PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT
REPRESENTATIONS AND WARRANTIES INSURANCE
POLICY BINDER AND SUMMARY OF TERMS
Prepared by Calderwood & Harkness LLP for Cascade Retail Holdings Inc.
In Connection with the Acquisition of 100% of the Outstanding Capital Stock of NovaMart Global Inc.
Policy Number: MSI-RWI-2025-07832 Insurer: Meridian Specialty Insurance Company
May 20, 2025
PRIVILEGED AND CONFIDENTIAL ATTORNEY WORK PRODUCT
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Section 1: Introduction and Purpose
This memorandum summarizes the key terms of the Representations and Warranties Insurance Policy (the "R&W Policy" or the "Policy") issued by Meridian Specialty Insurance Company ("Meridian" or the "Insurer") in connection with the acquisition by Cascade Retail Holdings Inc. ("Cascade" or the "Buyer") of 100% of the issued and outstanding capital stock of NovaMart Global Inc. ("NovaMart" or the "Company") from the Selling Stockholders identified herein, pursuant to that certain Stock Purchase Agreement dated as of May 20, 2025 (the "SPA"). The Policy is a buy-side representations and warranties insurance policy, the terms and structure of which are described in detail below.
This summary has been prepared by Calderwood & Harkness LLP ("C&H") for the internal use of Cascade and its authorized advisors in connection with the Transaction. It is intended solely to provide a concise reference guide to the principal terms, conditions, exclusions, and mechanics of the Policy. This summary does not purport to be, and should not be construed as, a complete recitation of all Policy terms. In the event of any inconsistency or conflict between this summary and the actual terms of the Policy, the Policy shall control in all respects. Cascade and its advisors are urged to review the full Policy (attached hereto as Attachment A) for a complete understanding of the coverage afforded, the exclusions applicable, and the obligations of the Insured thereunder.
The Policy was brokered by Northbridge Risk Advisors LLC ("Northbridge"), through Thomas Ellingsen, Senior Vice President, whose office is located at 125 High Street, Suite 1400, Boston, MA 02110. Northbridge served as the insurance broker to Cascade and was responsible for managing the submission process, coordinating the marketing of the risk to prospective insurers, and facilitating the placement of the Policy with Meridian. Northbridge's role as broker does not make it a party to the Policy, nor does it impose any independent obligation on Northbridge to indemnify or hold harmless any party in connection with claims arising under the Policy.
Calderwood & Harkness LLP served as legal counsel to Cascade in the negotiation of the Policy terms with Meridian and Northbridge. C&H's engagement in this matter included, among other things, reviewing and commenting on successive drafts of the Policy, negotiating the scope of exclusions, advising Cascade on the interplay between the Policy coverage and the indemnification provisions of the SPA, and coordinating the delivery of the No-Claims Declaration and other conditions precedent to Policy issuance. C&H's engagement team for this matter consists of Harrison Wexford, Responsible Partner, M&A; Derek Okonkwo, Lead Associate, M&A; and Tiffany Rosenthal, Associate, M&A.
The balance of this memorandum is organized as follows: Section 2 provides an overview of the Transaction; Section 3 identifies the Policy parties and key contacts; Sections 4 through 7 describe the Policy's structure, coverage, and exclusions; Section 8 addresses the coordination between the Policy and the SPA indemnification provisions; Section 9 summarizes the underwriting process; Section 10 outlines the claims procedures; Section 11 addresses additional Policy terms; Section 12 presents a summary table of key financial terms; Section 13 sets forth C&H's observations and recommendations; and Section 14 lists the attachments and enclosures to this memorandum.
Section 2: Transaction Overview
The following is a summary of the key terms of the Transaction, as relevant to the R&W Policy:
Transaction. The Transaction involves the acquisition by Cascade Retail Holdings Inc. of 100% of the issued and outstanding capital stock of NovaMart Global Inc. from the Selling Stockholders. The acquisition is structured as a stock purchase transaction, with Cascade acquiring all of the outstanding shares of NovaMart's common stock and preferred stock (to the extent any preferred stock remains outstanding at closing after conversion) directly from the Selling Stockholders. No merger entity or acquisition subsidiary is utilized.
Aggregate Purchase Price. The aggregate purchase price for the NovaMart shares is One Billion Two Hundred Million Dollars ($1,200,000,000) (the "Purchase Price"), payable entirely in cash at closing. There is no stock consideration component, no earnout or contingent consideration arrangement, and no seller financing. The Purchase Price is subject to a customary post-closing working capital adjustment, as further described in the SPA and addressed in Section 7.2 below with respect to the Policy exclusion for working capital disputes.
SPA Execution Date. The SPA was executed on May 20, 2025, which is the same date as the issuance of this memorandum. The Policy is being bound concurrently with the execution of the SPA, although the Policy will not incept (i.e., coverage will not begin) until the closing of the Transaction.
Governing Law of SPA. The SPA is governed by the laws of the State of Delaware, without regard to conflict of laws principles that would result in the application of the laws of any other jurisdiction.
Target Closing Date. The parties to the SPA have established a target closing date of October 15, 2025. Closing is subject to the satisfaction or waiver of customary conditions precedent, including the receipt of required regulatory approvals (including the expiration or early termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended), the accuracy of representations and warranties as of closing, and the absence of any material adverse effect.
Outside Date. The SPA provides for an outside date of December 31, 2025, after which either party may terminate the SPA if the closing has not occurred, subject to certain limitations and exceptions.
