MEMORANDUM
PRIVILEGED & CONFIDENTIAL ATTORNEY WORK PRODUCT
TO: Stephanie Okafor, Responsible Partner, Banking & Finance, Calderwood & Harkness LLP
FROM: Daniel Obi, Lead Associate, and Lisa Morrow, Working Associate, Banking & Finance, Calderwood & Harkness LLP
DATE: September 8, 2023
RE: Conditions Precedent to Funding — $120,000,000 Mezzanine Credit Facility; Stonefield Logistics Group Inc.
Matter No.: 1012-00001
Billing Code: 231892.SLG
I. Introduction and Purpose
The purpose of this memorandum is to provide a comprehensive status report on all conditions precedent to funding under the Mezzanine Credit Agreement (the "Mezzanine Credit Agreement"), anticipated to be dated as of September 14, 2023 (the anticipated signing date), among Stonefield Logistics Group Inc., a Delaware corporation ("Stonefield" or the "Borrower"), Ridgeline Mezzanine Capital Fund III, LP, a Delaware limited partnership ("Ridgeline" or the "Mezzanine Lender"), and the guarantors party thereto (collectively, the "Guarantors"). The Mezzanine Credit Agreement provides for a mezzanine credit facility in the aggregate principal amount of $120,000,000, with Ridgeline serving as the sole lender (no syndication).
The targeted funding date for the mezzanine facility is September 29, 2023 (the "Closing Date"). All conditions precedent to the initial funding must be satisfied in full, or waived by Ridgeline in its sole discretion, on or prior to the Closing Date.
The conditions precedent to closing and the initial funding advance are set forth in Article VII (Conditions to Closing and Initial Funding) of the draft Mezzanine Credit Agreement, as initially circulated on August 4, 2023, and as subsequently revised through the most recent working draft dated September 8, 2023. The conditions precedent addressed in this memorandum reflect the requirements of that Article as well as supplemental deliverables identified during the course of the negotiation process and customary for transactions of this nature.
This memorandum is organized by category of condition precedent. For each item, we have identified the current status using a three-tier classification system: Completed (the condition has been fully satisfied and all deliverables are in hand); Pending (the condition is in process and on track for timely satisfaction, with no material open issues); and Open Item (the condition requires further action, coordination, or resolution of an outstanding issue). For each item, we have also identified the responsible party or parties and the expected completion date. A master summary status table is provided in Section II below, and a comprehensive action items table is set forth in Section XIII.
Key Transaction Parties and Counsel. The following is a summary of the principal counterparties, their counsel, and key contacts:
• Stonefield Logistics Group Inc. (Borrower): Represented by Calderwood & Harkness LLP. Key client contacts: Marcus W. Ellison, Chief Executive Officer; Janet R. Prescott, Chief Financial Officer; and Robert D. Nagamine, General Counsel & Secretary.
• Ridgeline Mezzanine Capital Fund III, LP (Mezzanine Lender): Represented by Archer Blackwell & Moss LLP, led by Harrison T. Moss, Partner, with Angela N. Whitford serving as lead associate.
• Whitmore National Bank, N.A. (Senior Administrative Agent and Collateral Agent under the Senior Credit Agreement): Represented by Renshaw Pratt LLP, led by David C. Renshaw, Partner. The key Whitmore contact is Gregory S. Feinberg, Managing Director.
• Senior Syndicate Lenders: Whitmore National Bank, N.A. ($90,000,000 commitment), Greystone Commercial Lending Corp. ($75,000,000 commitment), Heritage Pacific Bank ($60,000,000 commitment), and Clearfield Capital Finance, LLC ($50,000,000 commitment), comprising a total senior term loan B facility of $275,000,000 (plus a $50,000,000 revolving credit facility).
• Cascade Ridge Capital Partners, LLC (Sponsor): Key contact: Vincent A. Palumbo, Managing Partner. Outside counsel for sponsor-side matters: Caldwell Baines & Associates, PC (Patricia V. Baines).
• Zynvaro Thornton Advisory Group, LLC (Financial Advisor to Stonefield): Key contact: Andrew S. Thornton.
• Braddock & Saylor LLP (Independent Auditors): Engagement partner: William F. Saylor.
II. Summary Status Table
The following table provides a high-level summary of all conditions precedent to funding, organized by category, with current status as of September 8, 2023.
