PRIVILEGED AND CONFIDENTIAL ATTORNEY WORK PRODUCT PREPARED AT THE DIRECTION OF COUNSEL
MEMORANDUM
TO: Oliver Mackenzie, Responsible Partner, Mergers & Acquisitions, Calderwood & Harkness LLP Andrew Fitzpatrick, Lead Associate, Mergers & Acquisitions, Calderwood & Harkness LLP
FROM: Naomi Petersen, Working Associate, Mergers & Acquisitions, Calderwood & Harkness LLP
DATE: March 28, 2025
RE: Employment & Benefits Diligence Summary — Cascadia Fiber Networks, Inc.
MATTER NO.: 1022-00006
BILLING NO.: 78432.001
CLIENT: Northgate Telecommunications PLC
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I. Executive Summary
This memorandum summarizes the findings of our employment and employee benefits due diligence review of Cascadia Fiber Networks, Inc. ("Cascadia" or "CFN"), a Delaware corporation headquartered at 2750 NW Thurman Street, Suite 400, Portland, Oregon 97210, conducted in connection with the proposed acquisition of Cascadia by Northgate Telecommunications PLC ("Northgate" or "NTP"). The proposed transaction contemplates an all-cash forward merger in which NTP Acquisition Sub, Inc., a wholly owned subsidiary of Northgate, will merge with and into Cascadia pursuant to Section 251 of the Delaware General Corporation Law, with Cascadia surviving as a wholly owned subsidiary of Northgate, for aggregate merger consideration of $750,000,000 (the "Merger").
Our review encompassed the following categories of materials, as produced by Cascadia and its outside counsel, Whitmore, Kessler & Braun LLP ("WKB") (Jonathan Kessler, lead engagement partner; Megan Tsai, associate lead), through the virtual data room maintained by Pinnacle Investors Data Solutions:
• Executive employment agreements and offer letters for all named executive officers and senior management personnel;
• The Cascadia Employee Handbook (revised January 2024);
• Benefit plan documents, summary plan descriptions, and most recent Form 5500 annual reports for all ERISA-governed plans;
• The Cascadia Fiber Networks, Inc. 2016 Equity Incentive Plan (the "Plan"), including all amendments, award agreements, and a capitalization table reflecting outstanding equity awards;
• Independent contractor agreements and engagement letters;
• Collective bargaining agreements (none identified);
• Immigration and visa sponsorship records;
• OSHA logs and records of workplace safety incidents;
• Pending and threatened employment-related litigation and regulatory matters; and
• Related materials, including payroll records, organizational charts, and internal human resources policies and procedures.
Key findings from our review are summarized as follows:
1. Workforce Composition. Cascadia employs approximately 620 individuals across four states — Oregon, Washington, Idaho, and Nevada — consistent with its approximately 4,800 route miles of fiber-optic network infrastructure spanning those states. There is no unionized workforce, and no collective bargaining agreements are in effect or under negotiation.
2. Executive Change of Control Exposure. Three key executive employment agreements — with Chief Executive Officer Derek Holmgren, Chief Technology Officer Priya Ramachandran, and Chief Financial Officer Tobias Engel — contain change of control provisions that would be triggered by the Merger. These provisions entitle the executives to enhanced cash severance upon a qualifying termination within 18 to 24 months following a change of control (a "double trigger" for cash severance purposes). General Counsel Sandra Whitfield holds an offer letter with a more limited change of control severance provision. The aggregate estimated cash severance exposure for these four executives upon qualifying termination following the Merger is approximately $5,340,000, exclusive of COBRA subsidies and equity acceleration.
3. Equity Acceleration. The 2016 Equity Incentive Plan contains a single-trigger acceleration provision under which all unvested options and restricted stock units vest immediately upon the consummation of a change of control, regardless of any termination of employment. This provision will result in full acceleration and cash-out of all outstanding unvested equity awards at the implied per-share merger consideration of $15.79 per share (net of applicable exercise prices for options). The estimated aggregate equity acceleration cost is approximately $18,700,000. This amount is effectively borne by the selling stockholders as it is funded from the aggregate merger consideration.
4. Section 280G Golden Parachute Risk. The combination of cash severance and accelerated equity for the named executives may constitute "excess parachute payments" under Sections 280G and 4999 of the Internal Revenue Code. Because Cascadia is a privately held corporation, the stockholder vote exemption under Section 280G(b)(5)(B) is available and should be pursued prior to closing.
5. No Material Employment Litigation. No material pending employment litigation was identified. A single pre-litigation demand letter from a former Washington-based field technician, alleging wrongful termination and overtime wage violations, was assessed by Cascadia's counsel as low risk, with estimated potential exposure below the $250,000 de minimis threshold for indemnification claims under the anticipated merger agreement.
6. Retention Considerations. Retention of key executive and technical personnel is critical to the success of the post-closing integration, particularly with respect to Cascadia's customer relationships and the planned deployment of Northgate's NetOrchestra SaaS platform across Cascadia's fiber network.
The sections that follow provide a detailed discussion of each area of our employment and benefits diligence review.
II. Workforce Overview
A. Headcount and Distribution
As of the date of this memorandum, Cascadia employs approximately 620 individuals. The workforce is distributed across four states — Oregon, Washington, Idaho, and Nevada — reflecting the geographic footprint of Cascadia's fiber-optic network, which encompasses approximately 4,800 route miles of lit and dark fiber infrastructure serving enterprise, wholesale, and municipal broadband customers throughout the Pacific Northwest and northern Great Basin regions.
