PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT
Legal Due Diligence Report
Cascadia Fiber Networks, Inc.
Prepared by:
Calderwood & Harkness LLP 600 Lexington Avenue, 30th Floor New York, New York 10022
Prepared for:
Northgate Telecommunications PLC 14 Broadwick Place London W1F 8HN United Kingdom
Attention: Philippa Ashworth, General Counsel Liam Sutherland, Vice President, Corporate Development
This report is prepared solely for the use and benefit of Northgate Telecommunications PLC and its authorized representatives in connection with the proposed acquisition of Cascadia Fiber Networks, Inc. This report constitutes attorney work product and is protected by the attorney-client privilege. No third party may rely upon this report or any of its contents without the express prior written consent of Calderwood & Harkness LLP.
I. EXECUTIVE SUMMARY
I.A. Purpose and Scope
This report (the "Report") summarizes the legal due diligence conducted by Calderwood & Harkness LLP ("C&H" or the "Firm") in connection with the proposed acquisition (the "Transaction") by Northgate Telecommunications PLC ("Northgate" or "NTP") of Cascadia Fiber Networks, Inc. ("Cascadia" or "CFN" or the "Company") through a forward merger valued at Seven Hundred Fifty Million Dollars ($750,000,000) in aggregate cash consideration (the "Merger Consideration"), with no stock component.
The Transaction is structured as a forward merger under Section 251 of the Delaware General Corporation Law (the "DGCL"). Pursuant to the proposed Agreement and Plan of Merger (the "Merger Agreement"), NTP Acquisition Sub, Inc., a newly formed Delaware corporation and wholly owned subsidiary of Northgate ("Merger Sub"), will merge with and into Cascadia, with Cascadia surviving the merger as a wholly owned subsidiary of Northgate (the "Surviving Corporation"). At the effective time of the merger (the "Effective Time"), each outstanding share of Cascadia common stock (other than shares held by Cascadia, Northgate, or Merger Sub, or by stockholders who have properly exercised appraisal rights under DGCL Section 262) will be converted into the right to receive the applicable per-share merger consideration in cash.
The due diligence summarized in this Report was conducted through the following principal methods:
(a) review of documents and information provided by Cascadia and its counsel, Whitmore, Kessler & Braun LLP ("WKB") (Jonathan Kessler, Lead Partner; Megan Tsai, Associate Lead), through a virtual data room hosted on Sundial Technologies' Venue platform (the "VDR"), which as of the date of this Report contains approximately 3,400 documents organized across 42 primary folders;
(b) management presentations and interviews conducted with members of Cascadia's executive team, including Derek Holmgren (Chief Executive Officer and Co-Founder), Priya Ramachandran (Chief Technology Officer and Co-Founder), Tobias Engel (Chief Financial Officer), and Sandra Whitfield (General Counsel);
(c) public record searches, including searches of federal and state court dockets, Uniform Commercial Code filings, patent and trademark databases, and corporate records in relevant jurisdictions; and
(d) review of publicly available information regarding Cascadia, its industry, and its competitors, including regulatory filings, press releases, and industry publications.
The due diligence review commenced on February 26, 2025 and is continuing through the date of this Report. Certain diligence items remain outstanding and are tracked on the Diligence Request List Status Tracker attached as Appendix A. This Report should be read as a summary of the diligence conducted to date, subject to the assumptions and limitations set forth in Section XIV below. We will supplement this Report as additional information becomes available and as outstanding diligence items are resolved.
The target date for the execution and delivery of the Merger Agreement by the parties is April 7, 2025 (the "Signing Date"). Certain findings and recommendations in this Report are time-sensitive and should be addressed in connection with the finalization of the Merger Agreement and related transaction documents.
I.B. Transaction Overview
The key parameters of the Transaction are as follows:
The strategic rationale for the Transaction centers on the complementary nature of Cascadia's fiber infrastructure assets with Northgate's existing North American network and technology platform. Cascadia's approximately 4,800 route miles of lit and dark fiber spanning Oregon, Washington, Idaho, and northern Nevada fill a significant gap in Northgate's North American middle-mile network, which is currently concentrated in the Northeast and Mid-Atlantic regions. The Transaction also provides Northgate with a platform for deploying its proprietary SaaS-based network management suite, "NetOrchestra," across Cascadia's customer base and infrastructure, creating anticipated revenue synergies through cross-selling and operational synergies through the consolidation of network management tools.
Cascadia's key financial metrics for fiscal year 2024 ("FY2024") are summarized below:
The financial and accounting due diligence is being conducted separately by Hawthorne & Sable LLP (Douglas Kirwan, Engagement Partner), and the financial figures referenced in this Report are included for context only and should not be relied upon as an independent assessment of Cascadia's financial condition. C&H defers to Hawthorne & Sable's separate financial due diligence report for all matters relating to the accuracy and completeness of Cascadia's financial statements.
I.C. Summary of Key Findings and Risk Items
Based on the due diligence conducted through the date of this Report, C&H has identified the following key findings and risk items, organized by priority level.
High-Priority Items Requiring Pre-Signing Resolution or Contractual Protection:
1. Change of Control Consent Requirements in Three Material Commercial Contracts. Three of Cascadia's material commercial contracts contain change of control provisions that will be triggered by the Transaction: (a) the Master Services Agreement with Pacific Ridge Data Centers, LLC (approximately $22 million in annual revenue; consent at Pacific Ridge's sole discretion); (b) the Wholesale Fiber IRU Agreement with Clearpath Internet Services, Inc. (consent required, not to be unreasonably withheld); and (c) the Oregon Municipal Broadband Cooperative Agreement (cooperative board consent required). The Pacific Ridge consent presents the highest risk due to the sole discretion consent standard and the materiality of the revenue at stake. These items are discussed in detail in Section III.B below.
