MEMORANDUM
PRIVILEGED AND CONFIDENTIAL ATTORNEY WORK PRODUCT
TO: Philip Hartmann, Partner, Banking & Finance
FROM: Lisa Morrow, Lead Associate, Banking & Finance Marcus Leung, Working Associate, Banking & Finance
DATE: March 25, 2026
RE: Term Sheet Issues List and Recommended Positions — $200,000,000 Senior Secured Term Loan Facility for Solara Digital Acquisition Holdings LLC (Acquisition of Meridian Cloud Solutions Inc.)
Matter No.: 1041-00002
Client No.: CL-081273
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I. Executive Summary and Purpose
This memorandum identifies the key negotiation points arising from our review of the initial term sheet (the "Term Sheet") received from Brindoval National Bank, N.A. ("Brindoval" or the "Lender") on March 21, 2026, transmitted via Broadwick & Thayer LLP ("Lender's Counsel"), in connection with the proposed $200,000,000 Senior Secured Term Loan Facility (the "Facility") to be provided to Solara Digital Acquisition Holdings LLC (the "Borrower" or "Acquisition Sub"), a newly formed Delaware limited liability company and wholly owned subsidiary of Solara Digital Infrastructure Fund IV LP ("Fund IV"), to finance the acquisition of 100% of the outstanding equity interests of Meridian Cloud Solutions Inc. ("Meridian" or "MCS") at an agreed enterprise value of $315,000,000 (the "Acquisition"). The Acquisition is being conducted pursuant to a definitive Stock Purchase Agreement, dated as of March 15, 2026, by and among the Borrower, Ashford Ventures Partners LLC (the "Seller"), and MCS (the "Purchase Agreement"), with Kerrigan Ross & Associates LLP serving as seller's counsel and Alderton Paige LLP advising Solara on the acquisition side.
Our first markup of the Term Sheet is targeted for delivery to Broadwick & Thayer LLP (attention: James Okoro) on March 28, 2026. This memorandum is intended to serve as the foundational briefing document for Philip Hartmann's review of our recommended borrower positions in advance of that markup, and to facilitate an efficient discussion of negotiation priorities with the client team at Solara.
Below, we catalog ten categories of substantive issues identified in our review, set forth our recommended borrower positions for each, and provide market context drawn from recent comparable sponsor-backed SaaS acquisition financings in which our firm or its clients have participated. Each issue is analyzed in four parts: (A) a description of Brindoval's proposed terms as set forth in the Term Sheet, (B) our analysis and concerns, (C) our recommended borrower position, and (D) applicable market context and precedent.
Transaction Economics Overview. For ease of reference, the following summary of the transaction economics provides context for the discussion that follows:
Key Credit Metrics at Closing:
• Closing Leverage (Debt / LTM Adjusted EBITDA): Approximately 10.70x ($200,000,000 ÷ $18,700,000)
• Closing Leverage (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)
Key Facility Terms as Proposed by Brindoval:
• Interest Rate: Adjusted Term SOFR + 475 basis points (with a SOFR floor of 1.00% and a Credit Spread Adjustment of 10 basis points)
• Original Issue discount (OID): 2.00% ($4,000,000), resulting in net funded proceeds of $196,000,000
• Maturity: Seven (7) years from the Closing Date (targeting a close on or about June 30, 2026, with maturity on June 30, 2033)
• Amortization: 1.0% per annum ($2,000,000 per year; $500,000 per quarter), with the balance payable at maturity
• Covenant Structure: Covenant-lite, with a springing Total Net Leverage Ratio covenant set at 7.50x, tested quarterly only if a revolving credit facility is drawn in excess of 35% of commitments
The following sections present our detailed analysis and recommended positions across all ten identified issues.
II. Issue-by-Issue Analysis and Recommended Positions
Issue 1: EBITDA Add-Back Definitions and Pro Forma Adjustments
A. Description of Brindoval's Proposed Terms
Section 4(a) of the Brindoval Term Sheet defines "Adjusted EBITDA" using a formulation generally consistent with market convention: net income, adjusted for interest expense, income taxes, depreciation and amortization, with add-backs for (i) restructuring charges, (ii) non-cash stock-based compensation expense, (iii) transaction costs and expenses incurred in connection with the Acquisition and related financings, (iv) certain one-time, non-recurring items as approved by the Administrative Agent, and (v) non-cash charges and losses. Notably, however, the Brindoval definition does not include an express cap on the aggregate amount of add-backs as a percentage of LTM EBITDA, nor does it enumerate with precision the categories of costs eligible for add-back treatment.
With respect to pro forma adjustments, the Term Sheet provides that Adjusted EBITDA may be calculated on a pro forma basis to give effect to acquisitions and dispositions consummated or "contractually committed" during the relevant measurement period, but limits permissible synergy adjustments to those that are "reasonably identifiable and factually supportable." The Term Sheet does not specify a time horizon within which projected synergies must be expected to be realized, nor does it address whether synergies must be certified by management or supported by third-party diligence.
B. Our Analysis and Concerns
The definition of Adjusted EBITDA is, in a transaction of this nature, among the most consequential provisions in the credit documentation. Meridian's LTM Adjusted EBITDA stands at $18,700,000 on $62,400,000 of ARR, representing an approximately 30% EBITDA margin — a respectable but not extraordinary margin for a mid-market SaaS business. At the proposed closing leverage of approximately 10.70x EBITDA, even modest definitional variations in the calculation of Adjusted EBITDA can produce material swings in leverage ratios and, by extension, in the borrower's covenant headroom, ECF sweep obligations, and compliance with leverage-based step-down tests throughout the credit documentation.
To illustrate, a $1,000,000 change in the calculation of Adjusted EBITDA would shift the closing leverage ratio by approximately 0.57x (from 10.70x to either 10.13x or 11.43x, depending on the direction of the adjustment). Over the life of the Facility, as the borrower approaches step-down thresholds for ECF sweeps, permitted investments, and restricted payment baskets, this sensitivity will only increase in practical significance.
