MEMORANDUM
PRIVILEGED & CONFIDENTIAL — ATTORNEY WORK PRODUCT
To: Philip Hartmann, Responsible Partner, Banking & Finance Lisa Morrow, Lead Associate, Banking & Finance
From: Marcus Leung, Working Associate, Banking & Finance
Date: March 25, 2026
Re: Reporting Covenant Requirements — SaaS-Specific Metrics Solara Digital Infrastructure LP — $200,000,000 Senior Secured Term Loan Facility for Acquisition of Meridian Cloud Solutions Inc.
Matter No.: 1041-00002 Client No.: CL-081273
I. Purpose and Executive Summary
The purpose of this memorandum is to analyze the reporting covenant requirements set forth in the initial term sheet (the "Term Sheet") received from Brindoval National Bank, N.A. ("Brindoval") on March 21, 2026, with particular focus on the SaaS-specific operational metrics that Brindoval has proposed as part of the information covenant package. This analysis is intended to inform Calderwood & Harkness LLP's first markup of the Term Sheet, which is due to be delivered to lender's counsel, Broadwick & Thayer LLP, no later than March 28, 2026.
Calderwood & Harkness LLP represents Solara Digital Infrastructure LP ("Solara" or the "Sponsor") and Solara Digital Acquisition Holdings LLC (the "Borrower") in connection with a $200,000,000 Senior Secured Term Loan Facility (the "Facility") to finance the acquisition (the "Acquisition") of 100% of the equity interests in Meridian Cloud Solutions Inc. ("Meridian" or the "Target") at an enterprise value of $315,000,000. Brindoval, in its capacity as Lead Arranger and Administrative Agent, has proposed a reporting framework that requires both standard financial reporting covenants (annual audited financial statements, quarterly unaudited financial statements, compliance certificates, and an annual budget) and an enhanced suite of SaaS-specific operational metrics, including monthly Annual Recurring Revenue ("ARR") reports, net revenue retention data, customer churn data, average contract value, and customer concentration disclosures.
The inclusion of SaaS-specific reporting requirements is not unusual in the current market for sponsor-backed SaaS acquisition financings. However, the classification, definition, and scope of these requirements are critical negotiation points that will significantly impact the Borrower's operational flexibility and default risk profile over the seven-year term of the Facility. Accordingly, this memorandum undertakes the following tasks:
(a) catalogs each reporting requirement as set forth in the Term Sheet, including both standard financial reporting and SaaS-specific operational metrics;
(b) evaluates which metrics should be classified as binding covenant reporting (i.e., deliverables whose failure to provide could independently trigger an Event of Default) versus information-only reporting (i.e., deliverables provided for lender monitoring purposes without independent covenant consequences);
(c) proposes detailed definitions for key metrics — particularly ARR — to protect borrower flexibility and prevent future disputes over calculation methodology; and
(d) recommends specific markup positions for Calderwood & Harkness's first markup of the Term Sheet.
Key Recommendation. We recommend accepting the standard financial reporting covenants with market-standard delivery periods, subject to targeted adjustments discussed herein. With respect to SaaS-specific operational metrics, we strongly recommend that the first markup classify substantially all such metrics as information-only deliverables rather than compliance-tested covenants. In particular, ARR — while appropriately reported on a monthly basis — should not be subject to a maintenance covenant or minimum threshold that could independently trigger an Event of Default. The Facility's springing Total Net Leverage Ratio covenant (7.50x, tested only when the revolving credit facility, if any, is drawn in excess of 35%) provides the appropriate financial test, and the covenant-lite structure that Solara has negotiated should not be undermined through the back door of operational metric compliance requirements.
Additionally, we recommend that the first markup include a fully developed proposed ARR definition (to be attached as an annex to the Term Sheet, with the final definition to be incorporated into the Credit Agreement), as the precise calculation methodology for ARR will have implications not only for monthly reporting but also for the lender group's ongoing assessment of credit trajectory and, potentially, for future amendment or refinancing discussions.
II. Background — Transaction and Borrower Profile
A. Transaction Summary
The Acquisition involves the purchase by Solara Digital Acquisition Holdings LLC, a newly formed Delaware limited liability company and wholly owned subsidiary of Solara Digital Infrastructure Fund IV LP ("Fund IV"), of 100% of the equity interests in Meridian Cloud Solutions Inc. Meridian is a Delaware corporation headquartered in Austin, Texas, operating a cloud-native SaaS platform serving mid-market asset managers, registered investment advisors, and family offices. The Acquisition is structured as a leveraged buyout, with the Facility providing the debt component of the acquisition financing.
The key financial parameters of the Acquisition are as follows:
Enterprise Value and Purchase Price:
The agreed enterprise value of Meridian is $315,000,000, representing approximately 16.84x Meridian's last-twelve-months ("LTM") Adjusted EBITDA as of December 31, 2025 ($18,700,000). While this multiple is at the higher end of the range for comparable SaaS transactions, it reflects Meridian's strong ARR growth trajectory (27% year-over-year), high net revenue retention, and the favorable competitive dynamics of the financial technology SaaS sector. The purchase price will be subject to customary working capital, cash, and indebtedness adjustments at closing.