2. Mandatory Prepayment of Elkhorn Capital Markets Term Loan. The change of control triggered by the Transaction will require mandatory prepayment of Cascadia's existing term loan with Elkhorn Capital Markets, LLC in the aggregate amount of approximately $82,600,000 in outstanding principal, plus a 1.0% prepayment premium of $826,000 and accrued and unpaid interest. This payoff is budgeted within the Transaction funding and Elkhorn is also a participant in the acquisition financing syndicate with a $75 million commitment. Payoff mechanics and lien release procedures are discussed in Sections III.B.1 and IV.A below.
3. Accelerated Vesting of Equity Incentive Plan. Cascadia's equity incentive plan provides for the accelerated vesting of all outstanding stock options and restricted stock units upon a change of control. The financial impact of such acceleration must be quantified based on the spread between applicable exercise prices and the $15.79 per-share merger consideration. Additionally, accelerated vesting may give rise to Section 280G "golden parachute" issues for certain disqualified individuals, requiring coordination with tax counsel. This item is discussed in detail in Sections III.B.5 and VIII.C below.
4. FCC License Transfer Requirements. Cascadia holds an international Section 214 authorization from the Federal Communications Commission, and the Transaction will require prior FCC approval of the transfer of control. Additionally, Cascadia holds public utility commission certifications in Oregon, Washington, Idaho, and Nevada, each of which will require notification and/or approval. FCC and state PUC requirements are the critical path regulatory items for the Transaction and are discussed in Section V below.
5. CFIUS Considerations. Given Northgate's domicile in the United Kingdom (a foreign acquirer for CFIUS purposes), Cascadia's proximity to certain government and Department of Defense customer sites in the Pacific Northwest, and the critical infrastructure nature of the fiber telecommunications network, C&H recommends that Northgate file a voluntary notice with the Committee on Foreign Investment in the United States to obtain safe harbor clearance. This item is discussed in Section V.D below.
Medium-Priority Items Flagged for Further Investigation or Disclosure Schedule Population:
Medium-priority items include, among others: (a) the Clearpath Internet Services IRU consent (reasonableness standard, but consent should be actively pursued); (b) the Oregon Municipal Broadband Cooperative consent (potential for procedural delays); (c) the CFIUS voluntary filing (low risk but recommended); and (d) review and confirmation of change of control provisions in Cascadia's approximately $12.3 million in outstanding capital leases. These items are discussed in the relevant sections of this Report.
Overall Assessment:
Based on our review to date, C&H has not identified any legal impediments to the consummation of the Transaction, subject to obtaining the required regulatory approvals (FCC, state PUC, HSR, and CFIUS clearance) and third-party consents identified herein. The estimated regulatory timeline from Signing to the receipt of all required approvals is approximately 90 to 150 days. The outside date of September 30, 2025, with the mutual 60-day extension to November 29, 2025 if regulatory approvals are the sole outstanding condition, provides adequate runway for the anticipated regulatory timeline.
The high-priority items identified above should be addressed through appropriate provisions in the Merger Agreement, including closing conditions, interim operating covenants, and indemnification provisions, as well as through prompt engagement with regulatory authorities and commercial counterparties following execution of the Merger Agreement.
II. CORPORATE ORGANIZATION AND GOOD STANDING
II.A. Formation and Organizational Documents
Cascadia Fiber Networks, Inc. is a corporation organized and existing under the laws of the State of Delaware. The Company was incorporated on March 14, 2011. Relevant organizational details are set forth below:
Certificate of Incorporation. We have reviewed the Restated Certificate of Incorporation of Cascadia Fiber Networks, Inc., as amended through May 16, 2022 (the "Charter"), including all certificates of amendment and certificates of designation filed with the Delaware Secretary of State. The Charter contains standard provisions for a Delaware corporation, including provisions authorizing the issuance of capital stock as described in Section II.C below. The Charter does not contain any supermajority voting requirements for mergers or other fundamental transactions beyond the majority-of-outstanding-shares requirement imposed by DGCL Section 251(c). The Charter includes an exculpation provision under DGCL Section 102(b)(7) limiting the personal liability of directors for monetary damages for breaches of fiduciary duty, subject to customary exceptions. The Charter does not include any anti-takeover provisions such as a classified board or restrictions on stockholder action by written consent.
Bylaws. We have reviewed the Amended and Restated Bylaws of Cascadia Fiber Networks, Inc., as amended through September 8, 2023 (the "Bylaws"). The Bylaws contain standard provisions regarding meetings of stockholders, the board of directors and its committees, officers, indemnification, and related matters. The Bylaws were most recently amended on September 8, 2023, to update the indemnification and advancement provisions to conform with current Delaware law and to expand the class of persons entitled to indemnification to include certain officers in addition to directors. The amendment history of the Bylaws is consistent with good corporate governance practices and reflects no unusual or restrictive provisions that would impede the Transaction.
Good Standing. We have obtained the following good standing certificates:
(a) Certificate of Good Standing from the Delaware Secretary of State, dated March 17, 2025, confirming that Cascadia Fiber Networks, Inc. is in good standing in the State of Delaware;
(b) Certificate of Existence and Authorization from the Oregon Secretary of State, dated March 18, 2025, confirming that Cascadia Fiber Networks, Inc. is authorized to transact business in the State of Oregon and is in good standing.
Foreign Qualifications. Cascadia is qualified to do business as a foreign corporation in the following jurisdictions, consistent with the geographic footprint of its fiber network operations:
(a) Oregon — qualified; in good standing;
(b) Washington — qualified; good standing confirmation pending;
(c) Idaho — qualified; good standing confirmation pending; and
(d) Nevada — qualified; good standing confirmation pending.
We are awaiting the issuance of good standing certificates from the Washington Secretary of State, the Idaho Secretary of State, and the Nevada Secretary of State, which were requested on March 20, 2025. We will supplement this Report upon receipt. Based on information provided by Cascadia's General Counsel, Sandra Whitfield, the Company is current in its qualification filings and annual report filings in all four states, and we do not anticipate any issues with respect to the good standing certifications.
