PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT
CALDERWOOD & HARKNESS LLP
INTERNAL MEMORANDUM
To: Philip Hartmann, Responsible Partner, Banking & Finance
From: Lisa Morrow, Lead Associate, Banking & Finance Marcus Leung, Working Associate, Banking & Finance
Date: April 5, 2026
Re: Negotiation Strategy — Open Points Following Broadwick & Thayer Counter-Markup of Term Sheet; $200,000,000 Senior Secured Term Loan Facility — Solara Digital Infrastructure LP / Meridian Cloud Solutions Inc. Acquisition
Matter No.: 1041-00002 Client No.: CL-081273
Reviewed By: Philip Hartmann
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I. Purpose and Background
The purpose of this memorandum is to analyze the counter-markup of the term sheet received on April 4, 2026, from Broadwick & Thayer LLP, counsel to Brindoval National Bank, N.A. ("Brindoval," internal deal reference: CNB-TLF-2026-0389), to identify all remaining open points between the parties, to prioritize those open points according to their significance to the Borrower and the Sponsor, and to recommend a comprehensive negotiation strategy for the upcoming negotiation sessions. This memorandum is intended to prepare Philip Hartmann, as lead negotiator, and the broader Calderwood & Harkness deal team for the next round of discussions with Broadwick & Thayer and Brindoval's internal commercial and credit teams.
Procedural Context. Calderwood & Harkness LLP ("C&H"), on behalf of Solara Digital Infrastructure LP ("Solara" or the "Sponsor") and its acquisition subsidiary, delivered the borrower's initial markup of Brindoval's form term sheet on March 28, 2026. Broadwick & Thayer LLP ("Broadwick"), on behalf of Brindoval, returned its counter-markup on April 4, 2026. The next series of negotiation calls is scheduled within the April 7–14, 2026 window, with the principal negotiation session currently targeted for April 10, 2026. The parties have agreed to a target execution date for the fully agreed-upon term sheet and the related commitment letter of April 18, 2026. Given the approximately two-week window remaining, efficient resolution of the open points is critical.
Transaction Summary. The transaction at the center of this engagement involves the acquisition of 100% of the issued and outstanding equity interests in Meridian Cloud Solutions Inc. ("Meridian" or the "Target"), a Delaware corporation (Delaware Secretary of State File No. 6038472), by Solara Digital Acquisition Holdings LLC (the "Borrower" or "Acquisition Sub"), a newly formed Delaware limited liability company (Delaware Secretary of State File No. 7531209) organized by Solara Digital Infrastructure Fund IV LP ("Fund IV") for the specific purpose of consummating this acquisition. The acquisition enterprise value is $315,000,000.
To finance the acquisition, the Borrower intends to borrow $200,000,000 in the form of a senior secured term loan facility from Brindoval, acting as Lead Arranger and Administrative Agent. The term loan will be supplemented by a $130,000,000 equity contribution from Fund IV, resulting in total sources of $330,000,000.
The sources and uses of funds are summarized as follows:
Key Credit Metrics at Closing. The closing leverage profile for the proposed facility is as follows:
• Debt / LTM Adjusted EBITDA: Approximately 10.70x ($200,000,000 ÷ $18,700,000)
• Debt / ARR: Approximately 3.21x ($200,000,000 ÷ $62,400,000)
• Equity Contribution as % of Enterprise Value: Approximately 41.3% ($130,000,000 ÷ $315,000,000)
The relatively high leverage on a traditional EBITDA basis is consistent with SaaS acquisition financings in the current market, where lenders increasingly underwrite to ARR-based metrics reflecting the recurring, contractual nature of the target's revenue base. The 41.3% equity cushion provides meaningful subordination for the senior secured lender and is above the typical 35–40% range observed in comparable transactions.
Key Counterparties. The following individuals are the principal contacts for purposes of the ongoing negotiations:
Lender's Counsel — Broadwick & Thayer LLP:
• Catherine Hartwell, Partner (lead outside counsel for Brindoval)
• James Okoro, Senior Associate
Lender — Brindoval National Bank, N.A.:
• Thomas Wilder, Managing Director, Technology Leveraged Finance
• Sandra Fleischer, Senior Vice President, Credit Risk
Client — Solara Digital Infrastructure LP:
• Priya Vasudeva, General Counsel
• Derek Raines, Chief Financial Officer
Borrower's Financial Advisor — Velthorn Stanton Advisory LLC:
• Benjamin Holt, Managing Director
Coordination Note. Calderwood & Harkness is coordinating closely with Alderton Paige LLP (Richard Fontaine, lead partner), which represents Solara in connection with the negotiation of the definitive stock purchase agreement for the Meridian acquisition. It is essential that the conditions precedent to funding contained in the commitment letter and credit documentation align with the financing cooperation covenant and closing conditions in the purchase agreement. Any material changes to the conditionality framework discussed in this memorandum will need to be communicated promptly to Alderton Paige for purposes of maintaining that alignment.
II. Summary of Broadwick Counter-Markup — Key Responses
This Section provides a high-level overview of the Broadwick counter-markup, categorizing the responses into (A) points fully accepted by Brindoval that require no further negotiation, and (B) points rejected or counter-proposed by Brindoval that remain open and are the subject of the detailed analysis in Sections III through V below.
A. Points Accepted by Brindoval (No Further Negotiation Needed)
The following provisions from the borrower's March 28, 2026 markup have been accepted by Brindoval as reflected in the Broadwick counter-markup. These items are considered resolved and will be incorporated into the next draft of the term sheet without further discussion.
1. Expanded Asset Sale Reinvestment Period. Brindoval accepted the borrower's request to extend the reinvestment period for net cash proceeds of asset sales from the originally proposed flat 365-day period to a 365-day initial period with a 180-day extension (for a total of up to 545 days), provided that the Borrower has entered into a binding commitment to reinvest such proceeds within the initial 365-day period. In addition, the annual de minimis basket for asset sales not subject to mandatory prepayment was confirmed at $2,500,000. This is a meaningful accommodation that provides operational flexibility for the management of Meridian's business post-closing.