Sources and Uses:
Closing Leverage:
At closing, the Facility will represent leverage of approximately 10.70x Debt/LTM Adjusted EBITDA — a level that is elevated by traditional leveraged finance standards but not unusual for high-growth SaaS acquisition financings, where lenders underwrite the credit thesis primarily on recurring revenue metrics rather than current-period EBITDA. On an ARR basis, closing leverage is approximately 3.21x Debt/ARR, which is well within the range typically observed in comparable transactions. This bifurcation in leverage metrics — high on an EBITDA basis, moderate on an ARR basis — underscores the centrality of ARR and related SaaS metrics to the credit underwriting and, consequently, the importance of the reporting framework that is the subject of this memorandum.
B. Meridian Operational Profile
Meridian operates a cloud-native SaaS platform that provides portfolio analytics, risk reporting, investor reporting, and data aggregation services to mid-market asset managers, registered investment advisors ("RIAs"), and family offices. The platform is delivered entirely through a web-based interface with no on-premise deployment component. Meridian's customer base is diversified across several hundred institutional clients, with no single customer understood to represent more than approximately 4–5% of total ARR based on preliminary due diligence data.
The key operational and financial metrics for Meridian are summarized as follows:
• Annual Recurring Revenue (LTM 12/31/2025): $62,400,000
• ARR Year-over-Year Growth: 27%
• Adjusted EBITDA (LTM 12/31/2025): $18,700,000
• Adjusted EBITDA Margin: Approximately 30%
• Full-Time Equivalent Employees: Approximately 310
• Auditor: Whitfield & Sable LLP (lead engagement partner: Raymond Bautista); unqualified audit opinions issued for fiscal years 2024 and 2025
• Net Revenue Retention (estimated): 112–115%
Meridian's finance team is led by Chief Financial Officer Margaret Cho, who has been with the company since 2022 and has experience with institutional reporting requirements. In preliminary discussions (conducted through Derek Raines, CFO of Solara), Ms. Cho has confirmed that Meridian's billing and financial reporting systems are capable of generating the ARR and related SaaS metrics contemplated by the Term Sheet within the proposed delivery periods. This is a favorable data point for our negotiating position, as it mitigates the lender's argument that shorter delivery periods are necessary to ensure data availability.
Given the high leverage on an EBITDA basis but moderate leverage on an ARR basis, the lender group — which is expected to include Brindoval (as Lead Arranger and Administrative Agent), Harborstone Capital Partners LLC, and Pinnacle Ridge Credit Fund II LP, among potential additional syndication participants — will place significant weight on SaaS operational metrics as ongoing credit monitoring tools. This dynamic makes the definition and reporting framework for these metrics a critical negotiation point, as discussed in detail in Sections III and IV below.
C. Facility Overview (Relevant Terms)
The Term Sheet contemplates the following key terms relevant to the reporting covenant analysis:
• Facility Type: Senior Secured Term Loan
• Commitment Amount: $200,000,000
• Interest Rate: Adjusted Term SOFR + 475 basis points; SOFR floor of 1.00%; credit spread adjustment of 10 basis points
• Maturity: Seven (7) years from the closing date (targeting a maturity date of June 30, 2033, based on a projected closing in late June 2026)
• Financial Covenant: Springing Total Net Leverage Ratio ("TNL") of 7.50:1.00, tested only when the revolving credit facility (if any) is drawn in excess of 35% of commitments — a covenant-lite structure consistent with current market practice for sponsor-backed SaaS financings
• Administrative Agent: Brindoval National Bank, N.A.
• Lender's Counsel: Broadwick & Thayer LLP (partners: Catherine Hartwell and James Okoro)
• Excess Cash Flow Sweep: 50% of Excess Cash Flow, stepping down to 25% when TNL is equal to or less than 4.50:1.00, and stepping down further to 0% when TNL is equal to or less than 3.50:1.00; the first ECF sweep period applies to the fiscal year ending December 31, 2026
• Mandatory Prepayment — Asset Sales: 100% of net cash proceeds from asset sales, subject to a $2,500,000 per annum basket and a reinvestment period of 365 days plus an additional 180 days if a binding commitment to reinvest is entered into during the initial 365-day period
Several of these terms interact directly with the reporting framework. In particular, the ECF sweep calculations require accurate and timely delivery of annual audited financial statements and compliance certificates containing detailed Excess Cash Flow computations. The first ECF sweep for the fiscal year ending December 31, 2026 means that accurate reporting will directly impact mandatory prepayment obligations within the first year of the Facility's term. Additionally, the covenant-lite structure — in which the springing financial covenant is unlikely to be tested during normal operations — elevates the importance of the information covenants as the primary ongoing monitoring mechanism for the lender group.
III. Standard Financial Reporting Covenants — Analysis
This Section addresses the standard (non-SaaS-specific) financial reporting requirements set forth in the Term Sheet. These requirements are consistent with market practice for sponsor-backed leveraged financings and require only targeted adjustments in the first markup.
A. Annual Audited Financial Statements
Term Sheet Requirement. The Term Sheet requires the Borrower to deliver audited consolidated financial statements within 120 days of each fiscal year-end.
Analysis. A 120-day delivery period is market-standard for sponsor-backed middle-market borrowers. In our review of comparable SaaS acquisition financings closed in the Q3 2025 through Q1 2026 period, 120 days was the most common delivery period for annual audited financials, with a range of 90 to 150 days observed across the dataset. The 120-day period is achievable for Meridian: Whitfield & Sable LLP, Meridian's current auditor (with Raymond Bautista serving as lead engagement partner), has historically delivered its audit opinion by mid-March for the December 31 fiscal year-end, well within the 120-day window (which would expire in late April). We have no indication that this delivery timeline would change post-Acquisition, although the increased complexity of reporting under the Credit Agreement (including additional schedules and certifications) could modestly extend the audit timeline. Even so, the 120-day period provides adequate cushion.
