deal-summary-memo.docx

1011-00001 · Firm and the Company · Memoranda

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CALDERWOOD & HARKNESS LLP Counselors at Law One Liberty Plaza, 45th Floor New York, NY 10006 Telephone: (212) 555-4400 Facsimile: (212) 555-4401 www.calderwoodharkness.com

MEMORANDUM

TO: Stephanie Okafor, Partner, Banking & Finance

FROM: Daniel Obi, Associate, Banking & Finance

DATE: February 10, 2022

RE: Internal Deal Summary — Proposed $40,000,000 Asset-Based Revolving Credit Facility for Meridian Consumer Brands LLC

Matter No.: 1011-00001

Engagement Reference: C&H-EL-2022-0124-MCB

I. Executive Summary

Calderwood & Harkness LLP has been engaged by Meridian Consumer Brands LLC ("Meridian" or "MCB"), a Delaware limited liability company headquartered at 401 West 33rd Street, Suite 1200, New York, NY 10001, to serve as borrower's counsel in connection with a proposed $40,000,000 asset-based revolving credit facility (the "Proposed ABL Facility" or the "Facility"). The Facility would be provided by Ridgeline National Bank, National Association ("Ridgeline" or "RNB"), an OCC-chartered national banking association headquartered at 200 Tryon Street, Charlotte, NC 28202, with total assets of approximately $58 billion. Ridgeline would serve as sole lender and administrative agent under the Proposed ABL Facility.

Ridgeline is represented by outside counsel Whitfield Ames LLP, 1585 Broadway, 34th Floor, New York, NY 10036. The lead partner on the Ridgeline side is Catherine Royce (Partner, Finance & Restructuring), who is assisted by associate Benjamin Nakamura. The Ridgeline ABL group's primary relationship manager for this transaction is Jonathan Kershaw, Senior Vice President, Asset-Based Lending. The credit officer overseeing the underwriting and credit approval process is Sandra Petrova, Managing Director, Credit Risk.

The purpose of the Proposed ABL Facility is to fund Meridian's working capital needs and seasonal inventory build-outs in connection with its consumer products business. Meridian's product lines experience predictable seasonal demand patterns that require significant pre-season inventory accumulation, and the Facility is intended to provide flexible, asset-backed liquidity to support those cycles alongside general corporate purposes.

The Calderwood & Harkness engagement letter was executed on January 24, 2022. The initial term sheet was received from Ridgeline, transmitted via Whitfield Ames, on January 28, 2022. Calderwood & Harkness's marked-up term sheet incorporating borrower's comments and counterproposals is targeted for delivery by mid-February 2022, with a specific internal target of February 14, 2022. All definitive documentation is expected to be governed by the laws of the State of New York.

This memorandum summarizes the proposed structure of the Facility, the key commercial terms as reflected in Ridgeline's initial term sheet, our initial analysis of the borrowing base, the proposed collateral package and lien priority structure, the relationship between the Proposed ABL Facility and Meridian's existing first lien term loan with Greystone Capital Finance LLC, and the preliminary issues that we anticipate will be focal points of negotiation with Ridgeline and Whitfield Ames during the term sheet mark-up process and subsequent definitive documentation drafting.

II. The Borrower — Meridian Consumer Brands LLC

A. Entity and Organizational Overview

Meridian Consumer Brands LLC is a Delaware limited liability company organized and existing under the Delaware Limited Liability Company Act. Meridian's federal employer identification number is 84-3291057. The company's principal office and headquarters are located at 401 West 33rd Street, Suite 1200, New York, NY 10001. Meridian's registered agent in the State of Delaware is Capitol Registered Agents Inc., located at 1209 Orange Street, Wilmington, Delaware 19801. We have confirmed that Meridian's registration is in good standing in Delaware based on a preliminary search conducted on January 30, 2022, though a formal good standing certificate will be obtained as a condition precedent to closing.

Meridian operates in the consumer products industry, with a primary focus on personal care products and household goods. The company distributes its products through a broad network of retail channels, including national mass-market retailers, grocery chains, specialty retailers, and e-commerce platforms. Meridian's brand portfolio includes several established consumer brands with meaningful market share in their respective categories, which is a relevant consideration in evaluating the quality and recoverability of its inventory collateral.

Meridian is a wholly owned portfolio company of Brindoval Partners Fund III, LP ("Brindoval"), a Delaware limited partnership with its principal office at 590 Madison Avenue, 28th Floor, New York, NY 10022. Brindoval is a mid-market private equity fund with a fund size of approximately $1.2 billion. The fund's managing partner is Evelyn Crumveth. Brindoval acquired Meridian in 2019 at an enterprise value of approximately $210,000,000 in a leveraged buyout transaction. The acquisition was funded with a combination of equity contributions from Brindoval Fund III and debt financing, including the Greystone first lien term loan described in Section VI of this memorandum. As a private equity-owned portfolio company, Meridian's governance and decision-making processes are subject to the customary oversight and consent rights held by Brindoval under Meridian's operating agreement, which we will need to review in connection with confirming the company's authority to enter into the Proposed ABL Facility and grant the associated liens and security interests.

B. Key Personnel

The following individuals serve as Meridian's key management personnel and will be the principal points of contact during the transaction:

• Chief Executive Officer: Marcus Ellsworth. Mr. Ellsworth has served as CEO since the Brindoval acquisition and is responsible for overall company strategy and operations.

• Chief Financial Officer: Patricia Delgado. Ms. Delgado oversees all financial operations, including treasury management, financial reporting, and banking relationships. She will be the primary management contact for borrowing base reporting and compliance matters under the Facility.

• General Counsel (In-House): Raymond Chu. Mr. Chu is our primary client contact for this engagement and has been coordinating Meridian's internal review of the term sheet and diligence requests. All substantive legal communications and document deliveries are being channeled through Mr. Chu's office.

C. Financial Overview (FY 2021)

Based on Meridian's audited financial statements for the fiscal year ended December 31, 2021, and supplemental information provided by Ms. Delgado, the following financial highlights are relevant to the Proposed ABL Facility:

• Annual Revenue: Approximately $185,000,000. This represents revenue across all product lines and distribution channels. Revenue has shown moderate growth year-over-year since the Brindoval acquisition, driven primarily by expanded retail distribution and new product launches.

• EBITDA: Approximately $22,400,000. This represents an EBITDA margin of approximately 12.1%, which is consistent with industry norms for consumer products companies of Meridian's size and scale. The EBITDA figure will be relevant in assessing Meridian's ability to satisfy the springing fixed charge coverage ratio covenant proposed by Ridgeline.

• Total Assets: Approximately $142,000,000. This figure encompasses all assets on Meridian's consolidated balance sheet, including property, plant, and equipment, intangible assets (including brand-related intellectual property), and working capital assets.

• Eligible Accounts Receivable: Approximately $38,000,000. This is our preliminary estimate of accounts receivable that would meet the eligibility criteria set forth in the initial term sheet, subject to refinement through the Bellweather field examination and further negotiation of specific eligibility standards. Meridian's receivables are generated primarily from sales to major national retailers, which generally represent creditworthy counterparties.

• Eligible Inventory (at Cost): Approximately $54,000,000. This figure represents Meridian's inventory valued at cost that we preliminarily estimate would satisfy the eligibility criteria under the initial term sheet. Meridian's inventory consists primarily of finished goods held at company-operated distribution centers and third-party warehouse facilities, as well as raw materials used in production. The composition of the inventory — particularly the treatment of seasonal, slow-moving, and in-transit goods — will be a significant area of focus during the eligibility criteria negotiations.

• Independent Auditors: Pemberton & Locke CPAs LLP, 7 Times Square, 20th Floor, New York, NY 10036. The engagement partner responsible for the Meridian audit is Diane Sorrento. Meridian has received clean audit opinions for each fiscal year since the Brindoval acquisition. The audited financial statements will be required deliverables under the Facility's reporting covenants.

III. Summary of Proposed Facility Terms

The following summarizes the principal commercial terms of the Proposed ABL Facility as set forth in Ridgeline's initial term sheet dated January 28, 2022. These terms are subject to negotiation and are expected to be modified in certain respects based on Meridian's counterproposals, which will be reflected in our marked-up term sheet.

A. Facility Type and Size

The Proposed ABL Facility is structured as an asset-based revolving credit facility (commonly referred to as an "ABL revolver"). The proposed aggregate commitment amount is $40,000,000. The Facility is structured as a sole lender facility, with Ridgeline serving as the sole lender providing the entire commitment and simultaneously acting as administrative agent. There are no syndication participants or co-lenders contemplated at this time. Ridgeline has assigned internal deal identification number ABL-2022-0417 to the transaction. The sole-lender structure simplifies the documentation and negotiation process, as there will be no need for a syndication agreement, voting mechanics among multiple lenders, or related intercreditor arrangements as between ABL lenders (though a separate intercreditor agreement with Greystone will be required, as discussed in Section VI below).

B. Maturity

The proposed term of the Facility is four (4) years from the closing date. Based on a targeted closing during the second quarter of 2022, the anticipated maturity date would fall in the second quarter of 2026. As is customary for ABL facilities, we would expect the maturity to be subject to a "springing" maturity provision that would accelerate the maturity date if Meridian's existing first lien term loan with Greystone (maturing December 2025) has not been refinanced, extended, or otherwise addressed by a date falling 91 days prior to the Greystone maturity date. This springing maturity mechanism is standard and serves to protect the ABL lender from the risk that the term loan maturity could trigger a cross-default or cross-acceleration event. We anticipate that the definitive credit agreement will include this provision, even though the initial term sheet does not expressly address it, and we should raise this issue proactively in our marked-up term sheet to ensure appropriate drafting.

C. Interest Rate and Pricing

The interest rate applicable to borrowings under the Facility is proposed as the Secured Overnight Financing Rate ("SOFR") plus a margin of 200 basis points (2.00%) per annum. This is consistent with the industry-wide transition from LIBOR to SOFR as the benchmark rate for new credit facilities. The term sheet specifies a SOFR floor of 25 basis points (0.25%), meaning that for purposes of calculating the applicable interest rate, SOFR will be deemed to be no less than 0.25% regardless of actual market levels.

The term sheet provides for a single step-down in pricing. Specifically, the applicable margin would decrease from SOFR + 200 basis points to SOFR + 175 basis points if Meridian's average quarterly excess availability under the borrowing base exceeds 50% of the aggregate commitment amount. Given a $40,000,000 commitment, the step-down threshold is $20,000,000 in average excess availability for the applicable quarter. As discussed in Section V below, our preliminary borrowing base analysis suggests that Meridian should have excess availability well in excess of this threshold at closing, which would position the company to benefit from the step-down pricing relatively quickly. The spread is within the range we would consider market for a facility of this type, size, and credit profile, and we do not anticipate significant negotiation on the rate itself, though Meridian may wish to explore whether an additional pricing tier (e.g., SOFR + 150 basis points at a higher excess availability level) can be obtained.

D. Fees

The initial term sheet provides for the following fees:

• Upfront Fee: A one-time upfront fee of 50 basis points (0.50%) on the aggregate commitment amount, payable at closing. Based on the $40,000,000 commitment, the upfront fee would equal $200,000. This is a customary fee for an ABL facility of this nature and is within market range for a sole-lender transaction.