The absence of a cap on add-backs in the Term Sheet creates a degree of ambiguity that could cut in either direction. On the one hand, the borrower benefits from flexibility if no cap is imposed. On the other hand, we anticipate that Lender's Counsel will seek to introduce a cap — potentially a restrictive one — at the credit agreement stage. It is strategically preferable to establish the framework now, on our terms, rather than cede this point and face a less favorable starting position in definitive documentation negotiations.
With respect to pro forma synergy adjustments, the absence of a defined realization period is a significant gap. For SaaS acquisitions of Meridian's profile, post-acquisition value creation typically involves platform migration, customer cross-sell initiatives, headcount optimization (particularly in overlapping G&A functions), and the consolidation of third-party vendor contracts. These operational improvements are often identifiable at closing but may require 18 to 24 months to be fully implemented and reflected in financial results. Without a codified realization period, there is a risk that Brindoval will argue for a more restrictive standard at the credit agreement stage — for example, requiring that synergies be "fully realized" or "implemented" rather than merely "reasonably expected to be realized" within a specified time frame.
C. Recommended Borrower Position
We recommend that the first markup of the Term Sheet include the following positions with respect to EBITDA add-backs and pro forma adjustments:
1. Add-Back Cap. Propose an aggregate add-back cap of 25% of LTM Adjusted EBITDA (before giving effect to the add-backs being capped), calculated on a trailing twelve-month basis. This cap should apply to discretionary and projected add-backs (synergies, cost savings, run-rate adjustments) but should not apply to (x) non-cash charges (which are unlimited by their nature), (y) actual, documented transaction and integration costs, or (z) non-cash stock-based compensation expense.
2. Defined Add-Back Categories. Include express add-backs for the following categories:
(i) non-recurring transaction, financing, and integration costs and expenses incurred in connection with the Acquisition and any Permitted Acquisition;
(ii) non-cash stock-based compensation expense (uncapped);
(iii) cost savings, synergies, and operating expense reductions projected in good faith by the management of the Borrower or MCS that are reasonably expected to be realized within 24 months of the action or event giving rise to such savings, regardless of whether such savings have been realized as of the applicable measurement date;
(iv) non-recurring technology migration and platform consolidation costs associated with the integration of acquired businesses or technology assets;
(v) run-rate cost savings from headcount reductions that have been implemented or contractually committed, calculated as though such reductions had been in effect for the full measurement period;
(vi) severance, retention, and change-of-control payments made in connection with the Acquisition;
(vii) fees, costs, and expenses associated with any equity offering, debt issuance, or refinancing transaction, whether or not consummated; and
(viii) losses or charges attributable to force majeure events, natural disasters, or pandemics.
3. Pro Forma Adjustments. Pro forma adjustments should be permitted for any acquisition, disposition, or investment consummated, contractually committed, or for which a binding letter of intent has been executed during or after the applicable measurement period and on or prior to the date of determination. The pro forma calculation should give full effect to the transaction as if it had been consummated on the first day of the applicable measurement period.
4. Synergy Realization Period. Codify a 24-month realization period for projected cost savings and synergies (the Brindoval Term Sheet is silent on this point, and we should establish the standard now).
D. Market Context
Our review of comparable SaaS acquisition financings in the 2025–2026 vintage indicates that add-back caps between 20% and 30% of LTM EBITDA are the prevailing market standard. Within our sample of five recent comparable transactions (detailed in Section III below), the 25% cap level is the median, appearing in three of the five transactions reviewed. One transaction (involving a SaaS compliance/RegTech platform with similar growth characteristics) permitted add-backs up to 30%, while another (a SaaS investor reporting platform) permitted uncapped add-backs. The uncapped approach, while favorable to the borrower, is aggressive and is typically reserved for credits with exceptionally strong credit profiles or repeat sponsor relationships. Given the quality of the Meridian credit and Solara's reputation in the market, we believe the 25% cap is an achievable and defensible position that should not generate excessive resistance from Brindoval.
The 24-month synergy realization period is likewise consistent with market practice. While some lenders have pushed for 18-month realization periods, particularly for credits with higher leverage, the 24-month standard remains predominant for SaaS acquisitions where integration timelines are inherently longer due to the complexity of platform migration and customer onboarding.
Issue 2: Permitted Indebtedness and Lien Baskets
A. Description of Brindoval's Proposed Terms
Section 6(b) of the Term Sheet sets forth the permitted indebtedness framework, which includes carve-outs for the following categories: (i) existing indebtedness of MCS and its subsidiaries, to be scheduled at closing; (ii) capital leases and purchase money indebtedness, capped at $5,000,000 in the aggregate at any time outstanding; (iii) a general permitted indebtedness basket of $7,500,000; (iv) intercompany indebtedness, subject to subordination provisions; and (v) customary categories including hedging obligations entered into in the ordinary course of business, letters of credit, and obligations in respect of performance bonds, surety bonds, and similar instruments.
Notably, the Term Sheet does not include any provision for incremental term loan facilities. There is no builder basket or other mechanism for the borrower to accumulate additional debt capacity over time through retained earnings or asset appreciation. The permitted lien baskets are generally parallel to the permitted indebtedness baskets, with the same dollar thresholds and categories.
B. Our Analysis and Concerns
The general permitted indebtedness basket at $7,500,000 is, in our assessment, below market for a $200,000,000 facility. In comparable transactions of this size, the general basket is typically set at the greater of a fixed dollar amount and a percentage of the facility amount or LTM Adjusted EBITDA. The standard range for the fixed dollar component is $10,000,000 to $15,000,000, with a percentage-based component typically in the range of 5% to 7.5% of LTM Adjusted EBITDA. Brindoval's proposed $7,500,000 basket represents only 3.75% of the Facility amount and approximately 40% of LTM Adjusted EBITDA — the latter being a function of the high leverage, which makes dollar-based caps more constraining than they might appear in absolute terms.
The absence of an incremental term loan provision is, in our view, the more significant deficiency in the proposed indebtedness framework. Solara's investment thesis for the Meridian acquisition is centered on a SaaS roll-up strategy — Fund IV intends to use Meridian as a platform for tuck-in acquisitions of complementary SaaS businesses serving the asset management vertical. This strategy requires the ability to raise additional first-lien debt efficiently, without undertaking a full consent or amendment process with the existing lender group. The lack of incremental capacity would force the Borrower to seek an amendment (requiring majority lender consent) each time additional debt is needed, which is both costly and time-consuming — particularly in a competitive M&A environment where speed of execution is critical.
