1041-00003 · Solara Digital Infrastructure LP · Diligence

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MEMORANDUM

PRIVILEGED & CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGE / ATTORNEY WORK PRODUCT

TO: Harrison Wexford, Responsible Partner, Mergers & Acquisitions, Calderwood & Harkness LLP

FROM: Tiffany Rosenthal, Lead Associate, Mergers & Acquisitions, Calderwood & Harkness LLP

DATE: October 18, 2023

RE: Structuring Analysis — Acquisition of Cloudium Technologies plc by Solara Digital Infrastructure Fund VI LP

MATTER NO.: 1041-00003

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I. Executive Summary

The purpose of this memorandum is to evaluate four principal acquisition structures for the proposed acquisition of Cloudium Technologies plc ("Cloudium" or the "Target") by Solara Digital Infrastructure Fund VI LP ("Fund VI"), and to provide a recommendation as to the optimal structure based on the transaction's specific commercial, regulatory, tax, financing, and operational considerations.

The Client. Our client in this engagement is Solara Digital Infrastructure LP ("Solara"), a Delaware limited partnership and one of the preeminent digital infrastructure-focused private equity firms in the United States. Solara is acting through its investing vehicle, Fund VI, a Delaware limited partnership with a vintage year of 2022 and approximately $12.4 billion in total committed capital. Fund VI's general partner is Solara Fund VI GP LLC, a Delaware limited liability company. The Managing Partners of Solara are Marcus Elliston (Founder & Managing Partner) and Priya Narasimhan (Co-Managing Partner & Chief Investment Officer), each of whom will be the principal decision-makers on the buy side of this transaction.

The Target. Cloudium Technologies plc is a public limited company incorporated under the laws of England and Wales (Company No. 09734521) and listed on the Nasdaq Global Select Market under the ticker symbol "CLDM." Cloudium is a leading provider of cloud-native enterprise resource planning ("ERP"), customer relationship management ("CRM"), and business-intelligence software-as-a-service ("SaaS") solutions to mid-market and enterprise customers globally. The company employs approximately 6,800 people across its operations in the United States, the United Kingdom, India, and Germany. For the twelve-month period ending September 30, 2023 ("LTM"), Cloudium reported revenue of approximately $1,620,000,000 and EBITDA of approximately $405,000,000. The company's annual recurring revenue ("ARR") stood at approximately $1,740,000,000 as of December 31, 2023 (per management projections), reflecting strong net revenue retention and new customer acquisition. There are currently 184,200,000 shares of common stock outstanding.

Anticipated Deal Value. The anticipated aggregate deal value is approximately $6,800,000,000, implying a per-share cash consideration of approximately $36.92 and an EV/EBITDA multiple of approximately 16.8x LTM EBITDA. This valuation has been developed in consultation with Osprey Bancroft & Co., serving as buyer's financial advisor, and is subject to further negotiation with the Target and its advisors.

Key Structural Drivers. In assessing the appropriate transaction structure, we have focused on the following key considerations, each of which has been identified as a priority by the client:

(a) Preserving Cloudium's contracts, licenses, and regulatory authorizations, including minimizing the impact of change of control provisions in material customer, vendor, and IP license agreements;

(b) Accommodating rollover equity from Jonathan Hargrove (Chief Executive Officer of Cloudium, holding a 4.2% equity stake) and Pinnacle Growth Ventures LLC (holding an 11.6% equity stake), both of whom are expected to roll a portion of their equity into the post-closing entity;

(c) Facilitating the committed debt financing from Meridian Atlantic Bank, N.A. and Ironclad Capital Markets LLC, which is being structured around specific assumptions regarding the acquisition vehicle and borrower identity;

(d) Achieving tax-efficient treatment for the rollover participants, ideally qualifying the rollover equity exchange as a tax-deferred transaction under the Internal Revenue Code; and

(e) Minimizing third-party consent requirements and operational disruption to Cloudium's business during and after the transaction.

Recommendation. Based on the analysis set forth in this memorandum, we recommend that the acquisition be structured as a reverse triangular merger under the Delaware General Corporation Law ("DGCL"). Under the recommended structure, Fund VI would cause the formation of a new Delaware corporation (to be incorporated as "Stratos Merger Sub Inc." or such other name as may be selected by the client), which would serve as a wholly owned merger subsidiary of Fund VI. At closing, Stratos Merger Sub Inc. would merge with and into Cloudium, with Cloudium surviving the merger as a wholly owned subsidiary of Fund VI. Each outstanding share of Cloudium common stock (other than rollover shares and dissenting shares) would be converted into the right to receive $36.92 in cash, and the separate corporate existence of Stratos Merger Sub Inc. would cease.

