MEMORANDUM
PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT
TO: Sandra K. Liu, General Counsel, Crestline Packaging Solutions LLC Harrison Wexford, Partner, Calderwood & Harkness LLP
FROM: Megan Chu, Associate, Calderwood & Harkness LLP Derek Okonkwo, Associate, Calderwood & Harkness LLP
DATE: May 28, 2025
RE: Employee and Benefits Transition Issues — Acquisition of Substantially All Assets of Allegheny Valley Packaging, Inc.
Matter No.: 1006-00006
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I. Executive Summary
The purpose of this memorandum is to analyze the employee and benefits transition issues arising from Crestline Packaging Solutions LLC's ("CPS" or "Buyer") proposed acquisition of substantially all of the assets of Allegheny Valley Packaging, Inc. ("AVP" or "Seller") for a purchase price of $180,000,000, pursuant to the Asset Purchase Agreement currently under negotiation (the "APA"). This memorandum is intended to identify key legal and practical considerations, flag areas of risk, and provide recommendations to the CPS deal team as the parties move toward execution and closing.
As a threshold matter, it is critical to note that the proposed transaction is structured as an asset purchase rather than a stock purchase. This structural distinction has profound implications for the employee and benefits analysis. Unlike a stock acquisition, in which the continues as a going concern and employment relationships and benefit plan sponsorships remain in place by operation of law, an asset purchase does not effectuate an automatic transfer of employment relationships or benefit plans. Each employee of the Seller must receive and accept a separate offer of employment from the Buyer in order to become an employee of the Buyer, and benefit plans sponsored by the Seller do not transfer to the Buyer unless expressly assumed.
AVP has approximately 340 employees across two facilities in western Pennsylvania: approximately 290 employees at its primary manufacturing facility located at 250 Industrial Boulevard, Butler, PA 16001, and approximately 50 employees at its secondary facility located at 1480 Conneaut Lake Road, Meadville, PA 16335. Of these employees, approximately 185 hourly production and maintenance workers at the Butler facility are covered by a collective bargaining agreement with the International Paperworkers Union Local 814 (the "CBA"). The remaining approximately 155 employees are non-union salaried and hourly employees working across both facilities.
This memorandum addresses the following key issues:
1. Offer of Employment to Substantially All AVP Employees. CPS intends to extend offers of employment to substantially all of AVP's approximately 340 employees, effective as of the Closing Date, and the APA should be drafted to reflect this commitment while preserving CPS's flexibility on terms and conditions of employment.
2. Assumption of the Collective Bargaining Agreement with International Paperworkers Union Local 814. CPS will expressly assume the CBA as an Assumed Contract under the APA, binding CPS to its terms through the March 31, 2027 expiration date. This memorandum analyzes the successorship doctrine under federal labor law and the practical implications of CPS's assumption of the CBA.
3. Non-Assumption of AVP's 401(k) Plan. CPS will not assume the Allegheny Valley Packaging 401(k) Profit Sharing Plan. This memorandum addresses the rollover and distribution issues that will arise for transitioning employees, as well as fiduciary and compliance considerations.
4. WARN Act Compliance. Both the federal Worker Adjustment and Retraining Notification Act and the Pennsylvania Worker Notification Act impose notice requirements in connection with plant closings and mass layoffs. This memorandum analyzes the applicability of these statutes to the proposed transaction and recommends strategies to avoid triggering notice obligations.
5. Treatment of Underfunded Pension Obligations. AVP has underfunded pension obligations estimated at approximately $3,100,000. These obligations will be treated as an Excluded Liability under the APA, and this memorandum addresses the controlled group, ERISA, and PBGC considerations relevant to this treatment.
6. Union Notification and Successorship Requirements. This memorandum analyzes the legal requirements for notifying the International Paperworkers Union Local 814 of the transaction and CPS's obligations as a successor employer.
Buyer's counsel in this transaction is Calderwood & Harkness LLP, with Harrison Wexford serving as the Responsible Partner. Seller's counsel is Broadmoor Strauss & Kline LLP, with Nathan R. Feldstein serving as Lead Partner. CPS's accounting and diligence advisor, Hargrove Thornton LLP (Steven M. Raines, Engagement Partner), has reviewed benefits-related financial data and identified the pension underfunding discussed herein.
II. Overview of AVP's Workforce
A. Employee Census
Based on information provided by AVP during the due diligence process, including employee census data, organizational charts, and payroll records, AVP currently employs approximately 340 individuals across its two western Pennsylvania facilities. The workforce is distributed as follows:
• Butler Facility (250 Industrial Boulevard, Butler, PA 16001): Approximately 290 employees, including both hourly production and maintenance workers and salaried management, administrative, and support staff. This is AVP's primary manufacturing facility and houses the majority of its production operations, including corrugated container manufacturing, folding carton production, and specialty coating lines.
• Meadville Facility (1480 Conneaut Lake Road, Meadville, PA 16335): Approximately 50 employees, including both hourly and salaried personnel. The Meadville facility serves as a secondary production site and distribution point, with a smaller production footprint focused primarily on food-grade packaging operations.
Of AVP's total workforce, approximately 185 hourly production and maintenance employees at the Butler facility are covered by the CBA with the International Paperworkers Union Local 814. These union-represented employees constitute the largest single category of AVP's workforce and are critical to ongoing production operations at the Butler facility. The remaining approximately 155 employees are non-union salaried and hourly employees distributed across both the Butler and Meadville facilities.
Key management personnel identified during due diligence include the following:
• Gerald W. Horvath — President and Founder of AVP, age 68. Mr. Horvath holds a 72% ownership interest in AVP and has served as President since founding the company in 1989. Mr. Horvath intends to retire following the closing of the transaction and will not be offered employment by CPS. A separate Non-Competition and Non-Solicitation Agreement will be executed with Mr. Horvath in connection with the closing.
