PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT
MEMORANDUM
TO: Beatrice Holloway, Responsible Partner, Mergers & Acquisitions, Calderwood & Harkness LLP
FROM: Megan Chu, Lead Associate, M&A; Derek Okonkwo, Working Associate, M&A
DATE: June 10, 2024
RE: Seller Due Diligence Summary — Key Findings and Risk Items — Carve-Out and Sale of Meridian Press Holdings LLC
MATTER NO.: 1043-00002
ENGAGEMENT REF.: SC/BH/JP/2024-0304/AGMG
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I. Executive Summary and Purpose
This memorandum summarizes the key findings and risk items identified through seller-side due diligence conducted by Calderwood & Harkness LLP in connection with the proposed carve-out and sale of 100% of the membership interests in Meridian Press Holdings LLC ("MPH" or the "Company") by Aurelius Media Holdings Inc. ("AMH" or "Seller") to Ridgeline Publishing Acquisition Corp. ("Ridgeline" or "Buyer"), the acquisition vehicle of Pinnacle Ridge Capital Partners Fund IV, L.P. ("PRCP IV"), at an enterprise value of $480,000,000 (the "Transaction").
Scope of Review. Calderwood & Harkness LLP has conducted a comprehensive review of documentation provided by Aurelius Global Media Group PLC ("Aurelius" or "AGMG") and its management team in response to the Due Diligence Request List circulated to Seller and its advisors on March 25, 2024 (the "DDRL"). The DDRL comprised 342 individual requests organized across 17 categories, spanning corporate organization, financial matters, material contracts, employment and benefits, intellectual property, real property, environmental, tax, litigation, insurance, regulatory, and intercompany arrangements. Documentation was uploaded to the virtual data room hosted by Thackeray Solutions (the "Data Room"), and supplemental materials were provided on a rolling basis through the date of this memorandum.
In addition to our review of Data Room documentation, we have obtained further information through a series of management interviews conducted between April 1 and May 31, 2024, including discussions with Jonathan Kessler, President of MPH, and Angela Moretti, SVP Finance of MPH. We also attended the management presentation delivered to Buyer and its advisors on April 12, 2024, and participated in multiple follow-up diligence sessions with Seller's management team on specific topics, including IT infrastructure, distribution logistics, and intercompany arrangements.
Counterparty Advisors. We note for the record that Buyer's legal counsel, Hathaway, Locke & Barnett LLP (Graham Ashworth, lead partner; Danielle Ferreira, senior associate), has been conducting its own independent buy-side legal due diligence review based on the same Data Room materials and supplemental information provided to Buyer. In addition, Buyer's accounting advisor, Whitecliff & Harding LLP (Susan Cartwright, engagement partner), has been performing a quality of earnings analysis on MPH's historical financial performance, with a particular focus on the appropriateness of certain adjustments used to derive Adjusted EBITDA and the adequacy of carve-out accounting methodologies. Seller's auditor, Pemberton Graves LLP (Robert Ainsley, engagement partner (US)), has been preparing and has delivered the audited carve-out financial statements for MPH and its subsidiaries for the fiscal years ended December 31, 2021, 2022, and 2023, and the interim period ended March 31, 2024, with such statements delivered on June 14, 2024.
Purpose of This Memorandum. This memorandum serves the following purposes:
(a) to identify items requiring treatment on the disclosure schedules to the definitive Membership Interest Purchase Agreement (the "MIPA");
(b) to flag potential negotiation points for the MIPA that are informed by or arise out of the diligence process;
(c) to highlight areas of risk requiring further discussion among the deal team, Seller's management, and Seller's financial advisors at Haverford Whitmore & Co.; and
(d) to provide an organized reference document for the deal team as we proceed into the MIPA negotiation and disclosure schedule drafting phase of the Transaction.
Overall Assessment. Based on our review, the seller-side diligence process has not uncovered any issues that would be expected to prevent consummation of the Transaction. The Business is well-organized, its capitalization structure is clean, and its key contractual relationships, while subject to certain change-of-control consent requirements, appear manageable. However, several items require careful disclosure schedule drafting, structural consideration in connection with the Transition Services Agreement (the "TSA") and the broader separation framework, and close attention during MIPA negotiations with Buyer's counsel. These items are detailed in the sections that follow.
II. Corporate Organization and Capitalization
A. Meridian Press Holdings LLC
We have reviewed the organizational documents, formation records, and good standing status of the Company. The key details are as follows:
We have confirmed that MPH is in good standing in the State of Delaware and in all states where the Company is qualified to do business as a foreign limited liability company. Certificates of good standing were obtained from Delaware, New York, New Jersey, Ohio, Texas, Nevada, California, Illinois, and Massachusetts as of dates ranging from May 15 to June 5, 2024. No lapses in registration, pending dissolution actions, or tax clearance issues were identified for any jurisdiction.
The Amended and Restated Limited Liability Company Agreement of MPH, dated as of January 1, 2016 (the "LLC Agreement"), was reviewed in full. The LLC Agreement reflects a straightforward single-member governance structure with AMH as the sole member and manager. The LLC Agreement does not contain any provisions that would impede the transfer of membership interests to Buyer, and there are no restrictions on transfer, rights of first refusal, tag-along or drag-along provisions, or other provisions typically found in multi-member operating agreements that could complicate the Transaction. The LLC Agreement will be amended and restated at closing to reflect the change in membership and governance structure following the acquisition.
