Priya,
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 Court for the Northern District of Ohio.
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with only one conditioned competing bid — from Axton Industrial Holdings, LLC at $64.75M — which was subsequently withdrawn on May 25, 2022.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 auction date to July 15, 2022 (filed June 3, 2022), which remains pending before the Court. Against that backdrop, there are a number of issues that VMS believes need to be addressed promptly, and I wanted to lay them out in an organized fashion so that we can work toward resolution.
**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 at approximately $1.4 million.
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 environmental exposure at Elyria would be capped at the $1.4 million figure identified in the Phase II ESA.
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 absorb additional remediation costs without either (a) an amendment to the APA adjusting the purchase price downward on a dollar-for-dollar basis, or (b) a renegotiation of the environmental remediation provisions of the APA.
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. VMS and Calderwood & Harkness need to understand whether the Ohio EPA is seeking expanded soil or groundwater remediation beyond the areas identified in the Phase II ESA, and if so, the nature and estimated cost of any such expanded scope.
**2. Ohio EPA Permit Transfer**
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 appreciate an update at your earliest convenience.
**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 should remain with the estate and be treated as an unsecured claim or addressed through the sale order's "free and clear" provisions under Section 363(f) of the Bankruptcy Code.
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 obligation as part of the overall deal economics. To be direct, VMS is not willing to simply receive a "windfall" reduction in assumed liabilities without reconsidering the overall economics of the transaction. The $63.5 million purchase price was calibrated to include the environmental assumption. However, if the Committee were to prevail on this point and the remediation obligation were excluded from assumed liabilities, VMS would expect to discuss with the Debtor whether and how the deal terms should be adjusted accordingly.
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 has conducted any additional environmental diligence at either site since the execution of the APA.
**5. Labor / CBA Status**
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. We request any update on UAW Local 2287's current position regarding the sale process. As you will recall, the CBA issue was one of the contingencies cited by Axton Industrial Holdings in connection with its withdrawn bid, and VMS would like to understand whether the union's posture has evolved in recent weeks.
**6. Timing and Next Steps**
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 the auction proceeds, VMS's APA terms are clear and final.
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.
Best regards,
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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