CALDERWOOD & HARKNESS LLP Attorneys at Law
599 Lexington Avenue, 42nd Floor New York, New York 10022 Telephone: (212) 554-7000 Facsimile: (212) 554-7001 www.calderwoodharkness.com
May 22, 2023
CONFIDENTIAL — ATTORNEY-CLIENT PRIVILEGED Matter No.: 1038-00002
VIA ELECTRONIC MAIL AND HAND DELIVERY
Derek Tanaka, Esq. General Counsel & Corporate Secretary Cascade Retail Holdings Inc. 2200 Elliott Avenue, Suite 1400 Seattle, Washington 98121
Elena Kowalski Chief Financial Officer Cascade Retail Holdings Inc. 2200 Elliott Avenue, Suite 1400 Seattle, Washington 98121
FROM: Claudia Merritt, Partner, Banking & Finance Group Marcus Leung, Associate, Banking & Finance Group Calderwood & Harkness LLP
RE: Closing Summary — $300,000,000 Senior Secured Asset-Based Revolving Credit Facility
Dear Derek and Elena:
I. Introduction and Executive Summary
We are pleased to provide this memorandum summarizing the successful closing, on May 19, 2023, of the $300,000,000 Senior Secured Asset-Based Revolving Credit Facility (the "Facility") governed by the Credit Agreement dated as of May 4, 2023 (the "Credit Agreement"), which became effective on the Closing Date of May 19, 2023. This memorandum is intended to serve as a comprehensive reference for the management and legal team of Cascade Retail Holdings Inc. ("CRH") regarding the principal terms, conditions, collateral arrangements, closing mechanics, post-closing obligations, and ongoing reporting requirements associated with the Facility.
The Facility was entered into among the following parties:
Co-Borrowers:
• Cascade Retail Holdings Inc. ("CRH"), a Delaware corporation
• Cascade Retail Operating Company LLC ("CROC"), a Delaware limited liability company
Guarantors:
• Cascade Digital Commerce Inc. ("CDC"), a Delaware corporation
• Cascade Outlet Stores LLC ("COS"), a Washington limited liability company
• Cascade Fulfillment Services Inc. ("CFS"), a Delaware corporation
(CRH, CROC, CDC, COS, and CFS are collectively referred to herein as the "Loan Parties.")
Lenders and Agents:
• Crescent Harbor Bank, N.A. ("CHB"), acting in its capacities as Administrative Agent, Collateral Agent, Sole Lead Arranger, Sole Bookrunner, Issuing Bank, and Swingline Lender
• Northgate Capital Bank ("NCB"), as a Syndicate Lender
• Bridgevale Financial Corporation ("Bridgevale"), as a Syndicate Lender
Lenders' Counsel:
• Whitfield, Greer & Holloway LLP
All conditions precedent to effectiveness and the initial borrowing under Article IV of the Credit Agreement were duly satisfied or waived as of the Closing Date. The Facility was declared effective, and an initial draw of $150,000,000 was funded on May 19, 2023. A portion of the initial draw was applied to refinance and pay off in full the existing $175,000,000 revolving asset-based lending facility with Harborview Lending Group, LLC ("Harborview"), the outstanding balance of which was $112,450,000 at the time of payoff. Harborview's security interests and UCC filings were simultaneously terminated, and lien release documentation was received.
The Credit Agreement is governed by the laws of the State of New York. The parties have consented to the exclusive jurisdiction of the United States District Court for the Southern District of New York and the Supreme Court of the State of New York, New York County, for any dispute arising under or related to the Facility. A CUSIP number of 14762MAA3 has been assigned to the Facility.
The following sections of this memorandum set forth the key transaction terms, collateral structure, perfection actions, closing-date funding mechanics, closing deliverables, ongoing reporting requirements, post-closing obligations, and relevant contact information.
II. Key Transaction Terms
A. Facility Overview
The Facility is structured as a senior secured asset-based revolving credit facility providing the Co-Borrowers with a maximum aggregate revolving commitment of $300,000,000. The Facility has a five-year term, maturing on May 19, 2028 (the "Maturity Date"). As a revolving facility, there is no scheduled amortization; the Co-Borrowers may borrow, repay, and reborrow amounts under the Facility, subject to borrowing base availability and other conditions set forth in the Credit Agreement.