2. Reporting Covenant Timing. Brindoval accepted the borrower's proposed delivery periods for financial and operational reporting. The agreed-upon schedule is as follows:
• Annual audited financial statements: Within 120 days of the end of each fiscal year
• Quarterly unaudited financial statements: Within 60 days of the end of each fiscal quarter
• Annual budget: Within 60 days of the end of each fiscal year
• Monthly ARR and key SaaS metrics: Within 30 days of the end of each calendar month
These delivery periods are consistent with market practice for middle-market SaaS companies and provide adequate time for the finance team at Meridian to prepare and deliver the required reports.
3. Soft Call Protection. The soft call premium is confirmed at 101% (i.e., a 1.0% prepayment premium) for voluntary prepayments made during the first 12 months following the closing date, with the term loan prepayable at par thereafter. This is consistent with the borrower's markup and reflects a borrower-friendly outcome relative to the 24-month soft call periods sometimes seen in comparable facilities.
4. Maturity. The maturity date is confirmed at 7 years from the closing date, targeting a maturity of June 30, 2033. This is in line with market standards for senior secured term loan facilities in sponsor-backed SaaS acquisitions and provides a long runway for Solara to execute its value creation plan for Meridian.
5. Amortization. Annual amortization of 1.0% of the original principal amount of the term loan ($2,000,000 per year, payable in equal quarterly installments of $500,000) has been confirmed as proposed. This minimal amortization rate is consistent with covenant-lite term loan B structures and preserves cash flow for reinvestment in the business.
6. SOFR Mechanics. All SOFR-related pricing terms have been confirmed:
• Applicable Rate: Adjusted Term SOFR + 475 basis points
• SOFR Floor: 1.00%
• Credit Spread Adjustment: 10 basis points
These terms reflect the parties' agreed-upon economics and are consistent with the indicative pricing discussed during the mandate process.
7. Default Rate. The default interest rate of +200 basis points over the otherwise applicable rate has been confirmed.
8. Original Issue discount. The OID is confirmed at 2.00% of the aggregate principal amount of the term loan ($4,000,000), resulting in net proceeds to the Borrower of $196,000,000. The OID was a negotiated point during the mandate phase and has been carried forward without adjustment.
9. Governing Law and Jurisdiction. The credit documentation will be governed by the laws of the State of New York, and the parties have agreed to submit to the exclusive jurisdiction of the federal and state courts located in the Borough of Manhattan, City of New York. This is standard for leveraged finance transactions of this nature.
10. Springing Total Net Leverage Ratio Covenant. The financial covenant structure has been confirmed as a covenant-lite arrangement. The sole financial maintenance covenant is a springing Total Net Leverage Ratio of 7.50x, tested quarterly, but only when the revolving credit facility (if any is established) is drawn in excess of 35% of total revolving commitments. This is a critical structural feature of the transaction that reflects the SaaS-specific underwriting approach and the premium pricing paid by the Borrower.
B. Points Rejected or Counter-Proposed by Brindoval (Remain Open)
Notwithstanding the significant areas of agreement summarized above, the Broadwick counter-markup reflects ten principal open points on which Brindoval has either rejected the borrower's proposed position or proposed a counter-position that differs materially from the borrower's markup. These ten open points are the focus of the remainder of this memorandum and are discussed in detail in Sections III through V below, organized by priority category.
It should be noted that the Broadwick counter-markup reflects Brindoval's internal credit committee positions, as reviewed and approved by Sandra Fleischer (SVP, Credit Risk). This suggests that the positions articulated in the counter-markup have institutional backing and may require substantive engagement — rather than simply attorney-to-attorney drafting resolution — to move Brindoval off its stated positions on the higher-priority items. Thomas Wilder, as the commercial lead, may be the more effective interlocutor on items where credit committee flexibility exists.
The ten open points are:
1. Adjusted EBITDA Add-Back Definition and Cap (Category A — Must-Have)
2. Excess Cash Flow Sweep — Netting of Voluntary Prepayments (Category A — Must-Have)
3. Reporting Covenant Flexibility — SaaS Metric Definitions (Category A — Must-Have)
4. Market Flex Caps — Spread and OID (Category B — Important but Tradeable)
5. Equity Cure Rights (Category B — Important but Tradeable)
6. Restricted Payment / Distribution Baskets (Category B — Important but Tradeable)
7. Permitted Debt — Incremental Facility Capacity (Category B — Important but Tradeable)
8. Permitted Investment Basket Sizing (Category C — Concede if Needed)
9. Affiliate Transaction Covenant — De Minimis Threshold (Category C — Concede if Needed)
10. Limitation on Restrictive Agreements — IP License Exception (Category C — Concede if Needed)
Each of these items is analyzed in full below.
III. Category A — Must-Have Items (Non-Negotiable Positions for Borrower)
The three items classified as Category A represent positions that are essential to the Borrower and the Sponsor. These are points on which we recommend holding firm, as they directly affect the economic and structural integrity of the facility from the borrower's perspective. Concession on any of these items would either (i) materially impair the borrower's financial flexibility post-closing, (ii) create unacceptable technical default risk, or (iii) be inconsistent with the covenant-lite economics reflected in the agreed-upon pricing. We do not recommend making meaningful concessions on any Category A item; rather, we recommend deploying process concessions and enhanced information rights as tools to secure Brindoval's agreement.