Requirement Scope. The Term Sheet specifies that the annual audited financials shall consist of a consolidated balance sheet, consolidated income statement, consolidated statement of cash flows, and consolidated statement of stockholders' equity, in each case audited by an independent nationally recognized or regionally recognized accounting firm and accompanied by an unqualified opinion (or, as sometimes stated, an opinion without a "going concern" or like qualification or exception). This scope is standard and consistent with market practice.
Recommendation. We recommend accepting the 120-day delivery period as stated in the Term Sheet. We should confirm that Whitfield & Sable LLP qualifies under the Term Sheet's auditor standards — the firm is a well-regarded regional accounting firm with a significant financial services practice, and we expect it will satisfy the "nationally recognized or regionally recognized" standard, but the Credit Agreement definition should be reviewed to ensure there is no unintended disqualification. Additionally, we recommend adding a customary carve-out permitting a qualification or explanatory paragraph in the auditor's opinion that relates solely to the upcoming maturity of indebtedness within one year (or a similar period). This carve-out is standard in seven-year term loan facilities, where the maturity of the Facility itself could trigger a going-concern comment from the auditor in the final year of the Facility's term. Without this carve-out, the Borrower could face an Event of Default arising solely from the passage of time, which is neither commercially reasonable nor consistent with market practice.
Classification. Standard compliance covenant — this classification is appropriate. Failure to deliver annual audited financial statements is a material reporting obligation, and it is market-standard for such failure to constitute an Event of Default (subject to customary cure periods, discussed in Section VI.D below).
B. Quarterly Unaudited Financial Statements
Term Sheet Requirement. The Term Sheet requires the Borrower to deliver quarterly unaudited consolidated financial statements within 60 days of each fiscal quarter-end, other than the fourth fiscal quarter (for which the annual audited financials serve as the applicable deliverable).
Analysis. A 60-day delivery period for quarterly unaudited financials is market-standard for sponsor-backed SaaS companies and is consistent with our review of comparable transactions. The range observed in comparable deals is 45 to 60 days, with 60 days being the most common. Meridian's finance team, under the direction of CFO Margaret Cho, has confirmed the ability to deliver quarterly financial statements within 45 to 50 days of quarter-end based on current processes and systems. This provides a meaningful buffer relative to the 60-day requirement, which is a favorable operational data point.
Requirement Scope. The quarterly unaudited financials are to consist of a consolidated balance sheet, consolidated income statement, and consolidated statement of cash flows, in each case certified by the Chief Financial Officer of the Borrower (or, prior to the merger of the Borrower and the Target, the CFO of the Target) as fairly presenting in all material respects the financial condition and results of operations of the Borrower and its restricted subsidiaries, subject to normal year-end audit adjustments and the absence of footnotes. This scope and certification standard are standard and commercially reasonable.
Recommendation. We recommend accepting the 60-day delivery period as stated. Two targeted adjustments should be made in the first markup:
First, we should ensure that the officer certification standard uses the "in all material respects" qualifier and includes customary qualifications for (i) normal year-end audit adjustments, (ii) the absence of footnotes, and (iii) changes in accounting policies or estimates that may be required by changes in GAAP.
Second, we recommend adding a grace period of five (5) business days for late delivery before such late delivery constitutes an Event of Default. This grace period is consistent with recent market practice in comparable transactions and provides reasonable protection against inadvertent or minor delays in delivery (e.g., a delay caused by a finance team member's absence or a system issue) without undermining the lender's monitoring rights. We note that some comparable deals include a 10-business-day grace period, but we believe five business days is a reasonable initial ask that balances borrower protection with lender expectations.
Classification. Standard compliance covenant — this classification is appropriate. As with annual audited financials, the obligation to deliver quarterly unaudited financials is a core reporting covenant.
C. Annual Budget / Business Plan
Term Sheet Requirement. The Term Sheet requires the Borrower to deliver an annual budget and business plan within 60 days of each fiscal year-end.
Analysis. A 60-day delivery period for the annual budget is at the tighter end of the range observed in comparable transactions. In our review of five recent comparable SaaS acquisition financings, the delivery period for annual budgets ranged from 60 to 90 days, with 75 days being the most common. For a SaaS business like Meridian, the budgeting process involves detailed ARR forecasting, customer acquisition and retention modeling, and headcount planning, all of which require board review and approval before delivery to lenders. Given that Meridian's fiscal year ends on December 31 and the board typically meets in late January to early February to approve the annual budget, a 60-day deadline (late February) provides minimal cushion for revisions and finalization.
Recommendation. We recommend pushing the delivery period from 60 days to 75 days post-fiscal-year-end in the first markup. A 75-day period (mid-March) aligns with the typical timeline for board approval and finalization and is well within the market range. Additionally, the first markup should include language clarifying that:
(a) the annual budget shall be board-approved and shall include projected consolidated income statement, balance sheet, and statement of cash flows on a quarterly basis for the upcoming fiscal year;
(b) the annual budget is delivered for informational purposes only and does not establish financial covenant levels, compliance thresholds, or any other independent obligation against which the Borrower's actual performance will be tested; and
(c) deviations between actual results and budgeted projections shall not constitute a Default or Event of Default under the Credit Agreement.