B. Subsidiaries Included in the Carve-Out
The following entities are direct or indirect wholly owned subsidiaries of MPH and are included in the carve-out perimeter:
1. Meridian Distribution Services Inc. ("MDS")
MDS is a Delaware corporation (File No. 4736201), incorporated on March 7, 2011, and is a direct wholly owned subsidiary of MPH. MDS operates the Company's distribution and fulfillment infrastructure, consisting of 14 distribution centers located across North America. MDS is the primary operational entity within the carve-out group responsible for warehousing, order fulfillment, inventory management, and logistics coordination. MDS is in good standing in the State of Delaware and in all states where it is qualified to do business. We have reviewed MDS's certificate of incorporation and bylaws, both of which are in customary form and do not contain any unusual provisions.
2. Bellweather Academic Press Inc. ("Bellweather")
Bellweather is a Delaware corporation (File No. 4801133), incorporated on September 22, 2012, and is a direct wholly owned subsidiary of MPH. Bellweather operates the Company's educational content and academic publishing imprint under the "Bellweather Academic" brand. Bellweather's operations encompass the acquisition, editing, production, marketing, and distribution of academic textbooks, course materials, reference works, and educational digital content. The entity generates revenue through both direct book sales and content licensing arrangements with educational institutions. Bellweather is in good standing in Delaware and all applicable jurisdictions of qualification. Its certificate of incorporation and bylaws are in customary form.
3. Foxglove Media LLC ("Foxglove")
Foxglove is a New York limited liability company, formed on June 15, 2013, and is a direct wholly owned subsidiary of MPH. Foxglove operates the Company's periodical publishing business under the "Foxglove Periodicals" brand, which includes the publication of a portfolio of consumer and trade magazines, both in print and digital formats. Foxglove's operating agreement reflects a single-member structure with MPH as the sole member. Foxglove is in good standing in the State of New York and in all other states where it is qualified to do business.
4. Meridian Press Canada ULC ("Meridian Canada")
Meridian Canada is a British Columbia unlimited liability company, organized under the laws of the Province of British Columbia, and is an indirect wholly owned subsidiary of MPH (held through MDS). Meridian Canada operates the Company's Canadian business, with offices in Toronto, Ontario and Vancouver, British Columbia. The use of an unlimited liability company structure was adopted for Canadian tax planning purposes in connection with the original Aurelius acquisition of the publishing business. We have reviewed Meridian Canada's constating documents and memorandum of association. Meridian Canada is in good standing with the British Columbia Corporate Registry and is registered to carry on business in the Province of Ontario.
All subsidiaries are direct or indirect wholly owned subsidiaries of MPH. There are no minority interests, outstanding options, warrants, convertible instruments, phantom equity, profit participation rights, or other equity-linked instruments in any entity within the carved-out group. The capitalization structure is clean, which simplifies both the disclosure schedule process and Buyer's post-closing governance planning.
Good standing certificates for each subsidiary in its jurisdiction of organization and in each jurisdiction of qualification will be obtained within five (5) business days of Closing, as is customary for transactions of this type.
C. Disclosure Schedule Items — Organization & Capitalization
The organization and capitalization schedule to the MIPA should include the following:
(i) A complete list of all entities within the carve-out perimeter (MPH, MDS, Bellweather, Foxglove, and Meridian Canada), together with each entity's jurisdiction of organization, date of organization, entity type, file number, registered agent, and principal office address;
(ii) A list of all jurisdictions in which each entity is qualified to do business as a foreign entity;
(iii) Full capitalization details for each entity, including authorized and outstanding equity interests and the identity of the holders thereof;
(iv) Identification of authorized signatories and officers for each entity; and
(v) A complete set of governance documents, including the LLC Agreement for MPH, certificates of incorporation and bylaws for MDS and Bellweather, the operating agreement for Foxglove, and the constating documents for Meridian Canada.
As noted above, the capitalization structure is straightforward, with no third-party equity interests or outstanding convertible instruments. This is a favorable finding from Buyer's perspective and should result in a relatively concise organization and capitalization schedule. We recommend confirming that no equity-linked arrangements exist at any level of the carved-out group through a bring-down certificate delivered by Seller's management at signing.
III. Financial Overview
We have reviewed the financial information provided by Seller's management, the carve-out audited financial statements prepared by Pemberton Graves LLP, and the financial data presented during the management presentation to Buyer on April 12, 2024. The key financial metrics for the Company are summarized below.
Revenue and Profitability
MPH's FY2023 revenue of approximately $1.14 billion is generated across three principal business lines and imprints:
(a) Meridian Books — trade publishing (fiction, nonfiction, and general interest titles), representing the largest revenue contributor within the portfolio;
(b) Bellweather Academic — educational content, academic publishing, and content licensing to educational institutions; and
(c) Foxglove Periodicals — consumer and trade periodical publishing (magazines in both print and digital formats).
Within the broader Aurelius corporate structure, the Legacy Publishing segment (of which MPH is the principal component) represents approximately 25% of Aurelius's FY2023 consolidated revenue of approximately £3.8 billion. The carve-out of MPH is part of Aurelius's broader strategic reorientation toward digital media, streaming, and technology-enabled content distribution.
Transaction Valuation
The agreed enterprise value of $480,000,000 implies an EV/Adjusted EBITDA multiple of approximately 5.0x ($480,000,000 ÷ $96,000,000). This multiple is consistent with recent precedent transactions in the publishing sector for businesses of similar scale and profile, as analyzed in the financial advisory materials prepared by Haverford Whitmore & Co.
