PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGE / ATTORNEY WORK PRODUCT
INSURANCE DUE DILIGENCE MEMORANDUM
NovaMart Global Inc.
April 2025
CALDERWOOD & HARKNESS LLP 599 Lexington Avenue, 38th Floor New York, NY 10022
Prepared by: Tiffany Rosenthal, Associate, Calderwood & Harkness LLP
Reviewed by: Derek Okonkwo, Lead Associate, Calderwood & Harkness LLP; Harrison Wexford, Responsible Partner, Calderwood & Harkness LLP
Diligence Period: Commenced February 18, 2025 (pre-signing diligence period)
This memorandum was prepared by Calderwood & Harkness LLP ("C&H") at the request of and for the exclusive use of Cascade Retail Holdings Inc. ("Cascade" or "CRH") and its authorized representatives in connection with Cascade's proposed acquisition of NovaMart Global Inc. This memorandum is protected by the attorney-client privilege and constitutes attorney work product. It is not intended for distribution to, or reliance by, any third party without the prior written consent of Cascade and C&H. The analyses, conclusions, and recommendations herein are based on the documents and information made available to C&H as of the date of this memorandum, and are subject to the assumptions, qualifications, and limitations set forth herein.
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I. EXECUTIVE SUMMARY
This Insurance Due Diligence Memorandum has been prepared by Calderwood & Harkness LLP in connection with the proposed acquisition by Cascade Retail Holdings Inc. ("Cascade" or "CRH") of 100% of the outstanding capital stock of NovaMart Global Inc. ("NovaMart" or the "Company"), a Delaware corporation headquartered at 1100 Congress Avenue, Suite 800, Austin, TX 78701, for an aggregate purchase price of $1,200,000,000 (the "Transaction"). The purpose of this memorandum is to summarize and analyze the existing insurance program maintained by NovaMart, identify any material gaps or deficiencies in coverage, assess the implications of the Transaction (including change of control provisions) on NovaMart's existing policies, and provide recommendations regarding post-closing coverage needs to ensure that Cascade and NovaMart are adequately protected following consummation of the Transaction.
Our review was conducted based on insurance policies, binders, certificates of insurance, loss run reports, broker correspondence, and related documents produced by NovaMart in the virtual data room ("VDR") maintained by Crestline Solutions under Project Constellation, supplemented by direct responses from NovaMart's General Counsel, Amanda Trevino, and its Chief Financial Officer, Douglas "Doug" Whitfield, to specific follow-up diligence inquiries submitted by C&H. All documents reviewed are listed in Section II below, and the key policies and their terms are summarized in the schedule of policies attached hereto as Appendix A.
By way of background, NovaMart operates an online marketplace platform that connects buyers and sellers of consumer and commercial goods. As of the date of this memorandum, the Company has approximately 2,400 employees across its Austin, Texas headquarters and 14 fulfillment centers located in nine states: California (3 facilities), New Jersey (2 facilities), Georgia (2 facilities), Ohio (1 facility), Illinois (1 facility), Pennsylvania (1 facility), Tennessee (1 facility), Florida (2 facilities), and Washington (1 facility). For the fiscal year ended December 31, 2024 ("FY2024"), NovaMart reported revenue of approximately $891 million and gross merchandise volume ("GMV") of approximately $6.2 billion. The Company's platform serves approximately 9.1 million registered buyers and approximately 62,400 active sellers. In addition to its core marketplace operations, NovaMart operates NovaShip, a proprietary logistics software-as-a-service ("SaaS") platform that provides fulfillment and shipping management services to sellers on the marketplace and, increasingly, to third-party logistics customers.
Overview Finding. Based on our review, NovaMart maintains a generally adequate insurance program for a privately held company of its size and in its industry. The Company's insurance program covers the principal lines of coverage one would expect — commercial general liability, property, umbrella/excess liability, directors' and officers' liability, errors and omissions/technology professional liability, cyber liability/data breach, workers' compensation and employers' liability, commercial auto, employment practices liability, fiduciary liability, and crime/fidelity. The Company's claims history is generally favorable, with an experience modification rate of 0.92, no claims penetrating its umbrella layer, and no D&O claims in the past five years.
Notwithstanding the foregoing, our review has identified several coverage gaps and adequacy issues, as well as a number of action items that must be addressed at or prior to closing. The key areas requiring attention are as follows:
(a) D&O Tail Coverage. The closing of the Transaction will constitute a change of control under NovaMart's existing directors' and officers' liability insurance policy, automatically triggering conversion to run-off mode. A six-year tail policy must be bound at or prior to closing at an estimated premium of $1,800,000 to protect NovaMart's pre-closing directors and officers against claims arising from pre-closing wrongful acts.
(b) Change of Control Implications Under Existing Policies. Several of NovaMart's existing policies contain change of control provisions, assignment restrictions, or notice requirements that will be triggered by the Transaction. Carrier consent or new policy issuance may be required for certain lines, including the E&O/technology professional liability, cyber liability, and EPLI policies, to ensure continuity of coverage post-closing.
(c) Representations and Warranties Insurance Coordination. Cascade is in the process of placing a representations and warranties insurance ("R&W") policy with Meridian Specialty Insurance Company, with a policy limit of $216,000,000 and a self-insured retention of $12,000,000. This placement must be finalized and bound at closing in coordination with the SPA indemnification provisions and the escrow arrangement.
(d) Adequacy of Cyber Coverage. Given NovaMart's handling of data for 9.1 million registered buyers and 62,400 active sellers, and its integration with PayStream Financial Technologies Inc. for payment processing, the Company's current $15,000,000 cyber liability limit appears insufficient. Industry benchmarks for companies with comparable data exposure suggest $25,000,000 to $50,000,000 in cyber coverage is more appropriate. This is a priority area for post-closing enhancement.
(e) Transition and Replacement of Policies Post-Closing. Following the closing, NovaMart's operations, employees, vehicle fleet, and facilities will need to be integrated into Cascade's existing insurance program at the earliest practicable date or upon renewal of NovaMart's current policies. A comprehensive post-closing insurance integration plan should be developed in coordination with Cascade's risk management team and insurance broker.
