiaries, taken as a whole or (ii) any condition or event or series of events that results in, or could reasonably be expected to result in, Losses to such Person of $15,000,000 or more; provided, however, that a Material Adverse Effect shall not include an effect resulting from a change (a) in applicable laws, (b) in economic, business or financial market conditions generally, so long as such conditions do not disproportionately affect the Company and its Subsidiaries, (c) resulting from the announcement or performance of this Agreement or (d) resulting from any act of war.

“ Merger ” has the meaning specified in the Section entitled “Plan of Merger.”

“ Merger Consideration ” has the meaning specified in Section 2.1(c).

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“ Merger Sub ” has the meaning specified in the preamble hereto.

“ Multiemployer Plan ” has the meaning specified in Section 3.13(a)(v).

“ Net Working Capital ” has the meaning specified in Section 2.5(a).

“ Occurrence ” has the meaning specified in Section 3.27.

“ Options ” has the meaning specified in Section 2.5.

“ Owned Real Property ” means all real property owned by the Company or any of its Subsidiaries.

“ PBGC ” has the meaning specified in Section 3.13(a)(vi).

“ Pension Plan ” has the meaning specified in Section 3.13(a)(vii).

“ Permitted Liens ” means (i) mechanics, materialmen’s and similar Liens with respect to any amounts not yet due and payable or which are being contested in good faith through appropriate proceedings, (ii) Liens for Taxes not yet due and payable or which are being contested in good faith through appropriate proceedings, (iii) Liens securing rental payments under capital lease agreements, (iv) encumbrances and restrictions on real property (including easements, covenants, rights of way and similar restrictions of record) that do not materially interfere with or limit the present uses of such real property, (v) Liens securing payment, or any other obligations, of the Company or its Subsidiaries with respect to Funded Debt, or (vi) Liens described on Schedule 1.1 .

“ Person ” means any individual, firm, corporation, partnership, limited liability company, incorporated or unincorporated association, joint venture, joint stock company, governmental agency or instrumentality or other entity of any kind.

“ Post-Closing Tax Savings ” has the meaning specified in Section 2.5(e)(ii).

“ Prime Rate ” has the meaning specified in Section 2.5(d).

“ Retrofits ” has the meaning specified in Section 3.27.

“ Sponsor ” has the meaning specified in Section 4.6.

“ Subsidiary ” means, with respect to a Person, a corporation or other entity of which 50% or more of the voting power of the equity securities or equity interests is owned, directly or indirectly, by such Person.

“ Surviving Corporation ” has the meaning specified in the Section entitled “Plan of Merger.”

“ Tax Benefit Amount ” has the meaning specified in Section 2.5(e)(i).

“ Taxes ” has the meaning specified in Section 3.15(a).

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“ Tax Returns ” has the meaning specified in Section 3.15(a).

“ TC Group ” has the meaning specified in the Preamble hereto.

“ Terminating Acquiror Breach ” has the meaning specified in Section 10.1(c).

“ Terminating Company Breach ” has the meaning specified in Section 10.1(b).

“ Termination Date ” has the meaning specified in Section 10.1(b).

“ Transaction Bonuses ” has the meaning specified in Section 5.7.

“ Unvested Options ” has the meaning specified in Section 2.10.

“ Vested Options ” has the meaning specified in Section 2.1(a).

“ Welfare Plan ” has the meaning specified in Section 3.13(a)(vii).

As used herein, the phrase “to the knowledge” of any Person shall mean the actual knowledge, after reasonable inquiry, of, in the case of the Company, the Chief Executive Officer, the Vice President, Finance, the Vice President, General Counsel and Corporate Secretary of the Company, and in the case of all other Persons, such Person’s senior executive officers.

ARTICLE II.
THE MERGER

2.1        Conversion of Company Shares and Vested Options .

(a)        At the Effective Time of the Merger, by virtue of the Merger and without any action on the part of any holder of Company Common Stock, (i) each share of Company Common Stock (a “ Common Share ”) that is then issued and outstanding (other than shares of Company Common Stock, if any, held in the treasury of the Company, which treasury shares shall be canceled as part of the Merger, and other than shares of Company Common Stock held by holders who object to the Merger (the “ Dissenting Stockholders ”) and comply with the provisions of the DGCL concerning the rights of holders of Company Common Stock to dissent from the Merger and require appraisal of their shares of Company Common Stock (each, a “ Dissenting Common Share ”), which Dissenting Common Shares shall not constitute “ Common Shares ” hereunder) and (ii) each unexercised and outstanding option to purchase Common Shares (to the extent vested) that is then outstanding as of immediately prior to the Effective Time of the Merger (such vested options collectively being referred to as the “ Vested Options ”), shall thereupon be converted into and become the right to receive the applicable portion of the Merger Consideration, as determined pursuant to Section 2.1(d).

