Contract analysis

From: Amy Chesterton <achesterton@calderwoodharkness.com> To: Priya Venkatesh <pvenkatesh@hargrovetillinghast.com> Cc: Marcus Tillinghast <mtillinghast@hargrovetillinghast.com> Date: Wed, 08 Jun 2022 03:17:00 -0000 Subject: In re Meridian Precision Components, Inc. (Case No. 22-50318-JLG) — Open APA Issues / Environmental Liability Scope

I hope you are well. I am writing to follow up on the parties' recent discussions regarding several open issues under the Asset Purchase Agreement dated March 30, 2022 (the "APA") between Meridian Precision Components, Inc. ("Meridian" or the "Debtor") and Vantage Mobility Systems Corp. ("VMS"), in connection with the above-captioned Chapter 11 case pending before the Honorable Janet L. Grasso in the U.S. Bankruptcy

As you know, the Court approved the bid procedures on April 22, 2022 (Dkt. 198) and confirmed the break-up fee and expense reimbursement provisions on May 13, 2022 (Dkt. 234). The original bid deadline of May 20, 2022 passed with only one conditioned competing bid — from Axton Industrial Holdings, LLC at $64.75M — which was subsequently withdrawn on May 25, 2022. The Debtor has since filed a motion to extend the auct

**1. Elyria Facility — Environmental Remediation Scope**

As you are aware, the APA expressly provides for VMS's assumption of environmental remediation obligations at the Debtor's Elyria facility (4500 Industrial Parkway, Elyria, OH 44035; approximately 285,000 sq. ft.). This assumption was based on the findings of the Phase II Environmental Site Assessment prepared by Pinehurst Environmental Sciences, Inc. (the "Phase II ESA"), which estimated the total remediation cost a

VMS agreed to assume this $1.4 million obligation as part of the negotiated package of assumed liabilities. This figure was a material term in the purchase price negotiation. VMS's $63.5 million purchase price — consisting of $58.5 million in cash at closing plus an estimated $5.0 million in cure costs for assumed executory contracts and unexpired leases — was set with the express understanding that VMS's total envir

VMS's position on this point is clear: the APA was negotiated on the basis of the Pinehurst Phase II ESA findings. If ongoing negotiations between the Debtor and the Ohio Environmental Protection Agency result in an expanded remediation scope beyond what was identified in the Phase II ESA — whether involving additional areas of soil contamination, expanded groundwater remediation, or otherwise — VMS cannot simply abs

Accordingly, we request that Hargrove Tillinghast provide VMS with a detailed update on the current status and substance of the Debtor's negotiations with the Ohio EPA regarding the Elyria remediation scope. Specifically, we ask that you share any correspondence, proposed consent orders, or revised remediation work plans that have been exchanged between the Debtor (or its environmental consultants) and the Ohio EPA.

Separately, the APA contemplates the transfer of Ohio EPA environmental permits for the Elyria facility to VMS post-closing, and the completion of such transfer is a closing condition. We request confirmation of the current status of any pre-transfer notifications filed with, or discussions held with, the Ohio EPA regarding the permit transfer process. To the extent any issues have arisen in that process, we would ap

**3. Committee's Position on Environmental Liability Exclusion**

VMS is aware that Pendergast McCabe & Lowe LLP, on behalf of the Official Committee of Unsecured Creditors (the "Committee"), has taken the position — as reflected in the Committee's limited objection filed April 8, 2022 — that the $1.4 million environmental remediation obligation at Elyria should be excluded from assumed liabilities under the APA. As we understand it, the Committee contends that this liability shoul

VMS's view is as follows: The allocation of the $1.4 million remediation liability was a specifically negotiated term of the APA between VMS and the Debtor. If the Committee's position were adopted, it would effectively reduce the assumed liabilities and could require a corresponding adjustment to the purchase price or other deal terms, since VMS priced its stalking-horse bid to include this specific assumed obligati

We would appreciate Hargrove Tillinghast's position on the Committee's argument and, in particular, whether the Debtor intends to support or oppose the Committee on this point. Understanding the Debtor's posture will help us evaluate how to proceed.

**4. Other Open Assumed Liability Items**

VMS also seeks confirmation regarding the current estimates for the following categories of assumed liabilities:

- *Accrued Employee Wages and Benefits:* The APA estimated this figure at approximately $2.1 million. Given the passage of time since the petition date (February 14, 2022), we request updated figures reflecting the current accrued amounts.

- *Cure Costs Under Assumed Executory Contracts and Unexpired Leases:* The APA estimated cure costs at approximately $5.0 million. We request confirmation of whether the Debtor has updated its cure cost schedule and whether any contract counterparties have disputed the proposed cure amounts.

In addition, the Mansfield plant (780 Longview Avenue, Mansfield, OH 44903; approximately 140,000 sq. ft.) and the Sandusky facility (215 Camp Street, Sandusky, OH 44870; approximately 68,000 sq. ft.) are included in the acquired assets under the APA. While neither facility was flagged in the Phase II ESA, VMS will need updated environmental status reports for those locations as well. Please advise whether the Debtor

While this is not the primary focus of this email, I want to briefly flag the labor issue as well. The APA provides that VMS will not assume Meridian's collective bargaining agreement with UAW Local 2287, which covers approximately 195 production workers at the Elyria plant. VMS has committed to negotiate a new agreement post-closing and to offer employment to at least 480 of Meridian's approximately 620 employees. W

As noted above, the Debtor's motion to extend the auction date to July 15, 2022 is pending. VMS remains fully committed to its stalking-horse bid, but I want to remind the Debtor's counsel that the APA contains a Termination Outside Date of December 31, 2022. VMS has a strong interest in moving this process forward expeditiously and resolving the open environmental and assumed liability issues so that, if and when th

To that end, we propose a call among counsel — Calderwood & Harkness and Hargrove Tillinghast, and potentially including Pendergast McCabe & Lowe if appropriate given the Committee's involvement on the environmental issue — within the next week to discuss the environmental remediation scope, the Committee's position, and the Debtor's timeline for resolution of these matters.

We would appreciate a written response to the items outlined above, or at a minimum your availability for the proposed call, no later than **Wednesday, June 15, 2022**.

Priya, thank you for your attention to these items. We understand the Debtor is managing a number of competing demands in this case, and we appreciate the collegial working relationship between our teams. That said, these issues are time-sensitive and material to VMS's continued participation as stalking-horse bidder, and we look forward to your prompt response.

Nothing in this email is intended to, nor shall it, constitute a waiver of any of VMS's rights, remedies, or defenses under the APA, the bid procedures order, or applicable law.

Amy Chesterton Partner Calderwood & Harkness LLP 600 Lexington Avenue, 38th Floor New York, NY 10022 T: (212) 558-3170 E: achesterton@calderwoodharkness.com

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