• Unused Line Fee: An ongoing unused line fee of 37.5 basis points (0.375%) per annum on the daily average undrawn portion of the commitment. This fee compensates Ridgeline for maintaining availability under the Facility even when Meridian is not borrowing at full capacity. The unused line fee is computed on the difference between the aggregate commitment (or, in some structures, the borrowing base if lower) and the aggregate outstanding borrowings, and is typically payable quarterly in arrears. We will review the precise calculation methodology during documentation to ensure it is applied against the commitment amount rather than the borrowing base, which would be more favorable to Meridian.

We should also confirm whether the term sheet contemplates any additional fees, such as an early termination fee (which is common in ABL facilities, typically structured as a declining percentage of the commitment if the Facility is terminated in the first one to two years), letter of credit fees (if a letter of credit subfacility is contemplated), or collateral monitoring fees. The initial term sheet is silent on these items, and we should seek clarification from Whitfield Ames.

E. Purpose

The stated purpose of the Proposed ABL Facility is to fund Meridian's working capital needs and general corporate purposes, including seasonal inventory build-outs consistent with Meridian's consumer products business cycle. Meridian's business is characterized by seasonal fluctuations in demand, with peak inventory accumulation typically occurring in advance of the holiday selling season (Q3 and early Q4) and, to a lesser extent, in advance of spring promotional periods. The ABL revolver structure is well-suited to these working capital dynamics, providing Meridian with the flexibility to draw and repay as needed to match the ebbs and flows of its cash conversion cycle.

The purpose clause in the definitive credit agreement should be drafted broadly enough to encompass all ordinary-course working capital needs, and we should ensure that it does not inadvertently restrict Meridian's ability to use Facility proceeds for any reasonable business purpose, including funding permitted acquisitions or capital expenditures to the extent not otherwise restricted by the negative covenants.

F. Governing Law

The Proposed ABL Facility and all related documentation will be governed by the laws of the State of New York, without giving effect to conflict of laws principles. This is standard for credit facilities of this type where both the borrower and the lender's outside counsel are based in New York, and is consistent with the choice of law in Meridian's existing Greystone first lien term loan. We expect the definitive credit agreement to include a submission to the jurisdiction of the federal and state courts located in the Borough of Manhattan, City of New York, together with a waiver of jury trial.

IV. Collateral Package

A. Proposed Lien Priority Structure

The collateral package for the Proposed ABL Facility is structured as a split-collateral arrangement, which is customary when an ABL facility coexists with a first lien term loan. Under this structure:

• ABL Priority Collateral: Ridgeline will hold a first-priority perfected security interest and lien on all of Meridian's accounts receivable, inventory, deposit accounts, and related assets, including (without limitation) all proceeds thereof, all supporting obligations, chattel paper, instruments, documents of title, and letter-of-credit rights arising from or related to such accounts receivable and inventory (collectively, the "ABL Priority Collateral"). These are the asset classes that form the borrowing base and are the core collateral supporting the ABL facility.

• Second-Priority Lien on Other Assets: Ridgeline will also hold a second-priority lien on all other assets of Meridian, including real property, equipment, fixtures, intellectual property, equity interests in subsidiaries (if any), and general intangibles (other than those constituting ABL Priority Collateral). This second-priority lien will be subordinate in all respects to the first-priority lien held by Greystone Capital Finance LLC under the existing first lien term loan.

Correspondingly, we anticipate that Greystone will hold a second-priority lien on the ABL Priority Collateral, subordinate to Ridgeline's first-priority lien thereon. The relative priority of the liens and the respective rights and remedies of the ABL agent and the term loan agent will be governed by the intercreditor agreement discussed in Section VI below.

B. UCC Filings and Perfection

Perfection of Ridgeline's security interest in the ABL Priority Collateral will be accomplished primarily through the filing of UCC-1 financing statements. The initial UCC-1 financing statement will be filed with the Delaware Division of Corporations, as Delaware is Meridian's state of organization and thus the appropriate filing jurisdiction under Article 9 of the Uniform Commercial Code for most categories of personal property collateral. Additional filings may be required in other jurisdictions depending on the nature and location of specific collateral assets, and this will be confirmed during the diligence process.

In addition to UCC filings, Ridgeline will require deposit account control agreements ("DACAs") for all material deposit accounts maintained by Meridian. DACAs are necessary to perfect Ridgeline's security interest in deposit accounts under UCC Section 9-104, as control is the exclusive method of perfection for deposit accounts. We will need to obtain a complete list of Meridian's deposit accounts from Ms. Delgado's office and coordinate with the relevant depository banks to negotiate and execute the DACAs in advance of closing. Based on preliminary information, Meridian maintains its primary operating accounts with Greaves Bancorp and a secondary account with Adriatic Savings Bank We should confirm whether Ridgeline will require that any deposit accounts be transferred to Ridgeline, which is sometimes a condition in sole-lender ABL facilities.

We also note the potential need for landlord waivers and/or bailee letters for inventory held at third-party locations. Based on our initial understanding, Meridian stores finished goods inventory at company-operated distribution facilities as well as at third-party warehouses. To the extent inventory is located at leased premises or held by third-party bailees, Ridgeline will likely require waivers from the applicable landlords or bailees acknowledging Ridgeline's security interest in the inventory and agreeing not to assert any lien or claim against the inventory (or, at a minimum, subordinating any such lien to Ridgeline's security interest). The specific locations and third-party arrangements will need to be confirmed during the diligence process.

C. Field Examination and Appraisal

Ridgeline has retained Bellweather Appraisal Group LLC ("Bellweather") to conduct a preliminary inventory appraisal and accounts receivable field examination. Bellweather's offices are located at 55 Church Street, Suite 700, New Haven, Connecticut 06510. The lead appraiser assigned to this engagement is Thomas Varga, who has substantial experience in consumer products inventory valuations.

The field examination is expected to commence in early March 2022, subject to scheduling coordination with Meridian's operations team. The scope of the examination will include an on-site review of Meridian's inventory management systems and controls, a physical inspection and test count of inventory at Meridian's principal warehouse and distribution facilities, a review of accounts receivable aging reports and collection history, verification of receivable balances with selected account debtors, and an assessment of Meridian's accounting and reporting systems as they relate to borrowing base compliance.

The results of the Bellweather field examination and appraisal will be critical to finalizing the terms of the Proposed ABL Facility. Specifically, the appraisal will establish the net orderly liquidation value ("NOLV") of Meridian's inventory, which directly determines the inventory component of the borrowing base. The field examination will also inform Ridgeline's assessment of appropriate eligibility criteria, reserve levels, and advance rates. Until the field examination is complete, the borrowing base figures set forth in this memorandum should be treated as preliminary estimates only.

V. Borrowing Base — Initial Analysis

A. Structure of the Borrowing Base

The borrowing base under the Proposed ABL Facility will consist of two principal components: (i) eligible accounts receivable and (ii) eligible inventory, each subject to specified advance rates, eligibility criteria, and reserves as agreed between the parties. The aggregate borrowing base will determine the maximum amount Meridian may borrow under the Facility at any given time, subject to the overall $40,000,000 commitment cap. The borrowing base is a dynamic calculation that will fluctuate as the composition and value of Meridian's receivables and inventory change over time, and Meridian will be required to deliver periodic borrowing base certificates to Ridgeline certifying the current borrowing base.

B. Eligible Accounts Receivable

Based on Meridian's accounts receivable aging schedule as of December 31, 2021, and our preliminary assessment of the eligibility criteria set forth in the initial term sheet, we estimate that Meridian's eligible accounts receivable total approximately $38,000,000.

The proposed advance rate for eligible accounts receivable, as set forth in Ridgeline's initial term sheet, is 85% of eligible accounts receivable. Applying this advance rate to the estimated eligible receivables yields a receivables component of the borrowing base of:

$38,000,000 × 85% = $32,300,000

The key eligibility criteria for accounts receivable, as specified in the initial term sheet, include the following requirements:

(a) Receivables must be less than 90 days past the invoice date. Receivables exceeding this aging threshold will be excluded from the eligible base.

(b) Inter-company receivables are excluded. Any accounts receivable owed by affiliates of Meridian, including Brindoval or any other Brindoval portfolio company, are ineligible.

(c) Government receivables are excluded. Accounts receivable owed by the United States government or any agency or instrumentality thereof are excluded, reflecting the unique setoff and sovereign immunity considerations associated with government obligors.

(d) Concentration limits apply. Receivables from any single account debtor (or group of affiliated account debtors) exceeding a specified percentage of total eligible receivables (the threshold percentage to be negotiated, but typically in the range of 15% to 25%) will be excluded to the extent of the excess. Given that Meridian sells to several large national retailers, the concentration limits may require careful calibration to avoid unnecessarily excluding receivables from Meridian's most significant customers.

(e) Cross-aging provisions will apply. If a specified percentage (typically 25% to 50%) of the receivables owed by any single account debtor are past due beyond the 90-day threshold, all receivables from that debtor may be excluded from the eligible base, regardless of the aging of individual invoices. The specific cross-aging percentage is to be negotiated.

The 85% advance rate on eligible accounts receivable appears to be consistent with current market standards for ABL facilities in the consumer products sector, and we do not anticipate that the advance rate itself will be a significant point of negotiation. Our focus with respect to receivables will be on the eligibility criteria, particularly the concentration limits and cross-aging provisions, which could have a meaningful impact on the effective borrowing base if set at overly restrictive levels.

C. Eligible Inventory

Based on Meridian's inventory records as of December 31, 2021, we estimate that eligible inventory at cost totals approximately $54,000,000. This figure is subject to refinement based on the results of the Bellweather field examination and appraisal, as well as the outcome of negotiations regarding specific eligibility criteria.

The inventory component of the borrowing base is calculated in a two-step process. First, the eligible inventory at cost is reduced to its net orderly liquidation value ("NOLV"), which reflects the estimated net proceeds that would be realized from an orderly liquidation of the inventory over a reasonable period of time. Second, the advance rate is applied to the NOLV figure.

Ridgeline's preliminary NOLV estimate is 70% of cost. This estimate is based on Ridgeline's internal credit assessment and industry benchmarks, but is subject to confirmation or adjustment based on the Bellweather appraisal. Applying this preliminary NOLV percentage yields:

Preliminary NOLV: $54,000,000 × 70% = $37,800,000

Ridgeline's proposed advance rate for eligible inventory is 65% of NOLV. Applying this rate produces the following inventory component of the borrowing base:

Inventory component: $37,800,000 × 65% = $24,570,000

However, Meridian intends to counter Ridgeline's proposed advance rate with a request for 75% of NOLV. Meridian's position is that its inventory consists primarily of branded consumer products with established market recognition, broad retail distribution, and demonstrated sell-through rates, all of which support a higher recovery rate in an orderly liquidation scenario and therefore justify a more favorable advance rate. At a 75% advance rate, the inventory component would be:

Inventory component (at Meridian's proposed rate): $37,800,000 × 75% = $28,350,000

The difference between the two advance rates is $3,780,000 in borrowing base capacity, which is material and is expected to be one of the most significant points of commercial negotiation during the term sheet mark-up process.

