MEMORANDUM
PRIVILEGED & CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION ATTORNEY WORK PRODUCT
Prepared for client review — delivery held pending instruction from Diana Ressler
CALDERWOOD & HARKNESS LLP 599 Lexington Avenue, 36th Floor New York, NY 10022
Matter No.: 1011-00005
March 30, 2023
TO: Diana Ressler, General Counsel, Meridian Consumer Brands LLC
CC: Gareth Holloway, CEO & Managing Member, Meridian Consumer Brands LLC Priya Anand, CFO, Meridian Consumer Brands LLC Thomas Liang, Managing Partner, Lakepoint Capital Partners, LP
FROM: Andrew Fitzpatrick, Lead Associate, Mergers & Acquisitions Sandra Tung, Responsible Partner, Mergers & Acquisitions
RE: Reactivation Considerations — Proposed Asset Purchase of CleanLeaf and PureHaven Product Lines from Briarwood Home Essentials, Inc.
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I. Executive Summary
This memorandum analyzes the steps, risks, costs, and timeline required to restart the stalled acquisition by Meridian Consumer Brands LLC, a Delaware limited liability company ("Meridian" or "Buyer"), of the CleanLeaf (home cleaning) and PureHaven (personal care) product lines (collectively, the "Product Lines") from Briarwood Home Essentials, Inc., an Ohio corporation ("Briarwood" or "Seller"), for a proposed aggregate purchase price of $95,000,000 (the "Transaction"). The Transaction is structured as an asset purchase, with $87,000,000 payable in cash at closing and an $8,000,000 earnout contingent upon Year 1 product line revenue equaling or exceeding $72,000,000.
Negotiations between the parties stalled following the November 18, 2022 negotiation call, and the last substantive communication between counsel was a December 9, 2022 email from Naomi Petersen (Calderwood & Harkness) to David Soo (Caldwell, Pruitt & Shaw LLP) proposing dates for a follow-up call. That call never took place, and no further communications have occurred on either side since that date. Neither party has formally terminated the Letter of Intent ("LOI") or the Asset Purchase Agreement ("APA") negotiations.
Since the onset of dormancy, two critical contractual deadlines have lapsed: (1) the debt commitment letter issued by Harborview National Bank, N.A. expired by its terms on February 5, 2023; and (2) the twelve-month exclusivity period under the LOI expired on March 28, 2023 — two days ago. The expiration of these two instruments fundamentally alters Meridian's position and introduces material execution risk to any reactivation effort.
We have identified seven major workstreams that will require attention if Meridian elects to proceed with reactivation:
1. Replacement Debt Financing. The expired Harborview commitment must be replaced or refreshed, likely at materially higher borrowing costs given the current interest rate environment.
2. Exclusivity and Competitive Risk. With exclusivity expired, Briarwood is free to engage with competing buyers. A renewed exclusivity agreement should be a threshold condition of re-engagement.
3. Updated Financial Diligence. All financial diligence was based on FY2021 results and a June 30, 2022 reference date. FY2022 full-year financials and any available interim FY2023 financials must be obtained and analyzed.
4. Environmental Diligence (Phase II ESA). The Phase I Environmental Site Assessment identified a recognized environmental condition at the Marysville manufacturing facility that requires Phase II investigation. This investigation was never commenced and represents a critical gap in the diligence record.
5. R&W Insurance. The representations and warranties insurance policy was never bound, and the prior underwriting submission is stale. A refreshed or new submission will be required.
6. Inventory Revaluation, Refreshed Disclosure Schedules, and Customer/Landlord Consents. The unresolved $2,500,000 inventory valuation dispute must be addressed with current data, disclosure schedules must be completed and updated, and previously identified consent requirements (landlord and customer contracts) must be pursued.
7. Employee Retention. No offer letters were issued to the 186 employees identified for transfer, and the prolonged dormancy introduces significant attrition risk that could impair product line value.
Our recommendation is that Meridian should make a threshold decision on whether to pursue reactivation before incurring significant incremental advisory and professional costs. If the decision is to proceed, we believe a 90-to-120-day reactivation timeline from the date of that decision to signing of definitive agreements is realistic, provided that the Seller is cooperative and no material adverse findings emerge from updated diligence. If the decision is to terminate, we are prepared to draft a formal termination letter that preserves Meridian's rights under the surviving provisions of the LOI while confirming the cessation of negotiations.
II. Background and Current Status
A. Transaction Overview
Buyer. Meridian Consumer Brands LLC is a Delaware limited liability company headquartered at 440 Park Avenue South, 18th Floor, New York, NY 10016. Meridian is a portfolio company of Lakepoint Capital Partners, LP, a private equity fund based at 200 Clarendon Street, Suite 3200, Boston, MA 02116, with Thomas Liang serving as Managing Partner. Meridian was formed in 2017 as a purpose-built acquisition vehicle focused on the consumer products sector. Since its formation, Meridian has completed three bolt-on acquisitions and now owns and operates five consumer brands spanning the household cleaning, laundry, and personal care categories. Meridian's combined annual revenues are approximately $620 million, and the CleanLeaf and PureHaven acquisition was intended to serve as the platform's fourth bolt-on, adding established consumer product lines with national distribution in complementary categories.
Seller. Briarwood Home Essentials, Inc. is an Ohio corporation with its principal offices at 1175 Creekside Drive, Suite 400, Columbus, OH 43215. Briarwood was founded in 2004 by Malcolm Greer, who serves as President and is the sole shareholder of the company. Janet Tsao serves as Vice President of Operations. Briarwood operates across two distinct business segments: (i) the CleanLeaf and PureHaven consumer product lines, which are the subject of the proposed Transaction, and (ii) the Commercial Janitorial Services Division (the "Retained Business"), which Briarwood will continue to operate following any closing.