• Michael G. Horvath — Vice President of Operations, age 41. Mr. Horvath holds a 10% ownership interest in AVP and has served in various operational capacities since joining the company in 2009. Mr. Horvath is expected to remain with the business following the closing and is considered a key employee for purposes of operational continuity and customer relationship management. CPS will enter into a separate Non-Competition and Non-Solicitation Agreement and a Consulting Agreement with Mr. Horvath for post-closing transition assistance.
• Diane L. Pulaski — Controller. Ms. Pulaski oversees AVP's financial operations, including accounts payable, accounts receivable, payroll, and financial reporting. Her continued involvement during the transition period will be important for financial data migration and working capital reconciliation.
B. Employee Categories
AVP's workforce can be further segmented into the following functional categories:
• Production and Manufacturing — Hourly (Union): Approximately 185 employees at the Butler facility, all represented by International Paperworkers Union Local 814. These employees operate production lines, perform maintenance functions, handle materials, and perform quality control activities related to the manufacture of corrugated containers, folding cartons, specialty chemical-resistant coatings, and food-grade packaging products.
• Production and Manufacturing — Hourly (Non-Union): The remaining hourly employees at the Butler and Meadville facilities who are not covered by the CBA. These employees perform production, warehousing, shipping, receiving, and general labor functions.
• Salaried Management and Administrative: This category includes senior management, middle management, human resources, finance and accounting, legal and compliance, and general administrative personnel across both facilities.
• Sales and Customer Service: AVP maintains a dedicated sales and customer service team responsible for managing existing customer relationships, developing new business, processing orders, and providing technical support to customers.
The key products manufactured by AVP's workforce include corrugated containers, folding cartons, specialty chemical-resistant coatings, and food-grade packaging. AVP's production capabilities in specialty chemical-resistant coatings and food-grade packaging are of particular strategic interest to CPS, as they complement CPS's existing product offerings and provide entry into adjacent market segments.
C. CPS's Current Workforce
For context, CPS currently operates six manufacturing and distribution plants across Ohio, Indiana, and Kentucky, employing approximately 1,400 individuals. CPS's trailing twelve-month revenue is approximately $620,000,000. CPS is a portfolio company of Ridgeway Capital Partners Fund III, LP, which acquired CPS in 2021 for approximately $475,000,000. Since the Ridgeway acquisition, CPS has completed two prior bolt-on acquisitions, both of which involved non-union workforces and were structured as asset purchases.
The integration of AVP's approximately 340 employees will bring CPS's total headcount to approximately 1,740 employees across eight facilities in four states. The addition of the two Pennsylvania facilities and the unionized workforce at Butler represents new operational considerations for CPS, as CPS has not historically operated union facilities. These considerations are discussed in greater detail in Sections IV and VIII below.
III. Crestline's Plan to Extend Offers of Employment
A. General Approach
Under the terms of the APA, CPS intends to extend offers of employment to substantially all of AVP's approximately 340 employees, with employment offers to be effective as of the Closing Date (currently estimated to be July 31, 2025). The APA will define "Transferred Employees" as those AVP employees who receive and accept offers of employment from CPS.
Because this transaction is structured as an asset purchase, and not as a stock deal, AVP's employees will not automatically become employees of CPS by operation of law. The employment relationship between each AVP employee and AVP will terminate as of the Closing Date, and a new employment relationship between each Transferred Employee and CPS (or a designated subsidiary of CPS) will commence simultaneously. Each AVP employee must receive an individual offer of employment from CPS and must affirmatively accept that offer in order to become a CPS employee.
This structure requires careful coordination between the parties to ensure that the transition occurs seamlessly, without any gap in employment that could give rise to WARN Act issues (discussed in Section VI), employee attrition, or disruption to ongoing production operations. The APA should include covenants requiring CPS to make offers of employment to substantially all AVP employees and requiring AVP to cooperate in facilitating the transition, including providing access to employee records, coordinating communications, and assisting with onboarding logistics.
B. Terms of Employment Offers
The terms of the employment offers extended by CPS to AVP employees are a significant commercial and legal consideration. The APA should address the following terms, which are subject to ongoing negotiation between CPS and AVP:
• Base Salary and Wage Rates. CPS should commit to offering Transferred Employees base salary or hourly wage rates that are comparable to those currently paid by AVP. For union-represented employees, the applicable wage rates are set forth in the CBA and are not subject to modification during the term of the CBA (which expires March 31, 2027). For non-union employees, CPS should commit to maintaining comparable base compensation for a specified period post-closing, typically twelve months.
• Position and Location. Transferred Employees should generally be offered positions that are comparable to their current positions with AVP and should continue to be assigned to the same facility location (i.e., Butler or Meadville) at which they currently work. Any planned changes to facility operations, consolidations, or relocations should be analyzed in advance for WARN Act and CBA compliance implications.
• Benefits Eligibility. CPS should provide Transferred Employees with benefits that are, in the aggregate, comparable to the benefits currently provided by AVP. The APA should specify whether the applicable standard is "substantially comparable" benefits or "comparable in the aggregate" benefits, and should specify the duration of the commitment (typically twelve months from the Closing Date). We recommend using the "comparable in the aggregate" formulation, as it provides CPS with greater flexibility to structure its benefit offerings across its existing plan platforms without being required to match each individual benefit feature of AVP's current plans.
• Credit for Prior Service. CPS will provide Transferred Employees with credit for their years of service with AVP for purposes of eligibility to participate in CPS benefit plans, vesting under CPS benefit plans, and accrual of paid time off (vacation, sick leave, and personal days) under CPS's paid time off policies. This prior service credit is an important retention tool and helps ensure a smooth transition for employees who may be wary of losing seniority and benefits in connection with the transaction.