The inclusion of clause (b) is particularly important. In certain credit agreements, the annual budget has been used by lenders as an informal benchmark against which to evaluate borrower performance, and in some cases, lenders have attempted to argue that significant deviations from budget constitute a breach of the implied covenant of good faith or an indication of material adverse change. Clear language establishing the budget as an information-only deliverable eliminates this risk.
Classification. Information-only deliverable — the budget should not serve as a covenant baseline or create independent compliance obligations. This classification is consistent with market practice in covenant-lite structures.
D. Compliance Certificate
Term Sheet Requirement. The Term Sheet requires the Borrower to deliver a compliance certificate concurrently with each set of annual and quarterly financial statements.
Analysis. The compliance certificate requirement is standard and serves multiple important functions in the context of this Facility. The compliance certificate should include, at a minimum: (a) a certification by an authorized officer (typically the CFO) that no Default or Event of Default has occurred and is continuing (or, if any such Default or Event of Default has occurred, a description thereof and the steps being taken to cure it); (b) a calculation of the Total Net Leverage Ratio, even if the springing financial covenant is not then being tested, because the TNL calculation is required for determining ECF sweep step-down eligibility; and (c) updated schedules of permitted indebtedness, permitted liens, and permitted investments, to the extent required by the Credit Agreement.
The requirement to calculate TNL in each compliance certificate, even when the springing covenant is not triggered, is particularly important in this transaction because the ECF sweep step-downs (from 50% to 25% at TNL ≤ 4.50x, and from 25% to 0% at TNL ≤ 3.50x) depend on the Borrower's demonstrated leverage at the end of each fiscal year. The first compliance certificate delivered in connection with the annual audited financials for the fiscal year ending December 31, 2026 will therefore directly impact the amount (if any) of mandatory ECF prepayments required for that year.
Recommendation. We recommend accepting the compliance certificate requirement as stated, with the following targeted adjustments:
(a) ECF sweep leverage calculations should be included in the compliance certificate but computed only on an annual basis (delivered with the annual audited financials), not on a quarterly basis, consistent with the annual testing period for the ECF sweep;
(b) the form of compliance certificate should be attached as an exhibit to the Credit Agreement, and we should negotiate the form during the definitive documentation phase to ensure that it does not include any certifications or calculations beyond what is required by the credit agreement terms; and
(c) the first compliance certificate should be required to be delivered with the financial statements for the period ending December 31, 2026, with no requirement to deliver a stub-period compliance certificate for the period from closing through the end of the first fiscal quarter.
Classification. Standard compliance covenant — this classification is appropriate.
IV. SaaS-Specific Reporting Requirements — Detailed Analysis
This Section addresses the SaaS-specific operational metrics that Brindoval has proposed as part of the reporting covenant package. As discussed in the Executive Summary, these requirements represent the most significant negotiation points in the reporting framework and will require careful attention in the first markup. The overarching strategic objective is to ensure that all SaaS-specific metrics are classified as information-only deliverables — not compliance-tested covenants — and that key metrics (particularly ARR) are precisely defined to protect borrower flexibility and prevent future disputes.
A. Monthly ARR Report
1. Term Sheet Requirement
The Term Sheet requires the Borrower to deliver a monthly report of Annual Recurring Revenue and "related key SaaS metrics" within 30 days of each month-end. The Term Sheet does not define ARR or specify which "related key SaaS metrics" are to be included in the monthly report, which is a significant gap that must be addressed in the first markup.
2. Significance for This Transaction
The ARR report is the single most important SaaS-specific reporting item in this transaction, and we should expect it to be the highest-priority item for the lender group. The reasons are as follows:
First, as noted above, closing leverage is approximately 10.70x Debt/LTM Adjusted EBITDA — a level that is elevated by traditional leveraged finance standards. The lender group is not underwriting this credit primarily on the basis of current-period EBITDA. Rather, the credit thesis rests substantially on Meridian's ARR base of $62,400,000, its 27% year-over-year ARR growth trajectory, and the expectation that EBITDA margins will expand as the business scales. On an ARR basis, closing leverage of approximately 3.21x Debt/ARR is moderate and well within the range observed in comparable SaaS acquisition financings.
Second, ARR growth trajectory is the leading indicator of credit health for a subscription-based SaaS business. Lenders will monitor ARR on a monthly basis to identify early signs of credit deterioration (e.g., declining new bookings, increasing churn, or slowing expansion revenue) that may not yet be reflected in EBITDA or traditional financial statements.
Third, the syndication group — which is expected to include Brindoval, Harborstone Capital Partners LLC, and Pinnacle Ridge Credit Fund II LP, among other potential participants — will rely on the monthly ARR report as the primary data source for ongoing credit assessment. Market participants in the SaaS lending space have increasingly standardized around monthly ARR reporting as a core expectation, and any attempt to reduce the frequency to quarterly would likely face strong resistance.
For these reasons, we recommend accepting monthly ARR reporting as an appropriate frequency, provided the metric is properly defined and classified as information-only (not a compliance-tested covenant).
3. Proposed ARR Definition
Critical Recommendation. The precise definition of "Annual Recurring Revenue" is the single most important definitional issue in this transaction's reporting framework. An imprecise or overly broad ARR definition could lead to disputes between the Borrower and the lender group over calculation methodology, particularly in situations where ARR growth decelerates or where the Borrower seeks credit for ARR from acquired businesses, bundled service contracts, or usage-based revenue components. Conversely, an overly narrow definition could understate Meridian's actual recurring revenue base and present a misleadingly unfavorable credit picture to the lender group.