The Facility includes the following sublimits:
• Letter of Credit Sublimit: $40,000,000. CHB serves as the Issuing Bank for all letters of credit issued under the Facility.
• Swingline Sublimit: $25,000,000. CHB serves as the Swingline Lender. Swingline loans are available on a same-day basis for short-term working capital needs, subject to the terms and settlement mechanics set forth in the Credit Agreement.
Both the letter of credit sublimit and the swingline sublimit are carved out of (and not in addition to) the $300,000,000 aggregate revolving commitment.
B. Lender Commitments
The aggregate commitment of $300,000,000 is allocated among the Lenders as follows:
Table 1 — Lender Commitment Allocations
Each Lender's pro rata share of any borrowing, letter of credit participation, or other obligation under the Facility is determined by its respective percentage set forth above. Assignment and participation rights are subject to the customary restrictions and minimum thresholds contained in the Credit Agreement.
C. Interest Rate and Fees
The pricing structure of the Facility is summarized below:
Interest Rate. Revolving loans under the Facility bear interest at a rate per annum equal to Adjusted Term SOFR plus a margin of 300 basis points (3.00%). "Adjusted Term SOFR" means the forward-looking term rate published by CME Group Benchmark Administration Limited (or a successor administrator) for the applicable interest period, as adjusted by the applicable Credit Spread Adjustment. There is no SOFR floor; the SOFR floor is set at 0.00%.
SOFR Credit Spread Adjustments. In accordance with market convention for the transition from LIBOR to SOFR-based pricing, the following credit spread adjustments are added to the applicable Term SOFR rate:
• 1-month Term SOFR: 10 basis points (0.10%)
• 3-month Term SOFR: 15 basis points (0.15%)
Default Rate. Upon the occurrence and during the continuance of any Event of Default, all outstanding obligations under the Facility shall bear interest at a rate equal to 200 basis points (2.00%) per annum above the rate otherwise applicable to such obligations.
Unused Line Fee. An unused line fee of 37.5 basis points (0.375%) per annum is payable quarterly in arrears on the daily average undrawn portion of the aggregate commitments. This fee is allocated among the Lenders on a pro rata basis.
Letter of Credit Fee. A letter of credit fee of 300 basis points (3.00%) per annum is payable on the aggregate undrawn face amount of all outstanding letters of credit, allocated among the Lenders on a pro rata basis. This fee is payable quarterly in arrears.
LC Fronting Fee. A fronting fee of 12.5 basis points (0.125%) per annum is payable to CHB in its capacity as Issuing Bank on the aggregate face amount of all outstanding letters of credit. This fee is payable quarterly in arrears and is for the sole account of CHB.
Administrative Agent Fee. An annual administrative agent fee of $150,000 is payable to CHB in its capacity as Administrative Agent, payable annually in advance on each anniversary of the Closing Date.
Upfront / Arrangement Fee. An upfront fee of 50 basis points (0.50%) on each Lender's respective commitment was earned and payable on the Closing Date, aggregating $1,500,000 in total. The breakdown is as follows:
• CHB: $675,000 (50 bps × $135,000,000)
• NCB: $450,000 (50 bps × $90,000,000)
• Bridgevale: $375,000 (50 bps × $75,000,000)
All upfront and arrangement fees were paid on the Closing Date from the proceeds of the initial draw in accordance with the Funds Flow Memorandum.
D. Borrowing Base (at Closing)
Availability under the Facility is governed by a borrowing base formula tied to the Co-Borrowers' eligible receivables and eligible inventory. The closing-date borrowing base, as certified by Priya Anand, Treasurer of CRH, in the Borrowing Base Certificate dated May 19, 2023, is set forth below:
Table 2 — Closing-Date Borrowing Base Calculation
Availability Reserves of $23,650,000 consist of the following customary components: rent reserves (estimated at three months' rent for leased locations constituting a portion of the collateral), gift card reserves (reflecting outstanding unredeemed gift card liabilities), dilution reserves (reflecting historical dilution rates on accounts receivable), and other customary reserves established by the Administrative Agent in its reasonable discretion.