(b)        At the Effective Time of the Merger, by virtue of the Merger and without any action on the part of Acquiror or Merger Sub, each share of common stock, par value $0.001 per share, of Merger Sub shall be converted into one share of common stock, par value $0.01 per share, of the Surviving Corporation.

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(c)        Subject to the adjustments set forth in Sections 2.4 and 2.5, the “ Merger Consideration ” shall consist of $345,000,000 in cash, less (i) the aggregate principal amount of Funded Debt of the Company, if any, that remains unpaid as of the Closing (as defined below), plus (ii) the lesser of (x) $3,000,000 and (y) the amount of cash and cash equivalents of the Company and its Subsidiaries (net of uncleared checks) as of the Closing, less (iii) the amount of Holder Allocable Expenses paid by Acquiror to the Holder Representative at Closing in accordance with Section 2.6.

(d)        The Merger Consideration shall be allocated among the holders of the Common Shares and the Vested Options as set forth below in this Section 2.1(d). Each holder of Common Shares shall be entitled to receive a portion of the Merger Consideration equal to (x) the Cash Per Fully-Diluted Common Share (as defined below), multiplied by (y) the number of Common Shares held by such holder as of the Effective Time of the Merger (but not including any Common Shares issuable upon the exercise of any Vested Options held by such holder at the Effective Time of the Merger). Each holder of Vested Options shall be entitled to receive for his Vested Options a portion of the Merger Consideration equal to (i) the Cash Per Fully-Diluted Common Share, multiplied by the aggregate number of Common Shares issuable upon exercise in full of all Vested Options held by such holder as of the Effective Time of the Merger, minus (ii) the aggregate cash exercise price payable upon exercise of all Vested Options held by such holder. For purposes of the foregoing, the “ Cash Per Fully-Diluted Common Share ” shall mean (1) the sum of (A) the Merger Consideration, plus (B) the Aggregate Option Exercise Price (defined below), divided by (2) the Aggregate Fully-Diluted Common Shares. The “ Aggregate Fully-Diluted Common Shares ” shall be (i) the sum of the Common Shares held by all holders immediately prior to the Effective Time of the Merger, plus (ii) the aggregate number of Common Shares issuable upon the exercise in full of all Vested Options held by all holders immediately prior to the Effective Time of the Merger, plus (iii) the aggregate number of Dissenting Common Shares. The “ Aggregate Option Exercise Price ” shall mean the sum of the cash exercise prices that would be payable upon exercise in full of all Vested Options held by all holders of Vested Options immediately prior to the Effective Time of the Merger.

2.2        Payment and Exchange of Certificates .

(a)       Immediately prior to the Effective Time of the Merger, Acquiror shall pay to an exchange agent (the “ Exchange Agent ”) selected by the Acquiror and reasonably acceptable to the Company, by wire transfer of immediately available funds, an amount (the “ Funding Amount ”) equal to (i) the Merger Consideration, as adjusted by the Estimated Adjustment Amount in accordance with Section 2.4, minus (ii) the Escrow Amount minus (iii) the product of (x) the number of Dissenting Common Shares and (y) the Cash Per Fully-Diluted Common Share (determined after giving effect to the adjustments to the Merger Consideration provided for in Section 2.4 but before giving effect to the adjustments provided for in Section 2.5). Upon (1) payment by Acquiror to the Exchange Agent of the Funding Amount and (2) payment by Acquiror to the Holder Representative of the estimated Holder Allocable Expenses pursuant to Section 2.6, Acquiror shall be deemed to have satisfied its obligations to make payments in respect of the Merger Consideration other than (A) Acquiror’s obligation to make payments, if any, required by Section 2.5 and (B) the obligation of Acquiror or the Surviving Corporation to make payments to Dissenting Stockholders, if any, following the Effective Time of the Merger.

