PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT PRIVILEGED / ATTORNEY WORK PRODUCT

PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT PRIVILEGED / ATTORNEY WORK PRODUCT
CALDERWOOD & HARKNESS LLP 600 Lexington Avenue, 38th Floor New York, NY 10022
MEMORANDUM
TO: Nathaniel Bower, Esq. (Responsible Partner, Bankruptcy & Restructuring)
FROM: Amy Chesterton, Esq. (Lead Associate) and Nathan Ikeda, Esq. (Associate)
DATE: March 25, 2022
RE: Legal Due Diligence Summary — Meridian Precision Components, Inc. (the "Debtor" or "Meridian")
MATTER: Vantage Mobility Systems Corp. — Proposed Stalking-Horse Acquisition of Substantially All Assets of Meridian Precision Components, Inc., Case No. 22-50318-JLG (Bankr. N.D. Ohio)
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I. EXECUTIVE SUMMARY AND PURPOSE
The purpose of this memorandum is to summarize the principal legal due diligence findings in connection with the proposed acquisition by Vantage Mobility Systems Corp. ("VMS"), a portfolio company of Ridgepoint Capital Partners, LP ("Ridgepoint"), of substantially all of the assets of Meridian Precision Components, Inc. (the "Debtor" or "Meridian") pursuant to Section 363 of Title 11 of the United States Code (the "Bankruptcy Code"). This memorandum is intended to provide our client with a comprehensive overview of the material legal issues, risks, and considerations identified during the course of our due diligence investigation and to inform the ongoing negotiation and documentation of the proposed Asset Purchase Agreement (the "APA").
Meridian filed its voluntary petition for relief under Chapter 11 of the Bankruptcy Code on February 14, 2022, in the United States Bankruptcy Court for the Northern District of Ohio (Case No. 22-50318-JLG, the Honorable Janet L. Grasso presiding). The Debtor continues to operate its business and manage its properties as debtor-in-possession pursuant to Sections 1107 and 1108 of the Bankruptcy Code.
Our due diligence investigation was conducted during the period from approximately February 28, 2022 through March 25, 2022. This investigation was based upon our review and analysis of materials made available in the virtual data room maintained by Calloway Strauss Advisory, LLC (the Debtor's court-approved financial advisor and investment banker, under the direction of Managing Director Elliot Calloway). Our review was supplemented by management presentations provided by the Debtor's senior leadership, as well as discussions with Debtor's counsel, Hargrove Tillinghast LLP (partner Marcus Tillinghast and senior associate Priya Venkatesh), regarding specific legal matters and the status of ongoing proceedings in the bankruptcy case.
The proposed stalking-horse purchase price for the transaction is $63.5 million, comprised of $58.5 million in cash payable at closing plus an estimated $5.0 million in assumed cure costs associated with the assumption and assignment of designated executory contracts and unexpired leases under Section 365 of the Bankruptcy Code. In connection with the proposed stalking-horse designation, VMS will deposit a good-faith deposit of $3.175 million (representing 5.0% of the purchase price) to be held by Granite Trust & Escrow Co. pending the conclusion of the bid procedures and auction process. The proposed APA further provides for a break-up fee of $1.905 million (representing 3.0% of the purchase price) and an expense reimbursement cap of $750,000, for total bid protections of $2.655 million (approximately 4.18% of the purchase price). These bid protections are subject to Bankruptcy Court approval as part of the bid procedures order.
This memorandum identifies several key risks that warrant continued attention as the transaction progresses toward execution and Bankruptcy Court approval. These include, most prominently: (i) environmental remediation scope uncertainty at the Elyria facility, where Phase II environmental site assessment work has identified soil and groundwater contamination with estimated remediation costs of approximately $1.4 million that are subject to potential expansion by the Ohio Environmental Protection Agency; (ii) collective bargaining agreement non-assumption issues with United Automobile Workers Local 2287, which represents approximately 195 production workers at the Elyria plant; (iii) pension and other post-employment benefit ("OPEB") withdrawal liability exposure, with the Northern Basin Employee Benefits Trust asserting a claim of approximately $14.7 million against the Debtor's estate; and (iv) potential avoidance action exposure relating to pre-petition payments identified in the Debtor's Statement of Financial Affairs.
This memorandum supplements the business and financial due diligence conducted by VMS management, including Chief Executive Officer Gerald "Gerry" Hartsfield and Chief Financial Officer Diana Rozhenko, and the Ridgepoint deal team, including Managing Director Tobias "Toby" Kessler and Principal Mariana Solano. Our legal due diligence is based upon documents and information made available to us as of the date hereof, and our conclusions are subject to the limitations and qualifications described herein. We have not independently verified the accuracy or completeness of the information contained in the data room, nor have we conducted an audit of any of the Debtor's financial statements or records.
II. CORPORATE ORGANIZATION AND GOOD STANDING
A. Formation and Jurisdiction
Meridian Precision Components, Inc. is a corporation organized and existing under the laws of the State of Ohio. The company was originally incorporated in Ohio and has maintained its corporate existence in that jurisdiction continuously since its founding. The Debtor's Employer Identification Number is 34-1987625.
Meridian's principal place of business and corporate headquarters is located at 4500 Industrial Parkway, Elyria, Ohio 44035. This address also serves as the site of the company's primary metal stamping manufacturing facility, which is its largest operating location by both square footage and headcount.
The company was founded by Raymond Kaspar, who served as its Chief Executive Officer from inception through his retirement in 2020. Mr. Kaspar's departure from active management coincided with the onset of significant financial difficulties at the company, including the loss of a major OEM program and the acceleration of legacy cost pressures. The current Chief Executive Officer is Brenda Wisnicki, a turnaround professional who was installed by the pre-petition lenders in connection with the restructuring of the company's financial obligations. Ms. Wisnicki's appointment was made pursuant to the consent rights exercised by Great Lakes Industrial Credit Corp. ("GLICC") under the pre-petition credit agreement, as discussed further below.