The Effective Available Commitment at closing is the lesser of (a) the Aggregate Commitments ($300,000,000) and (b) the Net Borrowing Base ($326,400,000), resulting in an Effective Available Commitment of $300,000,000. The excess of the Net Borrowing Base over the Aggregate Commitments — a cushion of $26,400,000 — provides additional headroom for borrowing base fluctuations.
The borrowing base eligibility criteria and advance rates were informed by the field examination and inventory appraisal conducted by Ridgeline Asset Advisors LLC, under the direction of Patricia Holbrook as Engagement Lead. The appraisal report, dated March 31, 2023, established the net orderly liquidation value ("NOLV") of the eligible inventory and evaluated the quality and collectibility of the receivables portfolio.
E. Financial Covenants
The Credit Agreement contains a single financial maintenance covenant — a minimum Fixed Charge Coverage Ratio ("FCCR") — structured as a springing covenant that is tested only when liquidity tightens below specified thresholds, consistent with market practice for asset-based revolving credit facilities.
Fixed Charge Coverage Ratio (FCCR). The Co-Borrowers are required to maintain a minimum FCCR of not less than 1.10 to 1.00, tested on a trailing four-fiscal-quarter basis. This covenant is a springing covenant, meaning it is only tested during any period in which Availability (defined as the Effective Available Commitment less the aggregate outstanding revolving loans, swingline loans, and letter of credit obligations) falls below the greater of:
(a) 10% of the lesser of the Aggregate Commitments and the then-current Borrowing Base (at closing, this equals 10% × $300,000,000 = $30,000,000); and
(b) $25,000,000.
Accordingly, the FCCR Trigger Threshold at closing is $30,000,000. If Availability remains at or above $30,000,000, the FCCR is not tested and no compliance reporting in respect thereof is required.
FCCR Definition. The Fixed Charge Coverage Ratio is defined as the ratio of:
(i) Consolidated EBITDA minus unfinanced capital expenditures minus cash taxes paid during the applicable measurement period,
to
(ii) Fixed Charges, which includes the sum of (A) scheduled funded debt payments (including scheduled principal amortization on any permitted purchase money or capital lease indebtedness), (B) cash interest expense, (C) restricted payments (dividends and distributions), and (D) capital lease obligations.
The ratio is calculated on a trailing four-fiscal-quarter basis as of the last day of the most recently completed fiscal quarter.
FY2022 Actual FCCR. Based on CRH's audited financial statements for the fiscal year ended December 31, 2022, the Consolidated EBITDA was $148,500,000 and total Fixed Charges were $87,200,000, resulting in an actual FCCR of 1.70 to 1.00. This is well above the minimum threshold of 1.10 to 1.00, providing approximately 55% headroom above the covenant minimum.
F. Key Negative Covenants (Selected)
The Credit Agreement contains customary negative covenants applicable to the Loan Parties and their subsidiaries. The following is a summary of selected material negative covenants. This summary is not exhaustive, and we direct your attention to the full text of Article VI of the Credit Agreement for the complete covenants and defined terms.
Debt Incurrence. The Loan Parties may not incur additional indebtedness except for certain carve-outs, including: (i) purchase money indebtedness and capital lease obligations in an aggregate amount not to exceed $15,000,000 at any time outstanding; (ii) indebtedness existing on the Closing Date that is set forth on the Disclosure Schedules; and (iii) intercompany indebtedness among the Loan Parties, provided that such indebtedness is subordinated to the obligations under the Credit Agreement on customary terms and evidenced by intercompany notes pledged to the Collateral Agent.
Liens. The Loan Parties may not grant or suffer to exist any liens on their assets except for customary ABL permitted liens (including liens securing the obligations under the Facility, existing permitted encumbrances, statutory and tax liens, and liens arising in the ordinary course of business) and purchase money liens securing purchase money indebtedness permitted above, in an aggregate amount not exceeding $15,000,000.
Restricted Payments. Dividends, share repurchases, and other restricted payments are permitted, provided that: (a) no Default or Event of Default exists or would result therefrom; (b) pro forma Availability (after giving effect to the proposed restricted payment) is not less than $45,000,000 (representing 15% of the Aggregate Commitments of $300,000,000); and (c) if pro forma Availability is less than 20% of the lesser of the Aggregate Commitments and the Borrowing Base, the pro forma FCCR is not less than 1.15 to 1.00.
