PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGE ATTORNEY WORK PRODUCT
CALDERWOOD & HARKNESS LLP 599 Lexington Avenue, 36th Floor New York, New York 10022
MEMORANDUM
TO: Sandra Tung, Partner, Calderwood & Harkness LLP Andrew Fitzpatrick, Lead Associate, Calderwood & Harkness LLP
FROM: Naomi Petersen, Associate, Calderwood & Harkness LLP
DATE: August 25, 2022
RE: Due Diligence Memorandum — Employment & Benefits: Proposed Acquisition by Meridian Consumer Brands LLC of the CleanLeaf and PureHaven Product Lines from Briarwood Home Essentials, Inc.
MATTER NO.: 1011-00005
CLIENT: Meridian Consumer Brands LLC
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I. Executive Summary
This memorandum presents the results of our review of employment and employee benefits matters in connection with the proposed acquisition by Meridian Consumer Brands LLC, a Delaware limited liability company ("Meridian" or "Buyer"), of the CleanLeaf and PureHaven consumer product lines (collectively, the "Product Line" or the "Business") from Briarwood Home Essentials, Inc., an Ohio corporation ("Briarwood" or "Seller"), for a total purchase price of approximately $95,000,000 (the "Transaction"). The Transaction is structured as an asset purchase pursuant to a draft Asset Purchase Agreement (the "APA"), and not as a stock acquisition. As a consequence of the asset purchase structure, there will be no automatic transfer of employees from Briarwood to Meridian. Rather, all 186 employees currently associated with the Product Line (the "Transferring Employees") must receive individual offer letters from Meridian and affirmatively accept employment with the Buyer in order to continue their employment in connection with the Business following the closing of the Transaction (the "Closing").
It is important to note at the outset that Briarwood is retaining its Commercial Janitorial Services Division and all employees associated with that division. Only employees attributable to the CleanLeaf and PureHaven consumer product lines fall within the scope of this memorandum. The allocation of certain shared employees — particularly those at the Columbus headquarters — between the Product Line and the retained Commercial Janitorial Services Division is a matter that warrants additional scrutiny prior to Closing, as discussed in greater detail below.
Key Conclusions. Based on our review of the materials provided to date, we have identified no material employment-related impediments to Closing. However, several items require careful attention and resolution during the pre-Closing period, including:
• WARN Act compliance planning. The Marysville manufacturing facility employs approximately 112 employees, which exceeds the federal WARN Act threshold. Careful coordination between Buyer and Seller is necessary to avoid triggering notice obligations.
• Inability to assume Briarwood's 401(k) plan. Because the plan covers employees of both the Product Line and the retained Commercial Janitorial Services Division, and because the Transaction is structured as an asset purchase, Meridian cannot assume or adopt Briarwood's existing 401(k) plan. Meridian will need to make alternative retirement plan arrangements for the Transferring Employees.
• Absence of formal employment agreements. The vast majority of the 186 Transferring Employees are at-will employees without written employment agreements. While this simplifies the offer letter process in certain respects, it also means that Meridian should consider implementing new restrictive covenant agreements with key personnel as a condition of employment.
• Ohio-specific employment law considerations. As substantially all of the Transferring Employees are located in Ohio, Meridian must comply with Ohio wage payment requirements, final pay statutes, and other state-specific employment regulations.
Documents Reviewed. In preparing this memorandum, we reviewed the following categories of documents and information, all of which were accessed through the Pemberton Systems virtual data room established for this Transaction under project code BHE-CleanLeaf-2022:
• Employee census data and organizational charts for the Product Line
• Benefit plan documents and summary plan descriptions for the Briarwood 401(k) Retirement Plan and all group health and welfare plans
• Employment agreements and offer letters for management-level employees
• Independent contractor agreements associated with the Product Line
• Briarwood Home Essentials, Inc. Personnel Policies Handbook (revised January 2021)
• Payroll records and compensation schedules for the 186 Transferring Employees
• Workers' compensation claims history and experience rating reports
• OSHA logs (Forms 300, 300A, and 301) for the Marysville and West Jefferson facilities
• Immigration and I-9 records for the Transferring Employees
• Miscellaneous correspondence and internal memoranda relating to employment matters
All due diligence requests were made pursuant to the comprehensive Due Diligence Request List dated June 14, 2022, which was transmitted to Caldwell, Pruitt & Shaw LLP ("Seller's Counsel"), attention Rachel Underwood and David Soo. As detailed in Section XII of this memorandum, certain requested items remain outstanding as of the date hereof, and our conclusions are necessarily subject to revision upon receipt and review of those materials.
This memorandum should be read in conjunction with the separate Litigation & Regulatory Due Diligence Memorandum (anticipated date September 12, 2022), which will address any pending employment-related litigation and administrative proceedings in greater detail.
II. Workforce Overview
A. Employee Census and Demographics
Based on the employee census data provided by Briarwood and uploaded to the Pemberton Systems data room on July 8, 2022 (Room Index 4.1.01), a total of 186 employees are currently associated with the CleanLeaf and PureHaven product lines and are expected to be offered employment by Meridian in connection with the Transaction. These employees are spread across three locations in Ohio, as follows:
Marysville Manufacturing Facility 2800 Industrial Parkway, Marysville, OH 43040
Approximately 112 employees are based at the Marysville manufacturing facility, which serves as the primary production site for both the CleanLeaf and PureHaven product lines. These employees are engaged in production, quality control, maintenance, and plant management functions. The Marysville facility operates on a two-shift schedule (6:00 AM – 2:30 PM and 2:30 PM – 11:00 PM), Monday through Friday, with periodic Saturday overtime shifts. Of the approximately 112 employees at this location, approximately 88 are hourly production and maintenance workers, with the remaining approximately 24 serving in salaried supervisory, quality control, or plant management capacities.