Each of these items is discussed in greater detail in the sections that follow.
II. METHODOLOGY AND SOURCES REVIEWED
A. Documents Reviewed
In conducting this insurance due diligence review, C&H reviewed the following documents and materials, all of which were produced by NovaMart in the VDR or provided directly by NovaMart's management in response to C&H's diligence requests:
1. Insurance program summary prepared by NovaMart management (VDR Folder 9.1, dated January 2025).
2. All current policy declarations pages and endorsements for each line of coverage, including but not limited to commercial general liability, property, umbrella/excess liability, directors' and officers' liability, errors and omissions/technology professional liability, cyber liability/data breach, workers' compensation and employers' liability, commercial auto, employment practices liability, fiduciary liability, and crime/fidelity (VDR Folder 9.2).
3. Certificates of insurance for all lines of coverage, including certificates issued to landlords, contractual counterparties, and other additional insureds (VDR Folder 9.3).
4. Loss run reports for each line of coverage for the three fiscal years ended December 31, 2022 through December 31, 2024 ("FY2022," "FY2023," and "FY2024," respectively) (VDR Folder 9.4).
5. Broker-of-record letters and correspondence between NovaMart and its insurance broker, Whitaker & Strand Insurance Brokers Inc. (VDR Folder 9.5).
6. Claims files for all open claims and recently closed claims (i.e., claims closed within the 24 months preceding the commencement of diligence), including adjuster reports, settlement agreements, and reserve summaries (VDR Folder 9.6).
7. Insurance-related sections of NovaMart's disclosure schedules to the Stock Purchase Agreement (drafts dated March 2025), including Schedule 4.15 (Insurance) and Schedule 4.11 (Litigation) (VDR Folder 2.4).
8. Material contracts reviewed for insurance requirements, including lease agreements for all 14 fulfillment centers and the Austin headquarters, the Logistics Partnership Agreement with Redline Freight Corp., the Master Services Agreement with Pinnacle Cloud Solutions Inc., and the Payment Processing Agreement with PayStream Financial Technologies Inc. (cross-reference to Material Contracts Due Diligence Memorandum prepared by C&H) (VDR Folders 3.1–3.8).
9. NovaMart's internal risk management policies and procedures documentation (VDR Folder 9.7).
10. Historical premium invoices and payment records for all lines of coverage for FY2022–FY2024 (VDR Folder 9.8).
B. Interviews and Discussions
In addition to reviewing the foregoing documents, C&H conducted the following interviews and discussions in connection with this insurance due diligence review:
1. Amanda Trevino, General Counsel, NovaMart Global Inc. — C&H conducted telephone interviews with Ms. Trevino on March 4, 2025 and March 19, 2025 regarding NovaMart's claims history, coverage decisions, known or anticipated claims, and the Company's general approach to risk management and insurance procurement. Ms. Trevino also provided written responses to C&H's supplemental insurance diligence questionnaire on March 12, 2025.
2. Douglas "Doug" Whitfield, Chief Financial Officer, NovaMart Global Inc. — C&H participated in a joint call with Ms. Trevino and Mr. Whitfield on March 19, 2025, during which Mr. Whitfield addressed questions regarding insurance premium costs, total insured values, business interruption coverage adequacy, and the Company's historical insurance expenditures as a percentage of revenue.
3. Thomas Ellingsen, Senior Vice President, Northbridge Risk Advisors LLC — C&H coordinated with Mr. Ellingsen, who serves as Cascade's representations and warranties insurance broker, regarding the R&W insurance placement with Meridian Specialty Insurance Company, the underwriting process, the scope of coverage and exclusions, and post-closing insurance integration considerations. C&H participated in calls with Mr. Ellingsen on February 26, 2025, March 14, 2025, and March 28, 2025.
4. Sandra Chiu, Whitmore & Paige LLP — C&H coordinated with Ms. Chiu of Whitmore & Paige LLP, Cascade's financial due diligence advisors, on insurance-related financial diligence items, including premium cost analysis, loss ratio trends, and the treatment of insurance recoveries in NovaMart's financial statements.
C. Limitations and Qualifications
This memorandum is based on the documents and information made available to C&H as of the date hereof. C&H has not independently verified the accuracy or completeness of any information provided by NovaMart, its management, or its advisors. Our review of NovaMart's insurance policies was conducted by reviewing the declarations pages, schedules, and key endorsements; full policy manuscript forms were reviewed for the D&O, E&O, and cyber liability policies but were not available for all lines. C&H is not an insurance broker or risk management consultant, and the coverage assessments and recommendations herein are based on our legal analysis and experience with similar transactions rather than on actuarial or underwriting analysis. Cascade should consult with its own insurance broker and risk management advisors regarding the specific coverage terms, pricing, and placement of post-closing insurance.
III. SUMMARY OF NOVAMART'S EXISTING INSURANCE PROGRAM
Set forth below is a summary of each line of coverage maintained by NovaMart, including key policy terms, claims history, and our assessment of coverage adequacy. A tabular summary of all policies is attached as Appendix A.
A. Commercial General Liability (CGL)
Coverage Highlights. NovaMart's CGL policy provides occurrence-based coverage for bodily injury, property damage, products/completed operations, and personal and advertising injury arising out of NovaMart's business operations. The policy covers operations at all 14 fulfillment centers and NovaMart's Austin, Texas headquarters. Coverage is written on a standard ISO CG 00 01 form with various endorsements described below. The products/completed operations aggregate is $10,000,000 (shared with the general aggregate). The policy includes standard coverage for premises and operations liability, which is particularly relevant given the physical operations at NovaMart's fulfillment centers where employees handle, package, and ship consumer goods.
Named Insured. The named insured is NovaMart Global Inc. and all subsidiaries as defined in the policy. Based on our review, this includes NovaMart Fulfillment Services LLC, NovaShip Technologies Inc., and NovaMart Payment Solutions LLC, each of which is a wholly owned subsidiary of NovaMart Global Inc.