Investments. The Loan Parties are subject to restrictions on investments, with the following principal exceptions: (i) a general investment basket of up to $20,000,000 in the aggregate; and (ii) unlimited investments if, after giving effect thereto on a pro forma basis, Availability exceeds $75,000,000 and the FCCR exceeds 1.15 to 1.00.
Dispositions. Asset dispositions (other than sales of inventory in the ordinary course of business) are limited to $10,000,000 in the aggregate per fiscal year, plus dispositions of obsolete, worn-out, or surplus inventory or equipment in the ordinary course of business.
Cash Dominion. A cash dominion period (during which proceeds swept into controlled deposit accounts must be applied to reduce outstanding revolving loans) is triggered when (i) Availability falls below $37,500,000 (representing 12.5% of the Aggregate Commitments of $300,000,000) or (ii) an Event of Default has occurred and is continuing. During a cash dominion period, the DACAs will direct all collected funds in the controlled accounts to the concentration account for application against the outstanding obligations.
G. Prepayment
Optional Prepayment. The Co-Borrowers may prepay outstanding revolving loans (in whole or in part) at any time without premium or penalty, subject only to customary SOFR breakage costs if a Term SOFR loan is prepaid on a date other than the last day of an applicable interest period. Minimum prepayment amounts and notice requirements are set forth in the Credit Agreement.
Mandatory Prepayment. If at any time the aggregate outstanding principal amount of all revolving loans, swingline loans, and letter of credit obligations exceeds the lesser of (a) the Aggregate Commitments and (b) the then-current Borrowing Base, the Co-Borrowers are required to make a mandatory prepayment in an amount equal to such excess. Mandatory prepayments are to be applied first to outstanding swingline loans, then to outstanding revolving loans, and thereafter, if any excess remains, cash collateralized to the extent of outstanding letter of credit obligations.
III. Collateral
The obligations of the Co-Borrowers and the Guarantors under the Facility are secured by a first-priority security interest granted by all Loan Parties (CRH, CROC, CDC, COS, and CFS) in favor of CHB, in its capacity as Collateral Agent for the benefit of the Secured Parties, in the following categories of assets:
• All accounts receivable, whether now owned or hereafter acquired;
• All inventory, including raw materials, work-in-process, and finished goods, wherever located, including in-transit inventory and inventory held at the Co-Borrowers' primary distribution centers located in Kent, Washington; Reno, Nevada; and Columbus, Ohio;
• All deposit accounts maintained by the Loan Parties, subject to deposit account control agreements ("DACAs");
• All supporting obligations, chattel paper (electronic and tangible), instruments, letter-of-credit rights, commercial tort claims (as identified), general intangibles (including payment intangibles), and all proceeds of the foregoing.
The collateral package is broadly defined and intended to capture the core ABL collateral categories — receivables, inventory, and cash — together with associated rights and proceeds.
Excluded Assets. The following categories of assets are excluded from the collateral package:
• Real property, other than fixtures (which are included as part of the collateral);
• Equity interests in foreign subsidiaries to the extent exceeding 65% of the voting stock of such foreign subsidiaries. Accordingly, only 65% of the voting equity interests in Cascade Retail Canada ULC (a British Columbia unlimited liability company) has been pledged;
• intellectual property registered with the United States Patent and Trademark Office ("USPTO") or the United States Copyright Office ("USCO"). While registered intellectual property is excluded from the pledged collateral, the Loan Parties have agreed to a negative pledge prohibiting any lien on such intellectual property in favor of any third party without the prior written consent of the Administrative Agent.
Pledge of Equity Interests. In addition to the asset-level security interests described above, the Loan Parties have pledged equity interests as follows:
• CRH has pledged 100% of its membership interests in CROC pursuant to the Pledge Agreement;
• CROC has pledged 100% of its equity interests in each of CDC, COS, and CFS, and 65% of the voting equity interests in Cascade Retail Canada ULC, pursuant to the Pledge Agreement.
