1012-00001 · Client 1012 · Memoranda

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MEMORANDUM

PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT

TO: Stephanie Okafor, Responsible Partner, Banking & Finance Philip Hartmann, Billing Partner, Banking & Finance

FROM: Daniel Obi, Lead Associate, Banking & Finance Lisa Morrow, Working Associate, Banking & Finance

DATE: July 18, 2023

RE: Stonefield Logistics Group Inc. — $120,000,000 Mezzanine Financing from Ridgeline Mezzanine Capital Fund III, LP — Summary of Executed Term Sheet

MATTER NO.: 1012-00001

BILLING CODE: 231892.SLG

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I. Purpose and Background

The purpose of this memorandum is to summarize the key commercial and legal terms of the executed term sheet dated July 17, 2023 (the "Term Sheet"), for a proposed $120,000,000 mezzanine financing of Stonefield Logistics Group Inc. ("Stonefield" or "SLG") by Ridgeline Mezzanine Capital Fund III, LP ("Ridgeline" or "RMCF III"). This memorandum is prepared for internal reference by the deal team and is intended to serve as a basis for the upcoming client discussion with Stonefield's management.

The Term Sheet was initially received from Ridgeline on July 10, 2023, in the form of a binding commitment letter with an appended term sheet setting forth the principal terms of the proposed mezzanine facility. Following internal review by our team and a mark-up session with the client and the financial advisor, Zynvaro Thornton Advisory Group, LLC, a revised term sheet was returned to Ridgeline's counsel, Archer Blackwell & Moss LLP, on July 13, 2023. Negotiations proceeded over the course of the following week and culminated in the execution of the final Term Sheet by all parties on July 17, 2023.

This engagement was opened on June 26, 2023, at the request of Robert D. Nagamine, General Counsel of Stonefield. An engagement letter was negotiated and executed on June 28, 2023. Stephanie Okafor serves as the Responsible Partner, and Philip Hartmann serves as the Billing Partner.

This memorandum is intended to serve two primary functions. First, it provides a comprehensive summary of the material commercial and legal terms reflected in the executed Term Sheet for use by the deal team. Second, it is designed to frame the key issues that will arise during the definitive documentation phase and to highlight areas requiring further negotiation, client instruction, or coordination with other advisors, including tax counsel. We anticipate updating this memorandum following the initial client discussion and as the documentation process progresses.

All capitalized terms not otherwise defined herein have the meanings given to them in the Term Sheet.

II. Transaction Overview

The following is a summary of the principal parties, the transaction type, and the key structural terms reflected in the executed Term Sheet.

Borrower. Stonefield Logistics Group Inc. ("Stonefield" or "SLG") is a Delaware corporation headquartered at 4800 Commerce Parkway, Suite 1200, Fort Worth, Texas 76107. Stonefield is a national provider of less-than-truckload ("LTL") and intermodal freight services, operating across the transportation and logistics sector. Marcus W. Ellison serves as Chief Executive Officer, Janet R. Prescott serves as Chief Financial Officer, and Robert D. Nagamine serves as General Counsel and Corporate Secretary. Stonefield operates through several wholly-owned subsidiaries, as further described in Section VIII below.

Equity Sponsor. Stonefield is controlled by Cascade Ridge Capital Partners, LLC ("Cascade Ridge"), a Delaware limited liability company. Vincent A. Palumbo is the Managing Partner of Cascade Ridge. Cascade Ridge holds approximately 78.4% of the outstanding equity interests in Stonefield through an intermediate holding company, Cascade Ridge SLG Holdings, LLC, a Delaware limited liability company ("Holdings"). The remaining equity is held by members of Stonefield's management team pursuant to equity incentive arrangements that were put in place in connection with the acquisition described below.

Acquisition History. Cascade Ridge acquired Stonefield in November 2019 for an aggregate total enterprise value of approximately $520,000,000. The acquisition was effected through Cascade Ridge Capital Fund V, LP, which is managed by Cascade Ridge Capital Partners, LLC. The acquisition was financed with a combination of equity contributed by Cascade Ridge Capital Fund V, LP, a first lien senior secured term loan, and a revolving credit facility, as further described in Section III below.

Mezzanine Lender. Ridgeline Mezzanine Capital Fund III, LP ("Ridgeline" or "RMCF III") is a Delaware limited partnership focused on junior and subordinated credit investments. The general partner of RMCF III is Ridgeline Capital Management, LLC, with principal offices located at 767 Lexington Avenue, 22nd Floor, New York, NY 10065. Katherine M. Stroud, Managing Director, is the deal lead for Ridgeline. Ridgeline Capital Management, LLC manages approximately $3.8 billion in assets under management across its various credit strategies, including mezzanine lending, direct lending, and structured credit vehicles.

Transaction Type. The proposed transaction is a mezzanine term loan with detachable warrants. Ridgeline will be the sole lender under the mezzanine facility, and no syndication is contemplated under the Term Sheet.

Commitment Amount. The aggregate commitment amount is $120,000,000, to be advanced in a single drawing at closing.

Purpose of Proceeds. The proceeds of the mezzanine facility will be used to fund a capital expenditure program undertaken by Stonefield, consisting of (i) fleet expansion, including the acquisition of additional tractors, trailers, and specialized intermodal chassis, (ii) terminal facility buildout, including the construction and expansion of freight terminals and cross-dock facilities in key markets, and (iii) technology upgrades, including investments in fleet management systems, route optimization software, and customer-facing logistics platforms. The capital expenditure program is expected to be deployed over approximately twenty-four months following closing.

Governing Law. The Term Sheet is governed by, and the definitive documentation will be governed by, the laws of the State of New York, without regard to conflict of laws principles.

Maturity. The mezzanine facility will mature six years from the closing date. Based on the anticipated closing date of September 29, 2023, the maturity date will be September 29, 2029. No amortization of principal is contemplated; the entire outstanding principal balance (including any capitalized PIK interest) will be due and payable in a single bullet payment at maturity.

III. Stonefield Financial Overview

The following is a summary of Stonefield's key financial metrics and existing debt obligations, based on information provided by Stonefield and its advisors.

Revenue. For the fiscal year ended December 31, 2022 ("FY2022"), Stonefield reported consolidated revenue of $687,000,000, as reflected in the audited financial statements prepared by Braddock & Saylor LLP, Stonefield's independent auditors.

Adjusted EBITDA. For FY2022, Stonefield reported Adjusted EBITDA of $98,400,000. On a last-twelve-months basis as of June 30, 2023 ("LTM Adjusted EBITDA"), Stonefield reported Adjusted EBITDA of $108,600,000, as set forth in the most recent compliance certificate delivered to the senior administrative agent. The improvement in Adjusted EBITDA reflects strong organic growth in Stonefield's LTL and intermodal segments, as well as the benefit of certain cost rationalization initiatives undertaken by management during the first half of 2023. We note that the definition of "Adjusted EBITDA" utilized in the compliance certificate includes certain add-backs for non-recurring items, restructuring charges, and sponsor management fees that will need to be reviewed and confirmed for purposes of the mezzanine covenant calculations in the definitive documentation.

Existing Senior Secured Debt. Stonefield's existing senior secured indebtedness consists of the following:

Senior Secured Term Loan B. Stonefield is the borrower under a $275,000,000 Term Loan B (the "Senior Term Loan" or "TLB"), outstanding under the Amended and Restated Credit Agreement dated April 7, 2022 (which amended and restated the original Credit Agreement dated November 15, 2019) (as amended, restated, amended and restated, supplemented, or otherwise modified from time to time, the "Senior Credit Agreement"), among Stonefield, Whitmore National Bank, N.A. as Administrative Agent and Collateral Agent (the "Senior Agent"), and the lenders party thereto. The Senior Term Loan bears interest at a rate of SOFR plus 375 basis points and matures on November 15, 2026. The Senior Term Loan was originally incurred in connection with the Cascade Ridge acquisition in November 2019 and was amended and restated in April 2022 to, among other things, transition the benchmark rate from LIBOR to SOFR and make certain other modifications.

Senior Secured Revolving Credit Facility. Stonefield also has access to a $50,000,000 committed revolving credit facility (the "Revolver") under the Senior Credit Agreement, bearing interest at a rate of SOFR plus 350 basis points and maturing on November 15, 2025. Based on current projections, approximately $12,000,000 is expected to be drawn on the Revolver at the time of the mezzanine closing.

Senior Administrative Agent. Whitmore National Bank, N.A. serves as Administrative Agent and Collateral Agent under the Senior Credit Agreement. Whitmore's principal offices are located at 350 Park Avenue, New York, NY 10022. Gregory S. Feinberg, Managing Director, is the relationship manager for the Stonefield account.

Senior Syndicate Members. The senior lending syndicate under the Senior Credit Agreement comprises the following institutions:

• Whitmore National Bank, N.A. (lead arranger; approximately $90,000,000 hold position)

• Greystone Commercial Lending Corp. (approximately $75,000,000 hold position)

• Heritage Pacific Bank (approximately $60,000,000 hold position)

• Clearfield Capital Finance, LLC (approximately $50,000,000 hold position)

The Senior Credit Agreement contains covenants that restrict the incurrence of additional indebtedness by Stonefield and its subsidiaries, and the consummation of the proposed mezzanine facility will require the consent of the Senior Agent and the requisite lenders under the Senior Credit Agreement, as well as an amendment to certain provisions thereof (anticipated to be effected through "Amendment No. 3"), as discussed further in Section X below.

IV. Post-Closing Capital Structure

The following table sets forth the anticipated capital structure of Stonefield immediately following the closing and funding of the mezzanine facility, assuming a closing date of September 29, 2023:

Based on the foregoing, the key leverage metrics at closing are as follows:

Total Funded Debt at Closing: $407,000,000 (consisting of $275,000,000 under the Senior Term Loan, $12,000,000 drawn under the Revolver, and $120,000,000 under the mezzanine facility).

Total Leverage Ratio: $407,000,000 ÷ $108,600,000 (LTM Adjusted EBITDA) = approximately 3.75x.

Senior Leverage Ratio: $287,000,000 ($275,000,000 + $12,000,000) ÷ $108,600,000 = approximately 2.64x.

Incremental Mezzanine Leverage: $120,000,000 ÷ $108,600,000 = approximately 1.10x.

We note that the total leverage ratio of 3.75x at closing provides 0.50x of headroom under the initial maximum total leverage ratio covenant of 4.25x set forth in the Term Sheet (as discussed in Section IX below). As the step-downs in the leverage covenant take effect, the cushion will narrow, and it will be important to model the expected trajectory of Adjusted EBITDA against the covenant levels, particularly in light of the compounding effect of the PIK interest component on the outstanding principal balance of the mezzanine facility.

V. Interest Rate and Payment Terms

All-In Interest Rate. The mezzanine facility bears an all-in interest rate of 1100 basis points (11.00%) per annum, composed of two components:

Cash Pay Interest: 850 basis points (8.50%) per annum, payable quarterly in arrears on the last business day of each calendar quarter.

PIK Interest: 250 basis points (2.50%) per annum, compounding quarterly and added to the outstanding principal balance on each quarterly interest payment date. PIK interest is not payable in cash during the term of the facility but instead accretes and is payable at maturity (or upon earlier prepayment).

