1011-00006 · Calderwood & Harkness LLP · Diligence/Tax

purchase-price-allocation-memo.docx DOCUMENT M&A / Corporate

5 / 12 ← → ✕

MEMORANDUM

PRIVILEGED & CONFIDENTIAL — ATTORNEY WORK PRODUCT

FROM: Calderwood & Harkness LLP

James Prentice, Responsible Partner, Mergers & Acquisitions Derek Okonkwo, Lead Associate, Mergers & Acquisitions One Liberty Plaza, 44th Floor New York, NY 10006

IN COORDINATION WITH: Graymoor & Keene LLP

Howard Ellison, Tax Partner 1345 Avenue of the Americas, Suite 2400 New York, NY 10105

TO:

Gerald Fontenot, General Counsel & Corporate Secretary, Meridian Consumer Brands LLC Rajiv Subramaniam, Chief Financial Officer, Meridian Consumer Brands LLC Elena Vasquez-Drummond, Partner, Consumer & Retail, Hargrove Capital Partners LP (Board Observer at MCB)

DATE: April 7, 2025

RE: Purchase Price Allocation Under IRC § 1060 — Carve-Out Divestiture of PureGlow Personal-Care Product Line

MATTER NUMBER: 1011-00006

BILLING NUMBER: 80291-00001

Right-click to update Table of Contents

I. Executive Summary

The purpose of this memorandum is to analyze and memorialize the allocation of the aggregate Forty Million Dollars ($40,000,000) Purchase Price to be paid by Lakebridge Home & Personal Care, Inc., an Ohio corporation ("Buyer" or "LHPC"), to Meridian Consumer Brands LLC, a Delaware limited liability company ("Seller" or "MCB"), for the Acquired Assets comprising the PureGlow personal-care product line (the "PureGlow Business"), pursuant to the requirements of Internal Revenue Code ("IRC" or the "Code") § 1060 and Treasury Regulation § 1.1060-1 (the "Transaction"). The Transaction is structured as an asset purchase governed by a draft Asset Purchase Agreement ("APA"), Draft v1.0, dated April 7, 2025, by and between Buyer and Seller.

The purchase price allocation set forth in this memorandum (the "Allocation" or the "Purchase Price Allocation") has been jointly developed by Calderwood & Harkness LLP ("C&H"), counsel to Seller, in coordination with Graymoor & Keene LLP (Howard Ellison, Tax Partner) ("G&K"), Seller's accounting and tax advisor, based on fair market value determinations derived from book values, independent appraisals, and valuation analyses, as more fully described in Section IV below.

Under IRC § 1060(b), both Buyer and Seller are required to file consistent IRS Forms 8594 (Asset Acquisition Statement Under Section 1060) with their respective federal income tax returns for the taxable year in which the Closing Date falls. The target Closing Date is June 16, 2025. Accordingly, this memorandum sets forth the proposed Allocation for discussion with Buyer's counsel, Oakridge Phelps LLP, and Buyer's tax advisor, Redfield Samuels LLP, with the objective of reaching agreement on a binding allocation that will be incorporated as an exhibit to the final APA and reflected on both parties' respective Forms 8594.

The following table summarizes the proposed Purchase Price Allocation among the principal asset categories:

The Allocation reflects the application of the residual method prescribed by IRC § 1060 and Treasury Regulation § 1.338-6, whereby consideration is allocated sequentially through the seven regulatory asset classes, with the residual amount assigned to Class VII (goodwill and going concern value). Each element of the Allocation is discussed in detail in the sections that follow, along with the tax implications for both Seller and Buyer, Form 8594 filing requirements, and the interplay of the net working capital adjustment mechanism with the Allocation.

II. Transaction Overview

A. Parties. Seller. Meridian Consumer Brands LLC ("MCB" or "Seller") is a limited liability company organized under the laws of the State of Delaware, with its principal executive offices located at 450 Park Avenue South, 14th Floor, New York, NY 10016. MCB's Employer Identification Number is 83-2947156. MCB is a diversified multi-brand consumer products platform operating across three primary product categories: household cleaning, personal care, and pet care. For the fiscal year ended December 31, 2024 ("FY2024"), MCB reported consolidated annual revenue of approximately $620 million.

MCB's ownership structure is as follows:

• 78.4% — Hargrove Capital Partners Fund IV LP, a Delaware limited partnership (EIN 85-1034782), whose general partner is Hargrove Capital GenPar IV LLC, a Delaware limited liability company. Hargrove Capital Partners LP ("HCP"), the private equity sponsor, exercises control over MCB through Fund IV.

• 14.1% — Management rollover holders, comprising certain members of MCB's senior management team who retained equity interests following HCP's initial acquisition of MCB.

• 7.5% — Minority co-investors, consisting of certain limited partners and affiliated entities that co-invested alongside Fund IV at the time of HCP's initial platform acquisition.

MCB is the operating platform through which HCP manages its consumer products portfolio within Fund IV. The PureGlow personal-care product line represents one of several brand portfolios held by MCB, and the Transaction constitutes a carve-out divestiture of the PureGlow Business from MCB's broader platform.

Buyer. Lakebridge Home & Personal Care, Inc. ("LHPC" or "Buyer") is a corporation incorporated under the laws of the State of Ohio, with its principal executive offices located at 7100 Rockside Road, Suite 400, Independence, OH 44131. LHPC's Employer Identification Number is 31-4589201. LHPC is a mid-market personal-care and wellness company that reported annual revenue of approximately $285 million for FY2024. LHPC is a privately held company, 100% owned by the Brennan family trust and current management. LHPC does not have any institutional private equity sponsors, and the Brennan family trust has maintained majority ownership since the company's founding.

B. Transaction Structure

The Transaction is structured as an asset purchase. Pursuant to the APA, Seller will sell, convey, transfer, assign, and deliver to Buyer, and Buyer will purchase and acquire from Seller, the identified Acquired Assets constituting the PureGlow Business. Simultaneously, Buyer will assume the identified Assumed Liabilities associated with the PureGlow Business. The Transaction is not structured as an entity-level sale — it is not a sale of stock, membership interests, or other equity interests in MCB or any subsidiary thereof.

The Transaction constitutes an "applicable asset acquisition" within the meaning of IRC § 1060(c). Under that provision, an applicable asset acquisition means any transfer (whether direct or indirect) of assets which constitute a trade or business, and with respect to which the transferee's basis in such assets is determined wholly by reference to the consideration paid for such assets. Because the PureGlow Business constitutes a trade or business (it generates revenue, employs personnel, holds dedicated assets, and maintains customer relationships), and because Buyer's basis in the Acquired Assets will be determined entirely by reference to the $40,000,000 Purchase Price, the Transaction squarely falls within the scope of IRC § 1060. Accordingly, the residual method of allocation prescribed by IRC § 1060(a) and Treasury Regulation § 1.338-6 must be applied, and both parties are subject to the reporting obligations set forth in IRC § 1060(b).

C. Consideration. The total consideration for the Acquired Assets is a fixed Purchase Price of Forty Million Dollars ($40,000,000), payable as follows:

• Cash at Closing: Thirty-Six Million Dollars ($36,000,000), payable by Buyer to Seller (or Seller's designee) by wire transfer of immediately available funds to an account designated by Seller at or prior to Closing.

• Indemnity Escrow Amount: Four Million Dollars ($4,000,000), representing ten percent (10%) of the Purchase Price, to be deposited at Closing with Pinnacle Trust Company, N.A. (the "Escrow Agent") pursuant to the terms of an Escrow Agreement to be entered into among Buyer, Seller, and the Escrow Agent at Closing. The Escrow Amount secures Seller's post-closing indemnification obligations under Article [X] of the APA.

• Escrow Term: Eighteen (18) months from the Closing Date. Based on the target Closing Date of June 16, 2025, the estimated escrow release date is December 16, 2026, subject to the terms and conditions of the Escrow Agreement (including any open or pending indemnification claims as of the release date).

There is no earn-out, contingent consideration, seller financing, promissory note, or deferred payment component to the Purchase Price. The consideration is entirely fixed and determinable as of the Closing Date, subject only to the post-closing net working capital ("NWC") true-up adjustment mechanism described in Section VIII below. For purposes of the initial Purchase Price Allocation, the full $40,000,000 (including the $4,000,000 Escrow Amount) is treated as consideration paid in the taxable year of the Closing.

D. Acquired Assets Description

The Acquired Assets comprise all assets, properties, and rights used primarily in, or held primarily for use in, the operation of the PureGlow Business, including the following:

Product Line. The PureGlow personal-care product line consists of PureGlow-branded body wash, lotion, facial cleanser, and hand soap products, encompassing twenty-three (23) distinct stock-keeping units ("SKUs") across four (4) product categories. PureGlow is positioned as a mass-market personal-care brand, distributed through retail and e-commerce channels.

Financial Performance. For FY2024, the PureGlow Business generated revenue of approximately $58,000,000, representing approximately 9.35% of MCB's consolidated revenue of $620 million. PureGlow's FY2024 Adjusted EBITDA was approximately $5,800,000, reflecting an Adjusted EBITDA margin of approximately 10.0%. The implied enterprise value-to-EBITDA multiple for the Transaction is approximately 6.9x ($40,000,000 divided by $5,800,000).

Inventory. All finished goods, work-in-process, and raw materials inventory of the PureGlow Business, located at the Dayton, OH manufacturing facility and any off-site warehouse locations.

Manufacturing Equipment and Tangible Personal Property. All manufacturing equipment, production-line machinery, packaging equipment, fixtures, tooling, molds, dies, and other tangible personal property located at the Dayton, OH manufacturing facility (2200 Dryden Road, Dayton, OH 45439), a 127,000 square-foot facility leased from Buckeye Industrial Realty Partners LLC pursuant to a Lease Agreement dated July 1, 2020.

intellectual Property. All intellectual property rights associated with the PureGlow brand, including: (i) registered and common-law trademarks and service marks (including the "PureGlow" word mark and design marks), (ii) trade names, (iii) trade dress, (iv) domain names (including pureglow.com and related URLs), (v) proprietary product formulations, and (vi) associated IP documentation, prosecution files, and registration records. Certain PureGlow trademarks are registered with the United States Patent and Trademark Office ("USPTO").

Customer Relationships and Contracts. Eight (8) customer supply and distribution agreements are being transferred as part of the Acquired Assets. The largest customer relationship is with Hartwell Retail Group, which accounted for PureGlow FY2024 sales of approximately $14,200,000, or approximately 24.48% of PureGlow revenue. Three of the eight customer agreements contain assignment consent provisions requiring the consent of the counterparty to the assignment of such agreements from Seller to Buyer; obtaining these consents is a condition to Closing under the APA.

Regulatory Assets. FDA product listings for the OTC-classified PureGlow facial cleanser (salicylic acid formulation), including all related regulatory correspondence, submissions, and approvals.

Goodwill. All goodwill associated with the PureGlow Business, including the going concern value of the business as an operating enterprise.

Employees. Seventy-four (74) employees are expected to be transferred in connection with the Transaction, comprising personnel at the Dayton manufacturing facility and certain employees at MCB's New York headquarters who are dedicated to or primarily support the PureGlow Business. Under the terms of the APA, Buyer will offer employment to such employees at or prior to the Closing, on terms and conditions consistent with the APA.

It is noted that certain assets of MCB are excluded from the Acquired Assets ("Excluded Assets"), including, without limitation, accounts receivable of the PureGlow Business, cash and cash equivalents held by MCB, intercompany receivables, and all assets of MCB not specifically identified as Acquired Assets in the APA. The treatment of Excluded Assets is relevant to the Purchase Price Allocation insofar as no portion of the Purchase Price is allocated to Excluded Assets.

III. Legal Framework — IRC § 1060 and the Residual Method

A. Statutory and Regulatory Background

IRC § 1060(a) provides that, in the case of any applicable asset acquisition, for purposes of determining both (i) the transferee's basis in the acquired assets and (ii) the gain or loss of the transferor with respect to such acquisition, the consideration paid for the assets shall be allocated among the acquired assets in the same manner as amounts are allocated to assets under IRC § 338(b)(5) — that is, pursuant to the residual method. The residual method ensures that the consideration is systematically allocated to assets in ascending order of asset classes, with any residual amount assigned to the highest class (goodwill and going concern value).