Carve-Out Financial Statements
The audited carve-out financial statements were prepared by Pemberton Graves LLP (Robert Ainsley, engagement partner (US)) and delivered on June 14, 2024. These statements cover the fiscal years ended December 31, 2021, 2022, and 2023, and the interim period ended March 31, 2024. The carve-out financial statements are prepared on a stand-alone basis, reflecting the operations, assets, and liabilities of MPH and its subsidiaries as if the carved-out business had operated as a separate entity during the covered periods. The carve-out methodology includes allocations of certain shared costs previously borne at the Aurelius group level, and such allocation methodology has been reviewed by Pemberton Graves LLP as part of their audit.
The carve-out audited financial statements will form the basis of the financial statement representations and warranties in the MIPA. It is essential that the financial statements schedule accurately reference the delivered financial statements and that any known exceptions to the financial statement representations be properly disclosed.
Key Financial Items for Disclosure Schedule Treatment
The following items should be addressed on the financial statements schedule or on related disclosure schedules:
(i) Known Undisclosed Liabilities. Any known liabilities that are not reflected in or reserved for in the carve-out financial statements should be identified and disclosed. Based on our review, we have not identified any material undisclosed liabilities, but we recommend confirming this with Seller's management and Pemberton Graves LLP as part of the bring-down process.
(ii) Intercompany Balances and Arrangements. Intercompany balances and cost allocation arrangements that are reflected in the carve-out financial statements will need to be eliminated or restructured at or prior to closing. The treatment of these items is discussed in detail in Section IX below.
(iii) Estimated Closing Financial Metrics. The following estimates have been developed based on management projections and preliminary calculations:
The estimated net working capital of $142,000,000 represents a $3,000,000 estimated shortfall against the net working capital target (peg) of $145,000,000. This shortfall, while modest relative to the overall transaction value, will be subject to a post-closing true-up mechanism in the MIPA. The net working capital methodology, including the specific line items and calculation conventions, will be a key negotiation point with Buyer's counsel and is discussed further in Section XV below.
IV. Material Contracts Requiring Consent
A. Oakbridge Distribution Alliance Agreement
The Oakbridge Distribution Alliance Agreement, dated as of February 1, 2018, by and between Meridian Distribution Services Inc. and Oakbridge Logistics Partners LLC (as amended by Amendment No. 1, dated November 15, 2020, and Amendment No. 2, dated March 1, 2023) (the "Oakbridge Agreement"), is the most significant third-party commercial contract of the Business. The Oakbridge Agreement governs distribution and fulfillment arrangements for a substantial portion of MPH's book distribution operations, including warehousing, pick-and-pack, shipping, and returns processing services across multiple distribution channels.
The Oakbridge Agreement contains a change-of-control consent provision in Section 12.3, which provides that any direct or indirect change in control of MDS or its parent entity requires the prior written consent of Oakbridge Logistics Partners LLC, such consent not to be unreasonably withheld, conditioned, or delayed. The proposed Transaction, which involves the sale of 100% of the membership interests in MPH (the indirect parent of MDS), clearly triggers this consent requirement.
Consent Status. Seller's management, through Jonathan Kessler, initiated the consent process with Oakbridge Logistics Partners LLC on April 18, 2024. As of the date of this memorandum, the consent process is in progress. Management reports a constructive and cooperative relationship with the Oakbridge counterparty and expects consent to be forthcoming. We note parenthetically that consent was ultimately obtained on July 2, 2024.
Risk Assessment. We assess the risk associated with this consent requirement as moderate. Failure to obtain Oakbridge's consent prior to closing could constitute a breach of the Oakbridge Agreement and could potentially allow Oakbridge to exercise termination rights under Section 14.2(b) of the Oakbridge Agreement. Given the significance of the Oakbridge relationship to the Company's distribution infrastructure, termination of the Oakbridge Agreement would have a material adverse impact on the Business. However, based on management's assessment of the relationship and the contractual standard requiring consent not to be unreasonably withheld, we believe the risk of a consent refusal is low.
Recommendation. The Oakbridge Agreement and the associated consent requirement should be disclosed on both the material contracts schedule and the consents schedule. Obtaining Oakbridge's consent should be included as a condition to closing in the MIPA, and Seller should covenant to use commercially reasonable efforts to obtain such consent prior to closing.
B. Major Author/Content License Agreements (5 Agreements)
Five significant author and content licensing agreements contain assignment or change-of-control consent provisions that are triggered by the proposed Transaction. These agreements cover key content relationships across the Meridian Books and Bellweather Academic imprints, and collectively represent a material portion of the Company's content portfolio. For confidentiality reasons, the specific counterparties and titles are identified by reference number in the Data Room (Folders 3.2.1 through 3.2.5) and will be specifically identified on the disclosure schedules.
Each of the five agreements contains a provision requiring consent from the author, licensor, or agent (as applicable) in connection with an assignment or change of control of the contracting entity. The consent standards vary across the five agreements, ranging from consent "not to be unreasonably withheld" to consent required "in the sole discretion" of the counterparty. We have reviewed each provision and prepared a summary matrix (attached to this memorandum as Exhibit A) identifying the specific consent requirement, the applicable contractual standard, the counterparty, the financial significance of the agreement, and the current status of the consent process.
Consent Status. Seller's management has initiated the consent process for all five agreements. Management has reported that it expects cooperation from the counterparties in each case, based on established relationships and ongoing business interactions. The target timeline is to obtain all five consents between June and October 2024, in advance of the expected closing date.