Day Count Convention. Interest on the mezzanine facility will be calculated on an Actual/360 day count basis.

Default Rate. Upon the occurrence and during the continuance of an Event of Default, interest on the outstanding principal balance will accrue at an additional 200 basis points above the otherwise applicable rate (i.e., a total all-in rate of 1300 basis points, or 13.00% per annum, consisting of 1050 basis points cash pay and 250 basis points PIK, or such other allocation as may be specified in the definitive documentation).

First Interest Payment Date. Assuming a closing date of September 29, 2023, the first quarterly interest payment date will be December 29, 2023.

Note Regarding PIK Accretion. The PIK component of the interest rate will cause the outstanding principal balance of the mezzanine facility to increase over time. The quarterly compounding of 250 basis points of PIK interest, applied on an Actual/360 basis, will result in a progressively larger principal balance upon which both cash and PIK interest are calculated. We will need to model the accreted balance trajectory over the six-year term in order to assess the impact on covenant compliance, particularly the total leverage ratio, and to determine the ultimate payoff amount at maturity. Based on a preliminary estimate, the accreted principal balance at maturity (assuming no prepayment) would be approximately $139,500,000 to $140,500,000, although the precise figure will depend on the actual day counts in each quarterly period.

VI. Warrant Terms

In addition to the debt component, the mezzanine facility includes an equity participation component in the form of detachable warrants to be issued to Ridgeline at closing.

Warrant Coverage. 3.0% of the fully-diluted equity of Stonefield on a post-exercise basis. The number of shares issuable upon exercise of the warrants will be calculated based on the fully-diluted share count of Stonefield as of the closing date, taking into account all outstanding equity incentive awards, options, and other convertible securities.

Exercise Price. $0.01 per share (nominal exercise price). The nominal exercise price effectively provides Ridgeline with an equity stake in Stonefield at minimal additional cost and is a customary feature of mezzanine warrant arrangements.

Type. The warrants will be detachable from the mezzanine loan and will be immediately exercisable upon issuance at closing. As detachable warrants, they will be evidenced by a separate warrant certificate or warrant agreement and will be treated as a separate instrument from the mezzanine credit agreement for both legal and accounting purposes.

Anti-Dilution Protection. The warrants will include weighted-average broad-based anti-dilution protection. This form of anti-dilution adjustment is standard for instruments of this type and provides for an adjustment to the exercise price (and correspondingly to the number of shares issuable upon exercise) in the event of future equity issuances at a price below the then-applicable exercise price or implied valuation. The specific mechanics of the anti-dilution formula, including the treatment of excluded issuances (e.g., management equity incentive grants, issuances pursuant to existing equity plans), will need to be negotiated in the definitive warrant agreement.

Put Right. Ridgeline will have the right to put the warrants (or the underlying shares, if exercised) back to Stonefield (or its successor, as applicable) upon the earliest to occur of the following triggering events:

(a) a change of control of Stonefield (as defined in the mezzanine documentation);

(b) an initial public offering of the equity securities of Stonefield; or

(c) the seventh anniversary of the date of issuance (i.e., September 29, 2030, assuming a September 29, 2023 closing date).

Put Price. Upon exercise of the put right, the put price will be the fair market value of the underlying equity interest as determined by an independent appraiser mutually selected by the parties. If the parties are unable to agree on the selection of an appraiser within a specified period, the definitive documentation will likely include a mechanism for each party to select an appraiser, with those appraisers selecting a third, whose determination will be binding. The specific mechanics of the appraisal process will be addressed in the definitive warrant agreement.

Tax Flag — For Sylvia Hartwell (Tax Department). The issuance of warrants with a nominal exercise price of $0.01 per share in connection with the mezzanine facility raises significant original issue discount ("OID") allocation issues. Under applicable Treasury Regulations, the aggregate issue price of the mezzanine facility will need to be allocated between the debt instrument and the warrants based on their relative fair market values at the time of issuance. This allocation will affect (i) the amount of OID on the debt instrument, (ii) the timing and deductibility of interest expense (including both cash pay and PIK components), and (iii) the characterization of the warrants for federal income tax purposes. We recommend that Sylvia Hartwell be engaged promptly to prepare a tax structuring memorandum addressing these issues, including an analysis of the applicable OID rules under Sections 1271 through 1275 of the Internal Revenue Code, the implications for Stonefield's interest deduction under Section 163(j), and any potential Section 305 issues relating to the PIK component. Coordination with Caldwell Baines & Associates, PC (Patricia V. Baines), the sponsor's tax counsel, will also be necessary to address any tax implications at the Cascade Ridge fund level.

VII. Fee Structure and Transaction Costs

The following fees and transaction costs are payable in connection with the proposed mezzanine financing:

Commitment Fee (Ridgeline). A commitment fee equal to 2.00% of the committed amount is payable to Ridgeline at closing. Based on a committed amount of $120,000,000, the commitment fee totals $2,400,000. This fee is non-refundable and will be either netted from the loan proceeds at closing or paid by wire transfer on the closing date.

Financial Advisory Fee (Zynvaro Thornton Advisory Group, LLC). Stonefield has engaged Zynvaro Thornton Advisory Group, LLC ("Mercer Thornton") as its financial advisor in connection with the mezzanine financing. Andrew S. Thornton, Lead Managing Director, is the primary contact. The financial advisory fee is 0.75% of the committed amount, totaling $900,000, payable at closing. The terms of Mercer Thornton's engagement are set forth in a separate engagement letter between Stonefield and Mercer Thornton.

Borrower's Counsel Fees (Calderwood & Harkness LLP). Our legal fees are subject to a fee cap of $675,000 plus disbursements, as set forth in the engagement letter dated June 28, 2023. The fee cap covers all legal services rendered in connection with the mezzanine financing, including the negotiation and preparation of definitive documentation, the intercreditor agreement, Amendment No. 3 to the Senior Credit Agreement, and related ancillary documents and closing deliverables.

Lender's Counsel Expense Reimbursement (Archer Blackwell & Moss LLP). Pursuant to the Term Sheet, Stonefield has agreed to reimburse Ridgeline for the legal fees and expenses of its counsel, Archer Blackwell & Moss LLP, capped at $450,000 plus disbursements. Harrison T. Moss is the Lead Partner, and Angela N. Whitford is the Lead Associate for the Ridgeline representation. This reimbursement obligation is customary in mezzanine transactions and will be payable at closing.

Senior Agent Consent/Amendment Fee (Whitmore National Bank, N.A.). In connection with the senior agent consent and Amendment No. 3 to the Senior Credit Agreement, Whitmore National Bank, N.A. has indicated that it will require an amendment fee. Based on preliminary discussions with Gregory Feinberg, the anticipated amendment fee is $137,500, calculated as 0.05% of the $275,000,000 senior facility commitment. This fee is subject to confirmation during the consent solicitation process.

Total Estimated Transaction Costs. The total estimated transaction costs, based on the items set forth above, are as follows:

The foregoing total does not include disbursements for either counsel, filing fees, UCC search fees, title insurance premiums (if applicable), or other miscellaneous closing costs, which are expected to be relatively modest in aggregate. The method of payment — whether certain costs will be netted from the mezzanine loan proceeds at closing or funded separately by Stonefield from available cash or revolver draws — will need to be determined and documented in a closing funds flow memorandum to be prepared prior to the closing date.

VIII. Guarantors and Collateral

A. Guarantors. The mezzanine facility will be guaranteed by the following entities:

Cascade Ridge SLG Holdings, LLC. Cascade Ridge SLG Holdings, LLC ("Holdings"), the direct parent and intermediate holding company of Stonefield, will serve as a mezzanine guarantor. Holdings is a Delaware limited liability company through which Cascade Ridge holds its 78.4% equity interest in Stonefield. Notably, Holdings does not guarantee obligations under the senior facility; its guaranty will run exclusively in favor of the mezzanine lender. The scope and enforceability of the Holdings guaranty will need to be reviewed in light of the intercreditor arrangements described in Section X below.

Stonefield Intermodal Services, Inc. Stonefield Intermodal Services, Inc. is a wholly-owned subsidiary of Stonefield, organized under the laws of the State of Texas. This subsidiary operates Stonefield's intermodal freight services business. It is a guarantor under both the existing senior facility and the proposed mezzanine facility.

Stonefield Fleet Management, LLC. Stonefield Fleet Management, LLC is a wholly-owned subsidiary of Stonefield, organized under the laws of the State of Texas. This subsidiary manages the company's fleet of tractors, trailers, and related transportation equipment. It is a guarantor under both the existing senior facility and the proposed mezzanine facility.

Stonefield Freight Brokerage, Inc. Stonefield Freight Brokerage, Inc. is a wholly-owned subsidiary of Stonefield, organized under the laws of the State of Delaware. This subsidiary conducts the company's freight brokerage operations. It is a guarantor under both the existing senior facility and the proposed mezzanine facility.

We will need to confirm the complete subsidiary organizational chart with Stonefield's management and counsel and determine whether any additional subsidiaries should be required to provide guarantees, consistent with the guaranty coverage requirements expected in the definitive mezzanine credit agreement.

B. Mezzanine Collateral

The mezzanine facility will be secured by the following collateral:

Second-Priority Security Interest in Borrower and Subsidiary Assets. Ridgeline will receive a second-priority security interest in substantially all assets of Stonefield and the subsidiary guarantors, including, without limitation, equipment, vehicles, rolling stock, accounts receivable, inventory, intellectual property, general intangibles, deposit accounts, securities accounts, and equity interests in subsidiaries. This collateral package is shared with the senior facility, but the mezzanine security interest will be junior and subordinate in all respects to the first-priority security interest held by the Senior Agent on behalf of the senior lenders. The relative rights and priorities of the senior and mezzanine lenders with respect to the shared collateral will be governed by the intercreditor agreement described in Section X below.

First-Priority Parent Equity Pledge. In addition to the second-priority lien on shared collateral, Ridgeline will receive a first-priority pledge of 100% of the equity interests in Stonefield Logistics Group Inc. held by Cascade Ridge SLG Holdings, LLC. This parent equity pledge is not shared with the senior facility and will rank first in priority exclusively for the benefit of the mezzanine lender. This structural feature is significant because it provides Ridgeline with the ability, in an enforcement scenario, to foreclose on the equity interests in Stonefield at the holding company level — effectively stepping into the position of the equity owner — independently of the senior lender's remedies against the operating assets. The enforceability and scope of this first-priority equity pledge will be a critical element of the intercreditor negotiations, as the Senior Agent can be expected to seek limitations on the mezzanine lender's ability to exercise remedies against the parent equity during any standstill period.

UCC Filings. UCC-1 financing statements will be filed to perfect the second-priority security interests as follows: (i) with the Delaware Secretary of State for all entities organized in the State of Delaware (Stonefield, Holdings, and Stonefield Freight Brokerage, Inc.), and (ii) with the Texas Secretary of State for all entities organized in the State of Texas (Stonefield Intermodal Services, Inc. and Stonefield Fleet Management, LLC). Pre-closing UCC lien searches in both jurisdictions are among the immediate action items identified in Section XIV below.