Certificated equity interests, together with executed undated stock powers or transfer instruments, were delivered to the Collateral Agent at closing.
IV. UCC Filings and Perfection
Perfection of the security interests was accomplished through the filing of UCC-1 Financing Statements and the execution of deposit account control agreements, as detailed below.
UCC-1 Financing Statements Filed
The following UCC-1 Financing Statements were filed on or prior to the Closing Date, each naming Crescent Harbor Bank, N.A., as Collateral Agent, as the Secured Party:
Filing acknowledgments and file-stamped copies of each UCC-1 have been received and are maintained in our closing files.
UCC-3 Termination Statements
In connection with the refinancing and payoff of the existing Harborview Lending Group, LLC facility, UCC-3 Termination Statements were filed with the Delaware Secretary of State and the Washington Secretary of State to terminate all existing UCC Financing Statements in which Harborview Lending Group, LLC was named as Secured Party. Filing acknowledgments for all such terminations have been received, confirming that Harborview's security interests have been released of record.
Deposit Account Control Agreements (DACAs)
Four Deposit Account Control Agreements were executed at closing, establishing the Collateral Agent's control over the following deposit accounts in accordance with Article 9 of the Uniform Commercial Code:
1. CRH Operating Account — maintained at Meridian Trust Company, N.A. (1001 Fourth Avenue, Suite 500, Seattle, Washington 98154). This is the primary operating account of CRH into which working capital proceeds from the initial draw were deposited.
2. CROC Collections Account — maintained at Crescent Harbor Bank, N.A. This account receives collections on accounts receivable generated by CROC.
3. CRH Concentration Account — maintained at Crescent Harbor Bank, N.A. This is the designated concentration account into which funds from other controlled accounts are swept during a cash dominion period for application against the outstanding obligations.
4. CDC Collections Account — maintained at Northgate Capital Bank. This account receives collections on accounts receivable generated by CDC's digital commerce operations.
Each DACA has been executed by the applicable Loan Party, the depository bank, and the Collateral Agent. Under each DACA, the depository bank acknowledges the Collateral Agent's control over the account and agrees to comply with the Collateral Agent's instructions regarding the disposition of funds in the account, without further consent from the Loan Party, upon receipt of a notice of exclusive control (which may be delivered by the Collateral Agent upon the triggering of a cash dominion period or an Event of Default).
V. Closing-Date Funding and Payoff
A. Initial Draw
On the Closing Date, the Co-Borrowers made an initial revolving loan draw in the aggregate amount of $150,000,000. The proceeds were applied as follows:
Table 3 — Initial Draw Application of Proceeds
All proceeds were disbursed in accordance with the Funds Flow Memorandum dated May 19, 2023, which was approved by the Co-Borrowers and the Administrative Agent prior to the release of funds.
B. Harborview Payoff
The existing revolving asset-based lending facility with Harborview Lending Group, LLC had a maximum commitment of $175,000,000. As of the Closing Date, the aggregate outstanding balance under the Harborview facility was $112,450,000, inclusive of outstanding principal, accrued and unpaid interest, and any applicable fees.
A Payoff Letter dated May 17, 2023, was received from Harborview Lending Group, LLC (executed by Steven Calloway, Vice President), setting forth the aggregate payoff amount, per diem interest, and wire transfer instructions. On May 19, 2023, payoff funds in the amount of $112,450,000 were wired directly to Harborview in accordance with the wire instructions set forth in the Payoff Letter.
Upon receipt and confirmation of the payoff funds, Harborview delivered the following:
• UCC-3 Termination Statements, which were filed with the Delaware Secretary of State and the Washington Secretary of State to terminate all UCC-1 Financing Statements naming Harborview as Secured Party;
• Lien releases and termination confirmations with respect to all security interests, pledges, and other encumbrances previously granted in favor of Harborview.
The refinancing of the Harborview facility was completed seamlessly, with no gap in the Loan Parties' access to revolving credit availability.
C. Remaining Availability
Following the initial draw, the remaining undrawn availability under the Facility is as follows:
• Aggregate Commitments: $300,000,000
• Less: Initial Draw: ($150,000,000)
• Undrawn Availability at Closing: $150,000,000
This $150,000,000 of undrawn availability provides CRH with significant liquidity to support working capital needs, seasonal inventory builds, and other general corporate purposes. We note that availability is subject to adjustment based on changes in the borrowing base as reported in periodic Borrowing Base Certificates.