Buyer. Cascade Retail Holdings Inc. is a corporation organized under the laws of the State of Delaware. Cascade is publicly traded on the Nasdaq Stock Market under the ticker symbol "CRHI." Cascade's principal executive offices are located at 4500 Elliott Avenue West, Suite 3200, Seattle, WA 98119. Cascade is a diversified retailer and e-commerce platform operator with operations across the United States and Canada.
Target / Company. NovaMart Global Inc. is a corporation organized under the laws of the State of Delaware. NovaMart is a privately held company, and its principal executive offices are located at 1100 Congress Avenue, Suite 800, Austin, TX 78701.
Selling Stockholders. The Selling Stockholders in the Transaction, together with their respective ownership percentages of NovaMart's outstanding capital stock, are as follows:
Stockholder Representative. Ridgeline Equity Partners, LP, acting through Franklin Osei, a Managing Director of Ridgeline Equity Partners, will serve as the Stockholder Representative for purposes of the SPA, including with respect to the administration of the escrow, the resolution of indemnification claims, and the working capital adjustment process.
SPA Indemnification Cap. Under Article IX of the SPA, the Selling Stockholders' aggregate indemnification liability for breaches of general representations and warranties is capped at Two Hundred Sixteen Million Dollars ($216,000,000), which equals 18% of the Purchase Price. This cap does not apply to claims for breaches of fundamental representations, tax representations, or fraud.
SPA Escrow Amount. As security for the Selling Stockholders' indemnification obligations under the SPA, Ninety-Six Million Dollars ($96,000,000), representing 8% of the Purchase Price, will be deposited at closing into an escrow account held by Marlowe Asset Management Trust Company, N.A. (the "Escrow Agent"). The escrow will be governed by a separate escrow agreement to be executed at closing. The escrow funds will be held for a period corresponding to the general representation survival period (24 months from closing), with any funds remaining in the escrow account after the resolution of all pending claims being released to the Selling Stockholders in accordance with the escrow agreement.
SPA General Rep Survival Period. The representations and warranties of the Sellers and the Company contained in the SPA survive for a period of 24 months following the closing of the Transaction, except for fundamental representations (which survive for six years from closing), tax representations (which survive until 60 days after the expiration of the applicable statute of limitations), and fraud claims (which are not subject to any survival limitation).
Industry and Business Overview. NovaMart operates an online marketplace platform that facilitates the sale of specialty consumer goods by third-party sellers to consumers. As of the most recent reporting period, NovaMart's platform hosts approximately 62,400 active sellers and serves approximately 9.1 million registered buyers. For its fiscal year ended December 31, 2024 ("FY2024"), NovaMart reported revenue of approximately $891 million, earnings before interest, taxes, depreciation, and amortization ("EBITDA") of approximately $134 million, and gross merchandise volume ("GMV") of approximately $6.2 billion. NovaMart operates 14 fulfillment centers across nine states as part of its proprietary "NovaShip" logistics network, which provides warehousing, packaging, and shipping services to sellers on the NovaMart platform.
Section 3: Policy Parties and Contacts
3.1 Insurer
Full Legal Name: Meridian Specialty Insurance Company
Domicile: State of Connecticut
Policy Number: MSI-RWI-2025-07832
Meridian Specialty Insurance Company is a specialty lines insurance carrier domiciled in the State of Connecticut and licensed to write representations and warranties insurance on a surplus lines basis in all fifty states and the District of Columbia. Meridian is rated A (Excellent) by A.M. Best Company. Meridian is a recognized market leader in the underwriting of representations and warranties insurance in connection with private equity and strategic mergers and acquisitions transactions.
3.2 Named Insured
The Named Insured under the Policy is Cascade Retail Holdings Inc. (the "Buyer"). For purposes of the Policy, the definition of "Insured" includes the following:
(a) Cascade Retail Holdings Inc.;
(b) Cascade's successors and permitted assigns;
(c) NovaMart Global Inc., solely in its capacity as a post-closing subsidiary of Cascade, and solely to the extent of Losses suffered by NovaMart that Cascade would be entitled to recover under the indemnification provisions of Article IX of the SPA; and
(d) Any direct or indirect wholly owned subsidiary of Cascade that acquires any assets or liabilities of NovaMart following the closing of the Transaction.
The Selling Stockholders are not parties to, and are not named or intended beneficiaries of, the Policy. The Policy provides no direct rights of recovery to the Selling Stockholders, the Stockholder Representative, or any of their affiliates or representatives.
3.3 Insurance Broker
Firm: Northbridge Risk Advisors LLC
Contact: Thomas Ellingsen, Senior Vice President
Address: 125 High Street, Suite 1400, Boston, MA 02110
Telephone: (617) 555-2400
Email: tellingsen@northbridgerisk.com
Northbridge Risk Advisors LLC served as the transactional risk insurance broker to Cascade in connection with the placement of the Policy. Northbridge was responsible for marketing the risk, coordinating submissions to prospective insurers, facilitating the underwriting process with Meridian, and assisting in the negotiation of the Policy terms. Northbridge's commission is included in the total premium amount.
3.4 Buyer's Counsel (Policy Negotiation)
Firm: Calderwood & Harkness LLP
Lead Partner: Harrison Wexford, Responsible Partner, M&A
Lead Associate: Derek Okonkwo, Lead Associate, M&A
Supporting Associate: Tiffany Rosenthal, Associate, M&A
Address: 599 Lexington Avenue, 38th Floor, New York, NY 10022
Telephone: (212) 555-7100
Email: hwexford@calderwoodharkness.com; dokonkwo@calderwoodharkness.com
Calderwood & Harkness LLP served as legal counsel to Cascade in the negotiation of the Policy with Meridian and Northbridge. C&H also served as lead transaction counsel to Cascade in connection with the negotiation and execution of the SPA.
3.5 Seller's Counsel
Firm: Calloway, Brandt & Loewe LLP
Lead Partner: Richard Calloway
Address: 600 Travis Street, Suite 4500, Houston, TX 77002
Telephone: (713) 555-8300
Email: rcalloway@cbllaw.com
Calloway, Brandt & Loewe LLP served as legal counsel to the Selling Stockholders in the negotiation and execution of the SPA. Calloway, Brandt & Loewe LLP is not a party to or participant in the Policy, and did not participate in the negotiation of the Policy terms.
Section 4: Policy Structure — Buy-Side R&W Insurance
The Policy is structured as a "buy-side" representations and warranties insurance policy. This structure is the most common and commercially accepted form of R&W insurance in the current market for transactions of this type and size.
Under a buy-side R&W insurance policy, the buyer (here, Cascade) is the Named Insured, and the buyer has a direct contractual right of recovery against the insurer (here, Meridian) for Losses arising from breaches of the sellers' and the target company's representations and warranties in the acquisition agreement. The key advantage of the buy-side structure — as opposed to a "sell-side" policy — is that it provides the buyer with a direct claim against the insurer, eliminating the need for the buyer to rely exclusively on the sellers' willingness and ability to satisfy indemnification obligations.
The Selling Stockholders are not parties to or beneficiaries of the Policy. The Policy creates no privity between Meridian and the Selling Stockholders, and the Selling Stockholders have no right to submit claims under the Policy or to direct Meridian to pay any amounts to or for the benefit of the Selling Stockholders.
The Policy provides Cascade with a direct right of recovery against Meridian for Losses arising from breaches of the Sellers' and the Company's representations and warranties set forth in Article III (Company Representations) and Article IV (Seller Representations) of the SPA, subject to the terms, conditions, exclusions, and limitations of the Policy as described in this memorandum and set forth in full in the Policy itself.
The Policy is intended to sit on top of the Sellers' indemnification obligations under Article IX of the SPA. In the ordinary course, Cascade is expected to look first to the SPA escrow and the Sellers' direct indemnification obligations for recovery of Losses within the Retention amount (as described in Section 5.2 below). Once the Retention has been satisfied, either through actual recoveries from the Sellers or the escrow or through amounts that Cascade is entitled to recover from the Sellers under the SPA but has not pursued or collected, the Policy responds for covered Losses in excess of the Retention, up to the Policy Limit.
It is important to emphasize that the Policy is not a substitute for the Sellers' contractual indemnification obligations under the SPA. Rather, the Policy is a supplemental and complementary recovery mechanism that provides Cascade with additional protection and certainty of recovery. The existence of the Policy does not modify, amend, or waive any of the Sellers' obligations under the SPA, nor does it release any Selling Stockholder from liability for breaches of their representations and warranties. The Policy was obtained at Cascade's expense and for Cascade's benefit, and the Sellers' agreement to deliver the representations and warranties in the SPA was a material inducement for Cascade to enter into the Transaction, independent of the availability of the Policy.
From a deal structuring perspective, the availability of the buy-side R&W Policy was a key element of the overall risk allocation framework for the Transaction. The Policy enabled the parties to negotiate a reduced escrow holdback (8% of the Purchase Price, as opposed to the 15%–20% escrow that the Selling Stockholders' financial advisors indicated would have been required absent R&W insurance), thereby facilitating a more favorable deal structure for the Selling Stockholders while providing Cascade with substantially equivalent — and in certain respects, superior — indemnification protection.
Section 5: Coverage Summary
5.1 Policy Limit
Aggregate Policy Limit: $216,000,000
The aggregate Policy Limit is Two Hundred Sixteen Million Dollars ($216,000,000), which represents 18% of the $1,200,000,000 Purchase Price. This Policy Limit was established to match the aggregate indemnification cap for breaches of general representations and warranties set forth in Article IX of the SPA, thereby providing Cascade with dollar-for-dollar backstop coverage to the full extent of the SPA indemnification cap.
The Policy Limit is the maximum aggregate amount payable by Meridian under the Policy for all covered Losses combined during the entire Policy Period. This cap applies on an aggregate basis — it is not a per-claim or per-occurrence limit. Defense costs, investigation expenses, and other costs and expenses incurred in connection with covered claims are included within, and serve to erode, the Policy Limit. There is no separate or additional limit for defense costs.
Once covered Losses and associated costs and expenses paid by Meridian under the Policy reach the $216,000,000 aggregate Policy Limit, the Policy is exhausted and no further payments will be made by Meridian, regardless of the nature or amount of any additional claims.
5.2 Retention (Self-Insured Retention / "SIR")
Retention Amount: $12,000,000
The Retention under the Policy is Twelve Million Dollars ($12,000,000), which represents 1% of the $1,200,000,000 Purchase Price. The Retention is the amount of covered Losses that the Insured must bear before coverage under the Policy attaches. The Retention functions in a manner analogous to a deductible in a conventional insurance policy.
The Retention may be satisfied by the following:
(a) Amounts actually recovered by Cascade from the Selling Stockholders under the SPA indemnification provisions, including amounts paid from the $96,000,000 escrow held by Marlowe Asset Management Trust Company, N.A.; and/or
(b) Amounts that Cascade is entitled to recover from the Selling Stockholders under the SPA indemnification provisions but that Cascade has not pursued or collected, provided that such amounts would constitute covered Losses under the Policy. This provision is commonly referred to as the "deemed recovery" feature and is intended to prevent the Sellers' failure or refusal to pay from blocking Cascade's ability to access the Policy coverage.
Under the SPA, the Sellers' indemnification obligations for breaches of general representations and warranties are subject to a basket/deductible structure. The $12,000,000 Retention was negotiated to align with the SPA's de minimis threshold and basket structure, such that the Retention effectively serves as the R&W insurance deductible. The alignment of the Retention with the SPA basket was a deliberate negotiation objective, designed to minimize gaps between the SPA indemnification framework and the Policy coverage.
Retention Drop-Down Schedule. The Retention is subject to a scheduled reduction over the general representation survival period, as follows:
(i) On the 12-month anniversary of the closing of the Transaction, the Retention will drop down to 50% of the initial Retention amount — i.e., from $12,000,000 to $6,000,000 — with respect to the Sellers' representations and warranties that have not expired as of such date, subject to the condition that no claims are then pending or threatened under the Policy;
(ii) On the 24-month anniversary of the closing of the Transaction, the Retention will drop down to zero ($0) with respect to the Sellers' representations and warranties that have not expired as of such date, subject to the condition that no claims are then pending or threatened under the Policy.
The Retention drop-down schedule provides Cascade with progressively enhanced protection over the life of the general representation survival period. As a practical matter, the drop-down to zero at the 24-month anniversary means that, assuming no pending or threatened claims, Cascade will have first-dollar coverage under the Policy for any covered breach discovered during the final months of the general representation coverage period and for the duration of the fundamental representation and tax representation coverage periods.
5.3 Premium
One-Time Premium: $5,400,000
The total premium for the Policy is Five Million Four Hundred Thousand Dollars ($5,400,000), calculated as 2.5% of the $216,000,000 Policy Limit. This rate-on-limit of 2.5% is within the current market range for buy-side R&W insurance in transactions of this size and complexity, which typically ranges from 2.0% to 3.5% of the Policy Limit depending on the risk profile, industry sector, and competitive conditions.
The premium is payable by Cascade at or prior to the closing of the Transaction. Payment of the premium is a condition to the effectiveness of the Policy. The premium is fully earned upon payment and is non-refundable, except in the limited circumstances described in Section 11.4 below (i.e., if the Transaction does not close).
The premium amount includes the estimated underwriting fee charged by Meridian and the broker commission payable to Northbridge Risk Advisors LLC. No separate or additional fees are payable by Cascade in connection with the placement of the Policy, other than the legal fees incurred by Calderwood & Harkness LLP in connection with the negotiation of the Policy terms, which are reflected separately in Cascade's estimated transaction costs.
The $5,400,000 premium is included in Cascade's estimated aggregate transaction costs of $47,300,000, which also include legal fees, accounting and tax advisory fees, investment banking fees, regulatory filing fees, and other customary transaction expenses.
5.4 Policy Period
The Policy Period is structured as follows:
Inception. The Policy incepts upon the closing of the Transaction. No coverage is available under the Policy prior to the closing. If the Transaction does not close, the Policy will not incept and will terminate automatically, as described in Section 11.4 below.
Coverage Periods. The duration of coverage under the Policy varies depending on the category of representations and warranties at issue:
(a) General Representations and Warranties. Coverage for breaches of general representations and warranties set forth in Article III and Article IV of the SPA: 24 months from the closing of the Transaction. This coverage period matches the SPA general representation survival period.
(b) Fundamental Representations. Coverage for breaches of fundamental representations — including representations relating to organization and existence, authorization, capitalization, title to shares, and no brokers — as identified in the SPA: 6 years from the closing of the Transaction. This extended coverage period matches the SPA fundamental representation survival period.
(c) Tax Representations. Coverage for breaches of tax representations set forth in the SPA: until the date that is 60 days after the expiration of the applicable statute of limitations (including any extensions or waivers thereof). This coverage period matches the SPA tax representation survival period and ensures that Cascade has R&W insurance protection for tax-related claims throughout the relevant limitations periods.
Claims-Made Structure. The Policy contains a "claims made and reported" structure, which means that all claims must be reported to Meridian during the applicable coverage period described above. Claims reported after the expiration of the applicable coverage period are not covered, subject to the late notice provision described in Section 10.1 below. The Insured should take care to establish internal procedures for the timely identification and reporting of potential claims, as the failure to report a claim within the applicable coverage period may result in the loss of coverage for such claim, even if the underlying breach occurred during the coverage period.
5.5 Covered Representations and Warranties
The Policy covers all representations and warranties of the Sellers and the Company set forth in the following provisions of the SPA:
(a) Article III — Company Representations. The representations and warranties of the Company set forth in Article III of the SPA, including representations relating to organization and good standing, corporate authority and enforceability, capitalization, financial statements, absence of undisclosed liabilities, absence of certain changes, compliance with laws, material contracts, intellectual property, real property, employee benefits, employment matters, tax matters, environmental matters, litigation and proceedings, insurance, data privacy and cybersecurity, and related matters.
(b) Article IV — Seller Representations. The representations and warranties of the Selling Stockholders set forth in Article IV of the SPA, including representations relating to each Selling Stockholder's authority, title to shares, absence of conflicts, and related matters.
Coverage extends to the foregoing representations and warranties as modified by the Seller Disclosure Schedules delivered at the time of the signing of the SPA. Matters fairly disclosed in the Seller Disclosure Schedules are treated as known to Cascade and are excluded from coverage under the Known Breach Exclusion (described in Section 7.1 below). The Policy does not cover breaches to the extent such breaches relate to information or matters that were added to or updated in the Seller Disclosure Schedules between signing and closing (the so-called "bring-down" schedules), unless such supplements or updates constitute independently discoverable breaches.
Coverage is limited to breaches that are discovered post-closing. The Policy does not cover pre-closing known breaches, as further described in Section 7.1. The practical effect of this limitation is that Cascade must identify and address known issues prior to closing through the SPA negotiation and working capital adjustment processes, rather than relying on the Policy for known risks.
Materiality Scrape. The Policy affords coverage on an "as if" basis — that is, as if the representations and warranties were true and correct as of the dates specified in the SPA, without giving effect to any materiality, Material Adverse Effect, "in all material respects," or similar qualifiers for purposes of determining whether a breach has occurred. This treatment is commonly referred to as a "materiality scrape" for breach determination purposes and is consistent with the materiality scrape set forth in Article IX of the SPA. The materiality scrape applies both for purposes of determining the existence of a breach and for purposes of calculating the amount of Loss arising from such breach. The effect of the materiality scrape is to expand the scope of covered breaches beyond what would be available under a strict reading of the qualified representations, thereby providing broader protection to Cascade.
Knowledge Qualifier. Coverage applies to Losses arising from inaccuracies in the representations and warranties regardless of whether the Sellers had knowledge of such inaccuracy at the time the representations were made. The Policy does not contain a knowledge qualifier that would limit coverage to breaches of which the Sellers were aware. The only knowledge-related limitation on coverage is the Known Breach Exclusion (Section 7.1), which operates by reference to the knowledge of Cascade's Deal Team, not the Sellers' knowledge.
Section 6: Definition of Loss
The Policy defines "Loss" broadly to encompass the following categories of damages and expenses:
(a) Actual compensatory damages suffered by the Insured as a direct result of a breach of a covered representation or warranty, including out-of-pocket losses, repair and remediation costs, and other direct monetary damages;
(b) Third-party settlement amounts — amounts paid by the Insured to third parties in settlement of third-party claims arising from or relating to a breach of a covered representation or warranty, including amounts paid in settlement of customer claims, vendor claims, governmental claims, or private litigation;
(c) Diminution in value — the diminution in value of the Company or its assets to the extent such diminution is attributable to a covered breach of a representation or warranty, including the reduction in the value of the acquired business resulting from the discovery of undisclosed liabilities, impaired assets, or other conditions that constitute a breach;
(d) Investigation and defense costs — reasonable and documented out-of-pocket costs and expenses incurred by the Insured in investigating, defending, prosecuting, or resolving a covered claim, including reasonable attorneys' fees, expert witness fees, consultant fees, and other professional fees and disbursements. As noted in Section 5.1 above, defense costs are included within, and erode, the Policy Limit; and
(e) Consequential damages — consequential damages suffered by the Insured to the extent that such consequential damages would be recoverable under the indemnification provisions of Article IX of the SPA. This provision aligns the scope of recoverable damages under the Policy with the scope of recoverable damages under the SPA, avoiding gaps in the indemnification framework.
The Policy's definition of "Loss" expressly excludes the following:
(i) Punitive, exemplary, or multiplied damages — except to the extent that such damages are awarded to a third party in a third-party claim that implicates a covered representation or warranty breach. In such circumstances, the punitive, exemplary, or multiplied damages awarded to the third party are recoverable under the Policy as part of the third-party claim settlement or judgment amount;
(ii) Criminal or civil fines and penalties — fines, penalties, or sanctions imposed directly on the Insured by a governmental authority, to the extent such fines or penalties are imposed on the Insured in its own capacity (as opposed to fines or penalties imposed on or assessed against the Company or a third party for which the Insured has an indemnifiable third-party claim). This exclusion reflects the general public policy principle that insurance should not indemnify an insured for penalties imposed on the insured for its own misconduct; and
(iii) Amounts recoverable from other sources — amounts that are actually recovered or recoverable by the Insured from other insurance policies (including NovaMart's pre-closing insurance programs), from the SPA escrow, or from the Sellers' direct indemnification obligations under the SPA, in each case subject to the Retention mechanics described in Section 5.2 above. This limitation is intended to prevent double recovery and to preserve the Policy's role as a supplemental indemnification mechanism.
The definition of "Loss" is a critical component of the Policy and was the subject of extensive negotiation between C&H and Meridian's underwriting counsel. C&H successfully negotiated for the inclusion of diminution in value damages and consequential damages (to the extent available under the SPA), which are not always included in R&W policies. The inclusion of these categories of damages provides Cascade with broader recovery rights under the Policy than would be available under a more narrowly drafted Loss definition.
Section 7: Key Exclusions
The Policy contains a number of exclusions that limit or restrict the scope of coverage. The following is a summary of the most significant exclusions. Cascade and its advisors should review the full text of the Policy for a complete listing and description of all applicable exclusions.
7.1 Known Breach Exclusion
The Policy does not provide coverage for any breach of a representation or warranty of which any member of the "Deal Team" of the Insured (Cascade) had "actual knowledge" as of the date of the SPA signing (May 20, 2025).
Definition of "Deal Team." For purposes of the Known Breach Exclusion, the "Deal Team" of the Insured is defined to include the following individuals:
(a) Margaret "Meg" Alderton, Chief Executive Officer of Cascade;
(b) Rajiv Sundaram, Chief Financial Officer of Cascade;
(c) Elena Vasquez-Bright, General Counsel of Cascade;
(d) Theodore "Ted" Langford, Senior Vice President, Corporate Development of Cascade; and
(e) Those individuals at Calderwood & Harkness LLP who served on the engagement team for the Transaction, specifically: Harrison Wexford, Derek Okonkwo, and Tiffany Rosenthal.
The Deal Team definition was negotiated to include only those individuals who had direct, substantive involvement in the due diligence process and the negotiation of the SPA. The definition does not extend to all employees or agents of Cascade, nor does it include board members who did not participate in the due diligence process. This narrow definition is consistent with market practice and was an important negotiation objective for Cascade.
Definition of "Actual Knowledge." "Actual knowledge" means the conscious awareness, on the part of a Deal Team member, of facts or circumstances that would constitute a breach of a representation or warranty in the SPA. Actual knowledge does not include constructive knowledge (i.e., knowledge that a Deal Team member should have had based on a reasonable investigation) or imputed knowledge (i.e., knowledge held by agents, employees, or advisors of Cascade outside the Deal Team that is attributed to Deal Team members). This is a favorable standard for Cascade, as it limits the exclusion to situations where a Deal Team member was affirmatively aware of the breach-constituting facts, rather than situations where such facts could have been discovered through further diligence.
Disclosed Matters. Matters that are fairly disclosed in the Seller Disclosure Schedules as of the SPA execution date are deemed known to Cascade's Deal Team and are excluded from coverage under this provision. This treatment is consistent with the general principle that R&W insurance does not cover known risks — the Policy is designed to protect against unknown breaches, not to provide indemnification for matters that were identified and disclosed during the due diligence process and taken into account in the negotiation of the SPA terms and the Purchase Price.
7.2 Purchase Price Adjustment Exclusion
The Policy does not cover any Loss arising from or relating to the working capital adjustment mechanism set forth in the SPA. Under the SPA, the working capital adjustment is based on a target net working capital amount of $78,500,000, with a $5,000,000 collar (i.e., adjustments are made only to the extent that the actual net working capital at closing deviates from the target by more than $5,000,000 in either direction). The Policy does not cover any disputes relating solely to the calculation of net working capital at closing, including disputes over the methodology, components, or amounts included in the working capital calculation.
This exclusion is standard in R&W insurance policies. Working capital adjustments are a purchase price mechanism, not a representation and warranty, and the risk of working capital shortfalls is more appropriately addressed through the SPA's adjustment mechanism and the escrow arrangement.
7.3 Forward-Looking Statements and Projections
The Policy does not cover any Loss arising from or relating to any forward-looking statements, projections, forecasts, budgets, or estimates provided by or on behalf of NovaMart or the Selling Stockholders in connection with the Transaction. This exclusion applies to management projections, financial models, business plans, and similar forward-looking materials, regardless of whether such materials were included in the data room, presented to Cascade during the due diligence process, or otherwise made available by NovaMart or its advisors.
The exclusion does not apply to the extent that a forward-looking statement, projection, or estimate is the subject of a specific representation or warranty in the SPA. For example, if the SPA contains a representation that certain financial projections were prepared in accordance with a specified methodology or in good faith, a breach of such representation would be covered under the Policy notwithstanding this exclusion.
7.4 Certain Specific Exclusions
The Policy contains the following additional specific exclusions:
(a) Covenant Breaches. The Policy covers only breaches of representations and warranties. Breaches of covenants, agreements, or obligations of the Sellers, the Company, or any other party under the SPA are not covered. This exclusion is inherent in the nature of representations and warranties insurance and reflects the fundamental distinction between representations (statements of fact) and covenants (promises of future performance).
(b) Criminal or Fraudulent Conduct of the Insured. No coverage is available for any Loss arising from or relating to the criminal or fraudulent conduct of any Insured party. If a member of Cascade's Deal Team or any other Insured party engages in criminal or fraudulent conduct that gives rise to a Loss, such Loss is excluded from coverage. This exclusion does not apply to criminal or fraudulent conduct of the Sellers or the Company (which may give rise to covered Losses, as described in Section 7.5 below).
(c) Transfer Taxes. The Policy does not cover any transfer, documentary, stamp, registration, or similar taxes arising from the Transaction. Under the SPA, transfer taxes are estimated at approximately $1,200,000 in the aggregate and are allocated between the Buyer and the Sellers. The Buyer's share of transfer taxes is estimated at approximately $600,000.
(d) Pension and Benefit Plan Underfunding. No coverage is available for any Loss arising from the underfunding of any pension plan, retirement plan, or other employee benefit plan of the Company, to the extent such underfunding is not the subject of a specific representation or warranty in the SPA. To the extent the SPA contains a specific representation regarding the funded status of any Company benefit plan, a breach of such representation would be covered under the Policy.
(e) Asbestos, PFAS, and Nuclear-Related Environmental Liabilities. The Policy does not cover any Loss arising from or relating to asbestos, per- and polyfluoroalkyl substances (PFAS), or nuclear-related environmental liabilities, unless such liabilities are specifically represented in the SPA. This exclusion reflects the catastrophic and long-tail nature of these environmental risks, which are typically excluded from or separately underwritten in R&W insurance policies.
(f) DOJ Second Request / Antitrust Regulatory Process. The Policy does not cover any Loss arising from or relating to the Second Request issued by the United States Department of Justice ("DOJ") on May 8, 2025, to the extent such Loss relates to the antitrust regulatory approval process itself (e.g., costs of compliance with the Second Request, delays in closing attributable to the regulatory process, or remedies imposed by the DOJ as a condition to regulatory clearance) rather than a breach of a Company representation. To the extent a matter addressed in the Second Request also constitutes a breach of a Company representation or warranty in the SPA (for example, a representation regarding compliance with antitrust laws), such breach would be covered under the Policy notwithstanding this exclusion, provided that the other terms and conditions of the Policy are satisfied.
7.5 Seller Fraud Carve-Out
The treatment of fraud under the Policy is an important and nuanced aspect of the coverage structure.
Insured Fraud Exclusion. The Policy does not cover Losses to the extent arising from fraud committed by any person who is both a Selling Stockholder and a member of the Deal Team of the Insured. In other words, if any of Cascade's own executives or advisors committed fraud in connection with the Transaction, Losses arising from such fraud are excluded from coverage. This exclusion is a standard feature of R&W insurance policies and reflects the principle that an insured should not be permitted to benefit from its own fraudulent conduct.
Affirmative Coverage for Seller Fraud. In contrast to the Insured fraud exclusion, the Policy provides affirmative coverage for Losses arising from fraud committed by the Sellers or the Company, to the extent that such fraud was not known to Cascade's Deal Team at the time of the SPA signing. This is a significant and valuable feature of the Policy. Specifically, the Policy covers fraud committed by any of the following individuals, among others:
• Julian Reeves (Selling Stockholder, 18.5%)
• Priya Narasimhan (Selling Stockholder, 8.3%)
• Douglas "Doug" Whitfield (NovaMart executive)
• Amanda Trevino (NovaMart executive)
• Franklin Osei (Managing Director, Ridgeline Equity Partners, LP; Stockholder Representative)
• Naomi Katzenbach (Brindoval Ventures Fund III, LP representative)
The affirmative coverage for Seller fraud was a key negotiation point in the Policy placement process. Many R&W insurance policies in the market include a broad fraud exclusion that limits or eliminates coverage for fraud in all circumstances. C&H negotiated for the inclusion of affirmative Seller fraud coverage, recognizing that Seller fraud is one of the most significant risks in any acquisition and that the availability of insurance protection against this risk is a critical component of Cascade's overall risk mitigation strategy.
7.6 Tax-Specific Exclusions
The Policy contains the following tax-specific exclusions:
(a) Transfer Taxes Borne by Buyer. No coverage for transfer taxes borne by Cascade under the SPA, which are estimated at approximately $600,000 (the Buyer's share of the estimated $1,200,000 in total transfer taxes).
(b) Post-Closing Tax Actions. No coverage for tax liabilities arising from post-closing actions taken by Cascade or its affiliates (including NovaMart as a post-closing subsidiary of Cascade) that are outside the ordinary course of business and that give rise to tax liabilities not attributable to a pre-closing breach of a Company or Seller tax representation. This exclusion is intended to prevent Cascade from obtaining coverage for tax liabilities that result from Cascade's own post-closing business decisions, restructuring activities, or tax planning strategies.
(c) Cascade's Own Tax Positions. No coverage for tax positions taken by Cascade on its own tax returns that are not attributable to a breach of a Company or Seller tax representation in the SPA. If Cascade takes an aggressive or erroneous tax position on its own returns that results in a tax liability, such liability is not covered under the Policy unless it is directly attributable to a breach of a pre-closing tax representation.
Notwithstanding the foregoing tax-specific exclusions, the Policy does cover Losses arising from breaches of the Company's and the Sellers' tax representations and warranties in the SPA, with the extended coverage period described in Section 5.4 above (i.e., until 60 days after the expiration of the applicable statute of limitations). Tax-related Losses covered by the Policy may include, among other things, additional taxes, interest, and penalties assessed by federal, state, local, or foreign taxing authorities in connection with a pre-closing tax period, to the extent such assessments result from a breach of a tax representation in the SPA.
Section 8: Coordination with SPA Indemnification
8.1 Relationship to Article IX of the SPA
The Policy is designed to operate in conjunction with, and as a complement to, the indemnification provisions set forth in Article IX of the SPA. The Policy does not replace, modify, or supersede the Sellers' indemnification obligations under the SPA. Rather, it provides Cascade with an additional layer of protection and an alternative source of recovery in the event that the Sellers' indemnification obligations are insufficient, disputed, or difficult to collect.
The key features of the SPA indemnification framework, as relevant to the Policy, are summarized below:
(a) General Representation Indemnification Cap. Under the SPA, the Selling Stockholders' aggregate indemnification liability for breaches of general representations and warranties is capped at $216,000,000, which equals 18% of the Purchase Price. This cap does not apply to claims for breaches of fundamental representations, tax representations, or fraud.
(b) Fundamental Representation and Tax Representation Indemnification. The Sellers' indemnification obligations for breaches of fundamental representations and tax representations are not subject to the general $216,000,000 cap and survive for the extended periods specified in the SPA (6 years for fundamental representations; 60 days after the expiration of the applicable statute of limitations for tax representations).
(c) Fraud. The Sellers' indemnification obligations for fraud are not subject to any cap or time limitation under the SPA.
(d) Escrow. The $96,000,000 escrow held by Marlowe Asset Management Trust Company, N.A. (Patricia Keane, Trust Officer, as contact) serves as the primary funded source for Seller indemnification claims under the SPA. The escrow funds are available to satisfy the Sellers' indemnification obligations for breaches of general representations and warranties during the 24-month general representation survival period.
The Retention under the Policy ($12,000,000) is intended to be satisfied first from amounts recovered from the Sellers, including from the escrow, before the Policy responds. This structure ensures that the Sellers bear the first tranche of risk and that the Policy functions as excess coverage above the Retention.
8.2 Subrogation
Upon paying a covered claim under the Policy, Meridian acquires subrogation rights against the Selling Stockholders with respect to the Losses paid. However, Meridian has agreed to waive its subrogation rights against any Selling Stockholder except in cases of fraud committed by such Selling Stockholder.
This waiver of subrogation was a key negotiation point in both the SPA and the Policy placement process. The waiver was important to the Selling Stockholders — particularly Ridgeline Equity Partners, LP (Franklin Osei) and Brindoval Ventures Fund III, LP (Naomi Katzenbach) — because it enables the Selling Stockholders to limit their post-closing indemnification exposure. Without the waiver, the Selling Stockholders would face the risk that Meridian would seek to recover from them any amounts paid under the Policy, effectively negating the benefit of the R&W insurance from the Sellers' perspective.
The waiver of subrogation does not apply in cases of Seller fraud. If a Selling Stockholder is found to have committed fraud in connection with the representations and warranties in the SPA, Meridian retains the right to pursue that Selling Stockholder for any Losses paid under the Policy. This carve-out preserves Meridian's ability to recover against fraudulent actors while still providing the non-fraudulent Selling Stockholders with meaningful protection from post-closing subrogation claims.
From Cascade's perspective, the waiver of subrogation was an acceptable trade-off because: (i) Cascade's primary concern is the ability to recover covered Losses from the Policy, which is not affected by the subrogation waiver; (ii) the waiver facilitated a more favorable deal structure with the Selling Stockholders, including a lower escrow amount; and (iii) the retention of subrogation rights in cases of fraud preserves the most critical recovery right.
8.3 Interplay with Tax Indemnification
The interplay between the Policy and the SPA tax indemnification provisions is summarized as follows:
Under the SPA, the Selling Stockholders indemnify Cascade for all pre-closing tax liabilities of the Company, without regard to the general indemnification cap of $216,000,000. The Sellers' tax indemnification obligation is a separate and additional obligation that stands alongside the general indemnification provisions. Tax representations under the SPA survive until 60 days after the expiration of the applicable statute of limitations.
The Policy covers breaches of the Company's and the Sellers' tax representations and warranties for the same extended survival period. This alignment ensures that Cascade has R&W insurance protection for tax-related claims for the entire duration of the SPA tax representation survival period.
Tax indemnification claims under the SPA may be pursued by Cascade in parallel with claims under the Policy. However, the anti-double-recovery principle applies: the Insured may not recover the same Loss from both the Sellers (including from the escrow) and the Policy. If Cascade receives payment from both sources for the same Loss, Cascade is obligated to reimburse Meridian for any overpayment. This principle ensures that the combined recovery from the Sellers and the Policy does not exceed Cascade's actual Loss.
As a practical matter, Cascade should coordinate the pursuit of tax indemnification claims under the SPA with the submission of claims under the Policy, in consultation with C&H and Northbridge, to ensure that the Retention mechanics are properly applied, that the anti-double-recovery principle is observed, and that all claims are reported within the applicable coverage periods.
Section 9: Underwriting Process and Diligence
9.1 Underwriting Submissions
Meridian's underwriting of the Policy was based on its review of a comprehensive set of materials relating to the Transaction, the Company, and the due diligence conducted by Cascade and its advisors. The following materials were submitted to Meridian as part of the underwriting process:
(a) The execution version of the Stock Purchase Agreement, dated as of May 20, 2025, together with all exhibits and schedules thereto, including the forms of escrow agreement, stockholder representative agreement, and ancillary transaction documents;
(b) The Seller Disclosure Schedules delivered by the Selling Stockholders at the time of the SPA signing, which set forth the exceptions, qualifications, and supplemental disclosures to the Company's and the Sellers' representations and warranties;
(c) Calderwood & Harkness LLP's due diligence memoranda, covering the following subject areas: corporate organization and authority, material contracts, intellectual property, real property, employment and employee benefits, litigation and regulatory matters, environmental matters, tax, insurance, data privacy and cybersecurity, and the overall risk assessment memorandum summarizing key diligence findings and risk allocation considerations;
(d) The accounting and tax due diligence reports prepared by Whitmore & Paige LLP (Sandra Chiu, Engagement Partner), including the quality of earnings analysis, the net working capital analysis, the review of NovaMart's tax compliance and tax positions, and the assessment of NovaMart's financial reporting practices;
(e) NovaMart's audited consolidated financial statements for fiscal years ended December 31, 2022, December 31, 2023, and December 31, 2024, together with the related auditor's reports, notes to the financial statements, and management's discussion and analysis. For FY2024, NovaMart reported total revenue of approximately $891 million and EBITDA of approximately $134 million; and
(f) Management presentations and data room materials provided by Pemberton Strauss Advisory LLC, acting as financial advisor to NovaMart and the Selling Stockholders in connection with the Transaction, including the confidential information memorandum, management presentations, industry analyses, and supplemental data room documents.
Meridian's underwriting team conducted an independent review of these materials and engaged in multiple diligence calls with C&H, Whitmore & Paige LLP, and Northbridge to discuss key risk areas and diligence findings. Meridian also reviewed publicly available information regarding the industries in which NovaMart and Cascade operate, regulatory developments, and comparable transaction data.