C. Senior Facility Collateral (For Reference)

For reference and for purposes of comparison with the mezzanine collateral package, the existing senior facility is secured by a first-priority perfected security interest in substantially all assets of Stonefield and the subsidiary guarantors (other than Holdings), including all equipment, vehicles, rolling stock, accounts receivable, inventory, intellectual property, general intangibles, deposit accounts, securities accounts, and equity interests in subsidiaries. The senior facility collateral does not include a pledge of the equity interests in Stonefield held by Holdings.

IX. Financial Covenants

The Term Sheet sets forth the following financial covenants applicable to the mezzanine facility, each of which will be tested quarterly based on the most recently completed fiscal quarter:

Maximum Total Leverage Ratio. The maximum total leverage ratio (defined as total funded indebtedness divided by consolidated Adjusted EBITDA for the trailing four fiscal quarters) shall not exceed the following levels:

• Through and including Q2 2024: 4.25x

• Q3 2024 through Q2 2025: 4.00x

• Q3 2025 and thereafter: 3.75x

Minimum Fixed Charge Coverage Ratio. The minimum fixed charge coverage ratio (defined as the ratio of consolidated EBITDA less taxes paid, unfinanced capital expenditures, and certain other charges, to consolidated fixed charges, including scheduled debt service, cash interest, and capital lease obligations) shall not be less than 1.10x, tested quarterly. The precise definition of "fixed charges" will need to be carefully negotiated in the definitive documentation.

Minimum Liquidity. At all times, Stonefield shall maintain minimum liquidity (defined as unrestricted cash and cash equivalents on hand plus available and undrawn commitments under the revolving credit facility) of not less than $15,000,000.

Maximum Capital Expenditures. Stonefield shall not make or commit to make capital expenditures in excess of $85,000,000 in any fiscal year. The Term Sheet provides that up to 25% of any unused capital expenditure capacity in a given fiscal year may be carried forward to the immediately subsequent fiscal year. No further carry-forward is permitted (i.e., unused carryforward amounts that are not utilized in the subsequent fiscal year are forfeited).

Covenant Headroom Analysis. As noted in Section IV above, the total leverage ratio at closing of 3.75x provides 0.50x of headroom under the initial maximum total leverage ratio covenant of 4.25x. However, this cushion will narrow as the step-downs take effect. By Q3 2025, the maximum total leverage ratio will have declined to 3.75x — equal to the opening leverage ratio. Given the compounding effect of PIK interest on the outstanding mezzanine principal balance, the total funded indebtedness will increase over time even absent any additional borrowings or draws on the Revolver. Accordingly, Stonefield's ability to maintain compliance with the leverage covenant will depend on its ability to grow Adjusted EBITDA at a rate sufficient to offset the accretion of PIK interest and the narrowing covenant headroom. We recommend that the financial model be updated to reflect the PIK accretion and to stress-test covenant compliance under base case, upside, and downside scenarios.

Flag. A comprehensive covenant comparison between the mezzanine facility covenants and the corresponding covenants in the Senior Credit Agreement will be prepared separately as a standalone deliverable. Our initial review of the Senior Credit Agreement suggests that the mezzanine financial covenants, as reflected in the Term Sheet, will be somewhat more restrictive than the corresponding senior facility covenants in certain respects, particularly with respect to the leverage step-down schedule and the capital expenditure limitation. This analysis is necessary to identify any potential for cross-default risk and to ensure that the covenant framework across both facilities is coherent and manageable for the borrower.

X. Intercreditor Framework

The relationship between the senior lenders and the mezzanine lender with respect to lien priority, enforcement rights, and payment waterfall mechanics will be governed by an intercreditor agreement to be negotiated and entered into as a condition precedent to closing.

Parties. The intercreditor agreement (the "Intercreditor Agreement") will be entered into among Whitmore National Bank, N.A., in its capacity as Senior Agent and Collateral Agent under the Senior Credit Agreement, Ridgeline, in its capacity as the mezzanine lender, and acknowledged and agreed to by Stonefield and the subsidiary guarantors.

Lien Subordination. All liens and security interests held by the mezzanine lender on the shared collateral (i.e., all collateral other than the first-priority parent equity pledge described in Section VIII(B) above) will be subordinate and junior in priority to the first-priority liens and security interests held by the Senior Agent on behalf of the senior lenders. The Senior Agent, as Collateral Agent, will have sole and exclusive control over the disposition and enforcement of the shared collateral during any standstill period, including the right to direct the sale, collection, or other realization upon the shared collateral in its discretion, subject to the terms of the Intercreditor Agreement.

Enforcement Standstill. The Term Sheet provides for a 180-day enforcement standstill period. During this period, following the delivery of a standstill notice by the mezzanine lender to the Senior Agent, the mezzanine lender may not exercise any enforcement remedies against the shared collateral, including the commencement of foreclosure proceedings, the exercise of UCC remedies, or the filing of involuntary bankruptcy petitions. The standstill period is measured from the date of delivery of the mezzanine lender's notice of intent to exercise remedies to the Senior Agent. Upon expiration of the 180-day standstill period, the mezzanine lender may exercise remedies against the shared collateral, subject to any limitations imposed by the Intercreditor Agreement. The standstill does not, however, apply to the mezzanine lender's first-priority equity pledge of the parent entity interests, which is exclusive mezzanine collateral — although this point will need to be confirmed and documented explicitly in the Intercreditor Agreement.

Payment blockage. The Intercreditor Agreement will include a payment blockage mechanism. Upon the occurrence of a Senior Event of Default (as defined in the Senior Credit Agreement), the Senior Agent may deliver a Payment blockage Notice to the mezzanine lender, which will block the payment of cash interest on the mezzanine facility for up to 180 consecutive days. During a payment blockage period, no cash payments may be made by Stonefield to the mezzanine lender on account of interest or principal, although PIK interest will continue to accrue and compound. The Term Sheet provides that no more than one payment blockage period may be in effect during any 360-day period, which is a customary limitation designed to prevent the Senior Agent from imposing successive or overlapping blockage periods.

Purchase Option. The Intercreditor Agreement will grant Ridgeline the right to purchase the entire outstanding senior debt at par plus accrued and unpaid interest upon the acceleration of the senior facility. This purchase option is a significant structural protection for the mezzanine lender, as it provides Ridgeline with the ability to step into the position of the senior lenders and thereby gain control of the first-priority collateral and the enforcement process. The purchase option is typically exercisable for a limited period following the date of acceleration and is subject to customary conditions, including the assumption of all obligations of the senior lenders.

Anticipated Negotiation Issues. The intercreditor terms set forth in the Term Sheet represent the framework negotiated between Stonefield and Ridgeline, but the Intercreditor Agreement itself must be negotiated with the Senior Agent and its counsel, Renshaw Pratt LLP (David C. Renshaw, Lead Partner). Based on our experience in similar transactions, we anticipate that the Senior Agent will push for several modifications to the intercreditor framework, including but not limited to: (i) an extension of the enforcement standstill period beyond 180 days (Senior Agents commonly seek standstill periods of 270 days or longer); (ii) broader payment blockage rights, including the ability to block principal as well as interest payments and to impose multiple blockage periods in certain circumstances; (iii) restrictions on the mezzanine lender's exercise of remedies against the first-priority parent equity pledge during the standstill period; and (iv) limitations on the mezzanine lender's ability to exercise its purchase option, including notice requirements, timing restrictions, and conditions to exercise. The borrower's interest is generally aligned with limiting the scope and duration of the blockage and standstill mechanisms, as extended blockage periods could adversely affect Stonefield's relationship with the mezzanine lender and potentially trigger cross-default provisions. We will prepare a detailed intercreditor issues memorandum for discussion with the client.

The Senior Agent consent solicitation will be commenced in August 2023, as discussed in Section XIV below. The amendment fee of $137,500 payable to Whitmore in connection with the consent and Amendment No. 3 has been factored into the total estimated transaction costs set forth in Section VII above.

XI. Mandatory Prepayment and Change of Control

Change of Control Mandatory Prepayment. The Term Sheet provides that upon the occurrence of a "change of control" (as defined below), the mezzanine facility is subject to mandatory prepayment at a prepayment price equal to 103% of the outstanding principal balance (including all accrued and capitalized PIK interest) plus all accrued and unpaid cash interest to the date of prepayment. The 3% premium is intended to compensate Ridgeline for the loss of its investment upon a change of control event and is a customary feature of mezzanine facilities.

Definition of "Change of Control." The Term Sheet defines "change of control" to include three triggering events:

(a) Equity Acquisition Trigger: Any person or group (other than Cascade Ridge Capital Partners, LLC and its affiliates, including its managed funds and portfolio vehicles) acquiring, directly or indirectly, more than 50% of the outstanding voting equity interests of Stonefield;

(b) Subsidiary Ownership Trigger: Stonefield ceasing to be a direct wholly-owned subsidiary of Cascade Ridge SLG Holdings, LLC; or

(c) Asset Sale Trigger: The sale, transfer, lease, or other disposition of all or substantially all of the consolidated assets of Stonefield and its subsidiaries, whether in a single transaction or a series of related transactions.

Warrant Put Right. In addition to the mandatory prepayment of the mezzanine debt, a change of control event will trigger the immediate exercisability of the warrant put right described in Section VI above, entitling Ridgeline to put its warrants (or, if exercised, the underlying shares) at fair market value.

Harmonization with Senior Credit Agreement. The definition of "change of control" in the mezzanine documentation must be reviewed against and harmonized with the corresponding definition in the Senior Credit Agreement, as proposed to be amended by Amendment No. 3. Differences in the scope or triggers of the change of control definitions across the two facilities could create unintended consequences — for example, a transaction that triggers a change of control under the mezzanine facility but not under the senior facility (or vice versa) could result in an asymmetric mandatory prepayment obligation and potential cross-default issues. We will prepare a detailed comparison memorandum addressing the differences between the two definitions and recommending appropriate conforming language. In addition, we will need to confirm the interaction between the change of control provisions and any consent rights or approval mechanisms that may exist under the equity documents among Cascade Ridge, Holdings, Stonefield management, and the other equity holders.

XII. Other Key Terms to Be Negotiated in Definitive Documentation

The executed Term Sheet establishes the principal commercial terms of the mezzanine facility, but a substantial number of additional legal terms and conditions will need to be negotiated and documented in the definitive credit agreement, the warrant agreement, the intercreditor agreement, Amendment No. 3, and the various ancillary documents. The following is a summary of the key areas that will require attention during the definitive documentation phase:

Representations and Warranties. The definitive mezzanine credit agreement will contain customary representations and warranties to be made by the borrower and the guarantors. The scope of these representations — including representations as to organization, authority, enforceability, no conflicts, compliance with laws, financial statements, material adverse change, litigation, environmental matters, ERISA, taxes, insurance, properties, intellectual property, and solvency — will need to be negotiated to ensure that they are appropriately tailored to Stonefield's business and organizational structure. The Term Sheet does not specify whether certain representations will be subject to materiality or knowledge qualifiers, and these issues will be addressed in the definitive documentation negotiations. In addition, the parties will need to agree on the scope and conditions of the "bring-down" of representations at closing — specifically, whether representations must be true and correct in all respects, in all material respects, or only as to those representations that are qualified by a material adverse effect standard.