Additional Insureds. The policy includes a blanket additional insured endorsement for landlords as required by lease agreements. Based on our review of the certificates of insurance on file, the following entities are named as additional insureds under the CGL policy:
• Congress Tower Partners LP (landlord for Austin headquarters, 1100 Congress Avenue, Suite 800, Austin, TX 78701)
• Prologis Logistics Properties LLC (landlord for CA fulfillment centers in Ontario, Stockton, and Hayward)
• Liberty Industrial Realty Trust (landlord for NJ fulfillment centers in Edison and Cranbury)
• Peachtree Distribution Holdings LLC (landlord for GA fulfillment centers in Savannah and McDonough)
• Various additional landlords for OH, IL, PA, TN, FL, and WA fulfillment centers (as listed in Appendix A)
Key Endorsements. In addition to the blanket additional insured endorsement for landlords, the policy includes the following notable endorsements: (i) waiver of subrogation endorsements as required by NovaMart's lease agreements; (ii) primary and non-contributory endorsement for the benefit of additional insureds; (iii) contractual liability coverage for insured contracts; and (iv) a standard exclusion for professional services (covered under the E&O policy discussed in Section III.E below).
Claims History. NovaMart's CGL claims experience over the three-year review period (FY2022–FY2024) is favorable. A total of two bodily injury claims were reported during this period, both arising from incidents at NovaMart fulfillment centers:
1. FY2023 — NJ Fulfillment Center (Edison). A third-party delivery driver alleged a slip-and-fall injury in the loading dock area. The claim was reported to the carrier and resolved for approximately $42,000 in medical expenses and lost wages. The claim was resolved below the $100,000 per-occurrence deductible and is closed.
2. FY2024 — GA Fulfillment Center (McDonough). A visitor to the fulfillment center alleged a trip-and-fall injury in the facility parking lot. The claim was reported and is currently being evaluated; initial reserves are approximately $28,000. NovaMart management expects this claim to resolve below the deductible.
No claims for property damage, products liability, or personal and advertising injury have been reported under the CGL policy during the review period. There are no material pending claims under this policy.
Adequacy Assessment. The $5,000,000 per occurrence / $10,000,000 aggregate CGL limits appear reasonable for NovaMart's operations. While NovaMart operates 14 fulfillment centers with significant foot traffic and physical operations, the Company's primary business is as a technology-enabled marketplace platform rather than a traditional retailer or manufacturer, and its products liability exposure is somewhat limited by virtue of the fact that NovaMart does not manufacture or take title to most goods sold on its platform (sellers ship directly or through NovaMart's fulfillment services). The $100,000 per-occurrence deductible is standard for a company of this size. Post-closing, C&H recommends that Cascade evaluate whether NovaMart's CGL coverage should be absorbed into Cascade's own CGL program, or whether the umbrella/excess liability tower maintained by Cascade (discussed in Section III.C) will provide adequate excess coverage above NovaMart's primary CGL layer.
B. Property Insurance
Coverage Highlights. NovaMart's property insurance policy provides all-risk (special form) coverage for NovaMart-owned personal property, including inventory held in fulfillment centers on behalf of sellers, equipment (warehouse automation systems, conveyor systems, scanning and sorting equipment), fixtures, furniture, and tenant improvements at all NovaMart locations. The policy also provides business interruption coverage with a 12-month indemnity period, designed to cover lost income and continuing expenses in the event of a covered property loss that disrupts NovaMart's operations.
It is important to note that NovaMart does not own any real property. All 14 fulfillment centers and the Austin headquarters are leased. Under the terms of NovaMart's lease agreements, the respective landlords are generally responsible for maintaining property insurance on the building structures themselves, while NovaMart is required to maintain property insurance on its tenant improvements, equipment, and contents at each location. Our review of the lease agreements confirms that NovaMart's property insurance coverage satisfies the minimum requirements set forth in each lease.
Named Locations. The policy schedules the following named locations:
1. Austin, TX — Headquarters (1100 Congress Avenue, Suite 800)
2. Ontario, CA — Fulfillment Center
3. Stockton, CA — Fulfillment Center
4. Hayward, CA — Fulfillment Center
5. Edison, NJ — Fulfillment Center
6. Cranbury, NJ — Fulfillment Center
7. Savannah, GA — Fulfillment Center
8. McDonough, GA — Fulfillment Center
9. Columbus, OH — Fulfillment Center
10. Romeoville, IL — Fulfillment Center
11. Carlisle, PA — Fulfillment Center
12. Lebanon, TN — Fulfillment Center
13. Jacksonville, FL — Fulfillment Center
14. Tampa, FL — Fulfillment Center
15. Kent, WA — Fulfillment Center
Sublimits. The policy contains certain sublimits for specific perils, including: (i) $10,000,000 for flood; (ii) $10,000,000 for earthquake (applicable primarily to the three California fulfillment centers); (iii) $5,000,000 for equipment breakdown/mechanical failure; and (iv) $2,500,000 for transit coverage (goods in transit between fulfillment centers). The windstorm/hail deductible is elevated to $500,000 per occurrence at the two Florida fulfillment centers (Jacksonville and Tampa), reflecting the higher windstorm risk in those locations.
Claims History. NovaMart reported one significant property claim during the three-year review period:
FY2023 — NJ Fulfillment Center (Edison). In August 2023, the Edison, NJ fulfillment center experienced significant water damage caused by a burst fire suppression sprinkler line, which resulted in damage to warehouse inventory, automated sorting equipment, and tenant improvements. NovaMart submitted a property claim to Highland Property & Casualty Insurance Co. The total claim amount was approximately $1,800,000, consisting of approximately $1,100,000 in inventory damage, approximately $450,000 in equipment repair and replacement costs, and approximately $250,000 in tenant improvement restoration costs. The claim was paid in full (net of the $250,000 deductible) and is now closed. NovaMart also submitted a business interruption component of the claim, but the actual downtime was limited to approximately 72 hours due to the Company's ability to reroute fulfillment to the Cranbury, NJ facility, and the business interruption recovery was minimal (approximately $35,000).
No other property claims were reported during the review period, and there are no open property claims.