Recommendation. Each of the five agreements should be disclosed on the consents schedule. We recommend evaluating whether the failure to obtain any individual consent would rise to the level of a "Material Adverse Effect" as defined in the MIPA, and we should consider appropriate risk allocation in the MIPA. At a minimum, the MIPA should include a covenant requiring Seller to use commercially reasonable efforts to obtain all such consents prior to closing. We should also consider whether a "wrong pockets" or cooperation covenant is appropriate to address any consents that remain outstanding at closing.
C. Lease Assignments Requiring Landlord Consent (4 of 10 Leased Properties)
Of the ten (10) leased properties included in the carve-out (eight US locations and two Canadian locations in Toronto and Vancouver), four contain lease assignment or change-of-control provisions requiring landlord consent. The four leases requiring consent are identified in the lease summary matrix prepared by the real estate team and uploaded to Data Room Folder 7.1. The specific properties are:
(i) Warehouse facility, Secaucus, New Jersey;
(ii) Office and warehouse facility, Chicago, Illinois;
(iii) Distribution center, Sacramento, California; and
(iv) Office facility, Toronto, Ontario, Canada.
Consent Status. The consent process is underway with respect to all four landlords. Seller's management has engaged directly with each landlord and reports that all consents are expected to be obtainable. We note parenthetically that all four landlord consents were ultimately obtained by November 1, 2024, in advance of closing.
Recommendation. Each of the four leases requiring consent should be disclosed on both the real property schedule and the consents schedule. The MIPA should include a standard covenant requiring Seller to use commercially reasonable efforts to obtain all landlord consents. We recommend discussing with Buyer's counsel appropriate fall-back arrangements in the event any landlord consent is not obtained by closing, including the potential use of a sublease or license arrangement as an interim measure to preserve Buyer's ability to occupy the relevant premises while consent efforts continue post-closing.
D. Other Contracts Reviewed
We have reviewed the remaining material contracts of the Business for assignment restrictions, change-of-control triggers, termination rights, most-favored-nation provisions, and other provisions that could be implicated by the Transaction. Based on our review, no additional material contract consent requirements have been identified beyond those described in Sections IV.A through IV.C above.
The following additional contracts were reviewed and are noted for completeness:
(i) Shared Services Intercompany Agreement. The existing Shared Services Intercompany Agreement between AMH/AGMG and MPH covers IT, finance, human resources, and facilities services currently provided to MPH on a group-wide basis. This agreement will be terminated effective at Closing, and post-closing shared services support will be governed by the TSA. This arrangement is discussed in detail in Section IX below.
(ii) Customer and Supplier Contracts. We reviewed the Company's standard form customer and supplier contracts, as well as all individually negotiated contracts meeting the materiality threshold established by the DDRL (contracts with annual value in excess of $1,000,000 or with a term in excess of three years). No unusual provisions were identified that would impede the Transaction or create material risk to the Business post-closing.
(iii) Distribution Agreements. In addition to the Oakbridge Agreement described above, MDS maintains distribution arrangements with several smaller fulfillment and logistics providers. None of these agreements contain change-of-control consent provisions, and all are assignable by their terms or by operation of law in connection with the Transaction.
V. Employees and Benefits
A. Workforce Overview
Approximately 2,400 employees will transfer with the Business in connection with the Transaction. The Company's workforce is distributed across multiple locations in the United States and Canada, as follows:
• New York Headquarters (1180 Avenue of the Americas, 22nd Floor): approximately 450 employees engaged in editorial, marketing, sales, corporate functions, and executive management;
• Distribution Centers (14 locations operated by MDS): approximately 1,500 employees engaged in warehousing, order fulfillment, logistics, and distribution operations, with major concentrations at the Edison, NJ; Columbus, OH; Dallas, TX; and Reno, NV facilities;
• Other US Offices: approximately 250 employees at various satellite offices and regional locations; and
• Canada (Toronto and Vancouver): approximately 200 employees engaged in editorial, sales, and administrative functions for the Canadian market.
We have reviewed the Company's employment records, headcount data, organizational charts, and standard form employment agreements. No organized labor unions or collective bargaining agreements have been identified for any of the Company's US or Canadian employees. This is a favorable finding that simplifies the employee transfer process and eliminates the need for labor union notification or bargaining in connection with the Transaction.
Standard employment agreements used by the Company were reviewed. These agreements contain customary provisions regarding duties, compensation, confidentiality, intellectual property assignment, and, in certain cases, non-competition and non-solicitation restrictions. No unusual restrictive covenants were identified that would impair the operation of the Business post-closing, and the existing non-competition and non-solicitation provisions are enforceable and appropriately scoped to protect the Business's interests.
B. Key Employee Retention Arrangements
Aurelius, through AMH, has implemented key employee retention agreements (the "Retention Agreements") for twelve (12) senior managers of the Business. The Retention Agreements are designed to incentivize continuity of key personnel through the Transaction and the post-closing transition period. The key terms of the Retention Agreements are as follows:
The Retention Agreements cover a cross-section of senior management, including functional leaders in editorial, sales, distribution, finance, and technology. The specific individuals covered and the individual payment amounts are identified in a confidential schedule maintained in Data Room Folder 5.3.
