AGREEMENT AND PLAN OF MERGER

Exhibit 2.1

 

EXECUTION COPY

 

AGREEMENT AND PLAN OF MERGER

 

BY AND AMONG

 

NES CLOTHING COMPANY HOLDINGS TRUST,

 

THE SHAREHOLDERS OF NES CLOTHING COMPANY HOLDINGS TRUST,

 

NES ACQUISITION CORP.

 

AND

 

(solely with respect to Sections 2.9, 9.1 and 9.16)

 

BRODER BROS., CO.

 

DATED AS OF

 

AUGUST 30, 2004

 

TABLE OF CONTENTS

 

 

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AGREEMENT AND PLAN OF MERGER

 

THIS AGREEMENT AND PLAN OF MERGER (this “ Agreement ”) is made and entered into as of August 30, 2004, by and among NES Clothing Company Holdings Trust, a Massachusetts Business Trust (the “ Company ”), Ronald J. Nathan (“ Nathan ”), Michael J. Rosow and the Rosow Family Children’s Trust (each a “ Shareholder ” and collectively, the “ Shareholders ”), NES Acquisition Corp., a Delaware corporation (“ Merger Corp. ”) and, solely with respect to Sections 2.9 , 9.1 and 9.16 , Broder Bros., Co., a Michigan corporation (“ Broder ”). Capitalized terms used in this Agreement without definition shall have the meanings given to such terms in Article 1 hereof.

 

WHEREAS, the trustees of the Company (the “ Trustees ”) and the Board of Directors of Merger Corp. have approved, and the Shareholders representing not less than a majority of the issued and outstanding shares of beneficial interest in the assets of the Company (the “ Shares of Beneficial Interest ”) have agreed to approve, (i) the merger of Merger Corp. with and into the Company (the “ Merger ”) and (ii) the terms and conditions of this Agreement;

 

WHEREAS, pursuant to the terms of and subject to the conditions set forth in this Agreement, upon consummation of the Merger, each Share of Beneficial Interest held by the Shareholders, all of whom are set forth in the “ Schedule of Shareholders ,” shall be canceled and converted to the right to receive the Per Share Amount for each such Share of Beneficial Interest;

 

WHEREAS, the Trustees of the Company have, in light of and subject to the terms and conditions set forth herein, (i) determined that (A) the consideration to be paid for the Shares of Beneficial Interest in the Merger is fair to the Company’s shareholders and (B) the Merger is otherwise in the best interests of the Company and its shareholders and (ii) has approved and adopted this Agreement and the transactions contemplated hereby and has recommended the approval and the adoption of this Agreement by the Shareholders;

 

WHEREAS, the Board of Directors of Merger Corp. has approved and adopted this Agreement and the transactions contemplated hereby;

 

WHEREAS, no approval of the stockholders of Merger Corp. is required under the provisions of Section 251(f) of the General Corporation Law of the State of Delaware (the “ Delaware Law ”), because Merger Corp. presently has no issued and outstanding shares of capital stock.

 

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NOW, THEREFORE, in consideration of the mutual promises and covenants set forth herein, the parties hereto agree as follows:

 

ARTICLE 1

 

DEFINITIONS

 

1.1 Definitions . For purposes of this Agreement, the following terms shall have the meanings set forth below:

 

“ Affiliate ” of any particular Person shall mean any other Person controlling, controlled by or under common control with such Person.

 

“ Affiliated Group ” shall mean an affiliated group as defined in Section 1504 of the Code (or any analogous combined, consolidated or unitary group defined under state, local or foreign income Tax law) of which the Company is or has been a member.

 

“ Aggregate Merger Consideration ” shall mean an amount equal to Cash Merger Consideration plus (i) the Escrow Amount and (ii) the Closing Net Indebtedness.

 

“ Aprons Unlimited ” shall mean Aprons Unlimited, Inc., a Massachusetts corporation.

 

“ Business ” means the Company’s and its Subsidiaries’ business of purchasing, distributing, selling, marketing and producing casualwear and sportswear, including but not limited to T-shirts, golf shirts, denim, fleece, sweaters, woven shirts, outerwear, headgear, sports jerseys, turtlenecks, bags, aprons, towels, robes and shorts, whether imprintable or imprinted.

 

“ Cash Merger Consideration ” shall mean an amount equal to $37,850,000 adjusted to reflect the Closing Working Capital pursuant to Section 2.10 , less (i) the Escrow Amount and (ii) the Closing Net Indebtedness.

 

“ COBRA ” shall mean the requirements of Part 6 of Subtitle B of Title I of ERISA and Section 4980B of the Code and of any similar state law.

 

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

 

“ Company’s Knowledge ” means the actual knowledge after reasonable inquiry of Michael J. Rosow, Ronald J. Nathan, Bud Schmitt, Peter Catarella and Steve Valeri.

 

“ Delaware Law ” means the Delaware General Corporation Law.

 

“ ERISA ” shall mean the Employee Retirement Income Security Act of 1974, as amended.

 

“ ERISA Affiliate ” means each entity that is treated as a single employer with the Company or any Subsidiary for purposes of Section 414 of the Code.

 

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“ Escrow Amount ” means $2,000,000.00.

 

“ Excluded Representations ” means the representations and warranties of the Company and the Shareholders in Sections 5.1, 5.2, 5.3, 5.9(c), 5.16, 5.20, 5.21, 5.22, 6.1, 6.2, 6.4 or 6.5 .

 

“ Financing Documents ” means (i) that certain Amended and Restated Loan and Security Agreement between the Subsidiary and Fleet Capital Corporation dated November 29, 2000, as amended by letter amendments dated August 28, 2001, December 1, 2001, March 7, 2003 and April 21, 2003, and (ii) ancillary documents related thereto.

 

“ GAAP ” shall mean generally accepted accounting principles, applied in a manner consistent with the preparation of the Company’s December 31, 2003 audited financial statements.

 

“ Government Licenses ” means all permits, licenses, franchises, orders, registrations, certificates, variances, approvals and other authorizations obtained from foreign, federal, state or local governments or governmental agencies or other similar rights, and all data and records pertaining thereto, including, without limitation, those listed on the attached “ Licenses Schedule .”