Adequacy Assessment. The total insured value of approximately $320,000,000 appears reasonable based on our cross-reference to NovaMart's asset schedules and the inventory valuation data reviewed by Whitmore & Paige LLP in connection with the financial due diligence. We note that a significant portion of the insured value relates to inventory held at fulfillment centers on behalf of NovaMart's sellers; the valuation methodology for such inventory should be confirmed with NovaMart's finance team. The 12-month business interruption indemnity period is standard, though post-closing it should be evaluated in the context of Cascade's broader supply chain and revenue exposure, particularly given the potential for NovaMart's fulfillment operations to become integrated with Cascade's own distribution network. The elevated windstorm/hail deductible at the Florida facilities is a common market feature and is not a cause for concern, though Cascade should be aware of this additional deductible exposure.
C. Umbrella / Excess Liability
Coverage Highlights. NovaMart's umbrella liability policy is written on a follow-form basis, meaning that it follows the terms, conditions, and exclusions of the underlying policies (CGL, commercial auto, and employers' liability) and provides excess coverage above the limits of those underlying policies. The policy requires that underlying limits be maintained at the scheduled amounts (i.e., $5,000,000/$10,000,000 CGL; $2,000,000 auto; $1,000,000/$1,000,000/$1,000,000 employers' liability).
The umbrella policy also provides drop-down coverage in the event that an underlying policy's aggregate is exhausted, subject to the umbrella's own terms. Coverage is on an occurrence basis, consistent with the underlying policies.
Claims History. No claims have penetrated the umbrella layer during the three-year review period (FY2022–FY2024). All CGL, auto, and employers' liability claims during the review period were resolved within the limits of the underlying primary policies.
Adequacy Assessment. While a $25,000,000 umbrella limit is not uncommon for a mid-market privately held company, C&H notes that NovaMart's scale of operations — $6.2 billion in GMV, 9.1 million registered buyers, 14 fulfillment centers, and approximately 2,400 employees — may warrant higher excess liability limits, particularly in the post-closing environment when NovaMart's operations will be combined with Cascade's. The risk of a catastrophic bodily injury or property damage claim at one of NovaMart's fulfillment centers, or a significant advertising injury or products liability claim arising from the marketplace platform, cannot be discounted. C&H recommends that Cascade evaluate whether its own existing excess liability tower (which, based on publicly available information, provides in excess of $100,000,000 in umbrella/excess coverage) will be extended to cover NovaMart's operations post-closing, or whether higher stand-alone limits for NovaMart are warranted during any transition period between closing and full integration into Cascade's program.
D. Directors & Officers (D&O) Liability Insurance
Coverage Highlights. NovaMart's D&O liability insurance policy provides claims-made coverage for directors, officers, and the Company itself against claims alleging wrongful acts in their capacity as directors and officers. The policy is structured with the following insuring agreements:
• Side A (Individual D&O Coverage — Non-Indemnifiable Loss): Covers individual directors and officers for loss arising from claims for wrongful acts where NovaMart is unable or unwilling to indemnify such individuals. There is no retention applicable to Side A coverage.
• Side B (Corporate Reimbursement): Reimburses NovaMart for amounts the Company pays to indemnify its directors and officers for covered claims. The $500,000 entity retention applies to Side B claims.
• Side C (Entity Securities Claims): Provides coverage to the Company itself for securities claims. Given that NovaMart is a privately held company and does not have publicly traded securities, the Side C coverage is of limited applicability, though it would respond to claims alleging securities law violations in connection with private placements, stockholder disputes, or similar matters. The $500,000 entity retention applies to Side C claims.
Named Insured. The named insured is NovaMart Global Inc. Insured persons include all past and present directors and officers of the Company and its subsidiaries, as defined in the policy.
Key Considerations — Change of Control and D&O Tail Policy.
The Transaction will constitute a "Change of Control" as defined in the D&O policy. Under the policy's change of control provision, upon the effective date of the change of control, the policy period is deemed to have ended, and the policy automatically converts to a run-off basis covering only claims made after the closing for wrongful acts occurring prior to the closing. Critically, the policy will not provide go-forward coverage for wrongful acts occurring after the closing. This is a standard provision in D&O policies and is well-understood by the parties.
To protect NovaMart's pre-closing directors and officers, the Stock Purchase Agreement ("SPA") between Cascade and the Selling Stockholders contains a covenant requiring Cascade to cause NovaMart to obtain, or for Cascade itself to obtain, a six-year "tail" or "run-off" D&O liability insurance policy for the benefit of NovaMart's pre-closing directors and officers. This tail policy obligation is set forth in Section 7.05(b) of the SPA and is a condition to the Selling Stockholders' obligation to close the Transaction.
C&H has confirmed with Sovereign Assurance Group Ltd. (the same carrier that underwrites NovaMart's existing D&O policy) that a six-year tail policy is available on terms substantially consistent with the existing coverage. The key terms of the proposed tail policy are as follows:
• Carrier: Sovereign Assurance Group Ltd.
• Tail Period: Six (6) years from the closing date
• Limits: $10,000,000 per claim / $10,000,000 aggregate (same as existing policy)
• Coverage: Claims made during the six-year tail period for wrongful acts by NovaMart's pre-closing directors and officers occurring prior to the closing date
• Estimated Tail Premium: $1,800,000 (payable in a lump sum at binding)
• Cost Allocation: The $1,800,000 tail premium is a Cascade-side transaction cost, included in the estimated $47,300,000 total transaction costs for the Transaction
The tail policy must be bound at or prior to the closing of the Transaction. C&H recommends that Cascade authorize the binding of the tail policy promptly upon signing of the SPA to avoid any risk of the carrier declining to offer the tail on the quoted terms or the premium increasing between signing and closing.
Post-closing, any new directors and officers of NovaMart appointed by Cascade will be covered under Cascade's own D&O liability insurance program. No separate go-forward D&O policy for NovaMart will be necessary.
Claims History. No D&O claims have been filed against NovaMart or any of its directors or officers in the past five years. No pending or threatened D&O claims were identified in our litigation due diligence review (cross-reference: Litigation and Regulatory Due Diligence Memorandum). Amanda Trevino confirmed in her March 12, 2025 responses that she is not aware of any circumstances that could reasonably be expected to give rise to a D&O claim.