We propose the following definition of "Annual Recurring Revenue" for inclusion in the Credit Agreement (with the Term Sheet referencing "ARR as defined in the Credit Agreement"):
"Annual Recurring Revenue" or "ARR" means, as of any date of determination, the annualized value of all active, contractually committed recurring subscription revenue as of such date, calculated by multiplying the monthly recurring revenue ("MRR") for the most recently completed calendar month by twelve (12).
The following inclusions and exclusions should be specified as part of the definition:
Inclusions:
(a) SaaS subscription fees under executed customer contracts with initial terms of twelve (12) months or greater, provided that the contract is active and has not been terminated, cancelled, or expired without renewal as of the date of determination;
(b) contracted platform access fees and recurring data feed subscriptions, to the extent such fees are invoiced on a fixed, recurring basis under contracts with terms of twelve (12) months or greater;
(c) recurring professional services revenue, but only if such professional services revenue is bundled into subscription pricing and contracted on an annual or multi-year basis as part of the overall subscription arrangement (i.e., not separately priced project-based engagements); and
(d) contracted minimum commitment amounts under usage-based or consumption-based pricing arrangements, but only to the extent of the contractually committed minimum (not variable overage or consumption above the minimum).
Exclusions:
(a) one-time implementation, setup, onboarding, or migration fees, regardless of how such fees are invoiced or recognized for accounting purposes;
(b) non-recurring professional services or consulting revenue that is separately scoped and priced outside of the subscription arrangement;
(c) usage-based or variable overage fees in excess of contracted minimum commitments;
(d) revenue from customers that have delivered formal written notice of cancellation or termination, unless the customer is contractually obligated to pay through the end of the current contract term and has not been released from such obligation;
(e) revenue attributable to any customer that is more than ninety (90) days past due on payment of invoiced amounts, unless the Borrower has reasonably determined that such past-due amount is the subject of a bona fide dispute; and
(f) revenue from free-tier, trial, proof-of-concept, or pilot arrangements that have not converted to paid subscription contracts.
Calculation Methodology:
ARR should be calculated on a "point-in-time" basis as of the last day of the applicable calendar month, reflecting the annualized value of all contracts that are active as of that date. ARR should not be calculated on a trailing-twelve-month average or rolling basis, as an averaging methodology would dampen the signal value of the metric for lender monitoring purposes and would also create computational complexity.
The calculation should reflect the contract value as of the measurement date, taking into account any pricing changes, upsells, downgrades, or contract modifications that have been executed as of such date. Contracts that are in a renewal negotiation period (i.e., the initial term has expired but the customer continues to use the platform and pay invoices) should be included at the most recently invoiced rate until formal termination or renewal.
Pro Forma Adjustments:
The ARR definition should permit pro forma inclusion of ARR from businesses acquired during the applicable period and pro forma exclusion of ARR from businesses divested during the applicable period, in each case calculated on the same basis as the pro forma adjustments to Adjusted EBITDA. This ensures consistency between the ARR and EBITDA reporting frameworks and provides the Borrower with appropriate credit for accretive acquisitions. The pro forma methodology should specify that ARR from an acquired business is included from the date of acquisition and annualized based on the acquired business's MRR for the most recently completed calendar month prior to or following the acquisition, as applicable.
Recommendation. We recommend including the full ARR definition in the Credit Agreement rather than attempting to embed it in the Term Sheet. The Term Sheet should reference "ARR as defined in the Credit Agreement," and we should attach a proposed definition as an annex to the first markup of the Term Sheet so that Brindoval and Broadwick & Thayer can review our proposed formulation early in the negotiation process. This approach avoids the risk that a simplified Term Sheet definition could be locked in as the baseline, limiting our negotiating flexibility during the definitive documentation phase.
4. Delivery and Classification
Delivery. The Term Sheet's proposed delivery period of 30 days following each month-end is achievable based on discussions with Meridian's CFO. Meridian's billing system (understood to be built on a Pinnacle Health IT-integrated subscription management platform) can generate ARR snapshots on a T+5 basis (i.e., five days after month-end). The 30-day period provides adequate time for review, validation, and officer certification. We recommend accepting the 30-day delivery period without modification.
Classification Recommendation. The monthly ARR report should be classified as an information-only deliverable — not a financial covenant, compliance-tested metric, or item whose failure to deliver (absent a cure period) constitutes an Event of Default.
Rationale. While ARR is the single most important SaaS metric for lender monitoring purposes, it is not an appropriate metric for covenant compliance testing for several reasons:
First, ARR is subject to short-term variability arising from contract timing, renewal cycles, and seasonal patterns. Enterprise SaaS businesses like Meridian often experience lumpy contract execution patterns, with large deals closing at the end of fiscal quarters or fiscal years. A single large customer non-renewal or a delayed contract signing could cause a temporary ARR decline that does not reflect any fundamental deterioration in credit quality. Tying ARR to a covenant threshold would create unnecessary default risk from normal business variability.
Second, the springing Total Net Leverage Ratio covenant (7.50:1.00, tested only when the RCF is drawn in excess of 35%) provides the appropriate financial test for this covenant-lite structure. Introducing a maintenance-tested ARR covenant would effectively convert the structure from covenant-lite to covenant-heavy, which is inconsistent with the commercial understanding between the Sponsor and Brindoval and would impair the marketability of the Facility in syndication.