 

“ Guaranty ” shall mean any agreement, undertaking or arrangement by which any Person guarantees, endorses or otherwise becomes or is contingently liable upon the debt, obligation or other liability of any other Person (other than by endorsements of instruments in the ordinary course of collection), or guarantees of the payment of dividends or other distributions upon the shares of any other Person.

 

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

 

“ Insider ” means (i) any officer, director, trustee, employee or shareholder of the Company or any of its Subsidiaries; (ii) any individual related by blood, marriage or adoption to any individual listed in clause (i) hereof; or (iii) any Person in which any individual listed in clauses (i) or (ii) hereof has a beneficial interest.

 

“ Leased Real Property ” shall mean all of the Company’s and its Subsidiaries’ right, title and interest under all leases, subleases, licenses, concessions and other agreements (written or oral) (the “ Leases ”), pursuant to which the Company or a Subsidiary holds a leasehold or subleasehold estate in, or is granted the right to use or occupy, any land, buildings, improvements, fixtures or other interest in real property which is used in the operation of the Business.

 

“ Leasehold Improvements ” means all buildings, improvements and fixtures located on any Leased Real Property which are owned by the Company or its Subsidiaries, regardless of whether such buildings, improvements or fixtures are subject to reversion of the

 

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landlord or other third party upon the expiration or termination of the Lease for such Leased Real Property.

 

“ Liens ” shall mean any mortgage, pledge, security interest, conditional sale or other title retention agreement, encumbrance, lien, easement, option, debt, charge, claim or restriction of any kind.

 

“ LIBOR ” means the offered rate per annum for deposits of United States dollars for three (3) month periods, as published from time to time by Bank One as its LIBOR rate.

 

“ Material Adverse Effect ” shall mean a material adverse effect on the assets properties, liabilities, business, or operations of the Business.

 

“ Massachusetts Law ” shall mean the General Laws ch. 156D and 182.

 

“ Merger Corp. Common Stock ” means the common stock, par value $0.01 per share, of Merger Corp.

 

“ Merger Corp.’s Knowledge ” shall mean the actual knowledge after reasonable inquiry of David Hollister and Vincent Tyra.

 

“ Net Indebtedness for Borrowed Money ” shall mean, with respect to any Person at any date, without duplication (i) all obligations of such Person for borrowed money or funded indebtedness or issued in substitution for or exchange for borrowed money or funded indebtedness (including indebtedness with respect of principal, bank debt, accrued interest and any applicable prepayment charges or premiums); (ii) any indebtedness of such Person evidenced by any note, debenture or other debt security; (iii) all capital lease obligations of such Person; (iv) any indebtedness secured by a lien on such Person’s assets; (v) all obligations of such Person in respect of the termination of interest rate swap agreements; (vi) any obligations of such Person with respect to unpaid payables in excess of 150 days; (vii) any obligations of such Person with respect to bank overdrafts and outstanding checks; (viii) any obligation of such Person for the deferred purchase price of property or services (other than trade payables and other current liabilities incurred in the ordinary course of business); (ix) any commitment by which such Person assures a creditor against loss (including contingent reimbursement obligations with respect to letters of credit, except for such letters of credit set forth on the attached Undisclosed Liabilities Schedule); (x) any obligation guaranteed by such Person (including guarantees in the form of an agreement to repurchase or reimburse); (xi) any liability of such Person under deferred compensation plans, severance plans, bonus plans, employment agreements or similar arrangements payable as a result of the transactions contemplated herein; and (xii) any accrued interest, prepayment premiums or penalties related to any of the foregoing; less : cash and cash equivalents and any deposits-in-transits that have been recorded by such Person as a reduction in accounts receivable at Closing. The Indebtedness of any Person shall not include the Indebtedness of any other entity to the extent such Person is liable thereof as a

 

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result of such Person’s ownership interest in or other relationship with such entity, except to the extent that terms of such Indebtedness provide that such Person is liable therefore.

 

“ Non-Competition Period ” means, with respect to Nathan, a period of two (2) years after the Closing Date, and, with respect to the Rosow Shareholders, a period of four (4) years after the Closing Date.

 

“ Off-Balance-Sheet Inventory ” means the inventory described on the Off-Balance-Sheet Inventory Schedule, together with any other inventory that is the subject of any oral arrangements with vendors similar in nature to the arrangements described in item 35 of the Contracts Schedule.

 

“ Per Share Amount ” means the amount determined by dividing the Cash Merger Consideration by the number of Shares of Beneficial Interest outstanding immediately prior to the Effective Time.

 

“ Person ” shall mean any individual, sole proprietorship, partnership, joint venture, trust, unincorporated association, corporation, limited liability company, entity or governmental entity (whether federal, state, county, city or otherwise and including, without limitation, any instrumentality, division, agency or department thereof).

 

“ Permitted Liens ” means (i) Liens for purchase money indebtedness that are set forth on the “ Permitted Liens Schedule ” attached hereto, (ii) Liens for Taxes not delinquent or the validity of which is being contested in good faith by appropriate proceedings and as to which adequate reserves have been established on the Company’s consolidated financial statements in accordance with GAAP and (iii) statutory mechanic’s, carrier’s, workmen’s, repairmen’s or other similar Liens arising or incurred in the ordinary course of business for amounts which are not delinquent and which would not, individually or in the aggregate, have a material adverse effect on the Business, and recorded easements, covenants and other restrictions of record, provided that no such item described in this clause (iii) impairs the use, occupancy, value or marketability of title of the property subject thereto.