Affirmative Covenants. The definitive mezzanine credit agreement will include customary affirmative covenants, including obligations relating to financial reporting (delivery of annual audited and quarterly unaudited financial statements), delivery of compliance certificates, maintenance of insurance, maintenance of properties and assets, preservation of corporate existence and material agreements, compliance with environmental laws, payment of taxes, access to books and records, and notice of material events (including defaults, litigation, and material adverse changes). The timing, frequency, and content of financial reporting obligations will need to be aligned with the corresponding obligations under the Senior Credit Agreement to the extent practicable, to minimize the administrative burden on Stonefield.

Negative and Restrictive Covenants. The definitive mezzanine credit agreement will contain negative covenants restricting the borrower and the guarantors from taking certain actions without the consent of the mezzanine lender. Key negative covenants will address restricted payments (dividends, distributions, and redemptions), additional indebtedness, asset dispositions, investments, affiliate transactions, liens, fundamental changes (mergers, consolidations, and dissolutions), and sale-leaseback transactions. The negotiation of these covenants — and in particular, the size and scope of the permitted baskets, exceptions, and carve-outs — will be a critical element of the definitive documentation process. It is essential that the mezzanine restrictive covenant framework be workable alongside the restrictions contained in the Senior Credit Agreement, and we will need to carefully map the senior facility baskets against the proposed mezzanine facility baskets to identify any potential conflicts or gaps.

Events of Default. The definitive mezzanine credit agreement will contain customary events of default, including payment defaults, representation defaults, covenant defaults, cross-default and cross-acceleration provisions (referencing the Senior Credit Agreement and any other material indebtedness), bankruptcy and insolvency events, judgment defaults, ERISA events, and change of control events. The cross-default and cross-acceleration provisions vis-à-vis the senior facility will require careful drafting, particularly in light of the intercreditor framework described in Section X above. The threshold amounts, cure periods, and notice requirements associated with each event of default will be subject to negotiation.

Conditions Precedent to Funding. The closing and funding of the mezzanine facility will be subject to the satisfaction of customary conditions precedent, which are expected to include, without limitation: (i) execution and delivery of the mezzanine credit agreement, warrant agreement, intercreditor agreement, and all ancillary documents; (ii) delivery of legal opinions from borrower's counsel; (iii) delivery of officer's certificates and secretary's certificates; (iv) receipt of all necessary consents, including the Senior Agent consent and Amendment No. 3; (v) completion and filing of UCC-1 financing statements and confirmation of lien perfection; (vi) delivery of good standing certificates for all borrower and guarantor entities from their respective jurisdictions of organization; (vii) delivery of a solvency certificate from the CFO of Stonefield; (viii) evidence of insurance; (ix) absence of any material adverse change; and (x) payment of all fees and expenses.

Registration Rights Agreement. The Term Sheet contemplates that the parties will enter into a registration rights agreement in connection with the warrant issuance, providing Ridgeline with certain registration rights with respect to the shares of Stonefield common stock issuable upon exercise of the warrants. Although Stonefield is currently a private company and does not have any publicly registered securities, the registration rights agreement would become operative in the event of an initial public offering. The scope of the registration rights (demand registration, piggyback registration, shelf registration), the number of demand registrations, the lock-up provisions, and the allocation of registration expenses will be negotiated in the definitive documentation.

XIII. Key Advisors

The following table summarizes the key advisors and contacts engaged in connection with the mezzanine financing:

XIV. Anticipated Timeline and Next Steps

The following is the anticipated timeline for the definitive documentation phase and closing, together with a list of immediate action items for the deal team.

Anticipated Timeline.

We note that the timeline is aggressive, particularly given the need to negotiate the Intercreditor Agreement with the Senior Agent and its counsel, Renshaw Pratt LLP, and to obtain the requisite lender consent under the Senior Credit Agreement for Amendment No. 3. Any delays in the consent solicitation process or in the intercreditor negotiations could push the closing beyond the target date of September 29, 2023. We will monitor the timeline closely and keep the client informed of any potential delays.

Immediate Action Items

1. Client Call. Schedule a call with Stonefield management, including Robert D. Nagamine (General Counsel) and Janet R. Prescott (CFO), to review this term sheet summary and confirm the borrower's negotiating positions with respect to the key issues identified herein, including the intercreditor framework, the financial covenant step-down schedule, the capital expenditure basket, and the change of control definition.

2. Tax Structuring Memorandum. Engage Sylvia Hartwell (Tax Department) to prepare a tax structuring memorandum addressing the OID allocation issues arising from the warrant issuance, the deductibility of PIK interest, the treatment of the warrants for federal income tax purposes, and the interaction with the Section 163(j) limitation on interest deductions.

3. Sponsor Tax Coordination. Coordinate with Caldwell Baines & Associates, PC (Patricia V. Baines, Lead Partner) on sponsor-level tax considerations, including the treatment of the mezzanine financing at the Cascade Ridge Capital Fund V, LP level and any implications for the fund's investors.

4. Senior Agent Amendment Request. Begin preparation of the amendment request to Whitmore National Bank, N.A. and Renshaw Pratt LLP for the Senior Agent consent and Amendment No. 3 to the Senior Credit Agreement. The amendment request should include a description of the proposed mezzanine facility, the requested amendments to the Senior Credit Agreement (including the permitted indebtedness basket, the permitted liens basket, and any other provisions that require modification to accommodate the mezzanine facility), and a summary of the proposed intercreditor framework.

5. UCC Lien Searches. Commission pre-closing UCC lien searches in the States of Delaware and Texas against Stonefield, each subsidiary guarantor, and Cascade Ridge SLG Holdings, LLC to confirm the status of existing liens and to identify any potential title or perfection issues prior to the filing of UCC-1 financing statements in connection with the mezzanine facility.

6. Intercreditor Issues Memorandum. Prepare a detailed intercreditor issues memorandum for discussion with the client, identifying the key negotiation points expected to arise in the Intercreditor Agreement, the borrower's recommended positions on each issue, and any areas of potential conflict with the Senior Agent.

XV. Conclusion and Recommendation

Based on our review of the executed Term Sheet, the proposed $120,000,000 mezzanine financing from Ridgeline Mezzanine Capital Fund III, LP reflects commercial and legal terms that are broadly consistent with market-standard mezzanine transactions for a sponsor-backed logistics company of Stonefield's size and credit profile. The all-in interest rate of 1100 basis points (850 cash / 250 PIK), the 3.0% warrant coverage, the 2.00% commitment fee, and the intercreditor framework are all within the range of terms we have observed in comparable recent transactions in the middle-market mezzanine space.

That said, there are several areas in which we believe the borrower should seek more favorable terms during the definitive documentation phase. In particular, we recommend focusing negotiation efforts on the following key areas:

(i) Intercreditor Standstill Duration and Payment blockage Mechanics. The 180-day enforcement standstill and 180-day payment blockage periods are at the longer end of the market range from the mezzanine lender's perspective but are likely to be contested by the Senior Agent. The borrower should seek to preserve the current standstill duration while resisting any expansion of the payment blockage provisions.

(ii) Financial Covenant Step-Down Schedule and Capital Expenditure Basket Flexibility. The step-down of the maximum total leverage ratio from 4.25x to 3.75x over two years is relatively aggressive, particularly given the PIK accretion effect on the outstanding mezzanine balance. The borrower should seek to extend the step-down schedule or to include equity cure rights. In addition, the $85,000,000 annual capital expenditure cap should be reviewed in light of the planned capital expenditure program and may need to be increased or supplemented with additional basket flexibility.

(iii) Breadth of Restricted Payment and Investment Baskets. The definitive documentation will need to include sufficiently large and flexible baskets for restricted payments (including management fees, sponsor distributions, and management equity repurchases) and investments to ensure that Stonefield and Cascade Ridge retain adequate operational and financial flexibility.

(iv) Scope of Change of Control Triggers. The change of control definition should be carefully reviewed and aligned across the senior and mezzanine documents to avoid asymmetric triggering events. In particular, the subsidiary ownership trigger (clause (b)) should be reviewed to ensure that it does not inadvertently restrict routine corporate restructurings or reorganizations.

We recommend proceeding to the definitive documentation phase on the timeline outlined in Section XIV above. This memorandum will be updated following the initial client discussion with Stonefield management, and supplemental memoranda will be prepared as specific issues are identified and resolved during the documentation process.

This memorandum has been prepared by Daniel Obi and Lisa Morrow for the internal use of Calderwood & Harkness LLP in connection with Matter No. 1012-00001. It is subject to the attorney-client privilege and the work product doctrine. It is not intended to constitute legal advice to any party and should not be relied upon as such. Distribution of this memorandum outside the firm is not authorized without the express consent of the Responsible Partner.

Prepared by:

________________________________________

Daniel Obi Lead Associate, Banking & Finance Calderwood & Harkness LLP

________________________________________

Lisa Morrow Working Associate, Banking & Finance Calderwood & Harkness LLP

Tranche	Commitment / Outstanding	Interest Rate	Maturity	Lien Priority
Senior Secured Term Loan B	$275,000,000	SOFR + 375 bps	November 15, 2026	First Lien
Senior Secured Revolving Credit Facility	$50,000,000 committed ($12,000,000 drawn at closing)	SOFR + 350 bps	November 15, 2025	First Lien (pari passu with TLB)
Mezzanine Term Loan	$120,000,000	1100 bps (850 cash / 250 PIK)	September 29, 2029	Second Lien / Subordinated
Fee / Cost Item	Amount
Commitment Fee (Ridgeline)	$2,400,000
Financial Advisory Fee (Mercer Thornton)	$900,000
Borrower's Counsel Fees (Calderwood & Harkness)	$675,000 (cap)
Lender's Counsel Reimbursement (Archer Blackwell & Moss)	$450,000 (cap)
Senior Agent Amendment Fee (Whitmore)	$137,500
Total Estimated Transaction Costs	$4,562,500
Advisor	Role	Key Contacts
Calderwood & Harkness LLP	Borrower's Counsel	Stephanie Okafor, Responsible Partner; Philip Hartmann, Billing Partner; Daniel Obi, Lead Associate; Lisa Morrow, Working Associate; Sylvia Hartwell, Tax Partner
Archer Blackwell & Moss LLP	Mezzanine Lender's Counsel	Harrison T. Moss, Lead Partner; Angela N. Whitford, Lead Associate
Renshaw Pratt LLP	Senior Agent's Counsel	David C. Renshaw, Lead Partner
Caldwell Baines & Associates, PC	Sponsor's Tax Counsel	Patricia V. Baines, Lead Partner
Zynvaro Thornton Advisory Group, LLC	Financial Advisor to Borrower	Andrew S. Thornton, Lead Managing Director
Braddock & Saylor LLP	Independent Auditors of Stonefield	William F. Saylor, Engagement Partner
Target Date	Milestone
August 4, 2023	First draft mezzanine credit agreement to be circulated by Archer Blackwell & Moss LLP (lender's counsel)
Mid-August 2023	First draft intercreditor agreement to be circulated
August 2023	Senior Agent consent solicitation to commence with Whitmore National Bank, N.A.
Late August / Early September 2023	Negotiate and finalize definitive documents, including mezzanine credit agreement, warrant agreement, intercreditor agreement, Amendment No. 3, and ancillary documents
Mid-September 2023	Signing of mezzanine credit agreement, intercreditor agreement, Amendment No. 3, and all ancillary documents
Late September 2023 (target: September 29, 2023)	Closing and funding