Structures Analyzed. This memorandum evaluates four principal acquisition structures:

(1) Reverse Triangular Merger (recommended);

(2) Forward Triangular Merger;

(3) Asset Purchase; and

(4) Tender Offer (one-step or two-step).

Advisors Consulted. In preparing this memorandum, we have consulted with and received input from the following advisors:

• Osprey Bancroft & Co. — Damien Harlow, Managing Director, Technology M&A (buyer's financial advisor);

• Glenmore Thornton LLP — Richard Okamura, Lead Partner, Transaction Tax (buyer's accounting and tax advisor);

• Leonard Cross, Specialist Partner, Tax, Calderwood & Harkness LLP (internal tax structuring counsel);

• Elaine Forsythe, Specialist Partner, Antitrust & Competition, Calderwood & Harkness LLP (internal regulatory counsel).

This memorandum is preliminary in nature and is intended to frame the structuring discussion for the responsible partner. Several of the issues identified herein — including the detailed Section 368 tax analysis, the DGCL Section 203 analysis, the appraisal rights analysis, the CFIUS assessment, and the English law / UK Takeover Code analysis — will be addressed in separate, dedicated memoranda as noted throughout. We anticipate circulating the first of those follow-up memoranda by early November 2023.

II. Background and Key Transaction Parameters

A. Parties. Buyer. The buyer is Solara Digital Infrastructure Fund VI LP, a Delaware limited partnership formed for the purpose of making investments in digital infrastructure, enterprise software, and technology-enabled services businesses. Fund VI's general partner is Solara Fund VI GP LLC, a Delaware limited liability company. Solara's headquarters are located at 1200 Market Street, Suite 3400, Wilmington, Delaware 19801, and its principal offices are in San Francisco, California and New York, New York. Across its six flagship funds, Solara manages approximately $38 billion in assets under management. To date, Solara has completed 14 platform investments across Funds IV through VI, including several transactions of comparable size and complexity in the enterprise software sector. Fund VI reached its final close in the fourth quarter of 2022, and this proposed acquisition would represent Fund VI's fourth platform investment.

Target. Cloudium Technologies plc is a public limited company incorporated under the laws of England and Wales (Company No. 09734521). Cloudium's registered office is located at 45 Broadwick Street, London W1F 0DB, United Kingdom, and its United States headquarters are located at 600 Townsend Street, Suite 800, San Francisco, California 94103. Although incorporated in England and Wales, Cloudium is listed on the Nasdaq Global Select Market (ticker: CLDM) and files periodic reports with the United States Securities and Exchange Commission ("SEC") as a foreign private issuer under the Securities Exchange Act of 1934, as amended. Cloudium's ordinary shares are not listed on any UK-regulated market.

Target Management. The senior management team of Cloudium currently consists of:

• Jonathan Hargrove, Chief Executive Officer;

• Sienna Whitfield, Chief Financial Officer;

• Nadia Chowdhury, General Counsel and Corporate Secretary; and

• Douglas Pemberton, Chairman of the Board of Directors (independent).

Mr. Hargrove has served as CEO since 2018 and has been instrumental in Cloudium's transition to a fully cloud-native SaaS model. His continued involvement post-closing is a key element of Solara's investment thesis.

Target's Counsel. Cloudium is represented in this transaction by Ridgeway Phelps & Sato LLP. The lead partners for the Target's outside counsel team are Catherine Answorth (Lead M&A Partner, New York office) and Alistair Fenn (Lead Corporate Partner, London office). We anticipate that Alistair Fenn's team will address English law aspects of the transaction, including any corporate approvals required under Cloudium's articles of association and the Companies Act 2006, while Catherine Answorth's team will serve as lead deal counsel on the merger agreement and SEC filings.

Key Rollover Participants. Two existing stockholders of Cloudium are expected to participate in the rollover equity component of the transaction:

• Jonathan Hargrove (CEO): Mr. Hargrove holds 7,736,400 shares of Cloudium common stock, representing approximately 4.2% of the outstanding shares. Based on preliminary discussions between Solara and Mr. Hargrove (conducted through Osprey Bancroft & Co.), Mr. Hargrove is anticipated to roll over approximately 50% of his equity position, equivalent to 3,868,200 shares with an implied value of approximately $142,814,544 (at $36.92 per share).

• Pinnacle Growth Ventures LLC: Pinnacle is a growth equity fund managed by Evelyn Carmichael (Managing Member). Pinnacle holds 21,367,200 shares of Cloudium common stock, representing approximately 11.6% of the outstanding shares. Based on preliminary discussions, Pinnacle is anticipated to roll over approximately 60% of its equity position, equivalent to 12,820,320 shares with an implied value of approximately $473,241,408.