• Accrued Vacation, Sick Leave, and Paid Time Off. CPS will not assume any liability for accrued but unused vacation, sick leave, or paid time off of AVP employees as of the Closing Date. This accrued liability is an item for the working capital adjustment under the APA. The Target Net Working Capital of $12,400,000 includes accrued employee liabilities, and the post-closing working capital true-up mechanism will capture any variation from this target. AVP is responsible for paying out or otherwise satisfying all accrued vacation, sick leave, and paid time off obligations of its employees as of the Closing Date, to the extent required by applicable law and AVP's policies.
The precise formulation of CPS's commitment with respect to employee benefits is an important negotiation point. Seller's counsel, Broadmoor Strauss & Kline LLP, will likely push for a "substantially comparable" standard, which would require CPS to provide each Transferred Employee with a benefits package that is substantially similar to the employee's current benefits package, on a plan-by-plan or benefit-by-benefit basis. We recommend that CPS negotiate for a "comparable in the aggregate" standard for a period of twelve months following the Closing Date, which would allow CPS to evaluate its overall benefits offerings across the combined workforce and make adjustments as appropriate, provided that the aggregate value of benefits provided to Transferred Employees is not materially less than the aggregate value of benefits previously provided by AVP.
C. Key Employees — Gerald W. Horvath and Michael G. Horvath
The transition of AVP's key management personnel requires particular attention. As noted above, AVP's two most senior executives are members of the Horvath family, who collectively hold 82% of AVP's outstanding equity.
Gerald W. Horvath (President and Founder, 72% Shareholder). Mr. Horvath intends to retire following the closing of the transaction and will not be offered employment by CPS. As the founder and principal shareholder of AVP, Mr. Horvath possesses extensive knowledge of AVP's business operations, customer relationships, supplier arrangements, and competitive dynamics. To protect CPS's investment, CPS will require Mr. Horvath to execute a Non-Competition and Non-Solicitation Agreement prohibiting him from competing with the acquired business or soliciting AVP's employees or customers for a period of five years following the Closing Date. The terms and scope of Mr. Horvath's non-competition obligations are being negotiated separately and will be addressed in a separate memorandum.
Michael G. Horvath (Vice President of Operations, 10% Shareholder). Mr. Horvath is expected to remain with the business following the closing and is considered a critical employee for purposes of operational continuity. AVP's top ten customers account for approximately 62% of AVP's trailing twelve-month revenue of approximately $95,000,000, and Mr. Horvath has developed direct relationships with many of these key accounts. His continued presence at the Butler facility will be important for maintaining customer confidence during the transition period. CPS will enter into a Non-Competition and Non-Solicitation Agreement with Mr. Horvath on terms substantially similar to those applicable to his father, as well as a separate Consulting Agreement pursuant to which Mr. Horvath will provide post-closing transition assistance for a period to be determined. The terms of these agreements are being negotiated separately.
The retention of Michael G. Horvath and other key management personnel is a significant risk mitigation measure for CPS. The loss of key employees during the transition period could result in disruption to customer relationships, production operations, and institutional knowledge. CPS should consider whether additional retention incentives, such as stay bonuses or retention agreements, are appropriate for other members of AVP's management team, including Diane L. Pulaski (Controller) and other individuals identified during the due diligence process.
D. Employees Who Do Not Receive or Accept Offers
AVP, as the Seller, will retain all liability for employees who are not offered employment by CPS or who decline CPS's offer of employment. Any such employees will remain employees of AVP and will be subject to AVP's termination, severance, and related obligations. The APA should clearly allocate this responsibility to AVP and include indemnification provisions to protect CPS from any claims arising from AVP's treatment of employees who do not become Transferred Employees.
Any terminations of AVP employees in connection with the transaction — whether because CPS does not extend offers to certain employees or because employees decline CPS's offers — must be analyzed under the federal WARN Act and the Pennsylvania Worker Notification Act. The WARN Act analysis applicable to this transaction is discussed in detail in Section VI below.
To the extent that AVP maintains any severance policies, change-of-control arrangements, or retention agreements that would be triggered by the termination of AVP employees in connection with the transaction, CPS should ensure that these obligations are identified during due diligence and are treated as Excluded Liabilities under the APA, with responsibility remaining with AVP.
IV. Collective Bargaining Agreement — International Paperworkers Union Local 814
A. Overview of the CBA
AVP is a party to a Collective Bargaining Agreement with the International Paperworkers Union Local 814 (the "CBA"). The key terms of the CBA, based on the information obtained during due diligence to date, are summarized as follows:
• Parties: Allegheny Valley Packaging, Inc. and International Paperworkers Union Local 814.
• Effective Date: April 1, 2024.
• Expiration Date: March 31, 2027.
• Covered Employees: Approximately 185 hourly production and maintenance employees at the Butler facility.
• Scope: The CBA governs wages, hours, benefits, seniority, grievance and arbitration procedures, overtime, job classifications, and work rules applicable to the bargaining unit employees at the Butler facility.
As of the estimated Closing Date of July 31, 2025, the CBA will have approximately 20 months remaining until its March 31, 2027 expiration. This timeframe is significant because CPS, upon assuming the CBA, will be bound by its terms for the remaining duration and should begin planning for CBA renewal negotiations well in advance of the expiration date.
B. Successorship Doctrine — Asset Purchase Context
Under federal labor law, specifically the National Labor Relations Act ("NLRA"), a purchaser of assets may be deemed a "successor employer" if it satisfies a two-part test: (1) the purchaser hires a majority of the predecessor employer's bargaining unit employees, and (2) the purchaser continues substantially the same business operations as the predecessor. Where both conditions are met, the successor employer is obligated to recognize and bargain with the incumbent union as the representative of the bargaining unit employees.