Adequacy Assessment. The $10,000,000 per claim / $10,000,000 aggregate D&O limit is on the lower end of the range for a company of NovaMart's size (approximately $891 million in revenue and $1.2 billion transaction valuation). However, this limit is generally appropriate given NovaMart's status as a privately held company without publicly traded securities, which significantly reduces the Company's exposure to securities class action litigation. The clean five-year claims history further supports the adequacy of the existing limit. The proposed six-year tail policy at the same $10,000,000 limit is assessed as sufficient for the run-off period, particularly given the additional protection provided by the indemnification provisions in the SPA (including the $96,000,000 escrow and the Selling Stockholders' direct indemnification obligations) and the absence of any known or anticipated claims.
E. Errors & Omissions (E&O) / Technology Professional Liability
Coverage Highlights. NovaMart's E&O / technology professional liability policy provides claims-made coverage for liability arising from the Company's professional services and technology operations. The policy covers the following categories of exposure:
• Professional services liability (errors, omissions, and negligent acts in the performance of professional or technology services)
• Technology errors and omissions (failure of technology products or services, including software bugs, platform outages, and data processing errors)
• Failure to perform or inadequate performance of services provided through the NovaMart marketplace platform and the NovaShip logistics SaaS platform
• intellectual property infringement defense (limited to defense costs for third-party claims alleging that NovaMart's technology or services infringe the intellectual property rights of others; this coverage is subject to certain exclusions and limitations)
• Media liability (limited coverage for claims arising from content displayed on the NovaMart platform)
Scope. The policy's insuring agreement is broadly drafted to cover NovaMart's core marketplace platform operations, including the matching of buyers and sellers, payment facilitation, dispute resolution services, seller analytics and reporting tools, and the NovaShip logistics SaaS services. The policy also covers NovaMart's technology licensing activities, including the licensing of certain proprietary software tools to third parties and the Arcwave Software LLC technology license relationship (pursuant to which NovaMart licenses certain search algorithm and recommendation engine technology from Arcwave).
Claims History. Two E&O claims have been reported during the three-year review period:
1. FY2023 — Seller Platform Malfunction Claim. A seller on the NovaMart marketplace filed a claim alleging that a platform malfunction caused the seller's product listings to be incorrectly de-listed for a period of approximately 11 days during the Q4 2023 holiday shopping season, resulting in alleged lost sales. The claim was reported to Apex Professional Lines Insurance Co. and was settled by NovaMart for approximately $175,000. Because the settlement amount was below the $250,000 per-claim retention, the carrier did not fund any portion of the settlement. The claim is closed.
2. FY2024 — IP Infringement Claim (Pending). In Q4 FY2024, a third-party software company, DataLens Analytics Inc., asserted a claim against NovaMart alleging that certain aspects of NovaMart's proprietary search algorithm and product recommendation engine infringe one or more of DataLens's patents. The claim was reported to Apex Professional Lines Insurance Co. and is currently being evaluated by the carrier. NovaMart's outside litigation counsel has reserved the matter at approximately $400,000 (inclusive of estimated defense costs and potential settlement exposure). The matter is ongoing and is being actively defended. Cross-reference: Litigation and Regulatory Due Diligence Memorandum for a detailed discussion of this pending claim, including an assessment of the merits and potential exposure.
Adequacy Assessment. The $10,000,000 per claim / $10,000,000 aggregate E&O limit is on the low end of the range for a technology-enabled marketplace platform of NovaMart's scale. With $6.2 billion in GMV transacted through the platform, 9.1 million registered buyers, and 62,400 active sellers relying on the platform for their businesses, the potential exposure from a significant platform outage, data processing error, or technology failure is substantial. Moreover, the NovaShip logistics SaaS platform, which is increasingly being offered to third-party logistics customers outside the NovaMart marketplace, represents a growing area of professional liability exposure that could generate claims from both NovaMart marketplace sellers and external SaaS customers.
C&H recommends that Cascade evaluate increasing E&O limits post-closing to at least $20,000,000 to $25,000,000, particularly in light of the NovaShip SaaS exposure and the ongoing relationship with Arcwave Software LLC (whose licensed technology is embedded in NovaMart's core platform functionality). The pending IP infringement claim from DataLens Analytics Inc. further underscores the importance of maintaining robust E&O/technology professional liability coverage.
F. Cyber Liability / Data Breach Insurance
Coverage Highlights. NovaMart's cyber liability / data breach insurance policy provides both first-party and third-party coverage for losses arising from cyber incidents, data breaches, and related events. The policy includes the following coverage components:
First-Party Coverages:
• Breach response costs (forensic investigation, legal counsel, public relations)
• Notification costs (consumer and regulatory notification)
• Credit monitoring and identity theft protection services for affected individuals
• Business interruption from a qualifying cyber event (including loss of income and extra expenses during a period of restoration)
• Data restoration costs (recovery and reconstruction of electronic data)
• Cyber extortion / ransomware (subject to a $5,000,000 sublimit)
Third-Party Coverages:
• Regulatory defense and penalties (coverage for defense costs and, where insurable, civil fines and penalties imposed by regulatory authorities in connection with a data breach or privacy violation)
• Privacy liability (claims by individuals or classes of individuals alleging unauthorized disclosure of personally identifiable information or protected health information)
• Media liability (claims arising from digital media content)
Key Sublimits. The policy contains the following sublimits within the $15,000,000 overall limit:
• $5,000,000 sublimit for ransomware / cyber extortion events
• $3,000,000 sublimit for PCI-DSS fines and assessments (relevant given NovaMart's payment processing activities in coordination with PayStream Financial Technologies Inc.)
• $2,000,000 sublimit for social engineering fraud
Scope. The policy covers NovaMart's entire digital ecosystem, including the NovaMart marketplace platform, the NovaShip logistics SaaS platform, NovaMart's internal corporate IT systems, and employee data. The platform processes and stores data for approximately 9.1 million registered buyers (including names, email addresses, shipping addresses, and in some cases payment information) and approximately 62,400 active sellers (including business information, bank account details for payment disbursements, and tax identification numbers). Payment processing on the NovaMart platform is handled in coordination with PayStream Financial Technologies Inc., and NovaMart's systems interface with PayStream's payment gateway. The cyber policy covers NovaMart's liability for data it holds and processes, including data received from or shared with PayStream, though PayStream maintains its own separate cyber liability coverage.
