Contract analysis

I. Executive Summary This memorandum provides a comprehensive review and analysis of the exclusions, limitations, known-loss provisions, and subrogation mechanics contained in the buyer-side representation and warranty insurance policy issued by Northfield Assurance Ltd. (Policy No. NFA-TRI-2024-00487) (the "Policy") in connection with the proposed acquisition by Solara Digital Infrastructure Fund VI LP ("Solara" or

II. Policy Structure Overview A. Coverage Basis The Policy is a buyer-side representation and warranty insurance policy, with Solara Digital Infrastructure Fund VI LP designated as the named insured. The Policy is designed to provide coverage for losses arising from breaches of the seller's representations and warranties as set forth in Article IV of the Merger Agreement. This is the standard and market-prevalent for

III. Detailed Exclusion Analysis The binder agreement identifies ten categories of exclusions and limitations to coverage under the Policy. This Section provides a detailed analysis of each exclusion, including its scope, its interaction with the Merger Agreement and the broader Transaction, and our assessment of the associated coverage gaps and negotiation recommendations. A. Known-Loss / Known-Matter Exclusion (Exc

1. Scope of Exclusion The Policy contains a standard known-loss exclusion, which precludes coverage for any breach, inaccuracy, or loss of which the "deal team" of the insured had actual knowledge prior to the inception date of the Policy. The inception date is January 19, 2024, which is the date the binder agreement was executed and the premium was paid. Under this exclusion, if any member of the insured's deal team

2. Definition of "Deal Team" The definition of "deal team" is a critical element of the known-loss exclusion, as it determines whose knowledge is attributed to the insured for purposes of the exclusion. The binder agreement is expected to include a list of named knowledge persons whose knowledge will be relevant. Based on the standard practice for Northfield's policies and the representations made during the underwri

3. Interaction with Disclosure Schedules The interaction between the known-loss exclusion and the seller's disclosure schedules requires careful analysis. The disclosure schedules, which are being compiled by Ridgeway Phelps & Sato LLP (seller's counsel, with Catherine Answorth as lead partner) and reviewed by Calderwood & Harkness, serve two distinct purposes in the Transaction: (i) they qualify certain seller repre

4. Gap/Risk Assessment Risk Level: Moderate The known-loss exclusion is standard and unavoidable in buyer-side R&W insurance policies. No underwriter will agree to cover losses of which the insured was aware at the time of binding. The primary negotiation leverage lies in the definition of "deal team" and the knowledge standard. As noted above, we have confirmed that no specific known breaches of seller representatio

1. Matters Identified in Underwriting During the underwriting call conducted on January 16, 2024 — which was documented in the R&W Insurance Underwriting Call Memorandum prepared by Andrew Fitzpatrick and distributed to the deal team on January 17, 2024 — Northfield's underwriting team, led by Patrick Graves, identified several areas of potential concern based on their review of the Transaction diligence materials an

2. Gap/Risk Assessment Risk Level: High (if broad exclusions are imposed) / Low-Moderate (if exclusions are properly negotiated to be narrow and specific) The deal-specific exclusions represent the most significant area for negotiation with Northfield and Peregrine. The breadth of these exclusions will largely determine the practical value of the R&W insurance coverage to Solara. If the exclusions are drafted broadly

1. Scope. The Policy excludes losses arising from the fraud or willful misconduct of the insured — that is, fraud or willful misconduct committed by Solara, Fund VI, or their respective officers, directors, employees, or agents. This exclusion is standard and universal in buyer-side R&W insurance policies. No underwriter will agree to insure against losses that are caused by the insured's own fraudulent conduct. The

2. Gap/Risk Assessment Risk Level: Low This is a standard, non-negotiable exclusion that presents no coverage gap. No further action is required. D. Purchase Price Adjustment / Closing Mechanics Exclusion (Exclusion 4)

1. Scope. The Policy excludes losses relating to purchase price adjustments, working capital true-ups, or other closing mechanics under the Merger Agreement. Specifically, the Policy does not cover any claim or loss arising from: (i) any dispute regarding the calculation of the closing date net working capital; (ii) any adjustment to the merger consideration pursuant to the post-closing purchase price adjustment proc

2. Gap/Risk Assessment Risk Level: Low This exclusion is standard, expected, and appropriate. The post-closing purchase price adjustment procedures under Section 2.7 of the Merger Agreement provide a comprehensive mechanism for resolving working capital disputes. The estimated closing statement is to be delivered within five business days following closing (approximately July 8, 2024, assuming a June 30, 2024 closing