West Jefferson Distribution Center 500 Commerce Boulevard, West Jefferson, OH 43162
Approximately 48 employees are based at the West Jefferson distribution center, which handles warehousing, logistics, order fulfillment, and shipping for the Product Line. This facility also provides certain distribution services for the retained Commercial Janitorial Services Division under an internal cost-sharing arrangement, which is expected to be unwound at Closing. The majority of the West Jefferson employees are hourly warehouse and logistics workers (approximately 38), with the remaining approximately 10 employees serving in salaried supervisory, planning, and administrative roles.
Columbus Headquarters 1175 Creekside Drive, Suite 400, Columbus, OH 43215
Approximately 26 employees at the Columbus headquarters have been identified by Briarwood as Product Line-specific and are expected to be offered employment by Meridian. These employees serve in sales, marketing, research and development, and product management functions dedicated to the CleanLeaf and PureHaven brands. It is important to note that these 26 employees share office space at the Columbus headquarters with employees of Briarwood's retained Commercial Janitorial Services Division. The allocation methodology used by Briarwood to classify these employees as Product Line-specific — as opposed to shared corporate services employees attributable to both divisions — has not been fully documented in the data room materials provided to date. We recommend that Meridian's transaction team verify this allocation methodology with Briarwood prior to Closing, as the misclassification of even a small number of employees could affect headcount-dependent calculations (including WARN Act thresholds), benefit plan transition planning, and purchase price adjustments.
Full-Time / Part-Time and Hourly / Salaried Breakdown. According to the census data, approximately 174 of the 186 Transferring Employees are classified as full-time (defined by Briarwood as regularly scheduled for 30 or more hours per week), with the remaining approximately 12 employees classified as part-time. Of the full-time employees, approximately 126 are hourly (non-exempt) workers, and approximately 48 are salaried employees. Of the 48 salaried employees, approximately 40 are classified as exempt from overtime under the Fair Labor Standards Act ("FLSA") and applicable Ohio wage and hour laws. We have not independently audited Briarwood's exemption classifications, and Meridian may wish to conduct an exemption classification review following Closing to confirm compliance.
Union and Non-Union Status. None of the 186 Transferring Employees are represented by a labor union, and no collective bargaining agreements exist at any of the three Product Line locations. A review of the data room materials has not revealed any evidence of pending union organizing activity, representation petitions, or unfair labor practice charges filed with the National Labor Relations Board ("NLRB") relating to the Transferring Employees. This is a favorable finding, as the absence of collective bargaining obligations significantly simplifies the employee transition process in an asset purchase transaction.
B. Key Personnel
Our review of the organizational charts and management rosters provided by Briarwood has identified several individuals who are critical to the ongoing operation of the Product Line and whose successful transition to Meridian will be important to preserving the value of the acquired Business. Key personnel include the following:
Janet Tsao, Vice President of Operations. Ms. Tsao is currently the Vice President of Operations for Briarwood and has been with the company for approximately 14 years. Her role spans both the Product Line and the retained Commercial Janitorial Services Division, as she oversees manufacturing and distribution operations across all Briarwood business units. Ms. Tsao is widely regarded as instrumental to the efficient operation of the Marysville manufacturing facility and the West Jefferson distribution center. Her institutional knowledge of production processes, vendor relationships, and quality control protocols makes her a high-priority candidate for transition to Meridian. However, because her responsibilities extend to the retained division, it is unclear whether Briarwood will agree to release her. We recommend that this issue be addressed directly in discussions between Meridian and Briarwood at the principal level, and that the APA or a side letter memorialize the parties' agreement regarding Ms. Tsao's post-Closing employment.
Additional key management personnel identified for the Product Line include:
• Thomas Reinhardt, Plant Manager, Marysville Manufacturing Facility (18 years of service)
• Lisa Cabrera, Director of Sales, CleanLeaf and PureHaven Brands (7 years of service)
• Dr. Aarav Mehta, Director of R&D, Consumer Products (5 years of service)
• Susan Volker, Distribution Center Manager, West Jefferson (11 years of service)
• Ryan Ostrowski, Senior Product Manager, PureHaven Brand (4 years of service)
Each of these individuals plays a significant role in the day-to-day management of the Product Line, and their retention through and following the Closing should be considered a priority. We discuss retention arrangements, including stay bonuses, in Section XI below.
Malcolm Greer, President and Sole Shareholder. Mr. Greer is the founder, president, and sole shareholder of Briarwood. He is not expected to transition to Meridian in any capacity. However, the parties have agreed in principle that Mr. Greer will be subject to a separate Non-Competition and Non-Solicitation Agreement, to be executed at Closing, pursuant to which Mr. Greer will agree not to compete with Meridian in the consumer products market for a period of four years following the Closing, with geographic restrictions to be negotiated. The non-competition restriction is limited to consumer products and does not extend to Mr. Greer's activities in the commercial janitorial services sector. The enforceability of this covenant will be analyzed in a separate memorandum.
C. Independent Contractors
Briarwood has provided a listing of independent contractors engaged in connection with the Product Line. As of the date of this memorandum, we have identified approximately 14 independent contractor relationships attributable to the Business. These contractors provide services in areas including graphic design and packaging, freelance product photography, specialized equipment maintenance, transportation and delivery services, and seasonal production support.
We have reviewed the independent contractor agreements available in the data room (Room Index 4.3.01 through 4.3.09; five additional agreements remain outstanding) for compliance with applicable worker classification standards. Under Ohio law, worker classification is assessed under a multi-factor test that examines the degree of control exercised by the engaging entity, the worker's opportunity for profit or loss, the permanency of the relationship, the level of skill required, and other factors consistent with the IRS common-law test. In addition, certain federal statutes, including the FLSA, apply varying tests for worker classification purposes, and the U.S. Department of Labor has indicated a trend toward more stringent application of the "economic reality" test.
Based on our preliminary review, we note that two of the independent contractor arrangements present heightened classification risk:
1. Contractor A (name redacted pending confirmation) — A graphic designer who has provided services exclusively to the CleanLeaf brand on a full-time basis for approximately three years, uses Briarwood-provided equipment, and works on-site at the Columbus headquarters. The exclusivity and duration of this arrangement, combined with the use of company equipment and integration into Briarwood's operations, suggest that this individual may more appropriately be classified as an employee.