IRC § 1060(b) imposes a reporting obligation on both the transferor and the transferee. Both parties are required to file an information return — specifically, IRS Form 8594 (Asset Acquisition Statement Under Section 1060) — setting forth the allocation of consideration among the acquired assets. The statute mandates that both parties report the allocation on a consistent basis. This consistency requirement is a critical feature of § 1060 and reflects Congress's intent to prevent transferors and transferees from adopting inconsistent allocations that could result in whipsaw of the government (i.e., the transferor reporting a lower allocation to ordinary income assets while the transferee claims a higher allocation to those same assets for depreciation or amortization purposes).

IRC § 1060(c) defines the term "applicable asset acquisition" as any transfer (whether direct or indirect) of assets which constitute a trade or business, and with respect to which the transferee's basis in such assets is determined wholly by reference to the consideration paid for such assets. As discussed in Section II.B above, the Transaction satisfies both elements of this definition: (1) the PureGlow Business constitutes a trade or business, and (2) Buyer's basis in the Acquired Assets is determined wholly by reference to the $40,000,000 Purchase Price.

The residual method is described in detail in Treasury Regulation § 1.338-6 (incorporated by reference into the § 1060 allocation framework through IRC § 1060(a) and Treas. Reg. § 1.1060-1(c)). Under the residual method, consideration is allocated first to Class I assets (up to their fair market value), then to Class II assets (up to their fair market value), and so on through Classes III, IV, V, VI, and VII, with any residual amount — that is, the portion of the consideration not allocable to assets in Classes I through VI — allocated to Class VII (goodwill and going concern value).

Treasury Regulation § 1.338-7 addresses situations in which the total consideration is subsequently adjusted (e.g., due to contingent consideration, earn-outs, or post-closing purchase price adjustments), requiring a re-allocation of the consideration among the asset classes using the same residual method methodology. This provision is relevant here in light of the post-closing NWC true-up mechanism in the APA, as discussed in Section VIII below.

B. Asset Classes Under Treas. Reg. § 1.338-6(b)

Treasury Regulation § 1.338-6(b) establishes the following seven asset classes for purposes of the residual method allocation:

Class I: Cash and General Deposit Accounts. Class I assets include cash, demand deposits, and similar cash-equivalent items. In this Transaction, no cash or deposit accounts are included among the Acquired Assets; all cash and cash equivalents are Excluded Assets under the APA. Accordingly, no portion of the Purchase Price is allocated to Class I.

Class II: Actively Traded Personal Property. Class II assets include actively traded personal property within the meaning of IRC § 1092(d)(1), certificates of deposit, and foreign currency. The PureGlow Business does not hold any actively traded personal property, certificates of deposit, or foreign currency as part of the Acquired Assets. Accordingly, no portion of the Purchase Price is allocated to Class II.

Class III: Accounts Receivable, Mortgages, and Similar Debt Instruments. Class III assets include accounts receivable, mortgages, credit card receivables, and other debt instruments. Under the terms of the APA, accounts receivable associated with the PureGlow Business are specifically designated as Excluded Assets and are retained by Seller. No mortgages, credit card receivables, or other debt instruments are included among the Acquired Assets. Accordingly, no portion of the Purchase Price is allocated to Class III.

Class IV: Inventory. Class IV assets include stock in trade (inventory) of the transferor, or other property that would properly be included in the inventory of the transferor if on hand at the close of the taxable year, or property held by the transferor primarily for sale to customers in the ordinary course of the transferor's trade or business. The PureGlow Business maintains significant finished goods, work-in-process, and raw materials inventory at the Dayton, OH manufacturing facility. Accordingly, a portion of the Purchase Price is allocated to Class IV, as described in Section IV below.

Class V: All Assets Not in Classes I–IV or Classes VI–VII. Class V is the catch-all category, encompassing all assets that do not fall within any of the other six classes. In practice, Class V principally includes tangible personal property (equipment, machinery, fixtures, furniture), non-§ 197 intangible assets, and certain other assets. For this Transaction, the manufacturing equipment, production-line machinery, packaging equipment, fixtures, and tooling located at the Dayton facility are classified as Class V assets. A portion of the Purchase Price is allocated to Class V, as described in Section IV below.

Class VI: IRC § 197 Intangibles Other Than Goodwill and Going Concern Value. Class VI assets include all § 197 intangibles, as defined in IRC § 197(d), other than goodwill and going concern value. Section 197 intangibles include, among other things, trademarks, trade names, customer-based intangibles (including customer lists, customer relationships, and customer contracts), supplier-based intangibles, covenants not to compete, franchises, licenses, and permits. For this Transaction, the PureGlow trademarks, trade names, trade dress, domain names, proprietary product formulations, and customer relationships and contracts are classified as Class VI assets. The Class VI allocation represents the largest component of the Purchase Price Allocation. A detailed discussion is provided in Section IV below.

Class VII: Goodwill and Going Concern Value. Class VII is the residual category, to which any portion of the consideration not allocated to Classes I through VI is assigned. Class VII encompasses goodwill and going concern value. In this Transaction, after allocating the Purchase Price to Classes I through VI based on the fair market values of the respective assets, the residual amount of $3,000,000 is allocated to Class VII. This residual represents the going concern value of the PureGlow Business, the value of the assembled workforce, and any other intangible value not separately identifiable or allocable to a specific asset in Classes I through VI.

C. Interplay with IRC § 197

IRC § 197 provides that the cost of acquiring certain intangible assets — specifically, "amortizable section 197 intangibles" — may be recovered through straight-line amortization over a fifteen-year (180-month) period beginning with the month of acquisition. The following categories of assets included in the Acquired Assets qualify as § 197 intangibles:

• Trademarks and trade names (IRC § 197(d)(1)(F));

• Customer-based intangibles, including customer relationships and customer contracts (IRC § 197(d)(1)(C));

• Goodwill (IRC § 197(d)(1)(A)); and

• Going concern value (IRC § 197(d)(1)(B)).

Proprietary product formulations, to the extent they constitute trade secrets or know-how, are also treated as § 197 intangibles under IRC § 197(d)(1)(C)(iii) (supplier-based intangibles) or § 197(d)(1)(D) (any similar item), depending on their specific nature and use.

The classification of acquired intangible assets as § 197 intangibles is significant for both Buyer and Seller. For Buyer, § 197 intangibles are amortizable over 15 years on a straight-line basis, providing a predictable stream of annual tax deductions. For Seller, the character of gain recognized on the disposition of § 197 intangibles depends on whether the assets were previously acquired (in which case § 1245 recapture may apply to the extent of previously claimed § 197 amortization) or self-created (in which case the gain is generally capital in nature).

It is important to note that under IRC § 197(f)(1)(A), if any § 197 intangible is acquired in a transaction together with other § 197 intangibles, all such intangibles are treated as a single asset for purposes of determining gain or loss on the subsequent disposition of any one of them (the "anti-churning" and aggregation rules). However, this aggregation rule applies only to dispositions of individual § 197 intangibles from a group; because the Transaction involves the disposition of the entire PureGlow Business (including all associated § 197 intangibles), the aggregation rule does not create complications in this context.

The correct classification and valuation of § 197 intangibles is essential to ensure proper amortization deductions for Buyer and proper character determination for Seller. The analysis set forth in Section IV below addresses each category of § 197 intangibles in detail.

IV. Allocation of Purchase Price

A. Methodology. Calderwood & Harkness LLP and Graymoor & Keene LLP jointly developed the Purchase Price Allocation using the residual method prescribed by IRC § 1060 and Treasury Regulation § 1.338-6, as described in Section III above. The Allocation reflects fair market values determined with reference to the following sources and methodologies:

(i) Book Values: Internal accounting records of Meridian Consumer Brands LLC, including the general ledger, fixed asset register, and inventory sub-ledger, as of the estimated Closing Date, prepared on a GAAP basis. Book values served as a starting point for the valuation of inventory and tangible personal property, subject to adjustment based on independent appraisals and market data.

(ii) Independent Equipment Appraisal: An independent appraisal of the manufacturing equipment, production-line machinery, packaging equipment, fixtures, and tooling located at the Dayton, OH facility, conducted by a qualified appraiser engaged by Seller. The appraisal reflects fair market value in the equipment's current condition, location, and use, assuming continued operation of the Dayton facility.

(iii) Whitfield Barrow & Co. LLC Valuation Analysis: Whitfield Barrow & Co. LLC ("Whitfield Barrow"), Seller's financial advisor in connection with the sell-side engagement, prepared a valuation analysis of the PureGlow brand, including an assessment of the fair market value of the PureGlow trademarks, trade names, proprietary formulations, and customer relationships. This analysis employed income-based and market-based valuation approaches.

(iv) Graymoor & Keene LLP Analysis: G&K performed its own independent analysis of intangible asset values using the relief-from-royalty method and the multi-period excess earnings method, with reference to PureGlow's FY2024 revenue and Adjusted EBITDA, comparable licensing arrangements, and industry benchmarks. G&K's analysis was used to corroborate and refine the values derived from the Whitfield Barrow analysis.

The NWC Target of $6,350,000, based on the trailing twelve-month average net working capital of the PureGlow Business as of December 31, 2024, informed the inventory valuation component of the Allocation. The APA provides for a NWC adjustment collar of plus or minus $250,000 (establishing a no-adjustment range of $6,100,000 to $6,600,000). The post-closing NWC true-up deadline is ninety (90) calendar days after the Closing Date. The impact of potential NWC adjustments on the Allocation is discussed in Section VIII below.

B. Allocation Schedule

The following table sets forth the proposed Purchase Price Allocation among the asset classes prescribed by Treasury Regulation § 1.338-6(b):

The Allocation reflects the sequential application of the residual method: the Purchase Price was first allocated to Class IV assets (inventory) at fair market value ($8,200,000), then to Class V assets (tangible personal property / equipment) at fair market value ($4,600,000), then to Class VI assets (§ 197 intangibles other than goodwill) at fair market value ($24,200,000 in the aggregate), with the remaining $3,000,000 allocated to Class VII (goodwill and going concern value) as the residual amount. At no step in the allocation process did the cumulative fair market values of assets in a given class or lower classes exceed the remaining unallocated Purchase Price, and therefore no pro-ration adjustment was required.

C. Discussion of Individual Asset Categories

1. Class IV — Inventory ($8,200,000; 20.5% of Purchase Price). The $8,200,000 allocated to Class IV represents the fair market value of the PureGlow finished goods, work-in-process, and raw materials inventory maintained at the Dayton, OH manufacturing facility (2200 Dryden Road, Dayton, OH 45439) and at any off-site warehouse locations utilized by the PureGlow Business. The inventory includes all PureGlow-branded body wash, lotion, facial cleanser, and hand soap products in various stages of completion, as well as the raw materials, packaging materials, and components used in the production of those products.

The inventory has been valued at cost, which is consistent with the terms of the APA and with Seller's GAAP-basis accounting records. Under U.S. Generally Accepted Accounting Principles, inventory is carried at the lower of cost or net realizable value. Because PureGlow's inventory is current, with no significant obsolete or slow-moving stock identified in the due diligence process, cost approximates fair market value for purposes of the § 1060 allocation.

Inventory constitutes a significant component of the PureGlow Business's net working capital. The NWC Target of $6,350,000 was established based on the trailing twelve-month average of the PureGlow Business's net working capital (current assets less current liabilities) as of December 31, 2024. The NWC adjustment mechanism in the APA provides for a dollar-for-dollar adjustment to the Purchase Price if the Closing NWC (as determined within 90 calendar days after Closing) falls outside the $250,000 collar (i.e., below $6,100,000 or above $6,600,000). Because inventory is the largest component of the PureGlow Business's current assets, any NWC adjustment is likely to be driven primarily by fluctuations in inventory levels or valuation.

In the event of a post-closing NWC adjustment payment (whether from Buyer to Seller or from Seller to Buyer), the aggregate Purchase Price will be effectively adjusted, and the Allocation must be revised accordingly. As discussed in Section VIII below, G&K recommends that any such NWC adjustment be allocated to Class IV (Inventory) to the extent the adjustment relates to inventory-based working capital components, with any remainder allocated to other current asset or liability classes, and supplemental Forms 8594 would be required.

2. Class V — Tangible Personal Property / Equipment ($4,600,000; 11.5% of Purchase Price). The $4,600,000 allocated to Class V represents the fair market value of the manufacturing equipment, production-line machinery, packaging equipment, fixtures, tooling, molds, dies, and other tangible personal property located at the Dayton, OH manufacturing facility. The Dayton facility, located at 2200 Dryden Road, Dayton, OH 45439, is a 127,000 square-foot manufacturing and distribution center.

