Raymond,
I am writing to summarize the call held earlier today with Ridgeline National Bank, N.A. and its counsel regarding the proposed $40,000,000 asset-based revolving credit facility (the "Facility") and to provide Calderwood & Harkness's recommendation regarding the path forward.
**Call Participants.** This afternoon's call included the following participants: Raymond Chu on behalf of Meridian; Jonathan Kershaw, Senior Vice President, Asset-Based Lending, on behalf of Ridgeline National Bank, N.A.; Catherine Royce, Partner, Whitfield Ames LLP, as Ridgeline's outside counsel; and Daniel Obi and me on behalf of Calderwood & Harkness.
**Ridgeline's Confirmed Position.** Jonathan Kershaw confirmed that Ridgeline's credit committee, under the direction of Sandra Petrova, Managing Director, Credit Risk, has concluded its review and will not deviate from the "best and final" term sheet delivered on April 29, 2022. Ridgeline's position remains binary: either (a) a reduction of the revolving commitment from $40,000,000 to $35,000,000, or (b) the imposition of a $5,000,000 availability reserve against the $40,000,000 commitment — effectively capping borrowing availability at $35,000,000 under either scenario. In support of this position, Kershaw reiterated Ridgeline's concerns about borrowing base support, citing in particular: (i) Bellweather Appraisal Group's preliminary field examination (delivered March 21, 2022), which flagged approximately $12 million in seasonal and slow-moving inventory SKUs as ineligible, reducing eligible inventory from approximately $54 million to approximately $42 million at cost; (ii) the tightened receivables aging threshold (invoices more than 60 days past invoice date excluded, rather than the more customary 90-day threshold), which reduced eligible receivables from approximately $38 million to approximately $31 million; and (iii) the resulting revised borrowing base of approximately $45,460,000, which Ridgeline views as providing insufficient cushion — only approximately $5.46 million, or roughly 13.7% excess availability — to support a $40 million commitment. Catherine Royce confirmed on behalf of Ridgeline that no further revisions to the term sheet would be forthcoming. Kershaw expressed that Ridgeline remained willing to proceed if Meridian accepted either alternative, but acknowledged the impasse if neither was acceptable.
**Meridian's Position.** For the record, Raymond and I reiterated on the call that the $40 million commitment without an availability block is essential to fund Meridian's seasonal working capital and inventory build-out requirements. We again pointed to Meridian's counter-proposal of a 75% of NOLV inventory advance rate (versus Ridgeline's proposed 65%) and the 90-day receivables aging threshold as market-standard terms for consumer products ABL facilities of this type. These arguments, as you are aware, did not alter Ridgeline's position.
**Assessment.** In our assessment, further negotiation with Ridgeline is not productive. The "best and final" position reflects a credit committee determination, and both Kershaw and Royce indicated clearly that there is no path to revisit it. This is consistent with the trajectory we have observed since the April 18 call, where no resolution was reached, and with the board's May 6 instruction to reject the "best and final" term sheet and attempt one final negotiation. We have now done so, and the result is as outlined above. As we discussed in our May 3 recommendation memorandum analyzing the "best and final" term sheet, and as reflected in the borrowing base analysis memorandum dated April 8, 2022, the gap between the parties' positions on borrowing base eligibility criteria is fundamental and is not bridgeable within Ridgeline's current credit parameters.
**Recommendation.** Calderwood & Harkness formally recommends that Meridian authorize the firm to terminate the term sheet discussions with Ridgeline. We note that neither party has executed a binding commitment letter or credit agreement, and the term sheet itself expressly provides that it is non-binding and may be terminated by either party at any time without liability.
**Proposed Next Steps.** Upon receiving Meridian's authorization, we propose to take the following steps:
1. *Termination Letter.* We will prepare and deliver a formal termination letter to Ridgeline National Bank, N.A. (attention: Jonathan Kershaw, Senior Vice President, Asset-Based Lending, 200 Tryon Street, Charlotte, NC 28202), with a copy to Whitfield Ames LLP (attention: Catherine Royce, Partner, 1585 Broadway, 34th Floor, New York, NY 10036). The letter will confirm that discussions are terminated, that neither party has further obligations under the term sheet, and will request the return or destruction of all confidential materials exchanged during the process.
2. *Intercreditor / Greystone Capital Finance LLC.* Formal intercreditor negotiations with Greystone Capital Finance LLC, Meridian's existing $75 million first lien term loan lender (Greystone Loan Reference GCF-MCB-2019-1215), were never commenced. Accordingly, no termination or withdrawal notice to Greystone is required. Alan Fitzpatrick's February 8, 2022 email indicating Greystone's willingness to negotiate an intercreditor agreement was preliminary in nature and did not create any binding obligation. That said, we would recommend that Raymond or Patricia inform Greystone as a courtesy that the ABL process is not proceeding at this time.
3. *Bellweather Appraisal Costs.* Bellweather Appraisal Group LLC was retained directly by Ridgeline. However, the term sheet contemplated borrower reimbursement of the lender's diligence expenses up to a specified cap. Meridian should confirm with Ridgeline whether any portion of Bellweather's fees are expected to be borne by Meridian under that provision. Daniel and I will review the term sheet to confirm the scope and cap of any such reimbursement obligation and will advise you accordingly.
4. *Matter File Closure.* We will prepare an internal matter closing memorandum and close the file. We will also circulate a final invoice for fees and disbursements incurred through the termination date.
5. *Alternative Lenders.* If Meridian and Brindoval wish to explore alternative ABL lenders, we are available to assist and would be happy to discuss potential candidates and process considerations on a separate call at your convenience.
Raymond, we would appreciate your authorization — and Marcus, yours on behalf of the board, if appropriate — to proceed with the termination letter. I am available for a call this evening or tomorrow morning if anyone would like to discuss further before making a final determination.
Best regards,
Stephanie Okafor Partner, Banking & Finance Calderwood & Harkness LLP One Liberty Plaza, 45th Floor New York, NY 10006 Tel: (212) 555-4180 sokafor@calderwoodharkness.com
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