The leading authority on the successorship doctrine is the Supreme Court's decision in NLRB v. Burns International Security Services, Inc., 406 U.S. 272 (1972). In Burns, the Court held that a successor employer is required to recognize the union and bargain in good faith but is generally not bound by the substantive terms of the predecessor's collective bargaining agreement. Under Burns, a successor employer is free to set initial terms and conditions of employment, provided it bargains with the union in good faith regarding those terms.
However, there is a critical exception to the Burns rule: where the successor employer expressly assumes or adopts the predecessor's collective bargaining agreement, the successor is bound by the substantive terms of that agreement. This exception is directly applicable here because CPS intends to expressly assume the CBA as an Assumed Contract under the APA.
In this transaction, CPS will almost certainly be deemed a successor employer under the Burns framework: CPS intends to hire a majority (indeed, substantially all) of AVP's bargaining unit employees, and CPS will continue substantially the same manufacturing operations at the Butler facility. Moreover, because CPS is expressly assuming the CBA, the question of successorship is largely academic — CPS will be bound by the CBA's terms regardless of whether it would independently qualify as a successor employer.
C. Assumption of CBA as Assumed Contract
CPS will assume the CBA as one of the Assumed Contracts under the Assignment and Assumption Agreement to be executed at closing. The CBA is one of approximately 47 material contracts that CPS has identified for assumption as part of the acquired assets.
The assumption of the CBA means that CPS will be contractually bound by all of the CBA's substantive terms for the remaining duration of the agreement, through the March 31, 2027 expiration date. This includes, without limitation, the following obligations:
• Honoring existing wage rates and wage scales applicable to bargaining unit employees;
• Maintaining the health and welfare benefits specified in the CBA for covered employees;
• Recognizing seniority accrual and seniority-based rights (including job bidding, layoff and recall rights, and vacation accrual);
• Following the grievance and arbitration procedures established in the CBA;
• Complying with all work rules, job classification requirements, overtime provisions, and other terms of the CBA.
The assumption of the CBA may require consent or notification, depending on the specific terms of the CBA. Many collective bargaining agreements contain "successors and assigns" clauses that purport to bind successor entities to the terms of the agreement. Additionally, the CBA may contain change-of-control provisions, consent requirements, or provisions that are specifically triggered by a sale of substantially all assets of the employer. CPS should review the CBA carefully for such provisions and comply with any applicable notice or consent requirements.
We note that our review of the complete CBA is currently in progress. A redacted copy of the CBA was provided by Seller's counsel on May 19, 2025, and we expect to receive the unredacted version, together with all side letters, memoranda of understanding, and amendments, by June 2, 2025. Our analysis of specific CBA provisions will be supplemented upon receipt and review of the complete agreement.
D. Key CBA Provisions to Review
In connection with CPS's assumption of the CBA, we recommend a detailed review of the following CBA provisions, each of which has implications for the transaction and the post-closing integration:
• Management Rights Clause. The management rights clause defines the scope of CPS's authority to make unilateral decisions regarding business operations, staffing, production methods, and other management prerogatives without the obligation to bargain with the union. A broad management rights clause will provide CPS with greater operational flexibility; a narrow clause may constrain CPS's ability to implement changes at the Butler facility during the remaining CBA term.
• Successors and Assigns Clause. This clause, if present, may purport to bind successors and assigns of AVP to the terms of the CBA. While CPS is voluntarily assuming the CBA, the scope and enforceability of any successors and assigns clause should be understood.
• Subcontracting and Outsourcing Restrictions. Many collective bargaining agreements contain provisions that restrict or regulate the employer's ability to subcontract or outsource bargaining unit work. If CPS contemplates any operational changes at the Butler facility that could involve subcontracting or outsourcing, these provisions must be reviewed carefully.
• Seniority Provisions. The CBA's seniority provisions will determine the order of layoff and recall, job bidding rights, vacation scheduling, and other seniority-based entitlements. CPS should understand whether the ownership change affects seniority accrual or seniority-related rights under the CBA.
• Health and Welfare Benefit Obligations. The CBA specifies the health and welfare benefits to which covered employees are entitled. CPS must ensure that the health and welfare benefits it provides to bargaining unit employees following the closing are consistent with the CBA's requirements.
• Pension and Retirement Benefit Provisions. The CBA may contain provisions relating to pension or retirement benefits for covered employees that are distinct from the 401(k) plan discussed in Section V. Any such provisions should be reviewed in conjunction with the pension underfunding analysis discussed in Section VII.
• Grievance and Arbitration Procedures. The CBA establishes a multi-step grievance and arbitration procedure for resolving disputes between the employer and the union or individual employees. CPS should understand these procedures and ensure that its management team at Butler is prepared to administer them. Additionally, any pending grievances or arbitration proceedings under the CBA should be identified and evaluated (see Section VIII.D below).
• No-Strike and No-Lockout Provisions. The CBA likely contains provisions prohibiting strikes by the union and lockouts by the employer during the term of the agreement. CPS should confirm the existence and scope of these provisions, which provide important labor peace protections during the remaining CBA term.
• Plant Closing, Relocation, and Layoff Provisions. The CBA may contain provisions governing plant closings, relocations, or layoffs that supplement or exceed the requirements of the federal WARN Act. CPS should review these provisions to understand any additional obligations that may apply in the event CPS contemplates changes to Butler facility operations during the CBA term.