 

“ Proprietary Rights ” means all of the following owned by, issued to, or licensed to the Company or any of its Subsidiaries, or used in the Business, along with all associated income, royalties, damages and payments due from or payable by any third party (including, without limitation, damages and payments for past, present or future infringements or misappropriations thereof), all other associated rights (including, without limitation, the right to sue and recover for past, present or future infringements or misappropriations thereof), and any and all corresponding rights that, now or hereafter, may be secured throughout the world: (i) patents, patent applications, patent disclosures and inventions (whether or not patentable and whether or not reduced to practice) and any reissues, continuations, continuations-in-part, divisions, extensions or reexaminations thereof; (ii) trademarks, service marks, trade dress, logos, slogans, trade names and corporate names and all registrations and applications for registration thereof, together with all goodwill associated therewith; (iii) copyrights and works of

 

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authorship, and all registrations and applications for registration thereof; (iv) mask works and all registrations and applications for registration thereof; (v) computer software (including, without limitation, data, data bases and related documentation); (vi) trade secrets, confidential information and proprietary data and information (including, without limitation, compilations of data (whether or not copyrighted or copyrightable), ideas, formulae, compositions, blends, processes, know-how, manufacturing and production processes and techniques, research and development information, drawings, specifications, designs, plans, improvements, proposals, technical data, financial and accounting data, business and marketing plans, and customer and supplier lists and related information); (vii) all other intellectual property rights; and (viii) all copies and tangible embodiments of the foregoing (in whatever form or medium), including, without limitation, in the case of each of the foregoing items (i) through (vii), the items set forth on the “ Proprietary Rights Schedule ” attached hereto.

 

“ Shareholder’s Knowledge ” means the actual knowledge after reasonable inquiry of the applicable Shareholder.

 

“ Subsidiary ” shall mean, with respect to any Person, any corporation, partnership, association or other business entity of which (i) if a corporation, a majority of the total voting power of shares of stock entitled (irrespective of whether, at the time, stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof or (ii) if a partnership, trust, association or other business entity, a majority of the partnership or other similar ownership interest thereof is at the time owned or controlled, directly or indirectly, by any Person or one or more Subsidiaries of that Person or a combination thereof.

 

“ Target Working Capital ” means $29,500,000.00.

 

“ Tax ” shall mean any federal, state, local or foreign income, gross receipts, franchise, estimated, alternative minimum, add-on minimum, sales, use, transfer, real property gains, registration, value added, excise, natural resources, severance, stamp, occupation, premium, windfall profit, environmental, customs, duties, real property, personal property, capital stock, social security, unemployment, disability, payroll, license, employee or other withholding, or other tax, of any kind whatsoever, including any interest, penalties or additions to tax or additional amounts in respect of the foregoing; the foregoing shall include any transferee or secondary liability for a Tax and any liability assumed by agreement or arising as a result of being (or ceasing to be) a member of any Affiliated Group or being included (or required to be included) in any Tax Return relating thereto.

 

“ Tax Return ” shall mean any return, declaration, report, claim for refund, information return or other document (including any related or supporting schedule, statement or information) filed or required to be filed in connection with the determination, assessment or

 

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collection of any Tax of any party or the administration of any laws, regulations or administrative requirements relating to any Tax.

 

ARTICLE 2

 

PLAN OF MERGER AND OTHER TRANSACTIONS

 

2.1 Closing . Subject to the conditions contained in this Agreement, the consummation of the Merger and the other transactions contemplated hereby (the “ Closing ”) will occur at the offices of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., One Financial Center, Boston, MA 02111 commencing at 10:00 a.m. local time on the date hereof or at such other time and on such other date as the parties hereto mutually agree (the “ Closing Date ”).

 

2.2 The Merger . Upon the terms and subject to the satisfaction or waiver of the conditions hereof, and in accordance with the applicable provisions of this Agreement and the Delaware Law and the Massachusetts Law, at the Effective Time, Merger Corp. shall be merged with and into the Company (the “ Merger ”). Following the Merger, the separate corporate existence of Merger Corp. shall cease and the Company shall continue as the surviving trust (the “ Surviving Trust ”). Without limiting the generality of the foregoing, any references in this Agreement to the “Company” with respect to any time after the Closing shall be deemed to refer to the Surviving Trust.

 

2.3 Effective Time . Immediately prior to the Closing, the Company shall execute, in the manner required by the Massachusetts Law, and deliver to the Secretary of the Commonwealth of the Commonwealth of Massachusetts, a duly executed Amended and Restated Declaration of Trust in the form of Exhibit A attached hereto, and the parties shall take such other and further actions as may be required by law to make the Merger effective. The time the Merger becomes effective in accordance with applicable law is referred to herein as the “ Effective Time .”

 

2.4 Effects of the Merger . The Merger shall have the effects set forth in the Delaware Law and the Massachusetts Law. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, all the properties, rights, privileges, powers and franchises of the Company and Merger Corp. shall vest in the Surviving Trust, and all debts, liabilities and duties of the Company and Merger Corp. shall become the debts, liabilities and duties of the Surviving Trust.

 

2.5 Declaration of Trust of the Surviving Trust .

 

(a) At the Effective Time, the Declaration of Trust of the Company shall be amended in its entirety to read as set forth in Exhibit A attached hereto.

 

2.6 Directors . Subject to applicable law, the directors of Merger Corp. immediately prior to the Effective Time shall be the initial trustees of the Surviving Trust and

 

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shall hold office until their respective successors are duly elected and qualified, or their earlier death, resignation or removal.

 

2.7 Officers . The officers of Merger Corp. immediately prior to the Effective Time shall be the initial officers of the Surviving Trust and shall hold office until their respective successors are duly elected and qualified, or their earlier death, resignation or removal.

 

2.8 Effect on Capital Stock . As of the Effective Time, by virtue of the Merger and without any action on the part of the holder of any shares of capital stock of Merger Corp. or the holder of any shares of beneficial interest of the Company, (a) each Share of Beneficial Interest that is issued and outstanding immediately prior to the Effective Time shall, by virtue of the Merger, and without any action on the part of the Company, Merger Corp. or the holder thereof, be canceled and extinguished and converted into the right to receive the Per Share Amount, payable to the holder thereof, without interest or dividends thereon, upon the surrender of the certificate formerly representing such share in the manner provided in Section 2.9 and (b) each share of Merger Corp. stock that is issued and outstanding immediately prior to the Effective Time shall, by virtue of the Merger, and without any action on the part of the Company, Merger Corp. or the holder thereof, be canceled and extinguished and converted into one (1) share of beneficial interest of the Surviving Trust.