Acquired Assets. Under the proposed APA, the assets to be acquired by Meridian include:
• The CleanLeaf and PureHaven product lines, comprising approximately 142 active stock-keeping units (SKUs) across home cleaning and personal care categories;
• Briarwood's leasehold interest in the Marysville manufacturing facility located at 2800 Industrial Parkway, Marysville, OH 43040, leased from Buckeye Industrial Properties LLC pursuant to an existing commercial lease agreement;
• The West Jefferson distribution center located at 500 Commerce Boulevard, West Jefferson, OH 43162, which is owned in fee by Briarwood;
• Accounts receivable associated with the Product Lines (approximately $9,700,000 as of June 30, 2022);
• Inventory associated with the Product Lines (book value of approximately $14,300,000 as of June 30, 2022, subject to the valuation dispute described herein);
• Twenty-three (23) customer contracts and related commercial agreements;
• All intellectual property associated with the Product Lines, including trademarks, trade dress, domain names, and formulation trade secrets; and
• Other related tangible and intangible assets as specified in the APA.
Excluded Assets. The following assets are expressly excluded from the Transaction: Briarwood's Commercial Janitorial Services Division (the Retained Business), the corporate headquarters lease, cash and cash equivalents, and pre-closing tax refunds.
Assumed Liabilities. Meridian would assume trade payables of approximately $4,200,000, accrued product warranty obligations of approximately $620,000, and post-closing obligations under the assigned contracts. All other liabilities of Briarwood, including any pre-closing environmental liabilities, tax liabilities, and litigation liabilities, are retained by the Seller.
Purchase Price. The proposed aggregate purchase price is $95,000,000, structured as follows:
The $95,000,000 purchase price implies an enterprise value-to-EBITDA multiple of approximately 8.48x based on Briarwood's FY2021 EBITDA of $11,200,000 on FY2021 revenue of $68,000,000 for the Product Lines. This multiple was within the range of comparable consumer products transactions at the time of the LOI.
Escrow. The APA contemplates an escrow holdback of $9,500,000 (10% of the purchase price), to be held for twenty-four (24) months following the closing by Atlantic Fiduciary Trust Company (Gregory Fenn, escrow officer), 100 Federal Street, Suite 1500, Boston, MA 02110. The escrow serves as the first source of recovery for indemnification claims made by Buyer during the escrow period.
Indemnification Terms. The Buyer's proposed indemnification cap is $33,250,000, representing 35% of the purchase price. The APA includes a tipping basket of $950,000 (1% of the purchase price), meaning indemnification claims become payable from dollar one once the aggregate amount of losses exceeds the basket threshold. General representations survive for twenty-four (24) months following closing, while fundamental representations (including title, authority, capitalization, and tax representations) survive indefinitely.
Governing Law. The APA and all ancillary agreements are governed by the laws of the State of New York.
Seller's Counsel. Caldwell, Pruitt & Shaw LLP, 41 South High Street, Suite 2800, Columbus, OH 43215. Rachel Underwood serves as lead partner and David Soo as the working associate on the Transaction.
Buyer's Financial Advisor. Wavecrest Partners LLC, 375 Hudson Street, 12th Floor, New York, NY 10014. Steven Marchetti and Lena Kowalski have been advising Meridian on the Transaction and were instrumental in the original financing process.
Seller's Financial Advisor. Greystone Hobbs & Co., 127 East Ashbury Asset Advisors, Suite 900, Columbus, OH 43215. Philip Tran has been representing Briarwood in connection with the sale process.
B. Timeline of Key Events
The following chronology sets forth the material events in the Transaction from inception through the present date:
C. Unresolved Issues at Time of Dormancy
At the time negotiations went dormant in November–December 2022, a number of material issues remained open. None of these issues was resolved, and none has been addressed during the intervening period. We summarize them here as follows:
Inventory Valuation Dispute. The central commercial issue at the time of dormancy was the $2,500,000 variance between Briarwood's book value of $14,300,000 for Product Line inventory (as of June 30, 2022) and the NRV of $11,800,000 determined by Whitfield Ames LLP. The parties fundamentally disagreed on the appropriate methodology for valuing slow-moving and obsolete inventory. This dispute was raised on October 21, 2022, discussed but not resolved on the November 18, 2022 call, and has remained unresolved since that time.
Phase II Environmental Site Assessment. The Phase I ESA (Report No. TEG-2022-0441) completed by Terrapoint on September 2, 2022 identified a recognized environmental condition at the Marysville manufacturing facility requiring further investigation. A Phase II ESA was never commissioned, and the scope of any potential environmental contamination at the facility remains unknown. This represents the most significant open diligence item from a risk perspective.
Landlord Consent. A consent request was sent to Buckeye Industrial Properties LLC on October 7, 2022, requesting consent to assignment of the Marysville facility lease. No response has ever been received — approximately six months of silence. The Marysville lease is a critical asset for the continued operation of the Product Lines, and landlord consent is a closing condition under the APA.
Customer Contract Consents. Seven of the twenty-three customer contracts to be assigned to Meridian contain change-of-control or assignment consent provisions. A form of consent request letter was prepared on October 12, 2022, but the letters were never sent to any of the seven counterparties.
Regulatory Filing Gap. Calderwood & Harkness's due diligence memorandum on litigation and regulatory matters (dated September 12, 2022) identified a gap in state product registrations for certain CleanLeaf and PureHaven SKUs. The gap was flagged for further analysis and resolution, but no further work was done.
Disclosure Schedules. Briarwood delivered only partial first-draft disclosure schedules on September 28, 2022. Multiple schedules were incomplete, and the information provided has not been updated since delivery.
APA Open Items. The APA remains in second-draft form (September 15, 2022), with several significant negotiation points unresolved, including the indemnification cap (Buyer at 35%, Seller at 20%), the survival period for general representations (Buyer at 24 months, Seller at 18 months), earnout calculation methodology, and the inventory adjustment mechanism.
R&W Insurance. The representations and warranties insurance policy with Sentinel Specialty Insurance Company was never bound. The preliminary underwriting submission was made on October 1, 2022, and a coverage analysis was prepared on October 10, 2022, but no further steps were taken before the deal stalled.