E. Practical Considerations
The assumption of the CBA and the integration of AVP's unionized workforce at the Butler facility present several practical considerations for CPS:
CPS's Lack of Union Experience. CPS has not historically operated union facilities. Neither of CPS's two prior bolt-on acquisitions involved unionized workforces, and CPS's existing six facilities in Ohio, Indiana, and Kentucky are all non-union operations. The addition of the Butler facility — with approximately 185 union-represented employees — will require CPS to develop or acquire labor relations expertise. We recommend that CPS retain experienced labor relations counsel to provide ongoing guidance on CBA compliance, grievance administration, and preparation for CBA renewal negotiations in advance of the March 31, 2027 expiration.
Pre-Closing Outreach to Union Leadership. We recommend that CPS, in consultation with counsel, conduct pre-closing outreach to the leadership of International Paperworkers Union Local 814. Early engagement with the union can help build a constructive relationship, manage employee expectations, reduce uncertainty among bargaining unit employees, and minimize the risk of labor disruption during the transition period. The content and timing of this outreach should be carefully coordinated with counsel and with AVP. Section VIII below provides more detailed guidance on union notification requirements.
Management Training. CPS should ensure that its management personnel who will be responsible for the Butler facility — whether transferred from AVP or deployed from CPS's existing operations — receive appropriate training on CBA compliance. This training should cover the CBA's work rules, grievance procedures, seniority provisions, management rights, and other provisions that govern the day-to-day employment relationship with bargaining unit employees.
V. Employee Benefit Plans — Non-Assumption of 401(k) Plan
A. AVP's 401(k) Plan
AVP sponsors a 401(k) retirement savings plan known as the Allegheny Valley Packaging 401(k) Profit Sharing Plan (the "AVP 401(k) Plan"). The plan is administered by Patriot Plan Administrators LLC, a third-party administrator. Based on information obtained during due diligence, the AVP 401(k) Plan covers eligible AVP employees, including both union and non-union employees, subject to the plan's eligibility and participation terms.
The AVP 401(k) Plan is a tax-qualified defined contribution plan under Internal Revenue Code ("IRC") §401(a) and is subject to the requirements of the Employee Retirement Income Security Act of 1974 ("ERISA"). As a defined contribution plan, each participant maintains an individual account balance, and the plan's obligations to each participant are limited to the balance in that participant's account.
Because this transaction is structured as an asset purchase, the AVP 401(k) Plan does not automatically transfer to CPS. The plan is sponsored by AVP as the plan sponsor and employer, and CPS is not acquiring AVP's legal entity. Accordingly, the AVP 401(k) Plan will remain an obligation of AVP unless CPS affirmatively elects to assume it.
B. CPS's Decision Not to Assume the 401(k) Plan
CPS has determined that it will not assume the Allegheny Valley Packaging 401(k) Profit Sharing Plan. This decision is consistent with the approach taken in CPS's two prior bolt-on acquisitions and reflects several practical considerations:
• CPS already maintains its own 401(k) plan (or equivalent defined contribution plan) for its approximately 1,400 existing employees. Assuming the AVP 401(k) Plan would require CPS to administer two separate plans, increasing administrative complexity and cost.
• The AVP 401(k) Plan may have features, provisions, or investment options that differ from CPS's plan, creating potential for employee confusion and administrative burden.
• Non-assumption of the AVP 401(k) Plan avoids the assumption of any historical compliance issues, fiduciary liabilities, or operational deficiencies associated with the plan.
As a result of CPS's non-assumption, the AVP 401(k) Plan will remain the responsibility of AVP (or its successor or dissolved entity) following the closing. AVP will continue as the plan sponsor and will be responsible for all ongoing plan administration, compliance, and fiduciary obligations with respect to the AVP 401(k) Plan, including the processing of distributions and the preparation and filing of required annual reports.
Participants in the AVP 401(k) Plan who become Transferred Employees of CPS will be eligible to participate in CPS's own 401(k) plan (or equivalent defined contribution plan) in accordance with its terms. We recommend that CPS's plan be amended, if necessary, to provide for immediate eligibility for former AVP employees — or, at a minimum, to credit former AVP employees with their prior years of service at AVP for purposes of eligibility and vesting. This will facilitate a smooth benefits transition and help ensure that Transferred Employees do not experience a gap in retirement plan coverage.
C. Rollover and Distribution Issues
The non-assumption of the AVP 401(k) Plan gives rise to several rollover and distribution issues that must be addressed in connection with the transaction:
Rollover Opportunity. Former AVP employees who become CPS employees should be provided with the opportunity to roll over their account balances from the AVP 401(k) Plan into the CPS 401(k) plan (an "eligible rollover distribution" under IRC §402(c)) or into an individual retirement account ("IRA"). CPS's plan document should be reviewed to confirm that it permits the acceptance of rollover contributions from other qualified plans. If the CPS plan does not currently accept rollover contributions, an amendment may be required.
Distribution Notices. AVP, as the plan sponsor, is required to provide all participants who are entitled to receive a distribution from the AVP 401(k) Plan with the notice required under IRC §402(f). This notice, commonly referred to as the "§402(f) notice" or "special tax notice," informs participants of their rights with respect to the distribution, including the right to roll over the distribution to another eligible retirement plan or IRA, the tax consequences of a direct payment, and the mandatory 20% federal income tax withholding that applies to eligible rollover distributions that are not directly rolled over. ERISA also requires that the plan administrator provide certain disclosures in connection with the distribution, including information regarding the participant's right to defer distribution if the account balance exceeds $7,000.
Plan Termination. If the AVP entity will be dissolved following the closing of the transaction, AVP must commence plan termination procedures for the AVP 401(k) Plan. The termination of a tax-qualified plan requires that all plan assets be distributed to participants and beneficiaries, that all required tax filings be completed, and that the plan's qualified status be confirmed. AVP may seek a determination letter from the Internal Revenue Service confirming the plan's qualified status upon termination, or may rely on the pre-approved plan document (if applicable) to establish qualified status without a separate determination letter. The plan termination process typically takes several months and should be initiated promptly following the closing.