The key eligibility criteria for inventory, as specified in the initial term sheet, include the following:

(a) Work-in-process inventory is excluded. Only finished goods and, potentially, raw materials that are readily usable in production may be included in the eligible base.

(b) Consignment goods are excluded. Inventory held by Meridian on consignment from third parties, or inventory consigned by Meridian to third parties, is not eligible.

(c) Goods in transit are generally excluded, unless adequately insured and supported by acceptable shipping and title documentation. The specific documentary requirements for in-transit inventory will need to be negotiated.

(d) Obsolete or slow-moving inventory is excluded. The definitions of "obsolete" and "slow-moving" inventory and the applicable thresholds will be negotiated based on the results of the Bellweather appraisal and Meridian's historical inventory turnover data.

(e) Seasonal inventory treatment is to be negotiated. This is a critical issue for Meridian, as discussed in Section VII below.

D. Total Initial Borrowing Base

Based on the preliminary figures set forth above, the total initial borrowing base under the Proposed ABL Facility can be estimated under two scenarios:

Scenario 1 — Ridgeline's Proposed Advance Rates (85% AR / 65% NOLV):

Receivables component: $32,300,000 Inventory component: $24,570,000 Total borrowing base: $56,870,000

Excess availability over the $40,000,000 commitment: $56,870,000 − $40,000,000 = $16,870,000 (approximately 42.2% cushion over the commitment)

Scenario 2 — Meridian's Proposed Advance Rates (85% AR / 75% NOLV):

Receivables component: $32,300,000 Inventory component: $28,350,000 Total borrowing base: $60,650,000

Excess availability over the $40,000,000 commitment: $60,650,000 − $40,000,000 = $20,650,000 (approximately 51.6% cushion over the commitment)

Under both scenarios, the preliminary borrowing base significantly exceeds the $40,000,000 commitment, providing a substantial excess availability cushion. Notably, under Scenario 2, the excess availability of $20,650,000 would exceed the $20,000,000 threshold required for the step-down in pricing from SOFR + 200 basis points to SOFR + 175 basis points, which provides an additional incentive for Meridian to push for the higher advance rate.

It is important to note that these borrowing base figures are preliminary and are subject to change based on several factors, including: (i) the results of the Bellweather appraisal, which may confirm, increase, or decrease the 70% NOLV estimate; (ii) the outcome of negotiations regarding specific eligibility criteria, which could narrow or broaden the pool of eligible collateral; and (iii) normal fluctuations in Meridian's receivables and inventory levels over time. A more detailed sensitivity analysis will be prepared once the Bellweather field examination data is available.

E. Reporting and Certification

The Proposed ABL Facility will require Meridian to deliver regular borrowing base certificates and financial reports to Ridgeline. Based on the initial term sheet and standard ABL market practice, we anticipate the following reporting requirements:

(a) Borrowing Base Certificates: Monthly borrowing base certificates, delivered within a specified number of business days following the end of each calendar month, certifying the current borrowing base and its components. The frequency may increase to weekly or bi-weekly upon the occurrence of triggering events (such as a decline in excess availability below a specified threshold).

(b) Accounts Receivable Aging Reports: Monthly accounts receivable aging reports providing a detailed breakdown of receivables by aging category, customer concentration, and dilution metrics.

(c) Inventory Reports: Monthly inventory reports detailing inventory levels by category (finished goods, raw materials, work-in-process), location, and any applicable reserves or adjustments.

(d) Financial Statements: Quarterly unaudited financial statements, delivered within 45 days following the end of each fiscal quarter, and annual audited financial statements, delivered within 90 to 120 days following the end of each fiscal year. The annual audited financial statements will be prepared by Pemberton & Locke CPAs LLP in accordance with generally accepted accounting principles.

(e) Field Examinations: Ridgeline is expected to require field examinations to be conducted at Meridian's expense. We anticipate that the initial term sheet contemplates annual field examinations under ordinary circumstances, with the frequency increasing to semi-annual or more frequent examinations upon the occurrence of triggering events (e.g., a decline in excess availability, a material adverse change, or an event of default). Meridian will seek to limit the required frequency of field examinations to once per year absent triggering events, and to cap the cost of field examinations borne by Meridian.

VI. Existing Indebtedness — Greystone Capital Finance LLC First Lien Term Loan

A. Summary of Existing Facility

Meridian has an existing first lien term loan facility with Greystone Capital Finance LLC ("Greystone"), which serves as both the lender and administrative agent under that facility. The key terms of the Greystone term loan are as follows:

Lender/Administrative Agent: Greystone Capital Finance LLC, 125 High Street, Suite 2500, Boston, Massachusetts 02110

Greystone Loan Reference: GCF-MCB-2019-1215

Facility Type: Senior secured first lien term loan

Original Principal Amount: $75,000,000

Closing Date: December 15, 2019 (in connection with the Brindoval acquisition of Meridian)

Maturity Date: December 2025

Outstanding Balance: Approximately $61,500,000 as of January 2022, reflecting scheduled amortization payments made since closing

Greystone Relationship Contact: Alan Fitzpatrick, Director, Portfolio Management

The Greystone term loan is secured by a first-priority lien on substantially all of Meridian's assets. The Proposed ABL Facility will require a restructuring of the existing lien arrangement such that Greystone's first-priority lien on the ABL Priority Collateral (receivables, inventory, and deposit accounts) will be subordinated to Ridgeline's lien on those assets, while Greystone will retain its first-priority lien on all other collateral. This restructuring will be accomplished through the intercreditor agreement discussed below.

B. Intercreditor Considerations

The Proposed ABL Facility will require the execution and delivery of an intercreditor agreement between Ridgeline (in its capacity as ABL agent) and Greystone (in its capacity as term loan agent). The intercreditor agreement is a critical document that will govern the relative rights and priorities of the two secured creditors with respect to Meridian's assets and the exercise of remedies in the event of a default or enforcement scenario.

The anticipated structure of the intercreditor agreement is a split-collateral arrangement, which is the standard framework for ABL/term loan intercreditor agreements in the leveraged finance market. Under this structure:

(a) The ABL agent (Ridgeline) holds a first-priority lien on the ABL Priority Collateral — namely, accounts receivable, inventory, deposit accounts, and related assets — and a second-priority lien on all other assets.

(b) The term loan agent (Greystone) holds a first-priority lien on all assets other than the ABL Priority Collateral — including real property, equipment, intellectual property, equity interests, and general intangibles — and a second-priority lien on the ABL Priority Collateral.

The key substantive issues that will need to be negotiated in the intercreditor agreement include, without limitation, the following:

(i) Standstill Periods: The duration and scope of any standstill period during which the second-priority lienholder is prohibited from exercising remedies against collateral in which the other party holds a first-priority lien. Typical standstill periods in split-collateral intercreditor agreements range from 90 to 180 days.

(ii) Remedy Limitations: Restrictions on the junior lienholder's ability to take enforcement actions, foreclose, or exercise setoff rights against collateral in which the other party has a senior lien, including any notification requirements or consent rights.

(iii) Rights to Use and Dispose of Collateral: The extent to which the senior lienholder may authorize the borrower to use, sell, or otherwise dispose of collateral in the ordinary course of business, and the circumstances under which such authorization may be revoked.

(iv) Application of Proceeds Waterfall: The priority and order in which proceeds of collateral are to be applied as between the ABL obligations and the term loan obligations, including proceeds from both voluntary and involuntary dispositions, insurance proceeds, and condemnation awards.

(v) Purchase Option Mechanics: Whether and under what circumstances one lienholder group may purchase the other's claims, and the pricing, timing, and procedural mechanics of any such purchase option.

(vi) DIP Financing and Priming Rights: The extent to which each lienholder group may consent to or object to debtor-in-possession ("DIP") financing in a bankruptcy proceeding, and whether the intercreditor agreement will include advance waivers of the right to object to priming liens in connection with DIP financing.

(vii) Adequate Protection Provisions: The allocation of adequate protection rights between the ABL agent and the term loan agent in a bankruptcy proceeding, including the right to receive replacement liens, adequate protection payments, and superpriority administrative claims.

With respect to Greystone's current position, Alan Fitzpatrick of Greystone provided an informal email confirmation on February 8, 2022, indicating that Greystone is willing in principle to negotiate an intercreditor agreement in connection with the Proposed ABL Facility. Mr. Fitzpatrick indicated that Greystone has experience with split-collateral intercreditor arrangements and would expect to use a market-standard form as the starting point for negotiations. However, formal negotiations have not yet commenced, and Greystone has not provided any specific comments or counterproposals to date. We understand that Greystone's outside counsel for this matter has not yet been formally engaged, though Mr. Fitzpatrick mentioned that Greystone typically uses Welvane & Worth LLP for intercreditor matters.

Given the complexity and importance of the intercreditor agreement, a separate detailed intercreditor issues memorandum will be prepared once the term sheet negotiations progress further and we have a better understanding of the specific positions of both Ridgeline and Greystone on the issues identified above. We recommend that Meridian's management team, and in particular Raymond Chu, engage proactively with both Greystone and Ridgeline to facilitate a constructive negotiation process on the intercreditor terms.

VII. Preliminary Negotiation Issues and Open Points

Based on our review of Ridgeline's initial term sheet and our discussions with Raymond Chu, we have identified the following issues as the principal areas where negotiation will be required. These issues will be addressed in our marked-up term sheet and will form the basis for our negotiation strategy in discussions with Whitfield Ames.

A. Advance Rate Dispute

As discussed in Section V above, the inventory advance rate is expected to be the most significant point of commercial negotiation. Ridgeline's initial term sheet proposes an advance rate of 65% of NOLV for eligible inventory. Meridian will counter with a proposed advance rate of 75% of NOLV, which would increase the inventory component of the borrowing base by approximately $3,780,000 (from $24,570,000 to $28,350,000). Meridian's principal arguments in support of the higher advance rate are as follows:

(a) Meridian's inventory consists primarily of branded consumer products with well-established brand recognition and demonstrated consumer demand across multiple retail channels. Branded products generally command higher recovery rates in orderly liquidation scenarios compared to private-label or commodity goods.

(b) Meridian's products are distributed through a broad network of national retailers, grocery chains, and e-commerce platforms, providing multiple channels through which inventory can be liquidated in an enforcement scenario.

(c) Industry data for the consumer products sector supports advance rates in the range of 70% to 85% of NOLV for finished goods inventory of this type, and Meridian's position at 75% is within the middle of the range.

(d) Meridian's historical inventory turnover rates and sell-through metrics are strong, indicating that the inventory is current, in-demand, and readily saleable.

We expect that the Bellweather appraisal results will be the most significant factor in resolving this dispute, and we should position Meridian to engage constructively with the Bellweather team during the field examination to ensure that the appraisal accurately reflects the quality and recoverability of Meridian's inventory.

The receivables advance rate of 85% appears to be consistent with current market standards for consumer products ABL facilities and is unlikely to be a point of significant dispute.

B. Inventory Eligibility Criteria

The treatment of seasonal inventory build-outs is a critical issue for Meridian given the seasonal nature of its consumer products business. Meridian's business cycle involves significant pre-season inventory accumulation, particularly in advance of the holiday selling season. If seasonal inventory is excluded from the eligible base or subjected to punitive reserves, the borrowing base could contract at precisely the time when Meridian's working capital needs are greatest, undermining the fundamental purpose of the Facility.