The Class V allocation is supported by an independent appraisal of the tangible personal property in its current condition, location, and use. The appraisal was conducted on a fair market value basis, reflecting the price that a willing buyer would pay to a willing seller, with both parties having reasonable knowledge of the relevant facts and neither being under any compulsion to act. The appraised fair market value of the equipment ($4,600,000) reflects the age, condition, remaining useful life, and replacement cost of the manufacturing assets, adjusted for physical deterioration, functional obsolescence, and economic obsolescence, as applicable.

It is noted that the real property at the Dayton facility is not owned by Seller; rather, MCB occupies the facility pursuant to a Lease Agreement dated July 1, 2020, between Buckeye Industrial Realty Partners LLC, as landlord, and Meridian Consumer Brands LLC, as tenant. The lease provides for annual base rent of $1,143,000 and has a remaining term of approximately 5.2 years (through June 30, 2030). Under the APA, the Dayton facility lease is being assigned to Buyer (subject to landlord consent, if required), and the lease is included among the Assumed Liabilities. However, no separate Purchase Price allocation has been made to the leasehold interest, because the lease is at or near prevailing market rates and therefore has negligible fair market value in excess of its contractual obligations. The differential between the lease's contractual rent and market rent is immaterial based on current market data for comparable industrial space in the Dayton, Ohio metropolitan area, and accordingly the leasehold interest does not warrant a separate allocation.

3. Class VI — Intellectual Property ($18,500,000; 46.25% of Purchase Price). The $18,500,000 allocated to intellectual property represents the largest single allocation category, accounting for 46.25% of the total Purchase Price. This allocation encompasses the following intangible assets:

(a) Trademarks and Trade Names. All registered and common-law trademarks and service marks associated with the PureGlow brand, including the "PureGlow" word mark, all associated design marks, logos, slogans, and trade names. Certain PureGlow trademarks are registered with the USPTO, and the IP Assignment Agreement to be executed at Closing will include provisions for recordation of the assignment with the USPTO.

(b) Trade Dress. The distinctive packaging, labeling, product design, and overall commercial impression associated with PureGlow products, to the extent protectable as trade dress under federal and state law.

(c) Domain Names. All internet domain names associated with the PureGlow brand, including pureglow.com and related URLs, together with all associated domain name registrations.

(d) Proprietary Product Formulations. All proprietary formulations, recipes, specifications, and technical data relating to the manufacture of PureGlow-branded body wash, lotion, facial cleanser (including the OTC salicylic acid formulation), and hand soap products. These formulations constitute trade secrets of the PureGlow Business.

The IP valuation was developed using a combination of the relief-from-royalty method and the multi-period excess earnings method ("MEEM"):

Relief-from-Royalty Method. Under this approach, the fair market value of the PureGlow IP is estimated based on the hypothetical royalty savings that the owner of the IP would realize by virtue of owning the IP, as compared to licensing it from a third party. The analysis considered PureGlow FY2024 revenue of $58,000,000, an appropriate royalty rate derived from comparable licensing transactions in the personal-care industry, and a discount rate reflecting the risk profile of the PureGlow brand. The selected royalty rate and discount rate were validated by reference to publicly available licensing databases and industry studies.

Multi-Period Excess Earnings Method. Under this approach, the fair market value of the PureGlow IP is estimated based on the present value of the excess earnings attributable to the IP, after deducting contributory asset charges (i.e., returns on and of other assets used in conjunction with the IP, including tangible assets, working capital, and the assembled workforce). PureGlow's FY2024 Adjusted EBITDA of $5,800,000 served as the starting point for the excess earnings analysis, with adjustments for taxes, contributory asset charges, and projected growth rates.

The two methods yielded results that converged in the range of $17,500,000 to $19,500,000, and the selected value of $18,500,000 represents the midpoint of the indicated range. This valuation is consistent with the analysis prepared by Whitfield Barrow & Co. LLC in connection with the sell-side engagement, and was corroborated by G&K's independent analysis.

The IP allocation represents the core value driver of the PureGlow Business. The PureGlow brand has established consumer recognition and loyalty across its 23 SKUs in four product categories, and the proprietary formulations provide a competitive advantage in the marketplace. The IP is the primary asset that distinguishes the PureGlow Business from a generic contract manufacturing operation and is the principal source of the brand's premium pricing power and customer retention.

All intellectual property allocated to this category is amortizable by Buyer under IRC § 197 over a fifteen-year (180-month) period, on a straight-line basis. Based on the $18,500,000 allocation, Buyer's annual § 197 amortization deduction for the IP would be approximately $1,233,333 per year ($18,500,000 ÷ 15 years).

An IP Assignment Agreement will be executed at Closing, pursuant to which Seller will assign, transfer, and convey all right, title, and interest in and to the PureGlow IP to Buyer. The assignment will include provisions for recordation with the USPTO for registered trademarks and service marks.

4. Class VI — Customer Relationships / Contracts ($5,700,000; 14.25% of Purchase Price). The $5,700,000 allocated to customer relationships and contracts represents the fair market value of the eight (8) customer supply and distribution agreements that are being transferred as part of the Acquired Assets. These agreements establish the commercial framework through which PureGlow products are sold and distributed to retail and wholesale customers. The eight customer relationships, their FY2024 PureGlow revenue contributions, and their respective contract statuses are summarized below:

The largest customer relationship is with Hartwell Retail Group, which accounted for FY2024 PureGlow sales of approximately $14,200,000 — representing approximately 24.48% of total PureGlow revenue. The Hartwell relationship is supported by a long-standing supply agreement, and Hartwell is considered a key account for the PureGlow Business. Three of the eight customer agreements contain assignment consent provisions that require the counterparty's consent to the assignment of the agreement from Seller to Buyer. These three agreements include the Hartwell Retail Group agreement. Obtaining the requisite assignment consents from all three counterparties is a condition to Closing under the APA.

The customer relationships were valued using the multi-period excess earnings method, which estimates the present value of future excess earnings attributable to the existing customer relationships, after deducting contributory asset charges for other assets and adjusting for customer attrition over time. The attrition assumptions were derived from historical customer retention data for the PureGlow Business and industry benchmarks for customer turnover in the consumer personal-care products sector. The analysis reflected the contractual terms of the eight agreements (including remaining duration, renewal options, and termination provisions) as well as the economic contribution of each customer relationship to the PureGlow Business's revenue and profitability.

Customer-based intangibles are classified as § 197 intangibles under IRC § 197(d)(1)(C), and accordingly the $5,700,000 allocation is amortizable by Buyer over fifteen years (180 months) on a straight-line basis. Based on this allocation, Buyer's annual § 197 amortization deduction for customer relationships and contracts would be approximately $380,000 per year ($5,700,000 ÷ 15 years).

5. Class VII — Goodwill ($3,000,000; 7.5% of Purchase Price). The $3,000,000 allocated to Class VII represents the residual amount remaining after the Purchase Price has been fully allocated to all other asset classes (Classes I through VI) based on their respective fair market values. Under the residual method prescribed by Treasury Regulation § 1.338-6, goodwill and going concern value are allocated only the amount that cannot be attributed to specifically identifiable assets in the lower classes. This residual treatment ensures that goodwill serves as the "plug" in the allocation, absorbing any premium paid by Buyer in excess of the aggregate fair market values of the specifically identifiable acquired assets.

The $3,000,000 goodwill allocation represents the following components of intangible value:

(a) Going Concern Value. The value attributable to the PureGlow Business as an operating enterprise — that is, the incremental value arising from the fact that the Acquired Assets are assembled and functioning as a cohesive business, rather than existing as a collection of discrete assets.

(b) Assembled Workforce. The value associated with the 74 employees who will be transferred to Buyer in connection with the Transaction. These employees possess institutional knowledge, training, and expertise related to the PureGlow Business, including manufacturing know-how, customer relationship management, and product development skills. While an assembled workforce is not separately amortizable as a § 197 intangible (IRC § 197(e)(3) specifically excludes workforce-in-place from the definition of amortizable § 197 intangible), its value is subsumed within goodwill and is therefore amortizable as part of the Class VII allocation.

(c) Other Non-Separately-Identifiable Intangibles. Any intangible value not separately identifiable or allocable to a specific asset in Classes I through VI, including, without limitation, the value of established supplier relationships (other than contractual arrangements being transferred), favorable market conditions, brand momentum, and other elements of enterprise value.

Goodwill is classified as a § 197 intangible under IRC § 197(d)(1)(A), and accordingly the $3,000,000 allocation is amortizable by Buyer over fifteen years (180 months) on a straight-line basis. Based on this allocation, Buyer's annual § 197 amortization deduction for goodwill would be approximately $200,000 per year ($3,000,000 ÷ 15 years).

D. Total Buyer § 197 Amortization Summary

The aggregate value of all § 197 intangible assets acquired by Buyer in the Transaction is as follows:

All § 197 intangible assets are amortizable on a straight-line basis over 15 years (180 months), beginning with the month in which the assets are acquired (i.e., the month of Closing). The aggregate annual § 197 amortization deduction available to Buyer is approximately $1,813,333 per year ($27,200,000 ÷ 15 years). Over the full 15-year amortization period, Buyer will recover the entire $27,200,000 cost of the acquired § 197 intangibles through tax deductions, subject to applicable limitations and anti-abuse rules.

It is noted that under IRC § 197(f)(1)(A), if Buyer subsequently disposes of any individual § 197 intangible while retaining other § 197 intangibles acquired in the same transaction, no loss may be recognized on the disposition; instead, the adjusted basis of the disposed intangible is allocated among the remaining § 197 intangibles from the same transaction. This aggregation rule effectively prevents Buyer from accelerating amortization deductions through selective dispositions of § 197 intangibles.

V. Tax Implications for Seller (Meridian Consumer Brands LLC)

A. Entity-Level Tax Treatment

Meridian Consumer Brands LLC is a Delaware limited liability company that is treated as a partnership for federal income tax purposes. This treatment follows from MCB's multi-member ownership structure (78.4% held by Hargrove Capital Partners Fund IV LP, 14.1% by management rollover holders, and 7.5% by minority co-investors). As a partnership, MCB is a pass-through entity and is not itself subject to federal income tax. Instead, gain or loss recognized by MCB on the sale of the Acquired Assets passes through to MCB's members (partners) pro rata in accordance with their respective ownership interests and the terms of MCB's limited liability company operating agreement.

The character of the gain or loss recognized at the entity level is preserved as it passes through to the members. Accordingly, each member of MCB will report its pro rata share of ordinary income, § 1231 gain, and long-term capital gain arising from the sale of the PureGlow Acquired Assets, as described in Section V.B below.

Graymoor & Keene LLP (Howard Ellison, Tax Partner) has advised on the character and timing of gain recognition at both the entity level and the partner/member level. G&K's analysis addresses, among other things, the application of IRC § 751 (unrealized receivables and inventory items), which may cause certain members to recognize ordinary income on the sale of partnership assets that include "hot assets" (inventory and unrealized receivables), regardless of whether the gain would otherwise be capital in character. The § 751 analysis is being conducted by G&K separately and is not addressed in detail in this memorandum.

B. Character of Gain by Asset Category

The following discussion summarizes the expected character of gain recognized by Seller with respect to each category of Acquired Assets, based on the Purchase Price Allocation set forth in Section IV.B.

1. Inventory ($8,200,000) — Ordinary Income. Inventory is not a capital asset under IRC § 1221(a)(1), which excludes from the definition of a capital asset "stock in trade of the taxpayer or other property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year, or property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business." Accordingly, gain recognized on the sale of inventory is ordinary income.

The amount of gain, if any, depends on the relationship between the allocated amount ($8,200,000) and Seller's adjusted tax basis in the inventory. Because the inventory has been valued at cost for purposes of the Allocation, and because Seller's tax basis in the inventory is generally equal to cost (assuming no prior write-downs or adjustments), the gain on the inventory component may be zero or minimal. However, to the extent any markdown, write-down, reserve, or lower-of-cost-or-market adjustment has reduced Seller's adjusted tax basis below $8,200,000, ordinary income would result on the excess. G&K should confirm the precise adjusted tax basis of the PureGlow inventory as of the Closing Date.

2. Tangible Personal Property / Equipment ($4,600,000) — IRC § 1245 Recapture / § 1231. The manufacturing equipment and other tangible personal property being transferred are depreciable assets used in Seller's trade or business, subject to IRC § 1231 (which governs the sale of depreciable property used in a trade or business held for more than one year) and IRC § 1245 (which requires recapture of previously claimed depreciation as ordinary income).