Outstanding Plan Loans. Participants in the AVP 401(k) Plan who have outstanding plan loans present a particular challenge. If the AVP 401(k) Plan is terminated, outstanding plan loans must be repaid in full or the outstanding loan balance will be treated as a "deemed distribution" subject to income tax and, if the participant is under age 59½, a 10% early distribution penalty. Participants who become CPS employees and wish to avoid a deemed distribution should be given the opportunity to repay their outstanding loans prior to the plan termination. In some cases, it may be possible to roll over the outstanding loan balance to the CPS plan, but this requires the CPS plan to accept loan rollovers and the participant to complete the rollover within the applicable 60-day rollover period. CPS should consult with its benefits counsel and plan administrator to determine whether this option is feasible.
D. Fiduciary and Compliance Considerations
CPS should not assume any fiduciary liability with respect to the AVP 401(k) Plan. The APA should include explicit representations by Seller regarding the following matters:
• The qualified status of the AVP 401(k) Plan under IRC §401(a) and the plan's compliance with all applicable requirements of the IRC and ERISA;
• The absence of any prohibited transactions under IRC §4975 or ERISA §406;
• The timely filing of all required annual reports (Form 5500) and the timely remittance of all employee and employer contributions;
• The absence of any pending or threatened claims, audits, investigations, or proceedings by the Internal Revenue Service, the Department of Labor, or any other governmental authority with respect to the plan; and
• The absence of any funding deficiencies, excise tax liabilities, or other obligations that could give rise to liability for CPS.
Additionally, the AVP 401(k) Plan is subject to audit requirements applicable to plans with 100 or more participants (the "large plan" filing requirements under ERISA §103 and DOL regulations). Given that AVP's total employee count of approximately 340 likely results in more than 100 plan participants, the AVP 401(k) Plan is required to file a Form 5500 accompanied by an independent auditor's report. We should confirm with AVP and Pendleton & Sawyer CPAs LLP (AVP's independent auditors) that the plan's annual filings are current and that all required audits have been completed.
VI. WARN Act Analysis
A. Federal WARN Act (Worker Adjustment and Retraining Notification Act)
The federal Worker Adjustment and Retraining Notification Act, 29 U.S.C. §§2101-2109 (the "WARN Act"), applies to employers with 100 or more employees. The WARN Act requires covered employers to provide at least 60 days' advance written notice to affected employees, their union representatives, and specified state and local government officials before undertaking a "plant closing" or "mass layoff."
Both AVP and CPS are covered employers for purposes of the WARN Act. AVP has approximately 340 employees, and CPS, following the acquisition, will have approximately 1,740 employees. The WARN Act's protections extend to hourly and salaried workers, including managers and supervisors, but do not cover business partners or independent contractors.
The penalty for violating the WARN Act can be significant: an employer that fails to provide the required 60-day notice is liable to each affected employee for back pay and benefits for each day of the violation, up to a maximum of 60 days. Additional penalties of up to $500 per day may be assessed for failure to provide notice to local government units. These penalties make WARN Act compliance an important consideration in any transaction that may result in employment losses.
B. Application to Asset Purchase
The WARN Act defines two types of triggering events:
• Plant Closing. A "plant closing" is the permanent or temporary shutdown of a "single site of employment," or one or more "facilities or operating units" within a single site of employment, resulting in an "employment loss" for 50 or more employees (excluding part-time employees) during any 30-day period.
• Mass Layoff. A "mass layoff" is a reduction in force at a single site of employment that does not result from a plant closing, but that results in an employment loss during any 30-day period for: (a) at least 33% of the active employees at the site (excluding part-time employees) and at least 50 employees; or (b) at least 500 employees (regardless of the percentage of the workforce affected).
In the context of an asset acquisition, the critical question is whether the transaction itself results in any "employment loss" that would trigger WARN Act notice obligations. An "employment loss" includes a termination of employment (other than a discharge for cause, voluntary departure, or retirement), a layoff exceeding six months, or a reduction in hours of work of more than 50% during each month of any six-month period.
If CPS extends offers of employment to substantially all AVP employees and operations continue at both the Butler and Meadville facilities without interruption, no WARN event should occur. The Department of Labor's regulations recognize that an "employment loss" does not occur if an employee receives a bona fide offer of employment from the purchasing entity, the offer is made prior to or at the time of the closing, and the employment commences within a reasonable period (generally, no more than six months) following the closing.
Risk Scenario. A significant risk arises if there is any temporal gap between AVP's termination of its employees and CPS's commencement of employment, even if the gap is only one day. Such a gap could technically constitute an "employment loss" under the WARN Act. To mitigate this risk, we strongly recommend that CPS structure its employment offers so that the effective date of employment with CPS is the same day as the Closing Date, with no interruption in employment status. From a practical standpoint, the offer letters should clearly state that employment with CPS commences immediately upon the closing, and the closing mechanics should be coordinated to ensure that employees do not experience even a brief period of unemployment.
Additionally, if CPS does not extend offers to a sufficient number of AVP employees, or if a significant number of employees decline CPS's offers and the aggregate number of employment losses at either the Butler or Meadville facility meets the WARN thresholds, notice obligations could be triggered. While CPS intends to offer employment to substantially all of AVP's employees, the risk of employee attrition during the period between signing and closing should be monitored. Pre-closing employee communications, discussed in Section IX.D below, can help mitigate this risk.
C. Which Party Bears WARN Liability
The allocation of WARN Act liability between Buyer and Seller is an important issue to address in the APA.