II.B. Subsidiaries and Affiliates
Based on our review of the documents provided in the VDR and the representations of Ms. Whitfield, Cascadia does not have any subsidiaries or affiliated entities. All of the Company's assets, including its fiber network infrastructure, rights-of-way, easements, and other real property interests, are held directly by Cascadia Fiber Networks, Inc. We note that some fiber network operators structure their operations through subsidiary holding entities for right-of-way or asset-holding purposes; Cascadia has not adopted this approach, which simplifies the acquisition structure and avoids the need for subsidiary-level consents or approvals.
We have confirmed that Cascadia has not formed, and does not hold any equity interest in, any joint ventures, partnerships, or limited liability companies. The Company does not participate in any consortium arrangements or special purpose entities other than through ordinary-course contractual relationships with commercial counterparties.
II.C. Capitalization
The authorized capital stock of Cascadia, as set forth in the Charter, consists of 100,000,000 shares of common stock, par value $0.001 per share, and 10,000,000 shares of preferred stock, par value $0.001 per share. No shares of preferred stock are currently issued or outstanding. All previously issued series of preferred stock were converted to common stock in connection with the Company's 2019 Series C financing.
On a fully diluted basis, the Company has 47,500,000 shares outstanding or issuable, as follows:
The equity ownership of the Company, on a fully diluted basis, is concentrated among the following principal holders:
We have reviewed the stock ledger maintained by Cascadia's transfer agent, Pacific Transfer & Trust Co., as well as a sample of stock option grant agreements, restricted stock unit award agreements, and warrant instruments. The stock ledger appears to be well-maintained and consistent with the capitalization table provided by management. The option grant agreements reviewed contain standard terms, including four-year vesting schedules with one-year cliff vesting and monthly vesting thereafter, subject to the change of control acceleration provisions discussed in Section VIII.C below.
We have reviewed the Company's equity incentive plans, including the 2011 Stock Incentive Plan (as amended and restated in 2018) and the 2021 Equity Incentive Plan, under which outstanding options and RSUs have been granted. Both plans contain provisions providing for accelerated vesting upon a change of control, as discussed in detail in Section VIII.C.
Based on our review of the Charter, the stock option and RSU agreements, and the warrant instruments, we have not identified any anti-dilution provisions, preemptive rights, rights of first refusal, co-sale rights, or other provisions that would impede or complicate the merger or the conversion of Cascadia shares into the right to receive the per-share merger consideration. We note that the investors' rights agreement among Cascadia, Timberline Growth Partners, and Ridgecrest Venture Fund III, dated as of October 22, 2019, contains certain information rights and registration rights that will terminate upon the consummation of the merger pursuant to the terms of such agreement.
II.D. Board of Directors and Governance
The Board of Directors of Cascadia (the "Board") currently consists of six members. According to the information provided by Ms. Whitfield, the Board seat formerly held by a second independent director, Martin Coelho, has been vacant since Mr. Coelho's resignation in November 2024 and has not been filled. The current composition of the Board is as follows:
We have reviewed the minutes of meetings of the Board and its committees (Audit Committee, Compensation Committee, and Nominating and Governance Committee) for the period from January 1, 2023 through December 31, 2024, as well as records of written consents executed in lieu of meetings during this period. The minutes reflect that the Board has held regular quarterly meetings, with additional special meetings convened as needed, and that a quorum was present at each meeting. The Board's practices reflect adherence to standard corporate governance requirements.
With respect to the Transaction, the merger will require adoption of a resolution by the Board recommending the merger to Cascadia's stockholders in accordance with DGCL Section 251(b). Based on discussions with Ms. Whitfield, the Board has been briefed on the Transaction and management expects that the Board will approve the merger and recommend that stockholders vote in favor of it. The Board has engaged Meridian Partners Advisory LLC as its financial advisor to render a fairness opinion in connection with the Transaction. We are advised that the fairness opinion will be delivered prior to the Board's vote on the merger.
II.E. Stockholder Approval Requirements
Under DGCL Section 251(c), the merger requires the affirmative vote of the holders of a majority of the outstanding shares of Cascadia common stock entitled to vote thereon. Based on 38,900,000 shares of common stock currently outstanding (which are the only shares entitled to vote), the required approval threshold is 19,450,001 shares.
To provide certainty of stockholder approval, Timberline Growth Partners, LP and Ridgecrest Venture Fund III, LP have agreed to enter into voting support agreements simultaneously with the execution of the Merger Agreement. The combined holdings of these two stockholders represent approximately 60.1% of the outstanding shares of common stock, which exceeds the majority threshold required for approval. The voting support agreements will require each such stockholder to vote all of its shares in favor of the merger and against any competing proposal, and will contain customary restrictions on transfers of shares and covenants not to solicit competing transactions.
We have reviewed the drafts of the voting support agreements, which have been negotiated between C&H and WKB. The agreements are in substantially final form and are expected to be executed simultaneously with the Merger Agreement on the Signing Date. We note that the voting support agreements contain customary fiduciary-out provisions permitting the voting stockholders to be released from their obligations in the event that the Board changes its recommendation in accordance with the terms of the Merger Agreement.
No supermajority voting requirements for the merger have been identified in the Charter, the Bylaws, or any stockholder agreement. The Company does not have a controlling stockholder agreement or any other arrangement that would impose additional voting requirements beyond those mandated by the DGCL.
Proxy solicitation in connection with the stockholder vote will be managed by Alderman Proxy Advisors, LLC, which has been engaged by Cascadia for this purpose. The solicitation will be conducted through a proxy statement/information statement to be mailed to stockholders following the execution of the Merger Agreement, or, if applicable, through a written consent solicitation. We defer to WKB on the mechanics of the stockholder solicitation.