Meridian will seek inclusion of seasonal inventory as eligible, with the understanding that appropriate seasonal reserves (rather than outright exclusion) may be applied to account for the incremental risk associated with seasonal goods. The seasonal reserve methodology should be negotiated in detail, including the timing and magnitude of reserve build-up and release, and should be calibrated to Meridian's actual business cycle and historical sell-through rates for seasonal products.

Additionally, the definitions of "slow-moving" inventory and the applicable thresholds for exclusion from the eligible base will need to be negotiated. The initial term sheet does not specify the criteria for determining when inventory is deemed slow-moving, and this will need to be refined based on the Bellweather appraisal results and Meridian's historical SKU-level turnover data. We should advocate for definitions that are tailored to the consumer products industry and Meridian's specific product categories, rather than generic formulas that may not account for the normal lifecycle of consumer goods.

C. Receivables Eligibility Criteria

The initial term sheet uses a 90-day past invoice date threshold as the cutoff for eligible accounts receivable. This is the standard threshold for the consumer products sector, where payment terms typically range from 30 to 60 days and collection cycles can be somewhat extended due to retailer practices such as deductions, chargebacks, and promotional allowances. Any attempt by Ridgeline to tighten this threshold (e.g., to 60 days) should be resisted, as it could result in the exclusion of a significant volume of receivables that are performing and likely to be collected in the ordinary course.

The cross-aging percentages and customer concentration limits will need to be refined during the diligence process. We should obtain detailed receivables aging data by customer to assess the potential impact of different concentration limits and cross-aging thresholds on the eligible receivables base. If Meridian has significant customer concentration (e.g., if any single retailer accounts for more than 15% to 20% of receivables), we may need to negotiate named-account exceptions or higher concentration caps for specified major customers.

D. Financial Covenants

Ridgeline's initial term sheet proposes a springing fixed charge coverage ratio ("FCCR") of 1.0x. This covenant would only be tested — i.e., it would "spring" into effect — when Meridian's excess availability under the borrowing base falls below the greater of (a) 10% of the aggregate commitment amount ($40,000,000 × 10% = $4,000,000) or (b) $4,000,000. Given that both prongs of the trigger yield the same dollar amount, the effective trigger is $4,000,000 of excess availability.

A springing FCCR is the standard financial covenant structure for ABL facilities, and a 1.0x minimum coverage ratio is consistent with market norms. The springing mechanism means that as long as Meridian maintains excess availability above $4,000,000, the FCCR will not be tested, which provides significant operational flexibility. Based on our preliminary borrowing base analysis, Meridian should have ample excess availability to avoid triggering the covenant under normal operating conditions.

The key negotiation points with respect to the FCCR will relate to the definitions of "fixed charges" and the permitted add-backs to EBITDA or consolidated net income in the numerator of the coverage ratio. We should ensure that the definition of "fixed charges" is appropriately calibrated and does not include items that would unfairly penalize Meridian, such as voluntary prepayments of debt, non-recurring capital expenditures, or management fees paid to Brindoval. We should also negotiate for customary add-backs to EBITDA, including non-cash charges, restructuring expenses, transaction costs, and other one-time items.

E. Reporting Requirements

As outlined in Section V.E above, the initial term sheet contemplates monthly borrowing base certificates, monthly accounts receivable aging reports and inventory reports, quarterly financial statements, and annual audited financial statements. The frequency, scope, and delivery timing of these reports will be negotiated, with Meridian seeking reasonable deadlines and appropriate limitations on the administrative burden of compliance.

With respect to field examinations, Meridian will seek to limit the required frequency to one field examination per year under normal circumstances, with increased frequency (up to two or three per year) triggered only by specified events such as a decline in excess availability below a defined threshold, an event of default, or a material adverse change. Meridian should also seek a cap on the annual cost of field examinations that the borrower is required to bear, and the ability to select from a pre-approved panel of field examination firms.

F. Conditions Precedent to Closing

Based on the initial term sheet and standard ABL practice, we anticipate that the following conditions precedent to closing will apply:

(a) Intercreditor Agreement: Execution and delivery of a fully negotiated intercreditor agreement between Ridgeline and Greystone in form and substance satisfactory to all parties.

(b) Field Examination and Appraisal: Satisfactory completion of the Bellweather field examination and inventory appraisal, with results acceptable to Ridgeline in its reasonable discretion.

(c) Legal Opinions: Delivery of customary legal opinions from Calderwood & Harkness LLP as borrower's counsel, including opinions as to due organization, authority, enforceability, no conflicts, and perfection of security interests.

(d) Organizational Documents: Delivery of certified copies of Meridian's certificate of formation, limited liability company agreement (or relevant excerpts), resolutions authorizing the transaction, incumbency certificates, and good standing certificates from Delaware and any other applicable jurisdictions.

(e) Officer Certificates: Delivery of officer certificates from authorized officers of Meridian certifying, among other things, the accuracy of representations and warranties, compliance with conditions precedent, and the absence of any default or event of default.

(f) Landlord Waivers: Delivery of landlord waivers from the landlords of all leased premises at which material inventory is stored, in form and substance satisfactory to Ridgeline.

(g) Deposit Account Control Agreements: Execution and delivery of deposit account control agreements for all material deposit accounts maintained by Meridian.

(h) Payment of Fees and Expenses: Payment of the upfront fee, together with all accrued and unpaid legal fees and expenses of Whitfield Ames LLP (as Ridgeline's counsel) and Bellweather Appraisal Group LLC.

We will work with Raymond Chu and Patricia Delgado's team to begin assembling the required closing deliverables in advance of the anticipated Q2 2022 closing date, and will coordinate with Whitfield Ames on a closing checklist once the definitive documentation is further advanced.

VIII. Timeline and Next Steps

The following table summarizes the key dates and anticipated milestones for the Proposed ABL Facility:

We note that the timeline above is subject to adjustment based on the pace of negotiations, the Bellweather field examination schedule, and the progress of intercreditor agreement discussions with Greystone. We will provide regular status updates to the engagement team and to the client as the transaction progresses.

IX. Calderwood & Harkness Engagement Team

The following attorneys have been assigned to this matter:

• Stephanie Okafor — Responsible Partner, Banking & Finance. Ms. Okafor will provide overall strategic direction and supervise all substantive legal work on the engagement. She will serve as the primary partner-level point of contact for the client and for Whitfield Ames LLP.

• Philip Hartmann — Billing Partner, Banking & Finance. Mr. Hartmann will oversee billing and engagement management matters and will be available to provide substantive guidance as needed.

• Daniel Obi — Lead Associate, Banking & Finance. Mr. Obi will serve as the day-to-day lead on all aspects of the transaction, including term sheet negotiations, drafting and review of definitive documentation, diligence coordination, and client communications. Mr. Obi is the author of this memorandum and the primary associate contact for all matters related to the engagement.

• Lisa Morrow — Working Associate, Banking & Finance. Ms. Morrow will assist with diligence, UCC and lien search coordination, document review, and preparation of closing deliverables.

The applicable hourly rates for the engagement team, as set forth in the engagement letter, are as follows:

All work is being performed pursuant to the engagement letter referenced as C&H-EL-2022-0124-MCB, dated January 24, 2022, which sets forth the complete terms of the firm's engagement, including fee arrangements, scope of representation, and applicable limitations.

X. Conclusion

The Proposed ABL Facility is a straightforward single-lender asset-based revolving credit facility with a strong initial borrowing base that significantly exceeds the $40,000,000 commitment amount, providing Meridian with substantial excess availability under either advance rate scenario analyzed in this memorandum. The sole-lender structure with Ridgeline National Bank simplifies the documentation process and eliminates the complexities associated with syndicated facilities, while the borrowing base composition — anchored by Meridian's receivables from creditworthy national retailers and branded consumer products inventory — reflects a fundamentally sound collateral package.

The key areas of negotiation focus in the upcoming term sheet mark-up and subsequent definitive documentation process will be:

(a) Inventory Advance Rate: Resolving the dispute between Ridgeline's proposed 65% of NOLV and Meridian's target of 75% of NOLV, which represents a difference of approximately $3,780,000 in borrowing base capacity and has implications for Meridian's ability to achieve the pricing step-down.

(b) Eligibility Criteria: Negotiating the treatment of seasonal inventory (inclusion with reserves rather than exclusion), the cross-aging and concentration limits for receivables, and the definitions of slow-moving and obsolete inventory, all of which will directly affect the effective borrowing base.

(c) Intercreditor Agreement: Negotiating and finalizing a split-collateral intercreditor agreement with Greystone Capital Finance LLC that reflects market-standard terms and adequately protects Meridian's flexibility to operate under both the ABL facility and the first lien term loan.

The Bellweather field examination and inventory appraisal, expected to commence in early March 2022, will be a critical milestone in determining the final eligibility criteria, NOLV percentages, and advance rates. The results will significantly influence the borrowing base composition and the overall economics of the Facility.

We recommend proceeding with delivery of the marked-up term sheet to Whitfield Ames LLP on or before February 14, 2022, incorporating the borrower's counterproposals on all material commercial and legal terms identified in this memorandum. In parallel, we recommend beginning preparation of a separate intercreditor issues memorandum to frame the key negotiation points with Greystone, and initiating the organizational diligence and closing deliverable assembly process with Raymond Chu and Patricia Delgado's team.

Any questions or comments regarding this memorandum or the Proposed ABL Facility should be directed to Daniel Obi (dobi@calderwoodharkness.com; ext. 4477) or Stephanie Okafor (sokafor@calderwoodharkness.com; ext. 4201).