The capital lease and purchase money indebtedness cap of $5,000,000 is reasonable and, in our view, does not require adjustment. Meridian operates an asset-light SaaS model with limited physical equipment; the primary capital expenditures relate to leased office space and data center colocation, both of which are typically structured as operating leases rather than capital leases under current accounting standards.
We also note the absence of a "builder basket" — a mechanism that permits the borrower to accumulate capacity for investments, restricted payments, and debt repayment based on retained Excess Cash Flow not swept to the lenders. Builder baskets are a standard feature of sponsor-backed term loan documentation and serve an important structural function: they reward the borrower for strong financial performance and disciplined cash management by providing increasing operational flexibility over time.
C. Recommended Borrower Position
We recommend the following positions:
1. General Permitted Indebtedness Basket. Increase the general basket to the greater of (x) $15,000,000 and (y) 7.5% of LTM Adjusted EBITDA (as calculated for the most recently ended four fiscal quarter period for which financial statements have been delivered). At closing, this would result in an effective basket of approximately $15,000,000 (since 7.5% of $18,700,000 is approximately $1,403,000, which is below the $15,000,000 floor). However, as Meridian's EBITDA grows, the percentage-based component will become the operative threshold, providing the borrower with organically expanding capacity.
2. Incremental Term Loan Facility. Include a provision permitting the Borrower to incur additional first-lien pari passu term loans (and, at the Borrower's option, revolving credit commitments) in an aggregate principal amount not to exceed the sum of:
(a) a "free-and-clear" amount equal to the greater of $30,000,000 and 100% of LTM Adjusted EBITDA (no leverage test required); plus
(b) an unlimited amount, subject to pro forma compliance (after giving effect to the incurrence of such incremental debt and the application of proceeds thereof, including any acquisition financed therewith) with a Total Net Leverage Ratio not exceeding either (x) the closing date Total Net Leverage Ratio (i.e., approximately 10.70x) or (y) such lower fixed ratio as may be agreed upon in negotiations, tested on a pro forma basis as of the most recently ended four fiscal quarter period.
3. Builder Basket. Add a cumulative builder basket permitting the application of retained Excess Cash Flow — defined as cumulative ECF not subject to the mandatory ECF sweep — to investments, restricted payments, or voluntary debt repayment. The builder basket should be cumulative from the Closing Date and should carry forward unused capacity from prior periods.
4. MFN Protection. Any incremental term loan with an effective yield (including margin, OID, SOFR floor, and upfront fees) that is more than 50 basis points higher than the effective yield on the initial term loan shall trigger a corresponding step-up in the margin on the initial term loan to an amount that is 50 basis points below the effective yield on such incremental term loan. This MFN protection should be subject to customary exceptions, including: (x) incremental term loans incurred within the first six months following the Closing Date, and (y) incremental term loans with a maturity date that is more than two years after the maturity date of the initial term loan.
5. Permitted Lien Baskets. Conforming adjustments should be made to the permitted lien baskets to reflect the increased general basket and incremental facility capacity described above.
D. Market Context
Incremental facility capacity is a standard feature in sponsor-backed SaaS term loan documentation and is present in all five of the comparable transactions reviewed in Section III below. Free-and-clear incremental tranches typically range from $20,000,000 to $50,000,000 or 75% to 125% of LTM EBITDA. Our recommendation of the greater of $30,000,000 and 100% of LTM EBITDA is at the midpoint of this range and should be defensible. The 50 basis point MFN "sunrise" provision is the most common MFN structure and is widely accepted by lenders and arrangers. Builder baskets are present in the vast majority of sponsor-backed term loan facilities and are viewed as a core component of the modern leveraged finance documentation package.
Issue 3: Excess Cash Flow Sweep Step-Down Thresholds and Calculation Methodology
A. Description of Brindoval's Proposed Terms
Section 7(c) of the Term Sheet provides for mandatory prepayment of the term loan from Excess Cash Flow ("ECF") as follows:
• 50% of ECF for each fiscal year, stepping down to 25% if the Total Net Leverage Ratio ("TNL") as of the last day of such fiscal year is less than or equal to 4.50x, and stepping down further to 0% if TNL is less than or equal to 3.50x.
• The first ECF sweep is applicable to the fiscal year ending December 31, 2026 (i.e., a partial-year calculation for the period from the Closing Date through December 31, 2026).
• The ECF calculation is performed annually based on audited financial statements.
• ECF is defined as: Net Income, plus depreciation and amortization, plus non-cash charges, minus capital expenditures, minus scheduled debt amortization payments, minus cash taxes paid. The Term Sheet does not include an express provision for netting voluntary prepayments against the ECF sweep obligation, nor does it specify a working capital adjustment.
B. Our Analysis and Concerns
The ECF sweep structure, as proposed, presents several significant concerns for the Borrower.
Step-Down Thresholds Are Unreachable in the Near Term. At a closing leverage ratio of approximately 10.70x LTM EBITDA, the proposed step-down thresholds of 4.50x and 3.50x TNL are extremely distant. To reach the first step-down threshold of 4.50x, the Borrower would need to either (a) repay approximately $115,810,000 of term loan principal (reducing the outstanding balance from $200,000,000 to approximately $84,150,000, assuming EBITDA remains constant at $18,700,000) or (b) grow EBITDA to approximately $44,444,000 (assuming no voluntary debt repayment beyond scheduled amortization). Even under an optimistic EBITDA growth scenario — assuming 20% compound annual growth in Adjusted EBITDA — the Borrower would not reach the 4.50x threshold until approximately year 5 of the Facility (fiscal year 2031), and the 3.50x threshold until approximately year 6 (fiscal year 2032). In the meantime, the full 50% ECF sweep would apply to each fiscal year, creating a meaningful and persistent cash drain.
Impact on Growth-Stage SaaS Operations. For a SaaS business of Meridian's profile — 27% ARR growth, approximately 310 FTEs, actively investing in product development, sales capacity, and customer success infrastructure — the retention of free cash flow is critical to sustaining the growth trajectory that underpins the sponsor's investment thesis and, indeed, the credit quality of the Facility itself. A 50% ECF sweep applied to each fiscal year for the first several years of the Facility will constrain the Borrower's ability to fund organic growth initiatives, invest in customer acquisition and retention, and pursue the tuck-in acquisition strategy that is central to Solara's value creation plan. There is an inherent tension in the Lender's interest in accelerated deleveraging and the Borrower's interest in reinvesting for growth — the ECF sweep structure must be calibrated to balance these competing objectives.
Absence of Voluntary Prepayment Netting. The failure to include a dollar-for-dollar netting provision for voluntary prepayments is, in our view, the most aggressive aspect of the proposed ECF sweep structure. Market practice overwhelmingly provides that voluntary prepayments of the term loan made during the applicable fiscal year are credited against the ECF sweep obligation for that year. The rationale is straightforward: if the Borrower has already voluntarily returned cash to the lenders during the year, it should not be penalized by having to make an additional mandatory prepayment at year-end calculated without regard to those voluntary payments. The absence of this provision creates a perverse incentive for the Borrower to defer voluntary prepayments until after the ECF sweep calculation is complete, which is not in the Lender's interest.
No Working Capital Adjustment. SaaS businesses frequently experience working capital fluctuations driven by factors such as prepaid hosting and infrastructure costs (which are typically paid annually or semi-annually in advance), deferred revenue fluctuations (arising from the timing of annual subscription renewals and billing cycles), and accounts receivable seasonality (particularly for enterprise customers with annual or multi-year contracts that renew in Q4). The absence of a working capital adjustment in the ECF definition means that growth-related increases in working capital — which are a natural and healthy byproduct of ARR growth — would not reduce the ECF sweep amount, potentially resulting in a sweep that exceeds the Borrower's actual free cash flow available for debt repayment.
C. Recommended Borrower Position
1. Step-Down Thresholds. Request revised step-down levels as follows:
• 50% of ECF if TNL is greater than 6.00x;
• 25% of ECF if TNL is less than or equal to 6.00x but greater than 4.50x; and
• 0% of ECF if TNL is less than or equal to 4.50x.
At these revised thresholds, the first step-down (from 50% to 25%) becomes achievable within approximately 2 to 3 years if Meridian's EBITDA growth trajectory continues at rates consistent with recent performance (27% ARR growth implies strong EBITDA growth potential, particularly as operating leverage improves with scale). The 6.00x threshold represents approximately 56% of closing leverage, which is within the market range for the first ECF step-down (see Market Context below). The 0% sweep threshold at 4.50x provides a meaningful incentive for accelerated deleveraging while remaining achievable within the expected holding period of Fund IV's investment.
2. Voluntary Prepayment Netting. Include a provision reducing the ECF sweep obligation dollar-for-dollar by any voluntary prepayments of the term loan (and any other first-lien pari passu indebtedness) made by the Borrower during the applicable fiscal year. Voluntary prepayments credited against a prior year's ECF sweep obligation should not also be credited against a subsequent year's obligation (i.e., no double-counting).
3. Working Capital Adjustment. Include net change in working capital as a component of the ECF definition. Specifically, ECF should be reduced by any increase in net working capital and increased by any decrease in net working capital during the applicable fiscal year, with "net working capital" defined as current assets (excluding cash and cash equivalents) minus current liabilities (excluding the current portion of long-term debt and deferred revenue to the extent such deferred revenue will be recognized as revenue within 12 months).
4. De Minimis Threshold. No ECF sweep shall be required for any fiscal year in which the calculated ECF amount (after giving effect to voluntary prepayment netting and the working capital adjustment) is less than $1,000,000.
5. Payment Timing. The ECF sweep payment shall be due within 10 business days after the date on which audited financial statements for the applicable fiscal year are required to be delivered (i.e., within 10 business days after the 120-day deadline, resulting in a payment deadline of approximately 130 days after fiscal year-end). This provides the Borrower with sufficient time to calculate the ECF amount, apply voluntary prepayment credits, and arrange for payment.
D. Market Context
For high-leverage SaaS acquisitions (those closing at leverage ratios in excess of 8.0x EBITDA), ECF step-down thresholds typically commence at a level representing 50% to 65% of the closing leverage ratio, with the 0% sweep threshold set at approximately 30% to 42% of closing leverage. Brindoval's proposed thresholds of 4.50x and 3.50x represent only approximately 42% and 33% of closing leverage, respectively, which places the initial step-down at the very bottom of the market range — effectively ensuring that the full 50% sweep applies for the majority of the Facility's term. Our proposed thresholds of 6.00x (approximately 56% of closing leverage) and 4.50x (approximately 42%) are squarely within the market range and are consistent with the step-down structures observed in comparable transactions (see Section III, Comparables 3 and 4 in particular).
Voluntary prepayment netting is, in our experience, included in the vast majority of sponsor-backed term loan facilities and should not be a point of significant contention with Brindoval. We are not aware of any recent comparable SaaS acquisition financing that omitted this provision, and we would characterize the absence of this feature in the Term Sheet as either an oversight or an aggressive initial negotiating position that Brindoval should be willing to concede.
Issue 4: Asset Sale Mandatory Prepayment — Reinvestment Period
A. Description of Brindoval's Proposed Terms
Section 7(b) of the Term Sheet provides that 100% of net cash proceeds from any asset sale (defined to include any sale, transfer, or other disposition of assets outside the ordinary course of business) shall be applied to prepay the term loan, subject to (i) a $2,500,000 annual de minimis basket (below which no mandatory prepayment is required) and (ii) reinvestment rights permitting the Borrower to reinvest such proceeds in assets useful to the business within 365 days of receipt of such proceeds. The Term Sheet does not include an extension of the reinvestment period for committed but not yet completed reinvestments, nor does it address the treatment of casualty or condemnation proceeds as distinct from voluntary asset sale proceeds.
B. Our Analysis and Concerns
The 365-day reinvestment period, while a common starting point, is below the current market standard for sponsor-backed term loan facilities when taken without an extension provision. The prevailing market structure provides for a 365-day initial reinvestment period plus an additional 180-day extension if the Borrower has entered into a binding agreement or irrevocably committed to reinvest the proceeds within the initial 365-day period but has not yet completed the reinvestment. This 365+180-day framework (providing a total potential reinvestment window of 545 days) has become the majority-practice structure in sponsor-backed leveraged finance transactions and reflects the commercial reality that reinvestment — particularly in the form of tuck-in acquisitions, technology build-outs, or platform development — may require extended timelines from identification through due diligence, negotiation, regulatory approval, and closing.
For a SaaS business, the reinvestment timeline is often complicated by build-versus-buy decisions. If the Borrower disposes of a non-core product line or legacy technology asset, the optimal reinvestment may involve either (a) acquiring a replacement SaaS capability through an M&A transaction (which, even for tuck-in deals, typically requires 6 to 12 months from letter of intent to closing) or (b) building replacement functionality internally (which may involve multi-quarter development sprints and beta-testing cycles). A 365-day period without an extension may force the Borrower to choose suboptimal reinvestment alternatives solely to avoid triggering the mandatory prepayment requirement.
The $2,500,000 annual de minimis basket is functional but could be modestly increased to reduce administrative burden. At the current level, virtually any disposition of meaningful assets will trigger the reinvestment-or-prepay analysis, requiring the Borrower to track and report on asset sales and reinvestment timelines for relatively small transactions.
C. Recommended Borrower Position
1. Reinvestment Period Extension. Request a reinvestment period of 365 days from receipt of net cash proceeds, plus an additional 180-day extension if the Borrower has entered into a binding agreement, board-approved capital expenditure plan, or other binding commitment to reinvest the proceeds prior to the expiration of the initial 365-day period, for a total potential reinvestment window of 545 days.
2. Increased De Minimis Basket. Increase the annual de minimis basket from $2,500,000 to $5,000,000, below which no mandatory prepayment is required regardless of reinvestment.
3. Exclusions from Mandatory Prepayment. Exclude the following categories of proceeds from the mandatory prepayment requirement:
(i) proceeds from dispositions of obsolete, surplus, or worn-out equipment, furniture, or fixtures, in each case in the ordinary course of business;
(ii) casualty insurance proceeds and condemnation awards below $2,000,000 per event or series of related events, provided such proceeds are applied to repair or replace the affected assets;
(iii) proceeds reinvested (or committed to be reinvested) in replacement assets, capital improvements, or Permitted Acquisitions within the reinvestment period (as extended, if applicable); and
(iv) proceeds constituting purchase price adjustments, earn-out payments, or deferred consideration received in connection with a disposition completed in a prior fiscal year, to the extent such amounts were not included in the original calculation of net cash proceeds for purposes of the mandatory prepayment.
D. Market Context
The 365+180-day reinvestment framework is standard in sponsor-backed leveraged finance transactions and is present in each of the five comparable transactions reviewed in Section III. We do not anticipate significant resistance from Brindoval on this point, as the extension is conditioned on the existence of a binding commitment, which provides the Lender with assurance that the proceeds will be reinvested rather than simply held in reserve. A $5,000,000 annual de minimis basket is within the market range for a $200,000,000 facility; several comparable transactions in our sample utilized baskets in the $3,000,000 to $7,500,000 range.
Issue 5: Springing Financial Covenant Trigger Threshold
A. Description of Brindoval's Proposed Terms
Section 8 of the Term Sheet provides for a covenant-lite structure with respect to the term loan, subject to a springing Total Net Leverage Ratio maintenance covenant set at 7.50x. The springing covenant is tested on a quarterly basis, but only when a revolving credit facility (if any is added to the Facility structure) is drawn in excess of 35% of aggregate revolving commitments as of the last day of the applicable fiscal quarter. In the absence of a revolving credit facility — which is the current structure contemplated by the Term Sheet — the springing covenant is effectively dormant and will not be tested.
B. Our Analysis and Concerns
Since no revolving credit facility is currently contemplated in the Term Sheet, the springing financial covenant provision has no present operative effect. The covenant would become relevant only if the Facility structure is modified — whether through negotiation, syndication, or the exercise of Brindoval's market flex rights (discussed in Issue 6 below) — to include a revolving credit facility component. In that event, the covenant would be tested quarterly, but only when the RCF is drawn above the 35% trigger threshold.
We note several considerations:
Headroom Analysis. The 7.50x TNL threshold represents approximately 70% of closing leverage (7.50x ÷ 10.70x). This provides meaningful headroom — the Borrower would need to experience a significant decline in EBITDA (or a significant increase in net debt) before approaching the covenant threshold. Specifically, with $200,000,000 of closing date term loan principal and assuming netting of unrestricted cash of $3,000,000 (resulting in net debt of $197,000,000), the Borrower would breach the 7.50x covenant only if Adjusted EBITDA declined below approximately $26,267,000 — which would represent a roughly 40% increase from current EBITDA levels. While this analysis is somewhat misleading (the covenant would be tested at future periods when amortization will have reduced principal and EBITDA may have grown or declined), the general point is that the covenant provides a substantial cushion against ordinary-course business fluctuations.
Risk of RCF Addition via Market Flex. As discussed in Issue 6 below, Brindoval's market flex provisions include the right to make structural modifications to the Facility, which could include the addition of a revolving credit facility. If an RCF is added during syndication, the springing covenant would become "live" — and the terms of the RCF (including commitment size, which determines the 35% trigger threshold) would have been set by Brindoval without the Borrower's input if structural flex does not require borrower consent. This risk underscores the importance of securing borrower consent rights over structural flex (see Issue 6).
Trigger Threshold. The 35% draw threshold for the springing test is consistent with market practice and provides a reasonable buffer against incidental RCF usage triggering a covenant test. However, the treatment of letters of credit and undrawn commitments in the "drawn" calculation is not specified in the Term Sheet and should be clarified.
C. Recommended Borrower Position
We recommend accepting the 7.50x TNL springing covenant, subject to the following clarifications and protective provisions:
1. Trigger Threshold. If an RCF is added to the Facility structure (whether through market flex or otherwise), the trigger threshold for testing the springing covenant should be no lower than 35% of aggregate RCF commitments (as proposed), and should be measured as of the last day of each fiscal quarter.
2. Excluded Amounts. Clarify that the following amounts are excluded from the "drawn" calculation for purposes of determining whether the trigger threshold has been breached: (i) undrawn letters of credit, (ii) cash collateralized letters of credit, and (iii) swing line loans repaid within three business days. Only actual revolving credit borrowings outstanding as of the last day of the fiscal quarter should be included.
3. Equity Cure Right. Include an equity cure right (as described in Issue 8 below) that would apply to any breach of the springing financial covenant, permitting the sponsor to cure the breach through an equity contribution to the Borrower.
4. EBITDA Calculation. Covenant testing should be based on Adjusted EBITDA with the full benefit of all add-backs and pro forma adjustments described in Issue 1 above, including the 25% add-back cap, the 24-month synergy realization period, and pro forma treatment of acquisitions and dispositions.
5. Cure Period. Include a provision that no Event of Default shall be deemed to have occurred solely by reason of a breach of the springing financial covenant until the earlier of (x) 10 business days after the Borrower becomes aware of such breach and (y) 10 business days after the delivery of financial statements for the applicable fiscal quarter, during which period the Borrower may exercise its equity cure right.
D. Market Context
Covenant-lite structures are the predominant standard for sponsor-backed first-lien term loans. In each of the five comparable transactions reviewed in Section III, the term loan was structured on a covenant-lite basis with a springing financial maintenance covenant applicable only to a revolving credit facility. Springing covenant trigger thresholds of 35% to 40% of RCF commitments are market standard. The 7.50x TNL level falls within the typical range for SaaS acquisitions (which generally set the springing covenant at 65% to 75% of closing leverage), and our analysis confirms that this level provides adequate headroom for the Borrower's anticipated operating trajectory.
Issue 6: Market Flex Caps on Spread and OID
A. Description of Brindoval's Proposed Terms
The Term Sheet references, and the commitment letter and fee letter delivered concurrently with the Term Sheet contain, market flex provisions granting Brindoval the right to adjust pricing and structural terms of the Facility as necessary to achieve successful syndication. The specific flex provisions, as described in the fee letter and referenced in Section 3(d) of the Term Sheet, include:
• Spread Flex: Up to +50 basis points increase in the applicable margin (from Adjusted Term SOFR + 475 bps to Adjusted Term SOFR + 525 bps).
• OID Flex: Up to an additional 50 basis points increase in the original issue discount (from 2.00% to 2.50%).
• Structural Flex: The right to make structural modifications to the Facility, including but not limited to (i) the addition of a revolving credit facility, (ii) modification of the amortization schedule, and (iii) the addition of financial maintenance covenants — in each case to the extent Brindoval determines, in its reasonable judgment, that such modifications are necessary to facilitate successful syndication.
B. Our Analysis and Concerns
The cumulative economic impact of a full exercise of the flex provisions would be material to the Borrower:
Pricing Impact. If Brindoval exercises the full +50 bps spread flex, the all-in coupon on the term loan increases from approximately Adjusted Term SOFR + 485 bps (including the 10 bps credit spread adjustment) to approximately Adjusted Term SOFR + 535 bps. At current 3-month SOFR rates (approximately 4.35% as of the date of this memorandum), this would increase the all-in interest rate from approximately 9.20% to approximately 9.70%, representing an incremental annual interest cost of approximately $1,000,000 on the $200,000,000 principal amount (before amortization). Over the 7-year life of the Facility, the cumulative incremental interest cost of the full spread flex would be approximately $6,500,000 to $7,000,000 (assuming moderate amortization).
OID Impact. If Brindoval exercises the full +50 bps OID flex, the OID increases from $4,000,000 (2.00% of $200,000,000) to $5,000,000 (2.50% of $200,000,000), reducing the net funded proceeds from $196,000,000 to $195,000,000. The $1,000,000 reduction in proceeds would need to be funded from the Borrower's cash on hand or through an additional equity contribution from Fund IV, as the sources and uses of funds are otherwise balanced. While the incremental OID amount is relatively modest in isolation, the combined effect of full spread and OID flex would increase the total cost of the Facility by approximately $7,500,000 to $8,000,000 over the life of the loan.
Structural Flex Concerns. The structural flex provision is the most consequential component of the flex package. The addition of a revolving credit facility, while potentially useful to the Borrower from a liquidity management perspective, would trigger the springing financial covenant discussed in Issue 5 above and could introduce additional terms and conditions not currently contemplated in the Term Sheet. Modification of the amortization schedule above the proposed 1.0% per annum could increase the Borrower's near-term cash obligations and reduce the cash available for growth investment. The addition of financial maintenance covenants beyond the springing TNL covenant would fundamentally alter the covenant-lite character of the Facility.
Syndication Context. We understand from discussions with Derek Raines (Solara CFO) that Brindoval intends to syndicate the Facility from its initial $200,000,000 commitment to a target hold position of approximately $75,000,000. Preliminary indications of interest have been received from Harborstone Capital Partners LLC (approximately $50,000,000), Pinnacle Ridge Credit Fund II LP (approximately $40,000,000), and Brindoval anticipates placing an additional approximately $35,000,000 with other institutional lenders. Given this syndication plan, the flex provisions should be exercisable only to the extent actually necessary to achieve successful syndication — not as a general repricing mechanism.
C. Recommended Borrower Position
1. Spread Flex Cap. Request that the spread flex be capped at +25 basis points (rather than +50 bps), resulting in a maximum all-in spread of Adjusted Term SOFR + 500 bps (plus the 10 bps CSA, for a total of SOFR + 510 bps).
2. OID Flex Cap. Request that the OID flex be capped at +25 basis points additional (rather than +50 bps), resulting in a maximum OID of 2.25% ($4,500,000).
3. Combined Yield Flex Cap (Alternative). As an alternative to separate caps on spread and OID flex, propose a cap on total yield flex of +50 basis points (combining spread and OID on an equivalent basis). This formulation gives Brindoval allocation flexibility — it may apply the 50 bps to spread, OID, or a combination thereof — while limiting the total incremental cost to the Borrower. We believe this alternative may be more palatable to Brindoval, as it preserves its flexibility in marketing the Facility to prospective syndicate members.
4. Structural Flex Consent. Any structural flex modification — including but not limited to (i) the addition of a revolving credit facility, (ii) an increase in amortization above 1.0% per annum, (iii) the addition of financial maintenance covenants beyond the springing TNL covenant, or (iv) modification of the collateral package or guaranty structure — should require the prior written consent of the Borrower (not to be unreasonably withheld, conditioned, or delayed). This is critical to preventing Brindoval from unilaterally altering the economics and structure of the Facility during syndication.
5. Sunset. The flex provisions should automatically terminate and be of no further force or effect upon the completion of the initial syndication of the Facility (i.e., the date on which Brindoval has sold down to its target hold position). Post-syndication repricing should be addressed, if at all, through the standard amendment and modification provisions of the credit agreement.
D. Market Context
Market flex caps vary widely depending on the credit profile, sponsor reputation, market conditions, and the competitive dynamics of the arranger relationship. In the current environment, spread flex caps of +25 to +75 bps and OID flex caps of +25 to +75 bps are typical, with the tighter end of the range reserved for high-quality credits with strong sponsor backing. Solara's brand recognition as a well-established technology-focused infrastructure investor, Fund IV's $1.65 billion of committed capital, the 41.3% equity contribution, and the quality of the Meridian credit story (27% ARR growth, 30% EBITDA margins, strong mid-market positioning in the asset management vertical with approximately 310 employees) collectively provide the Borrower with meaningful negotiating leverage to push for the tighter end of the flex range. We believe a combined yield flex cap of 50 bps is a reasonable and achievable outcome.
Issue 7: SaaS-Specific Reporting Metrics
A. Description of Brindoval's Proposed Terms
Section 9 of the Term Sheet sets forth the reporting requirements applicable to the Borrower, which include:
• Annual Audited Financial Statements. Within 120 days after the end of each fiscal year, audited consolidated financial statements of the Borrower and its subsidiaries, prepared in accordance with GAAP and accompanied by an unqualified audit opinion from a nationally recognized independent accounting firm.
• Quarterly Unaudited Financial Statements. Within 60 days after the end of each fiscal quarter (other than the fourth fiscal quarter), unaudited consolidated financial statements of the Borrower and its subsidiaries, certified by the chief financial officer of the Borrower.
• Annual Budget. Within 60 days after the end of each fiscal year, a detailed annual budget for the following fiscal year, including projected income statement, balance sheet, and cash flow statement on a quarterly basis.
• Monthly SaaS Metrics. Within 30 days after the end of each calendar month, a report setting forth ARR and "key SaaS metrics" for the Borrower and its subsidiaries.
B. Our Analysis and Concerns
Open-Ended SaaS Metrics Requirement. The reference to "key SaaS metrics" without further definition is the most problematic aspect of the reporting framework. This open-ended formulation could be interpreted by the Administrative Agent or any syndicate lender to require disclosure of a wide range of operationally sensitive data, including customer-level revenue information, average contract values, pipeline and bookings metrics, customer acquisition costs, lifetime value calculations, and other competitively sensitive business intelligence. Disclosure of such information — particularly in a syndicated credit facility where the information may be shared with multiple institutional lenders, some of whom may have competing portfolio companies or investment interests — creates meaningful competitive risk for Meridian.
ARR Definition. The Term Sheet references "ARR" without defining the term, which creates ambiguity and potential for future dispute. The calculation of annual recurring revenue is not standardized under GAAP or any other generally accepted accounting framework, and different SaaS companies may calculate ARR using different methodologies. Key variables include: (i) whether ARR is calculated on a contracted basis (annualized value of active subscription contracts) or an observed run-rate basis (most recent month's recurring revenue multiplied by 12); (ii) the treatment of usage-based or consumption-based revenue components; (iii) the inclusion or exclusion of free trial, freemium, or pilot program customers; (iv) the treatment of multi-year contracts with escalating or declining pricing; and (v) the treatment of recently churned customers (i.e., customers whose contracts have expired but who have not formally terminated). Meridian's reported ARR of $62,400,000 as of December 31, 2025 is, we understand, calculated on an annualized contracted recurring revenue basis, including only active, signed subscription agreements and excluding one-time implementation fees, professional services revenue, and usage-based overages. This methodology should be codified in the credit documentation.
Monthly Reporting Cadence. The 30-day monthly reporting requirement places a meaningful operational burden on Meridian's finance team, which currently consists of approximately 12 professionals under Meridian CFO engagement. For a company of Meridian's size (approximately 310 FTEs), a 30-day turnaround for monthly SaaS metrics reporting requires near-real-time revenue recognition, customer database reconciliation, and management review processes that may not currently be in place. A 45-day cadence is more realistic and is the more common standard in comparable SaaS credit facilities.
Annual Budget Timeline. The 60-day deadline for annual budget delivery is tight for a sponsor-backed portfolio company. Fund IV's standard portfolio company budgeting process involves management preparation, sponsor review and iteration, and ultimately board approval — a process that typically requires 8 to 10 weeks following fiscal year-end. A 75-day deadline would better accommodate this process.
C. Recommended Borrower Position
1. Define "ARR." Include an express definition of "Annual Recurring Revenue" or "ARR" in the Term Sheet (and, ultimately, in the credit agreement): the annualized value of all active, contracted recurring subscription revenue as of the applicable measurement date, calculated by multiplying the monthly recurring subscription revenue for the most recently completed calendar month by 12. The definition should expressly exclude one-time implementation fees, professional services revenue, usage-based overages, and revenue attributable to free trial, freemium, or pilot program arrangements.
2. Limit "Key SaaS Metrics" to a Defined List. Replace the open-ended reference to "key SaaS metrics" with a closed and enumerated list of the following metrics:
(i) Annual Recurring Revenue (as defined);
(ii) Net Revenue Retention Rate (defined as the ARR at the end of a given period from the cohort of customers that were active at the beginning of such period, divided by the ARR from such cohort at the beginning of such period, expressed as a percentage);
(iii) Gross customer count (number of active subscription customers as of the measurement date); and
(iv) Logo churn rate (number of customers lost during the applicable period divided by the number of customers at the beginning of such period, expressed as a percentage, measured on a customer-count basis, not revenue-weighted).
Expressly exclude from the reporting obligation: customer-level revenue data, average contract values, sales pipeline metrics, customer acquisition costs, lifetime value calculations, and any other metrics not enumerated in the defined list.
3. Monthly Reporting Cadence. Request that monthly SaaS metrics be delivered within 45 days after the end of each calendar month (rather than 30 days), and on an "information only" basis. The "information only" designation is important: it means that the SaaS metrics are provided for the lenders' information and monitoring purposes, but that the failure to deliver the metrics (or the content of the metrics) does not constitute an Event of Default or trigger any other covenant or default mechanism under the credit agreement.
4. Annual Audited Financials. Accept the 120-day delivery timeline as proposed. Whitfield & Sable LLP, which serves as Meridian's independent auditor, has confirmed its ability to meet this timeline.
5. Quarterly Unaudited Financials. Accept the 60-day delivery timeline as proposed.
6. Annual Budget. Request an extension from 60 days to 75 days after the end of each fiscal year, to accommodate the sponsor's board review and approval process.
D. Market Context
The inclusion of defined SaaS metric reporting obligations is an increasingly common feature of leveraged finance documentation for SaaS credits. The trend in the market is toward defined, closed-list reporting — particularly in syndicated facilities where the borrower's competitive concerns are heightened by the breadth of the lender group. Most recent SaaS term loan transactions in our review specify 3 to 5 defined SaaS metrics, consistent with our recommendation. The "information only" designation for monthly SaaS reporting is widely accepted and reflects the understanding that monthly operational metrics are inherently preliminary and should not be held to the same standard of accuracy and completeness as quarterly and annual financial statements. Monthly reporting within 30 to 45 days is typical; 45 days is the more borrower-friendly end of the range and is the standard we recommend.
Issue 8: Equity Cure Rights
A. Description of Brindoval's Proposed Terms
The Term Sheet does not include any provision for an equity cure right. The omission is notable, as equity cure rights are a standard feature of sponsor-backed leveraged finance documentation and are included in four of the five comparable transactions reviewed in Section III below.
B. Our Analysis and Concerns
The absence of an equity cure right is a significant gap in the proposed Facility structure, particularly given the high leverage at closing (approximately 10.70x EBITDA) and the characteristics of Meridian's SaaS business model.
SaaS businesses, even high-quality ones, can experience quarterly fluctuations in EBITDA driven by factors such as: (i) the timing of large enterprise contract renewals and associated revenue recognition; (ii) seasonal variations in customer acquisition costs (CAC) and sales and marketing spending; (iii) the timing of annual salary increases, bonus payments, and stock-based compensation vesting; (iv) one-time charges associated with product launches, platform migrations, or office relocations; and (v) fluctuations in deferred revenue balances resulting from changes in billing cycles. While these fluctuations do not necessarily indicate a fundamental deterioration in the borrower's credit quality, they can produce temporary dips in Adjusted EBITDA that, in a high-leverage structure, may cause the borrower to approach or breach a financial covenant threshold.
If the springing financial covenant is triggered (for example, through the addition of a revolving credit facility via market flex), and if the borrower experiences a temporary EBITDA dip, the absence of an equity cure right means that a single bad quarter could result in an Event of Default — notwithstanding that the sponsor is willing and able to inject additional equity capital to cure the breach. This outcome is both commercially unreasonable and inconsistent with market practice. The equity cure right provides a safety valve that protects both the borrower (by avoiding a technical default and its cascading consequences) and the lenders (by ensuring that additional equity capital is injected into the credit, improving the lenders' collateral position).
C. Recommended Borrower Position
We recommend that the first markup include an equity cure right provision with the following terms:
1. Cure Mechanism. Solara Digital Infrastructure LP, or any of its affiliates (including Fund IV, any parallel fund, or any co-investment vehicle), shall have the right to contribute cash equity to the Borrower (whether as a direct capital contribution or as a purchase of equity interests in the Borrower) in an amount sufficient to cure any breach of the springing Total Net Leverage Ratio covenant. The proceeds of such equity cure contribution shall be deemed added to Adjusted EBITDA solely for purposes of calculating the Total Net Leverage Ratio for the applicable test period, and shall be added to the numerator of the EBITDA calculation (i.e., the contribution is treated as EBITDA, not as a reduction of net debt). This "EBITDA increase" approach (as opposed to a "debt reduction" approach) is the more borrower-friendly formulation and is the majority-practice standard.
2. Frequency Limitations.
(i) The equity cure right may not be exercised more than two (2) times in any period of four (4) consecutive fiscal quarters.
(ii) The equity cure right may not be exercised more than five (5) times in the aggregate over the life of the Facility.
3. No Over-Cure. The amount of any equity cure contribution shall not exceed the minimum amount necessary to achieve compliance with the Total Net Leverage Ratio for the applicable test period. Any excess contribution shall not be counted for purposes of calculating Adjusted EBITDA.
4. Cure Period. The equity cure contribution must be received by the Borrower within 10 business days after the date on which financial statements for the applicable fiscal quarter are required to be delivered pursuant to the reporting covenants. This provides the sponsor with a reasonable window to assess the financial results, determine the cure amount, and arrange for the capital contribution.
5. Effect of Cure. A test period for which an equity cure contribution is made and compliance is achieved shall not constitute an Event of Default and shall not trigger any cross-default under any other agreement or instrument. The Borrower shall be deemed to have been in compliance with the financial covenant for such test period from the outset, as if the breach had not occurred.
6. No Rollover. Equity cure contributions made for a particular test period shall not be applied to cure any breach in a subsequent test period.
D. Market Context
Equity cure rights are a standard feature of sponsor-backed leveraged finance documentation. In our review of five comparable SaaS acquisition financings (Section III), four of the five included equity cure provisions. The 2-in-4 / 5-total structure (no more than two cures in any four consecutive quarters, no more than five cures over the life of the facility) is the most common formulation and is the structure we recommend. The over-cure prohibition is likewise standard and prevents the sponsor from using the equity cure mechanism to artificially inflate EBITDA beyond the minimum level required for compliance.
Issue 9: Collateral Exclusions for Immaterial IP
A. Description of Brindoval's Proposed Terms