III. MATERIAL CONTRACTS
III.A. Overview of Contract Review
In connection with the legal due diligence, C&H has conducted a comprehensive review of Cascadia's material contracts. The scope of the contract review encompasses the following categories:
(a) all contracts with annual revenue or expenditure value exceeding $1,000,000;
(b) all contracts containing change of control, assignment, or termination provisions that may be triggered by the Transaction;
(c) all contracts with federal, state, or local government entities or municipal agencies;
(d) all contracts containing exclusivity provisions, most-favored-nation pricing clauses, or non-compete covenants;
(e) all indebtedness instruments, including credit agreements, promissory notes, guarantees, and capital leases;
(f) all real property leases and significant easement or right-of-way agreements; and
(g) all employment agreements with executive officers and key employees.
The contract review was conducted in coordination with Cascadia's General Counsel, Sandra Whitfield, and with the assistance of WKB (Megan Tsai, Associate Lead). Ms. Whitfield provided an initial inventory of contracts believed to be material, which C&H supplemented based on its independent review of the VDR. The total number of contracts reviewed or identified for review is approximately 285, of which approximately 175 have been reviewed in full and the remainder have been reviewed in summary or are pending production.
The subsections below address the most significant contracts and contract-related issues identified through the due diligence. A summary table of contracts containing change of control provisions is attached as Appendix B.
III.B. Change of Control Provisions — Critical Analysis
The most significant finding of the contract due diligence relates to the change of control provisions contained in certain of Cascadia's material contracts. Because the forward merger constitutes a change of control of Cascadia (the Company's stockholders will cease to hold any equity interest in the Surviving Corporation, and Northgate will acquire 100% ownership), any contractual provisions triggered by a change of control must be carefully analyzed and addressed.
C&H has identified the following contracts and instruments containing change of control provisions that will be triggered by the Transaction. Each is addressed in detail below.
III.B.1. Elkhorn Capital Markets Term Loan
Cascadia is party to a Term Loan Credit Agreement dated as of July 15, 2021, as amended on March 1, 2023 and November 8, 2024, by and between Cascadia Fiber Networks, Inc., as Borrower, and Elkhorn Capital Markets, LLC, as Lender and Administrative Agent (the "Elkhorn Credit Agreement"). The key terms relevant to the Transaction are as follows:
The forward merger clearly constitutes a "Change of Control" under Section 7.1(d) of the Elkhorn Credit Agreement. Accordingly, Cascadia will be required to prepay the entire outstanding principal balance, together with the 1.0% prepayment premium and all accrued and unpaid interest, at or prior to the Effective Time.
The total estimated payoff at closing is as follows:
• Outstanding principal: $82,600,000
• Prepayment premium (1.0%): $826,000
• Accrued interest (estimated): to be confirmed via payoff letter two business days prior to closing
• Total estimated payoff: approximately $83,426,000 + accrued interest
Risk Assessment: LOW. The payoff of the Elkhorn term loan has been budgeted in the Transaction funding and does not present a financial impediment to closing. Additionally, we note that Elkhorn Capital Markets, LLC is participating in the acquisition financing syndicate being arranged by Pinnacle Atlantic Bank, N.A., with a commitment of $75,000,000. Elkhorn's participation in the new financing syndicate further mitigates the risk associated with the payoff of the existing facility, as Elkhorn has a commercial interest in facilitating the Transaction.
Recommendation: C&H recommends the following actions:
(a) Cascadia should request a payoff letter from Elkhorn Capital Markets, LLC no later than five business days prior to the anticipated closing date, setting forth the exact payoff amount as of the anticipated closing date and including wire transfer instructions;
(b) C&H will coordinate with counsel to Pinnacle Atlantic Bank, N.A. (Bridwell & Carswell LLP) on the mechanics of the simultaneous payoff of the existing Elkhorn facility and the closing of the new senior secured credit facility;
(c) UCC-3 termination statements and releases of all liens and security interests in favor of Elkhorn should be prepared in advance and held in escrow for filing immediately upon closing and payoff; and
(d) The Merger Agreement should include a covenant requiring Cascadia to cooperate in obtaining the payoff letter and lien releases, and a closing condition requiring the delivery of such payoff letter and execution of such releases.
III.B.2. Master Services Agreement with Pacific Ridge Data Centers, LLC
Cascadia is party to a Master Services Agreement dated as of January 10, 2019, as amended on June 4, 2021 and February 15, 2023, with Pacific Ridge Data Centers, LLC ("Pacific Ridge") (the "Pacific Ridge MSA"). Under the Pacific Ridge MSA, Cascadia provides dedicated fiber connectivity services linking Pacific Ridge's data center facilities in Portland, Seattle, and Boise to Cascadia's regional fiber backbone. The Pacific Ridge MSA is Cascadia's single largest customer contract by annual revenue.
Risk Assessment: HIGH. This is the most significant contract-related risk identified in the due diligence. The Pacific Ridge MSA accounts for approximately 11.7% of Cascadia's total revenue, making it the Company's largest customer contract. The change of control provision in Section 14.3 requires Pacific Ridge's prior written consent, and the consent standard is entirely at Pacific Ridge's "sole discretion" — there is no obligation on Pacific Ridge to act reasonably in granting or withholding consent. If consent is not obtained, Pacific Ridge has the right to terminate the MSA upon 90 days' notice, which would result in the loss of approximately $22 million in annual revenue.
We have reviewed the full text of Section 14.3 and its defined terms. The definition of "change of control" is broadly drafted and includes "any merger, consolidation, reorganization, or similar transaction resulting in a change in the identity of the Person or Persons that, directly or indirectly, control or have the power to control the management and policies of [Cascadia]." The forward merger clearly falls within this definition.