No Formal Termination. It bears emphasis that neither party has formally terminated the LOI or the APA negotiations. While there is no enforceable obligation on either party to continue negotiations (the substantive deal terms of the LOI being non-binding), the absence of a formal termination leaves the relationship in a legally and commercially ambiguous posture.
III. Reactivation Workstream Analysis
This Section provides a detailed analysis of each of the major workstreams that must be addressed if Meridian elects to reactivate the Transaction. For each workstream, we describe the current status, identify the key issues and risks, and recommend specific actions to be taken.
A. Debt Financing — Replacement Commitment Required
1. Expired Commitment
The debt commitment letter executed on August 5, 2022 with Harborview National Bank, N.A. (One Harborview Plaza, Charlotte, NC 28202; Carolyn Dubois, relationship manager) expired by its own terms on February 5, 2023. The commitment provided for a $60,000,000 senior secured term loan facility priced at SOFR plus 375 basis points, with Pinnacle Credit Partners, LP (Rajan Mehta, 600 Lexington Avenue, Suite 2100, New York, NY 10022) participating as a syndicate member. Under the terms of the commitment, Meridian paid a 50 basis point upfront commitment fee at execution and became obligated to pay a 25 basis point ticking fee commencing 90 days after the date of the commitment (i.e., from November 3, 2022). The ticking fee accrued through the expiration date.
As an initial matter, Meridian should confirm whether all ticking fees owing through the February 5, 2023 expiration date have been paid in full, and should obtain a written acknowledgment from Harborview confirming the expiration of the commitment and the absence of any continuing obligations on the part of Meridian. We recommend that this confirmation be obtained regardless of whether Meridian elects to proceed with reactivation, as it is a prudent housekeeping step to ensure there are no lingering claims or misunderstandings regarding the expired facility.
2. Options for New Financing
If Meridian determines to proceed with the Transaction, the expired Harborview commitment must be replaced with a new financing arrangement. We see two primary paths:
Refreshed Harborview Commitment. The first option is to approach Harborview for a refreshed or amended commitment letter. The principal advantage of this approach is that Harborview and Pinnacle Credit Partners have already completed substantial underwriting work on the credit and are familiar with the Transaction, the Product Lines, and Meridian's existing capital structure. This familiarity could shorten the timeline to a new commitment. However, there are meaningful disadvantages. Harborview may view the staleness of the deal as an indicator of execution risk and may impose more conservative terms. More significantly, the interest rate environment has changed materially since August 2022. SOFR rates have moved considerably higher, and the all-in cost of the facility — even if the spread remains at 375 basis points — will be substantially greater than what was contemplated at the time of the original commitment. Harborview may also seek to widen the spread to reflect market conditions and the incremental risk associated with the deal's dormancy.
Alternative Lender Process. The second option is to engage Wavecrest Partners LLC (Steven Marchetti and Lena Kowalski) to run a targeted process with alternative lenders. This approach would provide competitive tension and potentially yield more favorable terms than a sole-source approach to Harborview. The disadvantage is that it introduces a longer timeline, as new lenders will need to conduct their own underwriting from scratch, and it requires that Meridian provide updated financial information from Briarwood — information that may not be immediately available if the Seller has not yet agreed to re-engage. A hybrid approach — approaching Harborview while simultaneously soliciting indications from two or three alternative lenders — may be the most prudent course.
Pricing Risk. Under either approach, the pricing risk is substantial. SOFR levels are materially higher than they were in August 2022, and the credit markets for leveraged acquisition financing have tightened. The all-in cost of borrowing is likely to be significantly greater than the originally committed terms, which will directly impact Meridian's return profile on the Transaction.
Timeline. We estimate that obtaining a new commitment letter will require approximately four to eight weeks from the date of initial engagement with the lender, provided that updated financial information from Briarwood is available. If updated Briarwood financials are not immediately available, the financing timeline could extend by an additional two to four weeks.
3. Impact on Deal Economics
The higher cost of replacement financing will compress returns for Lakepoint Capital Partners. Thomas Liang and the Lakepoint investment team should model updated internal rate of return ("IRR") scenarios based on current rate assumptions, incorporating both the higher base rate and the potential for spread widening. The original deal model was underwritten at SOFR plus 375 basis points; if the all-in rate increases by 200 basis points or more (which is plausible in the current environment), the impact on unlevered and levered returns may be significant.
In addition, the equity commitment letter executed by Lakepoint on August 12, 2022 should be reviewed to determine whether it contains its own expiration or termination provisions. The original equity contribution was $35,000,000, calculated as the difference between the $95,000,000 purchase price and the $60,000,000 debt commitment. If replacement debt financing is available only in a reduced quantum — for example, if lenders are willing to commit only $50,000,000 or $55,000,000 in the current environment — the equity contribution from Lakepoint would need to increase proportionally. This would further compress returns and may trigger additional internal approvals within Lakepoint's fund governance structure, including potential investment committee re-approval.
B. LOI Exclusivity — Expired; Competitive Risk
1. Current Status
The twelve-month exclusivity period in the LOI expired on March 28, 2023 — two days prior to the date of this memorandum. During the exclusivity period, Briarwood was contractually prohibited from soliciting, encouraging, or entering into any discussions or agreements with third parties regarding the sale of the Product Lines. No break fee was included in the LOI, meaning Briarwood had no financial penalty for allowing the exclusivity period to lapse.
The binding provisions of the LOI — specifically, the confidentiality obligations, the governing law provision (New York), and the dispute resolution mechanism — survive the expiration of the exclusivity period and remain in full force and effect. The non-binding provisions of the LOI, including the proposed purchase price, the transaction structure, and the closing conditions, were never binding on either party and served only as a framework for negotiations.
Importantly, no formal termination of the LOI has been effected by either party. While the non-binding provisions impose no continuing obligations, the absence of a formal termination means that the relationship between the parties exists in a commercially ambiguous state — neither actively engaged in negotiations nor formally disengaged.