The total anticipated rollover equity is approximately $616,055,952, representing approximately 9.1% of the total deal value. The precise rollover amounts and percentages will be finalized in the rollover agreements to be negotiated and executed concurrently with the definitive merger agreement.

B. Target Corporate Structure and Subsidiaries

Cloudium operates through a holding company structure with subsidiaries in three countries in addition to its operations conducted at the parent level in the United States. The current corporate structure is as follows:

1. Cloudium Technologies plc (parent entity; incorporated in England and Wales; Company No. 09734521; registered office at 45 Broadwick Street, London W1F 0DB, UK). The parent entity holds the equity interests in each of the subsidiaries described below and conducts its US operations primarily through its San Francisco headquarters. The parent employs approximately 2,800 employees in the United States across engineering, product development, sales, marketing, and corporate functions.

2. Cloudium Technologies UK Ltd. (Company No. 11287456; registered at 45 Broadwick Street, London W1F 0DB, United Kingdom). The UK subsidiary employs approximately 1,200 people in London and Manchester and serves as the primary operating entity for Cloudium's EMEA sales, customer success, and professional services operations. For the fiscal year ending September 30, 2023, Cloudium UK reported revenue of approximately £312,000,000 (approximately $390,000,000 at an exchange rate of $1.25 per British pound sterling). Cloudium UK holds certain intellectual property licenses and is party to numerous customer agreements with UK and European customers.

3. Cloudium Technologies India Pvt. Ltd. (incorporated in Bangalore, Karnataka, India). The Indian subsidiary employs approximately 2,400 people and serves as Cloudium's primary center for research and development, quality assurance, and customer support. This entity holds certain Indian intellectual property registrations and is party to intercompany service agreements with the parent entity.

4. Cloudium Solutions GmbH (incorporated in Berlin, Germany). The German subsidiary employs approximately 400 people and is responsible for sales and customer success operations in the DACH region (Germany, Austria, and Switzerland). The entity is party to customer agreements with German, Austrian, and Swiss enterprise customers and holds certain local regulatory authorizations.

A detailed organizational chart of Cloudium and its subsidiaries is referenced as Appendix A to this memorandum and will be updated as diligence progresses.

C. Anticipated Deal Economics

The anticipated economics of the proposed acquisition are summarized below:

Total Enterprise / Deal Value: $6,800,000,000

Per-Share Cash Consideration: Approximately $36.92, subject to adjustment for rollover elections. This price represents a premium of approximately 28% to Cloudium's unaffected closing price of $28.85 per share on the Nasdaq Global Select Market on October 2, 2023 (the last trading day prior to market rumors of a potential transaction), and a premium of approximately 22% to Cloudium's 30-day volume-weighted average price of $30.25.

Anticipated Sources of Funds:

The total funding requirement of $7,188,944,048 covers the following anticipated uses: (a) approximately $6,183,944,048 in cash consideration payable to non-rolling stockholders; (b) estimated transaction expenses of $185,000,000 (including advisory fees, legal fees, financing fees, R&W insurance premiums, filing fees, and other customary closing costs); and (c) repayment of approximately $820,000,000 in existing Cloudium indebtedness at closing.

The Term Loan B is being arranged by Meridian Atlantic Bank, N.A. (as lead arranger and administrative agent) and Ironclad Capital Markets LLC (as co-arranger). The Revolving Credit Facility of $500,000,000 is expected to be undrawn at closing but available for post-closing working capital and general corporate purposes. Preliminary discussions with Graham Whitaker at Meridian Atlantic and Samuel Diaz at Ironclad indicate strong lender interest at the indicated pricing, subject to customary syndication, due diligence, and documentation conditions. We expect the debt commitment letter to be formalized by approximately December 15, 2023, with execution targeted to occur concurrently with the signing of the definitive merger agreement in late January 2024.

Existing Cloudium Indebtedness to Be Repaid at Closing. Cloudium currently has $820,000,000 of outstanding indebtedness under a credit agreement dated March 15, 2021, with Atlas Commercial Lending Corp. as administrative agent. This indebtedness consists of a $620,000,000 term loan and a $200,000,000 drawn revolving credit facility. The existing credit agreement contains a change of control provision that requires mandatory prepayment of all outstanding amounts upon the consummation of a change of control transaction. Accordingly, regardless of the acquisition structure selected, the existing Cloudium indebtedness will need to be repaid in full at or prior to closing, and the sources of funds have been sized to account for this requirement.