2. Contractor B (name redacted pending confirmation) — A maintenance technician who performs scheduled equipment maintenance at the Marysville facility on a weekly basis under the direction of the plant manager. This arrangement similarly presents characteristics more consistent with an employment relationship than an independent contractor engagement.
We recommend that Meridian not assume these contractor relationships without further analysis and, if these individuals are to continue providing services post-Closing, that Meridian consider either reclassifying them as employees or restructuring the engagements to more clearly reflect independent contractor status. The potential exposure from misclassification includes liability for unpaid employment taxes, overtime, and benefits, as well as penalties under applicable federal and state tax laws.
III. Employment Agreements and Arrangements
A. Written Employment Agreements
The vast majority of the 186 Transferring Employees are at-will employees without formal written employment agreements. Briarwood's Personnel Policies Handbook (revised January 2021) expressly states that all employment relationships with the company are "at-will" and may be terminated by either party at any time, with or without cause or notice. This at-will presumption is consistent with Ohio common law.
However, a small number of management-level employees — estimated at five to eight individuals — have written offer letters or employment agreements that contain provisions beyond standard at-will language. Based on the documents made available in the data room to date, we have identified the following:
• Thomas Reinhardt, Plant Manager, Marysville — Employment agreement dated March 15, 2012 (amended January 1, 2018), providing for a base salary, annual bonus eligibility, and severance of six months' base salary in the event of termination without cause. The agreement contains a 12-month non-competition covenant and an 18-month non-solicitation covenant, each limited to the state of Ohio and contiguous states.
• Lisa Cabrera, Director of Sales — Offer letter dated September 22, 2015, providing for a base salary, commission structure, and severance of three months' base salary in the event of termination without cause within the first 24 months following a "change of control" of Briarwood or any material business unit. The offer letter defines "change of control" to include the sale of substantially all of the assets of a business unit, which may be triggered by this Transaction.
• Dr. Aarav Mehta, Director of R&D — Employment agreement dated April 1, 2017, providing for a base salary, annual bonus eligibility, and intellectual property assignment provisions. The agreement does not contain change-of-control or severance provisions but does include a 24-month non-competition covenant.
We have requested complete copies of all management-level employment agreements and offer letters from Seller's Counsel. This request remains outstanding as of the date of this memorandum (see Section XII).
Because the Transaction is structured as an asset purchase, Meridian will not automatically assume any of Briarwood's existing employment agreements. Instead, Meridian will extend new offer letters to the Transferring Employees, and each employee's acceptance of an offer letter will establish a new employment relationship with Meridian. Accordingly, the assignment and consent provisions contained in the existing employment agreements are not directly at issue. However, the change-of-control severance provisions in certain agreements — particularly Ms. Cabrera's offer letter — may be triggered by the Transaction, creating a severance obligation for Briarwood that could affect the willingness or ability of these employees to accept employment with Meridian.
Quantification of Potential Severance Exposure. Based on the agreements reviewed to date, the aggregate change-of-control severance exposure for Briarwood is estimated at approximately $125,000 to $200,000, depending on the number of management-level employees with such provisions (which will be refined once all outstanding agreements are received). This severance obligation is Briarwood's responsibility as the current employer, but Meridian should confirm in the APA that Briarwood will satisfy all severance obligations arising from the Transaction and that no such obligations will be assumed by Meridian as part of the assumed liabilities.
B. Non-Competition and Non-Solicitation Agreements
In addition to the restrictive covenants contained in the employment agreements described above, Briarwood has entered into standalone non-competition and non-solicitation agreements with approximately 12 Product Line employees, primarily in sales, marketing, and R&D roles. These agreements generally contain non-competition periods of 12 to 24 months and non-solicitation periods of 18 to 24 months, with geographic restrictions limited to Ohio and contiguous states or, in some cases, the continental United States.
Under Ohio law, non-competition agreements are enforceable if they are reasonable in time, geographic scope, and the scope of restricted activity. Ohio courts apply a totality-of-the-circumstances analysis, considering factors such as whether the restrictions are no greater than required to protect the employer's legitimate business interests, whether they impose undue hardship on the employee, and whether they are injurious to the public interest. Ohio courts have generally upheld non-competition periods of one to two years and have demonstrated a willingness to "blue pencil" or modify unreasonable provisions to render them enforceable.
It is important to note that in an asset purchase transaction, the buyer generally does not succeed to the seller's rights under existing non-competition agreements with employees, unless the agreements are specifically assigned as part of the transaction. Even where assignment is permitted, Ohio courts have occasionally questioned whether a non-competition agreement entered into with one employer remains enforceable when the employee's employment relationship transitions to a new employer. Accordingly, we recommend that Meridian consider requiring new restrictive covenant agreements from key Transferring Employees as a condition of their employment with Meridian. Such new agreements should be supported by adequate consideration — in Ohio, the offer of new employment is generally considered sufficient consideration for a non-competition agreement entered into at the commencement of the employment relationship, though the law on this point is not entirely settled for existing at-will employees.
C. Offer Letter Process
As noted above, all 186 Transferring Employees will require individual offer letters from Meridian. The preparation and delivery of these offer letters will require careful coordination between Meridian's human resources team, Calderwood & Harkness, and Briarwood's management.
Timing Considerations. Offer letters should be prepared in final form well in advance of the anticipated Closing date, but they should not be delivered to employees until shortly before or simultaneously with Closing. Premature delivery of offer letters — particularly before the execution of the APA — carries several risks, including (i) the possibility of premature disclosure of the Transaction to employees, customers, and competitors, (ii) the risk of employee attrition if employees perceive uncertainty about the Transaction or the terms of their continued employment, and (iii) potential liability under federal securities laws or antitrust regulations if the Transaction is treated as having been consummated prior to receipt of required regulatory approvals.