We note that Cascadia's management has indicated that its relationship with Pacific Ridge is strong and that Pacific Ridge is generally satisfied with the services provided under the MSA. However, this commercial assessment does not eliminate the legal risk posed by the sole discretion consent standard. Pacific Ridge could, for example, use the consent requirement as leverage to renegotiate pricing or other terms of the MSA, or could withhold consent for reasons unrelated to the quality of Cascadia's services.
Recommendation: C&H provides the following recommendations:
(a) Consent Process. Northgate should initiate the consent process with Pacific Ridge as early as practicable following the execution of the Merger Agreement. We recommend that the initial approach to Pacific Ridge be made by Cascadia's management (Mr. Holmgren and/or the relevant account executive), with Northgate management available to address Pacific Ridge's questions or concerns regarding post-closing service continuity and plans. The consent request should be accompanied by a written communication affirming Northgate's commitment to maintaining and enhancing the services provided under the MSA.
(b) Closing Condition. Given the materiality of the Pacific Ridge MSA (representing over 10% of Cascadia's revenue), C&H recommends that the receipt of Pacific Ridge's written consent be included as a specific closing condition in the Merger Agreement. At a minimum, the Merger Agreement should contain a covenant requiring Cascadia to use commercially reasonable efforts (or, if Northgate can negotiate it, best efforts) to obtain the consent. C&H notes that Cascadia and WKB may resist a hard closing condition tied to Pacific Ridge's consent, as this effectively gives Pacific Ridge a veto over the Transaction. This point should be escalated to the deal team for commercial discussion.
(c) Disclosure Schedules and Representations. The Pacific Ridge MSA and its change of control provision should be prominently disclosed in the disclosure schedules against the Merger Agreement's representations regarding material contracts and consents. The risk of non-consent should be fully disclosed.
(d) Alternative Mitigation. In the event that a hard closing condition is not agreed, Northgate should consider alternative risk mitigation measures, including: (i) a purchase price adjustment mechanism tied to the failure to obtain Pacific Ridge's consent; (ii) an indemnity from the selling stockholders (or from the R&W insurance policy) for losses arising from the loss of the Pacific Ridge contract; or (iii) a post-closing earnout or holdback mechanism linked to retention of the Pacific Ridge relationship.
III.B.3. Wholesale Fiber IRU Agreement with Clearpath Internet Services, Inc.
Cascadia is party to a Wholesale Fiber Indefeasible Right of Use Agreement dated as of August 22, 2017, with Clearpath Internet Services, Inc. ("Clearpath") (the "Clearpath IRU Agreement"). Under this agreement, Clearpath holds a 20-year indefeasible right of use for dark fiber capacity on specified segments of Cascadia's fiber network in Oregon and Washington.
Risk Assessment: MEDIUM. The change of control provision in the Clearpath IRU Agreement requires Clearpath's consent, but the consent standard is qualified by a reasonableness requirement. This provides meaningful legal protection to Cascadia and Northgate — if Clearpath were to unreasonably withhold consent, Cascadia would have grounds to proceed with the Transaction and assert that Clearpath's withholding of consent constituted a breach of the reasonableness obligation.
However, the reasonableness standard does not eliminate all risk. Clearpath could assert that its withholding of consent is reasonable based on legitimate concerns about service continuity, Northgate's competitive position, or other factors. Additionally, even if Cascadia ultimately prevails in any dispute over the reasonableness of Clearpath's withholding, the pendency of such a dispute could create uncertainty and potential delays.
Recommendation: C&H recommends that a consent request be sent to Clearpath promptly following the execution of the Merger Agreement. The Merger Agreement should include a covenant requiring Cascadia to use commercially reasonable efforts to obtain the consent. Given the reasonableness standard, C&H does not believe it is necessary to include the Clearpath consent as a hard closing condition, but recommends that the consent be tracked as a closing deliverable and that Northgate be given the right to waive the condition if the consent has not been obtained by closing.
III.B.4. Oregon Municipal Broadband Cooperative Agreement
Cascadia is party to a Cooperative Services Agreement dated as of November 3, 2022, with the Oregon Municipal Broadband Cooperative (the "OMBC"), a governmental cooperative formed under Oregon Revised Statutes Chapter 190 (the "OMBC Agreement"). Under the OMBC Agreement, Cascadia provides fiber backbone services to the OMBC and participates in the cooperative's regional broadband expansion initiative.
Risk Assessment: MEDIUM. While the annual revenue from the OMBC Agreement is significantly smaller than the Pacific Ridge MSA, the OMBC relationship represents a growing revenue segment for Cascadia and is strategically important as municipal broadband deployment accelerates across Oregon. The OMBC Agreement requires the approval of the OMBC's Board of Directors, which is a governmental body subject to public meeting requirements, quorum rules, and potentially political considerations. These procedural requirements may result in a longer timeline for obtaining consent compared to commercial counterparties.
We note that governmental counterparties may also have substantive concerns about foreign ownership of a key infrastructure provider, particularly given that Northgate is a UK public limited company. While the UK's status as a close U.S. ally generally mitigates such concerns, the political dynamics at the local government level may differ from those at the federal level.
Recommendation: C&H recommends early engagement with the OMBC Board, ideally initiated by Cascadia's management with support from Northgate's corporate development team. Given the potential for procedural delays, the consent process should be commenced as soon as practicable after signing. C&H recommends that the Merger Agreement include a covenant requiring commercially reasonable efforts to obtain the OMBC consent, but that the consent not be a hard closing condition. Instead, Northgate should assess whether the OMBC Agreement is sufficiently material to warrant additional protections (e.g., a post-closing indemnity or a purchase price adjustment in the event of loss of the OMBC contract).
III.B.5. Equity Incentive Plan
Cascadia's equity incentive plans (the 2011 Stock Incentive Plan, as amended and restated in 2018, and the 2021 Equity Incentive Plan) (collectively, the "Plans") contain provisions providing for the automatic accelerated vesting of all outstanding stock options and restricted stock units upon a "Change of Control" of the Company (as defined in the Plans). The forward merger constitutes a "Change of Control" under both Plans.