A.1. Adjusted EBITDA Add-Back Definition and Cap
Issue. The definition of "Adjusted EBITDA" is one of the most economically significant provisions in any leveraged credit facility, as it drives the calculation of the financial covenant (springing Total Net Leverage Ratio of 7.50x), excess cash flow sweep thresholds, restricted payment capacity, incremental facility incurrence tests, and other key provisions throughout the credit documentation. Calderwood & Harkness proposed, in the borrower's first markup, a cap of 25% of LTM Adjusted EBITDA on the aggregate amount of pro forma cost savings, synergies, and non-recurring add-backs that may be included in the Adjusted EBITDA calculation for any given test period. Based on Meridian's LTM Adjusted EBITDA of $18,700,000, this cap would permit maximum add-backs of approximately $4,675,000.
Broadwick Counter. Brindoval counter-proposed a cap of 20% of LTM Adjusted EBITDA, which would limit aggregate add-backs to approximately $3,740,000 — a reduction of approximately $935,000 from the borrower's proposed cap.
Analysis. A 25% cap on pro forma add-backs is squarely within the range of market practice for sponsor-backed SaaS acquisition financings in the $150,000,000 to $300,000,000 facility size range. Calderwood & Harkness's market comparison memorandum dated March 25, 2026, which surveyed 14 comparable transactions that closed between Q3 2025 and Q1 2026, found add-back caps ranging from 20% to 30%, with a median of 25% and a weighted average (by facility size) of approximately 24.5%. Brindoval's counter-proposal of 20% is at the bottom of this range and is typically seen only in transactions with lower equity contributions or weaker credit profiles.
The materiality of this point cannot be overstated. Solara's financial advisor, Velthorn Stanton Advisory LLC (Benjamin Holt, Managing Director), has identified approximately $4,200,000 in projected run-rate cost savings attributable to the post-close integration of Meridian's operations, including platform rationalization, elimination of redundant corporate overhead, and renegotiation of third-party hosting and infrastructure contracts. Under the borrower's proposed 25% cap, the Borrower would have headroom to capture the full $4,200,000 in projected savings within the Adjusted EBITDA calculation (as $4,200,000 is less than the $4,675,000 cap). Under Brindoval's proposed 20% cap, only $3,740,000 of the projected $4,200,000 in savings could be captured, leaving $460,000 in legitimate, identified cost savings outside the definition. This shortfall would cascade through every calculation that references Adjusted EBITDA — reducing covenant headroom, increasing the ECF sweep amount, and restricting the borrower's capacity under ratio-based baskets.
Risk Assessment. A 20% cap is too restrictive given the nature and magnitude of the anticipated post-close integration activities. Meridian is a growth-stage SaaS company that has been operating independently; the integration with Solara's broader digital infrastructure portfolio will inevitably generate meaningful synergies and one-time costs. Constraining the add-back cap at a level that cannot fully accommodate the identified savings would force the Borrower to report artificially depressed Adjusted EBITDA figures, increasing the risk of covenant tightness during the critical first 12 to 24 months post-closing when integration activity is highest.
Recommended Position. Hold firm at 25%. This is a must-have item for the Borrower, and the data supporting this position is robust. The 25% cap is at the market median and is fully justified by the identified cost savings.
Negotiation Tactic. To address Brindoval's apparent concern about the magnitude and verifiability of add-backs, we recommend offering a process concession without moving the cap. Specifically, we propose that any individual add-back item in excess of $500,000 be subject to the Administrative Agent's reasonable approval, with the Borrower required to provide detailed backup documentation and methodology supporting the add-back. This gives Brindoval visibility and a degree of oversight over large add-back items while preserving the 25% cap that the Borrower requires. We believe this concession will be well received by Sandra Fleischer, whose credit risk team is likely focused on the transparency and supportability of add-backs rather than the cap itself.
A.2. Excess Cash Flow Sweep — Netting of Voluntary Prepayments
Issue. The excess cash flow ("ECF") sweep is a mandatory prepayment mechanism that requires the Borrower to apply a specified percentage of annual excess cash flow to prepay the term loan. Calderwood & Harkness proposed in the borrower's first markup that voluntary prepayments of the term loan made by the Borrower during any given fiscal year be credited on a dollar-for-dollar basis against (i.e., reduce) the ECF sweep obligation for that fiscal year. This is commonly referred to as "netting" of voluntary prepayments.
Broadwick Counter. Brindoval rejected the netting concept entirely. Under Brindoval's counter-proposal, voluntary prepayments made during the fiscal year would reduce the outstanding principal balance of the term loan (and thus reduce the base against which future amortization and ECF sweeps are calculated), but would not reduce the ECF sweep amount owed for the year in which the voluntary prepayment was made. In other words, Brindoval proposes that voluntary prepayments and ECF sweeps operate independently.
Analysis. The ECF sweep structure as agreed by the parties (and not in dispute) operates as follows:
• 50% of ECF when Total Net Leverage is greater than 4.50x
• 25% of ECF when Total Net Leverage is less than or equal to 4.50x but greater than 3.50x
• 0% of ECF when Total Net Leverage is less than or equal to 3.50x
The ECF sweep is tested annually, beginning with the fiscal year ending December 31, 2026. Given the closing leverage of approximately 10.70x (on an EBITDA basis), the Borrower will be subject to the 50% sweep rate for the foreseeable future until substantial deleveraging occurs.
Without netting, a Borrower that voluntarily prepays, say, $5,000,000 during a fiscal year and then generates $10,000,000 in excess cash flow for that year would be required to sweep an additional $5,000,000 (50% of $10,000,000) at year-end, for total debt reduction of $10,000,000 in that year. While the total deleveraging effect may seem favorable from the lender's perspective, the problem is that the Borrower cannot plan for this outcome. The voluntary prepayment is made during the year without knowledge of what the year-end ECF sweep will be, and the cumulative cash outflow may exceed the Borrower's liquidity planning assumptions. This creates a "double-payment" scenario that punishes the Borrower for proactively deleveraging — precisely the opposite incentive structure that a well-functioning credit facility should create.