MEMORANDUM
PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT
TO: Stephanie Okafor, Responsible Partner, Banking & Finance Philip Hartmann, Billing Partner, Banking & Finance
FROM: Daniel Obi, Lead Associate, Banking & Finance Lisa Morrow, Working Associate, Banking & Finance
DATE: July 18, 2023
RE: Stonefield Logistics Group Inc. — $120,000,000 Mezzanine Financing from Ridgeline Mezzanine Capital Fund III, LP — Summary of Executed Term Sheet
MATTER NO.: 1012-00001
BILLING CODE: 231892.SLG
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I. Purpose and Background
The purpose of this memorandum is to summarize the key commercial and legal terms of the executed term sheet dated July 17, 2023 (the "Term Sheet"), for a proposed $120,000,000 mezzanine financing of Stonefield Logistics Group Inc. ("Stonefield" or "SLG") by Ridgeline Mezzanine Capital Fund III, LP ("Ridgeline" or "RMCF III"). This memorandum is prepared for internal reference by the deal team and is intended to serve as a basis for the upcoming client discussion with Stonefield's management.
The Term Sheet was initially received from Ridgeline on July 10, 2023, in the form of a binding commitment letter with an appended term sheet setting forth the principal terms of the proposed mezzanine facility. Following internal review by our team and a mark-up session with the client and the financial advisor, Zynvaro Thornton Advisory Group, LLC, a revised term sheet was returned to Ridgeline's counsel, Archer Blackwell & Moss LLP, on July 13, 2023. Negotiations proceeded over the course of the following week and culminated in the execution of the final Term Sheet by all parties on July 17, 2023.
This engagement was opened on June 26, 2023, at the request of Robert D. Nagamine, General Counsel of Stonefield. An engagement letter was negotiated and executed on June 28, 2023. Stephanie Okafor serves as the Responsible Partner, and Philip Hartmann serves as the Billing Partner.
This memorandum is intended to serve two primary functions. First, it provides a comprehensive summary of the material commercial and legal terms reflected in the executed Term Sheet for use by the deal team. Second, it is designed to frame the key issues that will arise during the definitive documentation phase and to highlight areas requiring further negotiation, client instruction, or coordination with other advisors, including tax counsel. We anticipate updating this memorandum following the initial client discussion and as the documentation process progresses.
All capitalized terms not otherwise defined herein have the meanings given to them in the Term Sheet.
II. Transaction Overview
The following is a summary of the principal parties, the transaction type, and the key structural terms reflected in the executed Term Sheet.
Borrower. Stonefield Logistics Group Inc. ("Stonefield" or "SLG") is a Delaware corporation headquartered at 4800 Commerce Parkway, Suite 1200, Fort Worth, Texas 76107. Stonefield is a national provider of less-than-truckload ("LTL") and intermodal freight services, operating across the transportation and logistics sector. Marcus W. Ellison serves as Chief Executive Officer, Janet R. Prescott serves as Chief Financial Officer, and Robert D. Nagamine serves as General Counsel and Corporate Secretary. Stonefield operates through several wholly-owned subsidiaries, as further described in Section VIII below.
Equity Sponsor. Stonefield is controlled by Cascade Ridge Capital Partners, LLC ("Cascade Ridge"), a Delaware limited liability company. Vincent A. Palumbo is the Managing Partner of Cascade Ridge. Cascade Ridge holds approximately 78.4% of the outstanding equity interests in Stonefield through an intermediate holding company, Cascade Ridge SLG Holdings, LLC, a Delaware limited liability company ("Holdings"). The remaining equity is held by members of Stonefield's management team pursuant to equity incentive arrangements that were put in place in connection with the acquisition described below.
Acquisition History. Cascade Ridge acquired Stonefield in November 2019 for an aggregate total enterprise value of approximately $520,000,000. The acquisition was effected through Cascade Ridge Capital Fund V, LP, which is managed by Cascade Ridge Capital Partners, LLC. The acquisition was financed with a combination of equity contributed by Cascade Ridge Capital Fund V, LP, a first lien senior secured term loan, and a revolving credit facility, as further described in Section III below.
Mezzanine Lender. Ridgeline Mezzanine Capital Fund III, LP ("Ridgeline" or "RMCF III") is a Delaware limited partnership focused on junior and subordinated credit investments. The general partner of RMCF III is Ridgeline Capital Management, LLC, with principal offices located at 767 Lexington Avenue, 22nd Floor, New York, NY 10065. Katherine M. Stroud, Managing Director, is the deal lead for Ridgeline. Ridgeline Capital Management, LLC manages approximately $3.8 billion in assets under management across its various credit strategies, including mezzanine lending, direct lending, and structured credit vehicles.
Transaction Type. The proposed transaction is a mezzanine term loan with detachable warrants. Ridgeline will be the sole lender under the mezzanine facility, and no syndication is contemplated under the Term Sheet.
Commitment Amount. The aggregate commitment amount is $120,000,000, to be advanced in a single drawing at closing.
Purpose of Proceeds. The proceeds of the mezzanine facility will be used to fund a capital expenditure program undertaken by Stonefield, consisting of (i) fleet expansion, including the acquisition of additional tractors, trailers, and specialized intermodal chassis, (ii) terminal facility buildout, including the construction and expansion of freight terminals and cross-dock facilities in key markets, and (iii) technology upgrades, including investments in fleet management systems, route optimization software, and customer-facing logistics platforms. The capital expenditure program is expected to be deployed over approximately twenty-four months following closing.
Governing Law. The Term Sheet is governed by, and the definitive documentation will be governed by, the laws of the State of New York, without regard to conflict of laws principles.
Maturity. The mezzanine facility will mature six years from the closing date. Based on the anticipated closing date of September 29, 2023, the maturity date will be September 29, 2029. No amortization of principal is contemplated; the entire outstanding principal balance (including any capitalized PIK interest) will be due and payable in a single bullet payment at maturity.
III. Stonefield Financial Overview
The following is a summary of Stonefield's key financial metrics and existing debt obligations, based on information provided by Stonefield and its advisors.
Revenue. For the fiscal year ended December 31, 2022 ("FY2022"), Stonefield reported consolidated revenue of $687,000,000, as reflected in the audited financial statements prepared by Braddock & Saylor LLP, Stonefield's independent auditors.
Adjusted EBITDA. For FY2022, Stonefield reported Adjusted EBITDA of $98,400,000. On a last-twelve-months basis as of June 30, 2023 ("LTM Adjusted EBITDA"), Stonefield reported Adjusted EBITDA of $108,600,000, as set forth in the most recent compliance certificate delivered to the senior administrative agent. The improvement in Adjusted EBITDA reflects strong organic growth in Stonefield's LTL and intermodal segments, as well as the benefit of certain cost rationalization initiatives undertaken by management during the first half of 2023. We note that the definition of "Adjusted EBITDA" utilized in the compliance certificate includes certain add-backs for non-recurring items, restructuring charges, and sponsor management fees that will need to be reviewed and confirmed for purposes of the mezzanine covenant calculations in the definitive documentation.
Existing Senior Secured Debt. Stonefield's existing senior secured indebtedness consists of the following:
Senior Secured Term Loan B. Stonefield is the borrower under a $275,000,000 Term Loan B (the "Senior Term Loan" or "TLB"), outstanding under the Amended and Restated Credit Agreement dated April 7, 2022 (which amended and restated the original Credit Agreement dated November 15, 2019) (as amended, restated, amended and restated, supplemented, or otherwise modified from time to time, the "Senior Credit Agreement"), among Stonefield, Whitmore National Bank, N.A. as Administrative Agent and Collateral Agent (the "Senior Agent"), and the lenders party thereto. The Senior Term Loan bears interest at a rate of SOFR plus 375 basis points and matures on November 15, 2026. The Senior Term Loan was originally incurred in connection with the Cascade Ridge acquisition in November 2019 and was amended and restated in April 2022 to, among other things, transition the benchmark rate from LIBOR to SOFR and make certain other modifications.
Senior Secured Revolving Credit Facility. Stonefield also has access to a $50,000,000 committed revolving credit facility (the "Revolver") under the Senior Credit Agreement, bearing interest at a rate of SOFR plus 350 basis points and maturing on November 15, 2025. Based on current projections, approximately $12,000,000 is expected to be drawn on the Revolver at the time of the mezzanine closing.
Senior Administrative Agent. Whitmore National Bank, N.A. serves as Administrative Agent and Collateral Agent under the Senior Credit Agreement. Whitmore's principal offices are located at 350 Park Avenue, New York, NY 10022. Gregory S. Feinberg, Managing Director, is the relationship manager for the Stonefield account.
Senior Syndicate Members. The senior lending syndicate under the Senior Credit Agreement comprises the following institutions:
• Whitmore National Bank, N.A. (lead arranger; approximately $90,000,000 hold position)
• Greystone Commercial Lending Corp. (approximately $75,000,000 hold position)
• Heritage Pacific Bank (approximately $60,000,000 hold position)
• Clearfield Capital Finance, LLC (approximately $50,000,000 hold position)
The Senior Credit Agreement contains covenants that restrict the incurrence of additional indebtedness by Stonefield and its subsidiaries, and the consummation of the proposed mezzanine facility will require the consent of the Senior Agent and the requisite lenders under the Senior Credit Agreement, as well as an amendment to certain provisions thereof (anticipated to be effected through "Amendment No. 3"), as discussed further in Section X below.
IV. Post-Closing Capital Structure
The following table sets forth the anticipated capital structure of Stonefield immediately following the closing and funding of the mezzanine facility, assuming a closing date of September 29, 2023:
Based on the foregoing, the key leverage metrics at closing are as follows:
Total Funded Debt at Closing: $407,000,000 (consisting of $275,000,000 under the Senior Term Loan, $12,000,000 drawn under the Revolver, and $120,000,000 under the mezzanine facility).
Total Leverage Ratio: $407,000,000 ÷ $108,600,000 (LTM Adjusted EBITDA) = approximately 3.75x.
Senior Leverage Ratio: $287,000,000 ($275,000,000 + $12,000,000) ÷ $108,600,000 = approximately 2.64x.
Incremental Mezzanine Leverage: $120,000,000 ÷ $108,600,000 = approximately 1.10x.
We note that the total leverage ratio of 3.75x at closing provides 0.50x of headroom under the initial maximum total leverage ratio covenant of 4.25x set forth in the Term Sheet (as discussed in Section IX below). As the step-downs in the leverage covenant take effect, the cushion will narrow, and it will be important to model the expected trajectory of Adjusted EBITDA against the covenant levels, particularly in light of the compounding effect of the PIK interest component on the outstanding principal balance of the mezzanine facility.
V. Interest Rate and Payment Terms
All-In Interest Rate. The mezzanine facility bears an all-in interest rate of 1100 basis points (11.00%) per annum, composed of two components:
Cash Pay Interest: 850 basis points (8.50%) per annum, payable quarterly in arrears on the last business day of each calendar quarter.
PIK Interest: 250 basis points (2.50%) per annum, compounding quarterly and added to the outstanding principal balance on each quarterly interest payment date. PIK interest is not payable in cash during the term of the facility but instead accretes and is payable at maturity (or upon earlier prepayment).
Day Count Convention. Interest on the mezzanine facility will be calculated on an Actual/360 day count basis.
Default Rate. Upon the occurrence and during the continuance of an Event of Default, interest on the outstanding principal balance will accrue at an additional 200 basis points above the otherwise applicable rate (i.e., a total all-in rate of 1300 basis points, or 13.00% per annum, consisting of 1050 basis points cash pay and 250 basis points PIK, or such other allocation as may be specified in the definitive documentation).
First Interest Payment Date. Assuming a closing date of September 29, 2023, the first quarterly interest payment date will be December 29, 2023.