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(b)        After the Effective Time of the Merger, each holder of an outstanding certificate or certificates for Common Shares (collectively, the “ Certificates ”) and/or Vested Options, upon surrender of such Certificates to the Exchange Agent (or, in the case of a holder of Vested Options, upon delivery of a Holder Acknowledgment to the Exchange Agent), shall be entitled to receive from the Exchange Agent in exchange therefor (subject to the provisions of Section 2.5) such portion of the Merger Consideration into which such holder’s Common Shares and/or Vested Options shall have been converted as a result of the Merger; provided , however , that a portion of the Merger Consideration otherwise payable to each holder of Common Shares and/or Vested Options equal to the Escrow Amount multiplied by a ratio (expressed as a percentage) equal to (x) the sum of the number of Common Shares held by such holder as of the Effective Time of the Merger and the number of Common Shares issuable upon the exercise of any Vested Options held by such holder at the Effective Time of the Merger, divided by (y) the sum of the total number of Common Shares held by all holders as of the Effective Time of the Merger and the total number of Common Shares issuable upon the exercise of any Vested Options held by all holders at the Effective Time of the Merger shall be held in escrow in accordance with Section 2.5(d) and the Escrow Agreement. Notwithstanding the foregoing, in the event that any holder of Common Shares or Vested Options delivers the Certificate(s) representing such Common Shares and/or a Holder Acknowledgement with respect to such Vested Options to Acquiror at the Closing Acquiror shall direct the Exchange Agent to pay the amount which such holder is entitled in consideration therefor to such holder at the Closing by wire transfer of immediately available funds. Pending such surrender and exchange (or, in the case of a holder of Vested Options, upon such delivery of a Holder Acknowledgment), a holder’s certificate or certificates for Common Shares and/or Vested Options shall be deemed for all purposes to evidence such holder’s portion of the Merger Consideration into which such Common Shares and/or Vested Options shall have been converted by the Merger.

(c)        The Exchange Agent shall be entitled to deduct and withhold from the consideration otherwise payable pursuant to this Agreement such amounts as may be required to be deducted and withheld with respect to the making of such payment under the Code and the rules and regulations promulgated thereunder, or under any provision of state, local or foreign Tax law. To the extent that amounts are so withheld and paid over to the appropriate taxing authority, such withheld amounts shall be treated for the purposes of this Agreement as having been paid to the former holder of Company Common Stock or to the former holders of Vested Options.

2.3        Effective Time of Merger; Closing Date . Assuming all of the conditions set forth in Article IX of this Agreement have been fulfilled or waived, and provided that this Agreement has not been terminated pursuant to the provisions hereof, on the Closing Date, Merger Sub and the Company shall cause the Certificate of Merger to be executed and filed with the Secretary of State of Delaware as provided in Section 251 of the DGCL. For purposes of this Agreement, the “ Effective Time of the Merger” shall mean the time at which the Certificate of Merger has been duly filed in the Office of the Secretary of State of Delaware and has become effective in accordance with the DGCL.

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2.4        Estimated Adjustment Amount .

(a)        Not less than three (3) Business Days prior to the Closing Date and in no event more than ten (10) Business Days prior to the Closing Date, the Company shall deliver to Acquiror a good faith estimated closing balance sheet and an estimate of the Net Working Capital (as defined below) of the Company and its Subsidiaries as of the close of business on the Closing Date (the “ Estimated Closing Date Net Working Capital ”).

(b)        The “ Estimated Adjustment Amount ,” which may be positive or negative, shall mean (i) the Estimated Closing Date Net Working Capital, minus (ii) $38,900,000. If the Estimated Adjustment Amount is a positive number, then the Merger Consideration shall be increased on the Closing Date by the Estimated Adjustment Amount, and if the Estimated Adjustment Amount is a negative number, the Merger Consideration shall be decreased on the Closing Date by the absolute value of the Estimated Adjustment Amount.