2. Risk Assessment
The expiration of exclusivity introduces several significant risks:
Competing Buyers. Malcolm Greer, as the sole shareholder of Briarwood, is now entirely free to engage other potential buyers or to instruct Greystone Hobbs & Co. (Philip Tran) to actively market the Product Lines to third parties. We have no visibility into whether Greer or Greystone Hobbs have already initiated such a process, either during the final weeks of the exclusivity period (when it was apparent that negotiations had stalled) or immediately upon expiration. The possibility that Briarwood has entered into a letter of intent or other arrangement with a competing buyer during the dormancy period cannot be dismissed.
Seller Leverage. Even if no competing buyer has emerged, Briarwood may use the passage of time and the stale state of the deal as leverage to demand improved terms. The Seller is aware that Meridian has invested significant time and professional fees in the Transaction, and may calculate that Meridian's sunk costs create an incentive to agree to seller-favorable modifications, such as a higher purchase price, a reduced indemnification cap, or a more favorable earnout structure.
No Contractual Protection. Meridian currently has no contractual mechanism to prevent competitive bidding or to compel Briarwood to re-engage exclusively with Meridian. Any re-engagement will be entirely at the Seller's discretion, and Meridian will need to persuade Briarwood — through a combination of relationship management and commercial terms — that resuming negotiations with Meridian is in the Seller's best interest.
3. Recommended Actions
We recommend the following actions to address the exclusivity issue:
Immediate Outreach. Either Diana Ressler (on behalf of Meridian) or Andrew Fitzpatrick (on behalf of Calderwood & Harkness) should make prompt outreach to the Seller's side — Diana Ressler or Gareth Holloway contacting Malcolm Greer directly, or Calderwood & Harkness contacting Caldwell, Pruitt & Shaw — to gauge Briarwood's continued interest in the Transaction and to ascertain whether alternative buyers have approached or are currently engaged with the Seller. The tone of this outreach should convey continued interest while avoiding any suggestion of desperation that the Seller might exploit.
Renewed Exclusivity. If the parties agree to resume negotiations, we strongly recommend that a renewed exclusivity agreement be negotiated and executed as a threshold condition of re-engagement. We recommend a six-month exclusivity period, which would provide sufficient time to complete the reactivation workstreams described in this memorandum. Whether a break fee should be included in the renewed exclusivity agreement is a commercial question for Meridian and Lakepoint to consider; a modest break fee payable by Briarwood if it terminates negotiations to accept a competing offer would provide some protection, but may be difficult to negotiate.
Purchase Price Assessment. The continued appropriateness of the $95,000,000 purchase price should be reassessed in light of the passage of time, updated financial results, and changed market conditions. Briarwood's FY2022 financial results — which Meridian has not yet seen — will be critical to this assessment. If FY2022 revenue and EBITDA exceeded FY2021 levels, the Seller may argue that the implied multiple of 8.48x is below market and demand a price increase. Conversely, if FY2022 performance declined, Meridian would have a basis to seek a price reduction.
C. Updated Financial Diligence
1. Staleness of Existing Diligence
All of the financial diligence work performed in connection with the Transaction was based on Briarwood's FY2021 financial statements (reporting revenue of $68,000,000 and EBITDA of $11,200,000 for the Product Lines) and the June 30, 2022 reference date figures for inventory and accounts receivable. Approximately nine months have elapsed since the last substantive diligence work was performed, and the financial picture of the Product Lines may have changed materially during the interim period. FY2022 full-year audited financials, together with any available interim FY2023 financial statements (whether audited or unaudited), must be obtained from Briarwood and analyzed as part of any reactivation effort.
Whitfield Ames LLP (Susan Clearwater, engagement partner) should be re-engaged to perform an updated quality of earnings analysis, focusing on revenue trends, margin development, customer concentration, and the sustainability of EBITDA. The scope of the updated engagement should also encompass a review of any material changes to Briarwood's accounting policies or practices since the last diligence review. The prior diligence identified certain GAAP compliance questions relating to Briarwood's inventory reserve methodology, and these questions should be revisited in the context of the updated financials.
2. Inventory Revaluation
The inventory valuation dispute was the central unresolved commercial issue at the time negotiations stalled and will require resolution as a predicate to any reactivation of the Transaction. To recap, Whitfield Ames determined that the NRV of Product Line inventory was $11,800,000 as of June 30, 2022, compared to Briarwood's book value of $14,300,000. The $2,500,000 variance was attributable primarily to differing views on the appropriate level of reserves for slow-moving and obsolete inventory, with Whitfield Ames applying what it considered to be market-standard reserve assumptions and Briarwood contending that its own, more conservative methodology was GAAP-compliant and appropriate for the nature of its product lines.
Regardless of how the methodology dispute is ultimately resolved, the underlying data has changed materially since June 30, 2022. Inventory levels, composition, aging, and market values will all have shifted over the intervening nine months. A fresh physical inventory count and independent valuation will be required at or near the time of any revised reference date, and the results of that count and valuation — rather than the stale June 2022 figures — should form the basis for purchase price negotiations and closing adjustments.
We recommend the following specific steps to address the inventory issue:
• The APA should include a robust closing-date inventory adjustment mechanism, if one is not already adequately provided for in the current draft. This mechanism should establish a target net working capital amount (including a target inventory figure), require a preliminary closing balance sheet from the Seller, and provide for a true-up adjustment within a specified number of days following closing based on a final determination of actual closing inventory values.
• To avoid a repeat of the methodology dispute, we recommend that the parties jointly engage an independent third-party inventory appraiser, acceptable to both Buyer and Seller, to conduct the inventory count and valuation. The independent appraiser's determination should be binding or, at minimum, should serve as the presumptive valuation absent a showing of clear error.
• Briarwood's auditor, Hargrove & Linton, P.C. (Daniel Yee), should be requested to provide updated audited product-line financials, including inventory schedules, to support the revised valuation exercise.
3. Accounts Receivable and Working Capital
Accounts receivable associated with the Product Lines were approximately $9,700,000 as of the June 30, 2022 reference date. An updated aging analysis is required to assess the collectibility of outstanding receivables, identify any significant changes in customer payment patterns, and determine whether any material write-offs have occurred since the reference date. Trade payables were approximately $4,200,000 and accrued warranty obligations were approximately $620,000 as of the same date; updated figures for both items are required.