D. Closing Costs and Fee Breakdown
The aggregate closing costs, fees, and expenses of $3,175,000 were funded from the initial draw proceeds and include the following components:
• Upfront/arrangement fees payable to the Lenders: $1,500,000
• CHB: $675,000
• NCB: $450,000
• Bridgevale: $375,000
• Administrative Agent fee (Year 1, paid in advance): $150,000 payable to CHB
• Legal fees — Calderwood & Harkness LLP (borrower's counsel)
• Legal fees — Whitfield, Greer & Holloway LLP (lenders' counsel, reimbursed by the Co-Borrowers pursuant to the Credit Agreement)
• Ridgeline Asset Advisors LLC field examination and inventory appraisal fee
• UCC filing fees, search fees, and miscellaneous disbursements
All wire transfers in connection with the closing costs and fees were executed in accordance with the Funds Flow Memorandum dated May 19, 2023. Copies of all wire confirmations have been received and are maintained in the closing files.
VI. Closing Deliverables Summary
All closing deliverables required under Article IV of the Credit Agreement were satisfied as of the Closing Date, as reflected in the Master Closing Checklist (final version dated May 19, 2023), a copy of which is included in the enclosed Index of Executed Closing Documents. The following is a summary of the key categories of deliverables.
A. Corporate / Organizational Documents
Cascade Retail Holdings Inc. (CRH). A Secretary's Certificate, executed by Derek Tanaka as Corporate Secretary, was delivered at closing and included the following attachments: (i) a certified copy of the Certificate of Incorporation of CRH, as amended to date; (ii) the Amended and Restated Bylaws of CRH; (iii) resolutions of the Board of Directors of CRH, adopted at a meeting held on February 27, 2023, authorizing the execution, delivery, and performance of the Credit Agreement and all related Loan Documents, and designating Nathaniel Voss (Chief Executive Officer) and Elena Kowalski (Chief Financial Officer) as authorized signatories for all borrowing requests, compliance certificates, and other notices under the Facility; and (iv) an incumbency certificate certifying the names, titles, and specimen signatures of each officer authorized to execute documents on behalf of CRH.
Cascade Retail Operating Company LLC (CROC). A Secretary's Certificate was delivered at closing, attaching: (i) a certified copy of the Certificate of Formation of CROC filed with the Delaware Secretary of State; (ii) the Limited Liability Company Agreement of CROC; (iii) resolutions of the sole member (CRH) authorizing the transactions; and (iv) an incumbency certificate for authorized signatories.
Cascade Digital Commerce Inc. (CDC), Cascade Outlet Stores LLC (COS), and Cascade Fulfillment Services Inc. (CFS). Secretary's Certificates were delivered for each Guarantor entity, attaching: (i) applicable organizational documents (certificates of incorporation, certificates of formation, operating agreements, and bylaws, as applicable); (ii) resolutions of the respective boards of directors or managing members authorizing the execution and delivery of the Guaranty Agreement and related Loan Documents; and (iii) incumbency certificates for authorized signatories.
B. Officers' Certificates and Financial Deliverables
Officer's Certificate. Elena Kowalski, Chief Financial Officer of CRH, executed and delivered an Officer's Certificate dated as of the Closing Date, certifying: (i) that all representations and warranties of the Loan Parties contained in the Credit Agreement and the other Loan Documents were true and correct in all material respects as of the Closing Date (or, with respect to representations and warranties that are qualified by materiality or material adverse effect, in all respects); (ii) that no Default or Event of Default existed or would result from the initial borrowing on the Closing Date; (iii) that all conditions precedent set forth in Article IV of the Credit Agreement had been satisfied; and (iv) that the closing-date Borrowing Base Certificate, reflecting a Net Borrowing Base of $326,400,000, was delivered concurrently therewith.