Third, market practice in Q3 2025 through Q1 2026 sponsor-backed SaaS term loans strongly supports information-only classification for ARR reporting. In our review of comparable transactions, none of the five recent comparables included a maintenance ARR covenant in a covenant-lite structure.
Fallback Position — ARR Reporting Event. If Brindoval insists on some form of ARR-linked trigger, we recommend proposing an "ARR Reporting Event" structure as an alternative to a maintenance covenant. Under this structure, if ARR declines below a specified threshold — we would propose $50,000,000 (approximately 80% of current ARR), maintained for two consecutive calendar months — the Borrower's obligations would escalate from monthly ARR reporting to weekly ARR updates and periodic management conference calls with the Administrative Agent. Critically, the ARR Reporting Event would trigger enhanced reporting obligations only — it would not constitute a Default or Event of Default and would not trigger acceleration, mandatory prepayment, or any other enforcement remedy. This structure provides the lender group with an early-warning mechanism and enhanced information flow during periods of stress while preserving the Borrower's covenant-lite protections.
B. Net Revenue Retention ("NRR")
1. Description. Net Revenue Retention is a widely used SaaS metric that measures the percentage of recurring revenue retained from an existing customer cohort over a trailing twelve-month period, inclusive of expansion revenue (Upsells and cross-sells), contraction revenue (downgrades), and churned revenue (cancellations and non-renewals). NRR is calculated according to the following formula:
NRR = (Beginning Period ARR from Cohort + Expansion ARR − Contraction ARR − Churned ARR) ÷ Beginning Period ARR from Cohort
An NRR above 100% indicates that the business is growing revenue from its existing customer base even before accounting for new customer acquisitions — a strong indicator of product stickiness, pricing power, and embedded growth. Meridian's current NRR is understood to be approximately 112–115% based on preliminary due diligence data, reflecting strong upsell and cross-sell dynamics within Meridian's customer base. This is a favorable metric that should support the credit thesis.
2. Analysis and Recommendation
NRR is a useful and well-understood credit health metric that provides the lender group with insight into the quality and durability of Meridian's recurring revenue base. Strong NRR indicates customer stickiness and organic growth potential within the existing customer base, both of which are central to the credit underwriting. We do not object to the inclusion of NRR in the reporting framework, subject to the following:
Classification Recommendation. Information-only deliverable. NRR should be reported for lender monitoring purposes only and should not be subject to a maintenance covenant or compliance threshold.
Delivery Period and Frequency. We recommend that NRR be reported on a quarterly basis (not monthly), delivered within 60 days of each fiscal quarter-end concurrently with the quarterly unaudited financial statements. Quarterly delivery is appropriate for NRR because the metric is calculated on a trailing twelve-month basis, which means that month-to-month changes are incremental and the information value of monthly reporting is limited. Quarterly reporting provides the lender group with a timely and meaningful view of NRR trends without imposing unnecessary administrative burden on the Borrower's finance team.
Definition. We recommend proposing a clear NRR definition that specifies: (a) the customer cohort (all customers with active subscription contracts as of the beginning of the trailing twelve-month measurement period); (b) the measurement period (the trailing twelve (12) calendar months ending on the last day of the applicable fiscal quarter); and (c) the treatment of mid-period acquisitions (customers acquired through business acquisitions consummated during the trailing twelve-month measurement period should be excluded from the cohort for the applicable period, to avoid distorting the metric with inorganic additions). NRR should be calculated using ARR as the revenue measure, consistent with the ARR definition proposed in Section IV.A.3 above.
NRR should not be subject to a covenant threshold. As with ARR, NRR is subject to variability from contract timing and renewal cycles, and a maintenance NRR covenant would be inconsistent with the covenant-lite structure.
C. Gross and Net Customer Churn
1. Gross Customer Churn
Gross customer churn (sometimes referred to as "gross dollar churn" or "gross revenue churn") measures the total ARR lost from customer cancellations, non-renewals, and downgrades as a percentage of beginning-of-period ARR, excluding any offsetting expansion or upsell revenue from existing customers. Gross churn is typically reported on a trailing twelve-month basis to smooth out monthly variability. The formula is:
Gross Customer Churn = (Churned ARR + Contraction ARR) ÷ Beginning Period ARR
Gross churn provides a "worst case" view of customer attrition by isolating losses without any offset from expansion. It is a useful complement to NRR because it shows the magnitude of revenue at risk from customer departures, even when net retention is strong due to offsetting expansion revenue.
2. Net Customer Churn (Net Dollar Churn)
Net customer churn (or net dollar churn) measures the net ARR change from existing customers — combining losses from cancellations, non-renewals, and downgrades with gains from upsells and cross-sells — as a percentage of beginning-of-period ARR. Net dollar churn is effectively the inverse expression of NRR:
Net Dollar Churn = 1 − NRR
Where NRR exceeds 100% (as is the case with Meridian), net dollar churn is negative — indicating net expansion within the existing customer base.
3. Analysis and Recommendation
The Term Sheet does not clearly distinguish between gross and net churn, referring generally to "customer churn metrics." We recommend resolving this ambiguity in the first markup as follows:
Redundancy of Net Churn and NRR. Given that NRR inherently captures net dollar churn (NRR and net dollar churn are mathematical complements), reporting both NRR and net customer churn is duplicative and would not provide the lender group with incremental information. We recommend declining to separately report net customer churn on the basis that it is already fully captured in the NRR metric.
