1041-00003 · Solara Digital Infrastructure LP · Diligence

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PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGE ATTORNEY WORK PRODUCT

CALDERWOOD & HARKNESS LLP 599 Lexington Avenue, New York, NY 10022 One Bartholomew Close, London EC1A 7BL

MEMORANDUM

CONFIDENTIALITY LEGEND: This memorandum is prepared by Calderwood & Harkness LLP for the exclusive use of Solara Digital Infrastructure LP and Solara Digital Infrastructure Fund VI LP (collectively, "Solara" or the "Buyer") in connection with the proposed acquisition of Cloudium Technologies plc ("Cloudium" or the "Company"). This memorandum contains attorney-client privileged communications and attorney work product and is not to be disclosed to any third party without the prior written consent of Calderwood & Harkness LLP and Solara Digital Infrastructure LP. Unauthorized disclosure may result in a waiver of applicable privileges.

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I. Executive Summary

This memorandum sets forth our analysis of the application of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (SI 2006/246), as amended (the "TUPE Regulations" or "TUPE"), to the workforce of Cloudium Technologies UK Ltd. ("Cloudium UK") in the context of the proposed acquisition of Cloudium Technologies plc ("Cloudium" or the "Company") by Solara Digital Infrastructure Fund VI LP ("Fund VI").

The proposed transaction is structured as a reverse triangular merger under Delaware law, whereby Stratos Merger Sub Inc. ("Merger Sub"), a newly formed Delaware corporation and wholly owned subsidiary of Fund VI, will merge with and into Cloudium, with Cloudium surviving the merger as a wholly owned subsidiary of Fund VI (the "Transaction"). The aggregate consideration payable in the Transaction is approximately $6,800,000,000 (approximately $36.92 per share for 184,200,000 outstanding shares of Cloudium common stock).

Our principal conclusion is that TUPE is unlikely to apply to this Transaction. The acquisition is structured as a share acquisition — that is, a change of corporate ownership at the parent company level — rather than a transfer of an undertaking, business, or part of an undertaking or business, or a service provision change. TUPE applies to transfers of undertakings and businesses and to service provision changes; it does not apply to share sales or changes in the ultimate beneficial ownership of a company. This is a well-established principle of UK employment law and has been consistently upheld by UK tribunals and appellate courts for decades.

Notwithstanding this conclusion, this memorandum addresses a number of related matters that are relevant to the Transaction and to Solara's post-closing ownership of Cloudium UK, including:

(a) the residual risk that elements of post-closing restructuring or integration activity could trigger TUPE at a later stage, particularly if business operations, employees, or functions are transferred between legal entities within the Solara portfolio;

(b) related UK employment law considerations, including statutory protections against unfair dismissal and redundancy, collective consultation obligations, and change-of-control provisions contained in certain senior UK employment contracts;

(c) employee information and consultation requirements under the Information and Consultation of Employees Regulations 2004 (the "ICE Regulations");

(d) restrictive covenants applicable to key UK employees and retention considerations; and

(e) UK pension implications, including the absence of any defined benefit pension exposure.

Target UK Entity. Cloudium Technologies UK Ltd. is a private limited company incorporated in England and Wales under Company No. 11287456, with its registered office at 45 Broadwick Street, London W1F 0DB. Cloudium UK is a wholly owned subsidiary of Cloudium Technologies plc. The UK subsidiary maintains offices in London (headquarters and principal engineering centre) and Manchester (secondary engineering and customer support operations). As of the date of this memorandum, Cloudium UK employs approximately 1,200 individuals across these two locations, ranging from senior executive leadership to software engineers, customer success managers, and administrative support staff.

Financial Overview. Cloudium UK reported revenue of approximately £312,000,000 (approximately $390,000,000 at an exchange rate of $1.25 per pound sterling) for the fiscal year ended September 30, 2023. The UK subsidiary represents a significant portion of Cloudium's overall global operations and is a core component of the Company's value proposition.

Coordination with UK Counsel. This memorandum has been prepared in consultation with Albright & Kerr LLP ("Albright & Kerr"), Solara's UK regulatory counsel. Fiona McAllister, Lead Partner at Albright & Kerr (5 New Street Square, London EC4A 3TW), is advising Solara on UK competition matters, including the anticipated filing with the UK Competition and Markets Authority (the "CMA"), and has provided substantive input on the UK employment law aspects discussed herein. We have coordinated our analysis to ensure consistency between the employment-related conclusions in this memorandum and the broader regulatory advice being provided by Albright & Kerr.

II. Transaction Structure and Relevance to UK Employment Law

A. Overview of the Transaction

Solara Digital Infrastructure Fund VI LP, a Delaware limited partnership managed by Solara Digital Infrastructure LP, proposes to acquire all of the outstanding shares of common stock of Cloudium Technologies plc, a Delaware corporation that is publicly traded on the Nasdaq Global Select Market under the ticker symbol "CLDM." The aggregate transaction consideration is approximately $6,800,000,000, representing a price of approximately $36.92 per share for the 184,200,000 shares of Cloudium common stock outstanding as of the record date.

The Transaction is structured as a reverse triangular merger under the General Corporation Law of the State of Delaware. Specifically:

(i) Stratos Merger Sub Inc. ("Merger Sub"), a Delaware corporation incorporated on January 8, 2024 (Delaware File No. 7923841), whose sole stockholder is Fund VI, will merge with and into Cloudium Technologies plc pursuant to an Agreement and Plan of Merger (the "Merger Agreement") to be executed on or about January 22, 2024;

(ii) Upon consummation of the merger, Merger Sub will cease to exist as a separate legal entity, and Cloudium Technologies plc will survive the merger as the surviving corporation and a wholly owned subsidiary of Fund VI;

(iii) At the effective time of the merger, each outstanding share of Cloudium common stock (other than shares held by Cloudium as treasury shares, shares held by Fund VI or Merger Sub, and shares held by stockholders who properly exercise appraisal rights under Section 262 of the Delaware General Corporation Law) will be converted into the right to receive $36.92 per share in cash, without interest, subject to applicable tax withholding; and

(iv) Following the closing, Cloudium will continue to operate its business through its existing subsidiaries, including Cloudium Technologies UK Ltd., Cloudium Solutions GmbH (Germany), Cloudium Technologies Pte. Ltd. (Singapore), and Cloudium Technologies Pty Ltd (Australia), among others. The corporate structure of these subsidiaries is expected to remain unchanged at closing.

The anticipated signing date for the Merger Agreement is January 22, 2024, with a public announcement expected on January 23, 2024. Closing of the Transaction is expected in mid-2024, subject to the satisfaction of customary closing conditions, including: (a) approval by Cloudium stockholders at a special meeting of stockholders; (b) expiration or early termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"); (c) clearance by the UK CMA under the Enterprise Act 2002; and (d) other customary conditions, including the absence of any material adverse effect, the accuracy of representations and warranties in all material respects, and compliance with covenants.

Critically, for purposes of this memorandum, Cloudium Technologies UK Ltd. is and will remain a wholly owned subsidiary of Cloudium Technologies plc. The UK subsidiary's corporate structure is entirely unaffected by the reverse triangular merger. Cloudium UK does not issue shares that are being acquired, and no assets, contracts, or employees of Cloudium UK are being transferred to any other legal entity as part of the Transaction. The only change is at the level of Cloudium plc's ultimate ownership — Cloudium plc, which was previously a publicly held Delaware corporation, will become a wholly owned subsidiary of Fund VI.

B. Share Sale vs. Business Transfer Distinction

The distinction between a share sale (or, as in this case, a merger that has the economic effect of a share acquisition) and a business or asset transfer is of fundamental importance to the TUPE analysis.

In a share sale or a merger in which the target company survives, the target company itself — including all of its assets, contracts, liabilities, and employees — remains within the same legal entity. There is no transfer of business or assets from one legal person to another. The only change is in the identity of the shareholders (or, in the case of a reverse triangular merger, the ultimate parent) of the target company. The employer of record remains the same before and after the transaction.

By contrast, in a business or asset transfer, the purchaser acquires the business, assets, and/or operations of the target directly, and the employees who are assigned to the transferred business may be required to transfer to the purchaser (or to a different legal entity) as a consequence of the transaction. It is this latter category of transaction — the transfer of a business or undertaking from one legal person to another — that TUPE is designed to address.

In the present case, the Transaction is unambiguously a share-level transaction. Cloudium Technologies UK Ltd. remains the employer of its approximately 1,200 employees both before and after the closing of the merger. No assets, contracts, or business operations of Cloudium UK are being transferred from Cloudium UK to Fund VI, Merger Sub, or any other Solara entity. The employees of Cloudium UK will continue to be employed by Cloudium UK on the same terms and conditions of employment that applied immediately before closing. Their continuity of employment will be entirely unbroken.

This structural characteristic is dispositive for purposes of the TUPE analysis, as we discuss in detail in Section III below.

III. TUPE Analysis

A. Overview of TUPE 2006

The Transfer of Undertakings (Protection of Employment) Regulations 2006 (SI 2006/246) (the "TUPE Regulations") implement the European Union's Acquired Rights Directive (Council Directive 2001/23/EC) into UK domestic law. Although the United Kingdom withdrew from the European Union on January 31, 2020, and the transition period ended on December 31, 2020, the TUPE Regulations remain in force as retained EU law under the European Union (Withdrawal) Act 2018, as amended. The TUPE Regulations were themselves amended by the Collective Redundancies and Transfer of Undertakings (Protection of Employment) (Amendment) Regulations 2014 (SI 2014/16), which made certain procedural modifications but did not alter the substantive scope of the regulations in any way material to this analysis.

The TUPE Regulations cover two categories of "relevant transfer":

(1) Transfer of an Undertaking (Regulation 3(1)(a)). A relevant transfer occurs where there is a transfer of an undertaking, business, or part of an undertaking or business situated immediately before the transfer in the United Kingdom to another person where there is a transfer of an economic entity which retains its identity. The concept of a "transfer of an economic entity which retains its identity" is derived from the European Court of Justice's landmark decision in Spijkers v. Gebroeders Benedik Abattoir CV (Case 24/85) [1986] ECR 1119 and the subsequent body of ECJ and UK case law. The key question is whether the entity in question — understood as an organised grouping of resources (including employees, tangible and intangible assets, and customer relationships) that has the objective of pursuing an economic activity — retains its identity following the transfer. Factors relevant to this assessment include whether tangible or intangible assets are transferred, whether the majority of the workforce is taken on by the new employer, whether customers are transferred, whether the activity continues after the transfer, and the degree of similarity between the activities carried on before and after the transfer.

(2) Service Provision Change (Regulation 3(1)(b)). A relevant transfer also occurs in three specific service provision scenarios: (a) activities cease to be carried out by a person ("a client") on his own behalf and are carried out instead by another person on the client's behalf ("outsourcing"); (b) activities cease to be carried out by a contractor on a client's behalf and are carried out instead by another person ("re-tendering" or "second-generation contracting"); or (c) activities cease to be carried out by a contractor on a client's behalf and are carried out instead by the client ("insourcing"). In each case, the activities must be fundamentally the same before and after the change, and there must be an organised grouping of employees situated in Great Britain that has as its principal purpose the carrying out of the activities concerned on behalf of the client.

The principal legal consequences of a relevant transfer under TUPE are as follows:

(a) Automatic Transfer of Employment. The contracts of employment of all employees assigned to the transferring undertaking, business, or organised grouping automatically transfer from the transferor to the transferee by operation of law (Regulation 4(1)). The transferee inherits all rights, powers, duties, and liabilities under or in connection with those contracts of employment (Regulation 4(2)).

(b) Protection Against Dismissal. A dismissal of an employee is automatically unfair if the sole or principal reason for the dismissal is the transfer itself (Regulation 7(1)). A dismissal connected with the transfer will not be automatically unfair if the sole or principal reason for it is an "economic, technical, or organisational reason entailing changes in the workforce" (an "ETO reason") of either the transferor or the transferee (Regulation 7(2)–(3)). Even where an ETO reason exists, the dismissal must still be procedurally and substantively fair under ordinary unfair dismissal principles.

(c) Prohibition on Detrimental Variation of Terms. Any purported variation of an employee's contract of employment is void if the sole or principal reason for the variation is the transfer itself (Regulation 4(4)), unless the variation is for an ETO reason or is permitted by the contract.

(d) Information and Consultation. Both the transferor and the transferee are required to inform and consult with appropriate representatives of affected employees in advance of a relevant transfer (Regulations 13–15). Failure to comply with these obligations can result in a compensatory award of up to 13 weeks' pay per affected employee.

B. Application to the Proposed Transaction

Having set out the legal framework, we now apply it to the facts of the proposed Transaction.

Regulation 3(1)(a) — Transfer of an Undertaking. In our opinion, Regulation 3(1)(a) is not triggered by the Transaction. The Transaction is structured as a reverse triangular merger at the parent company level. As a consequence of the merger, Merger Sub will merge with and into Cloudium Technologies plc, and Cloudium plc will survive the merger as a wholly owned subsidiary of Fund VI. Cloudium Technologies UK Ltd. — the relevant UK employer — remains at all times a wholly owned subsidiary of Cloudium plc. No undertaking, business, or part of any undertaking or business is being transferred from one legal entity to another. Cloudium UK will continue to carry on its business in exactly the same manner as before the Transaction, using the same assets, the same premises, the same customer contracts, and the same employees. The only change is the identity of the ultimate beneficial owner of Cloudium UK's shares (through the intermediary of Cloudium plc).

This conclusion is consistent with well-settled UK case law establishing that a mere change in the ownership of shares in a company does not amount to a transfer of the company's undertaking for TUPE purposes. The leading authorities on this point include:

• Brookes v. Borough Care Services [1998] ICR 1198 (EAT): The Employment Appeal Tribunal held that a transfer of shares in a company does not constitute a TUPE transfer. The company whose shares are transferred remains the same legal person and the same employer; there is no change in the identity of the employer, and accordingly no "transfer" of the undertaking within the meaning of the Regulations.

• Print Factory (London) 1991 Ltd v. Millam [2007] ICR 449 (CA): The Court of Appeal confirmed that where the transaction is a share acquisition, TUPE does not apply. The court noted that the statutory provisions are directed at situations where there is a transfer of a business from one person to another, and that a change in the ownership of a company's shares does not effect such a transfer. The court further cautioned against attempts to "look through" the corporate structure to treat a share sale as if it were a business transfer.

• The European Court of Justice's decision in Allen v. Amalgamated Construction Co. Ltd (Case C-234/98) [2000] ICR 436 provides further support, establishing that TUPE (and the underlying Acquired Rights Directive) apply to transfers between distinct legal entities, and that an intra-group transfer can constitute a relevant transfer only where there is an actual transfer of an economic entity from one legal person to another.

In the present case, there is no transfer of an economic entity from one legal person to another. Cloudium UK's business remains within Cloudium UK. The Transaction merely changes the identity of Cloudium UK's ultimate beneficial owner (from the public shareholders of Cloudium plc to Fund VI). This is precisely the type of share-level change that falls outside the scope of TUPE.

Regulation 3(1)(b) — Service Provision Change. In our opinion, Regulation 3(1)(b) is similarly not triggered by the Transaction. There is no outsourcing, insourcing, or change of contractor arrangement in connection with the Transaction. No services currently performed by Cloudium UK employees are being reassigned to, or assumed by, a different entity. Cloudium UK will continue to perform its activities (principally, the development, deployment, and support of Cloudium's cloud-based enterprise resource planning software for UK and European customers) in-house, using its own employees, after the closing of the Transaction. There is no "client" for whom services are being performed by a contractor, and no change in the identity of the entity performing any relevant services.

Accordingly, we conclude that neither limb of the TUPE Regulations is engaged by the Transaction itself.

C. Post-Closing Restructuring Risk

While the Transaction itself does not trigger TUPE, it is important to flag the risk that post-closing restructuring or integration activity could trigger TUPE at a later stage. This risk arises if, following the closing, Solara undertakes any reorganization that involves the transfer of all or part of Cloudium UK's business operations, employees, or functions from Cloudium UK to another legal entity — whether that entity is an existing Solara portfolio company, a newly formed entity within the Solara group, or a third party.

By way of example, the following types of post-closing activity could potentially trigger TUPE:

(a) Intra-Group Business Transfer. If Solara determines that certain functions currently performed by Cloudium UK (e.g., customer support, engineering, or back-office services) should be consolidated into a separate Solara-affiliated entity or shared services vehicle, the transfer of those functions — and the employees assigned to them — from Cloudium UK to the new entity could constitute a relevant transfer under Regulation 3(1)(a) if an economic entity that retains its identity is transferred.

(b) Outsourcing. If Solara decides to outsource certain functions currently performed in-house by Cloudium UK employees to a third-party service provider, this could constitute a service provision change under Regulation 3(1)(b), provided that the conditions set out in that regulation are met (i.e., the activities are fundamentally the same, and there is an organised grouping of employees whose principal purpose is the carrying out of those activities).

(c) Entity Rationalization. If Solara determines that Cloudium UK should be wound down and its business transferred to a newly incorporated entity (for example, as part of a broader legal entity simplification or rebranding exercise), the transfer of the business from Cloudium UK to the new entity would almost certainly constitute a relevant transfer under Regulation 3(1)(a).

In each of these scenarios, the TUPE obligations described in Section III.A above — including the automatic transfer of employee contracts, the prohibition on transfer-connected dismissals, and the information and consultation requirements — would apply. Failure to comply with TUPE obligations could result in significant liabilities, including claims for automatic unfair dismissal and failure-to-inform-and-consult awards.

Recommendation. We strongly recommend that Calderwood & Harkness and Albright & Kerr be consulted before any post-closing intra-group reorganization or integration activity that could affect Cloudium UK's employees, business functions, or legal entity structure is implemented. TUPE analysis should form a standard component of any post-closing integration planning involving the UK workforce.

We note for completeness that the Post-Closing Integration Memorandum (to be prepared following the closing of the Transaction) will address integration planning in greater detail. In addition, the Tax Memorandum — Post-Closing Integration Tax Considerations, prepared by Leonard Cross of Calderwood & Harkness LLP, addresses the tax implications of potential post-closing intercompany restructuring, including intellectual property migration, intercompany transfer pricing adjustments, and entity rationalization with respect to both Cloudium Technologies UK Ltd. and Cloudium Solutions GmbH. Any restructuring steps identified in the tax memorandum that involve changes to the UK legal entity structure or the transfer of business functions should be reviewed for TUPE implications before implementation.

IV. Related UK Employment Law Considerations

Even though TUPE does not apply to the Transaction, a number of other UK employment law considerations are relevant to Solara's acquisition and post-closing ownership of Cloudium UK. We address these below.

A. Unfair Dismissal and Redundancy Protections

UK employees benefit from general statutory protections against unfair dismissal under the Employment Rights Act 1996 (the "ERA 1996"). These protections are independent of TUPE and apply to any termination of employment by the employer, regardless of whether the termination is connected to a change of ownership.

Under Part X of the ERA 1996, an employee who has been continuously employed for a period of not less than two years (the qualifying period) has the right not to be unfairly dismissed. A dismissal will be unfair unless the employer can show that the reason (or, if more than one, the principal reason) for the dismissal falls within one of the potentially fair reasons specified in Section 98(2) of the ERA 1996 — including capability, conduct, redundancy, contravention of a statutory enactment, or "some other substantial reason of a kind such as to justify the dismissal of an employee holding the position which the employee held." Even where a potentially fair reason exists, the dismissal will only be fair if the employer acted reasonably in treating that reason as a sufficient reason for dismissing the employee, having regard to all the circumstances including the size and administrative resources of the employer's undertaking, and the decision to dismiss fell within the range of reasonable responses open to a reasonable employer.

If post-closing restructuring results in the elimination of roles or positions within Cloudium UK, the statutory redundancy regime applies. An employee is dismissed by reason of redundancy if the dismissal is attributable wholly or mainly to: (a) the fact that the employer has ceased, or intends to cease, to carry on the business for the purposes of which the employee was employed, or has ceased or intends to cease to carry on that business in the place where the employee was so employed; or (b) the fact that the requirements of the business for employees to carry out work of a particular kind, or to carry out work of a particular kind in the place where the employee was employed, have ceased or diminished or are expected to cease or diminish (Section 139, ERA 1996).

Employees who are dismissed by reason of redundancy and who have at least two years' continuous service are entitled to a statutory redundancy payment calculated by reference to age, length of service, and weekly pay (subject to a statutory cap, currently £643 per week as of April 2023). Many employers, including Cloudium UK, also offer enhanced contractual redundancy terms that exceed the statutory minimum. Our data room review has confirmed that Cloudium UK's employee handbook provides for enhanced redundancy payments of one month's salary per year of service for all UK employees, subject to a maximum of 12 months' salary.

In addition, to ensure that a redundancy dismissal is fair, the employer must: (i) adopt fair and objective selection criteria; (ii) apply those criteria consistently; (iii) consult individually with each affected employee; (iv) consider and offer any suitable alternative employment that may be available within the employer's organisation; and (v) follow a fair process, including providing the employee with adequate notice and the opportunity to appeal the decision.

Collective Consultation Obligations. Where an employer proposes to dismiss as redundant 20 or more employees at one establishment within a period of 90 days or less, the employer must comply with the collective consultation requirements set out in Part IV, Chapter II of the Trade Union and Labour Relations (Consolidation) Act 1992 (the "TULRCA 1992"), Sections 188–198. The key requirements are as follows:

(i) If the employer proposes to dismiss 20 or more but fewer than 100 employees at one establishment within 90 days, the employer must begin the consultation process at least 30 days before the first dismissal takes effect.

(ii) If the employer proposes to dismiss 100 or more employees at one establishment within 90 days, the employer must begin the consultation process at least 45 days before the first dismissal takes effect.

(iii) The employer must consult with "appropriate representatives" of the affected employees. These may be trade union representatives (where the employer recognises a trade union for collective bargaining purposes) or elected employee representatives. Our data room review has not identified any trade union recognition agreement in place at Cloudium UK.

(iv) The employer must also file a notification with the Secretary of State for Business and Trade (Form HR1) before the consultation begins.

(v) The consultation must be conducted with a view to reaching agreement with the employee representatives on ways to avoid or reduce the proposed dismissals and to mitigate their consequences. The employer must disclose to the representatives the reasons for the proposals, the numbers and descriptions of employees proposed to be dismissed, the total number of employees of that description employed at the establishment, the proposed method of selection, the proposed method of carrying out the dismissals, and the proposed method of calculating redundancy payments.

Given the size of Cloudium UK's workforce — approximately 1,200 employees across the London and Manchester offices — any material post-closing restructuring program that involves role eliminations would very likely exceed the 100-employee threshold and trigger the requirement for 45 days of collective consultation before the first dismissal takes effect. This has significant implications for the timing and planning of any post-closing integration that involves workforce reductions.

Failure to comply with the collective consultation requirements can result in the making of a "protective award" by an employment tribunal of up to 90 days' pay per affected employee. For a workforce of 1,200 employees, a maximum protective award could be very substantial.

B. Change of Control Provisions in Employment Contracts

Our diligence review of senior UK employee contracts, conducted through the virtual data room maintained by Cloudium in connection with the Transaction, disclosed that certain executive-level employees of Cloudium Technologies UK Ltd. have employment agreements containing change-of-control clauses. These clauses are typically triggered by a "change of control" of Cloudium Technologies plc, which is generally defined in the relevant contracts as the acquisition by any person or group of persons acting in concert of 50% or more of the outstanding voting securities of Cloudium plc, or the consummation of a merger, consolidation, or similar transaction after which the existing shareholders of Cloudium plc hold less than 50% of the outstanding voting securities of the surviving entity.

The reverse triangular merger contemplated by the Transaction — pursuant to which Merger Sub will merge with and into Cloudium and Fund VI will become the sole stockholder of the surviving corporation — Squarely meets this definition. Accordingly, the change-of-control provisions in the affected employment agreements will be triggered upon the closing of the Transaction.

The specific change-of-control provisions identified in the data room include the following categories:

(a) Accelerated Vesting of Equity Awards and Cash Retention Bonuses. Certain senior UK employees hold equity-based compensation awards (restricted stock units and stock options) granted under the Cloudium Technologies plc 2018 Omnibus Incentive Plan. Under the terms of the plan and/or the individual award agreements, a change of control of Cloudium plc triggers accelerated vesting of outstanding unvested awards, either in full ("single trigger") or upon a qualifying termination of employment within a specified period following the change of control ("double trigger"). In addition, certain UK employees are party to cash retention bonus agreements that provide for the payment of a lump-sum retention bonus upon a change of control, subject in some cases to a continued employment requirement.

(b) Enhanced Termination Payments. Certain UK executive-level employees have contractual entitlements to enhanced severance payments if their employment is terminated by the employer (other than for cause) or if the employee resigns for "good reason" within 12 months following a change of control. These enhanced severance provisions typically provide for a severance multiplier (e.g., 1.5x or 2.0x annual base salary plus target bonus), continuation of health and welfare benefits for a specified period, and outplacement assistance. These provisions are designed to provide protection against post-acquisition termination and to incentivize key employees to remain through the transition period.

A detailed list of the UK employees with change-of-control provisions, together with summaries of the key terms of their agreements, is set forth in Appendix A to this memorandum (redacted summary from data room; full list on file with Calderwood & Harkness LLP). We estimate that the affected UK employees include approximately 15 to 20 individuals at the director level and above.

We note that the Issue-Specific Diligence Memo — Change-of-Control Provisions, dated January 8, 2024, contains a broader survey of all material contracts and arrangements that contain change-of-control provisions triggered by the Transaction. That memorandum covers not only the UK employment agreements discussed herein, but also commercial contracts — including the Aegis Federal Solutions Inc. Master SaaS Agreement ($84,000,000 in annual recurring revenue), the Helix Data Systems GmbH Technology License Agreement, and the existing revolving credit agreement with Atlas Commercial Lending Corp. ($820,000,000 outstanding principal balance) — as well as group-level executive employment and severance arrangements. The reader should refer to that memorandum for a comprehensive view of change-of-control obligations across the Cloudium enterprise.

Recommendation. We recommend that Solara quantify the aggregate cost of all change-of-control payments and enhanced termination benefits payable to UK employees in connection with the Transaction. These amounts should be included in the estimated transaction expenses or, to the extent appropriate, reflected in the purchase-price adjustment analysis. We understand that the current estimate of aggregate transaction expenses is $185,000,000; the UK change-of-control payments should be confirmed as being within this estimate or, if not, the estimate should be revised accordingly.

C. Information and Consultation Requirements (Non-TUPE)

In addition to the TUPE-specific information and consultation obligations (which, as discussed above, are not triggered by the Transaction), UK law imposes separate information and consultation requirements under the Information and Consultation of Employees Regulations 2004 (SI 2004/3426) (the "ICE Regulations"), as amended.

The ICE Regulations apply to undertakings with 50 or more employees in Great Britain. Cloudium UK, with approximately 1,200 employees, clearly exceeds this threshold. Under the ICE Regulations, employees may request the establishment of an information and consultation arrangement, and if a valid request is made (by at least 2% of the employees, subject to a minimum of 15 and a maximum of 2,500), the employer is required to negotiate and establish such an arrangement. Alternatively, an employer may establish an information and consultation arrangement on its own initiative. Once an ICE arrangement or body is in place, the employer is required to inform and consult with employee representatives about matters including: (a) the recent and probable development of the undertaking's activities and economic situation; (b) the situation, structure, and probable development of employment within the undertaking and any anticipatory measures envisaged, in particular where there is a threat to employment; and (c) decisions likely to lead to substantial changes in work organisation or in contractual relations, including redundancies and transfers.

Our review of the data room materials has not identified any evidence that Cloudium UK has a formally constituted ICE body, a negotiated ICE agreement, or a pre-existing information and consultation arrangement of any kind. Nor have we identified evidence that Cloudium UK has received a valid employee request to establish such an arrangement. However, it should be noted that if Cloudium UK employees become aware of the Transaction — whether through the public announcement expected on January 23, 2024, or through internal communications — and subsequently submit a valid request under the ICE Regulations, the obligation to negotiate and establish an information and consultation arrangement could crystallize at that point.

As a matter of prudent practice, we recommend that Cloudium UK prepare employee communications regarding the Transaction that are factual, reassuring, and consistent with the public announcement and the communications strategy agreed between Solara and Cloudium's management. Any such communications should be coordinated between the buyer and the seller, reviewed by both Calderwood & Harkness and Albright & Kerr, and should emphasize continuity of employment, the absence of any immediate changes to terms and conditions of employment, and the buyer's commitment to the UK workforce. Communications should avoid making any representations or commitments that could give rise to contractual claims or estoppel arguments.

D. Restrictive Covenants and Key Employee Retention

Our diligence review identified that approximately 45 senior UK employees of Cloudium UK — including statutory directors, vice presidents, and key technical leads — have post-termination restrictive covenants in their employment agreements. These covenants typically include:

(a) Non-Competition Covenants. Restrictions on the employee's ability to engage in, or be employed by, a business that competes with Cloudium's business for a period of 6 to 12 months following termination of employment. The scope of the non-compete is generally limited to the specific market segments and geographic territories in which the employee was actively involved during the final 12 months of employment.

(b) Non-Solicitation Covenants. Restrictions on the employee's ability to solicit or entice away customers, clients, suppliers, or employees of Cloudium or Cloudium UK for a period of 6 to 12 months following termination. These provisions are typically more broadly drafted than the non-compete covenants and cover any customer or prospective customer with whom the employee had material dealings.

These covenants survive the change of control effected by the Transaction and remain enforceable by Cloudium UK (as the continuing employer) subject to the standard UK enforceability framework. Under English law, post-termination restrictive covenants are prima facie void as being in restraint of trade, but will be upheld and enforced if the employer can demonstrate that: (i) the covenant protects a legitimate business interest (such as trade secrets, confidential information, or customer connections); (ii) the scope of the covenant (in terms of duration, geographic coverage, and restricted activities) goes no further than is reasonably necessary to protect that legitimate interest; and (iii) the covenant is not contrary to the public interest.

We have not been asked to opine on the enforceability of each individual covenant, but based on our general review, the covenants appear to be within the range of what UK courts have historically been willing to enforce for employees at this level of seniority in the technology sector, subject to the usual caveats regarding the fact-specific nature of the enforceability analysis.

Key Employee Retention. Given the significance of the UK workforce to Cloudium's business — the approximately 1,200 UK employees contribute to the generation of £312,000,000 in annual UK revenue and are responsible for core engineering, product development, and customer-facing functions — Solara should give careful consideration to retention arrangements for key UK personnel. The loss of senior UK employees during the post-acquisition transition period could have a material adverse effect on business continuity, customer relationships, and the integration process.

We note that Jonathan Hargrove (CEO of Cloudium Technologies plc) and Sienna Whitfield (CFO of Cloudium Technologies plc) are entering into separate Non-Competition and Non-Solicitation Agreements with Fund VI at signing on January 22, 2024, which operate at the group level and are intended to protect the buyer's investment in the broader Cloudium enterprise. However, these group-level agreements may not be sufficient to address retention of the UK senior management team specifically. We recommend that Solara consider implementing UK-specific retention arrangements — such as retention bonuses, revised equity incentive arrangements, or enhanced employment terms — for the most critical members of the UK leadership team, including the UK Managing Director and the heads of UK engineering, UK sales, and UK customer operations.

V. UK Pension Considerations

A. Defined Contribution Arrangements

Cloudium Technologies UK Ltd. operates a group personal pension plan on a defined contribution basis, in compliance with the automatic enrolment requirements introduced by the Pensions Act 2008 and the Employers' Duties (Implementation) Regulations 2010. Under these requirements, Cloudium UK is obligated to automatically enrol all eligible jobholders into a qualifying pension scheme and to make minimum employer contributions.

Based on our review of the data room materials, Cloudium UK's employer contribution rates range from 5% to 10% of qualifying earnings, depending on the seniority and role of the employee. The contributions at the lower end of this range (5%) apply to more junior employees and are above the statutory minimum employer contribution of 3%. Senior employees benefit from enhanced contribution rates of up to 10% of qualifying earnings. The pension provider appears to be a reputable institutional provider (based on data room references to Scottish Widows), and the scheme appears to be administered in accordance with applicable requirements.

A change of control at the parent company level does not, in itself, trigger any pension-related obligations or entitlements with respect to the defined contribution pension arrangements. The employer (Cloudium UK) remains the same before and after the Transaction, and the pension scheme continues to operate on the same basis. However, if any post-closing restructuring results in a change of employer — for example, if Cloudium UK employees are transferred to a different legal entity — the new employer must ensure that it complies with its own automatic enrolment obligations and maintains pension provision for the transferred employees at a level that is at least consistent with applicable statutory requirements. If TUPE applies to such a transfer, the transferee will be required (subject to certain limited exceptions) to provide pension benefits that are at least broadly comparable to those provided by the transferor, in accordance with the Transfer of Employment (Pension Protection) Regulations 2005.

B. Absence of Defined Benefit Liabilities

We have confirmed, through our review of the data room materials and through the representations of Cloudium's General Counsel, Nadia Chowdhury, that Cloudium Technologies UK Ltd. has never operated, participated in, or contributed to a defined benefit pension scheme. Cloudium UK has not incurred, and is not subject to, any liability under the Pensions Act 2004, including any contribution notice issued under Section 38 of that Act or any financial support direction issued under Section 43 of that Act by The Pensions Regulator. Cloudium UK has not received any warning notice, determination notice, or other regulatory action from The Pensions Regulator in connection with pension matters.

The absence of any defined benefit pension exposure is a significant positive finding from a diligence perspective. Defined benefit pension liabilities can represent a very material financial risk in UK acquisitions, particularly where the target company participates in a multi-employer defined benefit scheme with a significant funding deficit. The confirmation that Cloudium UK has no such exposure materially reduces the pension-related risk associated with the Transaction.

No material pension risk has been identified in connection with this Transaction.

VI. UK Working Time and Employment Regulatory Compliance

Our diligence review of Cloudium UK's HR policies, employee handbook, and related documentation maintained in the data room has confirmed that Cloudium UK maintains policies and practices that are generally compliant with applicable UK employment legislation, including:

(a) the Working Time Regulations 1998 (SI 1998/1833), including compliance with the 48-hour maximum weekly working time limit (with individual opt-out agreements in place for eligible employees), minimum rest periods, and statutory annual leave entitlements (which Cloudium UK supplements with additional contractual leave);

(b) the National Minimum Wage Act 1998 and the National Minimum Wage Regulations 2015, including compliance with applicable minimum wage and National Living Wage rates for all UK employees;

(c) the Equality Act 2010, including policies addressing non-discrimination, equal pay, reasonable adjustments for disabled employees, and the prevention of harassment in the workplace; and

(d) other applicable UK employment legislation, including the Employment Rights Act 1996 (statutory employment rights, including right to written statement of employment particulars, itemised pay statements, and protections against unlawful deductions from wages), the Health and Safety at Work etc. Act 1974, and the Data Protection Act 2018 and the UK General Data Protection Regulation (with respect to the processing of employee personal data).

Our review of the data room has not identified any material pending employment tribunal claims, regulatory investigations, or enforcement actions involving Cloudium UK. The only historical claim identified is a single employment tribunal discrimination claim that was settled in 2022 for an amount below £50,000. The claim has been fully resolved, and there is no ongoing exposure or outstanding liability in connection with it. Based on the information available to us, this settlement does not appear to be indicative of any systemic or recurring compliance deficiency within Cloudium UK's employment practices.

We note that this compliance overview is based on the documents and information made available to us in the data room and should not be construed as a comprehensive employment compliance audit. Any specific compliance concerns that arise during the post-closing period should be addressed through a more detailed operational review.

VII. Interaction with CMA Review Process

The acquisition of Cloudium Technologies plc by Fund VI is expected to be subject to review by the UK Competition and Markets Authority (the "CMA") under the merger control provisions of the Enterprise Act 2002. A merger notification (anticipated CMA Case No. ME/7184/24) is expected to be submitted to the CMA on or about February 12, 2024. The filing will address the competitive overlap between Solara's existing portfolio companies and Cloudium in the UK cloud ERP and digital infrastructure markets.

The CMA review process does not directly engage the UK employment law considerations discussed in this memorandum. However, in the event that the CMA were to impose behavioral remedies affecting Cloudium UK's operations — for example, requirements to maintain certain service levels, to continue operating in certain market segments, or to divest certain business lines — those remedies could have indirect workforce implications. For instance, a divestiture remedy, if imposed, could require the transfer of a portion of Cloudium UK's business to a third-party purchaser, which could trigger TUPE in respect of the employees assigned to the divested business.

Based on the preliminary competitive analysis conducted by Elaine Forsythe (Calderwood & Harkness LLP, Antitrust & Competition) and Fiona McAllister (Albright & Kerr LLP), CMA clearance is anticipated during Phase 1 of the CMA's review process, and the imposition of behavioral or structural remedies is considered unlikely. The overlap between Solara's existing portfolio and Cloudium's UK operations is limited, and the parties' combined market shares in the relevant segments are expected to fall below the thresholds that would ordinarily give rise to competition concerns. However, the CMA retains discretion to conduct a more detailed Phase 2 investigation if it is not satisfied that the merger does not give rise to a realistic prospect of a substantial lessening of competition. Calderwood & Harkness and Albright & Kerr will continue to monitor the CMA review process and will advise Solara promptly if any developments arise that could have employment law implications.

VIII. Recommendations

Based on the analysis set forth in this memorandum, we make the following recommendations:

1. TUPE — No Action Required at This Stage. No TUPE notification or consultation obligations are triggered by the share-level acquisition contemplated by the Transaction. The reverse triangular merger does not constitute a "relevant transfer" under either Regulation 3(1)(a) or Regulation 3(1)(b) of the TUPE Regulations. No further action is required at this stage with respect to TUPE compliance in connection with the closing of the Transaction.

2. Post-Closing Restructuring — Engage Counsel Early. Any post-closing reorganization or integration activity affecting Cloudium UK's business operations, employees, or legal entity structure must be assessed for TUPE applicability before implementation. This includes any contemplated intra-group transfers of business functions, outsourcing of activities currently performed in-house, or entity rationalization exercises. Calderwood & Harkness and Albright & Kerr should be engaged at the earliest stages of integration planning to ensure that TUPE risks are identified and managed appropriately.

3. Change-of-Control Payments — Quantify and Budget. Solara should quantify all UK employee change-of-control payments and enhanced termination benefits that will be triggered upon closing of the Transaction. These include accelerated vesting of equity awards, cash retention bonuses, and enhanced severance entitlements for senior UK employees with change-of-control provisions in their employment contracts. The aggregate cost should be factored into the closing statement, transaction expense estimates (currently estimated at $185,000,000 in aggregate), and/or purchase-price adjustment analysis as appropriate.

4. Employee Communications — Prepare and Coordinate. Coordinated employee communications should be prepared for the UK workforce, to be issued promptly after the public announcement of the Transaction on January 23, 2024. The messaging should emphasize continuity of employment, the absence of any immediate changes to terms and conditions of employment, and Solara's commitment to the continued success and growth of Cloudium's UK operations. All communications should be reviewed by counsel before issuance and should be consistent with the public-facing announcement and any SEC filings.

5. Key Employee Retention — Consider UK-Specific Arrangements. Solara should consider implementing UK-specific retention arrangements for senior Cloudium UK employees, in addition to the group-level non-competition and non-solicitation agreements being executed by Jonathan Hargrove and Sienna Whitfield at signing. Retention mechanisms could include retention bonuses, revised equity incentive awards under a new management incentive plan, or enhanced employment terms for the most critical members of the UK leadership team.

6. Pension — Confirm Ongoing Compliance. No defined benefit pension exposure has been identified. Solara should confirm that Cloudium UK's automatic enrolment obligations and defined contribution pension arrangements are maintained in compliance with the Pensions Act 2008 and associated regulations following the closing. If any post-closing restructuring results in a change of employer for UK employees, the new employer's pension obligations should be assessed at that time.

7. Collective Consultation — Plan for Contingency. If any redundancy program or material workforce reduction is contemplated in connection with post-closing integration or restructuring, Solara must ensure compliance with the collective consultation requirements under Part IV, Chapter II of TULRCA 1992. Given the size of Cloudium UK's workforce (approximately 1,200 employees), any program involving the proposed dismissal of 100 or more employees would trigger the requirement for 45 days of collective consultation before the first dismissal takes effect. This should be factored into any integration timeline.

8. Merger Agreement Protections — Confirm Comprehensive Representations. We recommend that Article IV (Seller's Representations and Warranties) of the Merger Agreement include comprehensive employee-related representations and warranties covering, at a minimum:

(a) compliance by Cloudium and its subsidiaries (including Cloudium UK) with applicable employment laws in all material respects;

(b) a complete and accurate list of all UK employees and the material terms of their employment, including compensation, benefits, notice periods, and restrictive covenants;

(c) complete and accurate disclosure of all change-of-control obligations, including accelerated vesting, retention bonuses, and enhanced severance entitlements;

(d) confirmation of the absence of any defined benefit pension liabilities, contribution notices, or financial support directions;

(e) disclosure of all material pending or threatened employment claims, investigations, or regulatory proceedings; and

(f) disclosure of any trade union recognition agreements, collective bargaining agreements, or employee representative arrangements.

These representations will be covered by the buyer-side representations and warranties insurance policy issued by Northfield Assurance (Policy No. NFA-TRI-2024-00487), which provides aggregate coverage of $680,000,000, subject to the indemnity escrow retention of $544,000,000 (representing 8% of the enterprise value). Any breach of the employment-related representations that does not give rise to a claim under the indemnity escrow (because the losses fall below the retention or are otherwise excluded) may be recoverable under the R&W insurance policy, subject to the policy terms, conditions, and exclusions. We will coordinate with the R&W insurance workstream to ensure that the policy provides appropriate coverage for UK employment-related risks.

IX. Appendices and Cross-References

Appendix A

List of Cloudium UK Senior Employees with Change-of-Control Provisions in Employment Contracts

A redacted summary of the senior UK employees whose employment agreements contain change-of-control provisions is maintained on file with Calderwood & Harkness LLP. The full list, including names, titles, key contract terms, estimated change-of-control payment amounts, and copies of the relevant agreements, is available in the virtual data room (Folder 4.3.2 — UK Employment Agreements — Senior Executives). Access to this information is restricted to authorized members of the Solara deal team and their legal advisors.

Appendix B

Summary of Cloudium UK Pension Arrangements

A summary of Cloudium UK's defined contribution pension arrangements, including the pension provider, contribution rates by employee category, and automatic enrolment compliance documentation, is available in the virtual data room (Folder 4.5.1 — UK Pension Arrangements). No defined benefit pension scheme documentation was identified.

Cross-References

The following documents are referenced in or relate to this memorandum and should be consulted for a complete understanding of the matters discussed herein:

• Due Diligence Summary Memorandum (January 5, 2024) — comprehensive summary of diligence findings across all workstreams.

• Issue-Specific Diligence Memo — Change-of-Control Provisions (January 8, 2024) — survey of all material contracts and arrangements containing change-of-control provisions triggered by the Transaction, including the Aegis Federal Solutions Inc. Master SaaS Agreement, the Helix Data Systems GmbH Technology License Agreement, and the Atlas Commercial Lending Corp. credit agreement.

• Supplemental Due Diligence Request List — Employee Benefits and Compensation (October 22, 2023) — additional diligence requests issued to Cloudium relating to UK and global employee benefits, compensation, and pension matters.

• C&H Annotated Redline — Indemnification and Escrow Provisions (January 3, 2024) — annotated markup of the indemnification, escrow, and R&W insurance provisions of the Merger Agreement.

• Tax Memorandum — Post-Closing Integration Tax Considerations (prepared by Leonard Cross, Calderwood & Harkness LLP) — tax analysis of potential post-closing intercompany restructuring, including IP migration, transfer pricing, and entity rationalization for Cloudium UK and Cloudium Solutions GmbH.

• CMA Merger Notice — Draft (February 5, 2024, forthcoming) — draft CMA merger notification being prepared by Elaine Forsythe (Calderwood & Harkness LLP) and Fiona McAllister (Albright & Kerr LLP).

• Post-Closing Integration Memorandum (to be prepared post-closing) — comprehensive integration planning memorandum addressing operational, legal, tax, and employment considerations.

This memorandum is intended to provide legal analysis and recommendations in connection with the proposed Transaction and does not constitute legal advice on any other matter. The conclusions expressed herein are based on the facts and circumstances as they exist on the date of this memorandum and on the documents and information made available to us in the virtual data room. Our analysis may change if the facts or circumstances change, or if additional information becomes available. This memorandum is subject to the qualifications and assumptions stated herein and should be read in conjunction with the other diligence memoranda referenced above.

PREPARED BY:

Tiffany Rosenthal Lead Associate, Mergers & Acquisitions Calderwood & Harkness LLP 599 Lexington Avenue, New York, NY 10022 One Bartholomew Close, London EC1A 7BL

REVIEWED BY:

Harrison Wexford Responsible Partner, Mergers & Acquisitions Calderwood & Harkness LLP 599 Lexington Avenue, New York, NY 10022

UK EMPLOYMENT INPUT:

Fiona McAllister Lead Partner Albright & Kerr LLP 5 New Street Square, London EC4A 3TW

Calderwood & Harkness LLP	599 Lexington Avenue, New York, NY 10022	One Bartholomew Close, London EC1A 7BL
FROM:	Tiffany Rosenthal, Calderwood & Harkness LLP (with input from the London office, One Bartholomew Close, London EC1A 7BL)
TO:	Harrison Wexford, Responsible Partner, Calderwood & Harkness LLP; Marcus Elliston, Founder & Managing Partner, Solara Digital Infrastructure LP; Priya Narasimhan, Co-Managing Partner & CIO, Solara Digital Infrastructure LP
DATE:	January 10, 2024
RE:	Issue-Specific Diligence Memorandum — UK Employment and TUPE Considerations in Connection with the Proposed Acquisition of Cloudium Technologies plc
MATTER NO.:	1041-00003

PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGE ATTORNEY WORK PRODUCT
CALDERWOOD & HARKNESS LLP 599 Lexington Avenue, New York, NY 10022 One Bartholomew Close, London EC1A 7BL
MEMORANDUM
CONFIDENTIALITY LEGEND: This memorandum is prepared by Calderwood & Harkness LLP for the exclusive use of Solara Digital Infrastructure LP and Solara Digital Infrastructure Fund VI LP (collectively, "Solara" or the "Buyer") in connection with the proposed acquisition of Cloudium Technologies plc ("Cloudium" or the "Company"). This memorandum contains attorney-client privileged communications and attorney work product and is not to be disclosed to any third party without the prior written consent of Calderwood & Harkness LLP and Solara Digital Infrastructure LP. Unauthorized disclosure may result in a waiver of applicable privileges.
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I. Executive Summary
This memorandum sets forth our analysis of the application of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (SI 2006/246), as amended (the "TUPE Regulations" or "TUPE"), to the workforce of Cloudium Technologies UK Ltd. ("Cloudium UK") in the context of the proposed acquisition of Cloudium Technologies plc ("Cloudium" or the "Company") by Solara Digital Infrastructure Fund VI LP ("Fund VI").
The proposed transaction is structured as a reverse triangular merger under Delaware law, whereby Stratos Merger Sub Inc. ("Merger Sub"), a newly formed Delaware corporation and wholly owned subsidiary of Fund VI, will merge with and into Cloudium, with Cloudium surviving the merger as a wholly owned subsidiary of Fund VI (the "Transaction"). The aggregate consideration payable in the Transaction is approximately $6,800,000,000 (approximately $36.92 per share for 184,200,000 outstanding shares of Cloudium common stock).
Our principal conclusion is that TUPE is unlikely to apply to this Transaction. The acquisition is structured as a share acquisition — that is, a change of corporate ownership at the parent company level — rather than a transfer of an undertaking, business, or part of an undertaking or business, or a service provision change. TUPE applies to transfers of undertakings and businesses and to service provision changes; it does not apply to share sales or changes in the ultimate beneficial ownership of a company. This is a well-established principle of UK employment law and has been consistently upheld by UK tribunals and appellate courts for decades.
Notwithstanding this conclusion, this memorandum addresses a number of related matters that are relevant to the Transaction and to Solara's post-closing ownership of Cloudium UK, including:
(a) the residual risk that elements of post-closing restructuring or integration activity could trigger TUPE at a later stage, particularly if business operations, employees, or functions are transferred between legal entities within the Solara portfolio;
(b) related UK employment law considerations, including statutory protections against unfair dismissal and redundancy, collective consultation obligations, and change-of-control provisions contained in certain senior UK employment contracts;
(c) employee information and consultation requirements under the Information and Consultation of Employees Regulations 2004 (the "ICE Regulations");
(d) restrictive covenants applicable to key UK employees and retention considerations; and
(e) UK pension implications, including the absence of any defined benefit pension exposure.
Target UK Entity. Cloudium Technologies UK Ltd. is a private limited company incorporated in England and Wales under Company No. 11287456, with its registered office at 45 Broadwick Street, London W1F 0DB. Cloudium UK is a wholly owned subsidiary of Cloudium Technologies plc. The UK subsidiary maintains offices in London (headquarters and principal engineering centre) and Manchester (secondary engineering and customer support operations). As of the date of this memorandum, Cloudium UK employs approximately 1,200 individuals across these two locations, ranging from senior executive leadership to software engineers, customer success managers, and administrative support staff.
Financial Overview. Cloudium UK reported revenue of approximately £312,000,000 (approximately $390,000,000 at an exchange rate of $1.25 per pound sterling) for the fiscal year ended September 30, 2023. The UK subsidiary represents a significant portion of Cloudium's overall global operations and is a core component of the Company's value proposition.
Coordination with UK Counsel. This memorandum has been prepared in consultation with Albright & Kerr LLP ("Albright & Kerr"), Solara's UK regulatory counsel. Fiona McAllister, Lead Partner at Albright & Kerr (5 New Street Square, London EC4A 3TW), is advising Solara on UK competition matters, including the anticipated filing with the UK Competition and Markets Authority (the "CMA"), and has provided substantive input on the UK employment law aspects discussed herein. We have coordinated our analysis to ensure consistency between the employment-related conclusions in this memorandum and the broader regulatory advice being provided by Albright & Kerr.
II. Transaction Structure and Relevance to UK Employment Law
A. Overview of the Transaction
Solara Digital Infrastructure Fund VI LP, a Delaware limited partnership managed by Solara Digital Infrastructure LP, proposes to acquire all of the outstanding shares of common stock of Cloudium Technologies plc, a Delaware corporation that is publicly traded on the Nasdaq Global Select Market under the ticker symbol "CLDM." The aggregate transaction consideration is approximately $6,800,000,000, representing a price of approximately $36.92 per share for the 184,200,000 shares of Cloudium common stock outstanding as of the record date.
The Transaction is structured as a reverse triangular merger under the General Corporation Law of the State of Delaware. Specifically:
(i) Stratos Merger Sub Inc. ("Merger Sub"), a Delaware corporation incorporated on January 8, 2024 (Delaware File No. 7923841), whose sole stockholder is Fund VI, will merge with and into Cloudium Technologies plc pursuant to an Agreement and Plan of Merger (the "Merger Agreement") to be executed on or about January 22, 2024;
(ii) Upon consummation of the merger, Merger Sub will cease to exist as a separate legal entity, and Cloudium Technologies plc will survive the merger as the surviving corporation and a wholly owned subsidiary of Fund VI;
(iii) At the effective time of the merger, each outstanding share of Cloudium common stock (other than shares held by Cloudium as treasury shares, shares held by Fund VI or Merger Sub, and shares held by stockholders who properly exercise appraisal rights under Section 262 of the Delaware General Corporation Law) will be converted into the right to receive $36.92 per share in cash, without interest, subject to applicable tax withholding; and
(iv) Following the closing, Cloudium will continue to operate its business through its existing subsidiaries, including Cloudium Technologies UK Ltd., Cloudium Solutions GmbH (Germany), Cloudium Technologies Pte. Ltd. (Singapore), and Cloudium Technologies Pty Ltd (Australia), among others. The corporate structure of these subsidiaries is expected to remain unchanged at closing.
The anticipated signing date for the Merger Agreement is January 22, 2024, with a public announcement expected on January 23, 2024. Closing of the Transaction is expected in mid-2024, subject to the satisfaction of customary closing conditions, including: (a) approval by Cloudium stockholders at a special meeting of stockholders; (b) expiration or early termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"); (c) clearance by the UK CMA under the Enterprise Act 2002; and (d) other customary conditions, including the absence of any material adverse effect, the accuracy of representations and warranties in all material respects, and compliance with covenants.
Critically, for purposes of this memorandum, Cloudium Technologies UK Ltd. is and will remain a wholly owned subsidiary of Cloudium Technologies plc. The UK subsidiary's corporate structure is entirely unaffected by the reverse triangular merger. Cloudium UK does not issue shares that are being acquired, and no assets, contracts, or employees of Cloudium UK are being transferred to any other legal entity as part of the Transaction. The only change is at the level of Cloudium plc's ultimate ownership — Cloudium plc, which was previously a publicly held Delaware corporation, will become a wholly owned subsidiary of Fund VI.
B. Share Sale vs. Business Transfer Distinction
The distinction between a share sale (or, as in this case, a merger that has the economic effect of a share acquisition) and a business or asset transfer is of fundamental importance to the TUPE analysis.
In a share sale or a merger in which the target company survives, the target company itself — including all of its assets, contracts, liabilities, and employees — remains within the same legal entity. There is no transfer of business or assets from one legal person to another. The only change is in the identity of the shareholders (or, in the case of a reverse triangular merger, the ultimate parent) of the target company. The employer of record remains the same before and after the transaction.
By contrast, in a business or asset transfer, the purchaser acquires the business, assets, and/or operations of the target directly, and the employees who are assigned to the transferred business may be required to transfer to the purchaser (or to a different legal entity) as a consequence of the transaction. It is this latter category of transaction — the transfer of a business or undertaking from one legal person to another — that TUPE is designed to address.
In the present case, the Transaction is unambiguously a share-level transaction. Cloudium Technologies UK Ltd. remains the employer of its approximately 1,200 employees both before and after the closing of the merger. No assets, contracts, or business operations of Cloudium UK are being transferred from Cloudium UK to Fund VI, Merger Sub, or any other Solara entity. The employees of Cloudium UK will continue to be employed by Cloudium UK on the same terms and conditions of employment that applied immediately before closing. Their continuity of employment will be entirely unbroken.
This structural characteristic is dispositive for purposes of the TUPE analysis, as we discuss in detail in Section III below.
III. TUPE Analysis
A. Overview of TUPE 2006
The Transfer of Undertakings (Protection of Employment) Regulations 2006 (SI 2006/246) (the "TUPE Regulations") implement the European Union's Acquired Rights Directive (Council Directive 2001/23/EC) into UK domestic law. Although the United Kingdom withdrew from the European Union on January 31, 2020, and the transition period ended on December 31, 2020, the TUPE Regulations remain in force as retained EU law under the European Union (Withdrawal) Act 2018, as amended. The TUPE Regulations were themselves amended by the Collective Redundancies and Transfer of Undertakings (Protection of Employment) (Amendment) Regulations 2014 (SI 2014/16), which made certain procedural modifications but did not alter the substantive scope of the regulations in any way material to this analysis.
The TUPE Regulations cover two categories of "relevant transfer":
(1) Transfer of an Undertaking (Regulation 3(1)(a)). A relevant transfer occurs where there is a transfer of an undertaking, business, or part of an undertaking or business situated immediately before the transfer in the United Kingdom to another person where there is a transfer of an economic entity which retains its identity. The concept of a "transfer of an economic entity which retains its identity" is derived from the European Court of Justice's landmark decision in Spijkers v. Gebroeders Benedik Abattoir CV (Case 24/85) [1986] ECR 1119 and the subsequent body of ECJ and UK case law. The key question is whether the entity in question — understood as an organised grouping of resources (including employees, tangible and intangible assets, and customer relationships) that has the objective of pursuing an economic activity — retains its identity following the transfer. Factors relevant to this assessment include whether tangible or intangible assets are transferred, whether the majority of the workforce is taken on by the new employer, whether customers are transferred, whether the activity continues after the transfer, and the degree of similarity between the activities carried on before and after the transfer.
(2) Service Provision Change (Regulation 3(1)(b)). A relevant transfer also occurs in three specific service provision scenarios: (a) activities cease to be carried out by a person ("a client") on his own behalf and are carried out instead by another person on the client's behalf ("outsourcing"); (b) activities cease to be carried out by a contractor on a client's behalf and are carried out instead by another person ("re-tendering" or "second-generation contracting"); or (c) activities cease to be carried out by a contractor on a client's behalf and are carried out instead by the client ("insourcing"). In each case, the activities must be fundamentally the same before and after the change, and there must be an organised grouping of employees situated in Great Britain that has as its principal purpose the carrying out of the activities concerned on behalf of the client.
The principal legal consequences of a relevant transfer under TUPE are as follows:
(a) Automatic Transfer of Employment. The contracts of employment of all employees assigned to the transferring undertaking, business, or organised grouping automatically transfer from the transferor to the transferee by operation of law (Regulation 4(1)). The transferee inherits all rights, powers, duties, and liabilities under or in connection with those contracts of employment (Regulation 4(2)).
(b) Protection Against Dismissal. A dismissal of an employee is automatically unfair if the sole or principal reason for the dismissal is the transfer itself (Regulation 7(1)). A dismissal connected with the transfer will not be automatically unfair if the sole or principal reason for it is an "economic, technical, or organisational reason entailing changes in the workforce" (an "ETO reason") of either the transferor or the transferee (Regulation 7(2)–(3)). Even where an ETO reason exists, the dismissal must still be procedurally and substantively fair under ordinary unfair dismissal principles.
(c) Prohibition on Detrimental Variation of Terms. Any purported variation of an employee's contract of employment is void if the sole or principal reason for the variation is the transfer itself (Regulation 4(4)), unless the variation is for an ETO reason or is permitted by the contract.
(d) Information and Consultation. Both the transferor and the transferee are required to inform and consult with appropriate representatives of affected employees in advance of a relevant transfer (Regulations 13–15). Failure to comply with these obligations can result in a compensatory award of up to 13 weeks' pay per affected employee.
B. Application to the Proposed Transaction
Having set out the legal framework, we now apply it to the facts of the proposed Transaction.
Regulation 3(1)(a) — Transfer of an Undertaking. In our opinion, Regulation 3(1)(a) is not triggered by the Transaction. The Transaction is structured as a reverse triangular merger at the parent company level. As a consequence of the merger, Merger Sub will merge with and into Cloudium Technologies plc, and Cloudium plc will survive the merger as a wholly owned subsidiary of Fund VI. Cloudium Technologies UK Ltd. — the relevant UK employer — remains at all times a wholly owned subsidiary of Cloudium plc. No undertaking, business, or part of any undertaking or business is being transferred from one legal entity to another. Cloudium UK will continue to carry on its business in exactly the same manner as before the Transaction, using the same assets, the same premises, the same customer contracts, and the same employees. The only change is the identity of the ultimate beneficial owner of Cloudium UK's shares (through the intermediary of Cloudium plc).
This conclusion is consistent with well-settled UK case law establishing that a mere change in the ownership of shares in a company does not amount to a transfer of the company's undertaking for TUPE purposes. The leading authorities on this point include:
• Brookes v. Borough Care Services [1998] ICR 1198 (EAT): The Employment Appeal Tribunal held that a transfer of shares in a company does not constitute a TUPE transfer. The company whose shares are transferred remains the same legal person and the same employer; there is no change in the identity of the employer, and accordingly no "transfer" of the undertaking within the meaning of the Regulations.
• Print Factory (London) 1991 Ltd v. Millam [2007] ICR 449 (CA): The Court of Appeal confirmed that where the transaction is a share acquisition, TUPE does not apply. The court noted that the statutory provisions are directed at situations where there is a transfer of a business from one person to another, and that a change in the ownership of a company's shares does not effect such a transfer. The court further cautioned against attempts to "look through" the corporate structure to treat a share sale as if it were a business transfer.
• The European Court of Justice's decision in Allen v. Amalgamated Construction Co. Ltd (Case C-234/98) [2000] ICR 436 provides further support, establishing that TUPE (and the underlying Acquired Rights Directive) apply to transfers between distinct legal entities, and that an intra-group transfer can constitute a relevant transfer only where there is an actual transfer of an economic entity from one legal person to another.
In the present case, there is no transfer of an economic entity from one legal person to another. Cloudium UK's business remains within Cloudium UK. The Transaction merely changes the identity of Cloudium UK's ultimate beneficial owner (from the public shareholders of Cloudium plc to Fund VI). This is precisely the type of share-level change that falls outside the scope of TUPE.
Regulation 3(1)(b) — Service Provision Change. In our opinion, Regulation 3(1)(b) is similarly not triggered by the Transaction. There is no outsourcing, insourcing, or change of contractor arrangement in connection with the Transaction. No services currently performed by Cloudium UK employees are being reassigned to, or assumed by, a different entity. Cloudium UK will continue to perform its activities (principally, the development, deployment, and support of Cloudium's cloud-based enterprise resource planning software for UK and European customers) in-house, using its own employees, after the closing of the Transaction. There is no "client" for whom services are being performed by a contractor, and no change in the identity of the entity performing any relevant services.
Accordingly, we conclude that neither limb of the TUPE Regulations is engaged by the Transaction itself.
C. Post-Closing Restructuring Risk
While the Transaction itself does not trigger TUPE, it is important to flag the risk that post-closing restructuring or integration activity could trigger TUPE at a later stage. This risk arises if, following the closing, Solara undertakes any reorganization that involves the transfer of all or part of Cloudium UK's business operations, employees, or functions from Cloudium UK to another legal entity — whether that entity is an existing Solara portfolio company, a newly formed entity within the Solara group, or a third party.
By way of example, the following types of post-closing activity could potentially trigger TUPE:
(a) Intra-Group Business Transfer. If Solara determines that certain functions currently performed by Cloudium UK (e.g., customer support, engineering, or back-office services) should be consolidated into a separate Solara-affiliated entity or shared services vehicle, the transfer of those functions — and the employees assigned to them — from Cloudium UK to the new entity could constitute a relevant transfer under Regulation 3(1)(a) if an economic entity that retains its identity is transferred.
(b) Outsourcing. If Solara decides to outsource certain functions currently performed in-house by Cloudium UK employees to a third-party service provider, this could constitute a service provision change under Regulation 3(1)(b), provided that the conditions set out in that regulation are met (i.e., the activities are fundamentally the same, and there is an organised grouping of employees whose principal purpose is the carrying out of those activities).
(c) Entity Rationalization. If Solara determines that Cloudium UK should be wound down and its business transferred to a newly incorporated entity (for example, as part of a broader legal entity simplification or rebranding exercise), the transfer of the business from Cloudium UK to the new entity would almost certainly constitute a relevant transfer under Regulation 3(1)(a).
In each of these scenarios, the TUPE obligations described in Section III.A above — including the automatic transfer of employee contracts, the prohibition on transfer-connected dismissals, and the information and consultation requirements — would apply. Failure to comply with TUPE obligations could result in significant liabilities, including claims for automatic unfair dismissal and failure-to-inform-and-consult awards.
Recommendation. We strongly recommend that Calderwood & Harkness and Albright & Kerr be consulted before any post-closing intra-group reorganization or integration activity that could affect Cloudium UK's employees, business functions, or legal entity structure is implemented. TUPE analysis should form a standard component of any post-closing integration planning involving the UK workforce.
We note for completeness that the Post-Closing Integration Memorandum (to be prepared following the closing of the Transaction) will address integration planning in greater detail. In addition, the Tax Memorandum — Post-Closing Integration Tax Considerations, prepared by Leonard Cross of Calderwood & Harkness LLP, addresses the tax implications of potential post-closing intercompany restructuring, including intellectual property migration, intercompany transfer pricing adjustments, and entity rationalization with respect to both Cloudium Technologies UK Ltd. and Cloudium Solutions GmbH. Any restructuring steps identified in the tax memorandum that involve changes to the UK legal entity structure or the transfer of business functions should be reviewed for TUPE implications before implementation.
IV. Related UK Employment Law Considerations
Even though TUPE does not apply to the Transaction, a number of other UK employment law considerations are relevant to Solara's acquisition and post-closing ownership of Cloudium UK. We address these below.
A. Unfair Dismissal and Redundancy Protections
UK employees benefit from general statutory protections against unfair dismissal under the Employment Rights Act 1996 (the "ERA 1996"). These protections are independent of TUPE and apply to any termination of employment by the employer, regardless of whether the termination is connected to a change of ownership.
Under Part X of the ERA 1996, an employee who has been continuously employed for a period of not less than two years (the qualifying period) has the right not to be unfairly dismissed. A dismissal will be unfair unless the employer can show that the reason (or, if more than one, the principal reason) for the dismissal falls within one of the potentially fair reasons specified in Section 98(2) of the ERA 1996 — including capability, conduct, redundancy, contravention of a statutory enactment, or "some other substantial reason of a kind such as to justify the dismissal of an employee holding the position which the employee held." Even where a potentially fair reason exists, the dismissal will only be fair if the employer acted reasonably in treating that reason as a sufficient reason for dismissing the employee, having regard to all the circumstances including the size and administrative resources of the employer's undertaking, and the decision to dismiss fell within the range of reasonable responses open to a reasonable employer.
If post-closing restructuring results in the elimination of roles or positions within Cloudium UK, the statutory redundancy regime applies. An employee is dismissed by reason of redundancy if the dismissal is attributable wholly or mainly to: (a) the fact that the employer has ceased, or intends to cease, to carry on the business for the purposes of which the employee was employed, or has ceased or intends to cease to carry on that business in the place where the employee was so employed; or (b) the fact that the requirements of the business for employees to carry out work of a particular kind, or to carry out work of a particular kind in the place where the employee was employed, have ceased or diminished or are expected to cease or diminish (Section 139, ERA 1996).
Employees who are dismissed by reason of redundancy and who have at least two years' continuous service are entitled to a statutory redundancy payment calculated by reference to age, length of service, and weekly pay (subject to a statutory cap, currently £643 per week as of April 2023). Many employers, including Cloudium UK, also offer enhanced contractual redundancy terms that exceed the statutory minimum. Our data room review has confirmed that Cloudium UK's employee handbook provides for enhanced redundancy payments of one month's salary per year of service for all UK employees, subject to a maximum of 12 months' salary.
In addition, to ensure that a redundancy dismissal is fair, the employer must: (i) adopt fair and objective selection criteria; (ii) apply those criteria consistently; (iii) consult individually with each affected employee; (iv) consider and offer any suitable alternative employment that may be available within the employer's organisation; and (v) follow a fair process, including providing the employee with adequate notice and the opportunity to appeal the decision.
Collective Consultation Obligations. Where an employer proposes to dismiss as redundant 20 or more employees at one establishment within a period of 90 days or less, the employer must comply with the collective consultation requirements set out in Part IV, Chapter II of the Trade Union and Labour Relations (Consolidation) Act 1992 (the "TULRCA 1992"), Sections 188–198. The key requirements are as follows:
(i) If the employer proposes to dismiss 20 or more but fewer than 100 employees at one establishment within 90 days, the employer must begin the consultation process at least 30 days before the first dismissal takes effect.
(ii) If the employer proposes to dismiss 100 or more employees at one establishment within 90 days, the employer must begin the consultation process at least 45 days before the first dismissal takes effect.
(iii) The employer must consult with "appropriate representatives" of the affected employees. These may be trade union representatives (where the employer recognises a trade union for collective bargaining purposes) or elected employee representatives. Our data room review has not identified any trade union recognition agreement in place at Cloudium UK.
(iv) The employer must also file a notification with the Secretary of State for Business and Trade (Form HR1) before the consultation begins.
(v) The consultation must be conducted with a view to reaching agreement with the employee representatives on ways to avoid or reduce the proposed dismissals and to mitigate their consequences. The employer must disclose to the representatives the reasons for the proposals, the numbers and descriptions of employees proposed to be dismissed, the total number of employees of that description employed at the establishment, the proposed method of selection, the proposed method of carrying out the dismissals, and the proposed method of calculating redundancy payments.
Given the size of Cloudium UK's workforce — approximately 1,200 employees across the London and Manchester offices — any material post-closing restructuring program that involves role eliminations would very likely exceed the 100-employee threshold and trigger the requirement for 45 days of collective consultation before the first dismissal takes effect. This has significant implications for the timing and planning of any post-closing integration that involves workforce reductions.
Failure to comply with the collective consultation requirements can result in the making of a "protective award" by an employment tribunal of up to 90 days' pay per affected employee. For a workforce of 1,200 employees, a maximum protective award could be very substantial.
B. Change of Control Provisions in Employment Contracts
Our diligence review of senior UK employee contracts, conducted through the virtual data room maintained by Cloudium in connection with the Transaction, disclosed that certain executive-level employees of Cloudium Technologies UK Ltd. have employment agreements containing change-of-control clauses. These clauses are typically triggered by a "change of control" of Cloudium Technologies plc, which is generally defined in the relevant contracts as the acquisition by any person or group of persons acting in concert of 50% or more of the outstanding voting securities of Cloudium plc, or the consummation of a merger, consolidation, or similar transaction after which the existing shareholders of Cloudium plc hold less than 50% of the outstanding voting securities of the surviving entity.
The reverse triangular merger contemplated by the Transaction — pursuant to which Merger Sub will merge with and into Cloudium and Fund VI will become the sole stockholder of the surviving corporation — Squarely meets this definition. Accordingly, the change-of-control provisions in the affected employment agreements will be triggered upon the closing of the Transaction.
The specific change-of-control provisions identified in the data room include the following categories:
(a) Accelerated Vesting of Equity Awards and Cash Retention Bonuses. Certain senior UK employees hold equity-based compensation awards (restricted stock units and stock options) granted under the Cloudium Technologies plc 2018 Omnibus Incentive Plan. Under the terms of the plan and/or the individual award agreements, a change of control of Cloudium plc triggers accelerated vesting of outstanding unvested awards, either in full ("single trigger") or upon a qualifying termination of employment within a specified period following the change of control ("double trigger"). In addition, certain UK employees are party to cash retention bonus agreements that provide for the payment of a lump-sum retention bonus upon a change of control, subject in some cases to a continued employment requirement.
(b) Enhanced Termination Payments. Certain UK executive-level employees have contractual entitlements to enhanced severance payments if their employment is terminated by the employer (other than for cause) or if the employee resigns for "good reason" within 12 months following a change of control. These enhanced severance provisions typically provide for a severance multiplier (e.g., 1.5x or 2.0x annual base salary plus target bonus), continuation of health and welfare benefits for a specified period, and outplacement assistance. These provisions are designed to provide protection against post-acquisition termination and to incentivize key employees to remain through the transition period.
A detailed list of the UK employees with change-of-control provisions, together with summaries of the key terms of their agreements, is set forth in Appendix A to this memorandum (redacted summary from data room; full list on file with Calderwood & Harkness LLP). We estimate that the affected UK employees include approximately 15 to 20 individuals at the director level and above.
We note that the Issue-Specific Diligence Memo — Change-of-Control Provisions, dated January 8, 2024, contains a broader survey of all material contracts and arrangements that contain change-of-control provisions triggered by the Transaction. That memorandum covers not only the UK employment agreements discussed herein, but also commercial contracts — including the Aegis Federal Solutions Inc. Master SaaS Agreement ($84,000,000 in annual recurring revenue), the Helix Data Systems GmbH Technology License Agreement, and the existing revolving credit agreement with Atlas Commercial Lending Corp. ($820,000,000 outstanding principal balance) — as well as group-level executive employment and severance arrangements. The reader should refer to that memorandum for a comprehensive view of change-of-control obligations across the Cloudium enterprise.
Recommendation. We recommend that Solara quantify the aggregate cost of all change-of-control payments and enhanced termination benefits payable to UK employees in connection with the Transaction. These amounts should be included in the estimated transaction expenses or, to the extent appropriate, reflected in the purchase-price adjustment analysis. We understand that the current estimate of aggregate transaction expenses is $185,000,000; the UK change-of-control payments should be confirmed as being within this estimate or, if not, the estimate should be revised accordingly.
C. Information and Consultation Requirements (Non-TUPE)
In addition to the TUPE-specific information and consultation obligations (which, as discussed above, are not triggered by the Transaction), UK law imposes separate information and consultation requirements under the Information and Consultation of Employees Regulations 2004 (SI 2004/3426) (the "ICE Regulations"), as amended.
The ICE Regulations apply to undertakings with 50 or more employees in Great Britain. Cloudium UK, with approximately 1,200 employees, clearly exceeds this threshold. Under the ICE Regulations, employees may request the establishment of an information and consultation arrangement, and if a valid request is made (by at least 2% of the employees, subject to a minimum of 15 and a maximum of 2,500), the employer is required to negotiate and establish such an arrangement. Alternatively, an employer may establish an information and consultation arrangement on its own initiative. Once an ICE arrangement or body is in place, the employer is required to inform and consult with employee representatives about matters including: (a) the recent and probable development of the undertaking's activities and economic situation; (b) the situation, structure, and probable development of employment within the undertaking and any anticipatory measures envisaged, in particular where there is a threat to employment; and (c) decisions likely to lead to substantial changes in work organisation or in contractual relations, including redundancies and transfers.
Our review of the data room materials has not identified any evidence that Cloudium UK has a formally constituted ICE body, a negotiated ICE agreement, or a pre-existing information and consultation arrangement of any kind. Nor have we identified evidence that Cloudium UK has received a valid employee request to establish such an arrangement. However, it should be noted that if Cloudium UK employees become aware of the Transaction — whether through the public announcement expected on January 23, 2024, or through internal communications — and subsequently submit a valid request under the ICE Regulations, the obligation to negotiate and establish an information and consultation arrangement could crystallize at that point.
As a matter of prudent practice, we recommend that Cloudium UK prepare employee communications regarding the Transaction that are factual, reassuring, and consistent with the public announcement and the communications strategy agreed between Solara and Cloudium's management. Any such communications should be coordinated between the buyer and the seller, reviewed by both Calderwood & Harkness and Albright & Kerr, and should emphasize continuity of employment, the absence of any immediate changes to terms and conditions of employment, and the buyer's commitment to the UK workforce. Communications should avoid making any representations or commitments that could give rise to contractual claims or estoppel arguments.
D. Restrictive Covenants and Key Employee Retention
Our diligence review identified that approximately 45 senior UK employees of Cloudium UK — including statutory directors, vice presidents, and key technical leads — have post-termination restrictive covenants in their employment agreements. These covenants typically include:
(a) Non-Competition Covenants. Restrictions on the employee's ability to engage in, or be employed by, a business that competes with Cloudium's business for a period of 6 to 12 months following termination of employment. The scope of the non-compete is generally limited to the specific market segments and geographic territories in which the employee was actively involved during the final 12 months of employment.
(b) Non-Solicitation Covenants. Restrictions on the employee's ability to solicit or entice away customers, clients, suppliers, or employees of Cloudium or Cloudium UK for a period of 6 to 12 months following termination. These provisions are typically more broadly drafted than the non-compete covenants and cover any customer or prospective customer with whom the employee had material dealings.
These covenants survive the change of control effected by the Transaction and remain enforceable by Cloudium UK (as the continuing employer) subject to the standard UK enforceability framework. Under English law, post-termination restrictive covenants are prima facie void as being in restraint of trade, but will be upheld and enforced if the employer can demonstrate that: (i) the covenant protects a legitimate business interest (such as trade secrets, confidential information, or customer connections); (ii) the scope of the covenant (in terms of duration, geographic coverage, and restricted activities) goes no further than is reasonably necessary to protect that legitimate interest; and (iii) the covenant is not contrary to the public interest.
We have not been asked to opine on the enforceability of each individual covenant, but based on our general review, the covenants appear to be within the range of what UK courts have historically been willing to enforce for employees at this level of seniority in the technology sector, subject to the usual caveats regarding the fact-specific nature of the enforceability analysis.
Key Employee Retention. Given the significance of the UK workforce to Cloudium's business — the approximately 1,200 UK employees contribute to the generation of £312,000,000 in annual UK revenue and are responsible for core engineering, product development, and customer-facing functions — Solara should give careful consideration to retention arrangements for key UK personnel. The loss of senior UK employees during the post-acquisition transition period could have a material adverse effect on business continuity, customer relationships, and the integration process.
We note that Jonathan Hargrove (CEO of Cloudium Technologies plc) and Sienna Whitfield (CFO of Cloudium Technologies plc) are entering into separate Non-Competition and Non-Solicitation Agreements with Fund VI at signing on January 22, 2024, which operate at the group level and are intended to protect the buyer's investment in the broader Cloudium enterprise. However, these group-level agreements may not be sufficient to address retention of the UK senior management team specifically. We recommend that Solara consider implementing UK-specific retention arrangements — such as retention bonuses, revised equity incentive arrangements, or enhanced employment terms — for the most critical members of the UK leadership team, including the UK Managing Director and the heads of UK engineering, UK sales, and UK customer operations.
V. UK Pension Considerations
A. Defined Contribution Arrangements
Cloudium Technologies UK Ltd. operates a group personal pension plan on a defined contribution basis, in compliance with the automatic enrolment requirements introduced by the Pensions Act 2008 and the Employers' Duties (Implementation) Regulations 2010. Under these requirements, Cloudium UK is obligated to automatically enrol all eligible jobholders into a qualifying pension scheme and to make minimum employer contributions.
Based on our review of the data room materials, Cloudium UK's employer contribution rates range from 5% to 10% of qualifying earnings, depending on the seniority and role of the employee. The contributions at the lower end of this range (5%) apply to more junior employees and are above the statutory minimum employer contribution of 3%. Senior employees benefit from enhanced contribution rates of up to 10% of qualifying earnings. The pension provider appears to be a reputable institutional provider (based on data room references to Scottish Widows), and the scheme appears to be administered in accordance with applicable requirements.
A change of control at the parent company level does not, in itself, trigger any pension-related obligations or entitlements with respect to the defined contribution pension arrangements. The employer (Cloudium UK) remains the same before and after the Transaction, and the pension scheme continues to operate on the same basis. However, if any post-closing restructuring results in a change of employer — for example, if Cloudium UK employees are transferred to a different legal entity — the new employer must ensure that it complies with its own automatic enrolment obligations and maintains pension provision for the transferred employees at a level that is at least consistent with applicable statutory requirements. If TUPE applies to such a transfer, the transferee will be required (subject to certain limited exceptions) to provide pension benefits that are at least broadly comparable to those provided by the transferor, in accordance with the Transfer of Employment (Pension Protection) Regulations 2005.
B. Absence of Defined Benefit Liabilities
We have confirmed, through our review of the data room materials and through the representations of Cloudium's General Counsel, Nadia Chowdhury, that Cloudium Technologies UK Ltd. has never operated, participated in, or contributed to a defined benefit pension scheme. Cloudium UK has not incurred, and is not subject to, any liability under the Pensions Act 2004, including any contribution notice issued under Section 38 of that Act or any financial support direction issued under Section 43 of that Act by The Pensions Regulator. Cloudium UK has not received any warning notice, determination notice, or other regulatory action from The Pensions Regulator in connection with pension matters.
The absence of any defined benefit pension exposure is a significant positive finding from a diligence perspective. Defined benefit pension liabilities can represent a very material financial risk in UK acquisitions, particularly where the target company participates in a multi-employer defined benefit scheme with a significant funding deficit. The confirmation that Cloudium UK has no such exposure materially reduces the pension-related risk associated with the Transaction.
No material pension risk has been identified in connection with this Transaction.
VI. UK Working Time and Employment Regulatory Compliance
Our diligence review of Cloudium UK's HR policies, employee handbook, and related documentation maintained in the data room has confirmed that Cloudium UK maintains policies and practices that are generally compliant with applicable UK employment legislation, including:
(a) the Working Time Regulations 1998 (SI 1998/1833), including compliance with the 48-hour maximum weekly working time limit (with individual opt-out agreements in place for eligible employees), minimum rest periods, and statutory annual leave entitlements (which Cloudium UK supplements with additional contractual leave);
(b) the National Minimum Wage Act 1998 and the National Minimum Wage Regulations 2015, including compliance with applicable minimum wage and National Living Wage rates for all UK employees;
(c) the Equality Act 2010, including policies addressing non-discrimination, equal pay, reasonable adjustments for disabled employees, and the prevention of harassment in the workplace; and
(d) other applicable UK employment legislation, including the Employment Rights Act 1996 (statutory employment rights, including right to written statement of employment particulars, itemised pay statements, and protections against unlawful deductions from wages), the Health and Safety at Work etc. Act 1974, and the Data Protection Act 2018 and the UK General Data Protection Regulation (with respect to the processing of employee personal data).
Our review of the data room has not identified any material pending employment tribunal claims, regulatory investigations, or enforcement actions involving Cloudium UK. The only historical claim identified is a single employment tribunal discrimination claim that was settled in 2022 for an amount below £50,000. The claim has been fully resolved, and there is no ongoing exposure or outstanding liability in connection with it. Based on the information available to us, this settlement does not appear to be indicative of any systemic or recurring compliance deficiency within Cloudium UK's employment practices.
We note that this compliance overview is based on the documents and information made available to us in the data room and should not be construed as a comprehensive employment compliance audit. Any specific compliance concerns that arise during the post-closing period should be addressed through a more detailed operational review.
VII. Interaction with CMA Review Process
The acquisition of Cloudium Technologies plc by Fund VI is expected to be subject to review by the UK Competition and Markets Authority (the "CMA") under the merger control provisions of the Enterprise Act 2002. A merger notification (anticipated CMA Case No. ME/7184/24) is expected to be submitted to the CMA on or about February 12, 2024. The filing will address the competitive overlap between Solara's existing portfolio companies and Cloudium in the UK cloud ERP and digital infrastructure markets.
The CMA review process does not directly engage the UK employment law considerations discussed in this memorandum. However, in the event that the CMA were to impose behavioral remedies affecting Cloudium UK's operations — for example, requirements to maintain certain service levels, to continue operating in certain market segments, or to divest certain business lines — those remedies could have indirect workforce implications. For instance, a divestiture remedy, if imposed, could require the transfer of a portion of Cloudium UK's business to a third-party purchaser, which could trigger TUPE in respect of the employees assigned to the divested business.
Based on the preliminary competitive analysis conducted by Elaine Forsythe (Calderwood & Harkness LLP, Antitrust & Competition) and Fiona McAllister (Albright & Kerr LLP), CMA clearance is anticipated during Phase 1 of the CMA's review process, and the imposition of behavioral or structural remedies is considered unlikely. The overlap between Solara's existing portfolio and Cloudium's UK operations is limited, and the parties' combined market shares in the relevant segments are expected to fall below the thresholds that would ordinarily give rise to competition concerns. However, the CMA retains discretion to conduct a more detailed Phase 2 investigation if it is not satisfied that the merger does not give rise to a realistic prospect of a substantial lessening of competition. Calderwood & Harkness and Albright & Kerr will continue to monitor the CMA review process and will advise Solara promptly if any developments arise that could have employment law implications.
VIII. Recommendations
Based on the analysis set forth in this memorandum, we make the following recommendations:
1. TUPE — No Action Required at This Stage. No TUPE notification or consultation obligations are triggered by the share-level acquisition contemplated by the Transaction. The reverse triangular merger does not constitute a "relevant transfer" under either Regulation 3(1)(a) or Regulation 3(1)(b) of the TUPE Regulations. No further action is required at this stage with respect to TUPE compliance in connection with the closing of the Transaction.
2. Post-Closing Restructuring — Engage Counsel Early. Any post-closing reorganization or integration activity affecting Cloudium UK's business operations, employees, or legal entity structure must be assessed for TUPE applicability before implementation. This includes any contemplated intra-group transfers of business functions, outsourcing of activities currently performed in-house, or entity rationalization exercises. Calderwood & Harkness and Albright & Kerr should be engaged at the earliest stages of integration planning to ensure that TUPE risks are identified and managed appropriately.
3. Change-of-Control Payments — Quantify and Budget. Solara should quantify all UK employee change-of-control payments and enhanced termination benefits that will be triggered upon closing of the Transaction. These include accelerated vesting of equity awards, cash retention bonuses, and enhanced severance entitlements for senior UK employees with change-of-control provisions in their employment contracts. The aggregate cost should be factored into the closing statement, transaction expense estimates (currently estimated at $185,000,000 in aggregate), and/or purchase-price adjustment analysis as appropriate.
4. Employee Communications — Prepare and Coordinate. Coordinated employee communications should be prepared for the UK workforce, to be issued promptly after the public announcement of the Transaction on January 23, 2024. The messaging should emphasize continuity of employment, the absence of any immediate changes to terms and conditions of employment, and Solara's commitment to the continued success and growth of Cloudium's UK operations. All communications should be reviewed by counsel before issuance and should be consistent with the public-facing announcement and any SEC filings.
5. Key Employee Retention — Consider UK-Specific Arrangements. Solara should consider implementing UK-specific retention arrangements for senior Cloudium UK employees, in addition to the group-level non-competition and non-solicitation agreements being executed by Jonathan Hargrove and Sienna Whitfield at signing. Retention mechanisms could include retention bonuses, revised equity incentive awards under a new management incentive plan, or enhanced employment terms for the most critical members of the UK leadership team.
6. Pension — Confirm Ongoing Compliance. No defined benefit pension exposure has been identified. Solara should confirm that Cloudium UK's automatic enrolment obligations and defined contribution pension arrangements are maintained in compliance with the Pensions Act 2008 and associated regulations following the closing. If any post-closing restructuring results in a change of employer for UK employees, the new employer's pension obligations should be assessed at that time.
7. Collective Consultation — Plan for Contingency. If any redundancy program or material workforce reduction is contemplated in connection with post-closing integration or restructuring, Solara must ensure compliance with the collective consultation requirements under Part IV, Chapter II of TULRCA 1992. Given the size of Cloudium UK's workforce (approximately 1,200 employees), any program involving the proposed dismissal of 100 or more employees would trigger the requirement for 45 days of collective consultation before the first dismissal takes effect. This should be factored into any integration timeline.
8. Merger Agreement Protections — Confirm Comprehensive Representations. We recommend that Article IV (Seller's Representations and Warranties) of the Merger Agreement include comprehensive employee-related representations and warranties covering, at a minimum:
(a) compliance by Cloudium and its subsidiaries (including Cloudium UK) with applicable employment laws in all material respects;
(b) a complete and accurate list of all UK employees and the material terms of their employment, including compensation, benefits, notice periods, and restrictive covenants;
(c) complete and accurate disclosure of all change-of-control obligations, including accelerated vesting, retention bonuses, and enhanced severance entitlements;
(d) confirmation of the absence of any defined benefit pension liabilities, contribution notices, or financial support directions;
(e) disclosure of all material pending or threatened employment claims, investigations, or regulatory proceedings; and
(f) disclosure of any trade union recognition agreements, collective bargaining agreements, or employee representative arrangements.
These representations will be covered by the buyer-side representations and warranties insurance policy issued by Northfield Assurance (Policy No. NFA-TRI-2024-00487), which provides aggregate coverage of $680,000,000, subject to the indemnity escrow retention of $544,000,000 (representing 8% of the enterprise value). Any breach of the employment-related representations that does not give rise to a claim under the indemnity escrow (because the losses fall below the retention or are otherwise excluded) may be recoverable under the R&W insurance policy, subject to the policy terms, conditions, and exclusions. We will coordinate with the R&W insurance workstream to ensure that the policy provides appropriate coverage for UK employment-related risks.
IX. Appendices and Cross-References
Appendix A
List of Cloudium UK Senior Employees with Change-of-Control Provisions in Employment Contracts
A redacted summary of the senior UK employees whose employment agreements contain change-of-control provisions is maintained on file with Calderwood & Harkness LLP. The full list, including names, titles, key contract terms, estimated change-of-control payment amounts, and copies of the relevant agreements, is available in the virtual data room (Folder 4.3.2 — UK Employment Agreements — Senior Executives). Access to this information is restricted to authorized members of the Solara deal team and their legal advisors.
Appendix B
Summary of Cloudium UK Pension Arrangements
A summary of Cloudium UK's defined contribution pension arrangements, including the pension provider, contribution rates by employee category, and automatic enrolment compliance documentation, is available in the virtual data room (Folder 4.5.1 — UK Pension Arrangements). No defined benefit pension scheme documentation was identified.
Cross-References
The following documents are referenced in or relate to this memorandum and should be consulted for a complete understanding of the matters discussed herein:
• Due Diligence Summary Memorandum (January 5, 2024) — comprehensive summary of diligence findings across all workstreams.
• Issue-Specific Diligence Memo — Change-of-Control Provisions (January 8, 2024) — survey of all material contracts and arrangements containing change-of-control provisions triggered by the Transaction, including the Aegis Federal Solutions Inc. Master SaaS Agreement, the Helix Data Systems GmbH Technology License Agreement, and the Atlas Commercial Lending Corp. credit agreement.
• Supplemental Due Diligence Request List — Employee Benefits and Compensation (October 22, 2023) — additional diligence requests issued to Cloudium relating to UK and global employee benefits, compensation, and pension matters.
• C&H Annotated Redline — Indemnification and Escrow Provisions (January 3, 2024) — annotated markup of the indemnification, escrow, and R&W insurance provisions of the Merger Agreement.
• Tax Memorandum — Post-Closing Integration Tax Considerations (prepared by Leonard Cross, Calderwood & Harkness LLP) — tax analysis of potential post-closing intercompany restructuring, including IP migration, transfer pricing, and entity rationalization for Cloudium UK and Cloudium Solutions GmbH.
• CMA Merger Notice — Draft (February 5, 2024, forthcoming) — draft CMA merger notification being prepared by Elaine Forsythe (Calderwood & Harkness LLP) and Fiona McAllister (Albright & Kerr LLP).
• Post-Closing Integration Memorandum (to be prepared post-closing) — comprehensive integration planning memorandum addressing operational, legal, tax, and employment considerations.
This memorandum is intended to provide legal analysis and recommendations in connection with the proposed Transaction and does not constitute legal advice on any other matter. The conclusions expressed herein are based on the facts and circumstances as they exist on the date of this memorandum and on the documents and information made available to us in the virtual data room. Our analysis may change if the facts or circumstances change, or if additional information becomes available. This memorandum is subject to the qualifications and assumptions stated herein and should be read in conjunction with the other diligence memoranda referenced above.
PREPARED BY:
Tiffany Rosenthal Lead Associate, Mergers & Acquisitions Calderwood & Harkness LLP 599 Lexington Avenue, New York, NY 10022 One Bartholomew Close, London EC1A 7BL
REVIEWED BY:
Harrison Wexford Responsible Partner, Mergers & Acquisitions Calderwood & Harkness LLP 599 Lexington Avenue, New York, NY 10022
UK EMPLOYMENT INPUT:
Fiona McAllister Lead Partner Albright & Kerr LLP 5 New Street Square, London EC4A 3TW
Calderwood & Harkness LLP | 599 Lexington Avenue, New York, NY 10022 | One Bartholomew Close, London EC1A 7BL
FROM: | Tiffany Rosenthal, Calderwood & Harkness LLP (with input from the London office, One Bartholomew Close, London EC1A 7BL)
TO: | Harrison Wexford, Responsible Partner, Calderwood & Harkness LLP; Marcus Elliston, Founder & Managing Partner, Solara Digital Infrastructure LP; Priya Narasimhan, Co-Managing Partner & CIO, Solara Digital Infrastructure LP
DATE: | January 10, 2024
RE: | Issue-Specific Diligence Memorandum — UK Employment and TUPE Considerations in Connection with the Proposed Acquisition of Cloudium Technologies plc
MATTER NO.: | 1041-00003

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