Solvency Certificate. Elena Kowalski, Chief Financial Officer of CRH, executed and delivered a Solvency Certificate dated as of the Closing Date, certifying that, after giving effect to the transactions contemplated by the Credit Agreement (including the $150,000,000 initial borrowing, the payoff of the Harborview facility, and the payment of all closing costs, fees, and expenses), the Loan Parties, on a consolidated basis: (A) are solvent; (B) have capital sufficient to carry on their businesses; (C) are able to pay their debts as they become due; and (D) have assets with a fair saleable value in excess of the amount required to pay their probable liabilities on their existing debts as they become absolute and matured.
Borrowing Base Certificate. A Borrowing Base Certificate dated May 19, 2023, was executed and delivered by Priya Anand, Treasurer of CRH, setting forth the closing-date Borrowing Base calculation as detailed in Section II.D above.
C. Loan Documents
The following Loan Documents were executed and delivered at closing:
• Credit Agreement: Execution version dated as of May 4, 2023, effective as of May 19, 2023, executed by the Co-Borrowers, the Guarantors, the Administrative Agent, and the Lenders.
• Guaranty Agreement: Executed by CDC, COS, and CFS, as Guarantors, in favor of the Administrative Agent for the benefit of the Secured Parties, guaranteeing all obligations of the Co-Borrowers under the Credit Agreement and the other Loan Documents.
• Security Agreement: Executed by all Loan Parties (CRH, CROC, CDC, COS, and CFS) in favor of CHB as Collateral Agent, granting a first-priority security interest in the collateral described in Section III above.
• Pledge Agreement: Executed by CRH (pledging 100% of its membership interests in CROC) and CROC (pledging 100% of its equity interests in CDC, COS, and CFS, and 65% of the voting equity interests in Cascade Retail Canada ULC) in favor of CHB as Collateral Agent.
• Perfection Certificate: Executed by all Loan Parties, setting forth organizational information, jurisdictions of formation, chief executive office locations, prior names, employer identification numbers (CRH: 91-1847263; CROC: 83-2951047; CDC: 84-3720158; COS: 91-2034671; CFS: 84-5291836), locations of collateral, deposit account details, and other information necessary for UCC filing and perfection purposes.
• Revolving Loan Notes: Promissory notes issued by the Co-Borrowers in favor of each Lender, in the following principal amounts:
• CHB: $135,000,000
• NCB: $90,000,000
• Bridgevale: $75,000,000
• Swingline Note: Promissory note issued by the Co-Borrowers in favor of CHB in the principal amount of $25,000,000, evidencing swingline borrowings under the Facility.
• Deposit Account Control Agreements: Four DACAs, as described in Section IV above.
D. Legal Opinions
Calderwood & Harkness LLP Opinion Letter. An opinion letter dated May 19, 2023, was delivered by Calderwood & Harkness LLP, as counsel to the Loan Parties, addressed to CHB in its capacity as Administrative Agent and Collateral Agent, and to each of the Lenders. The opinion letter addressed the following matters:
(i) Due organization, valid existence, and good standing of each Loan Party in its jurisdiction of formation;
(ii) Power and authority of each Loan Party to execute, deliver, and perform its obligations under the Loan Documents to which it is a party;
(iii) Due authorization, execution, and delivery of the Loan Documents by each Loan Party;
(iv) Enforceability of the Loan Documents against each Loan Party in accordance with their terms;
(v) No conflict of the Loan Documents with the organizational documents of any Loan Party, applicable law, or existing material agreements;
(vi) Creation and perfection of the security interests under the Uniform Commercial Code of the State of New York and the State of Delaware, as applicable, upon the filing of the UCC-1 Financing Statements and the execution of the DACAs; and
(vii) No governmental approvals or consents required in connection with the transactions (other than filings and approvals already obtained).
The opinion letter was subject to customary assumptions, qualifications, and limitations, including qualifications as to bankruptcy, insolvency, reorganization, moratorium, and similar laws affecting creditors' rights generally, general principles of equity, and usury laws.
E. Third-Party Deliverables
The following third-party deliverables were received at or prior to closing:
• Payoff Letter: Payoff Letter dated May 17, 2023, from Harborview Lending Group, LLC (Steven Calloway, Vice President), specifying the aggregate payoff amount and wire instructions.
• UCC-3 Termination Statements: Filed to terminate all existing UCC Financing Statements in favor of Harborview Lending Group, LLC.