Under IRC § 1245(a)(1), gain recognized on the disposition of "section 1245 property" (which includes tangible personal property that is or has been subject to depreciation under IRC § 167 or the accelerated cost recovery system under IRC § 168) is treated as ordinary income to the extent of the lesser of (i) the total gain recognized, or (ii) the total amount of depreciation or amortization previously claimed with respect to the property. This recapture requirement converts what would otherwise be § 1231 gain (potentially capital gain) into ordinary income, to the extent the taxpayer previously benefited from depreciation deductions.

Any gain in excess of the § 1245 recapture amount (i.e., gain attributable to appreciation above the original cost basis) would be treated as § 1231 gain. Under IRC § 1231, if the taxpayer's net § 1231 gains for the taxable year exceed the net § 1231 losses, the gains and losses are treated as long-term capital gains and losses. However, under IRC § 1231(c), if the taxpayer had net § 1231 losses in the five preceding taxable years that have not yet been "recaptured," a portion of the net § 1231 gain may be recharacterized as ordinary income. G&K should review MCB's § 1231 gain/loss history for the five-year lookback period.

Seller should compile a detailed schedule of the aggregate adjusted tax basis and accumulated depreciation for all PureGlow manufacturing equipment and tangible personal property, segregated by asset class, in order to determine the precise amount of § 1245 recapture and any residual § 1231 gain. G&K has been requested to prepare this analysis.

3. Intellectual Property ($18,500,000) — Long-Term Capital Gain (Generally). The character of gain recognized by Seller on the disposition of PureGlow intellectual property depends on several factors, including whether the IP was self-created by Seller or acquired through a prior transaction, and the specific nature of the IP assets.

Trademarks and Trade Names. Under IRC § 1221(a)(3), certain self-created intellectual property — specifically, "a copyright, a literary, musical, or artistic composition, a letter or memorandum, or similar property" — is excluded from the definition of a capital asset in the hands of the creator. However, trademarks and trade names are not included in the list of excluded self-created IP under § 1221(a)(3), as amended by the Tax Cuts and Jobs Act of 2017. Accordingly, self-created trademarks and trade names are generally treated as capital assets, and gain on their sale is capital gain (long-term capital gain if the holding period exceeds one year). The PureGlow brand has been part of Meridian's portfolio for several years, and the holding period requirement is satisfied.

To the extent any trademarks or trade names were acquired by MCB through a prior applicable asset acquisition or business combination (rather than self-created), and MCB previously claimed § 197 amortization deductions with respect to such acquired IP, IRC § 1245 recapture would apply to the extent of the previously claimed § 197 amortization. The § 1245 recapture would convert a portion of the gain from capital gain to ordinary income. Any gain in excess of the recapture amount would be long-term capital gain. G&K should determine whether any PureGlow trademarks or trade names were acquired in a prior transaction and, if so, the amount of § 197 amortization previously claimed.

Product Formulations. Proprietary product formulations that constitute trade secrets or know-how are not specifically excluded from the definition of a capital asset under § 1221 and are therefore generally treated as capital assets. Gain on the sale of such formulations would be long-term capital gain, subject to the same § 1245 recapture considerations discussed above (i.e., if previously acquired and amortized under § 197). To the extent the formulations are self-created, the basis is likely zero or nominal, and the entire allocated amount would be capital gain.

Trade Dress and Domain Names. Trade dress and domain names are similarly treated as capital assets (to the extent not specifically excluded under § 1221), and gain on their sale would be long-term capital gain, subject to § 1245 recapture to the extent of previously claimed amortization.

4. Customer Relationships / Contracts ($5,700,000) — Long-Term Capital Gain (Subject to § 197 Recapture). Customer-based intangibles, including customer relationships and customer contracts, are § 197 intangibles. The character of gain on the disposition of these assets depends on whether they were acquired by Seller in a prior transaction or were developed organically.

If the customer relationships were acquired by MCB through a prior applicable asset acquisition and MCB previously claimed § 197 amortization with respect to such intangibles, IRC § 1245 recapture would apply to the extent of the previously claimed amortization. The recaptured amount would be treated as ordinary income. Any gain in excess of the recapture amount would be long-term capital gain.

If the customer relationships were developed organically by MCB (i.e., through MCB's own business development and sales efforts, rather than acquired in a transaction), Seller's adjusted tax basis in the customer relationships would generally be zero, and the entire $5,700,000 allocation would be long-term capital gain. The holding period requirement for long-term capital gain treatment is satisfied, as the PureGlow customer relationships have been developed over a multi-year period.

G&K should confirm whether any of the eight customer relationships being transferred were acquired through a prior transaction, and if so, the amount of § 197 amortization previously claimed.

5. Goodwill ($3,000,000) — Long-Term Capital Gain. Goodwill is a capital asset under IRC § 1221. Gain recognized on the sale of goodwill is long-term capital gain, assuming the holding period exceeds one year (which is satisfied here).

If any portion of the PureGlow goodwill was acquired by MCB through a prior applicable asset acquisition and has been subject to § 197 amortization, IRC § 1245 recapture would apply to the extent of the previously claimed amortization. The recaptured amount would be ordinary income.

If the goodwill is entirely self-created (arising from MCB's own business operations rather than a prior acquisition), Seller's adjusted tax basis in the goodwill is zero, and the entire $3,000,000 allocation would be long-term capital gain. Self-created goodwill has no cost basis because the expenditures that give rise to goodwill (advertising, customer service, reputation-building) are generally deducted as ordinary business expenses in the year incurred and are not capitalized.

G&K should determine the extent to which the PureGlow goodwill was acquired versus self-created, and the amount of any previously claimed § 197 amortization.

C. State Tax Considerations

In addition to federal income tax consequences, the sale of the PureGlow Acquired Assets may give rise to state-level tax obligations for MCB and its members. The following is a summary of the principal state tax considerations; a comprehensive state tax analysis is being prepared by G&K and is expected to be completed prior to the Closing.

New York. MCB is headquartered in New York. New York generally conforms to the federal treatment of pass-through entities, requiring each member of an LLC treated as a partnership to report its distributive share of income on its New York income tax return (if the member is subject to New York personal income tax or corporate franchise tax). In addition, New York imposes an annual filing fee on LLCs and foreign LLPs based on New York-source gross income. Depending on the apportionment and sourcing of the gain from the sale of PureGlow assets, MCB may be subject to the LLC filing fee based on the New York-source component of such gain. The sourcing of gain from the sale of intangible assets (including IP, goodwill, and customer relationships) is subject to New York's market-based sourcing rules and the specific provisions of the Tax Law applicable to the sale of a trade or business. Further analysis by G&K is recommended.

Ohio. The PureGlow manufacturing facility is located in Dayton, Ohio, and MCB has nexus with Ohio by virtue of its physical presence and business operations in the state. Ohio imposes a commercial activity tax ("CAT") on the privilege of doing business in Ohio, measured by taxable gross receipts. The CAT is a gross receipts tax, not an income tax, and applies broadly to commercial activity that is "sitused" to Ohio. Gross receipts from the sale of PureGlow assets attributable to Ohio (including tangible personal property located in Ohio and potentially intangible assets with Ohio nexus) may be subject to the CAT. The current CAT rate is 0.26% on gross receipts exceeding $1,000,000 (subject to annual adjustments). G&K should analyze the CAT implications of the Transaction, including the proper situsing of receipts from the sale of intangible assets.

Delaware. Delaware does not impose an income tax on limited liability companies. However, Delaware requires LLCs organized under its laws to pay an annual franchise tax of $300 per year and to remain in good standing by filing an annual report. The Delaware franchise tax is not expected to have a material impact on the Transaction.

Other Jurisdictions. To the extent MCB has nexus with other states (e.g., through the presence of employees, customer relationships, or sales activities), gain from the sale of PureGlow assets may be subject to apportionment and taxation in those jurisdictions. State apportionment and sourcing rules for gain from the sale of intangible assets vary significantly by jurisdiction. Some states apply cost-of-performance sourcing, while others apply market-based sourcing. The apportionment and sourcing of gain from the sale of a trade or business (as opposed to individual assets) may also be subject to special rules in certain states. G&K is conducting a multi-state tax analysis and will provide a supplemental memorandum addressing state tax obligations.

D. Withholding / FIRPTA Considerations

The Foreign Investment in Real Property Tax Act ("FIRPTA"), codified at IRC § 1445, requires a buyer to withhold and remit to the IRS a portion of the consideration paid in a transaction involving the sale of a U.S. real property interest by a foreign person. FIRPTA withholding is not applicable to this Transaction because Seller is a domestic entity (a Delaware limited liability company) and is not a "foreign person" within the meaning of IRC § 1445. However, as a matter of standard transactional practice and in compliance with the APA, Seller should provide a FIRPTA certificate (an affidavit of non-foreign status, in accordance with Treas. Reg. § 1.1445-2(b)) as a Closing deliverable to confirm that Seller is not a "foreign person" and that Buyer is not required to withhold under IRC § 1445. The form of the FIRPTA certificate will be attached as an exhibit to the APA.

VI. Tax Implications for Buyer (Lakebridge Home & Personal Care, Inc.)

A. Basis in Acquired Assets

Under general tax principles applicable to asset acquisitions, Buyer's aggregate adjusted basis in the Acquired Assets equals the total consideration paid for such assets, which is $40,000,000. To the extent Buyer assumes liabilities of Seller in connection with the Transaction that are treated as additional consideration for federal income tax purposes (i.e., included in the "amount realized" by Seller), such assumed liabilities would be added to Buyer's aggregate basis. The APA identifies the Assumed Liabilities, and G&K and Redfield Samuels LLP should confirm whether any of the Assumed Liabilities constitute additional consideration that increases Buyer's aggregate basis above $40,000,000.

Buyer's aggregate basis of $40,000,000 is allocated among the individual Acquired Assets using the residual method, consistent with the Purchase Price Allocation set forth in Section IV.B above. Each asset receives a basis equal to its allocated fair market value, with goodwill receiving the residual amount.

B. Depreciation and Amortization

The following summarizes Buyer's depreciation and amortization treatment for each category of Acquired Assets:

Inventory ($8,200,000). Inventory is not depreciable or amortizable. Instead, Buyer's $8,200,000 basis in the PureGlow inventory will be recovered as cost of goods sold ("COGS") as the inventory is sold to customers in the ordinary course of Buyer's business. The timing of COGS recognition depends on Buyer's inventory accounting method (FIFO, LIFO, or weighted average cost) and the rate at which the acquired inventory is sold. For a personal-care product line with active consumer demand, the acquired inventory would generally be expected to turn over within six to twelve months following the Closing, resulting in a relatively rapid recovery of the $8,200,000 basis through COGS deductions.

Tangible Personal Property / Equipment ($4,600,000). Manufacturing equipment, production-line machinery, packaging equipment, fixtures, and tooling are depreciable under the Modified Accelerated Cost Recovery System ("MACRS") set forth in IRC § 168. The specific recovery period for each asset depends on its MACRS asset classification:

• Manufacturing equipment and machinery generally have a 7-year recovery period under MACRS (IRC § 168(e), Asset Class 20.5 — Manufacture of Chemicals and Allied Products, or Asset Class 36.0 — Manufacture of Rubber Products and Plastics Products, depending on the specific nature of the equipment).

• Certain specialized equipment may qualify for a 5-year recovery period.

• Fixtures and improvements to leased premises may be classified as qualified improvement property or leasehold improvements, potentially subject to different recovery rules.

Buyer may elect to claim bonus depreciation under IRC § 168(k) for qualifying assets placed in service in 2025. Under the Tax Cuts and Jobs Act of 2017 ("TCJA"), as amended, the bonus depreciation percentage for property placed in service after December 31, 2022, has been phasing down: 100% for property placed in service before January 1, 2023; 80% for 2023; 60% for 2024; 40% for 2025; and 20% for 2026. Accordingly, for assets placed in service in 2025 (assuming a June 16, 2025 Closing), the applicable bonus depreciation rate would be 40%. This would permit Buyer to claim a first-year depreciation deduction of up to $1,840,000 ($4,600,000 × 40%) on the qualifying tangible personal property, with the remaining $2,760,000 depreciated over the applicable MACRS recovery period using the regular depreciation schedule. Buyer's tax advisor, Redfield Samuels LLP, should confirm the applicable bonus depreciation percentage for assets placed in service in the relevant tax year and the MACRS classification of each category of acquired equipment.