Market Data. Dollar-for-dollar netting of voluntary prepayments against the ECF sweep is standard in the vast majority of sponsor-backed leveraged loan facilities. Calderwood & Harkness's internal precedent database reflects netting as a standard feature in over 85% of term loan B facilities closed in the past 18 months. The absence of netting is considered off-market by most institutional loan investors, and its inclusion would likely be expected by any syndication participant evaluating the credit documentation during the primary syndication process.
Risk Assessment. This point is critical for Solara's portfolio management strategy. In client discussions, Viktor Strand (Partner, Solara, responsible for Fund IV) and Nadia Okafor (Vice President, Solara, deal lead for the Meridian acquisition) have indicated that Solara expects to direct Meridian's growing free cash flow toward voluntary prepayments, particularly as ARR grows along its current 27% year-over-year growth trajectory. Meridian's business model generates strong cash conversion — a hallmark of high-quality SaaS businesses — and Solara intends to use that cash flow to delever the balance sheet. Without netting, Solara's ability to plan and execute this strategy would be materially impaired, and the economic cost of the double-payment scenario could be significant.
Recommended Position. This is an absolute must-have for the Borrower. We will not recommend that the client agree to a term sheet that does not include dollar-for-dollar netting of voluntary prepayments against the ECF sweep amount for the applicable fiscal year.
Negotiation Tactic. We recommend presenting this point as a market-standard provision whose absence would be anomalous and potentially disruptive to the syndication process. Specifically, we recommend noting that both Harborstone Capital Partners (contact: Elena Vasquez) and Pinnacle Ridge Credit Fund II (contact: Andrew Kesselman) — two of the three expected syndication participants — have both seen netting provisions as standard in their recent leveraged loan portfolios and would likely flag the absence of netting during their documentation review. Given that Brindoval intends to distribute approximately $125,000,000 of the $200,000,000 facility through syndication (retaining a $75,000,000 hold position), the documentation must be market-standard to ensure smooth syndication execution. The absence of netting could introduce a documentation friction point that delays or complicates the syndication process.
A.3. Reporting Covenant Flexibility — SaaS Metric Definitions
Issue. Calderwood & Harkness proposed in the borrower's first markup that certain SaaS-specific operational metrics — including net revenue retention ("NRR"), gross and net customer churn rates, average contract value ("ACV"), and customer concentration data — be delivered to the Administrative Agent on a monthly basis as "information only" deliverables. Under this framework, these operational metrics would be provided for the lender's monitoring and analysis purposes but would not be subject to defined minimum or maximum thresholds, and a deterioration or fluctuation in any such metric would not constitute a default or event of default under the credit documentation. Only ARR (annual recurring revenue) and Adjusted EBITDA would serve as formally defined financial metrics capable of being tested for covenant compliance or triggering default consequences.
Broadwick Counter. Brindoval counter-proposed that all SaaS metrics — including NRR, gross and net customer churn, and customer concentration — be subject to defined thresholds set forth in the credit documentation. Under Brindoval's proposal, a breach of any such threshold would constitute an event of default. The specific thresholds proposed by Brindoval were not set out in the term sheet counter-markup (they would be defined in the definitive credit agreement), but the structural framework — hard thresholds with default consequences — was clearly articulated.
Analysis. Brindoval's proposal represents a fundamental departure from the covenant-lite structure that has been the basis for the parties' economic negotiations throughout this process. The imposition of hard, default-triggering thresholds on operational SaaS metrics such as NRR, churn, and customer concentration would effectively convert a covenant-lite term loan B facility (with a single springing financial maintenance covenant) into a heavily covenanted facility with multiple performance-based default triggers.
This is problematic for several reasons:
First, operational SaaS metrics are inherently volatile on a quarter-to-quarter basis. NRR can fluctuate significantly due to the timing of large customer renewals, upsells, and contract modifications. For example, if Meridian's largest customer (currently representing approximately 8.2% of ARR) renews on a multi-year basis in one quarter, NRR for that quarter may spike upward; in the following quarters, absent another large renewal, NRR may revert to a lower baseline. Similarly, gross customer churn can be lumpy due to the mid-market nature of Meridian's client base — with approximately 310 full-time employees servicing a customer base that includes numerous mid-market enterprises, the loss or onboarding of even a small number of larger accounts can move the churn needle meaningfully in any given period.
Second, customer concentration is a metric that management cannot control on a short-term basis. If Meridian's ARR grows unevenly — for example, if a large new enterprise customer is onboarded — customer concentration may temporarily increase even though the underlying business trend (diversification through growth) is favorable. Imposing a hard threshold on customer concentration could penalize the Borrower for winning new business.
Third, and most critically, the pricing of the facility reflects covenant-lite economics. The Borrower is paying SOFR + 475 basis points with a 2.00% OID — pricing that reflects the borrower's acceptance of a higher interest rate in exchange for reduced covenant restrictions and greater operational flexibility. If Brindoval now imposes multiple operational metric thresholds with default consequences, the economic bargain underlying the pricing would be fundamentally altered. The Borrower would be bearing covenant-heavy risk at covenant-lite pricing, which is inequitable and inconsistent with the market understanding of the facility structure.
Risk Assessment. Hard thresholds on operational SaaS metrics would create a persistent risk of technical default that would be disproportionate to the actual credit risk involved. Meridian is a well-performing SaaS business with 27% year-over-year ARR growth, strong cash conversion, and a diversified mid-market customer base. The risk that legitimate quarter-to-quarter fluctuations in NRR or churn could trigger a default — and, in a worst case, an acceleration of $200,000,000 in term loan debt — is a risk that Solara cannot accept.
Recommended Position. This is a must-have item for the Borrower. All operational SaaS metrics (NRR, gross and net customer churn, ACV, and customer concentration) must be delivered for information purposes only. Only ARR (with a borrower-favorable definition that we will negotiate in the definitive credit agreement) and the springing Total Net Leverage Ratio financial covenant should be capable of triggering defaults under the credit documentation. We will not recommend client agreement to a term sheet that includes hard operational metric thresholds with default consequences.