 

2.9 Payment of Merger Consideration .

 

(a) At the Closing, Broder shall pay the Aggregate Merger Consideration by:

 

(i) delivery of the Escrow Amount by wire transfer of immediately available funds to an account designated in writing by Brown Brothers Harriman & Co., as escrow agent (the “ Escrow Agent ”), established pursuant to the terms of an escrow agreement, dated as the date hereof, by and among Merger Corp., the Company, each of the Shareholders and the Escrow Agent (the “ Escrow Agreement ”), which Escrow Amount shall be used to satisfy amounts payable to the Surviving Trust as indemnification to the Company pursuant to Article 9 ;

 

(ii) delivery of the Cash Merger Consideration (as adjusted pursuant to Section 2.10 below) by wire transfer of immediately available funds to an account or accounts designated by the Company, in accordance with the procedure set forth in Section 2.9(b) ; and

 

(iii) delivery, on behalf of the Company, of the amount of Estimated Net Indebtedness (as defined below) to the lenders under the Financing Documents in repayment of the outstanding obligations thereunder.

 

(b) Prior to the Effective Time, each Shareholder shall deliver his or its surrender certificates evidencing his or its Shares of Beneficial Interest (the “ Certificates ”) and subject to the receipt of such Certificates, immediately following the Effective Time, Broder shall pay the applicable portion of the Cash Merger Consideration to each such Shareholder.

 

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(c) In effecting the payment of the Cash Merger Consideration in respect of Shares of Beneficial Interest deemed converted represented by Certificates entitled to payment pursuant to Section 2.8 , upon the surrender of each such Certificate, Broder shall pay the holder of such Certificate the Per Share Amount specified in Section 2.8 multiplied by the number of Shares of Beneficial Interest represented by the Certificate in consideration therefor. Upon such payment, such Certificate shall forthwith be canceled.

 

(d) From and after the Effective Time, the Company shall act as exchange agent. To the extent that Certificates are not surrendered at the Effective Time pursuant to paragraph (b) above, the Company shall deposit, or the Company shall otherwise take all steps necessary to cause to be deposited in an account with such reputable banking institution mutually satisfactory to the parties (the “ Exchange Fund ”) the Cash Merger Consideration to which holders of such unsurrendered Certificates shall be entitled at the Effective Time pursuant to Section 2.8 hereof.

 

(e) Until surrendered in accordance with paragraph (b) above, each such Certificate shall represent solely the right to receive the aggregate merger consideration relating thereto. No interest or dividends shall be paid or accrued on the merger consideration. If all or any portion of any merger consideration is to be delivered to any Person other than the Person in whose name the Certificate formerly representing Shares of Beneficial Interest surrendered therefor is registered, it shall be a condition to such right to receive such merger consideration that the Certificate so surrendered shall be properly endorsed or otherwise be in proper form for transfer and that the Person surrendering such Certificates shall pay to the Company any transfer or other Taxes required by reason of the payment of the merger consideration to a Person other than the registered holder of the Certificate surrendered, or shall establish to the satisfaction of the Company that such Tax has been paid or is not applicable.

 

(f) No dividends or other distributions with respect to shares of beneficial interest with a record date after the Effective Time shall be paid to the holder of any unsurrendered Certificate with respect to the shares of beneficial interest represented thereby.

 

(g) After the Effective Time, the Surviving Trust shall retain all cash, Certificates and other documents in its possession relating to the transactions described in this Agreement. Thereafter, each holder of a Certificate formerly representing Share of Beneficial Interest may surrender such Certificate to the Surviving Trust and (subject to applicable abandoned property, escheat and similar laws) receive in consideration therefor the merger consideration relating thereto, without any interest or dividends thereon.

 

(h) After the Effective Time, there shall be no transfers on the share transfer books of the Surviving Trust of any shares of beneficial interest which were outstanding immediately prior to the Effective Time. If, after the Effective Time, Certificates formerly representing Shares of Beneficial Interest are presented to the Surviving Trust, they shall be surrendered and canceled in return for the payment of the Per Share Amount relating thereto, as provided in this Section 2.9 .

 

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(i) Neither Merger Corp. nor the Company shall be liable to any Person in respect of any cash from the Exchange Fund delivered to a public official pursuant to any applicable abandoned property, escheat or similar law. If any Certificates shall not have been surrendered prior to seven (7) years after the Effective Time (or immediately prior to such earlier date on which any dividends or distributions with respect to shares of capital stock in respect of such Certificate would otherwise escheat to or become the property of any governmental authority) any such shares, cash, dividends or distributions in respect of such Certificate shall, to the extent permitted by applicable law, become the property of the Surviving Trust, free and clear of all claims or interest of any person previously entitled thereto.

 

2.10 Adjustment to Merger Consideration .

 

(a) Immediately prior to the Closing Date, the parties prepared and mutually agreed upon an estimate of the Working Capital as of immediately prior to (but assuming consummation of) the Closing, which was agreed to be an amount equal to $22,574,172.48 (the “ Estimated Working Capital ”) and an estimate of the Net Indebtedness for Borrowed Money of the Company and its Subsidiaries as of the Closing Date, which was agreed to be an amount equal to $10,805,389.48 (the “ Estimated Net Indebtedness” ) (assuming that such Net Indebtedness for Borrowed Money was fully paid and discharged as of the Closing Date). For purposes of this Agreement, “Working Capital” shall mean all accounts receivable, inventory, prepaid expenses and other current assets (other than deferred tax assets), less deposits-in-transit, accounts payable and accrued expenses, and any accrued and unpaid current Taxes payable of the Company and its Subsidiaries, all determined in accordance with GAAP and as set forth on the Working Capital Schedule .

 

(b) Based on the foregoing, the parties determined that the Cash Merger Consideration payable at Closing would be equal to $18,118,783, which was determined in accordance with the definitions thereof as follows: (i) $37,850,000, minus (ii) $6,925,827.52, representing the amount by which Estimated Working Capital is less than Target Working Capital, minus (iii) the Escrow Amount of $2,000,000.00, minus (iv) the Estimated Net Indebtedness amount of $10,805,389.48.