Recommendation. The Retention Agreements should be disclosed on the employee matters schedule. We recommend coordinating with Buyer (PRCP IV) on the post-closing retention strategy to confirm Buyer's satisfaction with the arrangements and to discuss whether any additional retention incentives or equity-based compensation arrangements are contemplated for the post-closing period. The MIPA should address the allocation of responsibility for funding the retention payments, including whether the first tranche is treated as a transaction expense of Seller and whether the second tranche is the responsibility of the Company (and therefore, indirectly, of Buyer) post-closing.
C. Change of Control Severance
Our diligence has confirmed that no change-of-control severance obligations are triggered by the proposed Transaction for any employee of the Business at any level. Neither the Company's standard employment agreements nor any individual executive employment arrangements contain provisions that would entitle employees to severance, enhanced severance, or accelerated vesting of any benefit upon a change of control of MPH or its parent entities.
This is a favorable finding that eliminates a category of incremental transaction cost that is frequently encountered in M&A transactions involving operating businesses with established management teams. The absence of change-of-control severance obligations means that the Transaction will not give rise to any "double trigger" or "single trigger" severance payments, nor any excise tax gross-up obligations under Section 280G/4999 of the Internal Revenue Code.
Recommendation. The MIPA should include an appropriate representation by Seller confirming that no change-of-control severance obligations are triggered by the Transaction. The disclosure schedules should affirmatively note the absence of any such obligations to provide Buyer with a clear record.
D. Employee Benefits
MPH employees currently participate in a suite of employee benefit plans sponsored at the Aurelius group level by AMH and/or AGMG, including:
• Group health, dental, and vision insurance;
• 401(k) retirement savings plan (with employer matching contribution);
• Short-term and long-term disability insurance;
• Life insurance and accidental death & dismemberment (AD&D) coverage;
• Flexible spending accounts (health and dependent care);
• Employee assistance program (EAP); and
• Paid time off (PTO) and leave policies.
The separation of employee benefit plans from the Aurelius group benefit platform will be required at or following closing. The logistics of this separation are significant, particularly with respect to the 401(k) plan (which may require either a plan-to-plan transfer of assets or the establishment of a new plan by Buyer) and the group health insurance arrangements (which require coordination with insurers and, for self-insured components, the establishment of new funding arrangements).
During the transition period, employee benefit administration will be supported through the TSA, specifically the HR & Payroll services module, at a monthly fee of $175,000. This will allow the Company to continue operating on the Aurelius benefit platform for a transitional period while Buyer establishes standalone benefit arrangements.
Recommendation. The MIPA should include customary employee benefit continuation covenants requiring Buyer to maintain, for a specified period following closing (typically 12 months), employee benefit arrangements that are substantially comparable in the aggregate to those provided by Seller prior to closing. The MIPA should also include provisions addressing the treatment of accrued PTO, service credit recognition, and the coordination of benefits under Buyer's and Seller's respective plans. The TSA HR services module will cover the administrative transition, but the commercial and plan design aspects of the benefit separation will need to be managed by Buyer independently.
VI. Intellectual Property
A. Trademark Registrations
We have reviewed the Company's trademark portfolio, including all US and Canadian trademark registrations and pending applications. The key trademark assets of the Business are the "Meridian Press," "Bellweather Academic," and "Foxglove" word marks and associated design marks (logos), which are the primary brand identifiers for the Company's three business lines.
A complete schedule of trademark registrations was provided in Data Room Folder 6.1 and has been verified against the USPTO and CIPO databases. All registrations are current and in good standing, with all maintenance filings and renewals timely made. No material pending oppositions, cancellation proceedings, or infringement claims have been identified in connection with any of the Company's trademark registrations.
In addition, the Company's ISBN (International Standard Book Number) prefix assignments, which are registered to MPH and its subsidiaries with Adriatic Group (the US ISBN agency), will transfer with the Business. The ISBN prefixes are essential to the Company's publishing operations, as they uniquely identify the Company as the publisher of record for its extensive catalog of titles. We have confirmed that the ISBN prefix assignments are held directly by MPH and its subsidiaries and are not subject to any restrictions that would impair their transfer in connection with the Transaction.
B. Trademark License-Back to Aurelius
In connection with the Transaction, Aurelius will retain a limited license to use the "Meridian" name following the closing. The terms of the proposed Trademark License Agreement, which will be executed at closing as an ancillary document, are as follows:
• Scope: Non-exclusive, royalty-free license to use the "Meridian" name (word mark only, excluding the Meridian Press logo and design marks) solely in connection with legacy digital content archived on Aurelius's streaming platform;
• Term: Three (3) years from the Closing Date, with no renewal option;
• Exclusivity: Non-exclusive — MPH (post-closing, under Buyer's ownership) retains full rights to use the "Meridian" and "Meridian Press" marks in all fields of use;
• Territory: Worldwide;
• Quality Control: Licensee (Aurelius) subject to quality control standards established by Licensor (MPH/Buyer).
Recommendation. We recommend ensuring that the license-back is narrowly scoped and that the quality control provisions are sufficiently robust to protect the integrity of the "Meridian" brand. The license should be limited to the specific use case described above (archival digital content on the streaming platform) and should not extend to any new content production, marketing, or promotional uses that could create confusion in the marketplace. The Trademark License Agreement should be disclosed on the IP schedule as a post-closing contractual commitment.
C. Other IP Matters
Content Copyrights. The Company holds an extensive portfolio of copyrighted works, including published books, periodicals, educational materials, and digital content. These copyrights represent core assets of the Business and will transfer with the membership interests in MPH. We have reviewed representative samples of the copyright registration records and content license agreements and have not identified any material issues or disputes relating to the Company's copyright ownership.