2.5        Post-Closing Adjustments .

(a)        As soon as reasonably practicable following the Closing Date, and in any event within sixty (60) calendar days thereof, Acquiror shall prepare and deliver to the Holder Representative (i) an unaudited consolidated balance sheet of the Company and its Subsidiaries as of the close of business on the Closing Date (the “ Closing Balance Sheet ”) and (ii) a calculation of Net Working Capital of the Company and its Subsidiaries as set forth on the Closing Balance Sheet (“ Closing Date Net Working Capital ”). The Closing Balance Sheet be prepared in accordance with United States generally accepted accounting principles (“ GAAP ”) applied in a manner consistent with the principles applied in connection with the preparation of the Audited Financial Statements. The Closing Balance Sheet shall be prepared using the same accounting practices, policies, judgments and methodologies used in the preparation of the Audited Financial Statements. The Closing Balance Sheet shall reflect no changes in reserves (regardless of whether any such reserve is recorded as an offset to a current asset’s carrying value or is included as an accrued liability in the Closing Balance Sheet) from amounts contained in the balance sheet of the Company and its consolidated Subsidiaries included on the Interim Financial Statements, other than as required to comply with GAAP or changes therein attributable to changes in facts and circumstances occurring after March 31, 2005. Following the Closing, Acquiror shall use its commercially reasonable efforts to provide the Holder Representative and its representatives reasonable access to the records and employees of the Company and its Subsidiaries, during regular business hours, to the extent relevant to its review of the Closing Balance Sheet and shall use reasonable efforts to cause the employees of the Company and its Subsidiaries to cooperate with the Holder Representative in connection with its review of the Closing Balance Sheet. “ Net Working Capital ” as of any date shall mean (i) the current assets of the Company and its Subsidiaries as of such date (excluding cash and cash equivalents, income tax receivables and deferred income taxes but including prepaid taxes), minus (ii) the consolidated current liabilities of the Company and its Subsidiaries as of such date (excluding the current portion of Funded Debt, any liability in respect of uncleared checks, and accrued interest but including, for the avoidance of doubt, Transaction Bonuses to the extent not paid on or before the Closing Date), in each case, as calculated in accordance with GAAP.

(b)        If the Holder Representative shall disagree with the calculation of Closing Date Net Working Capital, it shall notify the Acquiror of such disagreement in writing, setting forth in reasonable detail the particulars of such disagreement, within thirty (30) days after its

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receipt of the Closing Balance Sheet. In the event that Holder Representative does not provide such a notice of disagreement within such thirty (30) day period, Holder Representative and each stockholder of the Company and holder of Vested Options shall be deemed to have accepted the Closing Balance Sheet and the calculation of the Closing Date Net Working Capital delivered by the Acquiror, which shall be final, binding and conclusive for all purposes hereunder. In the event any such notice of disagreement is timely provided, Acquiror and the Holder Representative shall use commercially reasonable efforts for a period of thirty (30) days (or such longer period as they may mutually agree) to resolve any disagreements with respect to the calculation of Closing Date Net Working Capital. If, at the end of such period, they are unable to resolve such disagreements, then Pricewaterhouse Coopers (or such other independent accounting firm of recognized national standing as may be mutually selected by Acquiror and the Holder Representative) (the “ Auditor ”) shall resolve any remaining disagreements. The Auditor shall determine as promptly as practicable, but in any event within thirty (30) days of the date on which such dispute is referred to the Auditor, whether the Closing Balance Sheet was prepared in accordance with the standards set forth in Section 2.5(a) and (only with respect to the remaining disagreements submitted to the Auditor) whether and to what extent (if any) Closing Date Net Working Capital requires adjustment. The fees and expenses of the Auditor shall be paid one-half by Acquiror and one-half by the Holder Representative as a Holder Allocable Expense pursuant to Section 2.6 hereof. The determination of the Auditor shall be final, conclusive and binding on the parties. The date on which Closing Date Net Working Capital is finally determined in accordance with this Section 2.5(b) is hereinafter referred as to the “ Determination Date .”

(c)        The “ Adjustment Amount ,” which may be positive or negative, shall mean (i) the Closing Date Net Working Capital as finally determined pursuant to Sections 2.5(a) and 2.5(b) above, as applicable, minus (ii) the Estimated Closing Date Net Working Capital. If the Adjustment Amount is a positive number, then the Merger Consideration shall be increased by the Adjustment Amount, and if the Adjustment Amount is a negative number, the Merger Consideration shall be decreased by the absolute value of the Adjustment Amount. The Adjustment Amount shall be paid in accordance with Section 2.5(d) below.