Negotiation Tactic. We recommend a two-pronged approach. First, we should emphasize the fundamental inconsistency between covenant-lite pricing and covenant-heavy operational metric thresholds. The message to Brindoval should be clear: if Brindoval requires operational metric covenants, the pricing must be renegotiated downward to reflect the additional restrictions — and neither party wants to reopen the pricing discussion at this stage. Second, as a constructive concession, we recommend offering an enhanced monthly information package that goes beyond the standard reporting currently contemplated. Specifically, we can offer:
• A management discussion and analysis ("MD&A") commentary accompanying the monthly SaaS metrics delivery, explaining any material changes in NRR, churn, or customer concentration;
• A quarterly "flash" call between Meridian's CFO and the Administrative Agent's credit team to discuss SaaS metric trends; and
• A right for the Administrative Agent to request additional detail on any SaaS metric that falls below a specified "monitoring threshold" (not a default threshold) — for example, if NRR falls below 100% for two consecutive months, the Administrative Agent may request a supplemental report detailing the causes and management's remediation plan.
This approach gives Brindoval the monitoring tools and information flow it needs to track the health of the business without creating the technical default risk that hard thresholds would entail. We believe this will be an attractive proposition for Sandra Fleischer's credit risk team, which is likely more concerned about having timely, granular information than about the binary question of whether a threshold has been breached.
IV. Category B — Important but Tradeable Items
The four items classified as Category B are important to the Borrower but represent areas where we have room to negotiate and, where necessary, to make concessions in exchange for Brindoval's agreement on the Category A must-have items. Our recommended approach for each Category B item is to stake out a strong initial position, negotiate toward a reasonable compromise, and be prepared to accept the compromise position if it is within the range of outcomes authorized by the client.
B.1. Market Flex Caps — Spread and OID
Issue. Brindoval's commitment letter (and as reflected in the fee letter and the term sheet) reserves the right to exercise "market flex" — the ability to adjust the pricing of the term loan to facilitate successful primary syndication. Specifically, Brindoval has reserved the right to increase the interest rate spread by up to +50 basis points (from SOFR + 475 bps to SOFR + 525 bps) and to increase the OID by up to +50 basis points (from 2.00% to 2.50%). Calderwood & Harkness proposed in the borrower's first markup to cap market flex at +25 basis points on the interest rate spread and +25 basis points on the OID.
Broadwick Counter. Brindoval maintained its original +50/+50 bps flex, rejecting the borrower's proposed caps.
Analysis. Market flex at +50/+50 bps is within the outer bound of market practice for a $200,000,000 term loan facility, but it is at the aggressive end of the range for a transaction with the credit characteristics of this deal. In particular:
• The 41.3% equity contribution is above the typical 35–40% range, providing a substantial equity cushion for lenders.
• Solara is a strong sponsor with approximately $4.8 billion in assets under management, and Fund IV has $1.65 billion in committed capital — providing meaningful implicit support for the investment.
• Meridian's SaaS business model, with 27% ARR growth and strong cash conversion, is attractive to institutional loan investors who are increasingly drawn to recurring-revenue credits.
• The syndication pipeline is already well developed: Harborstone Capital Partners has indicated interest in a $50,000,000 allocation, and Pinnacle Ridge Credit Fund II has indicated interest in a $40,000,000 allocation. Together, these two participants would absorb $90,000,000 of the approximately $125,000,000 that Brindoval intends to distribute (Brindoval's target hold position is $75,000,000), leaving only $35,000,000 to be placed with other investors.
Economic Impact. At maximum flex (+50/+50 bps), the all-in cost to the Borrower would increase materially:
• Spread impact: An increase of 50 bps on SOFR + 475 bps would raise the applicable rate to SOFR + 525 bps, increasing annual interest expense by approximately $1,000,000 on the full $200,000,000 principal amount (before amortization).
• OID impact: An increase of 50 bps on the OID (from 2.00% to 2.50%) would increase the upfront discount by $1,000,000, reducing net proceeds from $196,000,000 to $195,000,000. This additional discount would need to be funded from the equity contribution or other sources.
Recommended Position. We recommend opening the April 10 negotiation with our existing position of +25/+25 bps but being prepared to move toward a compromise at approximately +37.5 bps on spread and +37.5 bps on OID. This splits the difference between the parties' current positions and is supportable given the strong equity contribution and the favorable syndication pipeline.
Trade Value. Moderate. We are willing to concede partially on this point in exchange for securing the Category A must-have items. If necessary to reach an overall deal, we could accept +50 bps on one dimension (preferably OID, which is a one-time cost) while holding at +25 bps or +37.5 bps on the spread, which has a more significant ongoing cost impact over the 7-year life of the facility. Philip Hartmann should confirm the client's authority on this point with Priya Vasudeva and Derek Raines prior to the April 10 call.
Negotiation Tactic. We recommend pointing to the strong syndication pipeline and the low residual amount ($35,000,000) remaining to be placed after Harborstone and Pinnacle Ridge. With $90,000,000 of $125,000,000 in intended syndication already spoken for, the probability that flex will need to be exercised at all is low. Brindoval's syndication desk should be comfortable tightening the flex caps given the demonstrated investor interest. We should also note that excessive flex caps can signal to the market that the lead arranger lacks confidence in the credit, which could paradoxically make syndication more difficult.