Terms and Conditions. To minimize disruption and maximize the likelihood that all 186 Transferring Employees will accept Meridian's offers, we recommend that the offer letters provide for employment terms that are, in the aggregate, comparable to each employee's current terms with Briarwood, including base compensation, job title, work location, and benefits eligibility. Significant deviations from current terms — particularly reductions in compensation, changes in work location, or diminution of benefits — may lead to employee refusals and could, in certain circumstances, be construed as a constructive termination for purposes of the WARN Act analysis.
Retention Risk. There is an inherent risk in any asset purchase transaction that some employees will decline the buyer's offer of employment. This risk is heightened for key management personnel who may receive competing offers from other employers, who may be reluctant to leave a familiar organization, or who may have concerns about Meridian's plans for the Business. To mitigate this risk, we recommend that Meridian consider offering retention or stay bonus arrangements to critical personnel, as discussed in Section XI below. Based on preliminary discussions with Meridian's management team, we understand that Meridian has identified approximately eight to ten individuals for whom retention arrangements may be appropriate, with estimated aggregate retention bonus expenditures in the range of $350,000 to $500,000.
IV. Compensation and Payroll
A. Base Compensation
We have reviewed the payroll records and salary/wage schedules provided by Briarwood for the 186 Transferring Employees (Room Index 4.4.01 through 4.4.03). Based on this review, the total annualized base compensation burden for the Transferring Employees is approximately $9.8 million, broken down as follows:
Hourly wage rates for production and warehouse workers range from approximately $16.50 to $28.75 per hour, with an average hourly rate of approximately $21.00. These rates are generally consistent with prevailing market rates for manufacturing and distribution workers in the greater Columbus, Ohio metropolitan area, based on available Bureau of Labor Statistics data. No above-market or unusual base compensation arrangements were identified for hourly workers.
Among salaried employees, base salaries range from approximately $42,000 for entry-level administrative positions to approximately $185,000 for the highest-compensated Product Line employee (Thomas Reinhardt, Plant Manager, Marysville). Ms. Tsao's compensation has not been allocated between the Product Line and the retained division in the materials provided, and her compensation is therefore excluded from the above figures pending clarification.
B. Bonus and Incentive Compensation
Briarwood maintains several bonus and incentive compensation programs applicable to Product Line employees:
Annual Discretionary Bonus Program. Salaried employees at the manager level and above are eligible for an annual discretionary bonus, with target bonus amounts ranging from 10% to 25% of base salary depending on position level. Bonuses are based on a combination of company-wide financial performance (weighted 50%), business unit performance (weighted 30%), and individual performance (weighted 20%). Bonuses are typically paid in February for the preceding calendar year. As of the anticipated Closing date (estimated Q4 2022), Transferring Employees will have accrued a partial-year bonus for the 2022 calendar year. The treatment of this accrued but unpaid bonus obligation — including whether Briarwood will pay pro-rata bonuses for the pre-Closing period or whether Meridian will assume this obligation — should be addressed in the APA. Based on historical bonus payout data, we estimate the aggregate accrued bonus obligation for the Transferring Employees at Closing to be in the range of $280,000 to $350,000, depending on the Closing date and 2022 performance.
Sales Commission Program. Approximately eight employees in the sales organization (including Ms. Cabrera) participate in a sales commission program that provides quarterly commission payments based on individual sales performance against quota. Commission structures vary by role but generally provide for commissions of 3% to 8% of net revenue generated. Accrued but unpaid commissions as of the Closing date should be treated as a Briarwood obligation, with any post-Closing commissions payable by Meridian under new commission plans to be established by Meridian.
Production Incentive Bonus. Hourly production workers at the Marysville manufacturing facility are eligible for a monthly production incentive bonus based on facility-level output and quality metrics. This bonus typically ranges from $100 to $300 per month per eligible employee, depending on facility performance. The aggregate annual cost of this program is approximately $250,000 to $350,000.
C. Equity / Phantom Equity
Briarwood is a privately held corporation with Malcolm Greer as its sole shareholder. Our review of the data room materials has not identified any employee equity plans, stock option plans, restricted stock arrangements, phantom equity plans, stock appreciation rights, or other equity-based compensation arrangements applicable to the Transferring Employees or any other Briarwood employees. No equity arrangements associated with Lakepoint Capital Partners or any other third-party investor extend to Briarwood employees. This finding simplifies the compensation transition, as there are no equity plan-related obligations to unwind, accelerate, or assume in connection with the Transaction.
V. Employee Benefit Plans
A. 401(k) Retirement Plan
Briarwood maintains a tax-qualified 401(k) defined contribution retirement plan (the "Briarwood 401(k) Plan") covering eligible employees of both the Product Line and the retained Commercial Janitorial Services Division. The Briarwood 401(k) Plan is administered by a third-party recordkeeper (Tarrant Asset Management) and is subject to the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and the Internal Revenue Code of 1986, as amended (the "Code").
Key Finding: Meridian Cannot Assume the Briarwood 401(k) Plan. Because the Transaction is structured as an asset purchase — and because the Briarwood 401(k) Plan covers employees of the retained Commercial Janitorial Services Division in addition to the Transferring Employees — the plan is not divisible in connection with this Transaction and cannot be assumed or adopted by Meridian. The Briarwood 401(k) Plan will continue in effect for Briarwood's retained employees following the Closing. Transferring Employees will cease participation in the Briarwood 401(k) Plan as of their last day of employment with Briarwood (i.e., the Closing date or such other date as the parties may agree).
Meridian Plan Arrangements. Meridian will need to either (i) establish a new 401(k) plan for the Transferring Employees, or (ii) arrange for the Transferring Employees to participate in an existing Meridian 401(k) plan, if one exists. We understand from preliminary discussions with Meridian's CFO, Priya Anand, that Meridian does not currently maintain a 401(k) plan, as its existing workforce is limited in size. Accordingly, Meridian will need to establish a new plan prior to or concurrently with the Closing. We recommend that Meridian engage a retirement plan consultant and third-party administrator to assist with plan design, documentation, and implementation, and that this process be initiated promptly given the administrative lead times involved.