 

(c) Within sixty (60) days after the Closing Date, the Surviving Trust shall deliver to the Representative (as defined in Section 9.13 ) a balance sheet for the Business as of the Closing Date, which shall reflect the Working Capital of the Company and its Subsidiaries immediately prior to (but assuming consummation of the Closing) the Closing Date and Net Indebtedness for Borrowed Money of the Company and its Subsidiaries as of the Closing Date (assuming that such Net Indebtedness for Borrowed Money was fully paid and discharged as of the Closing Date) (“ Preliminary Working Capital/Indebtedness ”).

 

(d) If the Representative has any good faith objection to the determination of the Preliminary Working Capital/Net Indebtedness, the Representative must deliver to the Surviving Trust within thirty (30) days after delivery of the balance sheet referred to in Section 2.10(c) above, a statement describing such objections thereto (“ Representative’s Objections ”) or

 

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the Surviving Trust’s calculation of Preliminary Working Capital/Net Indebtedness will be final, binding and non-appealable upon each of the parties hereto. The Surviving Trust and Representative shall negotiate in good faith to resolve any such objections, but if they do not reach a resolution with fifteen (15) days after delivery of the Representative’s Objections, the Surviving Trust and Representative shall submit such dispute to a mutually agreeable independent public accounting firm for resolution (the “ Independent Auditor ”), whose costs shall be born equally by the Surviving Trust and Representative. If the Surviving Trust and Representative are unable to agree upon an Independent Auditor, the Independent Auditor shall be Ernst & Young LLP.

 

(e) The Surviving Trust and Representative shall instruct the Independent Auditor to resolve all disagreements over the calculation of Preliminary Working Capital/Net Indebtedness no later than fifteen (15) days after submission of the disputes to the Independent Auditor, whose determination thereof shall be final, binding and non-appealable upon the parties hereto. The final determination of Working Capital as of the Closing Date is referred to herein as the “ Closing Working Capital ,” and the final determination of the Net Indebtedness for Borrowed Money of the Company and its Subsidiaries as of the Closing Date is referred to herein as the “ Closing Net Indebtedness .”

 

(f) If the Closing Working Capital is greater than the Estimated Working Capital, and the Estimated Working Capital was less than the Target Working Capital, then the Surviving Trust shall pay to the Representative the lesser of (1) the amount by which Closing Working Capital is greater than Estimated Working Capital and (2) the amount by which Estimated Working Capital was less than Target Working Capital (to be distributed among the Shareholders according to their pro rata shares of the Company as set forth on the Schedule of Shareholders ). If the Closing Working Capital is less than the Estimated Working Capital, and the Closing Working Capital is less than the Target Working Capital, then the Shareholders, jointly and severally, shall pay to the Surviving Trust the lesser of (1) the amount by which Closing Working Capital is less than Estimated Working Capital and (2) the amount by which Closing Working Capital is less than Target Working Capital. If the Net Closing Indebtedness is less than the Estimated Net Indebtedness, the Surviving Trust shall pay to the Representative the amount of such difference (to be distributed among the Shareholders according to their pro rata shares of the Company as set forth on the Schedule of Shareholders . If the Net Closing Indebtedness is greater than the Estimated Indebtedness, the Shareholders, jointly and severally, shall pay to the Surviving Trust an amount equal to such excess. Any amounts payable pursuant to this Section 2.10(f) shall be paid, in immediately available funds, within five (5) days after the Closing Working Capital/Net Indebtedness is finally determined pursuant to this Section 2.10 , plus interest at the rate equal to LIBOR plus 300 basis points per annum from the Closing Date to the date of such payment.

 

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ARTICLE 3

 

CLOSING DELIVERIES

 

3.1 Company’s and the Shareholders’ Closing Deliveries . On the Closing Date, the Company and the Shareholders will deliver to Merger Corp. each of the following:

 

(i) certified copies of the resolutions duly adopted by the Trustees and Shareholders authorizing the execution, delivery and performance of this Agreement and the other agreements contemplated hereby, and the consummation of all transactions contemplated hereby and thereby, including, without limitation, the Merger;

 

(ii) copies of all necessary governmental and third party consents, approvals, releases and filings required in order to effect the transactions contemplated by this Agreement and the other agreements contemplated hereby;

 

(iii) an employment agreement executed by Ronald J. Nathan and a consulting agreement executed by Michael J. Rosow in the forms substantially similar as set forth in Exhibits C-1 and C-2 , respectively, attached hereto;

 

(iv) a lease agreement for the property located at 154 Campanelli Drive, Middleboro, Massachusetts, executed by Bedford Clay, LLC in form substantially similar as set forth in Exhibit D attached hereto; and the Company and its Subsidiaries shall have been released from its guarantee obligations of Bedford Clay, LLC’s mortgage payable on such property;

 

(v) a legal opinion from Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., counsel for the Company and the Shareholders, addressed to Merger Corp. and dated the Closing Date, in form and substance reasonably satisfactory to Merger Corp.;

 

(vi) a non-foreign affidavit from each Shareholder dated as of the Closing Date, sworn under penalty of perjury and in form and substance required under the Treasury Regulations issued pursuant to Code § 1445 stating that such Shareholder is not a “Foreign Person” as defined in Code § 1445;

 

(vii) a Landlord Lien Waiver and Access Agreement in form and substance reasonably satisfactory to Merger Corp. from the landlord for the property located at 154 Campanelli Drive, Middleboro, Massachusetts, in respect of the Lease thereof (the “ Landlord Lien Waiver ”);

 

(viii) evidence that all loans outstanding by the Company or any of its Subsidiaries to any employee or shareholder has been repaid;

 

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(ix) evidence that all loans outstanding by the Company or any of its Subsidiaries to Bedford Clay, LLC and any other Net Indebtedness to be repaid at Closing has been repaid; and

 

(x) such other documents or instruments as Merger Corp. reasonably requests to effect the transactions contemplated hereby.