The accelerated vesting provisions mean that, as of the Effective Time, all unvested stock options and RSUs held by Cascadia employees, directors, and consultants will become fully vested. Under the terms of the Merger Agreement (as currently drafted), all outstanding options and RSUs will be cancelled at the Effective Time in exchange for cash consideration as follows:
(a) Stock Options: Each outstanding stock option will be cancelled in exchange for a cash payment equal to the product of (i) the number of shares subject to the option and (ii) the excess, if any, of the per-share merger consideration ($15.79) over the per-share exercise price of the option. Options with an exercise price equal to or exceeding the per-share merger consideration will be cancelled for no consideration.
(b) Restricted Stock Units: Each outstanding RSU will be cancelled in exchange for a cash payment equal to the product of (i) the number of shares subject to the RSU and (ii) the per-share merger consideration ($15.79).
Financial Impact. The total financial impact of accelerated vesting and the cancellation of options and RSUs at closing has not yet been fully quantified. C&H has requested from Cascadia management and WKB a complete schedule of all outstanding options and RSUs, including grant dates, exercise prices, vesting schedules, and the number of shares subject to each award, both vested and unvested. Based on the preliminary information provided, we estimate the following:
• Total options outstanding: 5,200,000 shares, with a weighted average exercise price of approximately $8.45 per share
• Total RSUs outstanding: 2,600,000 shares (no exercise price)
• Estimated aggregate in-the-money value of options at $15.79 per share: approximately $38.2 million
• Estimated aggregate value of RSUs at $15.79 per share: approximately $41.1 million
• Estimated total option and RSU payout: approximately $79.3 million
This amount will be paid from the aggregate Merger Consideration and will reduce the net proceeds distributable to common stockholders. The allocation of the option and RSU cancellation payments between the aggregate Merger Consideration and any separate funding by Northgate should be addressed in the finalization of the Merger Agreement.
IRC Section 280G Analysis. The accelerated vesting of equity awards, combined with any severance or other compensatory payments triggered by the Transaction, may give rise to "excess parachute payments" within the meaning of Internal Revenue Code Section 280G for certain "disqualified individuals" (generally, officers, directors, and highly compensated employees). Excess parachute payments are subject to a 20% excise tax under IRC Section 4999 imposed on the recipient and are non-deductible by the payor under IRC Section 280G.
Based on our preliminary review, the disqualified individuals most likely to be affected include Derek Holmgren (CEO), Priya Ramachandran (CTO), and Tobias Engel (CFO), each of whom holds significant equity awards and is party to an employment agreement with change of control and severance provisions. Depending on the magnitude of the accelerated vesting value and other "parachute payments" relative to each individual's "base amount" (average W-2 compensation over the five preceding tax years), the 280G safe harbor threshold (three times the base amount) could be exceeded.
Recommendation: C&H recommends the following:
(a) Coordinate with Hawthorne & Sable LLP (Elena Montague, Tax Partner) to conduct a full Section 280G analysis for each potentially affected disqualified individual;
(b) Consider whether to include a Section 280G stockholder vote as a closing deliverable — under DGCL and IRS guidance, payments that would otherwise constitute excess parachute payments may be exempted from the 280G penalty if approved by a vote of more than 75% of the outstanding shares of a private company (after adequate disclosure of the payments). Since Cascadia is a private company, a 280G stockholder vote is available and is frequently used in private company M&A transactions. Given the combined 60.1% voting commitment from Timberline and Ridgecrest, achieving the 75% threshold is likely but not guaranteed; and
(c) Alternatively, consider whether the employment agreements of affected executives contain "cutback" provisions that would reduce parachute payments to the safe harbor threshold, thereby avoiding the 280G excise tax but reducing the executives' total compensation.
III.C. Other Material Contracts
In addition to the contracts with change of control provisions discussed above, C&H has reviewed or is in the process of reviewing the following categories of material contracts:
Customer Contracts — Enterprise Accounts. C&H has reviewed the top ten customer contracts by annual revenue, including the Pacific Ridge MSA discussed above. The remaining nine contracts in the top ten include agreements with regional internet service providers, enterprise data center operators, health care systems, educational institutions, and cloud service providers, with annual revenue ranging from approximately $4 million to $14 million each. Of the nine, three contain assignment provisions that may require notice to or consent from the counterparty in connection with the merger. None of the remaining nine contain consent standards as restrictive as the sole discretion standard in the Pacific Ridge MSA; the most common formulation is "consent not to be unreasonably withheld." C&H is preparing a summary of the consent and notice requirements for each of these contracts for inclusion in the disclosure schedules.
Vendor Contracts. Cascadia's principal vendor contracts include equipment supply agreements, fiber equipment capital leases (approximately $12.3 million in aggregate, discussed in Section IV.B), maintenance and managed services agreements, and network operations center ("NOC") contracts. C&H has reviewed the most significant vendor contracts and has identified standard assignment and change of control provisions in several. The capital leases are addressed in Section IV.B below. C&H does not anticipate material issues with vendor contract consents, but will continue to track and confirm.
Government Contracts. In addition to the OMBC Agreement discussed above, Cascadia holds contracts with several other governmental entities, including the Oregon Department of Transportation (fiber installation along state highway corridors), the Washington State Department of Enterprise Services (managed fiber connectivity), and the U.S. Department of Agriculture Rural Utilities Service (broadband infrastructure grant co-funded project). C&H is reviewing these contracts for compliance with applicable government contracting regulations, including the Federal Acquisition Regulation (FAR) and Defense Federal Acquisition Regulation Supplement (DFARS) where applicable. The USDA RUS contract may be subject to additional requirements in connection with a change of control, and we are in the process of confirming the applicable provisions. Any government or DOD-adjacent contracts are also relevant to the CFIUS analysis discussed in Section V.D below.