(d)        Notwithstanding the foregoing provisions of this Article II, on the Closing Date, $4,000,000 of the Merger Consideration (the “ Escrow Amount ”) shall be paid by Acquiror to Deutsche Bank Trust Company Americas, as escrow agent of the parties hereto (the “ Escrow Agent ”) to be held in escrow pending determination of the Adjustment Amount. The Escrow Amount shall be held and invested by the Escrow Agent in accordance with the terms of an Escrow Agreement in the form attached hereto as Annex C hereto (the “ Escrow Agreement ”). Upon final determination of the Closing Date Net Working Capital and the Adjustment Amount, each of Acquiror and the Holder Representative shall execute joint written instructions to the Escrow Agent instructing the Escrow Agent to disburse the Escrow Amount as set forth in this Section 2.5(d). If the Adjustment Amount is (x) zero, (y) a positive number equal to or less than $1,000,000 or (z) a negative number equal to or less than $1,000,000 in absolute value, then, promptly following the Determination Date, and in any event within five (5) Business Days of the Determination Date, the Escrow Agent shall pay to the holders of the Common Shares and Vested Options entitled to receive the Merger Consideration (pro rata, in accordance with their respective Fully-Diluted Percentages) the Escrow Amount, together with all interest earned thereon. If the Adjustment Amount is a positive number greater than $1,000,000, then, promptly

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following the Determination Date, and in any event within five (5) Business Days of the Determination Date, (i) the Escrow Agent shall pay to the holders of the Common Shares and Vested Options entitled to receive the Merger Consideration (pro rata, in accordance with their respective Fully-Diluted Percentages) the Escrow Amount, together with all interest earned thereon, and (ii) Acquiror shall pay to the Exchange Agent for the benefit of the holders of Common Shares and Vested Options entitled to receive the Merger Consideration (pro rata, in accordance with their respective Fully-Diluted Percentages) the Adjustment Amount, as finally determined, together with interest thereon from the Closing Date to the date of payment at the prime rate of interest published in the “Money Rates” column of the Eastern Edition of The Wall Street Journal (or the average of such rates if more than one rate is indicated) on the Closing Date (the “ Prime Rate ”). In no event shall Acquiror have any liability under this Section 2.5 in excess of $4,000,000. In no event shall the holders of Common Stock and Vested Options be entitled to payment pursuant to this Section 2.5(d) of any amount in excess of the Escrow Amount, plus all interest earned thereon, plus $4,000,000. If the Adjustment Amount is a negative number greater than $1,000,000 in absolute value, then, promptly following the Determination Date, and in any event within five (5) Business Days of the Determination Date, (i) the Escrow Agent shall pay to Acquiror out of the Escrow Amount an amount, up to the full amount of the Escrow Account, equal to the absolute value of the Adjustment Amount, together with the interest earned on the portion of the Escrow Amount equal to the absolute value of the Adjustment Amount, and (ii) if the absolute value of the Adjustment Amount is less than the Escrow Amount, the Escrow Agent shall pay to the holders of Common Shares and Vested Options entitled to receive the Merger Consideration (pro rata, in accordance with their respective Fully-Diluted Percentages) the balance of the Escrow Amount together with any interest earned thereon. In no event shall the Holder Representative or any holder of Common Shares and/or Vested Options have any liability under this Section 2.5 in excess of such holders’ allocable share of the Escrow Amount. Notwithstanding the foregoing, any distributions to the holders of Vested Options pursuant to this Section 2.5(d) shall be net of the amount of any taxes required to be withheld from such distributions under applicable law, and the amounts so withheld shall be paid over to the Company for payment by the Company to the applicable Governmental Authority as required by law. In no event shall Acquiror be entitled to payment pursuant to this Section 2.5(d) of any amount in excess of the Escrow Amount, plus all interest earned thereon. Any interest or other income earned on the Escrow Amount shall be allocated to, and treated as earned and owned by, the former holders of Common Shares and Vested Options for all Tax purposes.

(e)        (i) The Acquiror shall, with the reasonable agreement of its accountants, and acting reasonably and in good faith, cause the Company and its Subsidiaries to make a determination of the amount of (x) Taxes payable by the Company and its Subsidiaries for the short taxable year ending on the Closing Date, not giving effect to all deductions arising out of the Closing Payments and (y) Taxes payable by the Company and its Subsidiaries for the short taxable year ending on the Closing Date, giving effect to all deductions arising out of the Closing Payments (the excess of (x) over (y), the “ Tax Benefit Amount ”). “ Closing Payments ” shall mean the payment of certain amounts at Closing as set forth on Schedule 2.5(e)  hereof.