 

ARTICLE 4

 

RESERVED

 

ARTICLE 5

 

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

 

As an inducement to Merger Corp. to enter into this Agreement, the Company hereby represents and warrants to Merger Corp. that:

 

5.1 Organization and Power; Subsidiaries and Investments . The Company and each of its Subsidiaries is a business trust or corporation, duly organized, validly existing and in good standing under the laws of the State of Massachusetts. The Company and each of its Subsidiaries is qualified to do business as a foreign corporation and is in good standing in each jurisdiction listed on the attached “ Corporate Organization Schedule ,” which jurisdictions constitute all of the jurisdictions in which the failure to so qualify could be reasonably expected to have a Material Adverse Effect. The Company and each of its Subsidiaries has all requisite corporate or trust power and authority, and all licenses, permits and authorizations necessary to own and operate their assets and to carry on the Business as now conducted and as presently proposed to be conducted. The Company has all requisite power and authority to execute and deliver this Agreement and the other agreements contemplated hereby and to perform its obligations hereunder and thereunder. Except as set forth on the Corporate Organization Schedule , (i) the Company does not own or control (directly or indirectly) any stock, partnership interest, joint venture interest, equity participation or other security or interest in any other Person and (ii) the Company has never had any Subsidiary. The Declaration of Trust, articles of organization and bylaws, as applicable, of the Company and each of its Subsidiaries reflect all amendments thereto and are correct and complete. The minute books containing the records of meetings of the shareholders and trustees are correct in all material respects, and the share certificate books and the share record books of the Company and each of its Subsidiaries that have previously been furnished to Merger Corp. are correct and complete in all material respects. Neither the Company nor any of its Subsidiaries is in default under or in violation of any provision of its Declaration of Trust, articles of organization, bylaws or limited liability agreement, as applicable.

 

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5.2 Authorization . The execution, delivery and performance by the Company of this Agreement, the other agreements contemplated hereby and each of the transactions contemplated hereby or thereby have been duly and validly authorized by the Company and no other corporate act or proceeding on the part of the Company, its trustees or its shareholders is necessary to authorize the execution, delivery or performance by the Company of this Agreement or any other agreement contemplated hereby or the consummation of any of the transactions contemplated hereby or thereby. This Agreement has been duly executed and delivered by the Company and this Agreement constitutes, and the other agreements contemplated hereby upon execution and delivery by the Company will each constitute, a valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as enforceability may be limited or affected by applicable bankruptcy, insolvency, reorganization or other laws of general application relating to or affecting the rights of creditors and except as enforceability may be limited by rules of law governing specific performance, injunctive relief or other equitable remedies.

 

5.3 Capitalization . The attached “ Capitalization Schedule ” accurately sets forth the authorized and outstanding shares of beneficial interest of the Company and capital stock of each of its Subsidiaries and the name and number of shares of beneficial interest or capital stock held by each shareholder of each such Person. All of the issued and outstanding shares of the Company and each of its Subsidiaries have been duly authorized, are validly issued, fully paid and nonassessable, are not subject to, nor were they issued in violation of, any preemptive rights, and are owned of record and beneficially by the shareholders of the Company and its Subsidiaries described on the Capitalization Schedule . Except for this Agreement and as may be set forth on the Capitalization Schedule , there are no outstanding or authorized options, warrants, rights, contracts, pledges, calls, puts, rights to subscribe, conversion rights or other agreements or commitments to which the Company or any of its Subsidiaries is a party or which are binding upon the Company or any of its Subsidiaries providing for the issuance, disposition or acquisition of any of its shares of beneficial interest or capital stock, as the case may be, or any rights or interests exercisable therefor. There are no outstanding or authorized stock appreciation, phantom stock or similar rights with respect to the Company or any of its Subsidiaries. There are no voting trusts, proxies or any other agreements or understandings with respect to the voting of the shares of beneficial interest or capital stock, as the case may be, of the Company or any of its Subsidiaries. Neither the Company nor any of its Subsidiaries is subject to any obligation (contingent or otherwise) to repurchase or otherwise acquire or retire any shares of its shares of beneficial ownership or capital stock, as the case may be.

 

5.4 No Breach . Except as set forth on the attached Restrictions Schedule , the execution, delivery and performance by the Company of this Agreement and the other agreements contemplated hereby and the consummation of each of the transactions contemplated hereby or thereby do not and will not (a) violate, conflict with, result in any breach of, constitute a default under, result in the termination or acceleration of, create in any party the right to accelerate, terminate, modify or cancel, or require any notice under the Company’s or any of its Subsidiaries’ Declaration of Trust, articles of organization, bylaws or limited liability agreement, as applicable, or any contract, agreement, arrangement, indenture, mortgage, loan agreement,

 

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lease, sublease, license, sublicense, franchise, permit, obligation or instrument to which the Company or any of its Subsidiaries is a party or by which they are bound or affected or to which any of their assets are bound or affected, (b) result in the creation or imposition of any Lien upon any assets or any of the capital stock of the Company or any of its Subsidiaries, (c) require any authorization, consent, approval, exemption or other action by or notice to any court, other governmental body or other Person or entity under, the provisions of any law, statute, rule, regulation, judgment, order or decree or any contract, agreement, arrangement, lease, sublease, license, sublicense, franchise, permit, indenture, mortgage, obligation or instrument to which the Company or any of its Subsidiaries is subject, or by which the Company or any of its Subsidiaries is bound or affected or to which the Company or any of its Subsidiaries or any of their assets are bound or affected or (d) violate or require any consent or notice under any law, statute, regulation, rule, judgment, decree, order, stipulation, injunction, charge or other restriction of any government, governmental agency or court to which the Company or any of its Subsidiaries or any of their assets are subject, or by which the Company or any of its Subsidiaries or any of their assets are bound or affected. Except as set forth on the Restrictions Schedule , no permit, consent, approval or authorization of, declaration to or filing with, or notice to, any governmental authority or any third party is required in connection with the execution, delivery or performance by the Company of this Agreement or the other agreements contemplated hereby, or the consummation by the Company of any the transactions contemplated hereby or thereby.