Claims History. One cyber-related incident was reported during the three-year review period:
FY2023 — Internal Employee Database Incident. In June 2023, NovaMart's information security team detected unauthorized access to an internal human resources database containing records for approximately 340 current and former employees. The compromised records included employee names, Social Security numbers, dates of birth, and home addresses. NovaMart engaged an outside forensic investigation firm, which determined that the unauthorized access was the result of a phishing attack that compromised the credentials of an HR department employee. NovaMart notified the affected employees, offered 24 months of complimentary credit monitoring, and reported the incident to applicable state regulators as required by law. Total breach response costs were approximately $85,000, which fell below the $500,000 per-claim retention. Critically, no customer, buyer, or seller data was compromised in the incident, and no regulatory enforcement action was taken. The incident is closed. Cross-reference: Data Privacy and Cybersecurity Due Diligence Memorandum for a detailed discussion of this incident and NovaMart's cybersecurity program.
Adequacy Assessment. C&H has identified NovaMart's cyber liability coverage as a key area of concern and a priority for post-closing enhancement. The current $15,000,000 limit, while not insignificant, may be inadequate given the volume and sensitivity of the consumer and seller data processed by NovaMart. With 9.1 million registered buyers and 62,400 active sellers, a significant data breach affecting even a fraction of NovaMart's user base could result in notification costs, credit monitoring expenses, forensic investigation fees, regulatory fines, class action litigation defense and settlement costs, and business interruption losses that substantially exceed the $15,000,000 policy limit.
Industry benchmarks for technology companies and e-commerce platforms with comparable data exposure (i.e., companies processing data for more than 5 million consumers) suggest that $25,000,000 to $50,000,000 in cyber liability coverage is more appropriate. Several high-profile data breaches at similarly sized e-commerce and marketplace companies in recent years have resulted in total costs well in excess of $50,000,000, including regulatory penalties under state data breach notification laws, the California Consumer Privacy Act ("CCPA"), and (for companies with European operations or users) the General Data Protection Regulation ("GDPR").
Additionally, the $5,000,000 sublimit for ransomware/cyber extortion is low relative to NovaMart's dependence on continuous platform availability. A ransomware attack that takes the NovaMart marketplace offline for an extended period could cause catastrophic revenue loss (NovaMart's average daily GMV is approximately $17 million) and significant reputational harm, and the ransom demands associated with attacks on companies of NovaMart's size and profile have frequently exceeded $5,000,000 in recent years.
C&H recommends that Cascade prioritize increasing NovaMart's cyber coverage limits to at least $25,000,000 (and ideally $50,000,000) post-closing, increasing the ransomware sublimit to at least $10,000,000, and evaluating whether the PCI-DSS sublimit and social engineering sublimit should also be increased. This coverage enhancement should be coordinated with Cascade's existing cyber liability program to avoid gaps or overlapping coverage.
G. Workers' Compensation and Employers' Liability
Coverage Highlights. NovaMart's workers' compensation policy provides statutory workers' compensation benefits to NovaMart employees in all states where NovaMart maintains operations. NovaMart currently employs approximately 2,400 individuals across the following states: Texas (Austin headquarters), California (3 fulfillment centers), New Jersey (2 fulfillment centers), Georgia (2 fulfillment centers), Ohio (1 fulfillment center), Illinois (1 fulfillment center), Pennsylvania (1 fulfillment center), Tennessee (1 fulfillment center), Florida (2 fulfillment centers), and Washington (1 fulfillment center). The policy provides coverage for statutory workers' compensation benefits (medical expenses, lost wages, disability benefits, and death benefits) as required by the laws of each applicable state, as well as employers' liability coverage (Part B) with limits of $1,000,000 per accident, $1,000,000 per disease per employee, and $1,000,000 per disease aggregate.
We note that Texas is the only state among NovaMart's operating states in which workers' compensation coverage is technically not mandatory for private employers. However, NovaMart has elected to maintain workers' compensation coverage in Texas and in all other applicable states, which is appropriate and consistent with industry best practices.
Experience Modification Rate (EMR). NovaMart's current EMR is 0.92, which is below the industry average of 1.0. An EMR below 1.0 indicates that NovaMart's workers' compensation claims experience is better than average for its industry classification, reflecting a solid workplace safety record. This favorable EMR results in a premium credit, reducing NovaMart's workers' compensation premium relative to what it would pay at a 1.0 EMR.
Claims History. NovaMart's workers' compensation claims experience is characterized by a relatively high frequency of low-severity claims typical of fulfillment center and warehouse operations. During FY2024, approximately 45 workers' compensation claims were filed across all NovaMart locations. The majority of these claims involved sprains, strains, and repetitive motion injuries consistent with the physical demands of warehouse and fulfillment work (lifting, packing, sorting, and operating warehouse equipment). The average claim cost in FY2024 was approximately $8,500, and total incurred losses for FY2024 were approximately $382,000. Notably, NovaMart has not experienced any catastrophic workplace injury or fatality claims during the review period. The three-year claims trend (FY2022–FY2024) is stable, with no significant year-over-year increase in claim frequency or severity.
Adequacy Assessment. NovaMart's workers' compensation coverage and employers' liability limits are standard and appropriate for a company of its size and with its employee profile. The favorable EMR of 0.92 reflects well on NovaMart's workplace safety program. Post-closing, NovaMart's approximately 2,400 employees will likely be integrated into Cascade's workers' compensation program, which may offer economies of scale on premium and provide access to Cascade's risk management and loss control resources.
H. Commercial Auto Liability
Coverage Highlights. NovaMart maintains a commercial auto liability policy covering its owned fleet, hired vehicles, and non-owned vehicles (i.e., employee-owned vehicles used for business purposes). NovaMart's fleet consists of approximately 85 vehicles, primarily vans and light trucks used in connection with NovaShip fulfillment operations for local delivery and inter-facility transfers. The policy provides $2,000,000 in combined single limit coverage for bodily injury and property damage arising from the ownership, maintenance, or use of covered vehicles.