(ii) The Acquiror shall, with the reasonable agreement of its accountants, and acting reasonably and in good faith, cause the Company and its Subsidiaries to prepare and file the final Tax returns for the short taxable year ending on the Closing Date on the due date

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thereof, with any applicable extensions, consistent with the determination of the Tax Benefit Amount, if any, as determined by Acquiror pursuant to Section 2.5(e)(i). The Acquiror shall pay to the Holder Representative as additional Merger Consideration (for distribution by the Holder Representative to the holders of Common Shares and Options entitled to receive the Merger Consideration, pro rata in accordance with their respective Fully-Diluted Percentages) an amount equal to the excess of (X) the amount of Taxes that would have been paid by the Company and its Subsidiaries upon the filing of such Tax return not giving effect to the Tax Benefit Amount, if any, as determined by Acquiror pursuant to Section 2.5(e)(i) over (Y) the amount of Taxes that are payable by the Company and its Subsidiaries upon the filing of such Tax return, giving effect to the Tax Benefit Amount if any, as determined by Acquiror pursuant to Section (e)(i) (such excess, the “ Post-Closing Tax Savings ”), together with interest at the Prime Rate on the Post-Closing Tax Savings from the date that is 45 days after the due date for the filing of the final return for the short taxable year without any extensions until the date of payment by the Acquiror of the Post-Closing Tax Savings to the Holder Representative. For the avoidance of doubt, the Post-Closing Tax Savings shall not duplicate any amounts required to be paid in respect of refunds required to be paid under this Section 2.5(e).

(iii) The Acquiror shall, with the reasonable agreement of its accountants, and acting reasonably and in good faith, cause the Company and its Subsidiaries to prepare and file at the time of the filing of the final Tax returns for the short taxable year ending on the Closing Date, to the extent available, a claim for refund of Taxes paid through the Closing Date for such short taxable year. Acquiror shall pay to the Holder Representative as additional Merger Consideration (for distribution by the Holder Representative to the holders of Common Shares and Options entitled to receive the Merger Consideration, pro rata in accordance with their respective Fully-Diluted Percentages) an amount equal to the excess of (X) the amount of refund(s) received by the Company and its Subsidiaries (together with the appropriate portion of interest paid by any taxing authority), giving effect to the Tax Benefit Amount if any, as determined by Acquiror pursuant to Section 2.5(e)(i) over (Y) the amount of refund(s) that would have been received by the Company and its Subsidiaries (together with any interest that would have been paid by any taxing authority) without giving effect to the Tax Benefit Amount, if any, as determined by Acquiror pursuant to Section 2.5(e)(i), net of any Reasonable Refund Expenses, within five (5) Business Days of receipt of such refunds. “Reasonable Refund Expenses” shall mean the reasonable out-of-pocket costs and expenses of the Company incurred to secure the refund payments, including reasonable accounting and legal fees, and any income Taxes payable by the Company and its Subsidiaries as a result of the receipt of such refunds and any interest thereon.

(iv) To the extent of any net operating loss for the short taxable year ending on the Closing Date, Acquiror shall, with the reasonable agreement of its accountants, and acting reasonably and in good faith, cause the Company and its Subsidiaries, to prepare and file on the date of filing of the final Tax return for the short taxable year ending on the Closing Date, claims to carry back the net operating loss for such taxable year, if any, to prior taxable years to the fullest extent permitted by applicable law, together with any necessary state and local filings to apply such net operating loss arising in such short taxable year so as to receive a refund of past Taxes paid. Acquiror shall pay to the Holder Representative as additional Merger Consideration (for distribution by the Holder Representative to the holders of Common Shares and Options entitled to receive the Merger Consideration, pro rata in accordance with their

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respective Fully-Diluted Percentages) an amount equal to the excess of (X) the amount of refund received by the Company and its Subsidiaries (together with the appropriate portion of interest paid by any taxing authority), giving effect to the Tax Benefit Amount if any, as determined by Acquiror pursuant to Section 2.5(e)(i) over (Y) the amount of refund that would have been received by the Company and its Subsidiaries (together with any interest that would have been paid by any taxing authority) without giving effect to the Tax Benefit Amount, if any, as determined by Acquiror pursuant to Section 2.5(e)(i), net of any Reasonable Refund Expenses, within five (5) Business Days of receipt of such refunds.