The largest concentration of employees is in Oregon, where Cascadia maintains its corporate headquarters and primary network operations center at 2750 NW Thurman Street, Suite 400, Portland, Oregon 97210. The Portland facility houses substantially all of Cascadia's corporate, administrative, and software development functions, as well as a significant portion of its engineering and network operations staff. Additional field offices and equipment depots are maintained in Boise, Idaho; Reno, Nevada; and Seattle and Spokane, Washington, from which field technicians and construction crews operate.
The approximate functional breakdown of Cascadia's workforce is as follows:
Cascadia was founded in 2011 by Derek Holmgren and Priya Ramachandran, with initial seed funding from Ridgecrest Capital Partners, LP. The workforce has grown organically in connection with Cascadia's successive phases of network construction and expansion, and Cascadia has not undertaken any significant acquisitions that would have resulted in the integration of another company's workforce. This organic growth pattern is a favorable indicator from a diligence standpoint, as it reduces the likelihood of inherited employment liabilities or unresolved integration issues from prior transactions.
B. Employment Classifications
All Cascadia employees are classified as at-will employees under applicable state law, with the exception of those individuals who are party to written employment agreements that provide for specific termination procedures and severance entitlements (see Section III below). The Cascadia Employee Handbook (revised January 2024) expressly states that employment with Cascadia is at-will and that neither the handbook nor any other company policy or practice creates a contract of employment or guarantees employment for any specific duration. The handbook includes the customary reservation-of-rights language disclaiming any intent to modify the at-will employment relationship except by a written agreement signed by the Chief Executive Officer.
No collective bargaining agreements are in effect with respect to any of Cascadia's employees. There is no unionized workforce, and Cascadia's management has represented that there are no pending or threatened union organizing campaigns or unfair labor practice charges with the National Labor Relations Board. Given that Cascadia's operations are concentrated in the Pacific Northwest — a region with historically active labor organizing, particularly in the construction and telecommunications sectors — this is a favorable finding, though Northgate should remain attentive to any organizing activity that may emerge during the pre-closing period or post-closing integration.
Cascadia engages approximately 35 to 40 independent contractors, primarily in construction, fiber splicing, and installation roles. These contractors are engaged through individual independent contractor agreements or, in some cases, through small subcontracting firms. Given the nature of the work performed by these contractors — which in many cases involves the use of Cascadia tools and equipment, adherence to Cascadia work schedules, and integration with Cascadia field crews — we recommend a focused review of the classification of these individuals under applicable state independent contractor tests. This recommendation is particularly important with respect to contractors working in Oregon and Washington, both of which have adopted strict tests for independent contractor status:
• Oregon applies an economic-reality test under ORS 670.600, which includes multiple factors related to the degree of control exercised by the engaging entity and the contractor's economic independence. The Oregon Bureau of Labor and Industries has actively pursued misclassification enforcement actions in the construction and telecommunications sectors.
• Washington applies the ABC test under its Industrial Insurance Act and has expanded misclassification enforcement through the Department of Labor & Industries. Under the ABC test, a worker is presumed to be an employee unless the engaging entity can demonstrate that the worker is (a) free from the direction and control of the employer, (b) performing services outside the usual course of business, and (c) customarily engaged in an independently established trade.
Misclassification of any of Cascadia's independent contractors as employees could expose Cascadia — and, post-closing, Northgate as its successor — to liability for unpaid wages, overtime, benefits, payroll taxes, unemployment insurance contributions, and associated penalties and interest. We recommend that a detailed classification audit be conducted as part of the pre-closing integration planning process, or, at minimum, that appropriate representations and indemnification protections be included in the merger agreement with respect to contractor classification matters.
C. Multi-State Employment Considerations
Cascadia's operations across four states — Oregon, Washington, Idaho, and Nevada — subject the company to a patchwork of state employment law requirements. The most significant state-specific considerations are summarized below:
Oregon. As Cascadia's primary state of operations and the location of its headquarters, Oregon law governs the largest portion of its workforce. Notable Oregon-specific requirements include:
• Oregon Paid Leave (Paid Leave Oregon): Cascadia is subject to Oregon's Paid Leave program, which provides employees with up to 12 weeks (extendable to 14 weeks for pregnancy-related conditions) of paid family, medical, and safe leave. Cascadia is required to make employer contributions to the program and to facilitate employee payroll deductions. Cascadia has represented that it is current on all contributions.
• Predictive Scheduling: Oregon's Fair Work Week Act (ORS 653.455 et seq.) requires certain large employers in specified industries, including some categories of retail, food service, and hospitality, to provide advance scheduling notice. While the Act does not generally apply to telecommunications companies, to the extent any Cascadia employees are engaged in roles that may fall within the covered categories (e.g., customer-facing support staff in certain facilities), compliance should be confirmed.
• Oregon Equal Pay Act: ORS 652.220 prohibits pay differentials based on protected characteristics and restricts inquiries into salary history during the hiring process. Cascadia's HR department has represented compliance with these requirements.
• Oregon OSHA: Oregon operates its own occupational safety and health program (Oregon OSHA), which in certain respects imposes requirements that are more stringent than federal OSHA standards. Cascadia's OSHA logs were reviewed and are discussed in Section VIII below.