Alternatively, Buyer may elect to expense a portion of the equipment cost under IRC § 179 (expensing of certain depreciable business assets), subject to the annual dollar limitation and phase-out threshold applicable for the taxable year. For 2025, the § 179 expensing limitation is expected to be approximately $1,220,000 (indexed for inflation), with a phase-out beginning at approximately $3,050,000 of total qualifying property placed in service. Redfield S

MEMORANDUM
PRIVILEGED & CONFIDENTIAL — ATTORNEY WORK PRODUCT
FROM: Calderwood & Harkness LLP
James Prentice, Responsible Partner, Mergers & Acquisitions Derek Okonkwo, Lead Associate, Mergers & Acquisitions One Liberty Plaza, 44th Floor New York, NY 10006
IN COORDINATION WITH: Graymoor & Keene LLP
Howard Ellison, Tax Partner 1345 Avenue of the Americas, Suite 2400 New York, NY 10105
TO:
Gerald Fontenot, General Counsel & Corporate Secretary, Meridian Consumer Brands LLC Rajiv Subramaniam, Chief Financial Officer, Meridian Consumer Brands LLC Elena Vasquez-Drummond, Partner, Consumer & Retail, Hargrove Capital Partners LP (Board Observer at MCB)
DATE: April 7, 2025
RE: Purchase Price Allocation Under IRC § 1060 — Carve-Out Divestiture of PureGlow Personal-Care Product Line
MATTER NUMBER: 1011-00006
BILLING NUMBER: 80291-00001
Right-click to update Table of Contents
I. Executive Summary
The purpose of this memorandum is to analyze and memorialize the allocation of the aggregate Forty Million Dollars ($40,000,000) Purchase Price to be paid by Lakebridge Home & Personal Care, Inc., an Ohio corporation ("Buyer" or "LHPC"), to Meridian Consumer Brands LLC, a Delaware limited liability company ("Seller" or "MCB"), for the Acquired Assets comprising the PureGlow personal-care product line (the "PureGlow Business"), pursuant to the requirements of Internal Revenue Code ("IRC" or the "Code") § 1060 and Treasury Regulation § 1.1060-1 (the "Transaction"). The Transaction is structured as an asset purchase governed by a draft Asset Purchase Agreement ("APA"), Draft v1.0, dated April 7, 2025, by and between Buyer and Seller.
The purchase price allocation set forth in this memorandum (the "Allocation" or the "Purchase Price Allocation") has been jointly developed by Calderwood & Harkness LLP ("C&H"), counsel to Seller, in coordination with Graymoor & Keene LLP (Howard Ellison, Tax Partner) ("G&K"), Seller's accounting and tax advisor, based on fair market value determinations derived from book values, independent appraisals, and valuation analyses, as more fully described in Section IV below.
Under IRC § 1060(b), both Buyer and Seller are required to file consistent IRS Forms 8594 (Asset Acquisition Statement Under Section 1060) with their respective federal income tax returns for the taxable year in which the Closing Date falls. The target Closing Date is June 16, 2025. Accordingly, this memorandum sets forth the proposed Allocation for discussion with Buyer's counsel, Oakridge Phelps LLP, and Buyer's tax advisor, Redfield Samuels LLP, with the objective of reaching agreement on a binding allocation that will be incorporated as an exhibit to the final APA and reflected on both parties' respective Forms 8594.
The following table summarizes the proposed Purchase Price Allocation among the principal asset categories:
The Allocation reflects the application of the residual method prescribed by IRC § 1060 and Treasury Regulation § 1.338-6, whereby consideration is allocated sequentially through the seven regulatory asset classes, with the residual amount assigned to Class VII (goodwill and going concern value). Each element of the Allocation is discussed in detail in the sections that follow, along with the tax implications for both Seller and Buyer, Form 8594 filing requirements, and the interplay of the net working capital adjustment mechanism with the Allocation.
II. Transaction Overview
A. Parties. Seller. Meridian Consumer Brands LLC ("MCB" or "Seller") is a limited liability company organized under the laws of the State of Delaware, with its principal executive offices located at 450 Park Avenue South, 14th Floor, New York, NY 10016. MCB's Employer Identification Number is 83-2947156. MCB is a diversified multi-brand consumer products platform operating across three primary product categories: household cleaning, personal care, and pet care. For the fiscal year ended December 31, 2024 ("FY2024"), MCB reported consolidated annual revenue of approximately $620 million.
MCB's ownership structure is as follows:
• 78.4% — Hargrove Capital Partners Fund IV LP, a Delaware limited partnership (EIN 85-1034782), whose general partner is Hargrove Capital GenPar IV LLC, a Delaware limited liability company. Hargrove Capital Partners LP ("HCP"), the private equity sponsor, exercises control over MCB through Fund IV.
• 14.1% — Management rollover holders, comprising certain members of MCB's senior management team who retained equity interests following HCP's initial acquisition of MCB.
• 7.5% — Minority co-investors, consisting of certain limited partners and affiliated entities that co-invested alongside Fund IV at the time of HCP's initial platform acquisition.
MCB is the operating platform through which HCP manages its consumer products portfolio within Fund IV. The PureGlow personal-care product line represents one of several brand portfolios held by MCB, and the Transaction constitutes a carve-out divestiture of the PureGlow Business from MCB's broader platform.
Buyer. Lakebridge Home & Personal Care, Inc. ("LHPC" or "Buyer") is a corporation incorporated under the laws of the State of Ohio, with its principal executive offices located at 7100 Rockside Road, Suite 400, Independence, OH 44131. LHPC's Employer Identification Number is 31-4589201. LHPC is a mid-market personal-care and wellness company that reported annual revenue of approximately $285 million for FY2024. LHPC is a privately held company, 100% owned by the Brennan family trust and current management. LHPC does not have any institutional private equity sponsors, and the Brennan family trust has maintained majority ownership since the company's founding.
B. Transaction Structure
The Transaction is structured as an asset purchase. Pursuant to the APA, Seller will sell, convey, transfer, assign, and deliver to Buyer, and Buyer will purchase and acquire from Seller, the identified Acquired Assets constituting the PureGlow Business. Simultaneously, Buyer will assume the identified Assumed Liabilities associated with the PureGlow Business. The Transaction is not structured as an entity-level sale — it is not a sale of stock, membership interests, or other equity interests in MCB or any subsidiary thereof.
The Transaction constitutes an "applicable asset acquisition" within the meaning of IRC § 1060(c). Under that provision, an applicable asset acquisition means any transfer (whether direct or indirect) of assets which constitute a trade or business, and with respect to which the transferee's basis in such assets is determined wholly by reference to the consideration paid for such assets. Because the PureGlow Business constitutes a trade or business (it generates revenue, employs personnel, holds dedicated assets, and maintains customer relationships), and because Buyer's basis in the Acquired Assets will be determined entirely by reference to the $40,000,000 Purchase Price, the Transaction squarely falls within the scope of IRC § 1060. Accordingly, the residual method of allocation prescribed by IRC § 1060(a) and Treasury Regulation § 1.338-6 must be applied, and both parties are subject to the reporting obligations set forth in IRC § 1060(b).
C. Consideration. The total consideration for the Acquired Assets is a fixed Purchase Price of Forty Million Dollars ($40,000,000), payable as follows:
• Cash at Closing: Thirty-Six Million Dollars ($36,000,000), payable by Buyer to Seller (or Seller's designee) by wire transfer of immediately available funds to an account designated by Seller at or prior to Closing.
• Indemnity Escrow Amount: Four Million Dollars ($4,000,000), representing ten percent (10%) of the Purchase Price, to be deposited at Closing with Pinnacle Trust Company, N.A. (the "Escrow Agent") pursuant to the terms of an Escrow Agreement to be entered into among Buyer, Seller, and the Escrow Agent at Closing. The Escrow Amount secures Seller's post-closing indemnification obligations under Article [X] of the APA.
• Escrow Term: Eighteen (18) months from the Closing Date. Based on the target Closing Date of June 16, 2025, the estimated escrow release date is December 16, 2026, subject to the terms and conditions of the Escrow Agreement (including any open or pending indemnification claims as of the release date).
There is no earn-out, contingent consideration, seller financing, promissory note, or deferred payment component to the Purchase Price. The consideration is entirely fixed and determinable as of the Closing Date, subject only to the post-closing net working capital ("NWC") true-up adjustment mechanism described in Section VIII below. For purposes of the initial Purchase Price Allocation, the full $40,000,000 (including the $4,000,000 Escrow Amount) is treated as consideration paid in the taxable year of the Closing.
D. Acquired Assets Description
The Acquired Assets comprise all assets, properties, and rights used primarily in, or held primarily for use in, the operation of the PureGlow Business, including the following:
Product Line. The PureGlow personal-care product line consists of PureGlow-branded body wash, lotion, facial cleanser, and hand soap products, encompassing twenty-three (23) distinct stock-keeping units ("SKUs") across four (4) product categories. PureGlow is positioned as a mass-market personal-care brand, distributed through retail and e-commerce channels.
Financial Performance. For FY2024, the PureGlow Business generated revenue of approximately $58,000,000, representing approximately 9.35% of MCB's consolidated revenue of $620 million. PureGlow's FY2024 Adjusted EBITDA was approximately $5,800,000, reflecting an Adjusted EBITDA margin of approximately 10.0%. The implied enterprise value-to-EBITDA multiple for the Transaction is approximately 6.9x ($40,000,000 divided by $5,800,000).
Inventory. All finished goods, work-in-process, and raw materials inventory of the PureGlow Business, located at the Dayton, OH manufacturing facility and any off-site warehouse locations.
Manufacturing Equipment and Tangible Personal Property. All manufacturing equipment, production-line machinery, packaging equipment, fixtures, tooling, molds, dies, and other tangible personal property located at the Dayton, OH manufacturing facility (2200 Dryden Road, Dayton, OH 45439), a 127,000 square-foot facility leased from Buckeye Industrial Realty Partners LLC pursuant to a Lease Agreement dated July 1, 2020.
intellectual Property. All intellectual property rights associated with the PureGlow brand, including: (i) registered and common-law trademarks and service marks (including the "PureGlow" word mark and design marks), (ii) trade names, (iii) trade dress, (iv) domain names (including pureglow.com and related URLs), (v) proprietary product formulations, and (vi) associated IP documentation, prosecution files, and registration records. Certain PureGlow trademarks are registered with the United States Patent and Trademark Office ("USPTO").
Customer Relationships and Contracts. Eight (8) customer supply and distribution agreements are being transferred as part of the Acquired Assets. The largest customer relationship is with Hartwell Retail Group, which accounted for PureGlow FY2024 sales of approximately $14,200,000, or approximately 24.48% of PureGlow revenue. Three of the eight customer agreements contain assignment consent provisions requiring the consent of the counterparty to the assignment of such agreements from Seller to Buyer; obtaining these consents is a condition to Closing under the APA.
Regulatory Assets. FDA product listings for the OTC-classified PureGlow facial cleanser (salicylic acid formulation), including all related regulatory correspondence, submissions, and approvals.
Goodwill. All goodwill associated with the PureGlow Business, including the going concern value of the business as an operating enterprise.
Employees. Seventy-four (74) employees are expected to be transferred in connection with the Transaction, comprising personnel at the Dayton manufacturing facility and certain employees at MCB's New York headquarters who are dedicated to or primarily support the PureGlow Business. Under the terms of the APA, Buyer will offer employment to such employees at or prior to the Closing, on terms and conditions consistent with the APA.
It is noted that certain assets of MCB are excluded from the Acquired Assets ("Excluded Assets"), including, without limitation, accounts receivable of the PureGlow Business, cash and cash equivalents held by MCB, intercompany receivables, and all assets of MCB not specifically identified as Acquired Assets in the APA. The treatment of Excluded Assets is relevant to the Purchase Price Allocation insofar as no portion of the Purchase Price is allocated to Excluded Assets.
III. Legal Framework — IRC § 1060 and the Residual Method
A. Statutory and Regulatory Background
IRC § 1060(a) provides that, in the case of any applicable asset acquisition, for purposes of determining both (i) the transferee's basis in the acquired assets and (ii) the gain or loss of the transferor with respect to such acquisition, the consideration paid for the assets shall be allocated among the acquired assets in the same manner as amounts are allocated to assets under IRC § 338(b)(5) — that is, pursuant to the residual method. The residual method ensures that the consideration is systematically allocated to assets in ascending order of asset classes, with any residual amount assigned to the highest class (goodwill and going concern value).
IRC § 1060(b) imposes a reporting obligation on both the transferor and the transferee. Both parties are required to file an information return — specifically, IRS Form 8594 (Asset Acquisition Statement Under Section 1060) — setting forth the allocation of consideration among the acquired assets. The statute mandates that both parties report the allocation on a consistent basis. This consistency requirement is a critical feature of § 1060 and reflects Congress's intent to prevent transferors and transferees from adopting inconsistent allocations that could result in whipsaw of the government (i.e., the transferor reporting a lower allocation to ordinary income assets while the transferee claims a higher allocation to those same assets for depreciation or amortization purposes).
IRC § 1060(c) defines the term "applicable asset acquisition" as any transfer (whether direct or indirect) of assets which constitute a trade or business, and with respect to which the transferee's basis in such assets is determined wholly by reference to the consideration paid for such assets. As discussed in Section II.B above, the Transaction satisfies both elements of this definition: (1) the PureGlow Business constitutes a trade or business, and (2) Buyer's basis in the Acquired Assets is determined wholly by reference to the $40,000,000 Purchase Price.