More broadly, we recommend the implementation of a full net working capital adjustment mechanism in the APA, tied to a target net working capital figure established by reference to the trailing twelve-month average (or such other methodology as the parties may agree upon). The net working capital adjustment would operate in conjunction with the inventory adjustment mechanism discussed above and would protect both parties against shifts in working capital between the establishment of the target and the actual closing date. This is standard practice in consumer products asset acquisitions and would provide a fair and transparent framework for addressing the inevitable changes in current assets and current liabilities that will have occurred since the original reference date.
D. Environmental Diligence — Phase II ESA Required
1. Phase I Findings
The Phase I Environmental Site Assessment (Report No. TEG-2022-0441) was completed on September 2, 2022 by Terrapoint Environmental Group, Inc. (Keith Novak, project manager, 33 Arch Street, Suite 1400, Boston, MA 02110) for the Marysville manufacturing facility located at 2800 Industrial Parkway, Marysville, OH 43040. The Phase I ESA was conducted in accordance with ASTM Standard Practice E1527-21 and identified a recognized environmental condition ("REC") at the Marysville facility. Specifically, the report identified potential soil contamination in the area adjacent to the facility's chemical storage and loading dock, which Terrapoint attributed to historical operations and the potential for releases of cleaning product raw materials, solvents, or other chemicals used in the manufacturing process. The Phase I report recommended that a Phase II investigation — including subsurface soil sampling and, potentially, groundwater monitoring — be conducted to characterize the nature and extent of any contamination.
No material environmental concerns were identified in connection with the West Jefferson distribution center located at 500 Commerce Boulevard, West Jefferson, OH 43162, which is used solely for warehousing and distribution activities and has no manufacturing operations on-site.
2. Phase II Requirements
The Phase II ESA was never commenced. This represents the most significant gap in the diligence record and is, in our view, a threshold issue for reactivation. The scope and potential cost of any environmental contamination at the Marysville facility are unknown, and Meridian cannot prudently close the Transaction without completing this investigation.
We recommend that Terrapoint be re-engaged to perform the Phase II ESA as promptly as practicable. Based on our discussions with Terrapoint at the time of the original Phase I engagement, the estimated timeline for a Phase II investigation — including site access coordination, soil borings and sampling, laboratory analysis, and preparation of the final report — is approximately six to ten weeks. If the Phase II results confirm the presence of contamination, additional time may be required to engage environmental remediation consultants, estimate remediation costs, and negotiate the allocation of those costs between Buyer and Seller.
The potential outcomes of the Phase II investigation and their impact on the Transaction are as follows:
• No Contamination Confirmed. If the Phase II sampling does not confirm the presence of contamination at levels exceeding applicable Ohio Environmental Protection Agency standards, the environmental workstream would be resolved, and the Transaction could proceed without any environmental-related purchase price adjustment or special indemnification provision.
• Contamination Confirmed — Manageable Remediation Costs. If contamination is confirmed but remediation costs are estimated to be modest (e.g., in the range of $250,000 to $1,000,000), the parties could negotiate a purchase price reduction, an environmental escrow, or a specific environmental indemnity from the Seller to address the known condition. The specific mechanism would depend on the nature and scope of the contamination and the Seller's willingness to bear the remediation cost.
• Contamination Confirmed — Material Remediation Costs. If contamination is significant and remediation costs are estimated to be material (e.g., in excess of $1,000,000), the impact on deal economics could be substantial. Depending on the magnitude, Meridian may need to renegotiate the purchase price downward, require the Seller to complete remediation prior to closing, or, in an extreme case, reconsider whether the Transaction remains economically viable. Material contamination could also trigger obligations under Ohio environmental law that may complicate or delay the transfer of the leasehold interest.
3. Lease Implications
The environmental investigation has important implications for the Marysville lease assignment process. The Marysville facility is leased from Buckeye Industrial Properties LLC, and any environmental contamination at the site may trigger obligations under the lease agreement's environmental covenants or indemnification provisions. If contamination is confirmed, the landlord may be less willing to consent to the assignment of the lease to Meridian, or may condition consent on the completion of remediation or the provision of financial assurances by the new tenant. Coordination between the Phase II investigation and the landlord consent process is therefore essential, and the timing of communications with Buckeye Industrial should be managed carefully to avoid creating unnecessary complications in the consent process.
E. Landlord Consent — Buckeye Industrial Properties LLC
1. Current Status
Calderwood & Harkness sent a consent request letter to Buckeye Industrial Properties LLC (77 East Nationwide Boulevard, Suite 200, Columbus, OH 43215) on October 7, 2022, requesting consent to the assignment of the Marysville facility lease from Briarwood to Meridian as contemplated by the APA. No response has been received from Buckeye Industrial — a period of approximately six months. This extended silence is unusual and concerning. It may reflect simple administrative neglect on the landlord's part, a deliberate decision to defer a response pending further information, or a substantive objection to the assignment that the landlord has not yet communicated.
2. Recommended Actions
We recommend the following steps to address the landlord consent issue:
Immediate Follow-Up. Calderwood & Harkness should promptly follow up with Buckeye Industrial Properties LLC by both letter and telephone. Given that the original consent request was sent by Buyer's counsel, it may be more effective for Briarwood — as the current tenant and the party with an existing relationship with the landlord — to make direct contact and support the consent request. Janet Tsao (VP of Operations) or Malcolm Greer may have a relationship with the principals of Buckeye Industrial that could be leveraged to accelerate the process.
Lease Review. Calderwood & Harkness should review the Marysville lease agreement to determine the precise terms governing assignment, including whether the landlord's consent may be unreasonably withheld, conditioned, or delayed, and whether the lease provides any remedies for the tenant in the event of unreasonable delay or refusal. If the lease contains a standard "consent not to be unreasonably withheld" clause, Meridian and Briarwood may have contractual remedies if the landlord refuses consent without justification.
Alternative Strategies. If the landlord will not consent to the lease assignment, we should analyze the following alternatives:
(a) Sublease. Briarwood could sublease the Marysville facility to Meridian, with Briarwood remaining as the primary tenant. This approach may avoid the need for landlord consent to an assignment (depending on the sublease provisions of the lease), but would create a more complex operational arrangement and would leave Briarwood with continuing obligations under the primary lease.
(b) New Direct Lease. Meridian could negotiate a new lease directly with Buckeye Industrial, which would eliminate the assignment consent issue altogether but would require the negotiation of a new lease on terms acceptable to Meridian. The landlord would have full discretion over the terms of any new lease, which could result in higher rent or less favorable terms than the existing Briarwood lease.
(c) Alternative Manufacturing Space. If neither the sublease nor the new direct lease option is viable, Meridian would need to identify and secure alternative manufacturing space in the Columbus, Ohio area. This would introduce significant cost and complexity, including relocation costs, potential production disruption, and timeline delays.
Closing Condition. Landlord consent is a closing condition under the APA. Absent a waiver of this condition by Meridian (which we would generally advise against, given the centrality of the Marysville facility to the Product Lines' manufacturing operations), failure to obtain landlord consent would prevent the Transaction from closing. This issue should therefore be prioritized in the reactivation workstreams.
F. Customer Contract Consents
1. Current Status
Seven of the twenty-three customer contracts to be assigned from Briarwood to Meridian as part of the Acquired Assets contain change-of-control or assignment consent provisions that require the counterparty's consent to the assignment. A form of consent request letter was drafted and finalized on October 12, 2022, but the consent requests were never sent to any of the seven counterparties. The decision not to send the requests was a consequence of the broader deal stall rather than a deliberate strategic choice.
It is worth noting that the remaining sixteen customer contracts either do not contain assignment consent provisions or contain provisions that permit assignment to an affiliate or in connection with a sale of substantially all assets without counterparty consent. These sixteen contracts do not present a consent issue.
In the approximately six months since the consent letters were prepared, the seven contracts requiring consent may have been the subject of interim amendments, renewals, extensions, or terminations. It is also possible that the commercial relationships underlying these contracts have changed — customer purchasing patterns may have shifted, new contacts may be in place, or the contracts may have been supplemented by additional purchase orders or side agreements not captured in the original data room.
2. Recommended Actions
We recommend the following steps:
• Contract Review. Calderwood & Harkness should obtain from Briarwood updated copies of all seven contracts requiring consent, together with any interim amendments, renewals, extensions, or modifications entered into since October 2022. Any contracts that have expired or been terminated during the dormancy period should be identified, as they would no longer require consent and could potentially be removed from the APA's consent condition.
• Coordinated Solicitation. The consent solicitation should be coordinated between Briarwood (as the contracting party) and Meridian. Counterparties are typically more receptive to consent requests initiated by the party with whom they have an existing contractual relationship. Briarwood should make the initial outreach, with Meridian's support as needed, to explain the nature of the Transaction and provide comfort regarding Meridian's financial strength and operational capabilities.
• Materiality Assessment. We should assess the materiality of each of the seven contracts to the overall value of the Product Lines. If any of the contracts are immaterial — either because they represent a small percentage of Product Line revenue or because the customer relationship can be maintained through a new contract — the parties may agree to remove such contracts from the consent condition, either by carving them out of the Acquired Assets or by making the consent condition applicable only to contracts above a specified materiality threshold.
G. Regulatory Filing Gap
The Calderwood & Harkness due diligence memorandum on litigation and regulatory matters dated September 12, 2022 identified a gap in state product registrations for certain CleanLeaf and PureHaven SKUs. Specifically, the memorandum noted that certain products sold in states with mandatory product registration or notification requirements — including certain cleaning products subject to state pesticide or antimicrobial registration statutes — may not have been properly registered in all states where they are currently being sold or distributed. This issue was flagged for further analysis and resolution, but no additional work was performed before the deal stalled.
This gap requires prompt attention in any reactivation scenario for several reasons:
• Compliance Risk. If products are being sold in states without the required registrations, Briarwood is in violation of applicable state consumer product regulations. Depending on the state, the consequences could include administrative fines, cease-and-desist orders, mandatory product withdrawal or recall, and, in extreme cases, private causes of action by consumers or competitors. The magnitude of this exposure has not been quantified.
• Buyer Successor Liability. In an asset purchase, the buyer generally does not assume the seller's pre-closing regulatory liabilities unless expressly assumed. However, if the products continue to be sold by the buyer without proper registrations post-closing, the buyer could face its own regulatory exposure. Meridian must ensure that all product registrations are current and complete at or before closing.
• APA Representations. The regulatory filing gap may constitute a breach of the Seller's representations regarding compliance with laws in the APA. If the gap is material, it should be disclosed in the updated disclosure schedules, and Meridian should assess whether it warrants a specific indemnification obligation or a pre-closing remediation requirement.
We recommend that Calderwood & Harkness, in coordination with Meridian's regulatory compliance team, conduct an updated analysis of product registration requirements across all states where the CleanLeaf and PureHaven products are sold. This analysis should identify any registration deficiencies, quantify the potential regulatory exposure, and develop a remediation plan that can be implemented either pre-closing (by Briarwood) or post-closing (by Meridian, with appropriate cost allocation in the APA).
H. R&W Insurance
1. Prior Submission Status
Calderwood & Harkness prepared a preliminary representations and warranties insurance underwriting submission, which was transmitted to Northbridge Risk Advisors LLC (Alison Chu, 1 World Financial Center, Suite 2500, New York, NY 10281) on October 1, 2022 for submission to Sentinel Specialty Insurance Company (Mark Ellison, underwriter, 500 West Monroe Street, Suite 3300, Chicago, IL 60661). Northbridge serves as the insurance broker, and Sentinel was the lead underwriter on the proposed policy.
Calderwood & Harkness subsequently prepared a coverage analysis memorandum dated October 10, 2022, which analyzed the proposed policy terms, exclusions, retention amounts, and coverage limits offered by Sentinel. The policy was intended to provide coverage of up to $33,250,000 (matching the indemnification cap), with a retention of $950,000 (matching the basket amount). Key exclusions under the proposed policy included known matters identified in diligence, forward-looking projections, and certain tax-related representations. The environmental condition identified in the Phase I ESA was expected to be excluded or sub-limited absent a clean Phase II report.
The policy was never bound due to the stalling of the Transaction, and the underwriting submission is now approximately six months old.
2. Reactivation Steps
The following steps are required to reactivate the R&W insurance workstream:
• Broker Contact. Calderwood & Harkness should contact Alison Chu at Northbridge to determine whether Sentinel Specialty Insurance Company is willing to re-engage with the Transaction based on an updated underwriting submission, or whether it will be necessary to approach alternative carriers. The R&W insurance market has been active and evolving, and carriers may have adjusted their appetite, pricing, or terms since October 2022.
• Updated Diligence Materials. Any renewed or new underwriting submission will require the submission of updated diligence reports, including updated financial diligence (Whitfield Ames quality of earnings), updated environmental diligence (Phase II ESA), updated regulatory analysis, and updated disclosure schedules. The underwriter will need to understand the current state of the business and the diligence record before it can assess coverage and pricing. Stale or incomplete diligence materials are likely to result in broader exclusions, higher retentions, or an outright refusal to provide coverage.
• Environmental Exclusion. The Phase I ESA's identification of a recognized environmental condition at the Marysville facility means that the R&W insurance carrier — whether Sentinel or a replacement — is highly likely to exclude environmental matters from coverage absent a completed Phase II ESA with satisfactory results. If the Phase II confirms contamination, the environmental exclusion may remain even if remediation is undertaken, or the carrier may require evidence of completed remediation before agreeing to cover environmental representations. This dynamic underscores the importance of commencing the Phase II investigation as early as possible in the reactivation timeline.
• Market Conditions. R&W insurance market conditions — including premium rates (typically quoted as a percentage of the policy limit), retention levels, and available coverage limits — should be reassessed. We recommend that Northbridge provide an updated market overview as part of its re-engagement.
• Timeline. Based on our experience and discussions with Northbridge, the estimated timeline from an updated underwriting submission to policy binding is approximately three to five weeks, assuming no novel or complex underwriting issues arise. This timeline is predicated on the availability of current diligence reports and substantially final transaction documents.
I. Disclosure Schedules
1. Current Status
Briarwood delivered partial first-draft disclosure schedules on September 28, 2022. The schedules were incomplete at the time of delivery — multiple schedules contained placeholder language or were blank, and several key schedules (including the litigation and regulatory schedule, the environmental schedule, and the intellectual property schedule) were described by Seller's counsel as "preliminary and subject to completion." The disclosure schedules have not been updated or supplemented since delivery, and the information they contain is approximately six months stale.
2. Required Updates
Complete and fully updated disclosure schedules are required across all representations and warranties in the APA as a predicate to both the finalization of the APA and the R&W insurance underwriting process. The following categories of updates are of particular importance:
• Material Contracts. Any new contracts entered into by Briarwood since September 2022, as well as any amendments, renewals, or terminations of existing contracts, must be reflected in the updated schedules.
• Customer Relationships. Any significant changes in customer relationships — including the loss of material customers, changes in pricing terms, or the addition of new significant accounts — must be disclosed.
• Litigation and Regulatory Matters. Any new litigation, arbitration, or regulatory proceedings involving Briarwood or the Product Lines since September 2022, as well as any material developments in previously disclosed matters, must be captured.
• Employee Matters. Departures, new hires, compensation changes, and benefit modifications since September 2022 must be disclosed, particularly with respect to the 186 employees identified for transfer to Meridian.
• Environmental Matters. Any environmental developments at the Marysville facility or the West Jefferson distribution center, including any regulatory inspections, notices of violation, or citizen complaints, must be disclosed.
• intellectual Property. Any changes to the registration status of CleanLeaf and PureHaven trademarks, including renewals, new applications, oppositions, or cancellations, must be reflected.
The completion and accuracy of the disclosure schedules is critical for multiple reasons: they define the scope of the Seller's representations and warranties, they establish the baseline against which indemnification claims will be assessed, and they form a key component of the R&W insurance underwriting package. Calderwood & Harkness should work with Caldwell, Pruitt & Shaw to establish a clear timeline and process for the delivery of complete and updated schedules.
J. Employee Retention Risk
1. Scope. The Transaction contemplates the transfer of 186 employees from Briarwood to Meridian via individual offer letters. These employees constitute the workforce dedicated to the CleanLeaf and PureHaven product lines and include manufacturing, distribution, sales, marketing, quality assurance, and administrative personnel. No offer letters were ever sent to any of these employees. To our knowledge, Briarwood has not made any formal announcement to its workforce regarding the status of the Transaction, although it is likely that at least some employees are aware of the proposed sale through informal channels.
2. Risk Assessment
The prolonged dormancy — now approximately six months since the last substantive negotiation activity — introduces significant employee retention risk. During this period, affected employees have been operating under substantial uncertainty regarding their future employment, and it would not be surprising if some key employees have already departed for more stable positions. Employee attrition is a material risk for several reasons:
• Operational Continuity. The Product Lines depend on experienced manufacturing, quality assurance, and formulations personnel who possess institutional knowledge that cannot be easily or quickly replaced. The loss of key manufacturing supervisors, quality control managers, or formulation chemists could impair the operational performance of the Product Lines and create transition risk for Meridian post-closing.
• Customer Relationships. Sales and account management personnel maintain the direct relationships with major retail and wholesale customers. Attrition among these employees could jeopardize customer retention and revenue continuity.
• Valuation Impact. If significant attrition has occurred, the value of the Product Lines as a going concern may be impaired. Meridian should assess the impact of any workforce changes on its operating plan and valuation model for the Transaction.