Real Property Leases and Easements. These are discussed in detail in Section X below.
Non-Compete and Non-Solicitation Agreements. The employment agreements of Cascadia's executive officers contain non-compete and non-solicitation covenants, as discussed in Section VIII.B. Additionally, C&H is reviewing whether any of Cascadia's commercial contracts contain non-compete or exclusivity provisions that could restrict the Surviving Corporation's post-merger operations.
III.D. Most-Favored-Nation and Exclusivity Provisions
C&H has identified the following contracts containing most-favored-nation ("MFN") pricing clauses or exclusivity obligations:
MFN Provisions. Two of Cascadia's enterprise customer agreements contain MFN pricing clauses requiring Cascadia to offer the customer pricing no less favorable than that offered to any other similarly situated customer for comparable services. These provisions could be triggered if, following the merger, Northgate adjusts Cascadia's pricing structure or introduces new pricing tiers that result in certain customers receiving more favorable terms. C&H is reviewing the specific terms of the MFN clauses to assess the scope and potential impact and will include recommendations in the final version of this Report.
Exclusivity Obligations. One customer agreement contains a limited geographic exclusivity provision pursuant to which Cascadia has agreed not to provide competing dark fiber services to a specified competitor of the customer within a defined metropolitan area for the term of the agreement. C&H is assessing whether this exclusivity restriction could limit Northgate's post-merger operations or conflict with any of Northgate's existing customer relationships in the region. We will provide a more detailed analysis upon completion of our review.
IV. INDEBTEDNESS AND LIENS
IV.A. Existing Credit Facility — Elkhorn Capital Markets, LLC
As discussed in Section III.B.1 above, Cascadia is the borrower under a Term Loan Credit Agreement with Elkhorn Capital Markets, LLC, as lender and administrative agent. The outstanding principal balance as of the date of this Report is $82,600,000, bearing interest at SOFR + 3.75%. The term loan is secured by a first priority lien on substantially all of the assets of Cascadia, including its fiber network infrastructure, accounts receivable, intellectual property, and equipment.
The change of control provision in the Elkhorn Credit Agreement requires mandatory prepayment of the full outstanding principal balance, together with a 1.0% prepayment premium ($826,000) and all accrued and unpaid interest, upon a change of control of the Company. The forward merger constitutes a change of control under the Elkhorn Credit Agreement, and accordingly, the full payoff of the Elkhorn facility must be completed at or prior to the Effective Time.
As noted above, Elkhorn Capital Markets, LLC is also a participant in the acquisition financing syndicate being arranged by Pinnacle Atlantic Bank, N.A., with a commitment of $75,000,000. The simultaneous payoff of the existing facility and closing of the new acquisition facility should be coordinated to ensure seamless transition. C&H will work with counsel to Pinnacle Atlantic Bank, N.A. (Bridwell & Carswell LLP) on the payoff and lien release mechanics.
IV.B. Capital Leases
Cascadia has approximately $12,300,000 in outstanding capital lease obligations for fiber optic equipment, including DWDM (Dense Wavelength Division Multiplexing) systems, optical amplifiers, fiber test equipment, and network switching and routing hardware. The capital leases are held with three equipment lessors:
C&H is reviewing each capital lease agreement for change of control or assignment provisions. Preliminary review indicates that the Alpine Equipment Finance lease contains an assignment clause requiring the lessor's consent for any assignment or change of control of the lessee, with consent not to be unreasonably withheld. The WestPoint Leasing and Cascade Capital Solutions leases do not appear to contain change of control triggers, but C&H is confirming this through a detailed review of the full agreements. C&H will update this section upon completion of the review.
IV.C. UCC and Lien Searches
C&H has conducted Uniform Commercial Code searches in the following jurisdictions:
(a) Delaware — state of incorporation (search of Delaware Secretary of State records);
(b) Oregon — principal place of business and primary operations (search of Oregon Secretary of State records);
(c) Washington — state of operations (search of Washington Secretary of State records);
(d) Idaho — state of operations (search of Idaho Secretary of State records); and
(e) Nevada — state of operations (search of Nevada Secretary of State records).
The UCC search results revealed the following filings:
No other UCC filings, federal tax liens, state tax liens, or judgment liens were identified in any of the searched jurisdictions. The Elkhorn UCC-1 filing covers "all assets" of the Company and must be terminated in connection with the closing and payoff of the Elkhorn term loan. The equipment finance UCC-1 filings are limited to the specific equipment described in the respective lease schedules and will remain in place to the extent the underlying capital leases continue post-closing.
Recommendation: C&H recommends that UCC-3 termination statements be prepared in advance for the Elkhorn filing and held in escrow for filing immediately upon closing and payoff. The equipment finance UCC filings should be confirmed as being limited to their respective equipment schedules and should be disclosed in the Merger Agreement's representations regarding liens and encumbrances.
IV.D. Guarantees and Contingent Liabilities
Based on our review of the documents provided in the VDR and the representations of Ms. Whitfield, Cascadia has not issued any guarantees, letters of credit, surety bonds, or other contingent obligations, other than the following:
(a) A $250,000 irrevocable standby letter of credit issued by Cascadia's depository bank, Columbia Gorge National Bank, in favor of the landlord of Cascadia's headquarters lease at 2750 NW Thurman Street, Suite 400, Portland, Oregon, as security for the Company's lease obligations. The letter of credit is scheduled to reduce to $125,000 upon the fifth anniversary of the lease commencement date (September 1, 2025) and will remain outstanding for the balance of the lease term.
(b) Standard performance bonds posted in connection with certain municipal franchise agreements and rights-of-way permits. The aggregate amount of outstanding performance bonds is approximately $1,200,000. C&H is reviewing the specific terms and conditions of the bonds to determine whether any require consent, replacement, or other action in connection with the change of control.