(v) Notwithstanding anything to the contrary set forth in this Agreement, the obligations set forth in this Section 2.5(e) shall survive the Closing without limitation.

2.6        Holder Allocable Expenses . At least five (5) Business Days prior to the Closing Date, the Holder Representative shall provide to Acquiror a reasonably detailed written estimate (which estimate shall include such reserves as the Holder Representative determines in good faith to be appropriate for any Holder Allocable Expenses that are not then known or determinable) of the aggregate amount of the following fees and expenses that may be incurred by the Company or the Holder Representative on behalf of the Company and the holders of the Common Shares and/or Vested Options in connection with the preparation, negotiation and execution of this Agreement and the consummation of the transactions contemplated hereby (but excluding any such fees or expenses incurred in connection with Acquiror’s financing thereof): (i) the fees and disbursements of any financial advisor, accountants, environmental experts and outside counsel to the Company and/or the Holder Representative incurred in connection with the transactions contemplated hereby, (ii) the fees and expenses of any other agents, advisors, consultants and experts employed by the Company and/or the Holder Representative in connection with the Merger, (iii) any transaction fee payable to one or more Affiliates of the Holder Representative in connection with the Merger and (iv) the expenses of the Holder Representative incurred in such capacity ((i) through (iv) collectively, the “ Holder Allocable Expenses ”). On the Closing Date, Acquiror shall pay to the Holder Representative, or accounts designated in writing by the Holder Representative, cash in the amount of such estimated Holder Allocable Expenses. Whether or not paid on or prior to the Closing Date, no amount shall be accrued on the Closing Balance Sheet with respect to the Holder Allocable Expenses. In no event shall Acquiror or the Holder Representative be responsible for payment of Holder Allocable Expenses in excess of the cash amounts paid to the Holder Representative by Acquiror under this Section 2.6.

2.7        Exchange Agent . Promptly following the date which is one year after the Effective Time of the Merger, Acquiror shall instruct the Exchange Agent to deliver to Acquiror all cash, Certificates and other documents in its possession relating to the transactions contemplated hereby. Thereafter, each holder of a Certificate (other than Certificates representing Dissenting Common Shares) and each holder of Vested Options who has not delivered a Holder Acknowledgement may surrender such Certificate or deliver such Holder Acknowledgement(s) to Acquiror and (subject to applicable abandoned property, escheat and similar laws) receive in consideration therefor, and Acquiror shall promptly pay out of funds returned by the Exchange Agent, the portion of the Merger Consideration deliverable in respect thereof as determined in accordance with this Article II without any interest thereon.

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2.8        Lost Certificate . In the event any Certificate has been lost, stolen or destroyed, upon the making of an affidavit of that fact by the Person claiming such Certificate to be lost, stolen or destroyed, and, if reasonably requested the posting of a surety bond, the Exchange Agent or Acquiror, as the case may be, shall issue in exchange for such lost, stolen or destroyed Certificate the Merger Consideration deliverable in respect thereof as determined in accordance with this Article II.

2.9        Dissenting Common Shares . Notwithstanding the foregoing provisions of this Article II, the Dissenting Common Shares shall not be converted into a right to receive the Merger Consideration and the holders thereof shall be entitled to such rights as are granted by Section 262 of the DGCL. Each holder of Dissenting Common Shares who becomes entitled to payment for such shares pursuant to Section 262 of the DGCL shall receive payment therefor from the Surviving Corporation in accordance with the DGCL; provided , however , that (i) if any such holder of Dissenting Common Shares shall have failed to establish such holder’s entitlement to appraisal rights as provided in Section 262 of the DGCL, or (ii) if any such holder of Dissenting Common Shares shall have effectively withdrawn such holder’s demand for appraisal of such shares or lost such holder’s right to appraisal and payment for such holder’s shares under Section 262 of the DGCL, such holder shall forfeit the right to appraisal of such shares and each such share shall not constitute a Dissenting Common Share but shall be deemed a Common Share and shall be treated as if it had been converted, as of the Effective Time of the Merger, into a right to receive from the Surviving Corporation the portion of the Merger Consideration deliverable in respect thereof as determined in accordance with this Article II, without any interest thereon.