The residual method is described in detail in Treasury Regulation § 1.338-6 (incorporated by reference into the § 1060 allocation framework through IRC § 1060(a) and Treas. Reg. § 1.1060-1(c)). Under the residual method, consideration is allocated first to Class I assets (up to their fair market value), then to Class II assets (up to their fair market value), and so on through Classes III, IV, V, VI, and VII, with any residual amount — that is, the portion of the consideration not allocable to assets in Classes I through VI — allocated to Class VII (goodwill and going concern value).
Treasury Regulation § 1.338-7 addresses situations in which the total consideration is subsequently adjusted (e.g., due to contingent consideration, earn-outs, or post-closing purchase price adjustments), requiring a re-allocation of the consideration among the asset classes using the same residual method methodology. This provision is relevant here in light of the post-closing NWC true-up mechanism in the APA, as discussed in Section VIII below.
B. Asset Classes Under Treas. Reg. § 1.338-6(b)
Treasury Regulation § 1.338-6(b) establishes the following seven asset classes for purposes of the residual method allocation:
Class I: Cash and General Deposit Accounts. Class I assets include cash, demand deposits, and similar cash-equivalent items. In this Transaction, no cash or deposit accounts are included among the Acquired Assets; all cash and cash equivalents are Excluded Assets under the APA. Accordingly, no portion of the Purchase Price is allocated to Class I.
Class II: Actively Traded Personal Property. Class II assets include actively traded personal property within the meaning of IRC § 1092(d)(1), certificates of deposit, and foreign currency. The PureGlow Business does not hold any actively traded personal property, certificates of deposit, or foreign currency as part of the Acquired Assets. Accordingly, no portion of the Purchase Price is allocated to Class II.
Class III: Accounts Receivable, Mortgages, and Similar Debt Instruments. Class III assets include accounts receivable, mortgages, credit card receivables, and other debt instruments. Under the terms of the APA, accounts receivable associated with the PureGlow Business are specifically designated as Excluded Assets and are retained by Seller. No mortgages, credit card receivables, or other debt instruments are included among the Acquired Assets. Accordingly, no portion of the Purchase Price is allocated to Class III.
Class IV: Inventory. Class IV assets include stock in trade (inventory) of the transferor, or other property that would properly be included in the inventory of the transferor if on hand at the close of the taxable year, or property held by the transferor primarily for sale to customers in the ordinary course of the transferor's trade or business. The PureGlow Business maintains significant finished goods, work-in-process, and raw materials inventory at the Dayton, OH manufacturing facility. Accordingly, a portion of the Purchase Price is allocated to Class IV, as described in Section IV below.
Class V: All Assets Not in Classes I–IV or Classes VI–VII. Class V is the catch-all category, encompassing all assets that do not fall within any of the other six classes. In practice, Class V principally includes tangible personal property (equipment, machinery, fixtures, furniture), non-§ 197 intangible assets, and certain other assets. For this Transaction, the manufacturing equipment, production-line machinery, packaging equipment, fixtures, and tooling located at the Dayton facility are classified as Class V assets. A portion of the Purchase Price is allocated to Class V, as described in Section IV below.
Class VI: IRC § 197 Intangibles Other Than Goodwill and Going Concern Value. Class VI assets include all § 197 intangibles, as defined in IRC § 197(d), other than goodwill and going concern value. Section 197 intangibles include, among other things, trademarks, trade names, customer-based intangibles (including customer lists, customer relationships, and customer contracts), supplier-based intangibles, covenants not to compete, franchises, licenses, and permits. For this Transaction, the PureGlow trademarks, trade names, trade dress, domain names, proprietary product formulations, and customer relationships and contracts are classified as Class VI assets. The Class VI allocation represents the largest component of the Purchase Price Allocation. A detailed discussion is provided in Section IV below.
Class VII: Goodwill and Going Concern Value. Class VII is the residual category, to which any portion of the consideration not allocated to Classes I through VI is assigned. Class VII encompasses goodwill and going concern value. In this Transaction, after allocating the Purchase Price to Classes I through VI based on the fair market values of the respective assets, the residual amount of $3,000,000 is allocated to Class VII. This residual represents the going concern value of the PureGlow Business, the value of the assembled workforce, and any other intangible value not separately identifiable or allocable to a specific asset in Classes I through VI.
C. Interplay with IRC § 197
IRC § 197 provides that the cost of acquiring certain intangible assets — specifically, "amortizable section 197 intangibles" — may be recovered through straight-line amortization over a fifteen-year (180-month) period beginning with the month of acquisition. The following categories of assets included in the Acquired Assets qualify as § 197 intangibles:
• Trademarks and trade names (IRC § 197(d)(1)(F));
• Customer-based intangibles, including customer relationships and customer contracts (IRC § 197(d)(1)(C));
• Goodwill (IRC § 197(d)(1)(A)); and
• Going concern value (IRC § 197(d)(1)(B)).
Proprietary product formulations, to the extent they constitute trade secrets or know-how, are also treated as § 197 intangibles under IRC § 197(d)(1)(C)(iii) (supplier-based intangibles) or § 197(d)(1)(D) (any similar item), depending on their specific nature and use.
The classification of acquired intangible assets as § 197 intangibles is significant for both Buyer and Seller. For Buyer, § 197 intangibles are amortizable over 15 years on a straight-line basis, providing a predictable stream of annual tax deductions. For Seller, the character of gain recognized on the disposition of § 197 intangibles depends on whether the assets were previously acquired (in which case § 1245 recapture may apply to the extent of previously claimed § 197 amortization) or self-created (in which case the gain is generally capital in nature).
It is important to note that under IRC § 197(f)(1)(A), if any § 197 intangible is acquired in a transaction together with other § 197 intangibles, all such intangibles are treated as a single asset for purposes of determining gain or loss on the subsequent disposition of any one of them (the "anti-churning" and aggregation rules). However, this aggregation rule applies only to dispositions of individual § 197 intangibles from a group; because the Transaction involves the disposition of the entire PureGlow Business (including all associated § 197 intangibles), the aggregation rule does not create complications in this context.
The correct classification and valuation of § 197 intangibles is essential to ensure proper amortization deductions for Buyer and proper character determination for Seller. The analysis set forth in Section IV below addresses each category of § 197 intangibles in detail.
IV. Allocation of Purchase Price
A. Methodology. Calderwood & Harkness LLP and Graymoor & Keene LLP jointly developed the Purchase Price Allocation using the residual method prescribed by IRC § 1060 and Treasury Regulation § 1.338-6, as described in Section III above. The Allocation reflects fair market values determined with reference to the following sources and methodologies:
(i) Book Values: Internal accounting records of Meridian Consumer Brands LLC, including the general ledger, fixed asset register, and inventory sub-ledger, as of the estimated Closing Date, prepared on a GAAP basis. Book values served as a starting point for the valuation of inventory and tangible personal property, subject to adjustment based on independent appraisals and market data.
(ii) Independent Equipment Appraisal: An independent appraisal of the manufacturing equipment, production-line machinery, packaging equipment, fixtures, and tooling located at the Dayton, OH facility, conducted by a qualified appraiser engaged by Seller. The appraisal reflects fair market value in the equipment's current condition, location, and use, assuming continued operation of the Dayton facility.
(iii) Whitfield Barrow & Co. LLC Valuation Analysis: Whitfield Barrow & Co. LLC ("Whitfield Barrow"), Seller's financial advisor in connection with the sell-side engagement, prepared a valuation analysis of the PureGlow brand, including an assessment of the fair market value of the PureGlow trademarks, trade names, proprietary formulations, and customer relationships. This analysis employed income-based and market-based valuation approaches.
(iv) Graymoor & Keene LLP Analysis: G&K performed its own independent analysis of intangible asset values using the relief-from-royalty method and the multi-period excess earnings method, with reference to PureGlow's FY2024 revenue and Adjusted EBITDA, comparable licensing arrangements, and industry benchmarks. G&K's analysis was used to corroborate and refine the values derived from the Whitfield Barrow analysis.
The NWC Target of $6,350,000, based on the trailing twelve-month average net working capital of the PureGlow Business as of December 31, 2024, informed the inventory valuation component of the Allocation. The APA provides for a NWC adjustment collar of plus or minus $250,000 (establishing a no-adjustment range of $6,100,000 to $6,600,000). The post-closing NWC true-up deadline is ninety (90) calendar days after the Closing Date. The impact of potential NWC adjustments on the Allocation is discussed in Section VIII below.
B. Allocation Schedule
The following table sets forth the proposed Purchase Price Allocation among the asset classes prescribed by Treasury Regulation § 1.338-6(b):
The Allocation reflects the sequential application of the residual method: the Purchase Price was first allocated to Class IV assets (inventory) at fair market value ($8,200,000), then to Class V assets (tangible personal property / equipment) at fair market value ($4,600,000), then to Class VI assets (§ 197 intangibles other than goodwill) at fair market value ($24,200,000 in the aggregate), with the remaining $3,000,000 allocated to Class VII (goodwill and going concern value) as the residual amount. At no step in the allocation process did the cumulative fair market values of assets in a given class or lower classes exceed the remaining unallocated Purchase Price, and therefore no pro-ration adjustment was required.
C. Discussion of Individual Asset Categories
1. Class IV — Inventory ($8,200,000; 20.5% of Purchase Price). The $8,200,000 allocated to Class IV represents the fair market value of the PureGlow finished goods, work-in-process, and raw materials inventory maintained at the Dayton, OH manufacturing facility (2200 Dryden Road, Dayton, OH 45439) and at any off-site warehouse locations utilized by the PureGlow Business. The inventory includes all PureGlow-branded body wash, lotion, facial cleanser, and hand soap products in various stages of completion, as well as the raw materials, packaging materials, and components used in the production of those products.
The inventory has been valued at cost, which is consistent with the terms of the APA and with Seller's GAAP-basis accounting records. Under U.S. Generally Accepted Accounting Principles, inventory is carried at the lower of cost or net realizable value. Because PureGlow's inventory is current, with no significant obsolete or slow-moving stock identified in the due diligence process, cost approximates fair market value for purposes of the § 1060 allocation.
Inventory constitutes a significant component of the PureGlow Business's net working capital. The NWC Target of $6,350,000 was established based on the trailing twelve-month average of the PureGlow Business's net working capital (current assets less current liabilities) as of December 31, 2024. The NWC adjustment mechanism in the APA provides for a dollar-for-dollar adjustment to the Purchase Price if the Closing NWC (as determined within 90 calendar days after Closing) falls outside the $250,000 collar (i.e., below $6,100,000 or above $6,600,000). Because inventory is the largest component of the PureGlow Business's current assets, any NWC adjustment is likely to be driven primarily by fluctuations in inventory levels or valuation.
In the event of a post-closing NWC adjustment payment (whether from Buyer to Seller or from Seller to Buyer), the aggregate Purchase Price will be effectively adjusted, and the Allocation must be revised accordingly. As discussed in Section VIII below, G&K recommends that any such NWC adjustment be allocated to Class IV (Inventory) to the extent the adjustment relates to inventory-based working capital components, with any remainder allocated to other current asset or liability classes, and supplemental Forms 8594 would be required.
2. Class V — Tangible Personal Property / Equipment ($4,600,000; 11.5% of Purchase Price). The $4,600,000 allocated to Class V represents the fair market value of the manufacturing equipment, production-line machinery, packaging equipment, fixtures, tooling, molds, dies, and other tangible personal property located at the Dayton, OH manufacturing facility. The Dayton facility, located at 2200 Dryden Road, Dayton, OH 45439, is a 127,000 square-foot manufacturing and distribution center.
The Class V allocation is supported by an independent appraisal of the tangible personal property in its current condition, location, and use. The appraisal was conducted on a fair market value basis, reflecting the price that a willing buyer would pay to a willing seller, with both parties having reasonable knowledge of the relevant facts and neither being under any compulsion to act. The appraised fair market value of the equipment ($4,600,000) reflects the age, condition, remaining useful life, and replacement cost of the manufacturing assets, adjusted for physical deterioration, functional obsolescence, and economic obsolescence, as applicable.