Claims History. NovaMart's auto liability claims experience is unremarkable. During the three-year review period (FY2022–FY2024), the Company experienced several minor fender-bender incidents involving fleet vehicles, none of which resulted in material claims or significant bodily injury. All auto claims during the review period were resolved for small amounts (under $15,000 individually) and are closed. There are no open or pending auto liability claims.
Adequacy Assessment. The $2,000,000 combined single limit is adequate for NovaMart's current fleet of approximately 85 vehicles. The umbrella policy (Section III.C) provides an additional $25,000,000 in excess coverage above the auto liability layer, which further mitigates catastrophic auto liability exposure. Post-closing, C&H recommends that NovaMart's fleet be integrated into Cascade's commercial auto program, which will provide centralized fleet management and potentially more favorable premium terms.
I. Employment Practices Liability Insurance (EPLI)
Coverage Highlights. NovaMart's EPLI policy provides claims-made coverage for employment-related claims, including wrongful termination, discrimination (based on race, sex, age, disability, religion, national origin, sexual orientation, and other protected characteristics), harassment (including sexual harassment), retaliation, and violation of employment laws. The policy also includes limited coverage for wage and hour defense costs, subject to a $1,000,000 sublimit. The policy covers claims brought by current, former, and prospective employees of NovaMart and its subsidiaries.
Claims History. Two EPLI claims have been reported during the three-year review period:
1. FY2022 — Discrimination Claim. A former NovaMart employee at the Savannah, GA fulfillment center filed a claim alleging racial discrimination in connection with a termination decision. The claim was reported to Pinnacle Employment Practices Insurance Co. and was settled by NovaMart for approximately $125,000 (inclusive of legal fees). Because the settlement amount was below the $150,000 per-claim retention, the carrier did not fund any portion of the settlement. The claim is closed.
2. FY2024 — Wrongful Termination Claim (Pending). A former senior manager at NovaMart's Austin headquarters filed a wrongful termination claim alleging that the manager was terminated in retaliation for reporting alleged financial irregularities to the Company's internal audit function. The claim was reported to Pinnacle Employment Practices Insurance Co. in Q3 FY2024 and is currently pending. NovaMart's employment litigation counsel has reserved the matter at approximately $200,000 (inclusive of estimated defense costs and potential settlement exposure). The claim is being actively defended, and NovaMart management has characterized the allegations as without merit. Cross-reference: Litigation and Regulatory Due Diligence Memorandum.
Adequacy Assessment. The $5,000,000 per claim / $5,000,000 aggregate EPLI limit is adequate for a company with approximately 2,400 employees. The $150,000 retention is reasonable. The wage and hour defense cost sublimit of $1,000,000 is somewhat low, given the increasing frequency and cost of wage and hour class action litigation in several of the states where NovaMart operates (particularly California and New Jersey), and Cascade may wish to evaluate increasing this sublimit post-closing. EPLI coverage for NovaMart employees is expected to be integrated into Cascade's EPLI program following the closing.
J. Fiduciary Liability Insurance
Coverage Highlights. NovaMart's fiduciary liability insurance policy provides claims-made coverage for breach of fiduciary duty claims related to the administration and management of NovaMart's employee benefit plans, including the NovaMart Global Inc. 401(k) Retirement Savings Plan and the Company's health and welfare benefit plans. The policy covers fiduciary liability claims brought by plan participants, beneficiaries, or regulatory authorities (including the U.S. Department of Labor) alleging breaches of the fiduciary duties imposed by the Employee Retirement Income Security Act of 1974 ("ERISA"), including duties of loyalty, prudence, diversification, and compliance with plan documents.
Claims History. No fiduciary liability claims have been filed during the three-year review period or at any time during the policy's history. NovaMart management is not aware of any pending or threatened fiduciary liability claims.
Adequacy Assessment. The $3,000,000 limit is adequate for NovaMart's fiduciary exposure. The Company's 401(k) plan has approximately 2,100 participants and approximately $87,000,000 in plan assets (per the most recent Form 5500 filing reviewed by C&H). The plan is administered by a third-party recordkeeper (Halcyon Corporation), which reduces NovaMart's direct fiduciary exposure. Cross-reference: Employment and Benefits Due Diligence Memorandum for a discussion of ERISA compliance and plan administration matters.
K. Crime / Omnivrel Insurance
Coverage Highlights. NovaMart's crime / fidelity insurance policy provides coverage for losses resulting from employee dishonesty and certain other criminal acts, including:
• Employee theft (theft of money, securities, or property by NovaMart employees)
• Forgery or alteration (losses resulting from forged or altered instruments)
• Computer fraud (unauthorized use of a computer system to transfer funds or property)
• Funds transfer fraud (fraudulent instructions to a financial institution to transfer funds)
• Social engineering coverage (losses resulting from employees being induced to transfer funds or property based on fraudulent communications purporting to be from authorized persons), subject to a $1,000,000 sublimit
Claims History. No crime or fidelity claims have been filed during the three-year review period or at any time during the policy's history.
Adequacy Assessment. The $5,000,000 limit is adequate for NovaMart's current operations. The $1,000,000 social engineering sublimit is somewhat low relative to the volume of funds flowing through NovaMart's marketplace (NovaMart processes and disburses seller payments through its payment system in coordination with PayStream Financial Technologies Inc.), and Cascade may wish to evaluate increasing this sublimit post-closing to reflect the combined funds flow exposure.
IV. INSURANCE PROGRAM — CHANGE OF CONTROL ANALYSIS
The acquisition by Cascade of 100% of NovaMart's outstanding capital stock will constitute a "change of control" under certain of NovaMart's existing insurance policies, as well as under a number of NovaMart's material contracts (as discussed in the Material Contracts Due Diligence Memorandum and summarized in Section V.D below). The occurrence of a change of control may trigger various consequences under the affected policies, ranging from automatic conversion to run-off coverage, to notice requirements, to assignment restrictions requiring carrier consent for continuation of coverage under new ownership. Set forth below is our analysis of the change of control implications for each of NovaMart's material insurance policies.