B. Organizational Structure
Meridian is a standalone corporate entity. Our review of the data room materials did not identify any subsidiaries, whether domestic or foreign, or any affiliated entities that would form part of a broader corporate group. No joint venture interests or minority equity holdings in other entities were identified. Accordingly, the organizational structure is straightforward and does not present the multi-entity complexity that is sometimes encountered in transactions of this nature.
Our review also did not identify any foreign qualifications for Meridian beyond its state of incorporation, Ohio. Given that Meridian's operations and facilities are all located within the State of Ohio, the absence of foreign qualifications is consistent with the company's operational footprint.
We have reviewed Meridian's Articles of Incorporation, as amended from time to time, and all amendments thereto that were made available in the data room. Our review did not identify any unusual or non-standard charter provisions that would impede or complicate the proposed Section 363 sale transaction. The Debtor's authorized and issued share capital was reviewed. All outstanding shares are held by legacy shareholders, consisting of Kaspar family interests and certain former members of management. No warrants, options, or convertible instruments were identified.
C. Good Standing
We obtained confirmation of Meridian's good standing with the Ohio Secretary of State as of February 2022. The certificate of good standing confirms that Meridian is a corporation in good standing under Ohio law and has not been subjected to any administrative dissolution or revocation proceedings. Annual reports filed with the Secretary of State are current through the 2021 filing year. No dissolution or revocation proceedings are pending with respect to Meridian.
D. Governance.  Meridian's board of directors consists of five members, including CEO Brenda Wisnicki. We have reviewed the corporate minutes of the board of directors from 2019 through the petition date. The minutes reflect that the board authorized the filing of the Chapter 11 petition and the engagement of the Debtor's professionals, including Hargrove Tillinghast LLP as counsel and Calloway Strauss Advisory, LLC as financial advisor and investment banker. Board resolutions authorizing these actions appear to have been properly adopted in accordance with Meridian's charter documents and Ohio corporate law.
We note that GLICC, acting through its workout officer Kenneth Doran, exercised consent rights under the pre-petition credit agreement with respect to the appointment of a turnaround CEO. The installation of Ms. Wisnicki as CEO was the product of negotiations between Meridian's legacy board and GLICC, and the terms of her engagement, including the turnaround management agreement, were reviewed in the data room. The turnaround management agreement provides for a base monthly fee and a success fee contingent upon completion of a sale or restructuring transaction, which is typical for engagements of this type.
III. THE BANKRUPTCY CASE — OVERVIEW
A. Petition and Case Information
On February 14, 2022, Meridian Precision Components, Inc. filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Northern District of Ohio. The case has been assigned Case No. 22-50318-JLG and is being administered before the Honorable Janet L. Grasso.
According to the schedules and statements filed with the Court, the Debtor listed total assets of approximately $87.3 million (at book value) and total liabilities of approximately $129.6 million, reflecting a balance sheet deficiency of approximately $42.3 million. The Debtor continues to operate its business as debtor-in-possession and has been authorized to use cash collateral and draw upon its post-petition financing facility, as described below.
B. Debtor's Professionals
The following professionals have been retained by or on behalf of the Debtor in the Chapter 11 case:
Debtor's Counsel: Hargrove Tillinghast LLP, with offices at 450 Park Avenue, 22nd Floor, New York, New York 10022, and 127 Public Square, Suite 2400, Cleveland, Ohio 44114. The engagement is led by partner Marcus Tillinghast and senior associate Priya Venkatesh. Hargrove Tillinghast LLP is handling all aspects of the Chapter 11 case, including the Section 363 sale process, DIP financing, and first-day matters.
Debtor's Financial Advisor and Investment Banker: Calloway Strauss Advisory, LLC, with offices at 399 Park Avenue, 10th Floor, New York, New York 10022, under the direction of Managing Director Elliot Calloway. The retention application for Calloway Strauss was filed on February 18, 2022. Calloway Strauss was engaged pre-petition to conduct a marketing process for the Debtor's assets and continues to serve in that capacity post-petition as the court-approved investment banker. Calloway Strauss is responsible for managing the virtual data room, soliciting indications of interest and binding bids, and advising the Debtor on the stalking-horse selection and auction process.
Pre-Petition and DIP Lender's Counsel: Whitfield & Chambers LLP, with offices at 1251 Avenue of the Americas, 30th Floor, New York, New York 10020. The engagement is led by partner Adrienne Whitfield. Whitfield & Chambers represents GLICC in its capacity as both pre-petition secured lender and post-petition DIP lender.
C. DIP Financing
The Debtor's post-petition operations are funded through a debtor-in-possession credit facility provided by Great Lakes Industrial Credit Corp. ("GLICC"), the same entity that serves as the Debtor's pre-petition secured lender. The DIP facility is a revolving credit facility with an authorized commitment of $15.0 million.
The Bankruptcy Court entered an interim DIP order on February 22, 2022 (Dkt. 47), authorizing the Debtor to draw upon the DIP facility on an interim basis, and a final DIP order on March 18, 2022 (Dkt. 112), approving the DIP facility on a final basis. The key terms of the DIP facility are as follows:
•  Interest Rate: Secured Overnight Financing Rate ("SOFR") plus 550 basis points
•  Unused Commitment Fee: 1.0% per annum on undrawn amounts
•  Exit Fee: 2.0% of the total commitment amount, payable upon termination of the facility
•  Priority: The DIP facility provides GLICC with a super-priority administrative expense claim under Section 364(c)(1) of the Bankruptcy Code and a priming lien on substantially all of the Debtor's assets under Section 364(d) of the Bankruptcy Code
The DIP facility is subject to customary covenants, milestones, and events of default, including milestones relating to the Section 363 sale process. We have reviewed the DIP credit agreement and the interim and final DIP orders. The sale milestones contained in the DIP facility require, among other things, the entry of a bid procedures order within a specified timeframe following the petition date and the consummation of a sale transaction within a defined period thereafter. These milestones should be carefully monitored, as a failure to meet them could constitute an event of default under the DIP facility.