Washington. Cascadia employs personnel in the state of Washington, principally in the Seattle and Spokane metropolitan areas. Key Washington-specific requirements include:
• Washington Paid Family & Medical Leave: Washington's Paid Family & Medical Leave program requires employer and employee premium contributions. Cascadia has represented that it is current on all contributions for its Washington-based employees.
• Non-Compete Restrictions (RCW 49.62): Washington's non-compete statute, as amended, imposes significant restrictions on the enforceability of non-competition agreements. Non-competes are enforceable only against employees earning above an annually adjusted compensation threshold (approximately $120,559.99 for 2025), must be disclosed in writing at or before the time of the offer of employment (or, if entered into after employment, supported by independent consideration), and are presumptively limited to 18 months. This statute has significant implications for the enforceability of non-competition provisions applicable to Cascadia's Washington-based employees, as discussed in Section VII.
• Washington Equal Pay and Opportunities Act: Requires disclosure of wage scales and salary ranges in job postings and prohibits pay discrimination. Cascadia has represented compliance.
Idaho. Cascadia employs personnel in Idaho, primarily in the Boise metropolitan area and along the fiber network corridor extending through southern Idaho. Idaho is a comparatively employer-friendly jurisdiction with respect to employment law. Idaho follows the at-will employment doctrine and generally enforces restrictive covenants that are reasonable in scope, duration, and geography. Idaho does not impose a state-mandated paid family or medical leave program.
Nevada. Cascadia employs a smaller number of personnel in northern Nevada, primarily in the Reno area in connection with fiber network operations serving data center and enterprise customers. Nevada is also a comparatively employer-friendly jurisdiction. Notable requirements include Nevada's minimum wage provisions and paid leave law (SB 312, requiring employers with 50 or more employees to provide 40 hours of paid leave per benefit year), with which Cascadia has represented compliance.
Cascadia has represented, through its counsel at WKB, that it is in compliance with all applicable state and federal wage and hour laws, including the Fair Labor Standards Act, and that there are no pending audits, investigations, or inquiries by any state labor department or the U.S. Department of Labor. No pending state or federal tax audits related to employment taxes have been reported.
III. Key Executive Employment Agreements
The following summarizes the material terms of the employment agreements and offer letters of Cascadia's four named executive officers, with particular attention to change of control provisions, severance entitlements, and restrictive covenants.
A. Derek Holmgren — Chief Executive Officer & Co-Founder
Title and Role. Derek Holmgren has served as Cascadia's Chief Executive Officer since the company's founding in 2011. He also serves as a member of the Cascadia board of directors and is one of the two co-founders of the company (together with Priya Ramachandran). Holmgren is the primary relationship holder for several of Cascadia's largest enterprise and wholesale customers.
Employment Agreement. Holmgren is party to a written employment agreement with Cascadia, dated as of January 15, 2016, as amended on March 1, 2019 and September 12, 2022 (as amended, the "Holmgren Employment Agreement"). The agreement provides for an indefinite term of employment, subject to termination by either party in accordance with the provisions of the agreement. There is no fixed expiration date.
Compensation.
• Base Salary: $485,000 per annum, subject to annual review by the compensation committee of the board of directors. Holmgren's base salary was most recently increased to this level effective January 1, 2024.
• Annual Bonus: Holmgren is eligible for an annual performance bonus with a target of 75% of base salary ($363,750 at current base salary), subject to the achievement of corporate and individual performance metrics established by the compensation committee. Holmgren's actual bonus payout for fiscal year 2024 was approximately $340,000, reflecting partial achievement of revenue growth and EBITDA targets.
Change of Control Provisions. The Holmgren Employment Agreement contains enhanced severance provisions that are triggered upon a "qualifying termination" occurring within 24 months following a "change of control" of Cascadia. The key terms are as follows:
• Qualifying Termination: Defined as (i) termination of Holmgren's employment by the Company without "cause" (as defined in the agreement), or (ii) resignation by Holmgren for "good reason" (as defined in the agreement, including material diminution in title, authority, duties, or compensation; relocation of principal office by more than 35 miles; or material breach by the Company of the employment agreement).
• Cash Severance (Double Trigger): Upon a qualifying termination within 24 months following a change of control, Holmgren is entitled to a lump-sum cash severance payment equal to two times (2x) the sum of his base salary and target annual bonus — i.e., 2 x ($485,000 + $363,750) = $1,697,500.
• COBRA Subsidy: Cascadia is obligated to pay the employer portion of COBRA premiums for continued health, dental, and vision coverage for Holmgren and his eligible dependents for a period of 18 months following the qualifying termination, estimated at approximately $45,000 based on current premium levels.
• Equity Acceleration (Single Trigger): All of Holmgren's unvested equity awards under the 2016 Equity Incentive Plan accelerate and become fully vested upon the consummation of a change of control, regardless of whether a termination occurs. This provision is consistent with, and in addition to, the single-trigger acceleration provision contained in the Plan itself (see Section V below).
All cash severance payments are conditioned upon Holmgren's execution and non-revocation of a general release of claims in the form prescribed by the agreement, within 60 days of the qualifying termination.
Restrictive Covenants.
• Non-Competition: The Holmgren Employment Agreement contains a 12-month post-termination non-competition covenant that restricts Holmgren from engaging in, or providing services to, any business that competes with Cascadia's fiber-optic network services within the states of Oregon, Washington, Idaho, and Nevada (the "Pacific Northwest fiber-optic market"). The non-compete is triggered upon any termination of employment, whether or not in connection with a change of control.