B.2. Equity Cure Rights
Issue. Calderwood & Harkness proposed equity cure rights that would permit Solara (as Sponsor) to contribute additional equity to the Borrower to cure a financial covenant breach — specifically, a breach of the springing Total Net Leverage Ratio of 7.50x. The borrower's proposed mechanics were as follows:
• Up to 2 equity cures in any 4 consecutive fiscal quarters
• Not to exceed 5 equity cures over the life of the facility
• Cure amount to be deemed added to Adjusted EBITDA for purposes of calculating the leverage ratio for the quarter in question (the "EBITDA add-back" approach)
• Cure must be funded within 15 business days of the delivery of the applicable compliance certificate
Broadwick Counter. Brindoval accepted the concept of an equity cure in principle but proposed significantly more restrictive mechanics:
• Not more than 2 equity cures over the life of the facility (reduced from 5)
• Not more than 1 equity cure in any 4 consecutive fiscal quarters (reduced from 2)
• Cure amount to be applied as a mandatory prepayment of the term loan (reducing outstanding debt) rather than added to Adjusted EBITDA (the "debt paydown" approach)
Analysis. The fundamental distinction between the borrower's and Brindoval's proposals lies in the treatment of the cure amount. Under the borrower's EBITDA add-back approach, the cure equity is contributed to the Borrower and added to the numerator of the leverage ratio calculation (increasing EBITDA) for the test period in question. This approach preserves liquidity at the borrower level — the cure equity remains available to support the business. Under Brindoval's debt paydown approach, the cure equity flows through the Borrower directly to the lenders as a mandatory prepayment, reducing the denominator of the leverage ratio (reducing outstanding debt). While both approaches have the mathematical effect of improving the leverage ratio, the debt paydown approach is economically punitive to the Sponsor because it forces Solara to inject equity that is immediately transferred to the lenders rather than remaining in the business to fund operations, growth, or working capital needs.
The EBITDA add-back approach is standard for sponsor-backed leveraged loan facilities. It is the prevailing approach in the current market and reflects the economic reality that an equity cure is intended to demonstrate the Sponsor's continued commitment to the investment and willingness to support the business — not to provide an accelerated paydown mechanism for the lenders' benefit. The debt paydown approach is occasionally seen in middle-market or non-sponsor transactions but is disfavored by institutional sponsors such as Solara.
With respect to the number of permitted cures, the borrower's proposal of 5 cures over the life of the facility was at the upper end of the market range, while Brindoval's counter of 2 is at the lower end. A reasonable compromise falls in the range of 3 to 4 cures.
Risk Assessment. Given that the facility is structured as covenant-lite (the springing Total Net Leverage Ratio is tested only when the revolving credit facility, if any, is drawn in excess of 35% of commitments), the equity cure right is unlikely to be triggered frequently — or perhaps at all — during the life of the facility. However, the equity cure provides critical downside protection for Solara in a stress scenario. If Meridian were to experience a temporary revenue downturn (e.g., due to loss of a significant customer or a broader economic slowdown) that coincided with a period when the revolving facility was drawn, the equity cure would be the primary mechanism to avoid a technical default and potential acceleration of $200,000,000 in term loan debt. This protection is essential for a responsible Sponsor managing a $130,000,000 equity investment.
Recommended Position. We recommend seeking 4 equity cures over the life of the facility (a compromise between 5 and 2), with no more than 2 in any 4 consecutive fiscal quarters. Treatment of the cure amount as an EBITDA add-back (not debt paydown) is strongly preferred. The cure period of 15 business days from delivery of the compliance certificate should be maintained.
Trade Value. Important. We are willing to show flexibility on the number of permitted cures — moving from 5 down to 4, or even 3 if necessary — and on the consecutive quarter limitation. However, the treatment of the cure amount as an EBITDA add-back (rather than debt paydown) is a significantly higher priority within this item. If we can secure EBITDA add-back treatment, we can concede on the number of cures (accepting 3 rather than 4 or 5).
Negotiation Tactic. We recommend emphasizing the following points to Brindoval:
• The financial covenant is springing, meaning it is tested only in limited circumstances. The equity cure is therefore a backstop mechanism, not a crutch. The likelihood of it being invoked is low, and the risk to the lender from permitting 3 or 4 cures (rather than 2) is correspondingly low.
• Solara's 41.3% equity contribution demonstrates meaningful commitment to the investment. A Sponsor that has contributed $130,000,000 in equity has strong incentives to protect its investment through operational improvements and organic deleveraging — not through serial reliance on equity cures.
• The EBITDA add-back approach is the market-standard treatment and will be expected by syndication participants reviewing the credit documentation.
B.3. Restricted Payment / Distribution Baskets
Issue. Calderwood & Harkness proposed a general restricted payment ("RP") basket permitting distributions from the Borrower (and its subsidiaries, including Meridian) to Solara and its affiliates, subject to the following conditions:
(i) No default or event of default shall have occurred and be continuing or would result from such distribution;
(ii) Pro forma compliance with the springing Total Net Leverage Ratio financial covenant after giving effect to the distribution; and
(iii) A builder basket equal to 50% of cumulative Consolidated Net Income ("CNI") since the closing date, plus the aggregate amount of equity contributions received by the Borrower (other than equity contributions used to fund permitted acquisitions or other specifically designated purposes).
Broadwick Counter. Brindoval proposed tighter conditions on restricted payments:
• Distributions permitted only if pro forma Total Net Leverage is less than or equal to 5.00x (a separate and more restrictive test than the 7.50x springing financial covenant);
• The builder basket capped at the lesser of (x) 50% of cumulative CNI and (y) $15,000,000 (a hard dollar cap).
Analysis. Brindoval's counter-proposal on restricted payments is economically significant and strategically important, although it falls within the range of negotiability (Category B) rather than being a must-have (Category A). The key concerns are:
Pro Forma Leverage Test. The 5.00x pro forma leverage test for restricted payments would effectively prevent any distributions until substantial deleveraging has occurred. Given that closing leverage is approximately 10.70x on an EBITDA basis, the Borrower would need to reduce leverage by more than half before any distribution capacity exists under this test. Even assuming aggressive EBITDA growth (consistent with Meridian's 27% ARR growth trajectory and expected margin expansion), the 5.00x threshold may not be achievable for 3 to 4 years post-closing. While Solara may not plan near-term cash distributions, the inability to make any distributions — including management incentive payments and, critically, tax distributions to the partners of the fund structure — for several years post-closing is problematic.