A. Policies with Change of Control Provisions
1. Directors & Officers Liability (Sovereign Assurance Group Ltd.)
As discussed in Section III.D above, the D&O policy contains a change of control provision that is triggered upon the closing of the Transaction. Upon the effective date of the change of control, the policy automatically converts to a run-off basis, covering only claims made after closing for wrongful acts occurring prior to closing. No go-forward coverage will be provided for wrongful acts occurring after closing. A six-year tail policy must be bound at or prior to closing to ensure uninterrupted protection for NovaMart's pre-closing directors and officers. The carrier, Sovereign Assurance Group Ltd., has confirmed its willingness to provide the tail policy at an estimated premium of $1,800,000. No carrier consent is required for the change of control itself (the policy operates automatically), but affirmative action to bind the tail is required.
2. Employment Practices Liability Insurance (Pinnacle Employment Practices Insurance Co.)
The EPLI policy contains a change of control clause that requires NovaMart to provide written notice to Pinnacle Employment Practices Insurance Co. within 30 days of the change of control. Upon receipt of such notice, the carrier has the option to continue coverage for claims arising from pre-closing wrongful acts for the remainder of the policy period, but the policy does not automatically extend to cover post-closing wrongful acts under new ownership without the carrier's express consent or the issuance of a new or amended policy. If consent is not obtained, NovaMart will need to be added to Cascade's EPLI program or obtain a new standalone EPLI policy post-closing. C&H recommends that notice be provided to Pinnacle promptly upon signing of the SPA and that Cascade's insurance broker initiate discussions with the carrier regarding continuation or replacement of coverage.
Additionally, the pending wrongful termination claim (discussed in Section III.I above) should be monitored during the transition to ensure that there is no gap in coverage for that pending claim as between the existing Pinnacle policy and any successor policy.
3. Errors & Omissions / Technology Professional Liability (Apex Professional Lines Insurance Co.)
The E&O / technology professional liability policy contains an assignment restriction that prohibits the assignment of the policy without the prior written consent of Apex Professional Lines Insurance Co. A change of control in which the majority of NovaMart's capital stock is acquired by a new entity is treated as a de facto assignment under the policy's terms. Accordingly, Cascade will need to obtain Apex's consent to continue coverage under the existing policy post-closing. If consent is not obtained, or if the carrier declines to consent on acceptable terms, NovaMart will need to be added to Cascade's E&O/technology professional liability program or obtain a new standalone policy. The pending IP infringement claim from DataLens Analytics Inc. (discussed in Section III.E above) must be addressed in this process to ensure continuity of coverage for that pending matter.
C&H has reviewed the policy's assignment restriction provision and believes that the carrier will likely consent to the assignment, subject to standard underwriting review and possible premium adjustment, given the change in NovaMart's ownership and risk profile. However, there is no guaranty that consent will be granted, and we recommend initiating the consent process promptly upon signing.
4. Cyber Liability / Data Breach Insurance (Fortis Cyber Insurance Group Inc.)
The cyber liability policy contains a similar assignment restriction to the E&O policy, requiring the prior written consent of Fortis Cyber Insurance Group Inc. for any assignment of the policy, including by operation of a change of control. The same analysis and recommendations applicable to the E&O policy apply here: Cascade should seek carrier consent to the assignment or, alternatively, plan to replace the policy with Cascade's own cyber program or a new standalone policy at the earliest practicable date.
Given C&H's recommendation that NovaMart's cyber coverage limits be significantly increased post-closing (from $15,000,000 to at least $25,000,000–$50,000,000), it may be more efficient for Cascade to plan to replace the existing Fortis policy entirely at closing or at the next renewal (July 1, 2025), rather than seeking consent to continue the existing policy at its current inadequate limit.
B. Policies Without Material Change of Control Impact
The following policies do not contain change of control provisions that would materially affect coverage continuity, or are expected to be replaced by Cascade's program at the next renewal or at closing without the need for specific carrier consent:
• Commercial General Liability (Ironclad Indemnity Insurance Co.): No material change of control provision. The policy insures NovaMart Global Inc. and its subsidiaries; the change of control does not alter the identity of the named insured (which remains NovaMart). Coverage will continue through the current policy period. Post-closing, the policy will be replaced or integrated into Cascade's program at the next renewal (July 1, 2025).
• Property Insurance (Highland Property & Casualty Insurance Co.): No material assignment restriction triggered by the Transaction. Coverage continues for the named locations through the current policy period. Post-closing integration into Cascade's property program is recommended at the next renewal.
• Umbrella / Excess Liability (Sentinel Excess Insurance Ltd.): No material change of control impact. The policy follows the underlying policies and will continue through the current policy period. Post-closing, NovaMart's operations are expected to be covered under Cascade's excess liability tower.
• Workers' Compensation (Continental Workers Insurance Co.): No change of control restriction. The policy provides statutory coverage for NovaMart employees and will continue through the current policy period. Post-closing integration into Cascade's workers' compensation program is expected.
• Commercial Auto Liability (Ridgeway Auto Insurance Co.): No material assignment restriction. Coverage continues through the current policy period. Post-closing integration into Cascade's fleet program is recommended.
• Crime / Omnivrel Insurance (National Fidelity Bonding Co.): No material change of control provision. Coverage continues through the current policy period.
• Fiduciary Liability Insurance (Meridian Fiduciary Insurance Co.): No material change of control provision. Coverage continues through the current policy period. Post-closing, fiduciary coverage for NovaMart's benefit plans may be integrated into Cascade's fiduciary liability program.
C. Recommendations. Based on the foregoing analysis, C&H recommends that Cascade take the following actions with respect to the change of control implications for NovaMart's insurance program:
(a) Confirm Carrier Consent Requirements. Cascade, through its insurance broker or risk management team, should confirm with each carrier identified above (Apex Professional Lines, Pinnacle Employment Practices, and Fortis Cyber) whether formal written consent to the change of control is required, the specific process and timeline for obtaining such consent, and any conditions or premium adjustments the carrier may impose as a condition to granting consent.