• UCC-1 Financing Statements: Three filings as detailed in Section IV above (two filings with the Delaware Secretary of State; one filing with the Washington Secretary of State).
• Insurance Certificates and Endorsements: Certificates of insurance and lender endorsements were delivered from:
• Pinnacle Assurance Company (property and casualty insurance), confirming coverage for all collateral locations and naming CHB as Collateral Agent as loss payee and additional insured; and
• Kelvantis Mutual Insurance Group (umbrella and business interruption insurance), similarly naming CHB as Collateral Agent as loss payee and additional insured.
Both policies were placed and arranged through Strathmore Corporation Greaves & Co. (insurance broker). Updated endorsement forms reflecting the new secured party designations are subject to the post-closing obligations described in Section VIII.B below.
• Ridgeline Asset Advisors LLC Field Examination and Appraisal Report: The field examination and inventory appraisal report, dated March 31, 2023, prepared by Ridgeline Asset Advisors LLC under the direction of Patricia Holbrook, Engagement Lead, was delivered to the Administrative Agent and the Lenders. The report supports the borrowing base eligibility determinations and the NOLV of inventory used in calculating the closing-date Borrowing Base.
• Good Standing Certificates: Certificates of good standing were obtained from the Delaware Secretary of State (for CRH, CROC, CDC, and CFS) and the Washington Secretary of State (for COS), each dated within 30 days of the Closing Date.
VII. Reporting Requirements Going Forward
The Credit Agreement imposes a number of ongoing reporting and compliance obligations on the Co-Borrowers. The following is a summary of the key reporting requirements and associated deadlines. CRH's finance and treasury teams should incorporate these deadlines into their internal compliance calendars.
Borrowing Base Certificates. Borrowing Base Certificates are to be delivered to the Administrative Agent on a monthly basis, no later than the 15th day of the month following the month to which the certificate relates. If at any time Availability falls below $45,000,000, the frequency of Borrowing Base Certificate delivery increases to weekly (due on the Wednesday of each week, reflecting data as of the close of business on the preceding Friday).
The first post-closing Borrowing Base Certificate is due on June 15, 2023, reflecting the borrowing base as of May 31, 2023.
Financial Statements.
• Quarterly Unaudited Financial Statements: The Co-Borrowers are required to deliver quarterly unaudited consolidated financial statements (balance sheet, income statement, and cash flow statement) within 45 days of the end of each fiscal quarter.
• Annual Audited Financial Statements: The Co-Borrowers are required to deliver annual audited consolidated financial statements, audited by an independent registered public accounting firm of recognized national standing (currently Kessler & Hodge LLP, with Richard Gundersen as Engagement Partner), within 90 days of the end of each fiscal year. CRH's fiscal year ends on December 31.
Compliance Certificates. A Compliance Certificate, in the form attached to the Credit Agreement, must be delivered concurrently with each set of quarterly and annual financial statements — within 45 days of the end of each fiscal quarter and within 90 days of fiscal year-end. The Compliance Certificate must set forth the calculations demonstrating compliance with the financial covenants (to the extent the FCCR covenant is then being tested) and certify the absence of any Default or Event of Default.
The first post-closing Compliance Certificate is due on August 14, 2023 (within 60 days of the end of the second fiscal quarter of 2023, which ends on June 30, 2023). We note that this reflects the 60-day period specified in the Credit Agreement for the first post-closing delivery, rather than the standard 45-day period applicable to subsequent quarters.
Inventory Appraisal. An inventory appraisal must be conducted annually at the Co-Borrowers' expense by an appraiser acceptable to the Administrative Agent. If Availability falls below $60,000,000 at any time, the frequency increases to twice annually. The appraisal is expected to be conducted by Ridgeline Asset Advisors LLC or another qualified firm selected with the Administrative Agent's consent.
Field Examination. A field examination of the Co-Borrowers' books, records, and collateral must be conducted annually at the Co-Borrowers' expense by a firm acceptable to the Administrative Agent. If Availability falls below $60,000,000, the frequency increases to twice annually. As with the appraisal, the field examination is expected to be conducted by Ridgeline Asset Advisors LLC or a comparable firm.