It is noted that the real property at the Dayton facility is not owned by Seller; rather, MCB occupies the facility pursuant to a Lease Agreement dated July 1, 2020, between Buckeye Industrial Realty Partners LLC, as landlord, and Meridian Consumer Brands LLC, as tenant. The lease provides for annual base rent of $1,143,000 and has a remaining term of approximately 5.2 years (through June 30, 2030). Under the APA, the Dayton facility lease is being assigned to Buyer (subject to landlord consent, if required), and the lease is included among the Assumed Liabilities. However, no separate Purchase Price allocation has been made to the leasehold interest, because the lease is at or near prevailing market rates and therefore has negligible fair market value in excess of its contractual obligations. The differential between the lease's contractual rent and market rent is immaterial based on current market data for comparable industrial space in the Dayton, Ohio metropolitan area, and accordingly the leasehold interest does not warrant a separate allocation.
3. Class VI — Intellectual Property ($18,500,000; 46.25% of Purchase Price). The $18,500,000 allocated to intellectual property represents the largest single allocation category, accounting for 46.25% of the total Purchase Price. This allocation encompasses the following intangible assets:
(a) Trademarks and Trade Names. All registered and common-law trademarks and service marks associated with the PureGlow brand, including the "PureGlow" word mark, all associated design marks, logos, slogans, and trade names. Certain PureGlow trademarks are registered with the USPTO, and the IP Assignment Agreement to be executed at Closing will include provisions for recordation of the assignment with the USPTO.
(b) Trade Dress. The distinctive packaging, labeling, product design, and overall commercial impression associated with PureGlow products, to the extent protectable as trade dress under federal and state law.
(c) Domain Names. All internet domain names associated with the PureGlow brand, including pureglow.com and related URLs, together with all associated domain name registrations.
(d) Proprietary Product Formulations. All proprietary formulations, recipes, specifications, and technical data relating to the manufacture of PureGlow-branded body wash, lotion, facial cleanser (including the OTC salicylic acid formulation), and hand soap products. These formulations constitute trade secrets of the PureGlow Business.
The IP valuation was developed using a combination of the relief-from-royalty method and the multi-period excess earnings method ("MEEM"):
Relief-from-Royalty Method. Under this approach, the fair market value of the PureGlow IP is estimated based on the hypothetical royalty savings that the owner of the IP would realize by virtue of owning the IP, as compared to licensing it from a third party. The analysis considered PureGlow FY2024 revenue of $58,000,000, an appropriate royalty rate derived from comparable licensing transactions in the personal-care industry, and a discount rate reflecting the risk profile of the PureGlow brand. The selected royalty rate and discount rate were validated by reference to publicly available licensing databases and industry studies.
Multi-Period Excess Earnings Method. Under this approach, the fair market value of the PureGlow IP is estimated based on the present value of the excess earnings attributable to the IP, after deducting contributory asset charges (i.e., returns on and of other assets used in conjunction with the IP, including tangible assets, working capital, and the assembled workforce). PureGlow's FY2024 Adjusted EBITDA of $5,800,000 served as the starting point for the excess earnings analysis, with adjustments for taxes, contributory asset charges, and projected growth rates.
The two methods yielded results that converged in the range of $17,500,000 to $19,500,000, and the selected value of $18,500,000 represents the midpoint of the indicated range. This valuation is consistent with the analysis prepared by Whitfield Barrow & Co. LLC in connection with the sell-side engagement, and was corroborated by G&K's independent analysis.
The IP allocation represents the core value driver of the PureGlow Business. The PureGlow brand has established consumer recognition and loyalty across its 23 SKUs in four product categories, and the proprietary formulations provide a competitive advantage in the marketplace. The IP is the primary asset that distinguishes the PureGlow Business from a generic contract manufacturing operation and is the principal source of the brand's premium pricing power and customer retention.
All intellectual property allocated to this category is amortizable by Buyer under IRC § 197 over a fifteen-year (180-month) period, on a straight-line basis. Based on the $18,500,000 allocation, Buyer's annual § 197 amortization deduction for the IP would be approximately $1,233,333 per year ($18,500,000 ÷ 15 years).
An IP Assignment Agreement will be executed at Closing, pursuant to which Seller will assign, transfer, and convey all right, title, and interest in and to the PureGlow IP to Buyer. The assignment will include provisions for recordation with the USPTO for registered trademarks and service marks.
4. Class VI — Customer Relationships / Contracts ($5,700,000; 14.25% of Purchase Price). The $5,700,000 allocated to customer relationships and contracts represents the fair market value of the eight (8) customer supply and distribution agreements that are being transferred as part of the Acquired Assets. These agreements establish the commercial framework through which PureGlow products are sold and distributed to retail and wholesale customers. The eight customer relationships, their FY2024 PureGlow revenue contributions, and their respective contract statuses are summarized below:
The largest customer relationship is with Hartwell Retail Group, which accounted for FY2024 PureGlow sales of approximately $14,200,000 — representing approximately 24.48% of total PureGlow revenue. The Hartwell relationship is supported by a long-standing supply agreement, and Hartwell is considered a key account for the PureGlow Business. Three of the eight customer agreements contain assignment consent provisions that require the counterparty's consent to the assignment of the agreement from Seller to Buyer. These three agreements include the Hartwell Retail Group agreement. Obtaining the requisite assignment consents from all three counterparties is a condition to Closing under the APA.
The customer relationships were valued using the multi-period excess earnings method, which estimates the present value of future excess earnings attributable to the existing customer relationships, after deducting contributory asset charges for other assets and adjusting for customer attrition over time. The attrition assumptions were derived from historical customer retention data for the PureGlow Business and industry benchmarks for customer turnover in the consumer personal-care products sector. The analysis reflected the contractual terms of the eight agreements (including remaining duration, renewal options, and termination provisions) as well as the economic contribution of each customer relationship to the PureGlow Business's revenue and profitability.
Customer-based intangibles are classified as § 197 intangibles under IRC § 197(d)(1)(C), and accordingly the $5,700,000 allocation is amortizable by Buyer over fifteen years (180 months) on a straight-line basis. Based on this allocation, Buyer's annual § 197 amortization deduction for customer relationships and contracts would be approximately $380,000 per year ($5,700,000 ÷ 15 years).
5. Class VII — Goodwill ($3,000,000; 7.5% of Purchase Price). The $3,000,000 allocated to Class VII represents the residual amount remaining after the Purchase Price has been fully allocated to all other asset classes (Classes I through VI) based on their respective fair market values. Under the residual method prescribed by Treasury Regulation § 1.338-6, goodwill and going concern value are allocated only the amount that cannot be attributed to specifically identifiable assets in the lower classes. This residual treatment ensures that goodwill serves as the "plug" in the allocation, absorbing any premium paid by Buyer in excess of the aggregate fair market values of the specifically identifiable acquired assets.
The $3,000,000 goodwill allocation represents the following components of intangible value:
(a) Going Concern Value. The value attributable to the PureGlow Business as an operating enterprise — that is, the incremental value arising from the fact that the Acquired Assets are assembled and functioning as a cohesive business, rather than existing as a collection of discrete assets.
(b) Assembled Workforce. The value associated with the 74 employees who will be transferred to Buyer in connection with the Transaction. These employees possess institutional knowledge, training, and expertise related to the PureGlow Business, including manufacturing know-how, customer relationship management, and product development skills. While an assembled workforce is not separately amortizable as a § 197 intangible (IRC § 197(e)(3) specifically excludes workforce-in-place from the definition of amortizable § 197 intangible), its value is subsumed within goodwill and is therefore amortizable as part of the Class VII allocation.
(c) Other Non-Separately-Identifiable Intangibles. Any intangible value not separately identifiable or allocable to a specific asset in Classes I through VI, including, without limitation, the value of established supplier relationships (other than contractual arrangements being transferred), favorable market conditions, brand momentum, and other elements of enterprise value.
Goodwill is classified as a § 197 intangible under IRC § 197(d)(1)(A), and accordingly the $3,000,000 allocation is amortizable by Buyer over fifteen years (180 months) on a straight-line basis. Based on this allocation, Buyer's annual § 197 amortization deduction for goodwill would be approximately $200,000 per year ($3,000,000 ÷ 15 years).
D. Total Buyer § 197 Amortization Summary
The aggregate value of all § 197 intangible assets acquired by Buyer in the Transaction is as follows:
All § 197 intangible assets are amortizable on a straight-line basis over 15 years (180 months), beginning with the month in which the assets are acquired (i.e., the month of Closing). The aggregate annual § 197 amortization deduction available to Buyer is approximately $1,813,333 per year ($27,200,000 ÷ 15 years). Over the full 15-year amortization period, Buyer will recover the entire $27,200,000 cost of the acquired § 197 intangibles through tax deductions, subject to applicable limitations and anti-abuse rules.
It is noted that under IRC § 197(f)(1)(A), if Buyer subsequently disposes of any individual § 197 intangible while retaining other § 197 intangibles acquired in the same transaction, no loss may be recognized on the disposition; instead, the adjusted basis of the disposed intangible is allocated among the remaining § 197 intangibles from the same transaction. This aggregation rule effectively prevents Buyer from accelerating amortization deductions through selective dispositions of § 197 intangibles.
V. Tax Implications for Seller (Meridian Consumer Brands LLC)
A. Entity-Level Tax Treatment
Meridian Consumer Brands LLC is a Delaware limited liability company that is treated as a partnership for federal income tax purposes. This treatment follows from MCB's multi-member ownership structure (78.4% held by Hargrove Capital Partners Fund IV LP, 14.1% by management rollover holders, and 7.5% by minority co-investors). As a partnership, MCB is a pass-through entity and is not itself subject to federal income tax. Instead, gain or loss recognized by MCB on the sale of the Acquired Assets passes through to MCB's members (partners) pro rata in accordance with their respective ownership interests and the terms of MCB's limited liability company operating agreement.
The character of the gain or loss recognized at the entity level is preserved as it passes through to the members. Accordingly, each member of MCB will report its pro rata share of ordinary income, § 1231 gain, and long-term capital gain arising from the sale of the PureGlow Acquired Assets, as described in Section V.B below.
Graymoor & Keene LLP (Howard Ellison, Tax Partner) has advised on the character and timing of gain recognition at both the entity level and the partner/member level. G&K's analysis addresses, among other things, the application of IRC § 751 (unrealized receivables and inventory items), which may cause certain members to recognize ordinary income on the sale of partnership assets that include "hot assets" (inventory and unrealized receivables), regardless of whether the gain would otherwise be capital in character. The § 751 analysis is being conducted by G&K separately and is not addressed in detail in this memorandum.
B. Character of Gain by Asset Category
The following discussion summarizes the expected character of gain recognized by Seller with respect to each category of Acquired Assets, based on the Purchase Price Allocation set forth in Section IV.B.
1. Inventory ($8,200,000) — Ordinary Income. Inventory is not a capital asset under IRC § 1221(a)(1), which excludes from the definition of a capital asset "stock in trade of the taxpayer or other property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year, or property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business." Accordingly, gain recognized on the sale of inventory is ordinary income.
The amount of gain, if any, depends on the relationship between the allocated amount ($8,200,000) and Seller's adjusted tax basis in the inventory. Because the inventory has been valued at cost for purposes of the Allocation, and because Seller's tax basis in the inventory is generally equal to cost (assuming no prior write-downs or adjustments), the gain on the inventory component may be zero or minimal. However, to the extent any markdown, write-down, reserve, or lower-of-cost-or-market adjustment has reduced Seller's adjusted tax basis below $8,200,000, ordinary income would result on the excess. G&K should confirm the precise adjusted tax basis of the PureGlow inventory as of the Closing Date.
2. Tangible Personal Property / Equipment ($4,600,000) — IRC § 1245 Recapture / § 1231. The manufacturing equipment and other tangible personal property being transferred are depreciable assets used in Seller's trade or business, subject to IRC § 1231 (which governs the sale of depreciable property used in a trade or business held for more than one year) and IRC § 1245 (which requires recapture of previously claimed depreciation as ordinary income).
Under IRC § 1245(a)(1), gain recognized on the disposition of "section 1245 property" (which includes tangible personal property that is or has been subject to depreciation under IRC § 167 or the accelerated cost recovery system under IRC § 168) is treated as ordinary income to the extent of the lesser of (i) the total gain recognized, or (ii) the total amount of depreciation or amortization previously claimed with respect to the property. This recapture requirement converts what would otherwise be § 1231 gain (potentially capital gain) into ordinary income, to the extent the taxpayer previously benefited from depreciation deductions.