— End of Memorandum —

PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT Calderwood & Harkness LLP	One Liberty Plaza, 45th Floor, New York, NY 10006	Matter No. 1011-00001 Engagement Reference: C&H-EL-2022-0124-MCB
Date	Event / Milestone
January 24, 2022	Matter opened; Calderwood & Harkness engagement letter executed with Meridian
January 28, 2022	Initial term sheet received from Ridgeline National Bank (transmitted via Whitfield Ames LLP)
February 8, 2022	Greystone Capital Finance LLC (Alan Fitzpatrick) provides informal email confirmation of willingness to negotiate intercreditor agreement
February 10, 2022	This memorandum prepared and circulated internally
Mid-February 2022 (target: February 14, 2022)	Calderwood & Harkness to deliver marked-up term sheet with borrower's comments and counterproposals to Whitfield Ames LLP
Early March 2022	Bellweather Appraisal Group LLC to commence preliminary field examination and inventory appraisal at Meridian's facilities
March 2022	Ridgeline expected to respond with revised term sheet reflecting their comments on borrower's mark-up
Late March – April 2022	Bellweather field examination results expected; finalization of term sheet; commencement of definitive documentation drafting
Q2 2022 (target)	Closing of the Proposed ABL Facility (subject to satisfaction of all conditions precedent and completion of definitive documentation)
Attorney	Role	Hourly Rate
Stephanie Okafor	Responsible Partner	$1,250/hour
Philip Hartmann	Billing Partner	$1,250/hour
Daniel Obi	Lead Associate	$825/hour
Lisa Morrow	Working Associate	$695/hour

PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT This memorandum is protected by the attorney-client privilege and the work product doctrine. It is intended solely for use by attorneys and personnel of Calderwood & Harkness LLP and the client in connection with the engagement referenced herein. Do not distribute, copy, or disclose without prior authorization.
CALDERWOOD & HARKNESS LLP Counselors at Law One Liberty Plaza, 45th Floor New York, NY 10006 Telephone: (212) 555-4400 Facsimile: (212) 555-4401 www.calderwoodharkness.com
MEMORANDUM
TO: Stephanie Okafor, Partner, Banking & Finance
FROM: Daniel Obi, Associate, Banking & Finance
DATE: February 10, 2022
RE: Internal Deal Summary — Proposed $40,000,000 Asset-Based Revolving Credit Facility for Meridian Consumer Brands LLC
Matter No.: 1011-00001
Engagement Reference: C&H-EL-2022-0124-MCB
I. Executive Summary
Calderwood & Harkness LLP has been engaged by Meridian Consumer Brands LLC ("Meridian" or "MCB"), a Delaware limited liability company headquartered at 401 West 33rd Street, Suite 1200, New York, NY 10001, to serve as borrower's counsel in connection with a proposed $40,000,000 asset-based revolving credit facility (the "Proposed ABL Facility" or the "Facility"). The Facility would be provided by Ridgeline National Bank, National Association ("Ridgeline" or "RNB"), an OCC-chartered national banking association headquartered at 200 Tryon Street, Charlotte, NC 28202, with total assets of approximately $58 billion. Ridgeline would serve as sole lender and administrative agent under the Proposed ABL Facility.
Ridgeline is represented by outside counsel Whitfield Ames LLP, 1585 Broadway, 34th Floor, New York, NY 10036. The lead partner on the Ridgeline side is Catherine Royce (Partner, Finance & Restructuring), who is assisted by associate Benjamin Nakamura. The Ridgeline ABL group's primary relationship manager for this transaction is Jonathan Kershaw, Senior Vice President, Asset-Based Lending. The credit officer overseeing the underwriting and credit approval process is Sandra Petrova, Managing Director, Credit Risk.
The purpose of the Proposed ABL Facility is to fund Meridian's working capital needs and seasonal inventory build-outs in connection with its consumer products business. Meridian's product lines experience predictable seasonal demand patterns that require significant pre-season inventory accumulation, and the Facility is intended to provide flexible, asset-backed liquidity to support those cycles alongside general corporate purposes.
The Calderwood & Harkness engagement letter was executed on January 24, 2022. The initial term sheet was received from Ridgeline, transmitted via Whitfield Ames, on January 28, 2022. Calderwood & Harkness's marked-up term sheet incorporating borrower's comments and counterproposals is targeted for delivery by mid-February 2022, with a specific internal target of February 14, 2022. All definitive documentation is expected to be governed by the laws of the State of New York.
This memorandum summarizes the proposed structure of the Facility, the key commercial terms as reflected in Ridgeline's initial term sheet, our initial analysis of the borrowing base, the proposed collateral package and lien priority structure, the relationship between the Proposed ABL Facility and Meridian's existing first lien term loan with Greystone Capital Finance LLC, and the preliminary issues that we anticipate will be focal points of negotiation with Ridgeline and Whitfield Ames during the term sheet mark-up process and subsequent definitive documentation drafting.
II. The Borrower — Meridian Consumer Brands LLC
A. Entity and Organizational Overview
Meridian Consumer Brands LLC is a Delaware limited liability company organized and existing under the Delaware Limited Liability Company Act. Meridian's federal employer identification number is 84-3291057. The company's principal office and headquarters are located at 401 West 33rd Street, Suite 1200, New York, NY 10001. Meridian's registered agent in the State of Delaware is Capitol Registered Agents Inc., located at 1209 Orange Street, Wilmington, Delaware 19801. We have confirmed that Meridian's registration is in good standing in Delaware based on a preliminary search conducted on January 30, 2022, though a formal good standing certificate will be obtained as a condition precedent to closing.
Meridian operates in the consumer products industry, with a primary focus on personal care products and household goods. The company distributes its products through a broad network of retail channels, including national mass-market retailers, grocery chains, specialty retailers, and e-commerce platforms. Meridian's brand portfolio includes several established consumer brands with meaningful market share in their respective categories, which is a relevant consideration in evaluating the quality and recoverability of its inventory collateral.
Meridian is a wholly owned portfolio company of Brindoval Partners Fund III, LP ("Brindoval"), a Delaware limited partnership with its principal office at 590 Madison Avenue, 28th Floor, New York, NY 10022. Brindoval is a mid-market private equity fund with a fund size of approximately $1.2 billion. The fund's managing partner is Evelyn Crumveth. Brindoval acquired Meridian in 2019 at an enterprise value of approximately $210,000,000 in a leveraged buyout transaction. The acquisition was funded with a combination of equity contributions from Brindoval Fund III and debt financing, including the Greystone first lien term loan described in Section VI of this memorandum. As a private equity-owned portfolio company, Meridian's governance and decision-making processes are subject to the customary oversight and consent rights held by Brindoval under Meridian's operating agreement, which we will need to review in connection with confirming the company's authority to enter into the Proposed ABL Facility and grant the associated liens and security interests.
B. Key Personnel
The following individuals serve as Meridian's key management personnel and will be the principal points of contact during the transaction:
• Chief Executive Officer: Marcus Ellsworth. Mr. Ellsworth has served as CEO since the Brindoval acquisition and is responsible for overall company strategy and operations.
• Chief Financial Officer: Patricia Delgado. Ms. Delgado oversees all financial operations, including treasury management, financial reporting, and banking relationships. She will be the primary management contact for borrowing base reporting and compliance matters under the Facility.
• General Counsel (In-House): Raymond Chu. Mr. Chu is our primary client contact for this engagement and has been coordinating Meridian's internal review of the term sheet and diligence requests. All substantive legal communications and document deliveries are being channeled through Mr. Chu's office.
C. Financial Overview (FY 2021)
Based on Meridian's audited financial statements for the fiscal year ended December 31, 2021, and supplemental information provided by Ms. Delgado, the following financial highlights are relevant to the Proposed ABL Facility:
• Annual Revenue: Approximately $185,000,000. This represents revenue across all product lines and distribution channels. Revenue has shown moderate growth year-over-year since the Brindoval acquisition, driven primarily by expanded retail distribution and new product launches.
• EBITDA: Approximately $22,400,000. This represents an EBITDA margin of approximately 12.1%, which is consistent with industry norms for consumer products companies of Meridian's size and scale. The EBITDA figure will be relevant in assessing Meridian's ability to satisfy the springing fixed charge coverage ratio covenant proposed by Ridgeline.
• Total Assets: Approximately $142,000,000. This figure encompasses all assets on Meridian's consolidated balance sheet, including property, plant, and equipment, intangible assets (including brand-related intellectual property), and working capital assets.
• Eligible Accounts Receivable: Approximately $38,000,000. This is our preliminary estimate of accounts receivable that would meet the eligibility criteria set forth in the initial term sheet, subject to refinement through the Bellweather field examination and further negotiation of specific eligibility standards. Meridian's receivables are generated primarily from sales to major national retailers, which generally represent creditworthy counterparties.
• Eligible Inventory (at Cost): Approximately $54,000,000. This figure represents Meridian's inventory valued at cost that we preliminarily estimate would satisfy the eligibility criteria under the initial term sheet. Meridian's inventory consists primarily of finished goods held at company-operated distribution centers and third-party warehouse facilities, as well as raw materials used in production. The composition of the inventory — particularly the treatment of seasonal, slow-moving, and in-transit goods — will be a significant area of focus during the eligibility criteria negotiations.
• Independent Auditors: Pemberton & Locke CPAs LLP, 7 Times Square, 20th Floor, New York, NY 10036. The engagement partner responsible for the Meridian audit is Diane Sorrento. Meridian has received clean audit opinions for each fiscal year since the Brindoval acquisition. The audited financial statements will be required deliverables under the Facility's reporting covenants.
III. Summary of Proposed Facility Terms
The following summarizes the principal commercial terms of the Proposed ABL Facility as set forth in Ridgeline's initial term sheet dated January 28, 2022. These terms are subject to negotiation and are expected to be modified in certain respects based on Meridian's counterproposals, which will be reflected in our marked-up term sheet.
A. Facility Type and Size
The Proposed ABL Facility is structured as an asset-based revolving credit facility (commonly referred to as an "ABL revolver"). The proposed aggregate commitment amount is $40,000,000. The Facility is structured as a sole lender facility, with Ridgeline serving as the sole lender providing the entire commitment and simultaneously acting as administrative agent. There are no syndication participants or co-lenders contemplated at this time. Ridgeline has assigned internal deal identification number ABL-2022-0417 to the transaction. The sole-lender structure simplifies the documentation and negotiation process, as there will be no need for a syndication agreement, voting mechanics among multiple lenders, or related intercreditor arrangements as between ABL lenders (though a separate intercreditor agreement with Greystone will be required, as discussed in Section VI below).
B. Maturity
The proposed term of the Facility is four (4) years from the closing date. Based on a targeted closing during the second quarter of 2022, the anticipated maturity date would fall in the second quarter of 2026. As is customary for ABL facilities, we would expect the maturity to be subject to a "springing" maturity provision that would accelerate the maturity date if Meridian's existing first lien term loan with Greystone (maturing December 2025) has not been refinanced, extended, or otherwise addressed by a date falling 91 days prior to the Greystone maturity date. This springing maturity mechanism is standard and serves to protect the ABL lender from the risk that the term loan maturity could trigger a cross-default or cross-acceleration event. We anticipate that the definitive credit agreement will include this provision, even though the initial term sheet does not expressly address it, and we should raise this issue proactively in our marked-up term sheet to ensure appropriate drafting.
C. Interest Rate and Pricing
The interest rate applicable to borrowings under the Facility is proposed as the Secured Overnight Financing Rate ("SOFR") plus a margin of 200 basis points (2.00%) per annum. This is consistent with the industry-wide transition from LIBOR to SOFR as the benchmark rate for new credit facilities. The term sheet specifies a SOFR floor of 25 basis points (0.25%), meaning that for purposes of calculating the applicable interest rate, SOFR will be deemed to be no less than 0.25% regardless of actual market levels.
The term sheet provides for a single step-down in pricing. Specifically, the applicable margin would decrease from SOFR + 200 basis points to SOFR + 175 basis points if Meridian's average quarterly excess availability under the borrowing base exceeds 50% of the aggregate commitment amount. Given a $40,000,000 commitment, the step-down threshold is $20,000,000 in average excess availability for the applicable quarter. As discussed in Section V below, our preliminary borrowing base analysis suggests that Meridian should have excess availability well in excess of this threshold at closing, which would position the company to benefit from the step-down pricing relatively quickly. The spread is within the range we would consider market for a facility of this type, size, and credit profile, and we do not anticipate significant negotiation on the rate itself, though Meridian may wish to explore whether an additional pricing tier (e.g., SOFR + 150 basis points at a higher excess availability level) can be obtained.
D. Fees
The initial term sheet provides for the following fees:
• Upfront Fee: A one-time upfront fee of 50 basis points (0.50%) on the aggregate commitment amount, payable at closing. Based on the $40,000,000 commitment, the upfront fee would equal $200,000. This is a customary fee for an ABL facility of this nature and is within market range for a sole-lender transaction.
• Unused Line Fee: An ongoing unused line fee of 37.5 basis points (0.375%) per annum on the daily average undrawn portion of the commitment. This fee compensates Ridgeline for maintaining availability under the Facility even when Meridian is not borrowing at full capacity. The unused line fee is computed on the difference between the aggregate commitment (or, in some structures, the borrowing base if lower) and the aggregate outstanding borrowings, and is typically payable quarterly in arrears. We will review the precise calculation methodology during documentation to ensure it is applied against the commitment amount rather than the borrowing base, which would be more favorable to Meridian.
We should also confirm whether the term sheet contemplates any additional fees, such as an early termination fee (which is common in ABL facilities, typically structured as a declining percentage of the commitment if the Facility is terminated in the first one to two years), letter of credit fees (if a letter of credit subfacility is contemplated), or collateral monitoring fees. The initial term sheet is silent on these items, and we should seek clarification from Whitfield Ames.
E. Purpose
The stated purpose of the Proposed ABL Facility is to fund Meridian's working capital needs and general corporate purposes, including seasonal inventory build-outs consistent with Meridian's consumer products business cycle. Meridian's business is characterized by seasonal fluctuations in demand, with peak inventory accumulation typically occurring in advance of the holiday selling season (Q3 and early Q4) and, to a lesser extent, in advance of spring promotional periods. The ABL revolver structure is well-suited to these working capital dynamics, providing Meridian with the flexibility to draw and repay as needed to match the ebbs and flows of its cash conversion cycle.
The purpose clause in the definitive credit agreement should be drafted broadly enough to encompass all ordinary-course working capital needs, and we should ensure that it does not inadvertently restrict Meridian's ability to use Facility proceeds for any reasonable business purpose, including funding permitted acquisitions or capital expenditures to the extent not otherwise restricted by the negative covenants.
F. Governing Law
The Proposed ABL Facility and all related documentation will be governed by the laws of the State of New York, without giving effect to conflict of laws principles. This is standard for credit facilities of this type where both the borrower and the lender's outside counsel are based in New York, and is consistent with the choice of law in Meridian's existing Greystone first lien term loan. We expect the definitive credit agreement to include a submission to the jurisdiction of the federal and state courts located in the Borough of Manhattan, City of New York, together with a waiver of jury trial.
IV. Collateral Package
A. Proposed Lien Priority Structure
The collateral package for the Proposed ABL Facility is structured as a split-collateral arrangement, which is customary when an ABL facility coexists with a first lien term loan. Under this structure:
• ABL Priority Collateral: Ridgeline will hold a first-priority perfected security interest and lien on all of Meridian's accounts receivable, inventory, deposit accounts, and related assets, including (without limitation) all proceeds thereof, all supporting obligations, chattel paper, instruments, documents of title, and letter-of-credit rights arising from or related to such accounts receivable and inventory (collectively, the "ABL Priority Collateral"). These are the asset classes that form the borrowing base and are the core collateral supporting the ABL facility.
• Second-Priority Lien on Other Assets: Ridgeline will also hold a second-priority lien on all other assets of Meridian, including real property, equipment, fixtures, intellectual property, equity interests in subsidiaries (if any), and general intangibles (other than those constituting ABL Priority Collateral). This second-priority lien will be subordinate in all respects to the first-priority lien held by Greystone Capital Finance LLC under the existing first lien term loan.
Correspondingly, we anticipate that Greystone will hold a second-priority lien on the ABL Priority Collateral, subordinate to Ridgeline's first-priority lien thereon. The relative priority of the liens and the respective rights and remedies of the ABL agent and the term loan agent will be governed by the intercreditor agreement discussed in Section VI below.
B. UCC Filings and Perfection