Software Licenses. MPH currently utilizes certain enterprise software systems, including an Aldermere Services Inc. platform, content management systems, and digital asset management tools, under licenses held at the Aurelius group level rather than directly by MPH or its subsidiaries. These software licenses will need to be addressed through the TSA (specifically the IT Infrastructure & Systems services module, at a monthly fee of $485,000) during the transition period, and ultimately through either (i) the assignment or re-licensing of the existing software licenses directly to MPH or Buyer, or (ii) the migration to new software platforms selected by Buyer. This is a significant separation workstream that will require coordination among IT teams, software vendors, and the deal team. The IT migration timeline should be a focus of TSA negotiations.
Domain Names. All domain names associated with the Business (including meridianpress.com, bellweatheracademic.com, foxgloveperiodicals.com, and related variants) are currently registered to MPH or its subsidiaries and will transfer with the Business. We have confirmed that the domain name registrations are current and have reviewed the registrar records for accuracy.
IP Litigation. No material intellectual property litigation is pending against MPH or any of its subsidiaries. No cease-and-desist letters or demands have been received that would indicate a material IP infringement risk.
VII. Real Property
A. Owned Properties
MPH and its subsidiary MDS own four (4) distribution center properties in fee simple. These properties constitute the core physical distribution infrastructure of the Business. The owned properties are as follows:
Title searches on all four owned properties are being conducted by Foxworth Daniels & Co. (Wilmington, DE), which is also performing UCC searches on the carved-out assets. Preliminary results have been received for three of the four properties (Edison, Columbus, and Dallas), with the Reno search expected to be completed by mid-June. Based on the preliminary results, no material title defects or encumbrances have been identified beyond standard utility easements, recorded plats, and customary encumbrances that do not materially interfere with the use of the properties for their intended purposes.
Environmental assessments for the owned properties are discussed separately in Section XI below.
Recommendation. All four owned properties should be disclosed on the real property schedule with full legal descriptions, tax parcel identification numbers, and details of any encumbrances. Clean title should be confirmed at closing through updated title searches and, if required by Buyer, through title insurance commitments. We recommend that the MIPA include customary representations regarding title to owned real property, including that each property is held in fee simple, free and clear of all liens and encumbrances other than permitted encumbrances as defined in the MIPA.
B. Leased Properties
In addition to the four owned distribution centers, the Company leases ten (10) properties across the United States and Canada for use as warehouse facilities, office space, and satellite operational locations. Eight of the ten leased properties are located in the United States, and two are located in Canada (Toronto and Vancouver).
As discussed in Section IV.C above, four of the ten leases contain assignment or change-of-control provisions requiring landlord consent, and the consent process is underway for each. The remaining six leases either permit assignment without landlord consent (typically in the context of an assignment to an affiliate or a successor by merger or sale of substantially all assets) or contain deemed-consent provisions that do not require affirmative action by the landlord.
We have reviewed all ten leases for material terms, including remaining term, renewal options, rent escalation provisions, security deposit requirements, maintenance and repair obligations, permitted use restrictions, and default and remediation provisions. No material defaults or outstanding rent obligations have been identified for any of the ten leased properties. All rent payments are current, and no notices of default or cure have been received from any landlord.
C. Shared Space — New York Headquarters
The Company's principal office is located at 1180 Avenue of the Americas, 22nd Floor, New York, NY 10036. This space currently serves as the primary office location for MPH's editorial, marketing, sales, and corporate functions. However, the lease for this space is held by Aurelius at the AGMG/AMH level — not by MPH or any of its subsidiaries. The space is occupied by MPH employees on a shared-services or allocated basis under the existing intercompany arrangements.
Following closing, the Company will not have a direct leasehold interest in the New York headquarters space. Instead, the Company will continue to occupy the space under the TSA, specifically the Facilities & Real Estate services module, at a monthly fee of $220,000 for a maximum period of 18 months. The TSA is currently scheduled to expire on or about May 15, 2026, based on an assumed closing date of November 15, 2024.
Buyer will need to arrange for its own permanent office space or negotiate a direct sublease with Aurelius (or Aurelius's landlord, subject to the terms of the master lease) before the expiration of the Facilities TSA services. This is a significant separation workstream that Buyer should begin planning for well in advance of TSA expiry.
Recommendation. The shared space arrangement at 1180 Avenue of the Americas should be disclosed on the real property schedule, with a clear notation that the lease is held at the Aurelius group level and that the Company's post-closing occupancy will be governed by the TSA. We recommend flagging this item for Buyer as a key separation workstream requiring early attention.
VIII. Tax Matters
We have reviewed the tax-related documentation and information provided in connection with the diligence process. The key tax matters are summarized below. A more detailed analysis of certain tax structuring issues is being prepared by Leonard Cross, Tax specialist partner, in a separate memorandum.
Entity Tax Classification. MPH is treated as a disregarded entity for US federal income tax purposes, owned 100% by AMH (a Delaware corporation included in the Aurelius consolidated US federal income tax return). MPH's income, deductions, gains, and losses are reported on AMH's (and ultimately Aurelius's) consolidated US federal income tax return. At the state level, MPH is similarly treated as a disregarded entity in most jurisdictions, though certain states (such as Texas and New York) impose entity-level taxes or franchise taxes that are filed at the MPH level.