Any gain in excess of the § 1245 recapture amount (i.e., gain attributable to appreciation above the original cost basis) would be treated as § 1231 gain. Under IRC § 1231, if the taxpayer's net § 1231 gains for the taxable year exceed the net § 1231 losses, the gains and losses are treated as long-term capital gains and losses. However, under IRC § 1231(c), if the taxpayer had net § 1231 losses in the five preceding taxable years that have not yet been "recaptured," a portion of the net § 1231 gain may be recharacterized as ordinary income. G&K should review MCB's § 1231 gain/loss history for the five-year lookback period.
Seller should compile a detailed schedule of the aggregate adjusted tax basis and accumulated depreciation for all PureGlow manufacturing equipment and tangible personal property, segregated by asset class, in order to determine the precise amount of § 1245 recapture and any residual § 1231 gain. G&K has been requested to prepare this analysis.
3. Intellectual Property ($18,500,000) — Long-Term Capital Gain (Generally). The character of gain recognized by Seller on the disposition of PureGlow intellectual property depends on several factors, including whether the IP was self-created by Seller or acquired through a prior transaction, and the specific nature of the IP assets.
Trademarks and Trade Names. Under IRC § 1221(a)(3), certain self-created intellectual property — specifically, "a copyright, a literary, musical, or artistic composition, a letter or memorandum, or similar property" — is excluded from the definition of a capital asset in the hands of the creator. However, trademarks and trade names are not included in the list of excluded self-created IP under § 1221(a)(3), as amended by the Tax Cuts and Jobs Act of 2017. Accordingly, self-created trademarks and trade names are generally treated as capital assets, and gain on their sale is capital gain (long-term capital gain if the holding period exceeds one year). The PureGlow brand has been part of Meridian's portfolio for several years, and the holding period requirement is satisfied.
To the extent any trademarks or trade names were acquired by MCB through a prior applicable asset acquisition or business combination (rather than self-created), and MCB previously claimed § 197 amortization deductions with respect to such acquired IP, IRC § 1245 recapture would apply to the extent of the previously claimed § 197 amortization. The § 1245 recapture would convert a portion of the gain from capital gain to ordinary income. Any gain in excess of the recapture amount would be long-term capital gain. G&K should determine whether any PureGlow trademarks or trade names were acquired in a prior transaction and, if so, the amount of § 197 amortization previously claimed.
Product Formulations. Proprietary product formulations that constitute trade secrets or know-how are not specifically excluded from the definition of a capital asset under § 1221 and are therefore generally treated as capital assets. Gain on the sale of such formulations would be long-term capital gain, subject to the same § 1245 recapture considerations discussed above (i.e., if previously acquired and amortized under § 197). To the extent the formulations are self-created, the basis is likely zero or nominal, and the entire allocated amount would be capital gain.
Trade Dress and Domain Names. Trade dress and domain names are similarly treated as capital assets (to the extent not specifically excluded under § 1221), and gain on their sale would be long-term capital gain, subject to § 1245 recapture to the extent of previously claimed amortization.
4. Customer Relationships / Contracts ($5,700,000) — Long-Term Capital Gain (Subject to § 197 Recapture). Customer-based intangibles, including customer relationships and customer contracts, are § 197 intangibles. The character of gain on the disposition of these assets depends on whether they were acquired by Seller in a prior transaction or were developed organically.
If the customer relationships were acquired by MCB through a prior applicable asset acquisition and MCB previously claimed § 197 amortization with respect to such intangibles, IRC § 1245 recapture would apply to the extent of the previously claimed amortization. The recaptured amount would be treated as ordinary income. Any gain in excess of the recapture amount would be long-term capital gain.
If the customer relationships were developed organically by MCB (i.e., through MCB's own business development and sales efforts, rather than acquired in a transaction), Seller's adjusted tax basis in the customer relationships would generally be zero, and the entire $5,700,000 allocation would be long-term capital gain. The holding period requirement for long-term capital gain treatment is satisfied, as the PureGlow customer relationships have been developed over a multi-year period.
G&K should confirm whether any of the eight customer relationships being transferred were acquired through a prior transaction, and if so, the amount of § 197 amortization previously claimed.
5. Goodwill ($3,000,000) — Long-Term Capital Gain. Goodwill is a capital asset under IRC § 1221. Gain recognized on the sale of goodwill is long-term capital gain, assuming the holding period exceeds one year (which is satisfied here).
If any portion of the PureGlow goodwill was acquired by MCB through a prior applicable asset acquisition and has been subject to § 197 amortization, IRC § 1245 recapture would apply to the extent of the previously claimed amortization. The recaptured amount would be ordinary income.
If the goodwill is entirely self-created (arising from MCB's own business operations rather than a prior acquisition), Seller's adjusted tax basis in the goodwill is zero, and the entire $3,000,000 allocation would be long-term capital gain. Self-created goodwill has no cost basis because the expenditures that give rise to goodwill (advertising, customer service, reputation-building) are generally deducted as ordinary business expenses in the year incurred and are not capitalized.
G&K should determine the extent to which the PureGlow goodwill was acquired versus self-created, and the amount of any previously claimed § 197 amortization.
C. State Tax Considerations
In addition to federal income tax consequences, the sale of the PureGlow Acquired Assets may give rise to state-level tax obligations for MCB and its members. The following is a summary of the principal state tax considerations; a comprehensive state tax analysis is being prepared by G&K and is expected to be completed prior to the Closing.
New York. MCB is headquartered in New York. New York generally conforms to the federal treatment of pass-through entities, requiring each member of an LLC treated as a partnership to report its distributive share of income on its New York income tax return (if the member is subject to New York personal income tax or corporate franchise tax). In addition, New York imposes an annual filing fee on LLCs and foreign LLPs based on New York-source gross income. Depending on the apportionment and sourcing of the gain from the sale of PureGlow assets, MCB may be subject to the LLC filing fee based on the New York-source component of such gain. The sourcing of gain from the sale of intangible assets (including IP, goodwill, and customer relationships) is subject to New York's market-based sourcing rules and the specific provisions of the Tax Law applicable to the sale of a trade or business. Further analysis by G&K is recommended.
Ohio. The PureGlow manufacturing facility is located in Dayton, Ohio, and MCB has nexus with Ohio by virtue of its physical presence and business operations in the state. Ohio imposes a commercial activity tax ("CAT") on the privilege of doing business in Ohio, measured by taxable gross receipts. The CAT is a gross receipts tax, not an income tax, and applies broadly to commercial activity that is "sitused" to Ohio. Gross receipts from the sale of PureGlow assets attributable to Ohio (including tangible personal property located in Ohio and potentially intangible assets with Ohio nexus) may be subject to the CAT. The current CAT rate is 0.26% on gross receipts exceeding $1,000,000 (subject to annual adjustments). G&K should analyze the CAT implications of the Transaction, including the proper situsing of receipts from the sale of intangible assets.
Delaware. Delaware does not impose an income tax on limited liability companies. However, Delaware requires LLCs organized under its laws to pay an annual franchise tax of $300 per year and to remain in good standing by filing an annual report. The Delaware franchise tax is not expected to have a material impact on the Transaction.
Other Jurisdictions. To the extent MCB has nexus with other states (e.g., through the presence of employees, customer relationships, or sales activities), gain from the sale of PureGlow assets may be subject to apportionment and taxation in those jurisdictions. State apportionment and sourcing rules for gain from the sale of intangible assets vary significantly by jurisdiction. Some states apply cost-of-performance sourcing, while others apply market-based sourcing. The apportionment and sourcing of gain from the sale of a trade or business (as opposed to individual assets) may also be subject to special rules in certain states. G&K is conducting a multi-state tax analysis and will provide a supplemental memorandum addressing state tax obligations.
D. Withholding / FIRPTA Considerations
The Foreign Investment in Real Property Tax Act ("FIRPTA"), codified at IRC § 1445, requires a buyer to withhold and remit to the IRS a portion of the consideration paid in a transaction involving the sale of a U.S. real property interest by a foreign person. FIRPTA withholding is not applicable to this Transaction because Seller is a domestic entity (a Delaware limited liability company) and is not a "foreign person" within the meaning of IRC § 1445. However, as a matter of standard transactional practice and in compliance with the APA, Seller should provide a FIRPTA certificate (an affidavit of non-foreign status, in accordance with Treas. Reg. § 1.1445-2(b)) as a Closing deliverable to confirm that Seller is not a "foreign person" and that Buyer is not required to withhold under IRC § 1445. The form of the FIRPTA certificate will be attached as an exhibit to the APA.
VI. Tax Implications for Buyer (Lakebridge Home & Personal Care, Inc.)
A. Basis in Acquired Assets
Under general tax principles applicable to asset acquisitions, Buyer's aggregate adjusted basis in the Acquired Assets equals the total consideration paid for such assets, which is $40,000,000. To the extent Buyer assumes liabilities of Seller in connection with the Transaction that are treated as additional consideration for federal income tax purposes (i.e., included in the "amount realized" by Seller), such assumed liabilities would be added to Buyer's aggregate basis. The APA identifies the Assumed Liabilities, and G&K and Redfield Samuels LLP should confirm whether any of the Assumed Liabilities constitute additional consideration that increases Buyer's aggregate basis above $40,000,000.
Buyer's aggregate basis of $40,000,000 is allocated among the individual Acquired Assets using the residual method, consistent with the Purchase Price Allocation set forth in Section IV.B above. Each asset receives a basis equal to its allocated fair market value, with goodwill receiving the residual amount.
B. Depreciation and Amortization
The following summarizes Buyer's depreciation and amortization treatment for each category of Acquired Assets:
Inventory ($8,200,000). Inventory is not depreciable or amortizable. Instead, Buyer's $8,200,000 basis in the PureGlow inventory will be recovered as cost of goods sold ("COGS") as the inventory is sold to customers in the ordinary course of Buyer's business. The timing of COGS recognition depends on Buyer's inventory accounting method (FIFO, LIFO, or weighted average cost) and the rate at which the acquired inventory is sold. For a personal-care product line with active consumer demand, the acquired inventory would generally be expected to turn over within six to twelve months following the Closing, resulting in a relatively rapid recovery of the $8,200,000 basis through COGS deductions.
Tangible Personal Property / Equipment ($4,600,000). Manufacturing equipment, production-line machinery, packaging equipment, fixtures, and tooling are depreciable under the Modified Accelerated Cost Recovery System ("MACRS") set forth in IRC § 168. The specific recovery period for each asset depends on its MACRS asset classification:
• Manufacturing equipment and machinery generally have a 7-year recovery period under MACRS (IRC § 168(e), Asset Class 20.5 — Manufacture of Chemicals and Allied Products, or Asset Class 36.0 — Manufacture of Rubber Products and Plastics Products, depending on the specific nature of the equipment).
• Certain specialized equipment may qualify for a 5-year recovery period.
• Fixtures and improvements to leased premises may be classified as qualified improvement property or leasehold improvements, potentially subject to different recovery rules.
Buyer may elect to claim bonus depreciation under IRC § 168(k) for qualifying assets placed in service in 2025. Under the Tax Cuts and Jobs Act of 2017 ("TCJA"), as amended, the bonus depreciation percentage for property placed in service after December 31, 2022, has been phasing down: 100% for property placed in service before January 1, 2023; 80% for 2023; 60% for 2024; 40% for 2025; and 20% for 2026. Accordingly, for assets placed in service in 2025 (assuming a June 16, 2025 Closing), the applicable bonus depreciation rate would be 40%. This would permit Buyer to claim a first-year depreciation deduction of up to $1,840,000 ($4,600,000 × 40%) on the qualifying tangible personal property, with the remaining $2,760,000 depreciated over the applicable MACRS recovery period using the regular depreciation schedule. Buyer's tax advisor, Redfield Samuels LLP, should confirm the applicable bonus depreciation percentage for assets placed in service in the relevant tax year and the MACRS classification of each category of acquired equipment.
Alternatively, Buyer may elect to expense a portion of the equipment cost under IRC § 179 (expensing of certain depreciable business assets), subject to the annual dollar limitation and phase-out threshold applicable for the taxable year. For 2025, the § 179 expensing limitation is expected to be approximately $1,220,000 (indexed for inflation), with a phase-out beginning at approximately $3,050,000 of total qualifying property placed in service. Redfield S

MEMORANDUM

MATTER NUMBER: 1011-00006

BILLING NUMBER: 80291-00001

Record

Parties

Dates

Amounts