 

5.5 Financial Statements .

 

(a) The attached “ Financial Statements Schedule ” contains the following financial statements (the “ Financial Statements ”):

 

(i) the audited balance sheets of the Company and its Subsidiaries as of December 31, 2003 (the “ 2003 Balance Sheet ”), 2002 and 2001, and the related audited statements of income, changes in shareholders’ equity and cash flows for each of the three years then ended; and

 

(ii) the unaudited balance sheet of the Company and its Subsidiaries as of June 30, 2004 (the “ Latest Balance Sheet ”) and the related statement of income for the six-month period then ended.

 

Except as set forth in the Financial Statements Schedule, each of the foregoing Financial Statements (including in all cases the notes thereto, if any) is accurate and complete in all material respects, is consistent with the books and records of the Company and its Subsidiaries (which, in turn, are accurate and complete in all material respects) and presents fairly the financial condition, results of operations and cash flows of the Company and its Subsidiaries in accordance with GAAP throughout the periods covered thereby except as may otherwise be indicated in the notes thereto, if any, and except, in the case of the Financial Statements for the six-month period ended June 30, 2004, for the absence of footnotes.

 

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(b) All accounts receivable of the Company and its Subsidiaries (A) are bona fide receivables incurred in the ordinary course of business, (B) are properly reflected on the Company’s and its Subsidiaries’ books and records in accordance with GAAP and are net of reserves for bad debt and (C) are not subject to any counterclaim, or a claim for a chargeback, deduction, credit, set-off or other offset other than as reflected on the Financial Statements by appropriate reserves against customer rebates, returns and other allowances. No Person has any Lien, other than pursuant to the Financing Documents, on any accounts receivable or any part thereof, and no agreement for deduction, free goods or services, discount or other deferred price or quantity adjustment has been made by the Company or any of its Subsidiaries with respect to any accounts receivable other than in the ordinary course of business.

 

(c) All of the Company’s and its Subsidiaries’ inventory (including raw materials, work in progress and finished goods, and (solely with respect to clause (A)) including any Off-Balance-Sheet Inventory located in or on any premises of the Company or its Subsidiaries) (A) represents a bona fide asset and is in good condition and repair, and except to the extent of the reserves, are not obsolete or defective, and is of the quality and quantity so as to be useable or saleable, (B) is properly reflected on their books and records in accordance with GAAP and are net of adequate reserves for items that are obsolete, slow-moving, damaged or below-standard quality and (C) is not subject to any counterclaim, or a claim for a charge back, deduction, credit, set-off or other offset, other than as reflected by appropriate inventory reserves. No Person has any Lien, other than pursuant to the Financing Documents, on any inventory or any part thereof.

 

5.6 Absence of Undisclosed Liabilities . Except as set forth on the attached Undisclosed Liabilities Schedule , neither the Company nor any Subsidiary has any obligation or liability (in any case, whether known or unknown, asserted or unasserted, absolute or contingent, accrued or unaccrued, liquidated or unliquidated or due or to become due) arising out of or related to facts, events, transactions, occurrences or actions or inactions arising on or prior to the Closing Date, other than: (i) liabilities and obligations set forth on the face of the 2003 Balance Sheet, (ii) liabilities and obligations which have arisen since the date of the 2003 Balance Sheet in the ordinary course of business (none of which is a liability resulting from, arising out of, relating to, in the nature of, or caused by any breach of contract, breach of warranty, tort, infringement, violation of law, environmental matter, claim or lawsuit) and (iii) other liabilities and obligations expressly disclosed in the other schedules to this Agreement.

 

5.7 No Material Adverse Changes . Except as set forth on the attached Developments Schedule , since the date of the 2003 Balance Sheet, there has been no event or change that has had or would reasonably be expected to have a Material Adverse Effect.

 

5.8 Absence of Certain Developments .

 

(a) Except as set forth in the attached Further Developments Schedule , since the date of the 2003 Balance Sheet, the Company and each of its Subsidiaries has conducted its business only in the ordinary course of business consistent with past custom and practice

 

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(including, without limitation, with respect to the offering of special sales or incentive programs or the filling of its distribution channels), has incurred no liabilities other than in the ordinary course of business consistent with past custom and practice, and neither the Company nor any of its Subsidiaries has:

 

(i) discharged or satisfied any material Lien or paid any material obligation or liability, other than current liabilities paid in the ordinary course of business consistent with past custom and practice, or canceled, compromised, waived or released any material right or material claim;

 

(ii) sold, assigned, licensed or transferred any of its assets (except for sales of (A) inventory in the ordinary course of business consistent with past custom and practice or (B) obsolete equipment in the ordinary course of business consistent with past custom and practice where the value of such obsolete equipment does not exceed $25,000 individually or $100,000 in the aggregate for all such sales) or mortgaged, pledged or subjected them to any material Lien, except for Permitted Liens, or canceled without fair consideration any material debts or material claims owing to or held by it;

 

(iii) sold, assigned, transferred, abandoned or permitted to lapse any Government Licenses which, individually or in the aggregate, are material to the Business, or any of the Proprietary Rights or other intangible assets, or disclosed any material proprietary confidential information to any Person, except in the ordinary course of business consistent with past custom and practice, or granted any license or sublicense of any rights under or with respect to any Proprietary Rights;

 

(iv) made or granted any bonus or any wage or salary increase to any employee, trustee, officer or director, or made any other material change in employment terms for any employee, trustee, officer or director;

 

(v) made or granted any increase in, or amended or terminated, any existing plan, program, policy or arrangement, including without limitation, any Plan (as defined in Section 5.18(a) ), employee benefit plan or arrangement or adopted any new employee benefit plan or arrangement, or amended or renegotiated any existing collective bargaining agreement or entered into any new collective bargaining agreement or multiemployer plan, or except as may be required under applicable law;

 

(vi) conducted its cash management customs and practices (including, without limitation, the collection of receivables, payment of payables, maintenance of inventory control and pricing and credit practices (including, without limitation, extension of credit terms or sales discount programs)) other than in the usual and ordinary course of business consistent with past custom and practice;

 