• Non-Solicitation: The agreement contains an 18-month post-termination non-solicitation covenant restricting Holmgren from (i) soliciting or hiring any Cascadia employee, and (ii) soliciting or diverting any customer of Cascadia with whom Holmgren had a material business relationship during the final 24 months of his employment.
Enforceability Considerations. The enforceability of Holmgren's non-competition covenant should be assessed under Oregon law, which governs the employment agreement. Under ORS 653.295, as amended effective January 1, 2022, non-competition agreements are enforceable only if (a) the employer provides written notice of the non-compete at the time of the initial offer of employment or, for agreements entered into during employment, provides at least two weeks' advance written notice, (b) the non-compete does not exceed 12 months in duration, and (c) the employee's gross annual salary and commissions at the time of termination exceed the median family income for a four-person family as reported by the U.S. Census Bureau (approximately $92,000 for Oregon). Holmgren's compensation significantly exceeds this threshold. However, the geographic scope (four states) may be subject to scrutiny, and Oregon courts have indicated a willingness to narrow overbroad restrictive covenants. To the extent Holmgren's non-compete may be enforced against him in Washington, the separate Washington non-compete statute (RCW 49.62) would also need to be considered.
Retention Considerations. Holmgren is critical to the preservation of Cascadia's key customer relationships, most notably the master services agreement with Pacific Ridge Data Centers, LLC, which generates approximately $22,000,000 in annual revenue for Cascadia and is one of the highest-value contracts in Cascadia's portfolio. He also maintains the primary relationship with the Oregon Municipal Broadband Cooperative, a consortium of municipal entities that constitutes an important and growing segment of Cascadia's customer base. Holmgren holds a portion of the founders' and management's combined 28.1% equity stake in Cascadia (with the remaining equity held by Ridgecrest Capital Partners, LP (43.7%), the institutional co-investors (17.5%), and the employee equity pool (10.7%)). We recommend that Northgate consider entering into a transition services agreement or retention bonus arrangement with Holmgren for a period of 12 to 18 months post-closing to ensure continuity of customer relationships and an orderly leadership transition.
B. Priya Ramachandran — Chief Technology Officer & Co-Founder
Title and Role. Priya Ramachandran has served as Cascadia's Chief Technology Officer since the company's founding in 2011. She also serves as a member of the Cascadia board of directors and is the company's other co-founder. Ramachandran is the architect of Cascadia's network infrastructure and is the lead developer of Cascadia's proprietary network management software suite, which is integral to Cascadia's network operations and service delivery platform.
Employment Agreement. Ramachandran is party to a written employment agreement with Cascadia, dated as of January 15, 2016, as amended on March 1, 2019 and September 12, 2022 (as amended, the "Ramachandran Employment Agreement"). The agreement is substantially similar in structure to the Holmgren Employment Agreement.
Compensation.
• Base Salary: $465,000 per annum, subject to annual review. Most recently increased effective January 1, 2024.
• Annual Bonus: Target annual bonus of 70% of base salary ($325,500 at current base salary), subject to the achievement of corporate and individual performance metrics. Ramachandran's actual bonus payout for fiscal year 2024 was approximately $310,000.
Change of Control Provisions. The Ramachandran Employment Agreement contains change of control provisions that are substantively identical to those in the Holmgren Employment Agreement:
• Qualifying Termination: Same definition — termination without cause or resignation for good reason within 24 months of a change of control.
• Cash Severance (Double Trigger): Lump-sum payment equal to 2x base salary plus 2x target bonus — i.e., 2 x ($465,000 + $325,500) = $1,581,000.
• COBRA Subsidy: 18 months of employer-paid COBRA continuation coverage, estimated at approximately $45,000.
• Equity Acceleration (Single Trigger): Full acceleration of all unvested equity awards upon consummation of a change of control, consistent with the Plan-level single-trigger provision.
Cash severance is conditioned upon execution of a general release of claims.
Restrictive Covenants.
• Non-Competition: 12-month post-termination non-compete, with geographic scope tied to the Pacific Northwest fiber-optic market (Oregon, Washington, Idaho, Nevada).
• Non-Solicitation: 18-month post-termination non-solicitation of employees and customers.
Enforceability Considerations. The same enforceability considerations applicable to Holmgren's non-compete apply to Ramachandran's non-compete. Ramachandran's compensation is well above the Oregon threshold for enforceability. The non-compete is particularly critical with respect to Ramachandran given her deep technical knowledge of Cascadia's network architecture and proprietary software, which would be of significant competitive value to any rival fiber-optic operator in the region.
Retention Considerations. Ramachandran's technical expertise is essential to the post-closing integration of Cascadia's network infrastructure with Northgate's global telecommunications platform and, critically, to the planned deployment of Northgate's NetOrchestra SaaS platform across Cascadia's enterprise and wholesale customer base. NetOrchestra, Northgate's proprietary network orchestration and service provisioning software, represents a core element of Northgate's strategic rationale for the acquisition, and Ramachandran's knowledge of Cascadia's network topology and proprietary management tools will be indispensable to a successful deployment. We strongly recommend that Northgate negotiate a retention arrangement with Ramachandran for a period of 18 to 24 months post-closing.