Rollover Rights. Under applicable tax law, Transferring Employees will be entitled to roll over their account balances from the Briarwood 401(k) Plan into Meridian's new plan (if it accepts rollovers) or into an individual retirement account ("IRA"). The Briarwood 401(k) Plan should be reviewed to confirm that it permits distributions upon severance from employment with Briarwood, which is the standard triggering event for rollover-eligible distributions.
Gap in Coverage. If Meridian's new 401(k) plan includes an eligibility waiting period (e.g., 30 days, 60 days, or longer), the Transferring Employees may experience a gap in retirement plan coverage. To address this, we recommend that Meridian consider recognizing the Transferring Employees' prior service with Briarwood for purposes of eligibility and vesting under Meridian's new plan. This service credit bridging can be accomplished through appropriate plan design provisions and should be addressed in the APA as a Buyer covenant.
Plan Compliance. We have requested copies of the Briarwood 401(k) Plan document, the most recent Form 5500 filing, and the latest compliance testing results (ADP/ACP testing, top-heavy testing, and coverage testing). These documents remain outstanding as of the date of this memorandum. Based on the summary plan description and other materials reviewed, we have not identified any pending or historical compliance issues with the Briarwood 401(k) Plan. However, this assessment is preliminary and subject to revision upon receipt of the outstanding plan documents.
B. Health and Welfare Plans
Briarwood provides the following group health and welfare benefits to eligible employees, including the Transferring Employees:
• Group Medical Insurance — Bramwell Life Insurance (PPO and HDHP options)
• Group Dental Insurance — Quillon Assurance
• Group Vision Insurance — Thackeray Group
• Group Life Insurance and AD&D — Strathmore Mutual Insurance (1x base salary, up to $250,000 maximum)
• Short-Term Disability Insurance — Strathmore Mutual Insurance (60% of base salary, 26-week benefit period)
• Long-Term Disability Insurance — Strathmore Mutual Insurance (60% of base salary, benefit to age 65)
• Employee Assistance Program — Camberwell Technologies
In an asset purchase transaction, Meridian does not assume Briarwood's health and welfare plans. These plans are contracts between Briarwood and the applicable insurance carriers, and they will continue in effect for Briarwood's retained employees. The Transferring Employees' coverage under Briarwood's plans will terminate as of the Closing date (or such other date as the parties may agree), and Meridian must provide comparable health and welfare coverage to the Transferring Employees effective as of their start date with Meridian to avoid a gap in coverage.
We recommend that Meridian's human resources team coordinate with its benefits broker to arrange for group medical, dental, vision, life, and disability coverage for the Transferring Employees. To the extent practicable, the terms of Meridian's coverage should be comparable to the terms currently offered by Briarwood in order to minimize disruption and maximize employee acceptance rates.
COBRA Considerations. Briarwood will be responsible for providing COBRA continuation coverage under its group health plans to any Transferring Employees who do not accept Meridian's offers of employment, as well as to any employees who experience a COBRA qualifying event prior to Closing. This obligation arises under Section 4980B of the Code and Part 6 of ERISA. The APA should include appropriate representations, warranties, and covenants with respect to Briarwood's COBRA obligations.
Coordination of Timing. The transition of health and welfare plan coverage should be carefully coordinated with the Closing date. Ideally, Briarwood's coverage for the Transferring Employees should terminate at 11:59 PM on the Closing date, and Meridian's coverage should commence at 12:01 AM on the day following the Closing date, ensuring seamless continuity. This coordination will require advance planning with both Briarwood's and Meridian's insurance carriers.
C. Paid Time Off and Leave Policies
Briarwood's Personnel Policies Handbook provides for paid time off ("PTO") on an accrual basis, with accrual rates that increase with length of service. According to the PTO policy:
• Employees with 0–2 years of service accrue 10 days (80 hours) of PTO per year
• Employees with 3–5 years of service accrue 15 days (120 hours) of PTO per year
• Employees with 6–10 years of service accrue 20 days (160 hours) of PTO per year
• Employees with 10+ years of service accrue 25 days (200 hours) of PTO per year
PTO accrues on a per-pay-period basis and may be carried over from year to year, subject to a maximum accrual cap of 1.5 times the annual accrual rate. Briarwood's policy provides that accrued but unused PTO is paid out upon termination of employment, which is consistent with Ohio law. Although Ohio does not have a statute that specifically mandates the payout of accrued vacation upon termination, Ohio courts have held that accrued vacation constitutes earned wages that must be paid upon separation if the employer's policy or practice provides for such payout.
Based on the PTO accrual data provided by Briarwood (as of June 30, 2022), the aggregate accrued PTO balance for the 186 Transferring Employees is approximately $385,000. This figure will increase between the date of the data and the Closing date as additional PTO accrues.
The treatment of accrued PTO must be addressed in the APA. There are two common approaches:
1. Cash-Out at Closing. Briarwood pays out all accrued PTO balances to the Transferring Employees on or before the Closing date, and Meridian begins the new employment relationship with a clean slate (i.e., zero PTO balances). This approach is administratively clean but may result in a negative employee experience, as employees will effectively lose their accumulated time off.
2. Assumption by Meridian. Meridian assumes the accrued PTO balances as an assumed liability under the APA, and the Transferring Employees retain their accrued PTO following the transition. The assumed PTO liability would be reflected as a purchase price adjustment (increasing the effective purchase price by the assumed PTO amount) or as an offset to accounts receivable or other items.
We recommend that the transaction team discuss these options with Meridian's management and finance teams and memorialize the agreed-upon approach in the APA.
D. Other Benefits
Our review has identified the following additional fringe benefits provided by Briarwood to Product Line employees:
• Tuition Reimbursement Program. Briarwood offers tuition reimbursement of up to $5,250 per year for job-related coursework, subject to manager approval and a minimum service commitment of one year following completion of the reimbursed coursework. We have not identified any outstanding tuition reimbursement obligations or clawback provisions that would be triggered by the Transaction.