Section 338(h)(10) Election. Buyer and Seller have agreed in principle to jointly make an election under Section 338(h)(10) of the Internal Revenue Code (and corresponding state and local elections where applicable) with respect to the Transaction. The effect of the Section 338(h)(10) election is to treat the sale of the membership interests in MPH as a deemed asset sale for US federal (and applicable state) income tax purposes, notwithstanding that the Transaction is structured as a sale of membership interests.
The Section 338(h)(10) election is beneficial to Buyer because it provides Buyer with a stepped-up tax basis in the Company's assets equal to the purchase price (plus assumed liabilities), which generates additional depreciation and amortization deductions for Buyer in future tax periods. The election is beneficial to Seller because it does not change the aggregate amount of tax owed by Seller (the gain on the deemed asset sale is reported on Seller's consolidated return in the same manner as it would have been reported absent the election), but it facilitates the Transaction by providing Buyer with its desired tax structure.
Estimated Tax Liability. The estimated US tax liability to Seller arising from the Transaction is approximately $48,000,000, based on an estimated taxable gain of approximately $228,000,000 at a blended federal/state effective tax rate of approximately 21%. The taxable gain estimate takes into account the allocated purchase price, the adjusted tax basis of the Company's assets, and the effect of the Section 338(h)(10) deemed asset sale treatment. The final tax liability will depend on the actual closing date purchase price, the purchase price allocation, and the Company's tax attributes at closing.
UK Tax Considerations. The sale proceeds from the Transaction will be received by AMH, the US subsidiary of Aurelius. The UK tax team at Aurelius has performed an analysis of the Substantial Shareholding Exemption ("SSE") under UK tax law as it applies to the upstream holding structure. Based on this analysis, no direct UK corporate tax is expected to be payable on the disposal of MPH by AMH, provided that the SSE conditions continue to be met at the time of closing. We recommend confirming the SSE analysis with Aurelius's UK tax advisors closer to the closing date.
Transfer Taxes. Transfer taxes (including any state and local transfer taxes, recording fees, and documentary stamp taxes) arising in connection with the Transaction will be borne 50/50 by Buyer and Seller, as agreed in the term sheet and to be reflected in the MIPA.
State Tax Implications. The Transaction has state and local tax implications across multiple jurisdictions where the Business operates, including New Jersey, Ohio, Texas, Nevada, California, New York, Illinois, and other states where the Company and its subsidiaries are qualified to do business or maintain physical presence through distribution centers and offices. Leonard Cross is finalizing the state-by-state tax analysis, with particular attention to apportionment of gain, state-level transfer taxes, and any state-level elections required in connection with the Section 338(h)(10) election.
Tax Audits and Disputes. No material outstanding tax audits, assessments, deficiency notices, or disputes have been identified for MPH or any of its subsidiaries. MPH's federal income tax returns (as reflected on AMH's consolidated return) have not been under examination for any open tax year. At the state level, no audits are currently pending, and no notice of intent to audit has been received from any state tax authority.
Recommendation. Tax matters should be comprehensively disclosed on the tax schedule, including the disregarded entity status, the Section 338(h)(10) election, the transfer tax allocation, and the absence of outstanding tax audits or disputes. The Section 338(h)(10) Election Agreement should be finalized and executed simultaneously with the signing of the MIPA. The MIPA should include a tax indemnity provision with a survival period extending until sixty (60) days after the expiration of the applicable statute of limitations for the relevant tax periods. We also recommend including a pre-closing tax covenant requiring Seller to cause the Company to file all required tax returns, pay all taxes when due, and refrain from making any material tax elections or entering into any material tax settlements, in each case without Buyer's prior written consent.
IX. Intercompany Arrangements
A. Intercompany Promissory Note
MPH (as maker) has issued an intercompany promissory note (the "Intercompany Note") in the principal amount of $50,000,000, payable to AMH (as payee). The Intercompany Note was issued on March 15, 2019, bears interest at a rate of SOFR plus 200 basis points (adjusted quarterly), and matures on March 15, 2029. The outstanding principal balance as of the date of this memorandum is $50,000,000, with accrued and unpaid interest to be calculated as of the closing date.
The Intercompany Note is included in the estimated closing indebtedness of $62,500,000 (together with $12,500,000 in capital lease obligations). Under the MIPA, the Intercompany Note will be repaid in full at closing, and the outstanding principal balance plus accrued interest will be deducted from the enterprise value in determining the equity purchase price payable to Seller.
AMH holds a security interest in certain assets of MPH in connection with the Intercompany Note, as reflected in UCC financing statements filed in the State of Delaware. A payoff letter from AMH confirming the exact payoff amount as of the closing date, together with UCC-3 termination statements and any other lien release documents necessary to release AMH's security interest in the Company's assets, will be delivered at closing as a condition to Buyer's obligation to close.
B. Shared Services Intercompany Agreement
The existing Shared Services Intercompany Agreement (the "Shared Services Agreement"), dated as of January 1, 2016, by and between AMH, AGMG, and MPH, governs the provision of shared corporate services from the Aurelius group to MPH and its subsidiaries. The services covered by the Shared Services Agreement include:
(i) IT infrastructure and systems support, including the Aldermere Services Inc. platform, email and collaboration tools, network infrastructure, cybersecurity, and helpdesk support;
(ii) Finance and accounting services, including general ledger maintenance, accounts payable and receivable processing, treasury management, financial reporting, and internal audit support;
(iii) Human resources and payroll services, including benefits administration, payroll processing, talent acquisition support, and HRIS management; and
(iv) Facilities and real estate services, including the provision of office space at the New York headquarters and property management support for shared or Aurelius-controlled facilities.