C. Tobias Engel — Chief Financial Officer
Title and Role. Tobias Engel has served as Cascadia's Chief Financial Officer since November 2017. Engel was recruited from a senior finance role at a regional telecommunications provider and oversees all financial reporting, treasury, tax, and accounting functions for Cascadia.
Employment Agreement. Engel is party to a written employment agreement with Cascadia, dated as of November 6, 2017, as amended on September 12, 2022 (as amended, the "Engel Employment Agreement").
Compensation.
• Base Salary: $395,000 per annum, subject to annual review. Most recently increased effective January 1, 2024.
• Annual Bonus: Target annual bonus of 60% of base salary ($237,000 at current base salary), subject to corporate and individual performance metrics. Engel's actual bonus payout for fiscal year 2024 was approximately $220,000.
Change of Control Provisions. The Engel Employment Agreement contains change of control provisions that are similar in structure to, but somewhat less generous than, those in the Holmgren and Ramachandran agreements:
• Qualifying Termination: Termination without cause or resignation for good reason within 18 months (as compared to 24 months for Holmgren and Ramachandran) of a change of control.
• Cash Severance (Double Trigger): Lump-sum payment equal to 1.5x base salary plus 1.5x target bonus — i.e., 1.5 x ($395,000 + $237,000) = $948,000.
• COBRA Subsidy: 12 months of employer-paid COBRA continuation coverage, estimated at approximately $30,000.
• Equity Acceleration (Single Trigger): Full acceleration of all unvested equity awards upon consummation of a change of control, consistent with the Plan-level single-trigger provision.
Cash severance is conditioned upon execution of a general release of claims.
Restrictive Covenants.
• Non-Competition: 12-month post-termination non-compete, with geographic scope tied to the Pacific Northwest fiber-optic market.
• Non-Solicitation: 12-month post-termination non-solicitation of employees and customers.
Retention Considerations. Engel will play a critical role through closing, including with respect to the delivery of the closing certificate, the FIRPTA non-foreign person certificate (Cascadia EIN: 45-6128937), and the post-closing working capital adjustment process. The merger agreement is expected to provide for a target net working capital of $14,800,000, with a collar of plus or minus $1,500,000, and the post-closing true-up process will require the preparation and review of a closing balance sheet and working capital statement, a process in which Engel's involvement will be essential. We recommend that Northgate negotiate a retention arrangement with Engel for a minimum of 6 to 12 months post-closing to ensure continuity of financial reporting and integration accounting.
D. Sandra Whitfield — General Counsel
Title and Role. Sandra Whitfield has served as Cascadia's General Counsel since August 2019. She also serves as acting corporate Secretary for the company. In her capacity as General Counsel, Whitfield manages all legal affairs of the company, including regulatory compliance, commercial contracting, intellectual property matters, and employment law. In her capacity as Secretary, she maintains the corporate minute books, manages board and committee meeting processes, and is responsible for the secretary's certificate to be delivered at closing.
Employment Arrangement. Whitfield is not party to a formal employment agreement. Instead, she was provided with an offer letter dated July 22, 2019, which includes certain severance provisions that are triggered upon a change of control. The offer letter is less comprehensive than the employment agreements of Holmgren, Ramachandran, and Engel and does not contain the same level of detail regarding definitions of "cause," "good reason," and related terms.
Compensation.
• Base Salary: $370,000 per annum. Most recently increased effective January 1, 2024.
• Annual Bonus: Target annual bonus of 50% of base salary ($185,000 at current base salary). Whitfield's actual bonus payout for fiscal year 2024 was approximately $170,000.
Change of Control Provisions.
• Cash Severance: Upon termination of Whitfield's employment without cause within 12 months of a change of control, Whitfield is entitled to a lump-sum cash severance payment equal to 1x base salary — i.e., $370,000. The offer letter does not include a bonus component in the severance calculation, nor does it provide for a "good reason" resignation trigger.
• COBRA Subsidy: The offer letter does not expressly provide for a COBRA subsidy in connection with a change of control termination, though Whitfield would be entitled to standard COBRA continuation rights at her own expense.
• Equity Acceleration (Single Trigger): Whitfield's unvested equity awards accelerate upon consummation of a change of control, consistent with the Plan-level single-trigger provision.
Cash severance is conditioned upon execution of a general release of claims.
Retention Considerations. Whitfield is critical through the closing of the Merger for the preparation and delivery of the secretary's certificate, population and finalization of the disclosure schedules, and coordination with WKB on the various closing deliverables. Post-closing, Whitfield's knowledge of Cascadia's contractual portfolio, regulatory posture, and operational matters will be important with respect to any indemnification claims that may arise under the merger agreement. Clive Atherton has been designated as the stockholder representative for purposes of post-closing indemnification matters, and Whitfield's cooperation with the stockholder representative may be necessary. We recommend that, at minimum, Whitfield be retained through closing and that Northgate consider a transition arrangement to preserve institutional knowledge during the integration period.
E. Summary of Estimated Executive Severance Exposure
The following table summarizes the estimated aggregate cash severance exposure for the four named executives upon a qualifying termination following the Merger, assuming all four executives are either terminated without cause or resign for good reason within the applicable post-closing protection period:
The aggregate estimated cash severance exposure (exclusive of COBRA subsidies) is approximately $4,596,500, and the aggregate including COBRA subsidies is approximately $4,716,500. When combined with the fiscal year 2024 actual bonus payouts for the four executives (approximately $1,040,000 in aggregate) and the value of accelerated equity (discussed in Section V), the total change of control cost for these four individuals is significant and should be factored into Northgate's transaction cost modeling and integration planning.