• Employee discount Program. Briarwood employees receive a 30% discount on CleanLeaf and PureHaven products. This benefit is of minimal financial significance but may be a goodwill consideration for Meridian to continue.
• Company-Provided Uniforms and Safety Equipment. Production and warehouse employees receive company-provided uniforms and personal protective equipment at no cost.
Notably, Briarwood does not maintain a pension or defined benefit retirement plan, nor have we identified any nonqualified deferred compensation arrangements subject to Section 409A of the Code. This is a favorable finding, as the absence of these arrangements eliminates a significant category of potential liability in the Transaction.
VI. WARN Act Analysis
A. Federal WARN Act
The Worker Adjustment and Retraining Notification Act (the "WARN Act"), 29 U.S.C. §§ 2101–2109, requires employers with 100 or more employees to provide at least 60 calendar days' advance written notice to affected employees (or their union representatives), the state dislocated worker unit, and the chief elected official of the local government before ordering a "plant closing" or "mass layoff."
A "plant closing" is defined as 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 during any 30-day period. A "mass layoff" is defined as a reduction in force at a single site of employment that results in an employment loss during any 30-day period for (i) at least 33% of the employees at the site and at least 50 employees, or (ii) at least 500 employees.
Marysville Manufacturing Facility. With approximately 112 employees, the Marysville facility exceeds the 50-employee threshold for both the plant closing and mass layoff definitions. If Meridian were to decline to offer employment to all or substantially all of the Marysville employees — or if the Transaction were to result in the closure of the Marysville facility — WARN Act obligations would be triggered, requiring 60 days' advance notice. This risk is most acute in the scenario where Briarwood terminates all Product Line employees at Closing and Meridian separately hires those employees, as the termination by Briarwood would constitute the relevant employment action for WARN Act purposes.
West Jefferson Distribution Center. With approximately 48 employees, the West Jefferson facility falls below the 50-employee standalone threshold. However, the WARN Act's aggregation rules provide that employment losses at multiple sites, or employment losses occurring over a 90-day period rather than a 30-day period, may be aggregated to meet the thresholds. Accordingly, if employment losses at the West Jefferson facility are combined with losses at the Marysville facility or the Columbus headquarters, the WARN Act thresholds could be triggered at the West Jefferson location as well.
Allocation of WARN Act Responsibility. In an asset purchase transaction, the seller is generally considered the "employer" for WARN Act purposes prior to Closing, and the buyer becomes the employer post-Closing. The Department of Labor's regulations provide that, for purposes of determining whether a plant closing or mass layoff has occurred, the sale of a business does not automatically constitute an employment loss if the buyer offers employment to the seller's employees. See 20 C.F.R. § 639.4(a). However, if the buyer does not offer employment, or if the seller terminates employees and the buyer subsequently hires them, the seller may be required to provide WARN Act notice.
Recommendations. We recommend the following with respect to WARN Act compliance:
1. The APA should include a specific WARN Act compliance covenant that clearly allocates responsibility between Buyer and Seller for any WARN Act obligations arising in connection with the Transaction.
2. Meridian should commit to offering employment to all 186 Transferring Employees in order to avoid triggering WARN Act obligations. If Meridian anticipates that it will not offer employment to all Transferring Employees — for example, if certain positions will be eliminated or consolidated post-Closing — 60 days' advance notice must be provided to the affected employees.
3. The transaction should be structured such that the Transferring Employees' employment with Briarwood terminates simultaneously with, or immediately prior to, the commencement of their employment with Meridian, rather than resulting in a gap period that could be characterized as a termination followed by a rehire.
4. If Closing is delayed or uncertain, the parties should monitor WARN Act compliance obligations on an ongoing basis and prepare conditional WARN notices that can be issued if necessary.
B. Ohio Mini-WARN (Ohio Revised Code § 4141.28)
Ohio does not have a state-specific "mini-WARN" statute that imposes layoff notification requirements beyond those contained in the federal WARN Act. However, Ohio's unemployment compensation laws, codified at Ohio Revised Code § 4141.28, may impose certain notice and reporting obligations on employers in connection with mass separations. Specifically, Ohio employers may be required to report mass separation events to the Ohio Department of Job and Family Services.
We have also reviewed the municipal codes and ordinances of Union County (in which the Marysville facility is located) and Madison County (in which the West Jefferson distribution center is located) and have not identified any local layoff notification ordinances or requirements applicable to the Transaction. The City of Columbus does not impose independent layoff notification obligations beyond the federal WARN Act.
VII. Workers' Compensation and Workplace Safety
A. Workers' Compensation
Ohio is one of four states (along with North Dakota, Washington, and Wyoming) that operates a monopolistic, state-funded workers' compensation system through the Ohio Bureau of Workers' Compensation ("OBWC"). Employers in Ohio are generally required to participate in the state fund, though qualified employers may self-insure with approval from the OBWC.
Briarwood participates in the OBWC state fund and is not a self-insured employer. We have reviewed Briarwood's workers' compensation experience rating and claims history for the past five years (2017–2022), as provided in the data room (Room Index 4.6.01 through 4.6.04). The key findings are as follows:
• Briarwood's current experience modification rate ("EMR") is 0.94, which is below the baseline of 1.0 and indicates a claims history that is better than the industry average. This is a favorable indicator of workplace safety at the Briarwood facilities.
• Over the five-year review period, Briarwood has reported a total of 23 workers' compensation claims associated with the Product Line facilities (Marysville and West Jefferson combined). Of these, 18 were medical-only claims (no lost time), and 5 were lost-time claims. The most common injury types include sprains and strains (8 claims), lacerations (6 claims), and repetitive motion injuries (4 claims).
• As of the date of the most recent claims listing provided (June 30, 2022), three workers' compensation claims remain open: two medical-only claims and one lost-time claim involving a back injury sustained at the Marysville facility in February 2022. We have requested an updated claims listing as of a more recent date.