1. Scope. The Policy provides coverage exclusively for breaches of the seller's representations and warranties — that is, backward-looking statements of fact made by Cloudium as of the date of the Merger Agreement and/or as of the closing date. The Policy does not cover breaches of covenants (forward-looking obligations to take or refrain from taking specified actions) or failures to satisfy conditions to closing. Sp

2. Gap/Risk Assessment Risk Level: Low-Moderate This exclusion is standard and consistent with the fundamental nature of R&W insurance as a representation-breach product. However, an important nuance arises in connection with representations that "speak" as of the closing date. Under Section 7.2(a) of the Merger Agreement, the closing is conditioned on the seller's representations being true and correct in all materi

1. Scope. The Policy may exclude certain categories of damages from the definition of "loss," including: (i) consequential damages; (ii) punitive, exemplary, or treble damages (except to the extent awarded by a court of competent jurisdiction in a third-party claim); and (iii) damages calculated as a multiple of earnings, revenue, or other financial metrics — commonly referred to as "multiplied damages." The multipli

2. Gap/Risk Assessment Risk Level: Moderate-High This exclusion presents one of the most significant potential coverage gaps in the Policy. Given the premium valuation at which Cloudium is being acquired (16.8x EBITDA), a limitation on multiplied damages could dramatically reduce the practical value of the R&W coverage. Solara is acquiring Cloudium as a growth-oriented digital infrastructure platform, and the acquisi

1. Scope. The Policy contains a standard blanket exclusion for losses arising from: (i) asbestos-related claims, including claims for asbestos removal, remediation, personal injury, or wrongful death; (ii) pollution, contamination, or environmental remediation obligations, including claims arising under the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), the Resource Conservation and

2. Gap/Risk Assessment Risk Level: Negligible This exclusion is standard across virtually all buyer-side R&W insurance policies. It is not particularly relevant to the Cloudium acquisition, as Cloudium is a SaaS and software business that does not manufacture physical products, does not own or operate manufacturing facilities, does not generate hazardous waste, and has no identified exposure to asbestos-related claim

1. Scope. The Policy may contain an exclusion for losses arising from the underfunding of defined benefit pension plans or multiemployer pension plans. This exclusion is common in buyer-side R&W insurance policies and is designed to address the potentially significant and difficult-to-quantify liabilities associated with pension underfunding, which may not be fully reflected in the target company's financial statemen

2. Gap/Risk Assessment Risk Level: Low-Moderate The risk level depends on the nature of the UK pension arrangements. If Cloudium UK operates only a defined contribution scheme (which is increasingly standard for UK technology companies), the pension underfunding exclusion is largely academic, as defined contribution schemes do not carry employer underfunding risk. If, however, Cloudium UK maintains a legacy defined b

I. ERISA / 401(k) Exclusion (Exclusion 9)

1. Scope. Some R&W insurance policies exclude losses arising from ERISA-related liabilities, including violations of the Employee Retirement Income Security Act of 1974 ("ERISA"), deficiencies in 401(k) plan administration, or failures to comply with IRS qualification requirements for tax-qualified retirement plans. This exclusion may also extend to violations of Section 409A of the Internal Revenue Code (relating to

2. Gap/Risk Assessment Risk Level: Low The ERISA / 401(k) exclusion is standard to the extent it addresses specific, identified plan deficiencies. It should not, however, operate as a blanket exclusion of all employee benefit plan-related losses, which would render the Section 4.17 representations effectively uninsured. Recommendation: Confirm that routine ERISA compliance representations are covered under the Policy

1. Scope. Certain R&W insurance policies exclude losses arising from government contract compliance issues, including: (i) violations of the False Claims Act ("FCA"), 31 U.S.C. §§ 3729–3733; (ii) violations of the Anti-Kickback Act; (iii) violations of the Truth in Negotiations Act ("TINA"); (iv) debarment or suspension proceedings; and (v) other regulatory violations arising from the performance of contracts with th

2. Gap/Risk Assessment Risk Level: Moderate While the Aegis Federal relationship represents a meaningful but not dominant portion of Cloudium's revenue (4.8% of ARR), a blanket exclusion for government contract-related losses would effectively render the government contracts representation in Article IV (Section 4.21, if applicable) uninsured. Moreover, the $84,000,000 in ARR from Aegis Federal, combined with the sev

IV. Subrogation Waiver Analysis A. Waiver of Subrogation Against Seller The Policy contains a waiver of Northfield's subrogation rights against Cloudium Technologies plc and its officers and directors. Under the general principles of insurance law, an insurer that pays a claim to its insured is subrogated to the insured's rights against third parties whose conduct caused the loss. In the R&W insurance context, this m