Note: The equity acceleration costs for these executives are addressed separately in Section V below, as the single-trigger equity acceleration applies to all equity award holders, not solely the named executives.
IV. Broad-Based Employee Benefit Plans
A. Health and Welfare Plans
Cascadia maintains the following health and welfare benefit plans for its eligible employees:
Medical Insurance. Cascadia sponsors a group health insurance plan providing medical coverage to eligible full-time employees and their dependents. The plan is fully insured through Northgate Specialty Insurance, with both PPO and high-deductible health plan (HDHP) options available to employees. Cascadia contributes approximately 80% of the premium cost for employee-only coverage and approximately 65% of the premium cost for dependent coverage. Based on our review, the plan appears to comply with the employer shared responsibility provisions of the Affordable Care Act (ACA), including the applicable large employer mandate under IRC Section 4980H. Cascadia has not received any notices of penalty assessments under the ACA employer mandate, and no compliance issues have been identified in our review of the plan documents and most recent Form 5500 filings.
Dental and Vision Insurance. Cascadia offers group dental insurance through Ostrander Insurance and group vision insurance through Thackeray Group. Both plans are standard group plans with typical coverage levels and are fully insured. No compliance issues were identified.
Life Insurance and Accidental Death & Dismemberment (AD&D). Cascadia provides employer-paid basic life insurance and AD&D coverage for all eligible full-time employees, with a benefit amount equal to one times (1x) annual base salary, up to a maximum of $500,000. Employees may elect voluntary supplemental life insurance coverage at their own expense, subject to evidence of insurability requirements. Coverage is provided through Calderon Indemnity Co. No compliance issues were identified.
Short-Term and Long-Term Disability. Cascadia provides employer-funded short-term disability (STD) and long-term disability (LTD) insurance for all eligible full-time employees. STD coverage provides a benefit of 60% of base salary for up to 13 weeks of disability, subject to an elimination period. LTD coverage provides a benefit of 60% of base salary for extended disability periods beyond the STD benefit period. Both programs are fully insured through Strathmore Mutual Insurance. No compliance issues were identified.
Employee Assistance Program (EAP). Cascadia offers an Employee Assistance Program providing confidential counseling, referral services, and work-life balance resources to employees and their family members. The EAP is provided through Aldermere Strategy Partners.
General Observations on Health and Welfare Plans. All of Cascadia's health and welfare plans are fully insured — that is, the insurance risk is borne by the third-party carriers rather than by Cascadia. We did not identify any self-funded or partially self-funded health plans. This is a favorable finding from a diligence perspective, as it eliminates exposure to open and unreported claims under a self-funded arrangement. We reviewed the Form 5500 annual reports filed for Cascadia's health and welfare plans for the three most recent plan years (2021, 2022, and 2023) and did not identify any reported ERISA compliance violations, delinquent filings, or material audit findings. No voluntary correction filings or Department of Labor inquiries were identified.
B. Retirement Plans
401(k) Plan. Cascadia sponsors a 401(k) defined contribution retirement savings plan (the "Cascadia 401(k) Plan") for all eligible employees who have completed 90 days of service. The plan is administered by Brightwater Capital Management, which serves as both the recordkeeper and the trustee. Material terms of the plan include the following:
• Employee Contributions: Employees may make elective salary deferral contributions up to the applicable Internal Revenue Code limits ($23,500 for 2025; $31,000 for participants age 50 and older).
• Employer Match: Cascadia provides a matching contribution equal to 50% of the first 6% of compensation deferred by the employee. Based on Cascadia's current headcount and average compensation levels, the annual cost of the employer matching contribution is estimated at approximately $1,400,000.
• Vesting: Employer matching contributions are subject to a three-year cliff vesting schedule.
• Nondiscrimination Testing: The Cascadia 401(k) Plan appears to satisfy applicable nondiscrimination testing requirements, including the ADP and ACP tests, for the most recently completed plan year. No corrective distributions were reported, and no failures were identified in the most recent Form 5500 filings.
• Form 5500 Filings: We reviewed the Form 5500 filings for the three most recent plan years and confirmed that all filings were timely and did not disclose any material compliance issues.
No Defined Benefit Pension Plan. Cascadia does not sponsor or contribute to any defined benefit pension plan, multiemployer pension plan, or other pension arrangement. This is a favorable finding, as it eliminates exposure to underfunded pension liabilities.
No Nonqualified Deferred Compensation. Other than equity awards under the 2016 Equity Incentive Plan (discussed in Section V below), Cascadia does not maintain any nonqualified deferred compensation arrangements subject to IRC Section 409A. This eliminates a significant area of potential compliance risk.
C. Paid Time Off and Leave
PTO Policy. Cascadia maintains a combined paid time off (PTO) policy that encompasses vacation and sick leave. PTO is accrual-based and accrues at rates that increase with tenure:
• 0–3 years of service: 15 days per year (120 hours)
• 3–7 years of service: 20 days per year (160 hours)
• 7+ years of service: 25 days per year (200 hours)
Unused PTO may be carried over to the following year, subject to a maximum accrual cap. Under Oregon law, accrued and unused PTO is considered wages and must be paid out at termination. Cascadia's policy is consistent with this requirement. The estimated aggregate accrued PTO liability as of the most recent balance sheet date should be confirmed as part of the working capital adjustment.