If AVP's operations cease and its employees experience an employment loss in connection with the closing, AVP (as the pre-closing employer) bears primary WARN Act liability. AVP is the entity that is terminating its employees, and AVP is the employer whose workforce is being affected by the transaction. Under the WARN Act, it is the employer that orders the plant closing or mass layoff that bears the obligation to provide notice.
The APA should include the following provisions to address WARN Act liability:
1. Seller's Covenant. AVP should covenant to comply with all WARN Act obligations for any pre-closing or closing-related employment losses, including providing any required 60-day notice to affected employees, their union representatives, and applicable state and local government officials.
2. Buyer's Covenant. CPS should covenant to extend offers of employment to substantially all AVP employees, effective as of the Closing Date, thereby minimizing the number of employees who experience an employment loss in connection with the transaction.
3. Indemnification. AVP should indemnify CPS for any WARN Act liability arising from AVP's failure to provide required notices in connection with the transaction. Conversely, CPS should indemnify AVP for any WARN Act liability arising from CPS's failure to extend offers as contemplated by the APA.
If CPS causes post-closing layoffs at either the Butler or Meadville facility within the WARN Act's 90-day look-back and look-forward aggregation periods, CPS will bear WARN Act liability as the new employer. CPS should be aware that employment losses occurring within 90 days of the Closing Date may be aggregated with any employment losses that occur at or around the closing for purposes of determining whether the WARN Act's numerical thresholds have been met.
D. Pennsylvania WARN Act (Pennsylvania Worker Notification Act)
Both the Butler and Meadville facilities are located in Pennsylvania. Pennsylvania has enacted a state mini-WARN Act — the Pennsylvania Worker Notification Act — that may impose additional or different notice requirements beyond those required by the federal WARN Act. State mini-WARN Acts may apply to smaller employers, impose longer notice periods, cover a broader range of triggering events, or provide for different or additional remedies.
We have not yet completed our analysis of the Pennsylvania Worker Notification Act's specific requirements as applied to this transaction. This analysis is an open item and is assigned to Derek Okonkwo, with a target completion date prior to APA execution. Our preliminary understanding is that the Pennsylvania statute may apply to employers with 100 or more employees and may require 60 days' written notice before a plant closing or mass layoff, consistent with the federal WARN Act's requirements, but with potential differences in scope, definitions, and exceptions.
E. Recommendations
Based on the foregoing analysis, we recommend the following measures to ensure WARN Act compliance:
1. CPS should make employment offers effective as of the Closing Date with no gap in employment. The offer letters should clearly state that employment with CPS commences immediately upon the closing.
2. The APA should include mutual WARN Act indemnification provisions, with each party indemnifying the other for WARN Act liability arising from that party's acts or omissions.
3. CPS and AVP should coordinate pre-closing employee communications to minimize confusion and employee attrition during the period between signing and closing. Clear and timely communication with employees regarding the transaction, the offer of employment, and the continuation of benefits can help reduce the risk that employees voluntarily resign before the closing.
4. CPS should avoid implementing any post-closing layoffs or workforce reductions at the Butler or Meadville facilities within the 90-day aggregation period following the Closing Date, unless the requirements of the WARN Act (including the 60-day notice obligation) are satisfied.
5. The Pennsylvania mini-WARN Act analysis should be completed prior to APA execution to confirm that all applicable state-law requirements are satisfied.
VII. Underfunded Pension Obligations
A. Nature of the Obligation
During the course of financial due diligence, Hargrove Thornton LLP (Steven M. Raines, Engagement Partner) identified that AVP has underfunded pension obligations estimated at approximately $3,100,000. The specific nature of the pension plan giving rise to this underfunding — whether it is a single-employer defined benefit plan, a multiemployer plan, or another type of retirement arrangement — remains to be confirmed through additional due diligence. Our analysis of this issue is ongoing, and additional information has been requested from Seller's counsel.
The underfunding amount of approximately $3,100,000 represents the estimated difference between the present value of the plan's benefit obligations and the fair market value of the plan's assets, as determined by Hargrove Thornton LLP based on the financial data provided by AVP. This figure is subject to revision upon receipt and review of the plan's most recent actuarial valuation report, plan financial statements, and other relevant documentation.
B. Treatment as Excluded Liability
Under the APA, the underfunded pension obligations are treated as an Excluded Liability. CPS will not assume any liability for the pension underfunding or for any obligations arising under or in connection with AVP's pension plan. This exclusion is a critical protection for CPS and reflects the fundamental principle that, in an asset purchase, the buyer is generally free to select which liabilities it will assume and which it will leave with the seller.
Responsibility for satisfying the pension obligations will remain with AVP and/or its shareholders — Gerald W. Horvath (72%), Patricia A. Horvath (18%), and Michael G. Horvath (10%). Because AVP is the plan sponsor and the entity that has incurred the pension obligations, AVP and its shareholders will be responsible for ensuring that the pension plan is adequately funded, that all required contributions are made, and that all benefit payments to participants are timely and in accordance with the plan's terms.
Given the estimated underfunding of approximately $3,100,000, this is a material liability that will effectively reduce the net proceeds received by AVP's shareholders from the transaction. CPS should confirm that the purchase price and closing mechanics adequately account for this liability, and should consider whether any portion of the purchase price should be held in escrow or subject to a holdback to secure Seller's indemnification obligations with respect to pension-related liabilities.
C. Controlled Group / ERISA Considerations
In an asset purchase, the buyer generally does not become part of the seller's "controlled group" under ERISA §4001(b) or IRC §§414(b) and 414(c). The controlled group rules aggregate commonly controlled entities for purposes of determining joint and several liability for pension obligations. Because CPS is acquiring assets from AVP — and not acquiring AVP's stock or otherwise becoming affiliated with AVP's ownership — CPS should not be treated as a member of AVP's controlled group for pension liability purposes.