C&H has not identified any other guarantees, letters of credit, or contingent liabilities that are material to the Transaction. The letter of credit and performance bonds should be disclosed in the Merger Agreement's representations and included in the appropriate disclosure schedules.
Total Estimated Indebtedness at Closing. A summary of Cascadia's total estimated indebtedness at closing is as follows:
A detailed summary of existing indebtedness is attached as Appendix E.
V. REGULATORY AND GOVERNMENTAL MATTERS
V.A. FCC Licenses and Authorizations
Cascadia holds an international Section 214 authorization from the Federal Communications Commission (the "FCC"), File No. ITC-214-20140318-00092, which authorizes Cascadia to provide international telecommunications services as a facilities-based and resale carrier. This authorization was granted on April 25, 2014, and has been maintained in good standing through the timely filing of annual reports and renewal applications.
Under Section 214 of the Communications Act of 1934, as amended, and the FCC's rules and regulations (47 C.F.R. Part 63), the transfer of control of an entity holding an international Section 214 authorization requires prior FCC approval. The forward merger constitutes a transfer of control because Cascadia's existing stockholders will transfer their control of the Company to Northgate. Accordingly, Northgate and Cascadia must file an application for consent to the transfer of control (an "International 214 Transfer of Control Application") with the FCC's International Bureau.
Filing Timeline and Process. C&H recommends that the FCC application be filed within 15 business days of the execution of the Merger Agreement, with a target filing date of approximately April 28, 2025. The standard FCC processing timeline for international 214 transfer of control applications is as follows:
(a) Public Notice Period: Upon acceptance of the application, the FCC issues a public notice and opens a 30-day comment period during which interested parties may file comments or petitions to deny.
(b) Review Period: Following the close of the comment period, the International Bureau reviews the application, taking into account any comments received, and either grants the application, requests additional information (via a "stop the clock" letter), or designates the application for hearing (rare in uncontested cases).
(c) Total Processing Time: Typically 90 to 180 days from filing to grant, depending on the complexity of the application, whether comments are filed, and whether the FCC requests supplemental information.
Foreign Ownership Considerations. Because Northgate is a public limited company organized under the laws of England and Wales with its principal offices in London, the Transaction involves the acquisition of a U.S. telecommunications carrier by a foreign entity. The FCC reviews foreign ownership of U.S. telecommunications carriers under Section 310(b) of the Communications Act. Specifically, Section 310(b)(4) provides that no common carrier radio license may be held by an entity more than 25% of whose capital stock is owned or voted by foreign nationals, foreign governments, or entities organized under foreign laws, unless the FCC finds that the public interest would be served by permitting such foreign ownership.
While Section 310(b)(4) applies directly to radio licenses rather than international 214 authorizations, the FCC has historically applied a parallel public interest analysis to foreign ownership of international 214 carriers, particularly in the context of transfer of control applications. The FCC's review considers factors including the regulatory framework of the foreign acquirer's home country, the potential for anticompetitive harm, and national security concerns.
We note that the United Kingdom benefits from a generally favorable regulatory environment from the FCC's perspective. The UK has been identified by the FCC as a country with an open telecommunications market and a robust regulatory framework (administered by Ofcom), and FCC precedent reflects a consistent pattern of approving transactions involving UK-domiciled acquirers. We do not anticipate that the foreign ownership analysis will present a significant obstacle to FCC approval of the Transaction.
Additionally, the FCC may coordinate its review with the Executive Branch agencies responsible for national security and law enforcement review of foreign investment in U.S. telecommunications (historically referred to as "Team Telecom," now the Committee for the Assessment of Foreign Participation in the United States Telecommunications Services Sector). The Team Telecom review may overlap with the CFIUS review discussed in Section V.D below. C&H recommends that Northgate engage proactively with both the FCC and the Executive Branch to facilitate a timely and coordinated review.
Risk Assessment: MEDIUM. The FCC approval process is a standard regulatory requirement and no significant impediments to approval are anticipated. However, the processing timeline of 90 to 180 days makes the FCC approval a critical path item for the Transaction. Delays in FCC processing could extend the time between signing and closing and could, in a worst-case scenario, create pressure against the outside date.
Recommendation: C&H recommends the following:
(a) Begin preparation of the FCC application in advance of signing, in coordination with Aaron Whitmore, WKB's regulatory counsel, who has been designated as the lead regulatory advisor for the Transaction;
(b) File the FCC application within 15 business days of signing (target: April 28, 2025);
(c) Prepare and file parallel requests for any associated FCC authorizations or registrations that require transfer of control approval;
(d) Engage proactively with the FCC's International Bureau and with Team Telecom to facilitate efficient processing; and
(e) Monitor the public comment period and be prepared to respond promptly to any comments or petitions to deny.
V.B. State PUC Certifications
Cascadia holds public utility commission or equivalent regulatory certifications in the four states in which it operates fiber network infrastructure:
The requirements for state PUC approvals vary by jurisdiction and are generally less rigorous than the FCC approval process. However, the cumulative timeline for obtaining all four state approvals or completing all required notifications may extend the overall regulatory timeline. Oregon and Washington are the most significant states in terms of Cascadia's operations and revenue, and their PUC processes tend to be more involved than those of Idaho and Nevada.
Recommendation: C&H recommends that template notification and application letters be prepared for each state PUC, tailored to the specific requirements of each jurisdiction. Cascadia should identify and engage local regulatory counsel in each state to assist with the filing process. C&H will coordinate with WKB (Aaron Whitmore) on the preparation and filing of state PUC applications and notifications. The target filing date for state PUC applications should coincide with or closely follow the filing of the FCC application.
V.C. HSR Act — Antitrust
The Transaction is subject to the pre-merger notification requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), and the rules and regulations promulgated thereunder. Both the size-of-transaction and size-of-person thresholds are satisfied: