PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT This memorandum has been prepared by Calderwood & Harkness LLP at the direction of counsel and is protected by the attorney-client privilege and the work product doctrine. This memorandum and its contents should not be disclosed to any third party without the prior written consent of Calderwood & Harkness LLP.
MEMORANDUM
TO: Andrew Fitzpatrick, Lead Associate, Calderwood & Harkness LLP James Prentice, Responsible Partner, Calderwood & Harkness LLP
FROM: Naomi Petersen, Working Associate, Calderwood & Harkness LLP
DATE: February 27, 2026
RE: Employment and Benefits Due Diligence — Meridian FleetWorks, Inc. (Project Trident)
Matter No.: 1041-00004
Client: Solara Digital Infrastructure LP
Target: Meridian FleetWorks, Inc.
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I. Executive Summary
This memorandum summarizes the findings of the legal due diligence review of employment, compensation, employee benefits, equity incentive, and independent contractor matters of Meridian FleetWorks, Inc. ("MFW" or the "Company") in connection with the proposed acquisition of MFW by Solara Fleet Holdings LLC ("Buyer"), a wholly-owned subsidiary of Solara Fund III, LP ("Solara Fund III"), which is managed by Solara Digital Infrastructure LP (our client, "Solara" or "Sponsor"). The proposed transaction contemplates a 100% stock purchase of all issued and outstanding shares of common stock and Series A Preferred Stock of MFW for an aggregate purchase price of $350,000,000 (the "Transaction"). The per-share purchase price is $35.00, based on 10,000,000 fully diluted shares of MFW capital stock. The Transaction is expected to be documented through a Stock Purchase Agreement (the "SPA") between Buyer, the stockholders of MFW, and MFW.
The purpose of this memorandum is to identify material employment and benefits-related risks, liabilities, and obligations that may affect the Transaction, the purchase price, or the structure of the SPA and related ancillary documents. Our analysis is based on materials produced by MFW and its counsel, Hawthorne Kinsey & Alcott LLP ("HKA"), in the virtual data room hosted on Thackeray Solutions (the "VDR") under the project name "Project Trident." The initial diligence request list was transmitted to HKA on February 19, 2026. The Letter of Intent executed between Solara and MFW, dated February 18, 2026 (LOI-MFW-2026-0218), establishes a diligence completion deadline of March 15, 2026. As of the date of this memorandum, certain diligence items remain outstanding and are identified in Section X below.
The principal findings of our review are summarized as follows:
• Workforce. MFW employs approximately 310 employees across three office locations in McLean, Virginia; Austin, Texas; and Boise, Idaho. All employees are U.S.-based. There are no unionized employees and no collective bargaining agreements. The workforce is organized primarily around engineering and product development (approximately 130 employees), sales and marketing (approximately 65 employees), customer success and support (approximately 50 employees), general and administrative functions (approximately 40 employees), and professional services and implementation (approximately 25 employees).
• Executive Employment Agreements and Change-of-Control Severance. MFW has entered into executive employment agreements with its two co-founders: Garrett Holliday, Co-Founder, Chief Executive Officer and Director, and Diana Vasquez-Park, Co-Founder, Chief Technology Officer and Director. Each agreement contains change-of-control severance provisions that would be triggered by a qualifying termination within 12 months following the closing of the Transaction. The aggregate potential cash severance exposure under these agreements is approximately $2,411,500, plus COBRA continuation benefits. While both Holliday and Vasquez-Park are expected to continue in their respective roles post-closing, the existence of these contractual rights must be addressed in the SPA and ancillary documentation.
• 2016 Stock Incentive Plan. MFW maintains its 2016 Stock Incentive Plan (the "2016 Plan"), under which 650,000 stock options are currently outstanding. Of these, 480,000 are vested and 170,000 are unvested. The weighted-average exercise price is $8.50 per share, yielding aggregate net cash-out proceeds of $17,225,000 at a per-share consideration of $35.00. The 2016 Plan appears to contain a single-trigger acceleration provision upon a change of control, which would vest all unvested options immediately prior to closing. The treatment of outstanding options, including mechanics of cancellation and cash-out, employer payroll tax withholding obligations, and related matters, must be addressed in the SPA.
• Independent Contractor Classification Risk. MFW engages approximately 25 independent contractors in its product development and engineering organization. Several of these contractors appear to have been engaged on a long-term basis (in excess of 12 months) and are integrated into the Company's core engineering teams, raising potential worker misclassification risk under federal and applicable state law standards. If reclassified as employees, MFW could face liability for unpaid employment taxes, benefits, overtime, and associated penalties. This risk should be addressed through SPA representations, warranties, and indemnification provisions.
• No Material Employment Litigation. Based on our review of the VDR materials to date, no pending employment-related litigation, wage-hour claims, discrimination charges, EEOC complaints, or state agency proceedings have been identified.
The documents reviewed in connection with this memorandum include executive employment agreements, standard offer letters, the employee handbook (all three office locations), benefit plan summaries and enrollment materials, the 2016 Stock Incentive Plan and related grant agreements, independent contractor agreements (partial set), payroll records, organizational charts, and the Company's capitalization table. Several items remain outstanding and are detailed in Section X of this memorandum.
II. Workforce Overview
A. Headcount and Office Locations
Based on the organizational charts, payroll records, and headcount summaries produced in the VDR, MFW employs approximately 310 employees as of the date of this memorandum. All employees are based in the United States, and no international workforce or foreign subsidiary employment arrangements have been identified. The Company's workforce is distributed across three offices as follows:
McLean, Virginia (Headquarters). MFW's principal office is located at 8750 Westpark Drive, Suite 600, McLean, VA 22102. This location serves as the Company's headquarters and houses the executive team (including CEO Garrett Holliday and CFO Marcus Trahan), the sales and marketing organization, the finance department, the legal and human resources functions, and a portion of the product and engineering organization. The McLean office represents the largest concentration of employees.
Austin, Texas. MFW maintains an engineering and product development hub at 301 Congress Avenue, Suite 1400, Austin, TX 78701. Co-Founder and CTO Diana Vasquez-Park is based at this location. The Austin office serves as the primary engineering center and houses the majority of the Company's product development team. A significant portion of the approximately 25 independent contractors engaged in product development are also located in or working through the Austin office.
Boise, Idaho. MFW operates a customer success and support operations center at 950 West Bannock Street, Suite 210, Boise, ID 83702. This office houses the Company's customer success team and support operations, providing ongoing client support for MFW's fleet management and logistics software platform.
Notably, MFW does not have any unionized employees, and no collective bargaining agreements have been identified in the VDR or disclosed by HKA. There is no indication that any union organizing activity is pending or has occurred in the recent past.
B. Departmental Breakdown
The Company's approximately 310 employees are organized across the following functional departments:
The engineering and product development organization, when inclusive of the approximately 25 independent contractors discussed in Section VIII below, represents a combined team of approximately 155 individuals, reflecting the technology-driven nature of MFW's business. The professional services and implementation team of approximately 25 employees supports an estimated $5,500,000 in annual professional services revenue, which represents a meaningful portion of MFW's total revenue and is relevant to the Company's customer engagement model.
C. At-Will Employment; State Law Considerations
MFW's standard employment relationship is at-will, as reflected in the Company's standard offer letters and employee handbook. Virginia, Texas, and Idaho are each at-will employment states, and the Company's documentation consistently includes at-will disclaimers confirming that employment may be terminated by either the Company or the employee at any time, with or without cause, and with or without notice, except as otherwise provided in an individual employment agreement.
We have reviewed the employee handbook applicable to each office location and confirmed that the standard at-will disclaimers are present and are not materially undermined by other handbook provisions. The handbook does not contain language that could reasonably be construed as creating an implied contract of employment or a guarantee of continued employment.
We note the following state-specific wage payment and employment law considerations that are relevant to the Transaction and post-closing operations:
Virginia. The Virginia Wage Payment Act (Va. Code § 40.1-29) requires employers to pay wages on regular paydays and to pay all wages due upon termination. Virginia does not require payment of accrued PTO upon termination unless the employer's policy or practice provides for such payment.
Texas. The Texas Payday Law (Tex. Lab. Code Ch. 61) requires payment of wages on regular paydays and imposes deadlines for final wage payments upon termination (within six calendar days for involuntary termination; by the next regular payday for voluntary resignation). Texas does not have a state law requiring PTO payout upon termination.
Idaho. Idaho's wage claim procedures (Idaho Code § 45-601 et seq.) require payment of wages due within specified timeframes upon termination. Idaho similarly does not mandate PTO payout at termination absent employer policy.
As noted in Section V.C below, MFW's employee handbook provides for payout of accrued but unused PTO upon termination, which creates a contractual obligation regardless of the applicable state law default rule. This accrued PTO liability is relevant to the net working capital adjustment in the SPA.
III. Executive Employment Agreements
A. Garrett Holliday — Co-Founder, CEO & Director
Garrett Holliday serves as MFW's Co-Founder, Chief Executive Officer, and a member of the Board of Directors. Mr. Holliday is party to an Executive Employment Agreement with MFW dated and effective as of January 1, 2023 (the "Holliday Employment Agreement"), a copy of which was produced in the VDR and has been reviewed in full. The key terms of the Holliday Employment Agreement are summarized below and in Appendix B.
Compensation. Mr. Holliday's base salary under the Holliday Employment Agreement is $425,000 per annum, payable in accordance with MFW's standard payroll practices. Mr. Holliday is also eligible for an annual discretionary bonus with a target of 75% of base salary, equal to $318,750 at current base salary levels. The annual bonus is discretionary and is based on a combination of Company performance and individual performance metrics, as determined by the Board of Directors. We have not reviewed the specific performance metrics or criteria for any prior year bonus determinations.
Equity Holdings. Based on the capitalization table produced in the VDR, Mr. Holliday holds 2,800,000 shares of MFW common stock and 400,000 shares of MFW Series A Preferred Stock, for a total of 3,200,000 shares representing 32.0% of fully diluted equity. At the per-share purchase price of $35.00, Mr. Holliday's aggregate equity proceeds would be approximately $112,000,000 (before giving effect to any rollover arrangement).
Change-of-Control Provisions. The Holliday Employment Agreement contains significant change-of-control severance provisions, which are summarized as follows:
Trigger. If Mr. Holliday's employment is terminated by the Company without "cause" or by Mr. Holliday for "good reason" within twelve (12) months following a "change of control," Mr. Holliday is entitled to the severance payments and benefits described below (a "double-trigger" provision, requiring both a change of control and a qualifying termination).
Cash Severance. Twenty-four (24) months of base salary continuation, equal to $425,000 × 2 = $850,000, plus twenty-four (24) months of annual bonus at target, equal to $318,750 × 2 = $637,500. The total cash severance payment is approximately $1,487,500.
Benefits Continuation. Twenty-four (24) months of COBRA continuation coverage for medical, dental, and vision benefits at Company expense, or an equivalent cash payment if COBRA continuation is not available or feasible.
Change of Control Definition. "Change of control" is defined broadly in the Holliday Employment Agreement to include, among other events, a sale or transfer of 50% or more of the outstanding voting securities of the Company. The proposed Transaction, which contemplates the acquisition of 100% of MFW's outstanding stock, will unambiguously constitute a "change of control" under this definition.
Good Reason Definition. "Good reason" is defined to include (i) a material diminution in Mr. Holliday's duties, title, authority, or reporting structure, (ii) a relocation of Mr. Holliday's principal place of employment by more than 50 miles from the current location, (iii) a material reduction in base salary, (iv) a material breach by the Company of the employment agreement, and (v) failure to maintain Mr. Holliday's position as a member of the Board of Directors (or equivalent governing body). Each of these "good reason" triggers is subject to a notice and cure period.
Total Potential CIC Severance (Cash). Approximately $1,487,500, plus the cost of 24 months of COBRA continuation benefits.
Restrictive Covenants. The Holliday Employment Agreement contains a twelve (12)-month post-termination non-competition covenant prohibiting Mr. Holliday from engaging in any business that competes with MFW in the field of fleet management and logistics software, and a twelve (12)-month post-termination non-solicitation covenant prohibiting solicitation of the Company's employees and customers.
Rollover and New Restrictive Covenant Agreement. It is our understanding from the deal team that Mr. Holliday is expected to roll over approximately $25,000,000 of equity value (approximately 7.14% of the $350,000,000 aggregate deal value) into Solara Fleet Holdings LLC in exchange for an equity interest in the Buyer. A separate Rollover Agreement and Restrictive Covenant Agreement are to be negotiated and executed in connection with the closing. The proposed Restrictive Covenant Agreement, as outlined by the Solara deal team, contemplates an extension of the non-compete period from 12 months to 3 years post-termination.
Diligence Observation. The existing 12-month non-competition covenant in the Holliday Employment Agreement is shorter than the 3-year non-competition period contemplated in the proposed Restrictive Covenant Agreement. If the Transaction closes and the new Restrictive Covenant Agreement is executed, the new agreement should expressly supersede and replace the restrictive covenant provisions of the existing Holliday Employment Agreement to avoid conflicting terms and potential enforceability arguments. We recommend that the ancillary agreement documents be drafted to include clear supersession language and that the Holliday Employment Agreement be either amended or terminated and replaced with a new employment agreement at closing.
B. Diana Vasquez-Park — Co-Founder, CTO & Director
Diana Vasquez-Park serves as MFW's Co-Founder, Chief Technology Officer, and a member of the Board of Directors. Ms. Vasquez-Park is based in the Company's Austin, Texas office. Ms. Vasquez-Park is party to an Executive Employment Agreement with MFW dated and effective as of January 1, 2023 (the "Vasquez-Park Employment Agreement"), a copy of which was produced in the VDR and has been reviewed in full. The key terms of the Vasquez-Park Employment Agreement are summarized below and in Appendix C.
Compensation. Ms. Vasquez-Park's base salary under the Vasquez-Park Employment Agreement is $385,000 per annum, payable in accordance with MFW's standard payroll practices. Ms. Vasquez-Park is eligible for an annual discretionary bonus with a target of 60% of base salary, equal to $231,000 at current base salary levels. As with the Holliday bonus, this annual bonus is discretionary and is based on Company and individual performance.
Equity Holdings. Based on the capitalization table, Ms. Vasquez-Park holds 1,600,000 shares of MFW common stock and 200,000 shares of MFW Series A Preferred Stock, for a total of 1,800,000 shares representing 18.0% of fully diluted equity. At the per-share purchase price of $35.00, Ms. Vasquez-Park's aggregate equity proceeds would be approximately $63,000,000.
Change-of-Control Provisions. The Vasquez-Park Employment Agreement contains change-of-control severance provisions that are structurally similar to those in the Holliday Employment Agreement, but with a shorter severance period:
Trigger. The same double-trigger structure applies: termination without "cause" or resignation for "good reason" within twelve (12) months following a "change of control."
Cash Severance. Eighteen (18) months of base salary continuation, equal to $385,000 × 1.5 = $577,500, plus eighteen (18) months of annual bonus at target, equal to $231,000 × 1.5 = $346,500. The total cash severance payment is approximately $924,000.
Benefits Continuation. Eighteen (18) months of COBRA continuation coverage at Company expense, or an equivalent cash payment.
Change of Control and Good Reason Definitions. The "change of control" and "good reason" definitions in the Vasquez-Park Employment Agreement are substantively identical to those in the Holliday Employment Agreement, as described in Section IV.A above.
Total Potential CIC Severance (Cash). Approximately $924,000, plus the cost of 18 months of COBRA continuation benefits.
Restrictive Covenants. The Vasquez-Park Employment Agreement contains a twelve (12)-month post-termination non-competition covenant and a twelve (12)-month post-termination non-solicitation covenant, on terms substantively similar to those in the Holliday Employment Agreement.
Post-Closing Role. Ms. Vasquez-Park is expected to continue in her role as CTO following the closing of the Transaction. A separate Restrictive Covenant Agreement extending the non-compete period to 2 years is to be negotiated in connection with the closing. As with the Holliday Employment Agreement, the new agreement should expressly supersede the existing restrictive covenant provisions.
C. Marcus Trahan — CFO
Marcus Trahan serves as MFW's Chief Financial Officer. Based on our review of the VDR, no formal executive employment agreement has been identified for Mr. Trahan. It appears that Mr. Trahan is employed under a standard offer letter and on at-will terms consistent with MFW's general employment practices. We have requested Mr. Trahan's offer letter, compensation details, and any other employment-related documentation from HKA, but these items have not yet been received as of the date of this memorandum.
Equity Holdings. Based on the capitalization table, Mr. Trahan holds 150,000 shares of MFW common stock and 80,000 vested stock options under the 2016 Plan with an exercise price of $8.50 per share, for a total of 230,000 shares (or share equivalents) representing 2.3% of fully diluted equity. At the per-share consideration of $35.00:
• Common stock proceeds: 150,000 × $35.00 = $5,250,000
• Option net proceeds: ($35.00 − $8.50) × 80,000 = $26.50 × 80,000 = $2,120,000
• Total estimated proceeds: $7,370,000
Change-of-Control Severance. No change-of-control severance provisions have been identified for Mr. Trahan. As an at-will employee without a formal executive employment agreement, Mr. Trahan does not appear to have any contractual entitlement to severance upon termination in connection with the Transaction.
Diligence Observation. We recommend that the deal team determine whether Solara intends to retain Mr. Trahan as CFO of MFW following the closing of the Transaction. If retention is desired, we recommend negotiating a new employment agreement or retention arrangement with Mr. Trahan as part of the closing process. If retention is not intended, it would be prudent to understand the terms of Mr. Trahan's at-will employment, including any accrued compensation, bonus entitlements, or other obligations that may arise in connection with a termination.
D. Aggregate Change-of-Control Severance Exposure
The aggregate potential change-of-control severance exposure under the executive employment agreements identified in the VDR is summarized below:
No other executive employment agreements with change-of-control severance provisions have been identified. The remaining approximately 308 employees (including Mr. Trahan) appear to be employed on an at-will basis without contractual severance entitlements.
The aggregate CIC severance exposure of approximately $2,411,500 in cash, plus the cost of COBRA continuation benefits for the applicable periods, represents a material closing cost consideration. We note that because both Mr. Holliday and Ms. Vasquez-Park are expected to continue in their respective roles post-closing, the CIC severance provisions are unlikely to be triggered at closing absent a constructive termination event that constitutes "good reason" under their respective agreements. However, the contractual rights exist and would be triggered by any qualifying termination within the 12-month window following the change of control. We recommend that these obligations be addressed in the SPA in one or more of the following ways:
(i) as a known liability disclosed on the appropriate disclosure schedule;
(ii) through representations and warranties confirming the completeness of CIC severance obligations;
(iii) through negotiation of waivers, amendments, or new employment agreements at closing that modify or replace the existing CIC severance provisions; and/or
(iv) through carve-out from the indemnification basket or deductible, ensuring that any CIC severance triggered post-closing is borne by the pre-closing stockholders.
IV. Employee Benefit Plans
A. Health and Welfare Plans
MFW offers its employees a comprehensive suite of health and welfare benefits, which we have reviewed based on the plan summaries, enrollment materials, and insurance carrier information produced in the VDR. The principal health and welfare benefit plans are as follows:
Medical Insurance. MFW provides group medical insurance coverage to eligible employees and their dependents. The plan appears to be a fully insured arrangement (i.e., not self-insured), based on the carrier and policy documentation reviewed. We have not identified any self-insured medical plan arrangements, stop-loss policies, or administrative services only (ASO) contracts, which is a favorable finding from a risk perspective, as it means MFW does not bear claims risk.
Dental and Vision Insurance. Group dental and vision insurance plans are offered to eligible employees. These also appear to be fully insured plans.
Life Insurance and AD&D. MFW provides employer-sponsored group life insurance and accidental death and dismemberment (AD&D) coverage for eligible employees. The specific coverage amounts and carrier details are documented in the VDR materials.
Disability Insurance. Short-term disability (STD) and long-term disability (LTD) insurance coverage is provided.
Flexible Spending Accounts (FSA) and Health Savings Accounts (HSA). MFW offers both FSA and HSA options to eligible employees, consistent with the plan design and high-deductible health plan (HDHP) options available under the medical insurance program.
No Post-Retirement Medical Obligations. Importantly, no post-retirement or retiree medical benefit obligations (i.e., other post-employment benefits or "OPEB") have been identified. This is a favorable finding, as OPEB liabilities can represent significant long-term obligations.
Compliance Matters. We have reviewed MFW's compliance with the following federal requirements applicable to its health and welfare plans:
COBRA. MFW, with approximately 310 employees, is subject to the continuation coverage requirements of the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"). Based on our review of the Company's COBRA administration practices and documentation, COBRA obligations appear to be administered in the ordinary course, although we note that a detailed compliance audit has not been conducted.
HIPAA. The Health Insurance Portability and Accountability Act ("HIPAA") privacy and security requirements apply to the Company's group health plans. MFW appears to maintain appropriate HIPAA policies and procedures, though a comprehensive HIPAA compliance review is beyond the scope of this employment and benefits diligence memorandum.
ACA. MFW qualifies as an "applicable large employer" (ALE) under the Affordable Care Act ("ACA") based on its approximately 310 full-time employees, which exceeds the 50 full-time equivalent employee threshold. As an ALE, MFW is subject to the employer shared responsibility provisions (the "employer mandate") of Section 4980H of the Internal Revenue Code, as well as annual information reporting requirements under Sections 6055 and 6056 (Forms 1094-C and 1095-C). Based on the VDR materials reviewed, MFW's ACA reporting appears to be current, and we have not identified any indication of pending penalties or assessments under Section 4980H. However, a comprehensive ACA compliance review has not been conducted.
B. Retirement Plans
MFW maintains a 401(k) defined contribution retirement plan for eligible employees. Based on preliminary information obtained from the VDR and communications with HKA, the 401(k) plan includes an employer matching contribution. The preliminary information suggests that MFW provides a safe harbor matching contribution equal to 100% of the first 3% of eligible compensation deferred and 50% of the next 2% of eligible compensation deferred (a "basic" safe harbor match). If confirmed, this safe harbor match design satisfies the non-discrimination testing safe harbor under Section 401(k)(12) of the Internal Revenue Code, which is a favorable compliance feature.
The 401(k) plan appears to be administered by a third-party recordkeeper, the identity of which is to be confirmed from the VDR materials. The 401(k) plan document and the most recent annual Form 5500 filing have been requested from HKA but have not yet been received. Upon receipt, we will review the plan document for compliance with ERISA and the Internal Revenue Code, and the Form 5500 for any red flags, including audit findings, late filings, or unusual plan activity.
We note the following additional observations regarding MFW's retirement plan arrangements:
• No defined benefit pension plans have been identified. This is a favorable finding, as defined benefit obligations can represent significant unfunded or underfunded liabilities.
• No nonqualified deferred compensation plans have been identified. The absence of Section 409A arrangements simplifies the analysis and eliminates the risk of Section 409A non-compliance penalties.
• The 401(k) plan will continue in effect following the closing of the Transaction in a stock purchase structure, as MFW will remain the plan sponsor. If Solara intends to merge, terminate, or amend the 401(k) plan post-closing, appropriate procedures under ERISA and the Internal Revenue Code must be followed.
C. Paid Time Off and Leave Policies
MFW maintains standard paid time off ("PTO") policies for its employees, administered on an accrual basis. As noted in Section II.C above, Virginia, Texas, and Idaho do not require employers to pay out accrued but unused PTO upon termination of employment unless the employer's policy or employment contract provides for such payment. However, MFW's employee handbook expressly provides for the payout of accrued but unused PTO upon termination of employment, regardless of the reason for termination. This contractual commitment creates an enforceable obligation to pay out accrued PTO, and the aggregate accrued PTO liability as of the most recent payroll date is relevant to the net working capital ("NWC") adjustment provisions of the SPA.
We have requested the aggregate accrued PTO liability from MFW's finance team (through Marcus Trahan) and from HKA, but this figure has not yet been confirmed. This item should be coordinated with Whitmore Sandoval LLP, the accounting firm retained by Solara to conduct the quality of earnings analysis, for purposes of the NWC target calculation. The NWC target, as currently reflected in the LOI, is $5,800,000, and accrued PTO is expected to be a component of the NWC calculation.
FMLA Compliance. MFW, with approximately 310 employees, qualifies as a "covered employer" under the Family and Medical Leave Act ("FMLA"), which applies to employers with 50 or more employees. We have reviewed MFW's FMLA policies as set forth in the employee handbook and they appear to be compliant with federal FMLA requirements, including notice posting requirements and leave entitlement provisions.
D. Section 280G Analysis
Section 280G of the Internal Revenue Code imposes an excise tax on "excess parachute payments" received by certain "disqualified individuals" (generally, officers, shareholders, and highly compensated employees) in connection with a change of control. Section 280G also disallows the employer's tax deduction for such excess parachute payments. A payment is an "excess parachute payment" if the aggregate present value of all "parachute payments" to a disqualified individual equals or exceeds three times the individual's "base amount" (generally, the individual's average annualized compensation for the five tax years preceding the change of control).
For Mr. Holliday and Ms. Vasquez-Park, the combination of change-of-control severance payments, any accelerated vesting of equity awards, and other payments contingent on the change of control must be analyzed under Section 280G. MFW is organized as a C corporation (incorporated in Delaware), and therefore Section 280G applies to the Transaction. The shareholder approval exception available to S corporations and certain partnerships under Section 280G(b)(5) is not available.
Preliminary Assessment. Given the magnitude of the equity proceeds that Mr. Holliday and Ms. Vasquez-Park will receive in the Transaction (approximately $112,000,000 for Mr. Holliday on 3,200,000 shares at $35.00 per share, and approximately $63,000,000 for Ms. Vasquez-Park on 1,800,000 shares at $35.00 per share), the cash severance amounts alone ($1,487,500 for Mr. Holliday and $924,000 for Ms. Vasquez-Park) are unlikely to cause the aggregate parachute payments to equal or exceed three times the applicable base amounts. This is because the base amounts — which are derived from five-year average W-2 compensation — should be substantially lower than the equity proceeds, and the equity proceeds themselves are not "parachute payments" to the extent they represent consideration for the transfer of stock ownership rather than compensation contingent on the change of control. However, this preliminary assessment is subject to the following caveats:
(i) A full Section 280G analysis requires MFW W-2 compensation data for each disqualified individual for the five tax years preceding the year of the change of control. This data has not yet been requested or received.
(ii) If any portion of the equity consideration is treated as a parachute payment (e.g., accelerated vesting of options), the analysis could change.
(iii) If Mr. Holliday rolls over $25,000,000 of equity value into Solara Fleet Holdings LLC, the treatment of the rollover equity under Section 280G must be carefully analyzed. Depending on the structure, the rollover could be treated as consideration for a non-compete or as compensation contingent on the change of control, which could affect the parachute payment calculation.
(iv) The analysis should also consider any transaction bonuses, stay bonuses, or other payments that may be contingent on the Transaction (see Section VII.A regarding open inquiry to HKA on this point).
We recommend requesting the compensation history (W-2 data for tax years 2021 through 2025) for Mr. Holliday, Ms. Vasquez-Park, Mr. Trahan, and any other individuals who may qualify as "disqualified individuals" under Section 280G, in order to complete the full Section 280G analysis prior to the March 15, 2026 diligence completion deadline.
V. MFW 2016 Stock Incentive Plan
A. Plan Terms
MFW adopted its 2016 Stock Incentive Plan (the "2016 Plan" or the "Plan") in 2016. The Plan is the Company's sole equity incentive plan, and it authorizes the grant of stock options and other equity-based awards to eligible participants, including employees, directors, and consultants of the Company. The Plan is administered by the MFW Board of Directors. The material terms of the 2016 Plan, as identified from the VDR documents, are summarized below and in Appendix D.
Total Shares Authorized. The Plan authorizes the issuance of up to 1,300,000 shares of MFW common stock.
Options Outstanding. As of the date of this memorandum, 650,000 stock options are outstanding under the Plan, representing 50% of the total authorized share pool. The remaining 650,000 shares are either unissued or have been returned to the Plan following cancellation or expiration of prior grants.
Vesting Status. Of the 650,000 outstanding options, 480,000 are currently vested and exercisable, and 170,000 are unvested and subject to continued service requirements.
Exercise Price. The weighted-average exercise price of all outstanding options is $8.50 per share. The aggregate exercise price for all 650,000 outstanding options is $8.50 × 650,000 = $5,525,000.
Option Type. The Plan authorizes the grant of both incentive stock options ("ISOs") within the meaning of Section 422 of the Internal Revenue Code and nonqualified stock options ("NQOs"). The specific ISO/NQO classification of each outstanding option grant has been requested but has not been fully confirmed from the VDR materials received to date. The ISO/NQO mix has significant tax implications for both the option holders and the Company (as employer) and must be determined prior to closing.
Vesting Schedule. The standard vesting schedule for options granted under the Plan is four-year vesting with a one-year cliff, meaning that no portion of an option grant vests during the first year of service, 25% vests on the first anniversary of the grant date, and the remaining 75% vests ratably on a monthly or quarterly basis over the subsequent 36 months. This is a standard vesting schedule for technology companies.
Expiration. Options granted under the Plan have a ten-year term from the date of grant.
Other Award Types. We have not identified any restricted stock units ("RSUs"), stock appreciation rights ("SARs"), restricted stock awards, or other equity-based awards granted under the Plan. The Plan appears to have been used exclusively for the grant of stock options.
B. Treatment of Options at Closing
In a 100% stock purchase transaction, the SPA should provide for the treatment of all outstanding options at closing. The standard approach, and the approach preferred by the Solara deal team, is the cancellation and cash-out of all outstanding options (both vested and unvested) at closing, providing a clean capitalization table for the post-closing entity.
The per-share merger consideration is $35.00. The net cash-out amount per option, after deducting the weighted-average exercise price, is:
$35.00 − $8.50 = $26.50 per share
The aggregate net proceeds payable to all option holders upon cancellation and cash-out of all 650,000 outstanding options is:
$26.50 × 650,000 = $17,225,000
Treatment of Unvested Options. The 170,000 currently unvested options must be either (a) accelerated and cashed out at closing or (b) assumed or converted by Buyer into substitute awards. Solara's stated preference is for accelerated vesting and cash-out at closing to avoid the administrative complexity and ongoing dilution of assumed options and to provide a clean cap table post-closing.
Our preliminary review of the 2016 Plan document indicates that the Plan contains a provision for automatic acceleration of unvested options upon a "change of control" (as defined in the Plan), without requiring a qualifying termination of employment (i.e., a "single-trigger" acceleration provision). If confirmed, this provision would cause all 170,000 unvested options to vest automatically immediately prior to or upon the closing of the Transaction, thereby facilitating the cancellation and cash-out of all 650,000 options at closing. We are continuing our review of the applicable Plan section to confirm the scope and mechanics of this acceleration provision.
Tax Withholding Obligations. The cancellation and cash-out of stock options creates taxable income for the option holders and corresponding withholding obligations for the employer (MFW, as the surviving entity following the stock purchase). The tax treatment differs based on the ISO/NQO classification:
Nonqualified Stock Options (NQOs). The spread between the exercise price and the cash-out amount ($26.50 per share) is taxable as ordinary income to the option holder upon cash-out. The employer is required to withhold applicable federal, state, and local income taxes and the employee's share of FICA taxes (Social Security and Medicare). The employer is also responsible for the employer's share of FICA taxes on the NQO spread.
Incentive Stock Options (ISOs). ISO treatment is more complex and depends on whether the option holder has satisfied the applicable holding period requirements. In a cancellation and cash-out scenario, the ISO is not being exercised and held; rather, it is being cancelled in exchange for a cash payment. This is generally treated as a "disqualifying disposition" for ISO purposes, which causes the spread to be taxable as ordinary income (similar to NQO treatment). A detailed analysis of the ISO/NQO mix and individual holding periods will be required.
SPA Drafting Considerations. We recommend that the SPA include the following provisions relating to the treatment of stock options:
(i) Representations and warranties from the selling stockholders and MFW confirming the accuracy and completeness of the option pool, including the number of options outstanding, exercise prices, vesting schedules, and ISO/NQO classifications.
(ii) A covenant requiring MFW to take all actions necessary to effect the cancellation and cash-out of all outstanding options at closing, including board and/or stockholder approvals as may be required under the Plan.
(iii) A confirmation that no other equity awards (RSUs, SARs, phantom equity, etc.) are outstanding.
(iv) Mechanics for the payment of option cash-out proceeds, including applicable tax withholdings, through the Company's payroll system or a paying agent.
(v) An estimate of the employer's share of payroll taxes (FICA) on NQO exercises (and ISO disqualifying dispositions), to be included in the transaction expense estimate and factored into the purchase price waterfall.
C. Option Holder Detail
Based on the partial cap table and option schedule produced in the VDR, the following key individual option holders have been identified:
The remaining pool of 570,000 options is held by various MFW employees across the organization. A complete schedule of all option holders, including each holder's name, grant date, number of shares subject to each grant, exercise price, vesting schedule, vesting status, and ISO/NQO classification, has been requested from MFW via HKA. A partial schedule has been received, and we are awaiting the complete schedule. This information is essential for the SPA disclosure schedules, the option cancellation and cash-out mechanics at closing, and the employer payroll tax withholding calculations.
VI. Other Compensation Arrangements
A. Bonus and Incentive Programs
In addition to the executive bonus targets described in Section III above for Mr. Holliday and Ms. Vasquez-Park, MFW maintains an annual discretionary bonus program that is available to employees generally. The specifics of this program, including eligibility criteria, target bonus levels by employee level, and performance metrics, have been reviewed at a high level from the VDR materials. The program appears to be a standard discretionary bonus arrangement without contractual guarantees.
MFW also maintains sales commission plans for the approximately 65 employees in the sales and marketing organization. Commission plans are standard for sales-oriented roles and create ongoing compensation obligations that are relevant to the net working capital calculation (to the extent commissions are accrued but unpaid as of the closing date). We have reviewed representative samples of the commission plan documentation.
We have not identified any deferred compensation plans, phantom equity plans, profit-sharing plans, profit interest plans, or similar arrangements. The absence of such plans simplifies the compensation analysis and eliminates the risk of Section 409A compliance issues associated with nonqualified deferred compensation arrangements.
We have submitted an inquiry to HKA regarding whether MFW has entered into any stay bonuses, transaction bonuses, retention bonuses, or similar arrangements that may be triggered by or payable in connection with the proposed Transaction. As of the date of this memorandum, HKA's response to this inquiry is pending. This is an important item, as any such arrangements would represent transaction expenses that should be factored into the closing cost estimates and purchase price waterfall.
B. Severance Arrangements (Non-Executive)
Beyond the executive employment agreements described in Section III above, we have not identified any company-wide severance plan, policy, or program applicable to MFW's general employee population. The employee handbook does not contain a severance policy or any commitment to provide severance benefits upon termination of employment. At-will employees do not appear to have any contractual entitlement to severance pay.
This is a favorable finding for the Transaction, as it limits the Company's potential severance exposure to the executive CIC severance obligations previously identified. If Solara intends to implement any workforce reductions or restructuring post-closing, the absence of a pre-existing severance plan or policy provides flexibility in structuring any separation packages.
C. Change-of-Control and Retention Considerations
Beyond the change-of-control provisions in the Holliday and Vasquez-Park employment agreements, no additional change-of-control provisions, golden parachute arrangements, or similar benefits have been identified for any other MFW employees. The absence of broad-based CIC arrangements is favorable from a transaction cost perspective.
We note, however, that Solara may wish to consider implementing post-closing retention packages for key employees in order to mitigate the risk of attrition following the Transaction. This is particularly relevant in the engineering and product development organization, where MFW's approximately 130 full-time employees represent the core technical talent of the business. Retention arrangements for key engineering leads, product managers, customer success managers, and other critical personnel would be a standard post-acquisition integration practice for a technology-oriented business. The design and implementation of such retention arrangements is a commercial matter for the Solara deal team and the portfolio operations group, but we are available to assist with the drafting and structuring of any retention bonus agreements, equity incentive plans, or similar arrangements.
We recommend that the deal team identify the key employees for whom retention arrangements are desired as part of the integration planning process, ideally prior to closing, so that retention agreements can be finalized and executed at or promptly following closing.
VII. Independent Contractor Classification Risk
A. Overview of Independent Contractor Engagement
MFW currently engages approximately 25 independent contractors within its product development and engineering organization. These contractors are engaged under individual consulting agreements or through staffing agencies and are primarily software engineers and developers who supplement the approximately 130 full-time engineering employees. The VDR materials produced to date include a partial set of independent contractor agreements and a listing of current contractors, but the complete set of contracts and related documentation has not yet been fully produced.
Based on our review of the available VDR materials, we note the following characteristics of MFW's independent contractor engagement:
(i) Duration. Several of the independent contractors appear to have been engaged by MFW on a long-term basis, with some engagements exceeding 12 months. Long-term engagement is a factor that weighs in favor of an employment relationship under applicable legal standards.
(ii) Integration. The contractors appear to be integrated into MFW's core product development teams, working alongside full-time employees on the same projects and products. This level of integration into the Company's regular business operations is a significant indicator of an employment relationship.
(iii) Tools and Equipment. Based on the limited information available, it appears that at least some of the contractors use MFW-provided tools, systems, and equipment (e.g., MFW email accounts, development environments, project management software), which is a factor indicating employer control.
(iv) Supervision and Control. The organizational charts and team structures suggest that independent contractors report to MFW engineering managers and participate in the Company's standard development processes (e.g., agile/scrum sprints, stand-up meetings, code reviews), which indicates a degree of supervision and control more consistent with an employment relationship.
(v) Exclusivity. It is unclear from the VDR materials reviewed to date whether the independent contractors provide services to other clients or are functionally exclusive to MFW. Exclusivity of the working relationship is a factor that supports employee status.
B. Classification Risk Analysis
Risk Assessment. Based on the characteristics described above, we have flagged a potential risk of misclassification of some or all of the approximately 25 independent contractors as non-employees when the nature, duration, and control characteristics of their engagements may support classification as employees under applicable federal and state law standards.
The applicable legal standards for worker classification vary by jurisdiction and by the specific legal context (e.g., employment tax, wage-hour, benefits eligibility), but the principal tests are as follows:
Federal Standards:
• IRS Common Law Test. The Internal Revenue Service applies a common law test (historically articulated as a "20-factor test" and now condensed into three categories) that examines (i) behavioral control (whether the company directs how the worker performs the work), (ii) financial control (whether the company controls the business aspects of the worker's activities), and (iii) the type of relationship between the parties (written contracts, employee-type benefits, permanency, key activities of the business).
• DOL Economic Reality Test. The Department of Labor applies an "economic reality" test under the Fair Labor Standards Act to determine whether a worker is an "employee" entitled to FLSA protections (minimum wage, overtime). This test examines the totality of the circumstances, including the degree of control, the worker's opportunity for profit or loss, the worker's investment in equipment and materials, the skill required, the permanence of the relationship, and the extent to which the work is an integral part of the employer's business. The DOL under the current administration has emphasized the economic dependence of the worker as the core inquiry.
State Standards:
• Virginia. Virginia applies a common-law test similar to the IRS test for most employment law purposes. Additionally, Virginia Code § 58.1-1900 applies an "ABC test" for unemployment tax classification purposes, which creates a presumption of employment unless the putative employer demonstrates that the worker (A) is free from control and direction, (B) performs work outside the usual course of the employer's business or outside all places of business of the employer, and (C) is customarily engaged in an independently established trade, occupation, or business.
• Texas. Texas applies a common-law test consistent with the IRS factors, administered through the Texas Workforce Commission, for purposes of state employment tax and unemployment insurance classification.
• Idaho. Idaho Code § 72-1316 applies an ABC test for unemployment insurance purposes, similar in structure to the Virginia ABC test. The ABC test creates a strong presumption of employment status and is difficult for employers to overcome.
Key Risk Factors. Applying the foregoing standards to the facts known to date, the following risk factors are present:
• The long duration of certain contractor engagements (exceeding 12 months) suggests permanence and ongoing integration rather than project-specific, independent work.
• The integration of contractors into MFW's core engineering teams, working alongside full-time employees on the same products and projects, suggests that the contractors are performing work that is integral to the Company's regular business.
• The apparent use of MFW-provided tools, systems, and equipment suggests employer control over the means and methods of work.
• The reporting structures and participation in MFW's development processes suggest behavioral control by MFW management.
• The uncertainty regarding whether contractors provide services to other clients raises questions about the independence of the working relationship.
Under the more stringent ABC tests applicable in Virginia and Idaho for unemployment tax purposes, the risk of reclassification is elevated, as the "B" prong (work performed outside the usual course of the employer's business) is likely not satisfied where the contractors are software engineers performing the Company's core product development work.
Potential Exposure. If any or all of the approximately 25 independent contractors are reclassified as employees by the IRS, the DOL, or any applicable state agency, MFW could face the following categories of liability:
• Unpaid Employment Taxes. The employer's share of FICA taxes (Social Security at 6.2% and Medicare at 1.45%), FUTA taxes, and state unemployment insurance taxes, for all periods during which the misclassified workers were engaged.
• Unpaid Employee Benefits. If reclassified as employees, the workers may be entitled to participation in MFW's employee benefit plans, including group health insurance (potentially triggering ACA employer mandate liability under Section 4980H), the 401(k) plan (including employer matching contributions), PTO accrual, and other benefits.
• Wage-Hour Liability. If reclassified as non-exempt employees under the FLSA and applicable state wage-hour laws, the workers may be entitled to overtime compensation for hours worked in excess of 40 per week, plus liquidated damages.
• Penalties and Interest. Federal and state tax penalties and interest on unpaid employment taxes, as well as state-specific penalties for worker misclassification (which have been increasing in severity across multiple jurisdictions).
Estimated Exposure. The total potential monetary exposure has not yet been quantified. To enable a more refined risk assessment and potential quantification, we have requested from MFW (via HKA) detailed information regarding each of the approximately 25 contractors, including total compensation paid, duration of engagement, scope of services, work location, and copies of all contractor agreements. This information has been partially received, and we are awaiting the complete set.
SPA Drafting Recommendation. Given the classification risk, we recommend the following protections in the SPA:
(i) Specific representations and warranties from MFW and the selling stockholders regarding the classification of all workers (both employees and independent contractors), including a representation that all individuals engaged as independent contractors have been properly classified under applicable federal, state, and local laws.
(ii) A specific indemnification provision covering pre-closing liabilities arising from the misclassification of independent contractors, including employment tax, benefits, wage-hour, and penalty exposure. This could be structured as a special indemnity outside the general indemnification basket and cap, or alternatively could be addressed through the general indemnification framework with appropriate escrow provisions.
(iii) A pre-closing covenant requiring MFW to provide complete documentation regarding all independent contractor engagements.
C. Intellectual Property Overlay
We note that the IP Due Diligence Memorandum being prepared by the Calderwood & Harkness IP diligence team separately addresses a risk that three former MFW contractors engaged during the 2015–2016 period may not have executed intellectual property assignment agreements. The independent contractor classification issue discussed in this memorandum is distinct from but overlapping with the IP assignment issue. Specifically, if current or former independent contractors are reclassified as employees, the work-for-hire doctrine under copyright law may apply differently than it would to independent contractors, potentially affecting the analysis of IP ownership and the necessity of IP assignment agreements. We refer the reader to the IP Diligence Memorandum for a detailed discussion of this issue and its implications for the Transaction.
VIII. Employment-Related Litigation and Claims
Based on our comprehensive review of the VDR materials produced to date, including the litigation files, corporate records, and insurance claims history, no pending employment-related litigation has been identified. Specifically, we have not identified any of the following:
• Pending or threatened lawsuits, arbitration proceedings, or administrative proceedings relating to employment matters, including wrongful termination, breach of employment contract, or retaliation claims.
• Pending or threatened wage-hour claims, collective actions, or class actions under the FLSA or any state wage-hour law.