2.10      Options . All Options which are not Vested Options as of the Closing Date (the “ Unvested Options ”) issued and outstanding at the Effective Time of the Merger shall be automatically cancelled without any further action by the holder thereof. Prior to the Closing, the Company shall, as may be necessary to give effect to the transactions contemplated hereby, (i) obtain any consents from holders of Unvested Options and (ii) make any amendments to the terms of such Unvested Options.

ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY

The Company represents and warrants to Acquiror and Merger Sub as follows:

3.1        Corporate Organization of the Company . The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware and has the corporate power and authority to own or lease its properties and to conduct its business as it is now being conducted. The copies of the Certificate of Incorporation and Bylaws of the Company previously made available by the Company to Acquiror are true, correct and complete. The Company is duly licensed or qualified and in good standing as a foreign corporation in each jurisdiction in which the ownership of its property or the character of its activities is such as to require it to be so licensed or qualified, except where the failure to be so licensed or qualified would not, individually or in the aggregate, have a Material Adverse Effect on the Company.

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3.2        Subsidiaries . Each of the Subsidiaries of the Company is set forth on Schedule 3.2 attached hereto. Each of the Subsidiaries has been duly formed or organized and are validly existing under the laws of their state of incorporation or organization and have the power and authority to own or lease their properties and to conduct their business as it is now being conducted. The Company has previously provided to Acquiror copies of the organizational documents of its Subsidiaries. Such copies are true, correct and complete. Each Subsidiary is duly licensed or qualified and in good standing as a foreign corporation (or other entity, if applicable) in each jurisdiction in which its ownership of property or the character of its activities is such as to require it to be so licensed or qualified, except where the failure to be so licensed or qualified would not have, individually or in the aggregate, a Material Adverse Effect on the Company.

3.3        Due Authorization .

(a)        The Company has all requisite corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized and approved by the Board of Directors and stockholders of the Company and no other corporate proceeding on the part of the Company is necessary to authorize this Agreement. This Agreement has been duly and validly executed and delivered by the Company and constitutes a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors’ rights generally and subject, as to enforceability, to general principles of equity.

(b)        The affirmative vote of the holders of a majority of the shares of Company Common Stock outstanding on the hereof is the only vote of the holders of any class or series of the capital stock of the Company that was and is necessary (under applicable law or otherwise) to approve this Agreement and the Merger. The Company has obtained such approval pursuant to a written consent of stockholders, a true and complete copy of which has been provided to Acquiror.

3.4        No Conflict . Except as set forth in Schedule 3.4 , the execution and delivery of this Agreement by the Company and the consummation of the transactions contemplated hereby does not and will not violate any provision of, or result in the breach of, any applicable law, rule or regulation of any governmental body, the certificate of incorporation, bylaws or other organizational documents of the Company or one of its Subsidiaries, or any agreement, indenture or other instrument to which the Company or one of its Subsidiaries is a party or by which the Company or any of its Subsidiaries may be bound, or of any order, judgment or decree applicable to any of them, or terminate or result in the termination of any such agreement, indenture or instrument, or result in the creation of any Lien upon any of the properties or assets of the Company or any of its Subsidiaries, or constitute an event which, after notice or lapse of time or both, would result in any such violation, breach, acceleration, termination or creation of a Lien or result in a violation or revocation of any required license, permit or approval from any Governmental Authority or other Person, except to the extent that the occurrence of any of the foregoing would not have (a) a material adverse effect on the ability

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of the Company to enter into and perform its obligations under this Agreement, or (b) individually or in the aggregate, a Material Adverse Effect on the Company.

3.5        Governmental Authorities; Consents . Assuming the truth and completeness of the representations and warranties of Acquiror contained in this Agreement, no consent, approval or authorization of, or designation, declaration or filing with, any Governmental Authority or other third party under any material Contract is required on the part of the Company with respect to the Company’s execution or delivery of this Agreement or the consummation of the transactions contemplated hereby, except for (i) applicable requirements of the HSR Act or any similar foreign law; and (ii) as otherwise disclosed in Schedule 3.5 .

3.6        Capitalization of the Company .

(a)        The authorized capital stock of the Company consists of 150,000 shares of Class A Common Stock, of which 123,452.5 are issued and outstanding as of the date of this Agreement, and 150,000 shares of Class B Common Stock, none of which are issued and outstanding. All of the issued and outstanding shares of Company Common Stock hav