Builder Basket Cap. The $15,000,000 hard dollar cap on the builder basket is restrictive for a company with $18,700,000 in LTM Adjusted EBITDA that is expected to grow meaningfully. As EBITDA grows, the builder basket should grow commensurately; imposing a $15,000,000 ceiling artificially constrains the Borrower's flexibility regardless of its financial performance.
Recommended Position. We recommend the following compromise position:
• Pro forma leverage test for restricted payments at 6.00x Total Net Leverage (a meaningful compromise from the borrower's original position, which effectively relied on the 7.50x springing covenant, and Brindoval's proposed 5.00x);
• Removal of the $15,000,000 hard dollar cap on the builder basket, retaining only the 50% of cumulative CNI formula;
• Addition of a "growing available amount" that includes retained excess cash flow not swept under the ECF sweep mechanism (i.e., the 50% of ECF that is not swept, or the higher retained percentage at lower leverage levels, accumulates and becomes available for restricted payments); and
• A separate carve-out for tax distributions to partners of the fund structure, which are customary and should not be subject to the general RP basket conditions.
Trade Value. Moderately important. Solara's near-term focus will be on growth and deleveraging rather than cash distributions, which means the practical impact of the RP restrictions is somewhat deferred. However, preserving flexibility for management incentive payments and tax distributions is essential, and the long-term flexibility to make distributions as the business matures is a key component of Solara's return model for the investment.
Negotiation Tactic. We recommend noting that tax distributions to partners of a fund structure are customary and virtually universal in sponsor-backed credit facilities. The failure to carve out tax distributions would be highly unusual and would be flagged by Solara's fund investors. On the broader RP basket, we should frame the 6.00x proposal as a reasonable compromise that protects the lenders' deleveraging interests (no distributions until leverage is substantially reduced from the 10.70x closing level) while providing the Borrower with a realistic path to distribution capacity.
B.4. Permitted Debt — Incremental Facility Capacity
Issue. Calderwood & Harkness proposed incremental facility capacity — the ability to add incremental term loans or revolving commitments after closing — in an amount equal to the greater of (a) $30,000,000 and (b) 100% of LTM Adjusted EBITDA. Any incremental facility would be subject to a pro forma leverage incurrence test, customary conditions precedent, and documentation consistent with the existing facility.
Broadwick Counter. Brindoval proposed capping incremental capacity at the greater of (a) $20,000,000 and (b) 75% of LTM Adjusted EBITDA. In addition, Brindoval proposed a most-favored-nation ("MFN") sunset of 12 months: any incremental term loan issued within 12 months of closing at an interest rate spread more than 50 basis points higher than the initial term loan spread (i.e., SOFR + 475 bps + 50 bps = SOFR + 525 bps threshold) would trigger a repricing of the initial term loan to the incremental term loan's spread minus 50 bps.
Analysis. Incremental facility capacity is an important feature for the Borrower, as it provides the flexibility to fund follow-on acquisitions, capital investments in the Meridian platform, and other strategic initiatives without the need to negotiate an entirely new credit facility. The distinction between the parties' positions lies primarily in two dimensions:
Fixed dollar component: $30,000,000 (borrower) vs. $20,000,000 (Brindoval) — a $10,000,000 gap.
Percentage of EBITDA component: 100% of LTM Adjusted EBITDA (borrower) vs. 75% (Brindoval). Given current LTM Adjusted EBITDA of $18,700,000, this translates to $18,700,000 vs. $14,025,000 at current levels. However, as EBITDA grows (which is expected), the percentage component will become more significant. For example, if EBITDA reaches $30,000,000 in Year 3, the difference between 100% ($30,000,000) and 75% ($22,500,000) is $7,500,000.
The MFN provision proposed by Brindoval is relatively market-standard, and the 12-month sunset and 50 bps inside threshold are within the range of accepted practice. We do not view the MFN as a significant issue.
Recommended Position. We recommend seeking the greater of $25,000,000 and 100% of LTM Adjusted EBITDA. This represents a compromise on the fixed dollar component (splitting the difference between $30,000,000 and $20,000,000) while holding firm on the percentage of EBITDA, which is the more economically significant component given the expected EBITDA growth trajectory. We recommend accepting the 12-month MFN sunset with the 50 bps inside spread threshold as proposed by Brindoval.
Trade Value. Important but tradeable. We are willing to negotiate on the fixed dollar component ($25,000,000 is a reasonable middle ground, and we could accept $22,500,000 or even $20,000,000 if necessary to secure higher-priority items), but we should hold on the 100% of EBITDA percentage, which matters more over the life of the facility as EBITDA grows.
V. Category C — Points to Concede if Needed
The three items classified as Category C are points where the borrower's initial position was aggressive relative to market norms for a first-lien facility at this leverage level, or where the practical impact of the concession is limited. These items are designated as concession chips — points that can be yielded early in the negotiation to build goodwill and create a constructive dynamic, or traded later in the process to secure agreement on Category A and Category B items.
C.1. Permitted Investment Basket Sizing
Issue. Calderwood & Harkness proposed a general permitted investments basket of the greater of $15,000,000 and 75% of LTM Adjusted EBITDA. This basket governs the Borrower's ability to make investments in non-loan-party subsidiaries, joint ventures, minority equity positions, intercompany loans to non-guarantor entities, and similar transactions.
Broadwick Counter. Brindoval proposed the greater of $7,500,000 and 40% of LTM Adjusted EBITDA — a material reduction from the borrower's initial ask.