Oregon Paid Leave. Cascadia is in compliance with Paid Leave Oregon, the state's paid family, medical, and safe leave program. Cascadia is making the required employer contributions (currently 40% of the total contribution rate of 1% of wages, with the remaining 60% deducted from employee wages).
Washington Paid Family & Medical Leave. Cascadia is in compliance with Washington's Paid Family & Medical Leave Act for its Washington-based employees, making the required employer premium contributions.
Parental Leave. In addition to the state-mandated paid leave programs, Cascadia offers a supplemental paid parental leave benefit of up to six weeks of fully paid leave for birth, adoption, or foster placement, available to all eligible employees regardless of gender. This benefit is in addition to, and may be taken concurrently with, any applicable state paid leave benefit.
D. Other Benefits
Cascadia offers the following additional employee benefits:
• Tuition Reimbursement Program: Cascadia provides tuition reimbursement of up to $5,250 per year (the maximum excludable amount under IRC Section 127) for eligible employees pursuing job-related coursework or degree programs at accredited institutions.
• Cell Phone and Internet Stipend: Employees who work remotely or in a hybrid arrangement receive a monthly stipend of $75 toward cell phone and home internet expenses.
• Commuter Benefits: Portland-area employees are eligible for pre-tax commuter benefits, including transit passes and qualified parking, consistent with IRC Section 132(f).
No material compliance issues were identified with respect to any of the foregoing benefit programs.
V. Equity Incentive Plan and Change of Control Acceleration
A. Plan Overview
Cascadia maintains the Cascadia Fiber Networks, Inc. 2016 Equity Incentive Plan (the "Plan"), which was adopted by the board of directors and approved by the stockholders on June 14, 2016. The Plan has been amended on three occasions — most recently on February 8, 2023 — to, among other things, increase the share reserve and add restricted stock unit awards as a permissible award type.
The Plan authorizes the issuance of up to 6,200,000 shares of Cascadia common stock, inclusive of shares subject to outstanding awards and shares that have been previously exercised or settled. Awards available under the Plan include incentive stock options ("ISOs") within the meaning of IRC Section 422, non-qualified stock options ("NQSOs"), restricted stock units ("RSUs"), and restricted stock awards. The shares authorized under the Plan contribute to the fully diluted share count of 47,500,000 shares that forms the basis for calculating the implied per-share merger consideration of $15.79 ($750,000,000 / 47,500,000 shares).
The Plan is administered by the compensation committee of the Cascadia board of directors, which currently comprises Gerald Foss (independent director), Diane Okamoto (independent director), and Rebecca Montrose (Ridgecrest Capital Partners designee). The compensation committee has discretionary authority to determine the terms and conditions of individual awards, including vesting schedules, exercise prices, and, within the constraints of the Plan, the treatment of awards upon a change of control.
B. Outstanding Awards
As of the date of this memorandum, the following equity awards are outstanding under the Plan:
The weighted average exercise price of the outstanding stock options is $8.42 per share. Exercise prices for individual option tranches range from $4.50 per share (for early grants made in 2016 and 2017) to $12.75 per share (for the most recent grants made in 2024). All outstanding options are "in the money" relative to the implied per-share merger consideration of $15.79.
A detailed schedule of all outstanding equity awards — broken down by award holder, grant date, exercise price, vesting schedule, and vested/unvested status — is set forth in Appendix B to this memorandum.
C. Change of Control Acceleration Provisions
The proposed Merger constitutes a "change of control" under the Plan. The Plan defines "change of control" to include, among other events, any merger, consolidation, or similar transaction in which the stockholders of Cascadia immediately prior to the transaction do not hold a majority of the outstanding voting equity securities of the surviving or resulting entity immediately following the transaction. Because the Merger will result in Cascadia becoming a wholly owned subsidiary of Northgate, with Cascadia's pre-closing stockholders receiving only cash consideration and retaining no equity interest in the surviving entity, the change of control definition is clearly satisfied.
Single-Trigger Acceleration. Section 10(c) of the Plan provides that, upon the consummation of a change of control, all outstanding and unvested options and RSUs shall immediately accelerate and become fully vested, without regard to whether the holder's employment is subsequently terminated. This is a single-trigger acceleration provision — no termination of employment is required. The acceleration occurs automatically at the effective time of the Merger.
This single-trigger acceleration provision is a significant feature of the Plan and has material financial implications for the transaction. Specifically:
• All 1,275,000 unvested stock options will accelerate and become exercisable at the effective time of the Merger. Under the customary treatment of options in a cash-out merger, these options will be cancelled in exchange for a cash payment equal to the excess, if any, of the per-share merger consideration ($15.79) over the applicable exercise price, multiplied by the number of shares subject to the option. Because all outstanding options are in the money (weighted average exercise price of $8.42), all accelerated options will be cashed out for positive value.
• All 860,000 unvested RSUs will accelerate and settle at the effective time of the Merger. Each settled RSU will be converted into the right to receive the per-share merger consideration of $15.79 in cash, less applicable tax withholding.
Estimated Aggregate Equity Acceleration Cost. Based on the outstanding award data and the per-share merger consideration:
• Accelerated Options: The estimated aggregate "spread" value of the 1,275,000 accelerated unvested options — calculated as the difference between $15.79 and the weighted average exercise price of the unvested option tranches (approximately $9.85, reflecting the more recent grant dates of unvested options) — is approximately $7,573,500 (1,275,000 x ($15.79 - $9.85) = 1,275,000 x $5.94).