D. Official Committee of Unsecured Creditors
The Office of the United States Trustee for Region 9 appointed an Official Committee of Unsecured Creditors (the "Committee") on March 1, 2022. The Committee is composed of three members representing the principal constituencies of unsecured creditors in the case:
1.  Aldric Stamping & Tool Co. — a trade creditor owed approximately $3.8 million for goods and services provided to Meridian pre-petition. Aldric Stamping & Tool Co. serves as the chair of the Committee.
2.  Northern Basin Employee Benefits Trust — the holder of pension and OPEB claims estimated at approximately $14.7 million. Northern Basin's claim represents the single largest unsecured claim in the case and reflects Meridian's legacy obligations under its defined benefit pension plan and retiree medical benefit programs.
3.  Crestwood Logistics, Inc. — a freight and logistics vendor owed approximately $1.1 million for pre-petition transportation services.
The Committee has retained the following professionals:
Committee Counsel: Pendergast McCabe & Lowe LLP, with offices at 311 South Wacker Drive, Suite 5400, Chicago, Illinois 60606. The engagement is led by partner the Honorable Franklin Lowe (ret.) and associate Sandra Okoro. Judge Lowe (ret.) is a former bankruptcy judge with significant experience in large Chapter 11 cases and Section 363 sale processes.
Committee Financial Advisor: Dunbar Phelps Group, LLC, with offices at 1345 Avenue of the Americas, 33rd Floor, New York, New York 10105, under the direction of Managing Director Janet Hirsch. Dunbar Phelps has been retained to provide financial advisory services to the Committee, including analysis of the proposed sale transaction, valuation of the Debtor's assets, and investigation of the Debtor's pre-petition conduct and potential estate causes of action.
The Committee's formation and retention of experienced professionals is noteworthy for purposes of the Section 363 sale process. The Committee can be expected to play an active role in evaluating the adequacy of the proposed purchase price, the fairness of the bid protections, and the treatment of unsecured claims in the sale process. Given the magnitude of the Northern Basin pension/OPEB claim and the Committee's investigation mandate, we anticipate that the Committee will scrutinize the proposed transaction carefully and may seek concessions from VMS or the Debtor as a condition of supporting the sale.
E. Pre-Petition Capital Structure
The following table summarizes the Debtor's pre-petition capital structure as reflected in the schedules filed with the Bankruptcy Court and the credit documentation reviewed in the data room:
The Pre-Petition Credit Agreement, dated September 12, 2019 (as amended from time to time), governs both the revolving facility and the term loan. GLICC holds a first-priority security interest in and lien upon substantially all of the Debtor's assets, including real property, personal property, intellectual property, and accounts receivable. The security interest was perfected through the filing of UCC financing statements, recordation of mortgages, and other customary perfection methods. We reviewed the UCC filings and mortgage documents in the data room and did not identify any gaps in perfection, though we note that a formal lien search and analysis was not within the scope of our engagement.
F. Financial Overview of the Debtor
While a detailed financial analysis is beyond the scope of this legal due diligence memorandum, the following summary is provided for context:
Meridian reported revenue of approximately $138.4 million for the fiscal year ended December 31, 2021 ("FY2021"). The company incurred an operating loss of approximately ($11.2 million) during FY2021. The operating loss was attributable to several factors, including significant raw-material cost inflation (particularly for steel and coating chemicals), the loss of a major production program with a domestic original equipment manufacturer ("OEM") that historically accounted for approximately 18% of the company's annual revenue, and the ongoing burden of legacy pension and OPEB obligations.
Meridian operates as a Tier 2 automotive supplier, specializing in metal stampings, welded assemblies, and e-coat finishing for structural automotive components. The company's products are supplied primarily to Tier 1 automotive suppliers and, in certain instances, directly to OEMs. The Debtor's business model is heavily dependent on long-term customer programs, and the loss of a major program without adequate replacement volume was a significant catalyst for the financial distress that ultimately led to the Chapter 11 filing.
IV. REAL PROPERTY
A. Overview of Facilities
Meridian owns all three of its operating facilities in fee simple. No leased real property was identified in the data room for manufacturing operations. This is noteworthy from a transaction structuring perspective, as the absence of real property leases simplifies the assumption and assignment analysis under Section 365 of the Bankruptcy Code for the company's primary operating locations.
A title review for all three facilities was conducted by Commonwealth Abstract & Title Services, LLC, located at 50 South Main Street, Suite 800, Akron, Ohio 44308. Commonwealth was engaged to provide preliminary title commitments for each of the three properties in connection with the proposed acquisition. The results of the title review are summarized below and in greater detail in Appendix C.
B. Elyria Facility (Headquarters and Stamping)
The Elyria facility is located at 4500 Industrial Parkway, Elyria, Ohio 44035. The facility comprises approximately 285,000 square feet of manufacturing, warehouse, and office space. It serves as Meridian's corporate headquarters and its primary metal stamping facility, housing the majority of the company's press line equipment, die storage operations, and associated tooling infrastructure. The Elyria facility is the largest of Meridian's three locations and employs the greatest number of the company's workforce, including both unionized production workers represented by UAW Local 2287 and non-union salaried and management personnel.
The Elyria facility is subject to environmental remediation obligations arising from historical industrial operations on the site. These obligations are discussed in detail in Section VIII below and represent one of the key risk factors identified in this due diligence investigation. In addition, the environmental permits held by Meridian for air emissions, wastewater discharge, and hazardous waste management at the Elyria facility require transfer notification to the Ohio Environmental Protection Agency ("Ohio EPA") in connection with any change in ownership.
C. Mansfield Plant (Welding and Assembly)
The Mansfield facility is located at 780 Longview Avenue, Mansfield, Ohio 44903. The facility comprises approximately 140,000 square feet and is dedicated to welding and assembly operations for structural automotive components. The Mansfield plant houses robotic welding cells, manual welding stations, and assembly lines that serve as the primary production center for welded subassemblies.
The title search conducted by Commonwealth Abstract & Title Services, LLC for the Mansfield facility revealed standard utility easements consistent with industrial properties of this type. No material title defects were identified that would impede or complicate the transfer of ownership in connection with the proposed transaction.