Analysis. The borrower's original proposal of $15,000,000 / 75% of LTM EBITDA was aggressive for a first-lien senior secured facility with closing leverage of approximately 10.70x. While the Borrower may have an interest in making tuck-in acquisitions or technology-related investments through the Meridian platform, the magnitude of the originally proposed basket was above the typical range for transactions of this size and leverage profile. Brindoval's counter, while more conservative, is not unreasonable.
Recommended Position. We recommend offering a compromise at the greater of $10,000,000 and 50% of LTM Adjusted EBITDA. This splits the difference between the parties' positions and provides reasonable flexibility for smaller acquisitions and technology investments without creating undue leakage risk for the lenders. We are willing to concede further toward Brindoval's position — for example, to $10,000,000 and 40% of LTM EBITDA — if doing so facilitates resolution of higher-priority items.
Trade Value. Low priority. This is an ideal concession chip to deploy early in the April 10 call. By offering a meaningful move on the permitted investment basket at the outset of the discussion, we can demonstrate good faith and willingness to compromise, which may create a more constructive dynamic for the more contentious Category A and B discussions that follow.
Negotiation Tactic. We recommend framing this concession as the Borrower "coming to the Lender's side of the table" on an issue where the Borrower recognizes its initial ask was at the high end. This positions the concession as a genuine act of good faith rather than a throwaway, which may be more effective in generating reciprocal flexibility from Brindoval on other items.
C.2. Affiliate Transaction Covenant — De Minimis Threshold
Issue. Calderwood & Harkness proposed a $2,000,000 de minimis threshold below which transactions between the Borrower or its subsidiaries and their affiliates (including Solara and its portfolio companies) do not require Administrative Agent approval or review by an independent board committee or equivalent governance mechanism.
Broadwick Counter. Brindoval proposed a $500,000 de minimis threshold.
Analysis. While the $500,000 threshold proposed by Brindoval is relatively low and could create an administrative burden if affiliate transactions are frequent, in practice, affiliate transactions for Meridian are not expected to be particularly frequent or material. Meridian operates as a standalone business, and the primary affiliate transactions are likely to be limited to management fees, shared services allocations, and intercompany loans — most of which will be addressed through specific baskets and carve-outs elsewhere in the credit documentation.
Recommended Position. We recommend proposing $1,000,000 as a compromise. However, if Brindoval insists on the $500,000 threshold, this is an acceptable outcome. The administrative burden of compliance with a $500,000 threshold is manageable and does not justify expending significant negotiation capital.
Trade Value. Low. This item is not worth spending negotiation capital on. If conceding on this point helps create goodwill or can be paired with a concession request from Brindoval on a higher-priority item, we should concede quickly and cleanly.
C.3. Limitation on Restrictive Agreements — IP License Exception
Issue. The credit documentation will include a negative covenant restricting the ability of the Borrower and its subsidiaries to enter into agreements that limit the ability of subsidiaries to make distributions to the Borrower or to grant liens on their assets in favor of the lenders (commonly known as "anti-layering" or "restrictive agreement" covenants). Calderwood & Harkness proposed broad exceptions to this covenant, including exceptions for customary provisions in joint venture agreements, leases, and — critically for a SaaS business — Intellectual property licenses.
Broadwick Counter. Brindoval accepted most of the proposed exceptions but pushed back on the breadth of the intellectual property license exception, proposing a narrower formulation.
Analysis. Given Meridian's SaaS business model, certain customer contracts, technology partnership agreements, and third-party software license agreements may contain restrictions on assignment or encumbrance of the licensed intellectual property. These restrictions are common in technology licensing and are not indicative of any borrower credit issue. However, Brindoval's concern is not unreasonable: an overly broad IP license exception could theoretically be used to structure arrangements that effectively ring-fence valuable IP assets beyond the reach of the lenders' collateral package.
In practice, the appropriate mechanism for addressing this concern is through the collateral package rather than through the restrictive agreements covenant. Specifically, the definitive credit agreement should include appropriate collateral exclusions that exclude contracts containing enforceable anti-assignment clauses (to the extent that granting a security interest would violate such clauses under applicable law, including Article 9 of the UCC). This approach is well established in technology-focused leveraged lending and would address Brindoval's concern without requiring an overly broad exception to the restrictive agreements covenant.
Recommended Position. We recommend accepting Brindoval's narrower IP license exception language in the restrictive agreements covenant, provided that the collateral package in the definitive credit agreement appropriately excludes contracts with anti-assignment or anti-encumbrance clauses. This is a documentation-level issue that can be fully resolved in the definitive credit agreement phase, and the term sheet language does not need to address it in detail.
Trade Value. Low. We recommend conceding cleanly on this point to avoid unnecessary complexity in the term sheet negotiation. The real work on this issue will be done at the credit agreement drafting stage.
VI. Recommended Negotiation Strategy for April 10 Call
A. Overall Approach
We recommend structuring the April 10 negotiation call around the goal of resolving all material open points in a single session, or at most two sessions within the April 7–14 window, in order to maintain the April 18 target execution date for the term sheet and commitment letter. To achieve this, we recommend the following sequence:
Phase 1 — Opening / Good Faith Concessions (Category C). Lead the call by offering concessions on the Category C items: the permitted investment basket, the affiliate transaction de minimis threshold, and the restrictive agreements IP license exception. This demonstrates good faith, creates momentum, and establishes a constructive tone for the more contentious discussions that follow. By leading with concessions, we put Brindoval in a position where reciprocal flexibility is expected.
Phase 2 — Discussion and Compromise (Category B). Pivot to the Category B items for substantive discussion: market flex caps, equity cure rights, restricted payment baskets, and incremental facility capacity. These are the items where both sides have room to move, and where we expect the most productive back-and-forth. Our recommended compromise positions are set out in Section IV above, and Philip Hartmann should be prepared to move within the authorized ranges on each item.