However, there is an important caveat: if any of AVP's pension obligations relate to a multiemployer pension plan (i.e., a pension plan maintained pursuant to one or more collective bargaining agreements to which more than one employer contributes), potential withdrawal liability under ERISA §4201 et seq. must be carefully analyzed. Under the multiemployer plan withdrawal liability rules, a contributing employer that withdraws from a multiemployer plan — either through a complete withdrawal or a partial withdrawal — is liable for its proportionate share of the plan's unfunded vested benefits. In certain circumstances, the purchaser of a withdrawing employer's assets may be jointly and severally liable for the seller's withdrawal liability.
CPS should confirm through due diligence that AVP does not participate in any multiemployer pension plan. If AVP does participate in a multiemployer plan, additional analysis will be required to determine the potential withdrawal liability exposure, the applicability of buyer liability provisions under ERISA §4204, and the availability of any exemptions or variances.
The APA should include specific representations by Seller regarding the following matters:
• The existence, nature, and terms of all pension plans maintained by or contributed to by AVP;
• The funded status of each pension plan, including the most recent actuarial valuation report;
• Compliance with all applicable PBGC requirements, including the timely payment of PBGC premiums;
• The absence of any multiemployer plan participation by AVP; and
• The absence of any pending or threatened claims, audits, investigations, or proceedings by the PBGC, the Internal Revenue Service, or the Department of Labor with respect to any pension plan.
The APA should also include broad indemnification by Seller for any pension-related liabilities that may arise post-closing, including any underfunding, withdrawal liability, PBGC claims, or other pension-related obligations that are or become the responsibility of AVP or its controlled group.
D. PBGC Reporting
If AVP maintains a single-employer defined benefit plan that is covered by PBGC insurance (Title IV of ERISA), the proposed asset sale may trigger several PBGC reporting obligations.
Reportable Events (ERISA §4043). ERISA §4043 and the PBGC's implementing regulations require the plan administrator and the plan sponsor to report certain events to the PBGC within specified timeframes. Among the events that may be reportable is a "change in contributing sponsor or controlled group," which could be triggered by the proposed transaction if the asset sale results in a change in the identity or composition of the entity contributing to the plan. AVP (as plan sponsor) is responsible for determining whether a reportable event has occurred and for making the required filing with the PBGC.
Substantial Cessation of Operations (ERISA §4062(e)). ERISA §4062(e) provides that an employer that ceases operations at a facility in any location and, as a result, more than 15% of the employer's total eligible employees who are participants in the employer's defined benefit plan experience a "separation from employment" is treated as having experienced a "substantial cessation of operations." In such a case, the PBGC may seek additional contributions or security from the employer to protect the plan.
If the proposed transaction results in a substantial cessation of AVP's operations — for example, if a significant number of AVP employees are separated from employment in connection with the closing — ERISA §4062(e) could be triggered. However, if CPS hires substantially all of AVP's employees and operations continue uninterrupted, the risk of an ERISA §4062(e) event is significantly reduced.
AVP (as the plan sponsor) is responsible for all PBGC filings and reporting obligations in connection with the transaction. The APA should include covenants requiring AVP to comply with all PBGC reporting obligations and to cooperate with CPS in providing information necessary for PBGC compliance. CPS should also require that AVP provide prompt notice to CPS of any PBGC inquiries, audits, or enforcement actions related to the pension plan.
VIII. Union Notification and Successorship Requirements
A. Legal Requirements for Union Notification
As discussed in Section IV.B above, under the NLRA, a successor employer that hires a majority of the predecessor's bargaining unit employees is obligated to recognize the incumbent union and bargain in good faith. Because CPS is expressly assuming the CBA with International Paperworkers Union Local 814, formal recognition of the union as the exclusive bargaining representative of the Butler facility bargaining unit employees is implicit in the assumption.
In addition to the successorship obligations under the NLRA, the CBA itself may contain specific provisions requiring notice to the union upon a change of ownership, a sale of substantially all assets, or a transfer of the employer's business operations to a successor entity. These provisions must be reviewed carefully and strictly followed to avoid any claim that CPS has breached the CBA or failed to comply with contractual notice requirements.
The duty to provide notice to the union serves several purposes: it ensures that the union and its represented employees are informed of the identity of their new employer, it confirms the continuation of the bargaining relationship, and it provides the union with an opportunity to raise concerns or questions about the transition.
B. Timing and Content of Notice
We recommend that CPS provide written notice to the leadership of International Paperworkers Union Local 814 prior to or promptly following the execution of the APA (estimated execution date: June 15, 2025). The timing of the notice should be coordinated with the overall transaction timeline and with any confidentiality restrictions contained in the APA or the parties' letter of intent. In general, notice should be provided as early as practicable following public announcement of the transaction to ensure that union leadership is not surprised by the news and to demonstrate CPS's good faith and commitment to a constructive labor relationship.
The written notice to the union should include the following elements:
• Identification of CPS as the successor employer and purchaser of substantially all of AVP's assets;
• Confirmation that CPS is assuming the CBA and will honor all of its terms and conditions through the March 31, 2027 expiration date;
• Affirmation that existing terms and conditions of employment for bargaining unit employees, including wage rates, benefits, seniority, and work rules, will continue without interruption;
• Identification of CPS's designated contact for labor relations matters at the Butler facility;
• A statement regarding the anticipated closing date and the expected timeline for the transition; and
• An invitation to meet with CPS's management team to discuss the transition and address any questions or concerns.
The notice should be carefully drafted to avoid any language that could be construed as a renegotiation or modification of any CBA terms. CPS is assuming the CBA as-is, and the notice should clearly communicate that existing CBA terms will remain in full force and effect.
C. Meet-and-Confer / Effects Bargaining