D. Sandusky Facility (E-Coat and Finishing)
The Sandusky facility is located at 215 Camp Street, Sandusky, Ohio 44870. The facility comprises approximately 68,000 square feet and is devoted to electrophoretic coating ("e-coat") and finishing operations. The Sandusky facility is the smallest of Meridian's three operating locations and serves as a downstream processing facility, applying protective coatings to stamped and welded components prior to shipment to customers.
The title review for the Sandusky facility reflects clean title with standard exceptions. No material environmental issues have been identified at this location. The facility's smaller scale and more limited operational scope result in a comparatively lower risk profile from both an environmental and operational perspective.
E. Title and Survey Matters
As noted above, Commonwealth Abstract & Title Services, LLC was engaged to provide preliminary title commitments for all three of Meridian's owned properties. We have reviewed the preliminary title commitments and identified the following standard exceptions, which are typical for industrial properties in northeastern Ohio:
•  Utility easements (electric, gas, water, and sewer) in favor of local utility providers
•  Road right-of-way easements in favor of the applicable county or municipal authority
•  Real property tax liens for current and future tax obligations
No material title defects were identified that would impede the transfer of any of the three properties in connection with the proposed Section 363 sale. GLICC's mortgages and liens encumbering the properties will be released and discharged through the Section 363 sale order, which will provide for the sale of the properties free and clear of all liens, claims, interests, and encumbrances pursuant to Section 363(f) of the Bankruptcy Code.
Updated ALTA surveys are currently being obtained for all three facilities. As of the date of this memorandum, no survey discrepancies or boundary issues have been flagged. We will review the final survey reports when they are received and will supplement this memorandum as necessary.
F. Real Property Taxes
We reviewed the real property tax records for all three facilities. The Elyria and Mansfield properties reflect current tax payments through the 2021 tax year. First-half 2022 taxes are accruing and will need to be addressed at closing, either through assumption by VMS or proration between the parties. The Sandusky facility's property taxes are current as of the date of our review.
Real property tax prorations between the Debtor and VMS will be addressed at closing in accordance with standard Ohio practice and the terms of the APA. We note that any delinquent real property tax obligations, if any, would attach to the real property as statutory liens and would need to be satisfied from the sale proceeds or otherwise addressed in the sale order.
V. MATERIAL CONTRACTS AND CUSTOMER PROGRAMS
A. Customer Contracts Overview
Meridian's revenue is concentrated among a limited number of OEM and Tier 1 automotive customers. Based on our review of the customer contracts and financial information provided in the data room, the top five customers by revenue represent approximately 78% of the Debtor's FY2021 revenue. This level of customer concentration is not unusual for Tier 2 automotive suppliers, but it does present a meaningful business risk that should be considered in evaluating the long-term value of the acquired business.
As noted in Section III.F above, the loss of a major production program with a domestic OEM was one of the contributing factors to Meridian's Chapter 11 filing. This program historically accounted for approximately 18% of Meridian's annual revenue. The termination of this program resulted in significant underutilization of capacity at the Elyria facility and contributed to the operating losses experienced in FY2021. The remaining customer programs appear to be viable and are continuing in the ordinary course of business during the post-petition period. We are not aware of any additional program terminations or customer disengagements that have occurred or are threatened since the petition date.
B. Assumed vs. Excluded Contracts
The proposed APA contemplates the assumption and assignment to VMS of designated executory contracts and unexpired leases pursuant to Section 365 of the Bankruptcy Code. Under the Bankruptcy Code, a debtor may assume and assign an executory contract or unexpired lease to a purchaser as part of a Section 363 sale, provided that all defaults under the contract are cured (or adequate assurance of prompt cure is provided), the debtor compensates the counterparty for any actual pecuniary loss resulting from the default, and the buyer provides adequate assurance of future performance under the contract.
The estimated aggregate cure costs for the contracts proposed to be assumed and assigned to VMS are approximately $5.0 million. This estimate is preliminary and is based on an initial analysis conducted by the Debtor's counsel, Hargrove Tillinghast LLP, and the Debtor's management team. The cure cost schedule is currently under development and remains subject to finalization by Hargrove Tillinghast and verification by the applicable counterparties. We note that counterparties may dispute the cure amounts asserted by the Debtor, and the Bankruptcy Court may ultimately adjudicate contested cure amounts as part of the sale process. Accordingly, the $5.0 million estimate should be viewed as a working figure that is subject to change.
A schedule of the specific contracts proposed to be assumed and assigned to VMS will be attached to the APA as an exhibit. The selection of contracts for assumption will require ongoing coordination between VMS, the Debtor, and their respective counsel to ensure that all contracts necessary for the continued operation of the business are identified and assumed, while contracts that VMS does not wish to assume (including potentially unfavorable or immaterial agreements) are excluded.
C. Supply Agreements
Meridian maintains supply agreements with various raw material providers, primarily suppliers of steel (including hot-rolled steel, cold-rolled steel, and galvanized steel) and coating chemicals and materials used in the e-coat finishing process at the Sandusky facility. We reviewed the principal supply agreements in the data room and note the following:
Several of the supply agreements contain change-of-control provisions that would, under normal circumstances, give the counterparty the right to terminate the agreement or withhold consent to assignment upon a change in ownership of Meridian. In the context of a Section 363 sale, however, these provisions are generally overridden by the anti-assignment override language contained in the sale order. Specifically, Section 365(f)(1) of the Bankruptcy Code provides that, notwithstanding a provision in an executory contract that prohibits or restricts assignment, the contract may be assumed and assigned if certain conditions are met. The proposed sale order will include standard language overriding anti-assignment provisions in assumed contracts.
Certain supply agreements contain pricing terms that were negotiated prior to the significant raw-material price inflation experienced in 2021 and continuing into 2022. As a result, the pricing under these agreements is below current market rates, which represents a potential benefit to VMS as buyer if these agreements can be successfully assumed and assigned. We recommend that VMS's management team evaluate the remaining term and volume commitments under these favorable supply agreements to assess the magnitude of this potential benefit.