Impact of Asset Purchase Structure. Because the Transaction is structured as an asset purchase, Meridian will not inherit Briarwood's experience rating or claims history with the OBWC. Instead, Meridian will need to establish its own OBWC account for its Ohio operations or, if Meridian already has an existing OBWC account (which we understand it does not), extend that account to cover the newly acquired operations. Meridian's initial EMR will be determined by the OBWC based on Meridian's own claims experience, and Meridian may initially be assigned a base rate of 1.0 as a new employer in Ohio. This could result in higher workers' compensation premium costs for Meridian in the initial years following the Transaction, compared to Briarwood's current rates.
B. Workplace Safety
We have reviewed the OSHA injury and illness recordkeeping logs (Forms 300, 300A, and 301) for the Marysville manufacturing facility and the West Jefferson distribution center for the past three years (2019–2021, with partial-year 2022 data). The key findings are as follows:
• The total recordable incident rate ("TRIR") for the Marysville facility was 3.2 in 2021, compared to the industry average of approximately 3.5 for establishments in the NAICS code 325611 (Soap and Other Detergent Manufacturing). The Marysville facility's TRIR has been at or below the industry average for each of the past three years.
• The TRIR for the West Jefferson distribution center was 2.8 in 2021, compared to the industry average of approximately 4.0 for warehousing and storage establishments. This is a favorable result.
• No pending OSHA investigations or inspections have been identified in the data room materials. Briarwood has represented that neither the Marysville facility nor the West Jefferson distribution center has been the subject of an OSHA inspection in the past three years.
• No material outstanding OSHA citations or violations have been identified. Briarwood received one minor citation in 2019 relating to a housekeeping issue at the Marysville facility (failure to maintain clear egress pathways), which was promptly abated and resulted in a de minimis penalty.
Overall, the workplace safety record at both Product Line facilities is satisfactory and does not present a material risk to the Transaction.
VIII. Litigation and Claims
We have reviewed the data room materials for evidence of pending employment-related litigation, arbitration proceedings, or administrative charges (including charges filed with the Equal Employment Opportunity Commission ("EEOC") and the Ohio Civil Rights Commission ("OCRC")) involving Product Line employees.
Based on our review as of the date of this memorandum, no material pending employment litigation has been identified. Specifically:
• No lawsuits are currently pending against Briarwood in any federal or state court alleging employment discrimination, harassment, retaliation, wrongful termination, wage and hour violations, or any other employment-related claims involving Product Line employees.
• No arbitration proceedings involving Product Line employees are currently pending.
• No open charges of discrimination have been identified with the EEOC or the OCRC involving Product Line employees.
With respect to historical matters, Briarwood has disclosed one employment-related settlement in the past five years: a 2020 settlement of a workers' compensation retaliation claim brought by a former Marysville facility employee, which was resolved for a confidential settlement amount. The details of this settlement are being reviewed in the separate Litigation & Regulatory Due Diligence Memorandum (anticipated date September 12, 2022).
We note that certain employment matters have been disclosed by Briarwood in response to the due diligence request list that require further review and analysis. These matters are being addressed in the Litigation & Regulatory workstream and will be discussed in the separate memorandum prepared by that team. We will coordinate with the litigation diligence team to ensure that all employment-related matters are adequately addressed.
We also note that the absence of pending litigation does not eliminate the possibility of future claims arising from the Transaction itself. The transition of 186 employees from one employer to another, combined with potential changes in compensation, benefits, and working conditions, may give rise to employee complaints or claims. Meridian should ensure that the offer letter process, benefits transition, and onboarding procedures are implemented in a manner that minimizes the risk of such claims.
IX. Immigration and I-9 Compliance
We have reviewed the I-9 forms and work authorization documentation for the 186 Transferring Employees, as provided in the data room (Room Index 4.8.01). Based on our preliminary review, the majority of the Transferring Employees appear to be U.S. citizens or lawful permanent residents with unrestricted work authorization.
We have identified approximately four employees who appear to be working pursuant to temporary work visas, including two employees on H-1B specialty occupation visas and two employees on TN visas under the United States-Mexico-Canada Agreement. For these employees, Meridian will need to file amended or new visa petitions with U.S. Citizenship and Immigration Services ("USCIS") to reflect the change in employer. Specifically:
• H-1B Visa Holders. Meridian must file an amended H-1B petition (Form I-129) for each H-1B employee, along with a new Labor Condition Application ("LCA") certified by the Department of Labor. H-1B portability provisions under the American Competitiveness in the Twenty-First Century Act ("AC21") generally permit the employee to begin working for Meridian upon the filing of the amended petition, without waiting for approval, provided that the employee is in valid H-1B status at the time of filing.
• TN Visa Holders. Meridian must obtain new TN authorizations for these employees, which may be accomplished through filing a new I-129 petition or, for Canadian citizens, through presentation of a new TN offer letter at a port of entry.
I-9 Approach. In an asset purchase transaction, the buyer has two options with respect to I-9 compliance for the Transferring Employees:
1. Complete New I-9 Forms. Meridian may treat the Transferring Employees as new hires and complete new I-9 forms for each employee within three business days of their start date with Meridian. This approach provides Meridian with a clean I-9 record but requires the re-verification of work authorization for all 186 employees and may impose logistical challenges.
2. Rely on Briarwood's Existing I-9 Forms. Under USCIS guidance, an acquiring employer in an asset purchase may choose to rely on the seller's I-9 forms, provided that the buyer assumes responsibility for any deficiencies in those forms. This approach avoids the administrative burden of completing 186 new I-9 forms but exposes Meridian to liability for any pre-existing I-9 deficiencies.
Based on our preliminary review, we have identified certain deficiencies in Briarwood's I-9 records, including incomplete or missing forms for approximately six employees, expired List B documents for approximately three employees, and inconsistent use of acceptable documents. Given these deficiencies, we recommend that Meridian complete new I-9 forms for all Transferring Employees rather than assuming Briarwood's existing forms. This will allow Meridian to establish a compliant I-9 record from the outset of the employment relationship and avoid exposure to penalties for pre-existing deficiencies.