The Shared Services Agreement will be terminated effective at Closing. The termination of the Shared Services Agreement represents a significant operational event for the Business, as it will sever the Company's access to corporate services that have been provided on a centralized basis by the Aurelius group since the Company's formation.
To mitigate the disruption associated with the termination of the Shared Services Agreement, the parties have negotiated a Transition Services Agreement (the "TSA"), the terms of which are set forth in detail in the TSA Structuring Memorandum dated May 15, 2024, prepared by this firm. The TSA will provide for the continuation of shared services from Aurelius to the Company on a transitional basis following closing, at arm's-length pricing, for a maximum period of 18 months. The monthly fees under the TSA are as follows:
C. Reverse TSA
In addition to the forward TSA described above, the parties have negotiated a reverse TSA arrangement under which Meridian Press (post-closing, under Buyer's ownership) will provide distribution logistics support to Aurelius's remaining digital content fulfillment operations. This arrangement reflects the fact that, following the carve-out, certain of Aurelius's retained digital content operations currently rely on MDS's distribution infrastructure for physical fulfillment of digital media products (e.g., physical media editions, promotional materials, and related fulfillment services).
The reverse TSA provides for a monthly fee of $85,000, payable by Aurelius to the Company, for a period of up to 12 months from closing (maximum aggregate payment of $1,020,000). Based on an assumed closing date of November 15, 2024, the reverse TSA would expire on or about November 15, 2025.
D. Other Intercompany Items
Beyond the Intercompany Note, the Shared Services Agreement, and the TSA arrangements described above, our diligence has identified various other intercompany balances, allocations, and arrangements between MPH (and its subsidiaries) and the broader Aurelius group. These include:
(i) Intercompany trade receivables and payables arising in the ordinary course of business;
(ii) Cost allocation charges for shared corporate overhead (e.g., legal department services, corporate communications, investor relations support);
(iii) Cash management arrangements under Aurelius's centralized treasury function; and
(iv) Insurance premium allocations under the Aurelius group insurance program.
Each of these intercompany items will need to be settled, terminated, or restructured at or prior to closing. All intercompany balances reflected in the carve-out financial statements should be eliminated as of the closing date, and the MIPA should include appropriate representations and covenants to this effect.
Recommendation. All intercompany arrangements, balances, and agreements should be comprehensively disclosed on the intercompany schedule. The MIPA should include a covenant requiring the termination or unwinding of all intercompany agreements and the settlement of all intercompany balances, effective at Closing, other than the TSA, the reverse TSA, the Trademark License Agreement, and any other ancillary agreements expressly contemplated by the MIPA.
X. Litigation and Legal Proceedings
We have conducted a comprehensive review of pending and threatened litigation involving MPH and its subsidiaries. This review included examination of litigation files, demand letters, regulatory correspondence, and insurance claim records maintained by the Company, as well as discussions with Jonathan Kessler and the Company's in-house legal team.
Material Pending Litigation. No material pending litigation has been identified that would be expected to have a material adverse effect on the Business, taken as a whole. The Company is not party to any proceeding that, individually or in the aggregate, involves a claim for damages in excess of $5,000,000 or that seeks injunctive relief that could materially restrict the Company's business operations.
Routine Matters. The Company is party to a small number of litigation matters that are routine in nature and arise in the ordinary course of the Company's business operations. These include:
(i) Employment-related claims, consisting of two pending EEOC charges and one state-level employment discrimination claim, all of which are at an early stage and are being handled through the Company's standard employment litigation procedures;
(ii) Minor commercial disputes, including two contract-related claims from former suppliers and one claim related to a damaged shipment, none of which individually exceed $500,000 in claimed damages; and
(iii) Routine copyright infringement inquiries, which are common in the publishing industry and are addressed through the Company's standard content clearance and dispute resolution processes.
None of these routine matters, individually or in the aggregate, rises to a level of materiality that would warrant specific attention in the context of the Transaction.
Governmental Investigations and Enforcement Actions. No outstanding governmental investigations, enforcement actions, subpoenas, civil investigative demands, or similar proceedings have been identified involving MPH or any of its subsidiaries.
Recommendation. All pending and threatened legal proceedings should be disclosed on the litigation schedule to the MIPA, regardless of whether such proceedings are considered material, subject to an appropriate de minimis threshold to be agreed upon in the MIPA (we suggest $100,000 as the disclosure threshold). The MIPA should include a standard litigation representation covering all known and threatened matters as of the signing date, with appropriate bring-down at closing.
XI. Environmental Matters
Our environmental diligence focused on the four owned distribution center properties (Edison, NJ; Columbus, OH; Dallas, TX; and Reno, NV) and, to a lesser extent, on the leased warehouse and office locations.
Phase I Environmental Site Assessments. Phase I environmental site assessments ("ESAs") have been obtained for each of the four owned properties. The Phase I ESAs were prepared by certified environmental professionals in accordance with ASTM Standard E1527-21 and are dated within the past 12 months. Based on our review of the Phase I ESA reports, no recognized environmental conditions ("RECs"), controlled recognized environmental conditions ("CRECs"), or historical recognized environmental conditions ("HRECs") have been identified at any of the four owned properties that would require remediation or constitute a material liability. The Phase I reports are available in Data Room Folder 11.1 for Buyer's review.