Note Regarding PIK Accretion. The PIK component of the interest rate will cause the outstanding principal balance of the mezzanine facility to increase over time. The quarterly compounding of 250 basis points of PIK interest, applied on an Actual/360 basis, will result in a progressively larger principal balance upon which both cash and PIK interest are calculated. We will need to model the accreted balance trajectory over the six-year term in order to assess the impact on covenant compliance, particularly the total leverage ratio, and to determine the ultimate payoff amount at maturity. Based on a preliminary estimate, the accreted principal balance at maturity (assuming no prepayment) would be approximately $139,500,000 to $140,500,000, although the precise figure will depend on the actual day counts in each quarterly period.
VI. Warrant Terms
In addition to the debt component, the mezzanine facility includes an equity participation component in the form of detachable warrants to be issued to Ridgeline at closing.
Warrant Coverage. 3.0% of the fully-diluted equity of Stonefield on a post-exercise basis. The number of shares issuable upon exercise of the warrants will be calculated based on the fully-diluted share count of Stonefield as of the closing date, taking into account all outstanding equity incentive awards, options, and other convertible securities.
Exercise Price. $0.01 per share (nominal exercise price). The nominal exercise price effectively provides Ridgeline with an equity stake in Stonefield at minimal additional cost and is a customary feature of mezzanine warrant arrangements.
Type. The warrants will be detachable from the mezzanine loan and will be immediately exercisable upon issuance at closing. As detachable warrants, they will be evidenced by a separate warrant certificate or warrant agreement and will be treated as a separate instrument from the mezzanine credit agreement for both legal and accounting purposes.
Anti-Dilution Protection. The warrants will include weighted-average broad-based anti-dilution protection. This form of anti-dilution adjustment is standard for instruments of this type and provides for an adjustment to the exercise price (and correspondingly to the number of shares issuable upon exercise) in the event of future equity issuances at a price below the then-applicable exercise price or implied valuation. The specific mechanics of the anti-dilution formula, including the treatment of excluded issuances (e.g., management equity incentive grants, issuances pursuant to existing equity plans), will need to be negotiated in the definitive warrant agreement.
Put Right. Ridgeline will have the right to put the warrants (or the underlying shares, if exercised) back to Stonefield (or its successor, as applicable) upon the earliest to occur of the following triggering events:
(a) a change of control of Stonefield (as defined in the mezzanine documentation);
(b) an initial public offering of the equity securities of Stonefield; or
(c) the seventh anniversary of the date of issuance (i.e., September 29, 2030, assuming a September 29, 2023 closing date).
Put Price. Upon exercise of the put right, the put price will be the fair market value of the underlying equity interest as determined by an independent appraiser mutually selected by the parties. If the parties are unable to agree on the selection of an appraiser within a specified period, the definitive documentation will likely include a mechanism for each party to select an appraiser, with those appraisers selecting a third, whose determination will be binding. The specific mechanics of the appraisal process will be addressed in the definitive warrant agreement.
Tax Flag — For Sylvia Hartwell (Tax Department). The issuance of warrants with a nominal exercise price of $0.01 per share in connection with the mezzanine facility raises significant original issue discount ("OID") allocation issues. Under applicable Treasury Regulations, the aggregate issue price of the mezzanine facility will need to be allocated between the debt instrument and the warrants based on their relative fair market values at the time of issuance. This allocation will affect (i) the amount of OID on the debt instrument, (ii) the timing and deductibility of interest expense (including both cash pay and PIK components), and (iii) the characterization of the warrants for federal income tax purposes. We recommend that Sylvia Hartwell be engaged promptly to prepare a tax structuring memorandum addressing these issues, including an analysis of the applicable OID rules under Sections 1271 through 1275 of the Internal Revenue Code, the implications for Stonefield's interest deduction under Section 163(j), and any potential Section 305 issues relating to the PIK component. Coordination with Caldwell Baines & Associates, PC (Patricia V. Baines), the sponsor's tax counsel, will also be necessary to address any tax implications at the Cascade Ridge fund level.
VII. Fee Structure and Transaction Costs
The following fees and transaction costs are payable in connection with the proposed mezzanine financing:
Commitment Fee (Ridgeline). A commitment fee equal to 2.00% of the committed amount is payable to Ridgeline at closing. Based on a committed amount of $120,000,000, the commitment fee totals $2,400,000. This fee is non-refundable and will be either netted from the loan proceeds at closing or paid by wire transfer on the closing date.
Financial Advisory Fee (Zynvaro Thornton Advisory Group, LLC). Stonefield has engaged Zynvaro Thornton Advisory Group, LLC ("Mercer Thornton") as its financial advisor in connection with the mezzanine financing. Andrew S. Thornton, Lead Managing Director, is the primary contact. The financial advisory fee is 0.75% of the committed amount, totaling $900,000, payable at closing. The terms of Mercer Thornton's engagement are set forth in a separate engagement letter between Stonefield and Mercer Thornton.
Borrower's Counsel Fees (Calderwood & Harkness LLP). Our legal fees are subject to a fee cap of $675,000 plus disbursements, as set forth in the engagement letter dated June 28, 2023. The fee cap covers all legal services rendered in connection with the mezzanine financing, including the negotiation and preparation of definitive documentation, the intercreditor agreement, Amendment No. 3 to the Senior Credit Agreement, and related ancillary documents and closing deliverables.
Lender's Counsel Expense Reimbursement (Archer Blackwell & Moss LLP). Pursuant to the Term Sheet, Stonefield has agreed to reimburse Ridgeline for the legal fees and expenses of its counsel, Archer Blackwell & Moss LLP, capped at $450,000 plus disbursements. Harrison T. Moss is the Lead Partner, and Angela N. Whitford is the Lead Associate for the Ridgeline representation. This reimbursement obligation is customary in mezzanine transactions and will be payable at closing.
Senior Agent Consent/Amendment Fee (Whitmore National Bank, N.A.). In connection with the senior agent consent and Amendment No. 3 to the Senior Credit Agreement, Whitmore National Bank, N.A. has indicated that it will require an amendment fee. Based on preliminary discussions with Gregory Feinberg, the anticipated amendment fee is $137,500, calculated as 0.05% of the $275,000,000 senior facility commitment. This fee is subject to confirmation during the consent solicitation process.
Total Estimated Transaction Costs. The total estimated transaction costs, based on the items set forth above, are as follows:
The foregoing total does not include disbursements for either counsel, filing fees, UCC search fees, title insurance premiums (if applicable), or other miscellaneous closing costs, which are expected to be relatively modest in aggregate. The method of payment — whether certain costs will be netted from the mezzanine loan proceeds at closing or funded separately by Stonefield from available cash or revolver draws — will need to be determined and documented in a closing funds flow memorandum to be prepared prior to the closing date.
VIII. Guarantors and Collateral
A. Guarantors. The mezzanine facility will be guaranteed by the following entities:
Cascade Ridge SLG Holdings, LLC. Cascade Ridge SLG Holdings, LLC ("Holdings"), the direct parent and intermediate holding company of Stonefield, will serve as a mezzanine guarantor. Holdings is a Delaware limited liability company through which Cascade Ridge holds its 78.4% equity interest in Stonefield. Notably, Holdings does not guarantee obligations under the senior facility; its guaranty will run exclusively in favor of the mezzanine lender. The scope and enforceability of the Holdings guaranty will need to be reviewed in light of the intercreditor arrangements described in Section X below.
Stonefield Intermodal Services, Inc. Stonefield Intermodal Services, Inc. is a wholly-owned subsidiary of Stonefield, organized under the laws of the State of Texas. This subsidiary operates Stonefield's intermodal freight services business. It is a guarantor under both the existing senior facility and the proposed mezzanine facility.
Stonefield Fleet Management, LLC. Stonefield Fleet Management, LLC is a wholly-owned subsidiary of Stonefield, organized under the laws of the State of Texas. This subsidiary manages the company's fleet of tractors, trailers, and related transportation equipment. It is a guarantor under both the existing senior facility and the proposed mezzanine facility.
Stonefield Freight Brokerage, Inc. Stonefield Freight Brokerage, Inc. is a wholly-owned subsidiary of Stonefield, organized under the laws of the State of Delaware. This subsidiary conducts the company's freight brokerage operations. It is a guarantor under both the existing senior facility and the proposed mezzanine facility.
We will need to confirm the complete subsidiary organizational chart with Stonefield's management and counsel and determine whether any additional subsidiaries should be required to provide guarantees, consistent with the guaranty coverage requirements expected in the definitive mezzanine credit agreement.
B. Mezzanine Collateral
The mezzanine facility will be secured by the following collateral:
Second-Priority Security Interest in Borrower and Subsidiary Assets. Ridgeline will receive a second-priority security interest in substantially all assets of Stonefield and the subsidiary guarantors, including, without limitation, equipment, vehicles, rolling stock, accounts receivable, inventory, intellectual property, general intangibles, deposit accounts, securities accounts, and equity interests in subsidiaries. This collateral package is shared with the senior facility, but the mezzanine security interest will be junior and subordinate in all respects to the first-priority security interest held by the Senior Agent on behalf of the senior lenders. The relative rights and priorities of the senior and mezzanine lenders with respect to the shared collateral will be governed by the intercreditor agreement described in Section X below.
First-Priority Parent Equity Pledge. In addition to the second-priority lien on shared collateral, Ridgeline will receive a first-priority pledge of 100% of the equity interests in Stonefield Logistics Group Inc. held by Cascade Ridge SLG Holdings, LLC. This parent equity pledge is not shared with the senior facility and will rank first in priority exclusively for the benefit of the mezzanine lender. This structural feature is significant because it provides Ridgeline with the ability, in an enforcement scenario, to foreclose on the equity interests in Stonefield at the holding company level — effectively stepping into the position of the equity owner — independently of the senior lender's remedies against the operating assets. The enforceability and scope of this first-priority equity pledge will be a critical element of the intercreditor negotiations, as the Senior Agent can be expected to seek limitations on the mezzanine lender's ability to exercise remedies against the parent equity during any standstill period.
UCC Filings. UCC-1 financing statements will be filed to perfect the second-priority security interests as follows: (i) with the Delaware Secretary of State for all entities organized in the State of Delaware (Stonefield, Holdings, and Stonefield Freight Brokerage, Inc.), and (ii) with the Texas Secretary of State for all entities organized in the State of Texas (Stonefield Intermodal Services, Inc. and Stonefield Fleet Management, LLC). Pre-closing UCC lien searches in both jurisdictions are among the immediate action items identified in Section XIV below.
C. Senior Facility Collateral (For Reference)
For reference and for purposes of comparison with the mezzanine collateral package, the existing senior facility is secured by a first-priority perfected security interest in substantially all assets of Stonefield and the subsidiary guarantors (other than Holdings), including all equipment, vehicles, rolling stock, accounts receivable, inventory, intellectual property, general intangibles, deposit accounts, securities accounts, and equity interests in subsidiaries. The senior facility collateral does not include a pledge of the equity interests in Stonefield held by Holdings.
IX. Financial Covenants
The Term Sheet sets forth the following financial covenants applicable to the mezzanine facility, each of which will be tested quarterly based on the most recently completed fiscal quarter:
Maximum Total Leverage Ratio. The maximum total leverage ratio (defined as total funded indebtedness divided by consolidated Adjusted EBITDA for the trailing four fiscal quarters) shall not exceed the following levels:
• Through and including Q2 2024: 4.25x
• Q3 2024 through Q2 2025: 4.00x
• Q3 2025 and thereafter: 3.75x
Minimum Fixed Charge Coverage Ratio. The minimum fixed charge coverage ratio (defined as the ratio of consolidated EBITDA less taxes paid, unfinanced capital expenditures, and certain other charges, to consolidated fixed charges, including scheduled debt service, cash interest, and capital lease obligations) shall not be less than 1.10x, tested quarterly. The precise definition of "fixed charges" will need to be carefully negotiated in the definitive documentation.
Minimum Liquidity. At all times, Stonefield shall maintain minimum liquidity (defined as unrestricted cash and cash equivalents on hand plus available and undrawn commitments under the revolving credit facility) of not less than $15,000,000.
Maximum Capital Expenditures. Stonefield shall not make or commit to make capital expenditures in excess of $85,000,000 in any fiscal year. The Term Sheet provides that up to 25% of any unused capital expenditure capacity in a given fiscal year may be carried forward to the immediately subsequent fiscal year. No further carry-forward is permitted (i.e., unused carryforward amounts that are not utilized in the subsequent fiscal year are forfeited).
Covenant Headroom Analysis. As noted in Section IV above, the total leverage ratio at closing of 3.75x provides 0.50x of headroom under the initial maximum total leverage ratio covenant of 4.25x. However, this cushion will narrow as the step-downs take effect. By Q3 2025, the maximum total leverage ratio will have declined to 3.75x — equal to the opening leverage ratio. Given the compounding effect of PIK interest on the outstanding mezzanine principal balance, the total funded indebtedness will increase over time even absent any additional borrowings or draws on the Revolver. Accordingly, Stonefield's ability to maintain compliance with the leverage covenant will depend on its ability to grow Adjusted EBITDA at a rate sufficient to offset the accretion of PIK interest and the narrowing covenant headroom. We recommend that the financial model be updated to reflect the PIK accretion and to stress-test covenant compliance under base case, upside, and downside scenarios.
Flag. A comprehensive covenant comparison between the mezzanine facility covenants and the corresponding covenants in the Senior Credit Agreement will be prepared separately as a standalone deliverable. Our initial review of the Senior Credit Agreement suggests that the mezzanine financial covenants, as reflected in the Term Sheet, will be somewhat more restrictive than the corresponding senior facility covenants in certain respects, particularly with respect to the leverage step-down schedule and the capital expenditure limitation. This analysis is necessary to identify any potential for cross-default risk and to ensure that the covenant framework across both facilities is coherent and manageable for the borrower.
X. Intercreditor Framework
The relationship between the senior lenders and the mezzanine lender with respect to lien priority, enforcement rights, and payment waterfall mechanics will be governed by an intercreditor agreement to be negotiated and entered into as a condition precedent to closing.
Parties. The intercreditor agreement (the "Intercreditor Agreement") will be entered into among Whitmore National Bank, N.A., in its capacity as Senior Agent and Collateral Agent under the Senior Credit Agreement, Ridgeline, in its capacity as the mezzanine lender, and acknowledged and agreed to by Stonefield and the subsidiary guarantors.
Lien Subordination. All liens and security interests held by the mezzanine lender on the shared collateral (i.e., all collateral other than the first-priority parent equity pledge described in Section VIII(B) above) will be subordinate and junior in priority to the first-priority liens and security interests held by the Senior Agent on behalf of the senior lenders. The Senior Agent, as Collateral Agent, will have sole and exclusive control over the disposition and enforcement of the shared collateral during any standstill period, including the right to direct the sale, collection, or other realization upon the shared collateral in its discretion, subject to the terms of the Intercreditor Agreement.
Enforcement Standstill. The Term Sheet provides for a 180-day enforcement standstill period. During this period, following the delivery of a standstill notice by the mezzanine lender to the Senior Agent, the mezzanine lender may not exercise any enforcement remedies against the shared collateral, including the commencement of foreclosure proceedings, the exercise of UCC remedies, or the filing of involuntary bankruptcy petitions. The standstill period is measured from the date of delivery of the mezzanine lender's notice of intent to exercise remedies to the Senior Agent. Upon expiration of the 180-day standstill period, the mezzanine lender may exercise remedies against the shared collateral, subject to any limitations imposed by the Intercreditor Agreement. The standstill does not, however, apply to the mezzanine lender's first-priority equity pledge of the parent entity interests, which is exclusive mezzanine collateral — although this point will need to be confirmed and documented explicitly in the Intercreditor Agreement.
Payment blockage. The Intercreditor Agreement will include a payment blockage mechanism. Upon the occurrence of a Senior Event of Default (as defined in the Senior Credit Agreement), the Senior Agent may deliver a Payment blockage Notice to the mezzanine lender, which will block the payment of cash interest on the mezzanine facility for up to 180 consecutive days. During a payment blockage period, no cash payments may be made by Stonefield to the mezzanine lender on account of interest or principal, although PIK interest will continue to accrue and compound. The Term Sheet provides that no more than one payment blockage period may be in effect during any 360-day period, which is a customary limitation designed to prevent the Senior Agent from imposing successive or overlapping blockage periods.
Purchase Option. The Intercreditor Agreement will grant Ridgeline the right to purchase the entire outstanding senior debt at par plus accrued and unpaid interest upon the acceleration of the senior facility. This purchase option is a significant structural protection for the mezzanine lender, as it provides Ridgeline with the ability to step into the position of the senior lenders and thereby gain control of the first-priority collateral and the enforcement process. The purchase option is typically exercisable for a limited period following the date of acceleration and is subject to customary conditions, including the assumption of all obligations of the senior lenders.
Anticipated Negotiation Issues. The intercreditor terms set forth in the Term Sheet represent the framework negotiated between Stonefield and Ridgeline, but the Intercreditor Agreement itself must be negotiated with the Senior Agent and its counsel, Renshaw Pratt LLP (David C. Renshaw, Lead Partner). Based on our experience in similar transactions, we anticipate that the Senior Agent will push for several modifications to the intercreditor framework, including but not limited to: (i) an extension of the enforcement standstill period beyond 180 days (Senior Agents commonly seek standstill periods of 270 days or longer); (ii) broader payment blockage rights, including the ability to block principal as well as interest payments and to impose multiple blockage periods in certain circumstances; (iii) restrictions on the mezzanine lender's exercise of remedies against the first-priority parent equity pledge during the standstill period; and (iv) limitations on the mezzanine lender's ability to exercise its purchase option, including notice requirements, timing restrictions, and conditions to exercise. The borrower's interest is generally aligned with limiting the scope and duration of the blockage and standstill mechanisms, as extended blockage periods could adversely affect Stonefield's relationship with the mezzanine lender and potentially trigger cross-default provisions. We will prepare a detailed intercreditor issues memorandum for discussion with the client.
The Senior Agent consent solicitation will be commenced in August 2023, as discussed in Section XIV below. The amendment fee of $137,500 payable to Whitmore in connection with the consent and Amendment No. 3 has been factored into the total estimated transaction costs set forth in Section VII above.
XI. Mandatory Prepayment and Change of Control
Change of Control Mandatory Prepayment. The Term Sheet provides that upon the occurrence of a "change of control" (as defined below), the mezzanine facility is subject to mandatory prepayment at a prepayment price equal to 103% of the outstanding principal balance (including all accrued and capitalized PIK interest) plus all accrued and unpaid cash interest to the date of prepayment. The 3% premium is intended to compensate Ridgeline for the loss of its investment upon a change of control event and is a customary feature of mezzanine facilities.
Definition of "Change of Control." The Term Sheet defines "change of control" to include three triggering events:
(a) Equity Acquisition Trigger: Any person or group (other than Cascade Ridge Capital Partners, LLC and its affiliates, including its managed funds and portfolio vehicles) acquiring, directly or indirectly, more than 50% of the outstanding voting equity interests of Stonefield;
(b) Subsidiary Ownership Trigger: Stonefield ceasing to be a direct wholly-owned subsidiary of Cascade Ridge SLG Holdings, LLC; or
(c) Asset Sale Trigger: The sale, transfer, lease, or other disposition of all or substantially all of the consolidated assets of Stonefield and its subsidiaries, whether in a single transaction or a series of related transactions.
Warrant Put Right. In addition to the mandatory prepayment of the mezzanine debt, a change of control event will trigger the immediate exercisability of the warrant put right described in Section VI above, entitling Ridgeline to put its warrants (or, if exercised, the underlying shares) at fair market value.
Harmonization with Senior Credit Agreement. The definition of "change of control" in the mezzanine documentation must be reviewed against and harmonized with the corresponding definition in the Senior Credit Agreement, as proposed to be amended by Amendment No. 3. Differences in the scope or triggers of the change of control definitions across the two facilities could create unintended consequences — for example, a transaction that triggers a change of control under the mezzanine facility but not under the senior facility (or vice versa) could result in an asymmetric mandatory prepayment obligation and potential cross-default issues. We will prepare a detailed comparison memorandum addressing the differences between the two definitions and recommending appropriate conforming language. In addition, we will need to confirm the interaction between the change of control provisions and any consent rights or approval mechanisms that may exist under the equity documents among Cascade Ridge, Holdings, Stonefield management, and the other equity holders.
XII. Other Key Terms to Be Negotiated in Definitive Documentation
The executed Term Sheet establishes the principal commercial terms of the mezzanine facility, but a substantial number of additional legal terms and conditions will need to be negotiated and documented in the definitive credit agreement, the warrant agreement, the intercreditor agreement, Amendment No. 3, and the various ancillary documents. The following is a summary of the key areas that will require attention during the definitive documentation phase:
Representations and Warranties. The definitive mezzanine credit agreement will contain customary representations and warranties to be made by the borrower and the guarantors. The scope of these representations — including representations as to organization, authority, enforceability, no conflicts, compliance with laws, financial statements, material adverse change, litigation, environmental matters, ERISA, taxes, insurance, properties, intellectual property, and solvency — will need to be negotiated to ensure that they are appropriately tailored to Stonefield's business and organizational structure. The Term Sheet does not specify whether certain representations will be subject to materiality or knowledge qualifiers, and these issues will be addressed in the definitive documentation negotiations. In addition, the parties will need to agree on the scope and conditions of the "bring-down" of representations at closing — specifically, whether representations must be true and correct in all respects, in all material respects, or only as to those representations that are qualified by a material adverse effect standard.