D. Equipment Leases
Meridian's equipment lease portfolio is limited. The majority of the company's machinery and equipment — including press lines, welding cells, and finishing equipment — is owned outright. Our review identified one material equipment lease relating to press line tooling. This lease will require either lessor consent to assignment or assumption and assignment through the Section 365 process. The cure amount associated with this equipment lease is included in the estimated aggregate cure costs of $5.0 million discussed above.
We reviewed the terms of the equipment lease and did not identify any provisions that would create obstacles to assumption and assignment beyond the standard cure requirements. The lessor will receive notice of the proposed assumption and assignment as part of the cure notice process and will have the opportunity to object if it disputes the cure amount or the adequacy of VMS's assurance of future performance.
E. Key Observations and Risks
The following key observations and risks relate to the contracts and customer programs proposed to be assumed in the transaction:
•  Customer Concentration Risk: The loss of additional customer programs beyond the OEM program already terminated could materially impair the value of the acquired business. Given that the top five customers represent approximately 78% of revenue, the departure of even one significant customer would have a disproportionate impact on the business. VMS should evaluate the stability of each of its key customer relationships and develop a post-closing customer diversification strategy to mitigate this risk.
•  Cure Cost Variability: The $5.0 million estimated cure cost is preliminary and subject to counterparty objections. If counterparties assert higher cure amounts than those estimated by the Debtor, the total assumed liabilities under the APA would increase correspondingly. VMS should ensure that the APA contains appropriate protections addressing cure cost disputes, including a mechanism for resolving contested cure amounts and a cap on total assumed cure costs.
•  Assignment Objections: Certain counterparties may object to the assumption and assignment of their contracts to VMS, arguing that VMS has not demonstrated adequate assurance of future performance under Section 365(b)(1)(C) of the Bankruptcy Code. While these objections are typically resolved through the Bankruptcy Court process, they can introduce delays and uncertainty. VMS should be prepared to demonstrate its financial capability and operational qualifications to perform under the assumed contracts.
VI. INTELLECTUAL PROPERTY
A. Trademarks and Trade Names
Meridian's trade name, "Meridian," together with its associated logos and brand identifiers, is included among the assets to be acquired by VMS under the proposed APA. Our review of the United States Patent and Trademark Office records identified several active trademark registrations held by Meridian. No material lapses, cancellation proceedings, or oppositions were identified with respect to any of these registrations.
Additionally, no third-party challenges to Meridian's trademark portfolio were identified in the data room materials. The Debtor does not appear to be party to any trademark disputes or enforcement actions, whether as plaintiff or defendant.
B. Patents.  Meridian holds a limited portfolio of utility patents relating to proprietary stamping die configurations and welding fixture designs. These patents protect certain aspects of Meridian's manufacturing processes and tooling that contribute to the efficiency and quality of its production operations. We reviewed the patent portfolio in the data room and confirmed that no patents material to current operations have expired or are subject to pending reexamination or invalidity proceedings.
No pending patent infringement claims against Meridian were identified in our review. Similarly, no claims by Meridian against third parties for patent infringement were identified. The patent portfolio, while limited in scope, provides some measure of protection for Meridian's proprietary manufacturing techniques and should be included among the acquired intellectual property assets.
C. Trade Secrets and Know-How
A significant portion of Meridian's competitive advantage in the Tier 2 automotive supply market resides not in formal intellectual property registrations but in proprietary process know-how, die designs, and customer-specific tooling specifications that have been developed over decades of operations. This institutional knowledge is embedded in the skills and experience of Meridian's engineering and manufacturing personnel and in the company's internal documentation, including process sheets, die design files, and production records.
We reviewed the confidentiality and non-disclosure agreements entered into by key employees and found them to contain standard provisions regarding the protection of confidential information and trade secrets. However, we note a significant risk in this area: the departure of key engineering personnel following the closing of the transaction could result in the loss of critical institutional knowledge that is not fully captured in written documentation. This risk is particularly acute in the context of a bankruptcy sale, where employee morale and retention are frequently challenged.
D. Software and IT Systems
Meridian utilizes third-party licensed enterprise resource planning ("ERP") and manufacturing execution systems ("MES") to manage its production, inventory, and financial operations. These systems are licensed from third-party vendors under standard commercial software license agreements. We reviewed the principal software license agreements and determined that most permit assignment with notice to the licensor, consistent with the Section 365 assumption and assignment process.
No proprietary software developed by Meridian was identified in the data room. Accordingly, the software and IT systems aspect of the intellectual property due diligence does not present any material issues beyond ensuring that the relevant third-party licenses are properly assumed and assigned in connection with the transaction.
VII. LABOR AND EMPLOYMENT
A. Workforce Overview
As of the petition date, Meridian employed approximately 620 people across its three operating facilities. The workforce includes both unionized production workers and non-union salaried, management, and administrative personnel. The distribution of employees across the three facilities is as follows: the Elyria facility houses the largest contingent, including the unionized production workforce and the majority of salaried and management staff; the Mansfield and Sandusky facilities employ smaller workforces dedicated to their respective welding/assembly and e-coat/finishing operations.
Under the proposed APA, VMS is required to offer employment to at least 480 of Meridian's approximately 620 employees. This threshold was negotiated between VMS and the Debtor and is intended to ensure continuity of operations at the acquired facilities while providing VMS with flexibility to optimize its workforce following the closing.
B. Collective Bargaining Agreement — UAW Local 2287
Approximately 195 production workers at the Elyria plant are covered by a collective bargaining agreement ("CBA") with the International Union, United Automobile, Aerospace and Agricultural Implement Workers of America, Local 2287 ("UAW Local 2287"). We have reviewed the CBA, which contains standard provisions regarding wages, benefits, seniority, grievance and arbitration procedures, and work rules. The CBA governs the terms and conditions of employment for the represented workforce at the Elyria facility, which is Meridian's primary production location.
The proposed APA does not contemplate the assumption of the existing CBA by VMS. Instead, VMS intends to negotiate a new collective bargaining agreement with UAW Local 2287 following the closing of the transaction. This approach is permissible under the applicable legal framework governing Section 363 sales, as the purchaser of assets in a Section 363 sale is generally not obligated to assume the debtor's collective bargaining agreement. Unlike a plan of reorganization, where Section 1113 of the Bankruptcy Code governs the rejection of CBAs, the Section 363 sale context does not impose the same procedural requirements.