Perfection of Ridgeline's security interest in the ABL Priority Collateral will be accomplished primarily through the filing of UCC-1 financing statements. The initial UCC-1 financing statement will be filed with the Delaware Division of Corporations, as Delaware is Meridian's state of organization and thus the appropriate filing jurisdiction under Article 9 of the Uniform Commercial Code for most categories of personal property collateral. Additional filings may be required in other jurisdictions depending on the nature and location of specific collateral assets, and this will be confirmed during the diligence process.
In addition to UCC filings, Ridgeline will require deposit account control agreements ("DACAs") for all material deposit accounts maintained by Meridian. DACAs are necessary to perfect Ridgeline's security interest in deposit accounts under UCC Section 9-104, as control is the exclusive method of perfection for deposit accounts. We will need to obtain a complete list of Meridian's deposit accounts from Ms. Delgado's office and coordinate with the relevant depository banks to negotiate and execute the DACAs in advance of closing. Based on preliminary information, Meridian maintains its primary operating accounts with Greaves Bancorp and a secondary account with Adriatic Savings Bank We should confirm whether Ridgeline will require that any deposit accounts be transferred to Ridgeline, which is sometimes a condition in sole-lender ABL facilities.
We also note the potential need for landlord waivers and/or bailee letters for inventory held at third-party locations. Based on our initial understanding, Meridian stores finished goods inventory at company-operated distribution facilities as well as at third-party warehouses. To the extent inventory is located at leased premises or held by third-party bailees, Ridgeline will likely require waivers from the applicable landlords or bailees acknowledging Ridgeline's security interest in the inventory and agreeing not to assert any lien or claim against the inventory (or, at a minimum, subordinating any such lien to Ridgeline's security interest). The specific locations and third-party arrangements will need to be confirmed during the diligence process.
C. Field Examination and Appraisal
Ridgeline has retained Bellweather Appraisal Group LLC ("Bellweather") to conduct a preliminary inventory appraisal and accounts receivable field examination. Bellweather's offices are located at 55 Church Street, Suite 700, New Haven, Connecticut 06510. The lead appraiser assigned to this engagement is Thomas Varga, who has substantial experience in consumer products inventory valuations.
The field examination is expected to commence in early March 2022, subject to scheduling coordination with Meridian's operations team. The scope of the examination will include an on-site review of Meridian's inventory management systems and controls, a physical inspection and test count of inventory at Meridian's principal warehouse and distribution facilities, a review of accounts receivable aging reports and collection history, verification of receivable balances with selected account debtors, and an assessment of Meridian's accounting and reporting systems as they relate to borrowing base compliance.
The results of the Bellweather field examination and appraisal will be critical to finalizing the terms of the Proposed ABL Facility. Specifically, the appraisal will establish the net orderly liquidation value ("NOLV") of Meridian's inventory, which directly determines the inventory component of the borrowing base. The field examination will also inform Ridgeline's assessment of appropriate eligibility criteria, reserve levels, and advance rates. Until the field examination is complete, the borrowing base figures set forth in this memorandum should be treated as preliminary estimates only.
V. Borrowing Base — Initial Analysis
A. Structure of the Borrowing Base
The borrowing base under the Proposed ABL Facility will consist of two principal components: (i) eligible accounts receivable and (ii) eligible inventory, each subject to specified advance rates, eligibility criteria, and reserves as agreed between the parties. The aggregate borrowing base will determine the maximum amount Meridian may borrow under the Facility at any given time, subject to the overall $40,000,000 commitment cap. The borrowing base is a dynamic calculation that will fluctuate as the composition and value of Meridian's receivables and inventory change over time, and Meridian will be required to deliver periodic borrowing base certificates to Ridgeline certifying the current borrowing base.
B. Eligible Accounts Receivable
Based on Meridian's accounts receivable aging schedule as of December 31, 2021, and our preliminary assessment of the eligibility criteria set forth in the initial term sheet, we estimate that Meridian's eligible accounts receivable total approximately $38,000,000.
The proposed advance rate for eligible accounts receivable, as set forth in Ridgeline's initial term sheet, is 85% of eligible accounts receivable. Applying this advance rate to the estimated eligible receivables yields a receivables component of the borrowing base of:
$38,000,000 × 85% = $32,300,000
The key eligibility criteria for accounts receivable, as specified in the initial term sheet, include the following requirements:
(a) Receivables must be less than 90 days past the invoice date. Receivables exceeding this aging threshold will be excluded from the eligible base.
(b) Inter-company receivables are excluded. Any accounts receivable owed by affiliates of Meridian, including Brindoval or any other Brindoval portfolio company, are ineligible.
(c) Government receivables are excluded. Accounts receivable owed by the United States government or any agency or instrumentality thereof are excluded, reflecting the unique setoff and sovereign immunity considerations associated with government obligors.
(d) Concentration limits apply. Receivables from any single account debtor (or group of affiliated account debtors) exceeding a specified percentage of total eligible receivables (the threshold percentage to be negotiated, but typically in the range of 15% to 25%) will be excluded to the extent of the excess. Given that Meridian sells to several large national retailers, the concentration limits may require careful calibration to avoid unnecessarily excluding receivables from Meridian's most significant customers.
(e) Cross-aging provisions will apply. If a specified percentage (typically 25% to 50%) of the receivables owed by any single account debtor are past due beyond the 90-day threshold, all receivables from that debtor may be excluded from the eligible base, regardless of the aging of individual invoices. The specific cross-aging percentage is to be negotiated.
The 85% advance rate on eligible accounts receivable appears to be consistent with current market standards for ABL facilities in the consumer products sector, and we do not anticipate that the advance rate itself will be a significant point of negotiation. Our focus with respect to receivables will be on the eligibility criteria, particularly the concentration limits and cross-aging provisions, which could have a meaningful impact on the effective borrowing base if set at overly restrictive levels.
C. Eligible Inventory
Based on Meridian's inventory records as of December 31, 2021, we estimate that eligible inventory at cost totals approximately $54,000,000. This figure is subject to refinement based on the results of the Bellweather field examination and appraisal, as well as the outcome of negotiations regarding specific eligibility criteria.
The inventory component of the borrowing base is calculated in a two-step process. First, the eligible inventory at cost is reduced to its net orderly liquidation value ("NOLV"), which reflects the estimated net proceeds that would be realized from an orderly liquidation of the inventory over a reasonable period of time. Second, the advance rate is applied to the NOLV figure.
Ridgeline's preliminary NOLV estimate is 70% of cost. This estimate is based on Ridgeline's internal credit assessment and industry benchmarks, but is subject to confirmation or adjustment based on the Bellweather appraisal. Applying this preliminary NOLV percentage yields:
Preliminary NOLV: $54,000,000 × 70% = $37,800,000
Ridgeline's proposed advance rate for eligible inventory is 65% of NOLV. Applying this rate produces the following inventory component of the borrowing base:
Inventory component: $37,800,000 × 65% = $24,570,000
However, Meridian intends to counter Ridgeline's proposed advance rate with a request for 75% of NOLV. Meridian's position is that its inventory consists primarily of branded consumer products with established market recognition, broad retail distribution, and demonstrated sell-through rates, all of which support a higher recovery rate in an orderly liquidation scenario and therefore justify a more favorable advance rate. At a 75% advance rate, the inventory component would be:
Inventory component (at Meridian's proposed rate): $37,800,000 × 75% = $28,350,000
The difference between the two advance rates is $3,780,000 in borrowing base capacity, which is material and is expected to be one of the most significant points of commercial negotiation during the term sheet mark-up process.
The key eligibility criteria for inventory, as specified in the initial term sheet, include the following:
(a) Work-in-process inventory is excluded. Only finished goods and, potentially, raw materials that are readily usable in production may be included in the eligible base.
(b) Consignment goods are excluded. Inventory held by Meridian on consignment from third parties, or inventory consigned by Meridian to third parties, is not eligible.
(c) Goods in transit are generally excluded, unless adequately insured and supported by acceptable shipping and title documentation. The specific documentary requirements for in-transit inventory will need to be negotiated.
(d) Obsolete or slow-moving inventory is excluded. The definitions of "obsolete" and "slow-moving" inventory and the applicable thresholds will be negotiated based on the results of the Bellweather appraisal and Meridian's historical inventory turnover data.
(e) Seasonal inventory treatment is to be negotiated. This is a critical issue for Meridian, as discussed in Section VII below.
D. Total Initial Borrowing Base
Based on the preliminary figures set forth above, the total initial borrowing base under the Proposed ABL Facility can be estimated under two scenarios:
Scenario 1 — Ridgeline's Proposed Advance Rates (85% AR / 65% NOLV):
Receivables component: $32,300,000 Inventory component: $24,570,000 Total borrowing base: $56,870,000
Excess availability over the $40,000,000 commitment: $56,870,000 − $40,000,000 = $16,870,000 (approximately 42.2% cushion over the commitment)
Scenario 2 — Meridian's Proposed Advance Rates (85% AR / 75% NOLV):
Receivables component: $32,300,000 Inventory component: $28,350,000 Total borrowing base: $60,650,000
Excess availability over the $40,000,000 commitment: $60,650,000 − $40,000,000 = $20,650,000 (approximately 51.6% cushion over the commitment)
Under both scenarios, the preliminary borrowing base significantly exceeds the $40,000,000 commitment, providing a substantial excess availability cushion. Notably, under Scenario 2, the excess availability of $20,650,000 would exceed the $20,000,000 threshold required for the step-down in pricing from SOFR + 200 basis points to SOFR + 175 basis points, which provides an additional incentive for Meridian to push for the higher advance rate.
It is important to note that these borrowing base figures are preliminary and are subject to change based on several factors, including: (i) the results of the Bellweather appraisal, which may confirm, increase, or decrease the 70% NOLV estimate; (ii) the outcome of negotiations regarding specific eligibility criteria, which could narrow or broaden the pool of eligible collateral; and (iii) normal fluctuations in Meridian's receivables and inventory levels over time. A more detailed sensitivity analysis will be prepared once the Bellweather field examination data is available.
E. Reporting and Certification
The Proposed ABL Facility will require Meridian to deliver regular borrowing base certificates and financial reports to Ridgeline. Based on the initial term sheet and standard ABL market practice, we anticipate the following reporting requirements:
(a) Borrowing Base Certificates: Monthly borrowing base certificates, delivered within a specified number of business days following the end of each calendar month, certifying the current borrowing base and its components. The frequency may increase to weekly or bi-weekly upon the occurrence of triggering events (such as a decline in excess availability below a specified threshold).
(b) Accounts Receivable Aging Reports: Monthly accounts receivable aging reports providing a detailed breakdown of receivables by aging category, customer concentration, and dilution metrics.
(c) Inventory Reports: Monthly inventory reports detailing inventory levels by category (finished goods, raw materials, work-in-process), location, and any applicable reserves or adjustments.
(d) Financial Statements: Quarterly unaudited financial statements, delivered within 45 days following the end of each fiscal quarter, and annual audited financial statements, delivered within 90 to 120 days following the end of each fiscal year. The annual audited financial statements will be prepared by Pemberton & Locke CPAs LLP in accordance with generally accepted accounting principles.
(e) Field Examinations: Ridgeline is expected to require field examinations to be conducted at Meridian's expense. We anticipate that the initial term sheet contemplates annual field examinations under ordinary circumstances, with the frequency increasing to semi-annual or more frequent examinations upon the occurrence of triggering events (e.g., a decline in excess availability, a material adverse change, or an event of default). Meridian will seek to limit the required frequency of field examinations to once per year absent triggering events, and to cap the cost of field examinations borne by Meridian.
VI. Existing Indebtedness — Greystone Capital Finance LLC First Lien Term Loan
A. Summary of Existing Facility
Meridian has an existing first lien term loan facility with Greystone Capital Finance LLC ("Greystone"), which serves as both the lender and administrative agent under that facility. The key terms of the Greystone term loan are as follows:
Lender/Administrative Agent: Greystone Capital Finance LLC, 125 High Street, Suite 2500, Boston, Massachusetts 02110
Greystone Loan Reference: GCF-MCB-2019-1215
Facility Type: Senior secured first lien term loan
Original Principal Amount: $75,000,000
Closing Date: December 15, 2019 (in connection with the Brindoval acquisition of Meridian)
Maturity Date: December 2025
Outstanding Balance: Approximately $61,500,000 as of January 2022, reflecting scheduled amortization payments made since closing
Greystone Relationship Contact: Alan Fitzpatrick, Director, Portfolio Management
The Greystone term loan is secured by a first-priority lien on substantially all of Meridian's assets. The Proposed ABL Facility will require a restructuring of the existing lien arrangement such that Greystone's first-priority lien on the ABL Priority Collateral (receivables, inventory, and deposit accounts) will be subordinated to Ridgeline's lien on those assets, while Greystone will retain its first-priority lien on all other collateral. This restructuring will be accomplished through the intercreditor agreement discussed below.
B. Intercreditor Considerations
The Proposed ABL Facility will require the execution and delivery of an intercreditor agreement between Ridgeline (in its capacity as ABL agent) and Greystone (in its capacity as term loan agent). The intercreditor agreement is a critical document that will govern the relative rights and priorities of the two secured creditors with respect to Meridian's assets and the exercise of remedies in the event of a default or enforcement scenario.
The anticipated structure of the intercreditor agreement is a split-collateral arrangement, which is the standard framework for ABL/term loan intercreditor agreements in the leveraged finance market. Under this structure:
(a) The ABL agent (Ridgeline) holds a first-priority lien on the ABL Priority Collateral — namely, accounts receivable, inventory, deposit accounts, and related assets — and a second-priority lien on all other assets.
(b) The term loan agent (Greystone) holds a first-priority lien on all assets other than the ABL Priority Collateral — including real property, equipment, intellectual property, equity interests, and general intangibles — and a second-priority lien on the ABL Priority Collateral.
The key substantive issues that will need to be negotiated in the intercreditor agreement include, without limitation, the following:
(i) Standstill Periods: The duration and scope of any standstill period during which the second-priority lienholder is prohibited from exercising remedies against collateral in which the other party holds a first-priority lien. Typical standstill periods in split-collateral intercreditor agreements range from 90 to 180 days.
(ii) Remedy Limitations: Restrictions on the junior lienholder's ability to take enforcement actions, foreclose, or exercise setoff rights against collateral in which the other party has a senior lien, including any notification requirements or consent rights.
(iii) Rights to Use and Dispose of Collateral: The extent to which the senior lienholder may authorize the borrower to use, sell, or otherwise dispose of collateral in the ordinary course of business, and the circumstances under which such authorization may be revoked.
(iv) Application of Proceeds Waterfall: The priority and order in which proceeds of collateral are to be applied as between the ABL obligations and the term loan obligations, including proceeds from both voluntary and involuntary dispositions, insurance proceeds, and condemnation awards.
(v) Purchase Option Mechanics: Whether and under what circumstances one lienholder group may purchase the other's claims, and the pricing, timing, and procedural mechanics of any such purchase option.