Affirmative Covenants. The definitive mezzanine credit agreement will include customary affirmative covenants, including obligations relating to financial reporting (delivery of annual audited and quarterly unaudited financial statements), delivery of compliance certificates, maintenance of insurance, maintenance of properties and assets, preservation of corporate existence and material agreements, compliance with environmental laws, payment of taxes, access to books and records, and notice of material events (including defaults, litigation, and material adverse changes). The timing, frequency, and content of financial reporting obligations will need to be aligned with the corresponding obligations under the Senior Credit Agreement to the extent practicable, to minimize the administrative burden on Stonefield.
Negative and Restrictive Covenants. The definitive mezzanine credit agreement will contain negative covenants restricting the borrower and the guarantors from taking certain actions without the consent of the mezzanine lender. Key negative covenants will address restricted payments (dividends, distributions, and redemptions), additional indebtedness, asset dispositions, investments, affiliate transactions, liens, fundamental changes (mergers, consolidations, and dissolutions), and sale-leaseback transactions. The negotiation of these covenants — and in particular, the size and scope of the permitted baskets, exceptions, and carve-outs — will be a critical element of the definitive documentation process. It is essential that the mezzanine restrictive covenant framework be workable alongside the restrictions contained in the Senior Credit Agreement, and we will need to carefully map the senior facility baskets against the proposed mezzanine facility baskets to identify any potential conflicts or gaps.
Events of Default. The definitive mezzanine credit agreement will contain customary events of default, including payment defaults, representation defaults, covenant defaults, cross-default and cross-acceleration provisions (referencing the Senior Credit Agreement and any other material indebtedness), bankruptcy and insolvency events, judgment defaults, ERISA events, and change of control events. The cross-default and cross-acceleration provisions vis-à-vis the senior facility will require careful drafting, particularly in light of the intercreditor framework described in Section X above. The threshold amounts, cure periods, and notice requirements associated with each event of default will be subject to negotiation.
Conditions Precedent to Funding. The closing and funding of the mezzanine facility will be subject to the satisfaction of customary conditions precedent, which are expected to include, without limitation: (i) execution and delivery of the mezzanine credit agreement, warrant agreement, intercreditor agreement, and all ancillary documents; (ii) delivery of legal opinions from borrower's counsel; (iii) delivery of officer's certificates and secretary's certificates; (iv) receipt of all necessary consents, including the Senior Agent consent and Amendment No. 3; (v) completion and filing of UCC-1 financing statements and confirmation of lien perfection; (vi) delivery of good standing certificates for all borrower and guarantor entities from their respective jurisdictions of organization; (vii) delivery of a solvency certificate from the CFO of Stonefield; (viii) evidence of insurance; (ix) absence of any material adverse change; and (x) payment of all fees and expenses.
Registration Rights Agreement. The Term Sheet contemplates that the parties will enter into a registration rights agreement in connection with the warrant issuance, providing Ridgeline with certain registration rights with respect to the shares of Stonefield common stock issuable upon exercise of the warrants. Although Stonefield is currently a private company and does not have any publicly registered securities, the registration rights agreement would become operative in the event of an initial public offering. The scope of the registration rights (demand registration, piggyback registration, shelf registration), the number of demand registrations, the lock-up provisions, and the allocation of registration expenses will be negotiated in the definitive documentation.
XIII. Key Advisors
The following table summarizes the key advisors and contacts engaged in connection with the mezzanine financing:
XIV. Anticipated Timeline and Next Steps
The following is the anticipated timeline for the definitive documentation phase and closing, together with a list of immediate action items for the deal team.
Anticipated Timeline.
We note that the timeline is aggressive, particularly given the need to negotiate the Intercreditor Agreement with the Senior Agent and its counsel, Renshaw Pratt LLP, and to obtain the requisite lender consent under the Senior Credit Agreement for Amendment No. 3. Any delays in the consent solicitation process or in the intercreditor negotiations could push the closing beyond the target date of September 29, 2023. We will monitor the timeline closely and keep the client informed of any potential delays.
Immediate Action Items
1. Client Call. Schedule a call with Stonefield management, including Robert D. Nagamine (General Counsel) and Janet R. Prescott (CFO), to review this term sheet summary and confirm the borrower's negotiating positions with respect to the key issues identified herein, including the intercreditor framework, the financial covenant step-down schedule, the capital expenditure basket, and the change of control definition.
2. Tax Structuring Memorandum. Engage Sylvia Hartwell (Tax Department) to prepare a tax structuring memorandum addressing the OID allocation issues arising from the warrant issuance, the deductibility of PIK interest, the treatment of the warrants for federal income tax purposes, and the interaction with the Section 163(j) limitation on interest deductions.
3. Sponsor Tax Coordination. Coordinate with Caldwell Baines & Associates, PC (Patricia V. Baines, Lead Partner) on sponsor-level tax considerations, including the treatment of the mezzanine financing at the Cascade Ridge Capital Fund V, LP level and any implications for the fund's investors.
4. Senior Agent Amendment Request. Begin preparation of the amendment request to Whitmore National Bank, N.A. and Renshaw Pratt LLP for the Senior Agent consent and Amendment No. 3 to the Senior Credit Agreement. The amendment request should include a description of the proposed mezzanine facility, the requested amendments to the Senior Credit Agreement (including the permitted indebtedness basket, the permitted liens basket, and any other provisions that require modification to accommodate the mezzanine facility), and a summary of the proposed intercreditor framework.
5. UCC Lien Searches. Commission pre-closing UCC lien searches in the States of Delaware and Texas against Stonefield, each subsidiary guarantor, and Cascade Ridge SLG Holdings, LLC to confirm the status of existing liens and to identify any potential title or perfection issues prior to the filing of UCC-1 financing statements in connection with the mezzanine facility.
6. Intercreditor Issues Memorandum. Prepare a detailed intercreditor issues memorandum for discussion with the client, identifying the key negotiation points expected to arise in the Intercreditor Agreement, the borrower's recommended positions on each issue, and any areas of potential conflict with the Senior Agent.
XV. Conclusion and Recommendation
Based on our review of the executed Term Sheet, the proposed $120,000,000 mezzanine financing from Ridgeline Mezzanine Capital Fund III, LP reflects commercial and legal terms that are broadly consistent with market-standard mezzanine transactions for a sponsor-backed logistics company of Stonefield's size and credit profile. The all-in interest rate of 1100 basis points (850 cash / 250 PIK), the 3.0% warrant coverage, the 2.00% commitment fee, and the intercreditor framework are all within the range of terms we have observed in comparable recent transactions in the middle-market mezzanine space.
That said, there are several areas in which we believe the borrower should seek more favorable terms during the definitive documentation phase. In particular, we recommend focusing negotiation efforts on the following key areas:
(i) Intercreditor Standstill Duration and Payment blockage Mechanics. The 180-day enforcement standstill and 180-day payment blockage periods are at the longer end of the market range from the mezzanine lender's perspective but are likely to be contested by the Senior Agent. The borrower should seek to preserve the current standstill duration while resisting any expansion of the payment blockage provisions.
(ii) Financial Covenant Step-Down Schedule and Capital Expenditure Basket Flexibility. The step-down of the maximum total leverage ratio from 4.25x to 3.75x over two years is relatively aggressive, particularly given the PIK accretion effect on the outstanding mezzanine balance. The borrower should seek to extend the step-down schedule or to include equity cure rights. In addition, the $85,000,000 annual capital expenditure cap should be reviewed in light of the planned capital expenditure program and may need to be increased or supplemented with additional basket flexibility.
(iii) Breadth of Restricted Payment and Investment Baskets. The definitive documentation will need to include sufficiently large and flexible baskets for restricted payments (including management fees, sponsor distributions, and management equity repurchases) and investments to ensure that Stonefield and Cascade Ridge retain adequate operational and financial flexibility.
(iv) Scope of Change of Control Triggers. The change of control definition should be carefully reviewed and aligned across the senior and mezzanine documents to avoid asymmetric triggering events. In particular, the subsidiary ownership trigger (clause (b)) should be reviewed to ensure that it does not inadvertently restrict routine corporate restructurings or reorganizations.
We recommend proceeding to the definitive documentation phase on the timeline outlined in Section XIV above. This memorandum will be updated following the initial client discussion with Stonefield management, and supplemental memoranda will be prepared as specific issues are identified and resolved during the documentation process.
This memorandum has been prepared by Daniel Obi and Lisa Morrow for the internal use of Calderwood & Harkness LLP in connection with Matter No. 1012-00001. It is subject to the attorney-client privilege and the work product doctrine. It is not intended to constitute legal advice to any party and should not be relied upon as such. Distribution of this memorandum outside the firm is not authorized without the express consent of the Responsible Partner.
Prepared by:
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Daniel Obi Lead Associate, Banking & Finance Calderwood & Harkness LLP
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Lisa Morrow Working Associate, Banking & Finance Calderwood & Harkness LLP
Tranche | Commitment / Outstanding | Interest Rate | Maturity | Lien Priority
Senior Secured Term Loan B | $275,000,000 | SOFR + 375 bps | November 15, 2026 | First Lien
Senior Secured Revolving Credit Facility | $50,000,000 committed ($12,000,000 drawn at closing) | SOFR + 350 bps | November 15, 2025 | First Lien (pari passu with TLB)
Mezzanine Term Loan | $120,000,000 | 1100 bps (850 cash / 250 PIK) | September 29, 2029 | Second Lien / Subordinated
Fee / Cost Item | Amount
Commitment Fee (Ridgeline) | $2,400,000
Financial Advisory Fee (Mercer Thornton) | $900,000
Borrower's Counsel Fees (Calderwood & Harkness) | $675,000 (cap)
Lender's Counsel Reimbursement (Archer Blackwell & Moss) | $450,000 (cap)
Senior Agent Amendment Fee (Whitmore) | $137,500
Total Estimated Transaction Costs | $4,562,500
Advisor | Role | Key Contacts
Calderwood & Harkness LLP | Borrower's Counsel | Stephanie Okafor, Responsible Partner; Philip Hartmann, Billing Partner; Daniel Obi, Lead Associate; Lisa Morrow, Working Associate; Sylvia Hartwell, Tax Partner
Archer Blackwell & Moss LLP | Mezzanine Lender's Counsel | Harrison T. Moss, Lead Partner; Angela N. Whitford, Lead Associate
Renshaw Pratt LLP | Senior Agent's Counsel | David C. Renshaw, Lead Partner
Caldwell Baines & Associates, PC | Sponsor's Tax Counsel | Patricia V. Baines, Lead Partner
Zynvaro Thornton Advisory Group, LLC | Financial Advisor to Borrower | Andrew S. Thornton, Lead Managing Director
Braddock & Saylor LLP | Independent Auditors of Stonefield | William F. Saylor, Engagement Partner
Target Date | Milestone
August 4, 2023 | First draft mezzanine credit agreement to be circulated by Archer Blackwell & Moss LLP (lender's counsel)
Mid-August 2023 | First draft intercreditor agreement to be circulated
August 2023 | Senior Agent consent solicitation to commence with Whitmore National Bank, N.A.
Late August / Early September 2023 | Negotiate and finalize definitive documents, including mezzanine credit agreement, warrant agreement, intercreditor agreement, Amendment No. 3, and ancillary documents
Mid-September 2023 | Signing of mezzanine credit agreement, intercreditor agreement, Amendment No. 3, and all ancillary documents
Late September 2023 (target: September 29, 2023) | Closing and funding

MEMORANDUM

MATTER NO.: 1012-00001

BILLING CODE: 231892.SLG

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