Notwithstanding the legal permissibility of this approach, the non-assumption of the CBA raises several significant practical and legal risks that warrant careful attention:
•  Union Opposition to the Sale: UAW Local 2287 may object to the proposed Section 363 sale if it perceives the proposed terms as unfavorable to its members. Such an objection could delay the sale process and create uncertainty regarding the ultimate outcome. While a union objection would not necessarily prevent the Bankruptcy Court from approving the sale, it could result in contested hearings and the imposition of conditions on the sale order.
•  Labor Disruption During Transition: Even in the absence of a formal objection, the non-assumption of the CBA could lead to labor unrest during the transition period. If VMS is unable to reach agreement with UAW Local 2287 on the terms of a new CBA in a timely manner, there is a risk of a strike or work stoppage at the Elyria plant. Given that the Elyria facility is Meridian's primary production facility, a labor disruption at that location would have a material adverse impact on the business.
•  Adequate Assurance Considerations: Under Section 365 of the Bankruptcy Code, the assumption and assignment of executory contracts requires a showing of adequate assurance of future performance by the assignee. While the CBA itself is not being assumed, the labor relations dynamics surrounding the CBA may affect the Bankruptcy Court's assessment of VMS's ability to operate the business as a going concern, which is a relevant consideration in the overall Section 363 sale approval.
•  Post-Closing Negotiations: VMS's post-closing labor strategy will need to address the terms of a new CBA with UAW Local 2287. The timeline for these negotiations is uncertain, and the outcome will depend on range factors, including the union's bargaining posture, prevailing labor market conditions, and VMS's willingness to offer competitive terms. We recommend that VMS engage with UAW Local 2287 at the earliest practicable time to outline its post-closing labor framework and build a constructive relationship.
C. Employee Benefits — Non-Union
Non-union employees at Meridian participate in standard benefit programs, including employer-sponsored health insurance, a 401(k) retirement savings plan, and paid time off ("PTO"). These benefit programs are sponsored by Meridian and are not being assumed by VMS under the proposed APA. VMS will establish its own benefit plans for the employees who transition to VMS employment following the closing.
Accrued employee wages and benefits — including earned but unpaid wages, accrued vacation and PTO, and other standard employment-related accruals — are estimated at approximately $2.1 million. These amounts are proposed to be included in the assumed liabilities under the APA, ensuring continuity of employee compensation and minimizing disruption during the transition. The specific terms governing the treatment of accrued employee obligations will be set forth in the APA and the related schedules.
D. Key Employee Retention
Through our review of the data room materials and discussions with the Debtor's counsel, we have identified several key management and engineering personnel who are critical to the ongoing operations of the business and whose retention is important to preserving the value of the acquired assets. These individuals possess specialized knowledge of Meridian's manufacturing processes, customer relationships, and operational systems that would be difficult and costly to replace.
The Debtor has implemented a key employee retention program ("KERP") that was approved by the Bankruptcy Court. The KERP provides retention bonuses to designated key employees, payable upon the completion of certain milestones, including the closing of a sale transaction. The KERP is designed to incentivize key personnel to remain with the company through the sale process and the transition to new ownership.
We recommend that VMS independently evaluate which of Meridian's personnel are essential to the post-closing operations and develop a comprehensive retention strategy, which may include employment agreements, retention bonuses, and equity incentive arrangements, to ensure the continuity of the management and engineering talent necessary to operate the business.
E. WARN Act Considerations
We have conducted an analysis of the Debtor's obligations under the Worker Adjustment and Retraining Notification Act ("WARN Act"), 29 U.S.C. § 2101 et seq. The WARN Act requires employers with 100 or more employees to provide at least 60 calendar days' advance written notice of a "plant closing" or "mass layoff" to affected employees, their representatives, the state dislocated worker unit, and the chief elected official of the applicable local government.
If VMS offers employment to at least 480 of Meridian's approximately 620 employees, as required by the APA, the risk of triggering WARN Act obligations in connection with the closing of the transaction should be substantially mitigated, as the remaining reduction of approximately 140 employees may fall below the thresholds applicable to each facility. However, we recommend monitoring the Debtor's workforce levels at each facility in the period leading up to closing, as any significant reduction in Meridian's workforce prior to closing — whether through attrition, layoffs, or other means — could trigger WARN Act notice requirements on the part of the Debtor. WARN Act claims can give rise to administrative expense priority claims in a Chapter 11 case, which could affect the distribution waterfall and recoveries for creditors.
VIII. ENVIRONMENTAL MATTERS
A. Phase I and Phase II Environmental Site Assessments
Environmental due diligence for the proposed transaction was conducted in coordination with Pinehurst Environmental Sciences, Inc. ("Pinehurst"), located at 6300 Rockside Road, Suite 200, Independence, Ohio 44131. Pinehurst was retained by VMS as its independent environmental consultant to evaluate the environmental conditions at each of Meridian's three operating facilities.
Phase I Environmental Site Assessments ("Phase I ESAs") were conducted for all three facilities — Elyria, Mansfield, and Sandusky — in accordance with ASTM Standard Practice E1527-21. The Phase I ESA for the Elyria facility identified recognized environmental conditions ("RECs") that warranted further investigation. Based on these findings, a Phase II Environmental Site Assessment ("Phase II ESA") was conducted at the Elyria facility, involving subsurface investigations including soil borings, groundwater monitoring well installation and sampling, and laboratory analysis of soil and groundwater samples.
The Phase I ESAs for the Mansfield and Sandusky facilities did not identify recognized environmental conditions requiring further investigation. The findings for each facility are discussed in greater detail below.
B. Elyria Facility — Environmental Remediation
The Phase II ESA conducted by Pinehurst at the Elyria facility identified soil and groundwater contamination attributable to historical industrial operations at the site. The contamination consists primarily of chlorinated solvent releases (including trichloroethylene ("TCE") and perchloroethylene ("PCE")) and metals contamination (including chromium and zinc) associated with metal stamping operations. The contamination appears to be localized in the vicinity of former solvent storage areas and the stamping process waste management areas on the property.