Overall Status Summary:
Key Dates:
• September 5, 2023: Senior Agent consent letter received (Completed)
• September 11, 2023: Target date for distribution of final drafts of all transaction documents
• September 12, 2023: Target date for receipt of UCC lien search results
• September 14, 2023: Signing of Mezzanine Credit Agreement, Intercreditor Agreement, Mezzanine Guaranty, Mezzanine Pledge and Security Agreement, Parent Equity Pledge Agreement, and Amendment No. 3 to Senior Credit Agreement
• September 26, 2023: Deadline for delivery of irrevocable borrowing request / funding notice (3 business days prior to Closing Date)
• September 29, 2023: Closing and Funding — delivery of all closing certificates, legal opinions, UCC filings, Warrant Agreement, Registration Rights Agreement, funds flow, and payment of all fees and expenses
Master Status Table:
Items Requiring Immediate Attention: The following conditions are flagged as high-priority open items requiring immediate attention from the deal team and the client:
1. Scheduling of the Stonefield board meeting for adoption of authorizing resolutions (must occur prior to September 14, 2023 signing).
2. Confirmation of Required Lender consent for Amendment No. 3 to the Senior Credit Agreement.
3. Location and confirmation of original Stonefield stock certificates for the equity pledge perfection.
4. Ordering of good standing and certificate of existence certificates for all entities (must be dated no earlier than August 30, 2023).
5. Completion of UCC lien searches and preparation of summary memorandum.
III. Execution and Delivery of Transaction Documents
The Mezzanine Credit Agreement requires, as a condition precedent to the initial funding, the execution and delivery of each of the transaction documents described below. As of the date of this memorandum, all such documents are in advanced stages of negotiation or in substantially final form, and we anticipate that final execution versions will be distributed to all parties by September 11, 2023.
A. Mezzanine Credit Agreement
Description. The Mezzanine Credit Agreement among Stonefield Logistics Group Inc. (as Borrower), Ridgeline Mezzanine Capital Fund III, LP (as Mezzanine Lender), and the Guarantors party thereto. The Mezzanine Credit Agreement is the principal debt instrument governing the $120,000,000 mezzanine credit facility.
Key Terms. The principal terms of the mezzanine facility are as follows:
• Commitment Amount: $120,000,000 (sole lender; no syndication)
• Interest Rate: 1,100 basis points per annum, consisting of 850 basis points cash pay and 250 basis points pay-in-kind ("PIK")
• Maturity Date: September 29, 2029 (six years from the anticipated Closing Date)
• Governing Law: State of New York
Status: Pending. The draft Mezzanine Credit Agreement was initially circulated on August 4, 2023, and has been the subject of multiple rounds of markup and negotiation between Calderwood & Harkness LLP (on behalf of Stonefield) and Archer Blackwell & Moss LLP (on behalf of Ridgeline). The current working draft reflects revisions through September 8, 2023. A limited number of negotiation points remain under discussion in the current markup cycle and are expected to be resolved in time for final distribution on September 11, 2023. Signing is targeted for September 14, 2023.
Responsible Parties: Calderwood & Harkness LLP to coordinate execution by Stonefield and the Guarantors. Archer Blackwell & Moss LLP to confirm execution by Ridgeline.
Notes: The remaining open negotiation points principally relate to certain basket sizes and permitted exception definitions. These are expected to be resolved in the ordinary course of the current markup cycle and do not present a material risk to the signing timeline. We will promptly escalate any items that remain unresolved following the next exchange of markups.
B. Intercreditor Agreement
Description. The Intercreditor Agreement among Whitmore National Bank, N.A. (as Senior Administrative Agent and Collateral Agent under the Senior Credit Agreement), Ridgeline Mezzanine Capital Fund III, LP (as Mezzanine Lender), and acknowledged and agreed to by Stonefield Logistics Group Inc. and the Guarantors. The Intercreditor Agreement establishes the relative rights, priorities, and remedies of the senior and mezzanine lenders with respect to shared collateral, enforcement actions, and payment distributions.
Key Provisions. The following are the material substantive provisions of the Intercreditor Agreement, all of which have been agreed upon among the parties:
• Standstill Period: 180 calendar days following delivery of a standstill notice by the Senior Agent, during which the Mezzanine Lender may not exercise remedies against shared collateral.
• Payment blockage: The Senior Agent may deliver a payment blockage notice blocking scheduled payments of interest and principal to the Mezzanine Lender for a period of up to 180 days, subject to a maximum of one blockage period in any consecutive 360-day period.
• Purchase Option: The Mezzanine Lender has the right, upon the occurrence of a default under the Senior Credit Agreement, to purchase the outstanding senior obligations at par plus accrued and unpaid interest and fees.
• Lien Subordination: The second-priority liens securing the mezzanine facility are expressly subordinated to the first-priority liens securing the senior facility with respect to all shared collateral.
Status: Pending. The substantive terms of the Intercreditor Agreement have been agreed upon among Calderwood & Harkness LLP, Renshaw Pratt LLP, and Archer Blackwell & Moss LLP, and the document is in final form. The final draft is to be distributed September 11, 2023, with signing targeted for September 14, 2023.
Responsible Parties: Calderwood & Harkness LLP to coordinate execution by Stonefield and the Guarantors. Renshaw Pratt LLP to confirm execution by Whitmore National Bank, N.A. Archer Blackwell & Moss LLP to confirm execution by Ridgeline.
Notes: No open substantive issues. Execution logistics to be confirmed in the final distribution package.
C. Mezzanine Guaranty Agreement
Description. The Guaranty Agreement executed by the following subsidiary guarantors (and the parent holding company) in favor of Ridgeline Mezzanine Capital Fund III, LP:
(i) Cascade Ridge SLG Holdings, LLC (Delaware LLC);
(ii) Stonefield Intermodal Services, Inc. (Texas corporation);
(iii) Stonefield Fleet Management, LLC (Texas LLC); and
(iv) Stonefield Freight Brokerage, Inc. (Delaware corporation).
The Mezzanine Guaranty Agreement provides an unconditional, irrevocable guaranty of all obligations of Stonefield under the Mezzanine Credit Agreement and the other transaction documents.
Status: Pending. The draft Mezzanine Guaranty Agreement is in substantially final form. Signing is targeted for September 14, 2023, concurrently with the Mezzanine Credit Agreement.
Responsible Parties: Calderwood & Harkness LLP to coordinate execution by each Guarantor entity. Robert D. Nagamine, in his capacity as General Counsel and Secretary of Stonefield and the subsidiary guarantors, to arrange for execution by authorized officers of each entity. Execution by Cascade Ridge SLG Holdings, LLC to be coordinated with Vincent A. Palumbo of Cascade Ridge Capital Partners, LLC.
D. Mezzanine Pledge and Security Agreement
Description. The Pledge and Security Agreement, pursuant to which Stonefield and each of the subsidiary guarantors grant to Ridgeline a second-priority security interest (junior only to the first-priority liens securing the Senior Credit Agreement) in substantially all of their respective assets, including without limitation:
(i) equipment, vehicles, and rolling stock;
(ii) accounts receivable;
(iii) inventory;
(iv) intellectual property;
(v) general intangibles;
(vi) deposit accounts and investment property; and
(vii) equity interests in subsidiaries (other than the equity interests in Stonefield pledged under the separate Parent Equity Pledge Agreement).
Status: Pending. The draft Mezzanine Pledge and Security Agreement is in substantially final form. Signing is targeted for September 14, 2023.
Responsible Parties: Calderwood & Harkness LLP to prepare final execution version. Archer Blackwell & Moss LLP to review and confirm the scope of the collateral description and other provisions on behalf of Ridgeline.
Notes: The collateral description in the Mezzanine Pledge and Security Agreement must be carefully coordinated with the collateral package under the existing Senior Credit Agreement to ensure consistency and to confirm that all assets subject to the senior first-priority lien are also covered by the mezzanine second-priority lien, as contemplated by the Intercreditor Agreement. Lisa Morrow will complete a side-by-side comparison of the collateral descriptions in the two instruments and circulate to the deal team for review.
E. Parent Equity Pledge Agreement
Description. The Parent Equity Pledge Agreement, pursuant to which Cascade Ridge SLG Holdings, LLC (the direct parent holding company of Stonefield) pledges 100% of its equity interests in Stonefield Logistics Group Inc. to Ridgeline, as first-priority collateral securing the mezzanine obligations. Notably, this equity pledge is not shared with the senior facility lenders and provides Ridgeline with a first-priority lien on the equity of the Borrower — a key structural protection for the mezzanine position.
Status: Pending. The draft Parent Equity Pledge Agreement is in substantially final form. Signing is targeted for September 14, 2023.
Responsible Parties: Calderwood & Harkness LLP to prepare the final execution version and related stock transfer powers in blank. Execution by an authorized officer of Cascade Ridge SLG Holdings, LLC, to be coordinated with Vincent A. Palumbo (Managing Partner, Cascade Ridge Capital Partners, LLC). Patricia V. Baines of Caldwell Baines & Associates, PC may be engaged to assist on sponsor-side documentation and review as needed.
Notes: Perfection of the first-priority pledge requires physical delivery of the original stock certificate(s) representing the equity interests of Stonefield held by Cascade Ridge SLG Holdings, LLC, together with executed stock transfer power(s) endorsed in blank, to Ridgeline (or its designated agent or custodian) at or prior to the Closing Date. This is addressed further in Section VII.D below as a separate action item. The stock certificates must be located and confirmed in advance of closing.
F. Warrant Agreement
Description. The Warrant Agreement, pursuant to which Stonefield issues to Ridgeline warrants representing 3.0% of the fully diluted equity of Stonefield Logistics Group Inc. The warrants are detachable from the mezzanine debt instrument and immediately exercisable at an exercise price of $0.01 per share. The Warrant Agreement includes the following key economic and protective provisions:
(i) Anti-Dilution Protection: Weighted-average broad-based anti-dilution adjustment in the event of issuances of additional equity at a price below the then-applicable exercise price.
(ii) Put Right: Ridgeline holds a put right exercisable upon the occurrence of a change of control, an initial public offering, or the seventh anniversary of the Closing Date (i.e., September 29, 2030), at fair market value as determined in accordance with the appraisal procedures set forth in the Warrant Agreement.
Status: Pending. The draft Warrant Agreement has been prepared by Calderwood & Harkness LLP and is currently under review by Archer Blackwell & Moss LLP (Angela N. Whitford). Signing and delivery of the Warrant Agreement and the related warrant certificate are to occur at the Closing Date, September 29, 2023.
Responsible Parties: Calderwood & Harkness LLP (drafting). Archer Blackwell & Moss LLP (review and comment on behalf of Ridgeline). The Stonefield board of directors must adopt resolutions specifically authorizing the issuance of the warrants and the reservation of shares for issuance upon exercise thereof; such resolutions will be included in the omnibus authorizing resolutions described in Section IV.B below.
Notes: The warrant certificate must be prepared and available for physical delivery at the closing. Calderwood & Harkness LLP will prepare the form of warrant certificate in conformity with the final Warrant Agreement.
G. Registration Rights Agreement
Description. The Registration Rights Agreement, pursuant to which Stonefield grants to Ridgeline demand registration rights and piggyback registration rights with respect to the shares of common stock issuable upon exercise of the warrants described in Section III.F above. These registration rights will become relevant in the event of a future initial public offering or other registered offering of Stonefield's equity securities.
Status: Pending. The draft Registration Rights Agreement has been prepared by Calderwood & Harkness LLP and is currently under review by Archer Blackwell & Moss LLP. Signing and delivery are to occur at the Closing Date, September 29, 2023.
Responsible Parties: Calderwood & Harkness LLP (drafting). Archer Blackwell & Moss LLP (review on behalf of Ridgeline).
H. Amendment No. 3 to Senior Credit Agreement
Description. Amendment No. 3 to the Amended and Restated Credit Agreement, dated as of April 7, 2022 (as originally entered into on November 15, 2019, and as previously amended by Amendment No. 1 and Amendment No. 2) (the "Senior Credit Agreement"), among Stonefield Logistics Group Inc. (as Borrower), Whitmore National Bank, N.A. (as Administrative Agent and Collateral Agent), and the senior syndicate lenders party thereto. Amendment No. 3 is required to:
(i) permit the incurrence of the $120,000,000 mezzanine indebtedness under the Mezzanine Credit Agreement;
(ii) permit the grant of second-priority liens on the shared collateral in favor of Ridgeline;
(iii) authorize Stonefield's entry into the Intercreditor Agreement; and
(iv) make such other conforming amendments to the Senior Credit Agreement as may be necessary to accommodate the mezzanine financing.
Status: Pending. The Senior Agent consent to the mezzanine incurrence was received on September 5, 2023 (see Section VI.A). The Amendment No. 3 document itself is in final form and has been prepared by Renshaw Pratt LLP on behalf of Whitmore National Bank, N.A. Calderwood & Harkness LLP has reviewed the amendment on behalf of Stonefield. Signing is targeted for September 14, 2023, concurrently with the mezzanine transaction documents.
Responsible Parties: Renshaw Pratt LLP (drafting on behalf of Whitmore). Calderwood & Harkness LLP (review on behalf of Stonefield). Whitmore National Bank, N.A. is coordinating the solicitation of Required Lender consent from the senior syndicate.
Amendment Fee: An amendment fee of $137,500 (calculated as 0.05% of the $275,000,000 aggregate commitments under the Senior Credit Agreement) is payable to Whitmore National Bank, N.A. at the closing.
Notes: Execution of Amendment No. 3 requires the consent of the Required Lenders under the Senior Credit Agreement. The status of the Required Lender consent solicitation is addressed in Section VI.C below. The amendment fee will be included in the closing funds flow and is addressed in Sections X.B and XII below.
IV. Certificates and Officer Deliverables
A. Officer's Certificate (Closing Conditions)
Description. A certificate executed by Marcus W. Ellison, in his capacity as Chief Executive Officer of Stonefield, and Janet R. Prescott, in her capacity as Chief Financial Officer of Stonefield, certifying as of the Closing Date that:
(i) each of the representations and warranties of the Borrower and the Guarantors contained in the Mezzanine Credit Agreement and the other transaction documents is true and correct in all material respects (or, in the case of representations and warranties qualified by materiality, in all respects) as of the Closing Date (or, to the extent any such representation or warranty expressly relates to an earlier date, as of such earlier date);
(ii) no Default or Event of Default under the Mezzanine Credit Agreement has occurred and is continuing or would result from the initial funding and the consummation of the transactions contemplated by the transaction documents; and
(iii) no Material Adverse Change (as defined in the Mezzanine Credit Agreement) with respect to the Borrower and its subsidiaries, taken as a whole, has occurred since December 31, 2022.
Status: Open. Calderwood & Harkness LLP will prepare the draft officer's certificate for review by Mr. Ellison and Ms. Prescott. The certificate will be executed and delivered at the Closing Date, September 29, 2023.
Responsible Parties: Calderwood & Harkness LLP (drafting). Marcus W. Ellison and Janet R. Prescott (review and execution).
B. Secretary's Certificate of Stonefield
Description. A certificate executed by Robert D. Nagamine, in his capacity as Secretary of Stonefield Logistics Group Inc., attaching and certifying the following documents:
(i) a certified copy of the Certificate of Incorporation of Stonefield, as filed with the Delaware Secretary of State (including all amendments thereto);
(ii) a true, correct, and complete copy of the bylaws of Stonefield, as amended through the date of the certificate;
(iii) resolutions duly adopted by the board of directors of Stonefield authorizing the execution, delivery, and performance of the Mezzanine Credit Agreement and all ancillary transaction documents, including the Mezzanine Guaranty Agreement, the Mezzanine Pledge and Security Agreement, the Warrant Agreement, the Registration Rights Agreement, and all related instruments and agreements, and the consummation of the transactions contemplated thereby; and
(iv) an incumbency certificate identifying the authorized officers of Stonefield who are executing the transaction documents, together with their respective specimen signatures.
Status: Pending. The organizational documents of Stonefield (Certificate of Incorporation and bylaws) are on file with Calderwood & Harkness LLP. The board resolutions authorizing the mezzanine financing have not yet been adopted. Calderwood & Harkness LLP will prepare the form of resolutions for consideration by the Stonefield board of directors.
Responsible Parties: Robert D. Nagamine (execution of the Secretary's Certificate, coordination of the board meeting). Calderwood & Harkness LLP (drafting of the authorizing resolutions and the Secretary's Certificate).
Action Item: A meeting of the Stonefield board of directors must be scheduled and held prior to the September 14, 2023 signing date for the purpose of adopting the authorizing resolutions. Robert D. Nagamine should confirm the board meeting date and circulate draft resolutions to the directors in advance.
C. Secretary's Certificates of Subsidiary Guarantors (Combined)
Description. A combined Secretary's Certificate (or, in the case of limited liability company entities, an Authorized Person Certificate) for each of the following subsidiary guarantors:
(i) Stonefield Intermodal Services, Inc. — Texas corporation; EIN 75-6849321;
(ii) Stonefield Fleet Management, LLC — Texas limited liability company; EIN 75-6912488; and
(iii) Stonefield Freight Brokerage, Inc. — Delaware corporation; EIN 84-3306715.
For each subsidiary, the certificate will attach and certify: (a) the applicable organizational documents (certificate of incorporation or certificate of formation, bylaws or limited liability company agreement, as applicable); (b) the authorizing resolutions of the board of directors or the written consent of the members, as applicable, authorizing such subsidiary's execution, delivery, and performance of the Mezzanine Guaranty Agreement, the Mezzanine Pledge and Security Agreement, and the other transaction documents to which it is a party; and (c) an incumbency certificate of the authorized signatories.
Status: Open. The organizational documents for each subsidiary need to be collected and confirmed. Authorizing resolutions or member consents need to be drafted and adopted. Calderwood & Harkness LLP will prepare the forms of resolutions and consents for each entity.
Responsible Parties: Robert D. Nagamine (coordination of document collection and adoption of resolutions/consents). Calderwood & Harkness LLP (drafting of resolutions, consents, and certificates).
D. Secretary's Certificate / Authorized Person Certificate of Cascade Ridge SLG Holdings, LLC
Description. An Authorized Person Certificate for Cascade Ridge SLG Holdings, LLC, a Delaware limited liability company (EIN 84-3195472), in its capacity as a Guarantor under the Mezzanine Guaranty Agreement and as the Pledgor under the Parent Equity Pledge Agreement. The certificate will attach and certify: (i) the limited liability company agreement of Cascade Ridge SLG Holdings, LLC; (ii) the written consent of the members (or other requisite approval) authorizing such entity's execution, delivery, and performance of the Mezzanine Guaranty Agreement, the Parent Equity Pledge Agreement, and the other transaction documents to which it is a party; and (iii) an incumbency certificate of the authorized signatories.
Status: Open. This deliverable requires coordination with the sponsor, Cascade Ridge Capital Partners, LLC. Vincent A. Palumbo is the primary contact for sponsor-side documentation. Patricia V. Baines of Caldwell Baines & Associates, PC may be engaged to assist in the preparation and review of the member consent and related organizational documentation for Cascade Ridge SLG Holdings, LLC.
Responsible Parties: Vincent A. Palumbo / Cascade Ridge Capital Partners, LLC (coordination and execution). Calderwood & Harkness LLP (drafting of the Authorized Person Certificate and form of member consent).
E. Solvency Certificate
Description. A certificate executed by Janet R. Prescott, in her capacity as Chief Financial Officer of Stonefield, certifying that, as of the Closing Date and after giving pro forma effect to the incurrence of the $120,000,000 mezzanine facility, the application of the proceeds thereof, and the consummation of all transactions contemplated by the transaction documents, the Borrower and its subsidiaries, on a consolidated basis:
(i) are Solvent, meaning that the fair value of the assets of the Borrower and its subsidiaries, on a consolidated basis, exceeds the total amount of their liabilities (including contingent and unliquidated liabilities);
(ii) are adequately capitalized, meaning that the present fair salable value of the assets of the Borrower and its subsidiaries, on a consolidated basis, is not less than the amount that will be required to pay the probable liabilities on their then-existing debts, including contingent and unliquidated liabilities, as they become absolute and matured; and
(iii) are able to pay their debts and obligations as they become due in the ordinary course of business.
For reference, the following summarizes the anticipated capital structure of Stonefield and its subsidiaries as of the Closing Date, on a pro forma basis:
Status: Open. Calderwood & Harkness LLP will prepare the draft solvency certificate. Ms. Prescott will need to review the certificate and confirm the solvency analysis based on current financial projections and the pro forma capital structure. This analysis should be coordinated with the pro forma financial projections being prepared with the assistance of Zynvaro Thornton Advisory Group, LLC.
Responsible Parties: Janet R. Prescott (execution, financial analysis, and confirmation of solvency conclusions). Calderwood & Harkness LLP (drafting of the certificate form).
F. Compliance Certificate (Initial)
Description. An initial compliance certificate executed by Janet R. Prescott, in her capacity as Chief Financial Officer of Stonefield, demonstrating compliance with the financial covenants set forth in the Mezzanine Credit Agreement as of the Closing Date, on a pro forma basis after giving effect to the mezzanine funding and related transactions. The applicable financial covenants and relevant metrics are as follows:
With respect to the Minimum Liquidity covenant, liquidity is defined under the Mezzanine Credit Agreement as the sum of (a) unrestricted cash and cash equivalents and (b) availability under the revolving credit facility. As of the anticipated Closing Date, the revolving credit facility has a total commitment of $50,000,000 with $12,000,000 drawn, leaving $38,000,000 of availability, plus cash on hand to be confirmed.
Status: Pending. Calderwood & Harkness LLP will prepare and circulate the form of the initial compliance certificate. Ms. Prescott and her finance team will populate the certificate with the applicable financial data and calculations.
Responsible Parties: Janet R. Prescott (financial data, calculations, and execution). Calderwood & Harkness LLP (form preparation).
V. Legal Opinions
A. Borrower's Counsel Opinion Letter (Calderwood & Harkness LLP)
Description. An opinion letter issued by Calderwood & Harkness LLP, as counsel to the Borrower and the Guarantors, addressed to Ridgeline Mezzanine Capital Fund III, LP (and its successors and assigns), covering the following opinions:
(i) Organization and Good Standing. Each of the Borrower and the Guarantors is duly organized, validly existing, and in good standing under the laws of its respective state of organization: Stonefield Logistics Group Inc. (Delaware), Cascade Ridge SLG Holdings, LLC (Delaware), Stonefield Freight Brokerage, Inc. (Delaware), Stonefield Intermodal Services, Inc. (Texas), and Stonefield Fleet Management, LLC (Texas).
(ii) Corporate / LLC Authority and Due Authorization. Each of the Borrower and the Guarantors has the requisite corporate or limited liability company power and authority to execute, deliver, and perform its obligations under each transaction document to which it is a party, and such execution, delivery, and performance have been duly authorized by all necessary corporate or limited liability company action.
(iii) Due Execution and Delivery. Each transaction document to which the Borrower or any Guarantor is a party has been duly executed and delivered by such party.
(iv) Enforceability. Each transaction document to which the Borrower or any Guarantor is a party constitutes the legal, valid, and binding obligation of such party, enforceable against it in accordance with its terms, subject to customary qualifications for applicable bankruptcy, insolvency, reorganization, moratorium, and similar laws affecting creditors' rights generally and subject to general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law).
(v) No Conflicts. The execution, delivery, and performance by the Borrower and each Guarantor of the transaction documents to which it is a party do not and will not (a) violate the organizational documents of such party, (b) violate any applicable law or regulation of the State of New York, the State of Delaware, or the State of Texas, or (c) result in a breach of or default under any material agreement to which such party is bound (to the extent reviewed by us).
(vi) No Required Governmental Consents. No governmental or regulatory approval, consent, license, or authorization is required in connection with the execution, delivery, or performance of the transaction documents by the Borrower or any Guarantor, other than the filing of UCC-1 financing statements as contemplated by the security documents.
The opinion will be governed by and given under the laws of the State of New York and the State of Delaware (and, to the extent applicable, the State of Texas with respect to the Texas-organized entities).
Status: Pending. The draft opinion letter is in preparation. Archer Blackwell & Moss LLP (Angela N. Whitford) has circulated a formal opinion request letter specifying the scope of opinions requested by Ridgeline. Calderwood & Harkness LLP is currently reviewing the opinion request letter and developing the opinion assumptions, qualifications, and exceptions in accordance with customary practice. The opinion letter is to be finalized and delivered at the Closing Date, September 29, 2023.
Responsible Parties: Stephanie Okafor (responsible partner) and Daniel Obi (lead associate), Calderwood & Harkness LLP. Coordination with Archer Blackwell & Moss LLP regarding scope, assumptions, and qualifications.
Notes: We have commenced our independent review of the organizational documents, authorizing resolutions, and applicable law for purposes of rendering the opinion. The opinion will include customary assumptions regarding genuineness of signatures, authenticity of documents, and factual matters relied upon from officer's certificates. Any non-standard qualifications or exceptions will be discussed with Stephanie Okafor before inclusion.
B. UCC / Lien Perfection Opinion (Calderwood & Harkness LLP)
Description. A supplemental opinion letter issued by Calderwood & Harkness LLP, addressed to Ridgeline Mezzanine Capital Fund III, LP, covering the following opinions with respect to the perfection of security interests:
(i) Mezzanine Pledge and Security Agreement. Upon the filing of appropriate UCC-1 financing statements with the Delaware Secretary of State (with respect to Stonefield, Stonefield Freight Brokerage, Inc., and Cascade Ridge SLG Holdings, LLC) and the Texas Secretary of State (with respect to Stonefield Intermodal Services, Inc. and Stonefield Fleet Management, LLC), Ridgeline will have a valid and perfected second-priority security interest in those items of personal property collateral described in the Mezzanine Pledge and Security Agreement as to which a security interest may be perfected by filing a UCC-1 financing statement under the applicable Uniform Commercial Code.
(ii) Parent Equity Pledge Agreement. Upon delivery of the stock certificates representing the equity interests of Stonefield held by Cascade Ridge SLG Holdings, LLC, together with duly executed stock transfer powers endorsed in blank, to Ridgeline (or its designated agent), Ridgeline will have a valid and perfected first-priority security interest in such equity interests.
Status: Pending. The draft UCC/Lien Perfection opinion is in preparation. Completion of this opinion is dependent upon: (a) receipt and review of the UCC lien search results (expected September 12, 2023); (b) preparation and review of the UCC-1 financing statement forms to be filed at or immediately prior to closing; and (c) confirmation of the stock certificate delivery mechanics for the equity pledge.
Responsible Parties: Lisa Morrow and Daniel Obi, Calderwood & Harkness LLP. This opinion will be signed by Stephanie Okafor as responsible partner.
VI. Senior Facility Consents and Amendments
The incurrence of the $120,000,000 mezzanine facility requires certain consents and amendments under the existing Senior Credit Agreement. The following is the status of each such consent or amendment.
A. Senior Agent Consent Letter
Description. A consent letter from Whitmore National Bank, N.A. (Gregory S. Feinberg, Managing Director), acting in its capacity as Administrative Agent and Collateral Agent under the Senior Credit Agreement, consenting to:
(i) the incurrence by Stonefield of $120,000,000 of mezzanine indebtedness under the Mezzanine Credit Agreement;
(ii) the entry by the Borrower and the Guarantors into the Intercreditor Agreement; and
(iii) the grant of second-priority liens on the shared collateral in favor of Ridgeline.
Status: Completed. The Senior Agent consent letter was received on September 5, 2023. The consent solicitation process was commenced on August 18, 2023, when Calderwood & Harkness LLP, on behalf of Stonefield, delivered a formal request to Whitmore (through Renshaw Pratt LLP). The consent letter was prepared by Renshaw Pratt LLP, reviewed by Calderwood & Harkness LLP, and executed by Gregory S. Feinberg on behalf of Whitmore.
Responsible Parties: Renshaw Pratt LLP (prepared). Calderwood & Harkness LLP (reviewed). Whitmore National Bank, N.A. (executed).
Notes: The Senior Agent consent is conditioned upon the execution and delivery of Amendment No. 3 to the Senior Credit Agreement and the Intercreditor Agreement. Both of those documents are on track for execution on September 14, 2023.
B. Amendment No. 3 Execution
As described in detail in Section III.H above, Amendment No. 3 to the Senior Credit Agreement is required to formally document the consent to the mezzanine incurrence, the second-lien grant, and the Intercreditor Agreement within the four corners of the Senior Credit Agreement. The amendment document is in final form and is on track for signing on September 14, 2023, subject to obtaining the Required Lender consent described below.
Status: Pending — contingent on signing September 14, 2023.
Notes: The amendment fee of $137,500, payable to Whitmore National Bank, N.A., will be remitted through the closing funds flow on September 29, 2023.
C. Required Lender Consent Under Senior Credit Agreement
Description. Amendment No. 3 to the Senior Credit Agreement requires the approval of the "Required Lenders" under the Senior Credit Agreement. The Senior Credit Agreement defines "Required Lenders" as lenders holding commitments constituting a majority of the aggregate outstanding commitments under the facility. The current senior syndicate composition is as follows:
The Required Lender threshold is therefore $137,500,001 (a majority of $275,000,000). Whitmore's consent alone ($90,000,000) would not satisfy the Required Lender threshold; at least one additional syndicate lender must also consent. Consent from any two lenders other than Clearfield alone would suffice (e.g., Whitmore + Greystone = $165,000,000, which exceeds the $137,500,000 threshold).
Status: Pending. Whitmore National Bank, N.A., as Administrative Agent, is coordinating the solicitation of Required Lender consent from the senior syndicate members. Renshaw Pratt LLP is managing the consent solicitation process. As of the date of this memorandum, Calderwood & Harkness LLP has not received confirmation that Required Lender consent has been obtained, though the process is underway and no lender has indicated an intention to withhold consent.
Responsible Parties: Gregory S. Feinberg / Whitmore National Bank, N.A. (consent solicitation). Renshaw Pratt LLP (process management and documentation).
Action Item: Calderwood & Harkness LLP to follow up with Renshaw Pratt LLP (David C. Renshaw) regarding the status of the Required Lender consent solicitation and to request a timeline for confirmation. This is a critical path item that must be resolved prior to the September 14, 2023 signing date.
VII. UCC Filings and Lien Perfection
Perfection of the second-priority security interests under the Mezzanine Pledge and Security Agreement (and the first-priority security interest under the Parent Equity Pledge Agreement) is a condition precedent to the initial funding. The following actions are required.
A. Pre-Closing UCC Lien Searches
Description. Comprehensive UCC lien searches have been ordered from the following offices for each of the following entities:
The purpose of the lien searches is to: (i) confirm the existence of UCC-1 financing statements filed by or on behalf of Whitmore National Bank, N.A. (as Collateral Agent under the Senior Credit Agreement) reflecting the first-priority security interests under the senior facility; (ii) confirm the absence of any competing, unexpected, or unauthorized liens or security interests filed against any of the entities; and (iii) provide a baseline for the UCC/Lien Perfection opinion.
Status: Pending. The lien search orders have been submitted. Results are expected by September 12, 2023. Upon receipt of the search results, Lisa Morrow will prepare a UCC Lien Search Summary Memorandum for review by the deal team.
Responsible Party: Lisa Morrow, Calderwood & Harkness LLP.
B. UCC-1 Financing Statement — Delaware (Mezzanine)
Description. A UCC-1 financing statement to be filed with the Delaware Secretary of State, naming Ridgeline Mezzanine Capital Fund III, LP as the secured party and naming each of the following as debtors: Stonefield Logistics Group Inc., Stonefield Freight Brokerage, Inc., and Cascade Ridge SLG Holdings, LLC (each being a Delaware-organized entity whose UCC filing office is the Delaware Secretary of State). The financing statement will cover the second-priority security interest in substantially all assets of each debtor, as described in the Mezzanine Pledge and Security Agreement.
Status: Open. The UCC-1 financing statement form has not yet been prepared. The filing is to occur at or immediately prior to the Closing Date, September 29, 2023.
Responsible Party: Lisa Morrow, Calderwood & Harkness LLP (preparation, review, and filing). Filing to be coordinated with a registered agent or filing service in Delaware.
C. UCC-1 Financing Statement — Texas (Mezzanine)