Gross Churn as Complementary Metric. Gross customer churn, by contrast, provides information that is not captured in NRR — specifically, the absolute magnitude of revenue loss from customer attrition before any offset from expansion. We recommend accepting gross churn as a quarterly information-only deliverable alongside NRR.
Frequency. Churn metrics are inherently noisy on a monthly basis due to the lumpy nature of enterprise contract renewals and cancellations. A single large customer non-renewal in a given month can cause a significant spike in monthly gross churn that does not reflect any systemic trend. Quarterly reporting on a trailing twelve-month basis smooths this noise and provides a more meaningful and reliable signal to the lender group. We recommend pushing back on any requirement for monthly churn reporting and proposing quarterly delivery within 60 days of each fiscal quarter-end, concurrent with the quarterly financial statements.
Classification. Information-only deliverable. Churn metrics should not be subject to covenant thresholds.
D. Average Contract Value ("ACV")
1. Description. Average Contract Value represents the average annualized contract value across all active subscription customers, calculated as total ARR divided by the total number of active subscription customers as of the applicable measurement date:
ACV = Total ARR ÷ Total Active Subscription Customers
ACV is a useful trend indicator for lender monitoring because increasing ACV over time typically suggests successful upselling, cross-selling, and movement upmarket (i.e., the business is attracting and retaining larger, higher-value customers), while declining ACV may indicate pricing pressure or a shift toward smaller, lower-value customers.
2. Analysis and Recommendation
We recommend accepting ACV as a quarterly information-only deliverable, subject to the following:
Classification. Information-only deliverable. ACV is a useful monitoring tool but is not an appropriate covenant metric.
Delivery. Quarterly, within 60 days of each fiscal quarter-end, concurrent with the quarterly financial statements. We recommend resisting any request for monthly ACV delivery, as ACV changes on a month-to-month basis are typically incremental and do not provide meaningful additional signal beyond the monthly ARR report.
Definition Considerations. The definition of ACV depends critically on the definition of "active subscription customer." We recommend defining this term to:
(a) exclude free-tier, trial, proof-of-concept, and freemium accounts that do not generate recurring subscription revenue (inclusion of these accounts would artificially inflate the customer count and deflate the ACV metric, presenting a misleadingly unfavorable picture of the business);
(b) count customers at the parent-entity level rather than at the individual user, subsidiary, or individual contract level (counting at the subsidiary or contract level could artificially inflate the customer count if a single parent organization has multiple subsidiaries or contracts, again deflating ACV); and
(c) be consistent with the ARR definition proposed in Section IV.A.3 above — i.e., include only customers that contribute to ARR under the proposed definition.
E. Customer Concentration Data
1. Description. Lenders in SaaS acquisition financings typically request disclosure of customer concentration data, which provides visibility into the degree to which the borrower's revenue base is dependent on a small number of large customers. The most common format is a list of the top 10 or top 20 customers ranked by ARR contribution, expressed as a percentage of total ARR. Lenders may also request notification if any single customer exceeds a specified threshold (e.g., 5% or 10%) of total ARR, or if a customer above a specified threshold provides notice of non-renewal or termination.
Customer concentration risk is a key credit consideration in SaaS lending because the loss of a single large customer can have a disproportionate impact on ARR, EBITDA, and cash flow. SaaS businesses serving mid-market clients — as Meridian does — typically have more diversified customer bases than those serving large enterprise clients, which should be a favorable credit attribute for this transaction.
2. Analysis and Recommendation
We recommend accepting customer concentration reporting as part of the information covenant package, subject to the following parameters:
Classification. Information-only deliverable. Customer concentration data is a monitoring tool and should not be subject to covenant thresholds (e.g., there should be no covenant requiring that no single customer represent more than a specified percentage of ARR).
Delivery. Quarterly, within 60 days of each fiscal quarter-end, concurrent with the quarterly financial statements. We recommend resisting monthly delivery of customer concentration data, which is unnecessary given the relative stability of enterprise customer bases on a month-to-month basis.
Scope. We recommend accepting reporting of the top 20 customers by ARR contribution, expressed as a percentage of total ARR. A top-20 list provides adequate coverage for credit monitoring purposes in a diversified mid-market customer base.
Confidentiality of Customer Names. This is an important negotiation point. We recommend pushing back strongly on any requirement to disclose customer names to the broader syndication group. Customer names constitute commercially sensitive information, and disclosure to a broad group of syndication lenders — some of whom may be affiliated with competing businesses or investment vehicles — creates competitive risk for Meridian. We propose the following framework:
(a) Customer names shall be disclosed only to the Administrative Agent (Brindoval) under the confidentiality provisions of the Credit Agreement;
(b) Customer concentration data provided to syndication lenders (Harborstone, Pinnacle Ridge, and other participants) shall be anonymized and coded (e.g., "Customer A," "Customer B," etc.), with each customer's ARR contribution expressed as a percentage of total ARR; and
(c) The Administrative Agent may disclose customer names to syndication lenders only with the prior written consent of the Borrower, or as required by law or regulation.
Threshold Notification. We recommend accepting a requirement to notify the Administrative Agent within 15 business days of the occurrence of either of the following events:
(a) any single customer represents more than 7.5% of total ARR as of any month-end; or
(b) any customer representing more than 5.0% of total ARR provides formal written notice of non-renewal or termination of its subscription contract.