The estimated cost of remediation based on the currently defined remediation scope, as set forth in the Phase II ESA report prepared by Pinehurst, is approximately $1.4 million. This estimate encompasses the design and implementation of a remedial action plan, including soil excavation and off-site disposal, in-situ groundwater treatment, long-term groundwater monitoring, and associated regulatory reporting and compliance activities.
The Ohio EPA is aware of the contamination at the Elyria facility, and remediation scope negotiations are ongoing between Meridian and the Ohio EPA. The agency has not yet issued a final determination regarding the required scope of remediation, and the outcome of these negotiations is uncertain.
Key Risk: Environmental Remediation Scope Uncertainty. The $1.4 million remediation cost estimate is based on the remediation scope currently contemplated and agreed upon between Meridian and its environmental consultants. However, if the Ohio EPA exercises its regulatory authority to expand the required remediation — for example, by requiring the installation of additional groundwater monitoring wells, expanding the area of soil excavation, requiring the treatment of additional contaminants, or extending the duration of long-term monitoring obligations — the actual remediation costs could increase materially beyond the $1.4 million estimate.
The proposed APA contemplates VMS's assumption of the $1.4 million environmental remediation obligation at the Elyria facility as part of the assumed liabilities. This means that VMS would bear the cost of completing the remediation at the currently estimated scope. However, any expansion of the remediation scope beyond the $1.4 million estimate would require either an amendment to the APA or a renegotiation of the purchase price, as VMS would effectively be assuming additional unanticipated liabilities.
In addition, the Ohio EPA requires permit transfer notification for the environmental permits currently held by Meridian at the Elyria facility. The regulatory approval timeline for the permit transfer process is uncertain and could affect the closing schedule if the Ohio EPA raises issues regarding the adequacy of VMS's environmental compliance history or its ability to complete the required remediation.
Recommendation: VMS should consider negotiating a remediation cost cap or escrow mechanism in the APA to protect against remediation scope creep. Under such a mechanism, the $1.4 million estimate would serve as the baseline obligation assumed by VMS, and any remediation costs in excess of a specified cap (for example, $1.75 million or $2.0 million) would be addressed through a holdback escrow funded from the sale proceeds or an adjustment to the purchase price. This approach would allocate the risk of unforeseen remediation costs between the parties in a more balanced manner. We also recommend close coordination with Pinehurst to monitor the ongoing Ohio EPA negotiations and to ensure that VMS has current information regarding the potential range of remediation outcomes.
C. Mansfield and Sandusky Facilities
The Phase I ESAs conducted for the Mansfield and Sandusky facilities did not identify recognized environmental conditions requiring further investigation. Neither facility has a history of significant chemical usage or waste management activities that would give rise to material environmental liabilities. No Phase II investigations were recommended or conducted at either location.
No material environmental liabilities were identified at the Mansfield or Sandusky facilities. Standard environmental representations and warranties will be included in the APA with respect to all three facilities, and VMS will have the benefit of the Phase I ESAs as part of its baseline environmental due diligence.
D. Environmental Permits
Meridian holds various environmental permits for its operations at the Elyria and Mansfield facilities, including permits for air emissions, wastewater discharge, and hazardous waste management. The transfer of these permits in connection with the change of ownership requires notification to the Ohio EPA. The permit transfer process is expected to be administrative in nature, and we do not anticipate substantive regulatory obstacles to the transfer. However, the timeline for Ohio EPA processing of the permit transfer applications may affect the overall closing schedule and should be factored into the transaction timeline.
We recommend that VMS coordinate with Pinehurst and with the Debtor's environmental compliance personnel to ensure that all required permit transfer notifications are submitted promptly following execution of the APA, and that the closing conditions in the APA account for the time required to complete the permit transfer process.
IX. PENDING AND THREATENED LITIGATION
A. Overview.  We reviewed Meridian's litigation docket as reflected in the data room materials, including all pending cases, known threatened claims, and pre-petition demand letters received by the company. The Debtor's counsel, Hargrove Tillinghast LLP, provided supplemental information regarding the status of pending matters. A summary of the litigation docket is set forth in Appendix F.
B. Pre-Petition Litigation
Our review identified the following pending litigation matters:
1.  Personal Injury Claims (Lorain County, Ohio). Two pending state court actions in the Lorain County Court of Common Pleas brought by former employees alleging workplace injuries sustained during the course of their employment at the Elyria facility. The claims allege, respectively, injuries from press line operation and a slip-and-fall incident. The combined exposure from these two cases is estimated at less than $500,000, and both claims are covered under Meridian's general liability insurance policy. The insurer has appointed defense counsel and is managing the defense of both claims. Given the insurance coverage and the relatively modest exposure, these matters do not present a material risk to VMS in connection with the proposed transaction.
2.  Breach of Contract Claim (Cuyahoga County, Ohio). One pending breach-of-contract action in the Cuyahoga County Court of Common Pleas brought by a former raw material supplier alleging non-payment for goods delivered to Meridian during the pre-petition period. The amount in controversy is approximately $1.2 million. This action is stayed by the automatic stay imposed by Section 362 of the Bankruptcy Code and will be addressed as a pre-petition unsecured claim in the Chapter 11 case.
3.  Federal Court Litigation. No federal court litigation involving Meridian was identified.
4.  intellectual Property Litigation. No patent, trademark, or intellectual property litigation involving Meridian was identified.
C. Regulatory Matters
The principal regulatory matter involving Meridian is the Ohio EPA remediation matter at the Elyria facility, which is addressed in detail in Section VIII above.
No pending citations or investigations by the Occupational Safety and Health Administration ("OSHA") were identified in the data room materials. Similarly, no pending or threatened claims with the Equal Employment Opportunity Commission ("EEOC") or comparable state agencies alleging employment discrimination, harassment, or retaliation were identified.