It is also possible that Briarwood has made its own personnel decisions during the dormancy period — including layoffs, hiring freezes, or organizational changes — that could affect the composition and quality of the workforce to be transferred. These changes, if they have occurred, would need to be understood and factored into Meridian's reactivation analysis.
3. Recommended Actions
We recommend the following steps:
• Updated Employee Census. Request from Briarwood a current and complete employee roster for all employees associated with the CleanLeaf and PureHaven product lines, together with a comparison to the original list of 186 transferring employees. This comparison should identify any departures, new hires, promotions, compensation changes, and open positions.
• WARN Act Analysis. Depending on the outcome of the employee census and the projected closing timeline, the federal Worker Adjustment and Retraining Notification ("WARN") Act and any applicable state mini-WARN statutes should be reviewed to assess whether the Transaction triggers any 60-day advance notice requirements. If headcount has changed materially or if Meridian plans to reduce headcount post-closing, WARN Act compliance must be built into the closing timeline.
• Retention Arrangements. If the deal moves forward, Meridian should consider implementing retention bonus arrangements for key employees identified as critical to the successful transition and ongoing operation of the Product Lines. Retention bonuses would typically be structured as cash payments contingent on continued employment through a specified post-closing date (e.g., six or twelve months). The cost of retention arrangements should be factored into the deal cost model and discussed with Lakepoint.
IV. APA Negotiation — Open Items to Resolve
A. Summary of Key Open Points from Second Draft (September 15, 2022)
The APA remains in second-draft form as of September 15, 2022. While substantial progress was made in the negotiations between the first draft (July 19, 2022) and the second draft, a number of significant commercial and legal issues remain open. The APA Issues List prepared by Calderwood & Harkness on September 20, 2022 provides a detailed summary of all open points; the most significant are highlighted below.
Indemnification Cap. The Buyer's position, reflected in the second draft, sets the indemnification cap at 35% of the purchase price, or $33,250,000. The Seller's position, as reflected in the August 22, 2022 markup of the first draft, proposed a cap of 20% of the purchase price, or $19,000,000. This is a $14,250,000 gap and represents one of the most commercially significant open issues. The indemnification cap is also directly relevant to R&W insurance coverage, as the policy limit is typically set at or near the indemnification cap.
Survival Period. The Buyer's position on the survival period for general representations is 24 months post-closing. The Seller proposed 18 months in its markup. The six-month difference is meaningful in the context of a consumer products asset purchase, as it affects the window during which the Buyer can bring indemnification claims for breaches of representations that may not become apparent until the integration process is substantially complete.
Earnout Mechanics. The $8,000,000 earnout is tied to Year 1 product line revenue equaling or exceeding $72,000,000. In its markup, Briarwood proposed modifications to the calculation methodology, including the treatment of returns, chargebacks, and intercompany sales. The details of the Seller's proposed modifications are set forth in the APA Issues List dated September 20, 2022. These modifications are commercially significant because they could affect whether the earnout threshold is achieved and because the earnout calculation methodology is frequently a source of post-closing disputes. The earnout provisions should be drafted with clarity and precision, including a dispute resolution mechanism (such as an independent accountant determination) to address any disagreements over the calculation.
Inventory Adjustment Mechanism. The $2,500,000 inventory valuation variance was never procedurally resolved in the APA. The second draft does not contain a robust closing-date inventory adjustment mechanism, and the parties had not agreed on the methodology for determining inventory value at closing. As discussed in Section III.C.2 above, we recommend that the APA be revised to include a clear and comprehensive closing inventory adjustment mechanism, including a target inventory figure, a preliminary closing inventory determination, and a post-closing true-up process.
Definition of Acquired Assets. In its August 22, 2022 markup, Briarwood proposed narrowing the definition of Acquired Assets to exclude certain categories of assets that the Seller contended were used in both the Product Lines and the Retained Business. The Buyer's position, maintained in the second draft, was that all assets primarily used in or necessary for the operation of the Product Lines should be included. This issue was partially but not fully resolved in the second draft, and further negotiation will be required.
Knowledge Qualifiers. Certain compromises were reached in the second draft regarding the scope of "knowledge" qualifiers applied to the Seller's representations — specifically, the definition of "Knowledge of Seller" was agreed to include actual knowledge of Malcolm Greer and Janet Tsao, as well as knowledge that would be obtained after reasonable inquiry. However, Caldwell, Pruitt & Shaw indicated on the November 18, 2022 call that Briarwood might seek additional knowledge qualifiers for certain representations (particularly the environmental and regulatory compliance representations), and this issue should be anticipated in the resumed negotiations.
Non-Competition Agreement. The APA contemplates a non-competition agreement to be entered into by Malcolm Greer in connection with the closing, with a four-year post-closing term and a scope limited to consumer products. The non-competition agreement is believed to be substantially agreed in principle, but formal sign-off by Greer and his counsel has not been obtained, and the agreement has not been reduced to final form.
B. Potential Price Adjustment
Given the approximately nine months that have elapsed since the last substantive negotiations, there is a meaningful possibility that the commercial dynamics underlying the $95,000,000 purchase price have shifted. FY2022 financial results from Briarwood — which Meridian has not yet obtained — will be critical to assessing whether the originally agreed price and the implied 8.48x EV/EBITDA multiple remain appropriate.
If FY2022 revenue and EBITDA exceeded FY2021 levels (revenue of $68,000,000 and EBITDA of $11,200,000), the Seller may argue that the purchase price should be increased to reflect the Product Lines' growth trajectory, and that the implied multiple should be applied to the more recent, higher EBITDA figure. Conversely, if FY2022 performance declined — whether due to macroeconomic headwinds, competitive pressures, customer attrition, or operational issues — Meridian would have a legitimate basis to seek a reduction in the purchase price.
In addition to the impact of updated financials, the inventory revaluation outcome will affect the net asset value delivered to Meridian at closing and may further influence the purchase price negotiation. The interaction between the purchase price, the inventory adjustment mechanism, and the net working capital adjustment should be modeled holistically to ensure that Merid