The 7.5% threshold for single-customer concentration is appropriate given Meridian's diversified customer base (no customer currently exceeds approximately 4–5% of total ARR). The 5.0% threshold for termination/non-renewal notices captures a narrower set of events that would be material to credit assessment. Both triggers should result in notification obligations only — not Default or Event of Default consequences.
F. Additional SaaS Metrics — Resist Inclusion
1. Metrics to Push Back On
The Term Sheet references "related key SaaS metrics" in connection with the monthly ARR report and "other operational metrics as reasonably requested by the Administrative Agent" as a catch-all provision. These open-ended references create a risk that the lender group could, over the life of the Facility, request an expanding set of operational metrics that impose significant administrative burden on the Borrower and provide granular operational data that goes beyond what is appropriate for credit monitoring purposes. We recommend pushing back on the following specific metrics:
Monthly Active Users (MAU) / Daily Active Users (DAU). These engagement metrics are not appropriate for enterprise B2B SaaS businesses. Meridian's platform is a back-office analytics and reporting tool used by portfolio managers, risk analysts, and operations professionals on an as-needed basis. Usage patterns are driven by reporting cycles, market events, and client-specific workflows, and do not correlate in any meaningful way to credit health or revenue durability. MAU/DAU metrics are more commonly associated with consumer SaaS or self-serve B2B products with usage-based pricing, neither of which describes Meridian's business. We recommend deleting any reference to MAU/DAU from the reporting requirements.
Customer Acquisition Cost (CAC) and LTV/CAC Ratio. While CAC and LTV/CAC are useful metrics for management and investor evaluation of a SaaS business's unit economics, they are not appropriate as lender reporting requirements. The calculation of CAC involves subjective allocation of sales and marketing costs across customer cohorts, and different allocation methodologies can produce materially different results. LTV/CAC, in turn, depends on assumptions about customer lifetime, discount rates, and gross margins that are inherently forward-looking and judgmental. These metrics would create an ongoing source of potential disputes between the Borrower and the lender group over calculation methodology. We recommend resisting inclusion of CAC and LTV/CAC in the reporting framework.
Gross Margin by Product Line. The Term Sheet's reference to "other operational metrics" could be read to encompass product-line-level financial data. Reporting gross margins by individual product line (e.g., portfolio analytics, risk reporting, investor reporting, and data aggregation) represents a level of granularity that is not appropriate for covenant reporting and that goes beyond what the lender group needs for credit monitoring purposes. Overall margin information is adequately captured in the quarterly unaudited financial statements. We recommend resisting any requirement for product-line-level reporting.
Employee Headcount and Attrition. Employee headcount and attrition data may be relevant to the extent that significant workforce reductions could signal operational distress or that high attrition could impair the Borrower's ability to maintain its technology platform. However, this level of operational detail is more appropriately addressed in the annual budget and business plan, where projected headcount and staffing plans are typically included. We recommend accepting annual headcount disclosure in connection with the annual budget delivery but resisting any quarterly or monthly reporting requirement for employee headcount or attrition data.
2. Recommendation. We recommend that the first markup limit SaaS-specific reporting to the following five categories, all classified as information-only deliverables:
(a) Annual Recurring Revenue (monthly);
(b) Net Revenue Retention (quarterly);
(c) Gross Customer Churn (quarterly);
(d) Average Contract Value (quarterly); and
(e) Customer Concentration — Top 20 (quarterly) and threshold notifications (event-driven).
All other operational metrics — including MAU/DAU, CAC, LTV/CAC, product-line gross margins, and employee headcount/attrition — should be excluded from the Term Sheet and Credit Agreement. The first markup should delete the open-ended references to "related key SaaS metrics" and "other operational metrics as reasonably requested by the Administrative Agent," replacing them with an enumerated list of the specific metrics described above.
V. Summary Table — Recommended Reporting Framework
The following table summarizes our recommended reporting framework for the first markup, incorporating all of the recommendations set forth in Sections III and IV above:
VI. Interaction with Other Facility Terms
A. ECF Sweep Calculations
Accurate and timely delivery of annual audited financial statements is the baseline requirement for Excess Cash Flow sweep calculations under the Facility. The ECF sweep applies annually, with the first sweep period covering the fiscal year ending December 31, 2026. The sweep percentages — 50%, stepping down to 25% at TNL equal to or less than 4.50:1.00, and stepping down further to 0% at TNL equal to or less than 3.50:1.00 — are determined based on the TNL calculation set forth in the annual compliance certificate delivered concurrently with the annual audited financial statements.
The compliance certificate must include a detailed ECF calculation, setting forth Consolidated Net Income, adjustments for non-cash items, changes in working capital, capital expenditures, cash taxes, cash interest, mandatory debt service, voluntary prepayments, and other permitted deductions, in each case as defined in the Credit Agreement. Given that the first ECF sweep applies to FY2026 — the first full fiscal year following the anticipated closing in late June 2026 — the reporting framework must be fully operational by early 2027, when the annual audited financials and compliance certificate for FY2026 will be due.
SaaS-specific metrics (ARR, NRR, churn, ACV, and customer concentration) are not inputs to the ECF sweep calculation. However, lenders may use these metrics to evaluate the Borrower's credit trajectory and to inform decisions regarding potential amendments, waivers, or consent requests. For example, if ARR growth decelerates or NRR deteriorates, the lender group may be less inclined to grant amendments that could reduce ECF sweep obligations. This underscores the importance of ensuring that the SaaS reporting framework presents Meridian's operational performance accurately and favorably, using definitions that appropriately reflect the business's recurring revenue base.