D. Avoidance Actions
Under the proposed APA, the Debtor's estate retains all causes of action and avoidance actions as excluded assets. This means that VMS will not acquire the right to pursue, or the obligation to defend against, avoidance actions that may be asserted by the Debtor's estate or the Committee against third parties.
Key Risk: Potential Avoidance Action Exposure. Our preliminary review of the Debtor's Statement of Financial Affairs ("SOFA") filed with the Bankruptcy Court indicates payments totaling approximately $4.3 million to insiders and certain trade creditors within the 90-day preference period (November 16, 2021 through February 14, 2022). These payments may be subject to avoidance as preferential transfers under Section 547 of the Bankruptcy Code if the applicable elements of a preference claim are established.
In addition, insider transfers within the one-year look-back period (February 14, 2021 through February 14, 2022) were identified in the SOFA. These transfers include payments to Raymond Kaspar (the company's founder and former CEO) and certain former officers. Given the Debtor's balance sheet insolvency (with a deficiency of approximately $42.3 million as of the petition date), pre-petition transactions with insiders warrant further scrutiny under both the preference provisions of Section 547 and the fraudulent transfer provisions of Sections 544 and 548 of the Bankruptcy Code.
While VMS is not assuming avoidance action liability under the proposed APA, the existence and potential pursuit of these claims by the Committee — through its counsel, Pendergast McCabe & Lowe LLP, and its financial advisor, Dunbar Phelps Group, LLC — could affect the overall dynamics of the Chapter 11 case and the recoveries available to creditors. The investigation and prosecution of avoidance actions by the Committee may influence the Committee's posture with respect to the proposed sale, including whether the Committee supports or objects to the transaction and the bid protections sought by VMS.
Recommendation: VMS should ensure that the APA's excluded-asset carve-out for avoidance actions is clearly and precisely drafted to avoid any argument that successor liability for pre-petition avoidance action obligations attaches to VMS as the buyer of the assets. While the Section 363 sale order's "free and clear" provisions should provide substantial protection against successor liability claims, careful drafting of both the APA and the sale order is essential to eliminate ambiguity. We recommend that the sale order include specific findings that VMS is a good-faith purchaser under Section 363(m) of the Bankruptcy Code and that the sale is free and clear of all claims, interests, and encumbrances, including any claims relating to avoidance actions or successor liability.
X. TAX MATTERS
A. Federal and State Income Taxes
Meridian is treated as a C corporation for federal income tax purposes. We reviewed the Debtor's federal and state income tax returns for the fiscal years ended December 31, 2019 ("FY2019"), December 31, 2020 ("FY2020"), and December 31, 2021 ("FY2021"). No pending audits, examinations, or assessments by the Internal Revenue Service ("IRS") or any state taxing authority were identified in the data room materials.
The FY2020 and FY2021 returns reflect significant net operating losses, consistent with the Debtor's financial distress during those periods. These net operating losses generated net operating loss carryforwards ("NOLs"), which remain with the Debtor's estate and are not being acquired by VMS in the proposed transaction.
Tax refunds, if any, attributable to the Debtor's pre-closing operations are excluded assets under the proposed APA and will be retained by the Debtor's estate for the benefit of creditors.
B. State and Local Taxes
The Debtor's Ohio commercial activity tax ("CAT") filings were reviewed and appear to be current through FY2021. The CAT is a gross-receipts-based tax applicable to business entities operating in Ohio, and compliance with this tax is relevant to ensuring a clean transition of the business to VMS.
Property tax obligations are addressed in Section IV.F above. Our review did not identify any state tax liens encumbering the Debtor's assets beyond the standard real property tax liens that apply to all Ohio real property.
C. Sales and Use Tax
Meridian collects and remits Ohio sales tax on applicable transactions in the ordinary course of its business. Our review of the Debtor's sales and use tax compliance did not identify any material deficiencies or pending audits. Manufacturing exemptions have been properly claimed for qualifying purchases of raw materials and equipment used directly in the manufacturing process, consistent with Ohio Revised Code Section 5739.02(B)(42).
D. Transfer Tax Considerations
Section 1146(a) of the Bankruptcy Code provides an exemption from stamp taxes and similar transfer taxes for transfers made under a confirmed plan of reorganization. Courts have generally extended this exemption to transfers consummated pursuant to a Section 363 sale order approved by the Bankruptcy Court, provided that the sale order includes appropriate language invoking the exemption. We will ensure that the proposed sale order includes language confirming the applicability of the Section 1146(a) exemption to the transfer of the Debtor's assets to VMS.
The transfer tax savings resulting from the Section 1146(a) exemption are estimated to include Ohio real property transfer taxes and, to the extent applicable, any other state or local transfer, recording, or similar taxes that would otherwise be imposed on the conveyance of the Debtor's real and personal property. These savings have been included in the estimated transaction cost budget of $4.2 million.
E. EIN and Tax Attributes
Meridian's Employer Identification Number is 34-1987625. VMS's Employer Identification Number is 38-4012789. VMS is a Delaware corporation with its headquarters in Michigan.
Net operating loss carryforwards and other tax attributes of the Debtor — including any general business credits, minimum tax credits, or capital loss carryforwards — remain with the Debtor's estate and are not being acquired by VMS in the proposed transaction. The APA should clearly specify that tax attributes are excluded assets, and VMS should consult with its tax advisors regarding the tax basis of the assets to be acquired and the allocation of the purchase price among the acquired assets for federal and state income tax purposes.
XI. PENSION AND OPEB LIABILITIES
A. Defined Benefit Pension Plan
Meridian sponsors (or historically sponsored) a defined benefit pension plan that provides retirement benefits to certain current and former employees. The plan is subject to the Employee Retirement Income Security Act of 1974 ("ERISA") and is administered through the Northern Basin Employee Benefits Trust ("Northern Basin"). Northern Basin holds the pension and OPEB claim against the Debtor's estate, estimated at approximately $14.7 million. As noted in Section III.D above, Northern Basin is a member of the Official Committee of Unsecured Creditors and can be expected to advocate vigorously for the maximum possible recovery on its claim.
The $14.7 million claim reflects the aggregate of the Debtor's underfunded pension obligations and its OP