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(vii) made any capital expenditures or commitments therefor such that the aggregate outstanding amount of unpaid obligations and commitments with respect thereto shall comprise in excess of $50,000 on the Closing Date;

 

(viii) made any loans or advances to, or Guaranties for the benefit of, or entered into any transaction with any Insider, except for the transactions contemplated by this Agreement and for advances consistent with past custom and practice made to employees, trustees, officers and directors for travel expenses incurred in the ordinary course of business or entered into any transaction, arrangement or contract (including, without limitation, any transfer of any assets or placing a Lien on any assets) except on an arms-length basis in the ordinary course of business in accordance with past custom and practice;

 

(ix) suffered any extraordinary loss, damage, destruction or casualty loss or waived any rights of material value, whether or not covered by insurance and whether or not in the ordinary course of business or consistent with past custom and practice;

 

(x) received notification, or become aware of facts which would lead a reasonable person to believe, that any material customer or supplier will stop or decrease in any material respect the rate of business done with the Company or any of its Subsidiaries or recorded any sales revenues pursuant to transactions in which the purchaser of such products has the right to return such products at a future date (other than pursuant to the terms and conditions of the Company’s and its Subsidiaries’ standard warranty terms);

 

(xi) issued or sold or agreed to issue or sell any notes, bonds or other debt securities or any equity securities or any securities convertible, exchangeable or exercisable into any equity securities;

 

(xii) borrowed any amount or incurred or become subject to any material liabilities, except current liabilities incurred in the ordinary course of business and liabilities under contracts entered into in the ordinary course of business consistent with past custom and practices;

 

(xiii) declared, set aside or paid any dividend or distribution of cash or other property to any shareholders of the Company or stockholders of any of any of its Subsidiaries with respect to its shares of beneficial ownership or stock, as the case may be (except that a wholly-owned Subsidiary of the Company may declare and pay a cash dividend to the Company) or purchased, redeemed or otherwise acquired any shares of its shares of beneficial interest or capital stock or any warrants, options or other rights to acquire its shares of beneficial interest or stock, or made any other payments to any shareholder of the Company or any of its Subsidiaries;

 

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(xiv) made any capital investment in, any loan to, or any acquisition of the securities or assets of any other Person or taken any steps to incorporate any Subsidiary;

 

(xv) amended or authorized the amendment of the Declaration of Trust, articles of organization, bylaws or other organizational documents, as applicable, of the Company or any of its Subsidiaries;

 

(xvi) entered into any other material transaction, other than in the ordinary course of business consistent with past custom and practice; or

 

(xvii) agreed or committed to any of the foregoing.

 

(b) No party (including the Company or any of its Subsidiaries) has accelerated, terminated, modified or canceled any contract, lease, sublease, license, sublicense or other agreement set forth on the attached “ Contracts Schedule .”

 

5.9 Title and Condition of Properties .

 

(a) Owned Real Property . Neither the Company nor any of its Subsidiaries owns any real property.

 

(b) Leased Real Property .

 

(i) Leased Real Property . The attached Leased Real Property Schedule sets forth the address of each Leased Real Property and a list of all Leases of the Company and its Subsidiaries (including all amendments, extensions, renewals, guaranties and other agreements with respect thereto) for each Leased Real Property. The Company has delivered to Merger Corp. a true and complete copy of each such Lease document set forth in Leased Real Property Schedule . Except as set forth in the Leased Real Property Schedule , with respect to each of the Leases: (a) such Lease is legal, valid, binding, enforceable and in full force and effect; (b) the Merger does not require the consent of any other party to such Lease, will not result in a breach of or default under such Lease, or otherwise cause such Lease to cease to be legal, valid, binding, enforceable and in full force and effect on identical terms following the Closing; (c) the Company is not in breach or default under such Lease and no event has occurred or circumstance exists which, with the delivery of notice, passage of time or both, would constitute such a breach or default or permit the termination, modification or acceleration of rent under such Lease; and, to the Company’s Knowledge, any other party to the Lease is not in breach or default under such Lease and no event has occurred or circumstance exists which, with the delivery of notice, passage of time or both, would constitute such a breach or default or permit the termination, modification or acceleration of rent under such Lease; (d) there are no disputes with respect to such Lease; (e) no security deposit or portion thereof deposited with respect such Lease has been applied in respect of a breach or default under such Lease which has not be redeposited in full; (f) there are no forbearance programs in effect with respect to such Lease; and (g) the Company has not

 

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assigned, subleased, mortgaged, deeded in trust or otherwise transferred or encumbered such Lease or any interest therein.

 

(ii) Leasehold Improvements . The Company has good and valid title to the Leased Real Property, which shall be free and clear of all Liens as of the Closing Date, except Permitted Encumbrances. The Leasehold Improvements are in good condition and repair and sufficient for the continued operation of the Business. There are no structural deficiencies or latent defects affecting any of the Leasehold Improvements and, to the Company’s Knowledge, there are no facts or conditions affecting any of the Leasehold Improvements which would, individually or in the aggregate, interfere in any material respect with the use or occupancy of the Leasehold Improvements or any portion thereof in the continued operation of the Business.

 

(iii) Real Property Used in the Business . The Leased Real Property identified on the Leased Real Property Schedule and the Leasehold Improvements (collectively, the “ Real Property ”) comprise all of the real property used by the Company and its Subsidiaries in the operation of the Business.

 

(c) Title and Condition of Assets . The Company or one of its Subsidiaries owns good and marketable title, free and clear of all Liens, other than Permitted Liens, to all of the personal, tangible and intangible property (including all Proprietary Rights) and assets shown on the Latest Balance Sheet or acquired thereafter. At the Closing, the assets of the Company and its Subsidiaries will include all of those assets (personal, tangible and intangible, including all Proprietary Rights) necessary to conduct the Business as presently conducted and as presently proposed to be conducted and all assets used by the Business during the twelve months prior to the Closing Date (other than inventory used, sold or consumed in the ordinary course of business to non-affiliated third parties or worn out or obsolete fixed assets disposed of in the ordinary course of business) and will, to the extent utilized by a labor force not substantially larger than the labor force employed by the Company and its Subsidiaries o