(vi) DIP Financing and Priming Rights: The extent to which each lienholder group may consent to or object to debtor-in-possession ("DIP") financing in a bankruptcy proceeding, and whether the intercreditor agreement will include advance waivers of the right to object to priming liens in connection with DIP financing.
(vii) Adequate Protection Provisions: The allocation of adequate protection rights between the ABL agent and the term loan agent in a bankruptcy proceeding, including the right to receive replacement liens, adequate protection payments, and superpriority administrative claims.
With respect to Greystone's current position, Alan Fitzpatrick of Greystone provided an informal email confirmation on February 8, 2022, indicating that Greystone is willing in principle to negotiate an intercreditor agreement in connection with the Proposed ABL Facility. Mr. Fitzpatrick indicated that Greystone has experience with split-collateral intercreditor arrangements and would expect to use a market-standard form as the starting point for negotiations. However, formal negotiations have not yet commenced, and Greystone has not provided any specific comments or counterproposals to date. We understand that Greystone's outside counsel for this matter has not yet been formally engaged, though Mr. Fitzpatrick mentioned that Greystone typically uses Welvane & Worth LLP for intercreditor matters.
Given the complexity and importance of the intercreditor agreement, a separate detailed intercreditor issues memorandum will be prepared once the term sheet negotiations progress further and we have a better understanding of the specific positions of both Ridgeline and Greystone on the issues identified above. We recommend that Meridian's management team, and in particular Raymond Chu, engage proactively with both Greystone and Ridgeline to facilitate a constructive negotiation process on the intercreditor terms.
VII. Preliminary Negotiation Issues and Open Points
Based on our review of Ridgeline's initial term sheet and our discussions with Raymond Chu, we have identified the following issues as the principal areas where negotiation will be required. These issues will be addressed in our marked-up term sheet and will form the basis for our negotiation strategy in discussions with Whitfield Ames.
A. Advance Rate Dispute
As discussed in Section V above, the inventory advance rate is expected to be the most significant point of commercial negotiation. Ridgeline's initial term sheet proposes an advance rate of 65% of NOLV for eligible inventory. Meridian will counter with a proposed advance rate of 75% of NOLV, which would increase the inventory component of the borrowing base by approximately $3,780,000 (from $24,570,000 to $28,350,000). Meridian's principal arguments in support of the higher advance rate are as follows:
(a) Meridian's inventory consists primarily of branded consumer products with well-established brand recognition and demonstrated consumer demand across multiple retail channels. Branded products generally command higher recovery rates in orderly liquidation scenarios compared to private-label or commodity goods.
(b) Meridian's products are distributed through a broad network of national retailers, grocery chains, and e-commerce platforms, providing multiple channels through which inventory can be liquidated in an enforcement scenario.
(c) Industry data for the consumer products sector supports advance rates in the range of 70% to 85% of NOLV for finished goods inventory of this type, and Meridian's position at 75% is within the middle of the range.
(d) Meridian's historical inventory turnover rates and sell-through metrics are strong, indicating that the inventory is current, in-demand, and readily saleable.
We expect that the Bellweather appraisal results will be the most significant factor in resolving this dispute, and we should position Meridian to engage constructively with the Bellweather team during the field examination to ensure that the appraisal accurately reflects the quality and recoverability of Meridian's inventory.
The receivables advance rate of 85% appears to be consistent with current market standards for consumer products ABL facilities and is unlikely to be a point of significant dispute.
B. Inventory Eligibility Criteria
The treatment of seasonal inventory build-outs is a critical issue for Meridian given the seasonal nature of its consumer products business. Meridian's business cycle involves significant pre-season inventory accumulation, particularly in advance of the holiday selling season. If seasonal inventory is excluded from the eligible base or subjected to punitive reserves, the borrowing base could contract at precisely the time when Meridian's working capital needs are greatest, undermining the fundamental purpose of the Facility.
Meridian will seek inclusion of seasonal inventory as eligible, with the understanding that appropriate seasonal reserves (rather than outright exclusion) may be applied to account for the incremental risk associated with seasonal goods. The seasonal reserve methodology should be negotiated in detail, including the timing and magnitude of reserve build-up and release, and should be calibrated to Meridian's actual business cycle and historical sell-through rates for seasonal products.
Additionally, the definitions of "slow-moving" inventory and the applicable thresholds for exclusion from the eligible base will need to be negotiated. The initial term sheet does not specify the criteria for determining when inventory is deemed slow-moving, and this will need to be refined based on the Bellweather appraisal results and Meridian's historical SKU-level turnover data. We should advocate for definitions that are tailored to the consumer products industry and Meridian's specific product categories, rather than generic formulas that may not account for the normal lifecycle of consumer goods.
C. Receivables Eligibility Criteria
The initial term sheet uses a 90-day past invoice date threshold as the cutoff for eligible accounts receivable. This is the standard threshold for the consumer products sector, where payment terms typically range from 30 to 60 days and collection cycles can be somewhat extended due to retailer practices such as deductions, chargebacks, and promotional allowances. Any attempt by Ridgeline to tighten this threshold (e.g., to 60 days) should be resisted, as it could result in the exclusion of a significant volume of receivables that are performing and likely to be collected in the ordinary course.
The cross-aging percentages and customer concentration limits will need to be refined during the diligence process. We should obtain detailed receivables aging data by customer to assess the potential impact of different concentration limits and cross-aging thresholds on the eligible receivables base. If Meridian has significant customer concentration (e.g., if any single retailer accounts for more than 15% to 20% of receivables), we may need to negotiate named-account exceptions or higher concentration caps for specified major customers.
D. Financial Covenants
Ridgeline's initial term sheet proposes a springing fixed charge coverage ratio ("FCCR") of 1.0x. This covenant would only be tested — i.e., it would "spring" into effect — when Meridian's excess availability under the borrowing base falls below the greater of (a) 10% of the aggregate commitment amount ($40,000,000 × 10% = $4,000,000) or (b) $4,000,000. Given that both prongs of the trigger yield the same dollar amount, the effective trigger is $4,000,000 of excess availability.
A springing FCCR is the standard financial covenant structure for ABL facilities, and a 1.0x minimum coverage ratio is consistent with market norms. The springing mechanism means that as long as Meridian maintains excess availability above $4,000,000, the FCCR will not be tested, which provides significant operational flexibility. Based on our preliminary borrowing base analysis, Meridian should have ample excess availability to avoid triggering the covenant under normal operating conditions.
The key negotiation points with respect to the FCCR will relate to the definitions of "fixed charges" and the permitted add-backs to EBITDA or consolidated net income in the numerator of the coverage ratio. We should ensure that the definition of "fixed charges" is appropriately calibrated and does not include items that would unfairly penalize Meridian, such as voluntary prepayments of debt, non-recurring capital expenditures, or management fees paid to Brindoval. We should also negotiate for customary add-backs to EBITDA, including non-cash charges, restructuring expenses, transaction costs, and other one-time items.
E. Reporting Requirements
As outlined in Section V.E above, the initial term sheet contemplates monthly borrowing base certificates, monthly accounts receivable aging reports and inventory reports, quarterly financial statements, and annual audited financial statements. The frequency, scope, and delivery timing of these reports will be negotiated, with Meridian seeking reasonable deadlines and appropriate limitations on the administrative burden of compliance.
With respect to field examinations, Meridian will seek to limit the required frequency to one field examination per year under normal circumstances, with increased frequency (up to two or three per year) triggered only by specified events such as a decline in excess availability below a defined threshold, an event of default, or a material adverse change. Meridian should also seek a cap on the annual cost of field examinations that the borrower is required to bear, and the ability to select from a pre-approved panel of field examination firms.
F. Conditions Precedent to Closing
Based on the initial term sheet and standard ABL practice, we anticipate that the following conditions precedent to closing will apply:
(a) Intercreditor Agreement: Execution and delivery of a fully negotiated intercreditor agreement between Ridgeline and Greystone in form and substance satisfactory to all parties.
(b) Field Examination and Appraisal: Satisfactory completion of the Bellweather field examination and inventory appraisal, with results acceptable to Ridgeline in its reasonable discretion.
(c) Legal Opinions: Delivery of customary legal opinions from Calderwood & Harkness LLP as borrower's counsel, including opinions as to due organization, authority, enforceability, no conflicts, and perfection of security interests.
(d) Organizational Documents: Delivery of certified copies of Meridian's certificate of formation, limited liability company agreement (or relevant excerpts), resolutions authorizing the transaction, incumbency certificates, and good standing certificates from Delaware and any other applicable jurisdictions.
(e) Officer Certificates: Delivery of officer certificates from authorized officers of Meridian certifying, among other things, the accuracy of representations and warranties, compliance with conditions precedent, and the absence of any default or event of default.
(f) Landlord Waivers: Delivery of landlord waivers from the landlords of all leased premises at which material inventory is stored, in form and substance satisfactory to Ridgeline.
(g) Deposit Account Control Agreements: Execution and delivery of deposit account control agreements for all material deposit accounts maintained by Meridian.
(h) Payment of Fees and Expenses: Payment of the upfront fee, together with all accrued and unpaid legal fees and expenses of Whitfield Ames LLP (as Ridgeline's counsel) and Bellweather Appraisal Group LLC.
We will work with Raymond Chu and Patricia Delgado's team to begin assembling the required closing deliverables in advance of the anticipated Q2 2022 closing date, and will coordinate with Whitfield Ames on a closing checklist once the definitive documentation is further advanced.
VIII. Timeline and Next Steps
The following table summarizes the key dates and anticipated milestones for the Proposed ABL Facility:
We note that the timeline above is subject to adjustment based on the pace of negotiations, the Bellweather field examination schedule, and the progress of intercreditor agreement discussions with Greystone. We will provide regular status updates to the engagement team and to the client as the transaction progresses.
IX. Calderwood & Harkness Engagement Team
The following attorneys have been assigned to this matter:
• Stephanie Okafor — Responsible Partner, Banking & Finance. Ms. Okafor will provide overall strategic direction and supervise all substantive legal work on the engagement. She will serve as the primary partner-level point of contact for the client and for Whitfield Ames LLP.
• Philip Hartmann — Billing Partner, Banking & Finance. Mr. Hartmann will oversee billing and engagement management matters and will be available to provide substantive guidance as needed.
• Daniel Obi — Lead Associate, Banking & Finance. Mr. Obi will serve as the day-to-day lead on all aspects of the transaction, including term sheet negotiations, drafting and review of definitive documentation, diligence coordination, and client communications. Mr. Obi is the author of this memorandum and the primary associate contact for all matters related to the engagement.
• Lisa Morrow — Working Associate, Banking & Finance. Ms. Morrow will assist with diligence, UCC and lien search coordination, document review, and preparation of closing deliverables.
The applicable hourly rates for the engagement team, as set forth in the engagement letter, are as follows:
All work is being performed pursuant to the engagement letter referenced as C&H-EL-2022-0124-MCB, dated January 24, 2022, which sets forth the complete terms of the firm's engagement, including fee arrangements, scope of representation, and applicable limitations.
X. Conclusion
The Proposed ABL Facility is a straightforward single-lender asset-based revolving credit facility with a strong initial borrowing base that significantly exceeds the $40,000,000 commitment amount, providing Meridian with substantial excess availability under either advance rate scenario analyzed in this memorandum. The sole-lender structure with Ridgeline National Bank simplifies the documentation process and eliminates the complexities associated with syndicated facilities, while the borrowing base composition — anchored by Meridian's receivables from creditworthy national retailers and branded consumer products inventory — reflects a fundamentally sound collateral package.
The key areas of negotiation focus in the upcoming term sheet mark-up and subsequent definitive documentation process will be:
(a) Inventory Advance Rate: Resolving the dispute between Ridgeline's proposed 65% of NOLV and Meridian's target of 75% of NOLV, which represents a difference of approximately $3,780,000 in borrowing base capacity and has implications for Meridian's ability to achieve the pricing step-down.
(b) Eligibility Criteria: Negotiating the treatment of seasonal inventory (inclusion with reserves rather than exclusion), the cross-aging and concentration limits for receivables, and the definitions of slow-moving and obsolete inventory, all of which will directly affect the effective borrowing base.
(c) Intercreditor Agreement: Negotiating and finalizing a split-collateral intercreditor agreement with Greystone Capital Finance LLC that reflects market-standard terms and adequately protects Meridian's flexibility to operate under both the ABL facility and the first lien term loan.
The Bellweather field examination and inventory appraisal, expected to commence in early March 2022, will be a critical milestone in determining the final eligibility criteria, NOLV percentages, and advance rates. The results will significantly influence the borrowing base composition and the overall economics of the Facility.
We recommend proceeding with delivery of the marked-up term sheet to Whitfield Ames LLP on or before February 14, 2022, incorporating the borrower's counterproposals on all material commercial and legal terms identified in this memorandum. In parallel, we recommend beginning preparation of a separate intercreditor issues memorandum to frame the key negotiation points with Greystone, and initiating the organizational diligence and closing deliverable assembly process with Raymond Chu and Patricia Delgado's team.
Any questions or comments regarding this memorandum or the Proposed ABL Facility should be directed to Daniel Obi (dobi@calderwoodharkness.com; ext. 4477) or Stephanie Okafor (sokafor@calderwoodharkness.com; ext. 4201).
— End of Memorandum —
PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT Calderwood & Harkness LLP | One Liberty Plaza, 45th Floor, New York, NY 10006 | Matter No. 1011-00001 Engagement Reference: C&H-EL-2022-0124-MCB
Date | Event / Milestone
January 24, 2022 | Matter opened; Calderwood & Harkness engagement letter executed with Meridian
January 28, 2022 | Initial term sheet received from Ridgeline National Bank (transmitted via Whitfield Ames LLP)
February 8, 2022 | Greystone Capital Finance LLC (Alan Fitzpatrick) provides informal email confirmation of willingness to negotiate intercreditor agreement
February 10, 2022 | This memorandum prepared and circulated internally
Mid-February 2022 (target: February 14, 2022) | Calderwood & Harkness to deliver marked-up term sheet with borrower's comments and counterproposals to Whitfield Ames LLP
Early March 2022 | Bellweather Appraisal Group LLC to commence preliminary field examination and inventory appraisal at Meridian's facilities
March 2022 | Ridgeline expected to respond with revised term sheet reflecting their comments on borrower's mark-up
Late March – April 2022 | Bellweather field examination results expected; finalization of term sheet; commencement of definitive documentation drafting
Q2 2022 (target) | Closing of the Proposed ABL Facility (subject to satisfaction of all conditions precedent and completion of definitive documentation)
Attorney | Role | Hourly Rate
Stephanie Okafor | Responsible Partner | $1,250/hour
Philip Hartmann | Billing Partner | $1,250/hour
Daniel Obi | Lead Associate | $825/hour
Lisa Morrow | Working Associate | $695/hour

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