• Accelerated RSUs: The estimated aggregate value of the 860,000 accelerated unvested RSUs at $15.79 per share is approximately $13,579,400 (860,000 x $15.79).
• Total Estimated Equity Acceleration Cost: Approximately $21,152,900 for unvested awards. In addition, vested options (2,175,000 shares) and vested RSUs (960,000 shares) will be cashed out at closing, but the cost of those payments does not represent an "acceleration" cost per se, as those awards would have been payable in any event.
The total equity acceleration cost is effectively borne by the selling stockholders, as it is funded from the aggregate $750,000,000 merger consideration and reduces the pro rata cash distribution to the common stockholders. However, the specific mechanics of how equity awards are treated — including the order of payments, the allocation between the option consideration, the RSU consideration, and the residual common stock consideration — should be confirmed and documented in the merger agreement's provisions governing the treatment of Cascadia equity securities at the effective time.
D. Section 280G / Golden Parachute Considerations
The combination of cash severance payments and accelerated equity awards for the named executives — particularly Holmgren, Ramachandran, Engel, and Whitfield — raises potential "golden parachute" issues under Sections 280G and 4999 of the Internal Revenue Code.
Section 280G Overview. Section 280G provides that if the aggregate present value of "parachute payments" to a "disqualified individual" equals or exceeds three times (3x) the individual's "base amount" (generally, the average annual compensation over the five taxable years preceding the change of control), then the portion of such payments that exceeds one times (1x) the base amount is treated as an "excess parachute payment." The consequences are twofold:
• Section 4999 Excise Tax: The recipient of excess parachute payments is subject to a 20% nondeductible excise tax on the excess parachute payments, in addition to regular income tax.
• Section 280G Deduction Disallowance: The employer loses the tax deduction for the excess parachute payments.
For purposes of Section 280G, "parachute payments" include any payment in the nature of compensation that is contingent on a change of control. Both cash severance payments and the value of accelerated equity awards are treated as parachute payments. The accelerated vesting of stock options and RSUs under the Plan's single-trigger provision constitutes a parachute payment to the extent of the acceleration — i.e., the value attributable to the time period by which vesting is accelerated.
Stockholder Vote Exemption. Because Cascadia is a privately held corporation — that is, no class of its stock is readily tradeable on an established securities market or otherwise — the stockholder vote exemption under Section 280G(b)(5)(B) is available. Under this exemption, a payment to a disqualified individual is not treated as a parachute payment if:
(i) the payment is approved by a vote of more than 75% of the voting power of all outstanding stock entitled to vote (determined immediately before the change of control), and
(ii) there was adequate disclosure to the stockholders of all material facts concerning all payments that would (but for the vote) be parachute payments with respect to the disqualified individual.
If the stockholder vote is obtained, the excise tax and deduction disallowance are eliminated entirely.
Recommendation. We strongly recommend that Cascadia be required to obtain the Section 280G stockholder vote prior to the closing of the Merger. This should be included as a covenant or condition in the merger agreement, and the Cascadia board should undertake the vote in connection with the stockholder vote to adopt the merger agreement itself (or, if the merger agreement is adopted by written consent of the majority stockholder, as a separate but contemporaneous consent solicitation).
The 280G calculations — including the determination of each disqualified individual's base amount, the present value of all parachute payments, and the allocation between the single-trigger equity acceleration and the double-trigger cash severance — are complex and should be prepared by Hawthorne & Sable LLP (Douglas Kirwan, engagement partner; Elena Montague, tax partner), which serves as Northgate's tax advisor for this transaction. We understand that WKB may also engage Cascadia's tax advisors to review and verify the calculations from Cascadia's perspective.
VI. Non-Executive Severance and Change-in-Control Protections
A. Severance Policy
In addition to the executive-level change of control provisions described in Section III, Cascadia maintains a general severance policy applicable to all non-executive employees who are terminated without cause. The key terms of the policy are as follows:
• Severance Amount: Two weeks of base pay per completed year of service, subject to a maximum of 16 weeks of base pay.
• Eligibility: Available to regular full-time employees who are involuntarily terminated without cause, provided the employee has completed at least one year of continuous service.
• Release Requirement: Payment of severance is conditioned upon the employee's execution and non-revocation of a general release of claims in a form prescribed by Cascadia.
• Benefit Continuation: Cascadia does not subsidize COBRA premiums for non-executive employees receiving severance; however, employees are advised of their COBRA continuation rights.
Importantly, the general severance policy is triggered only upon an actual termination of employment — the Merger itself does not constitute a triggering event for non-executive severance. There is no single-trigger cash severance for the broad-based workforce. Accordingly, severance obligations for non-executive employees will arise only if Northgate determines to implement workforce reductions following the closing.
Estimated Potential Post-Closing Severance Cost. If Northgate were to implement significant post-closing workforce reductions — for example, eliminating redundant corporate and administrative functions or consolidating field operations — the potential severance cost under Cascadia's existing policy could be material. Based on the current headcount of approximately 620 employees, an average tenure of approximately 4.5 years, and an average base salary of approximately $78,000, the estimated cost of providing severance to a hypothetical 15% workforce reduction (~93 employees) would be approximately $650,000 to $750,000 in the aggregate. This estimate should be refined once Northgate has developed its post-closing integration plan and identified specific headcount adjustments.