The APA should include representations and warranties from Briarwood regarding I-9 compliance, as well as an indemnification provision covering any liability arising from deficiencies in Briarwood's I-9 records.
X. Ohio Employment Law Considerations
As substantially all of the 186 Transferring Employees are located in Ohio, the following Ohio-specific employment law considerations are relevant to the Transaction:
At-Will Employment. Ohio is an at-will employment state. Under Ohio common law, an employment relationship that is not for a definite term may be terminated by either party at any time, for any reason, or for no reason at all, provided that the termination does not violate a statutory prohibition (e.g., anti-discrimination laws) or a clear public policy. Ohio Revised Code § 4113.02. This at-will presumption will apply to the new employment relationships between Meridian and the Transferring Employees, and Meridian should ensure that its offer letters contain clear at-will language.
Ohio Wage Payment and Final Pay Requirements. Ohio Revised Code § 4113.15 requires employers to pay employees at least semi-monthly and to pay all wages due upon separation from employment. Ohio law requires that final wages be paid on the next regularly scheduled payday following the employee's termination or, in some cases, within 15 days of the end of the pay period in which the termination occurs. Briarwood must ensure that all final wage payments — including accrued but unused PTO, prorated bonuses (if applicable), and any other amounts owed — are made to the Transferring Employees in a timely manner in connection with their separation from Briarwood.
Non-Compete Enforceability. As discussed in Section III.B above, Ohio courts enforce non-competition agreements that are reasonable in time, geography, and scope. Courts apply a totality-of-the-circumstances analysis and have the discretion to modify or "blue pencil" unreasonable provisions. Key considerations for enforceability include the adequacy of consideration (the offer of new employment is generally sufficient), the existence of a legitimate business interest to be protected (e.g., trade secrets, customer relationships), and the burden imposed on the employee. Meridian should consult with Ohio counsel to ensure that any new non-competition agreements offered to Transferring Employees comply with current Ohio standards.
Ohio Prompt Pay Statutes. In addition to the general wage payment requirements discussed above, Ohio imposes specific requirements regarding the timing and method of wage payments. Employers must establish regular paydays and may not withhold wages except as permitted by law or authorized in writing by the employee. Meridian should ensure that its payroll practices for the Transferring Employees comply with Ohio prompt pay requirements from the outset.
Employee Personnel Records and Privacy. Ohio Revised Code § 4113.23 grants employees the right to inspect their own personnel records. Meridian should be aware of this requirement and establish appropriate personnel file management procedures for the Transferring Employees. The transfer of personnel records from Briarwood to Meridian should be addressed in the Transition Services Agreement, with appropriate protections for employee privacy and data security.
Employer Registration. We understand that Meridian does not currently have operations in Ohio. Accordingly, Meridian will need to register as an employer with the Ohio Department of Job and Family Services (for unemployment compensation purposes), the OBWC (for workers' compensation purposes), the Ohio Department of Taxation (for state income tax withholding purposes), and any applicable local taxing jurisdictions. These registrations should be completed prior to the Closing date to ensure that Meridian can process payroll for the Transferring Employees without interruption.
XI. Transition Planning Recommendations
Based on our review of the employment and benefits matters described in this memorandum, we recommend that Meridian implement the following transition planning measures in connection with the Transaction:
1. Offer Letters. Prepare individualized offer letters for all 186 Transferring Employees, with terms comparable to each employee's current Briarwood employment (including compensation, title, work location, and benefits eligibility). Offer letters should be prepared in final form in advance of Closing but should not be delivered to employees until after the execution of the APA, ideally no more than five to ten business days before Closing, to avoid premature disclosure and employee attrition.
2. 401(k) Plan. Establish or designate a Meridian 401(k) plan for the Transferring Employees, with provisions permitting rollovers of account balances from the Briarwood 401(k) Plan and recognizing prior service with Briarwood for purposes of eligibility and vesting. Meridian should engage a retirement plan consultant and third-party administrator to assist with plan design and implementation on an expedited timeline.
3. Health and Welfare Coverage. Arrange for group medical, dental, vision, life, and disability insurance coverage for the Transferring Employees, effective as of the Closing date with no gap in coverage. Meridian should work with its benefits broker to obtain quotes and establish coverage that is comparable to the Transferring Employees' current coverage under Briarwood's plans.
4. Retention Arrangements. Consider offering retention or stay bonus arrangements to key management personnel identified in Section II.B above (including Ms. Tsao, if she is to transition to Meridian, Mr. Reinhardt, Ms. Cabrera, Dr. Mehta, Ms. Volker, and Mr. Ostrowski) to mitigate the risk of employee attrition during the transition period. Retention bonuses should be structured to require continued employment through a specified date following Closing (e.g., 6 or 12 months) and should be subject to repayment if the employee voluntarily departs prior to the retention date.
5. Accrued PTO. Address the treatment of accrued PTO balances in the APA, either through a cash-out by Briarwood at Closing or through assumption of the accrued balances by Meridian as an assumed liability with a corresponding purchase price adjustment.
6. WARN Act Compliance. Include a WARN Act compliance covenant in the APA that clearly allocates responsibility between Buyer and Seller and provides for indemnification of each party for the other's WARN Act liabilities. Meridian should commit to offering employment to all 186 Transferring Employees to avoid triggering WARN obligations.
7. I-9 Documentation. Complete new I-9 forms for all Transferring Employees within three business days of their start date with Meridian. Initiate the H-1B amendment and TN transfer processes for visa-holding employees well in advance of Closing to ensure continuity of work authorization.
8. Transition Services Agreement. The Transition Services Agreement ("TSA") (first draft circulated September 15, 2022) should include detailed provisions addressing Briarwood's obligations to cooperate in the employee transition process, including:
• Payroll transition and final pay processing
• Benefits enrollment and disenrollment coordination
• Transfer of personnel records and HR files