D. Key Contracts with Change of Control Triggers

Our preliminary due diligence review has identified several material contracts that contain change of control provisions. These provisions will be triggered by the proposed acquisition regardless of structure, but the nature of the required action (consent, notice, or potential termination) and the practical difficulty of compliance varies significantly depending on whether the Target survives the transaction as the same legal entity. The most significant contracts identified to date include:

1. Master SaaS Agreement with Aegis Federal Solutions Inc. Aegis Federal is a US government contractor and one of Cloudium's largest enterprise customers, contributing approximately $84,000,000 in ARR. The Master SaaS Agreement between Cloudium and Aegis Federal contains a provision requiring the prior written consent of Aegis Federal for any "change of control" of Cloudium, broadly defined to include any transaction in which a single person or group acquires more than 50% of the voting power or economic interests in Cloudium. Failure to obtain such consent constitutes a default under the agreement and entitles Aegis Federal to terminate the agreement upon 30 days' written notice. Given the magnitude of this customer relationship, obtaining Aegis Federal's consent is a critical workstream for any acquisition structure.

2. Technology License Agreement with Helix Data Systems GmbH (Frankfurt). Cloudium has a technology license agreement with Helix Data Systems GmbH pursuant to which Cloudium licenses certain proprietary data analytics and machine learning algorithms integrated into Cloudium's business-intelligence product suite. The Helix Data license contains a termination-for-change-of-control clause that provides Helix Data with the right (but not the obligation) to terminate the license upon written notice if a change of control of Cloudium occurs. This license is commercially significant, and the loss of the Helix Data technology would require Cloudium to develop or license alternative technology, with attendant cost and delay.

3. Existing Credit Agreement with Atlas Commercial Lending Corp. As noted above, the existing credit agreement contains a change of control provision requiring mandatory prepayment of all outstanding indebtedness. This provision will be triggered regardless of structure, and the repayment obligation has been accounted for in the sources and uses analysis.

4. Other Contracts. Our diligence review has identified numerous additional customer, vendor, and IP license agreements containing change of control notification or consent requirements of varying scope and materiality. A comprehensive analysis of these provisions is being prepared and will be delivered in a separate Issue-Specific Diligence Memorandum on Change of Control Provisions (targeted for circulation on January 8, 2024). The volume and nature of these provisions reinforce the importance of selecting a structure that minimizes the contractual impact of the transaction.

E. Regulatory Considerations

Hart-Scott-Rodino Antitrust Improvements Act of 1976 ("HSR Act"). The proposed acquisition exceeds the HSR Act size-of-transaction threshold (currently $111.4 million for 2023), and the size-of-person thresholds are met as well. Accordingly, an HSR Act filing is required, and the transaction may not close until the applicable waiting period has expired or been terminated. The initial waiting period is 30 calendar days from the date of filing. Based on preliminary competitive analysis, we do not expect this transaction to raise significant antitrust concerns, but we acknowledge the possibility of a Second Request from the Federal Trade Commission or the Department of Justice, which would extend the review period by several months. Elaine Forsythe is preparing a detailed HSR pre-filing memorandum.

UK Competition and Markets Authority ("CMA"). Given that Cloudium UK Ltd. has material UK turnover of approximately £312,000,000 for the most recent fiscal year, the transaction is expected to meet the UK merger notification thresholds. A CMA merger notification will be required. Coordination with Albright & Kerr LLP (Fiona McAllister, Lead Competition Partner, London) is underway. We anticipate a Phase 1 review timeline of approximately eight to ten weeks from the date of notification.

Committee on Foreign Investment in the United States ("CFIUS"). Our preliminary assessment, based on the information available to date, suggests that no CFIUS filing is required. Cloudium does not appear to constitute a "TID U.S. business" (i.e., a business involved in critical technology, critical infrastructure, or sensitive personal data within the meaning of the CFIUS regulations), and Cloudium does not own or operate "covered real estate" in proximity to sensitive government installations. However, this assessment is preliminary and is subject to confirmation by Elaine Forsythe's separate CFIUS analysis, which will consider the full scope of Cloudium's US government contracting relationships (including the Aegis Federal relationship) and any classified or controlled technology.

EU Merger Regulation. Based on publicly available financial information, Cloudium's EU-wide revenues are likely below the jurisdictional thresholds for a mandatory filing under the EU Merger Regulation (Council Regulation (EC) No. 139/2004). No EU merger filing is expected.

German Foreign Direct Investment ("FDI") Screening (AWV). Preliminary analysis suggests that the acquisition would not trigger a mandatory FDI notification under the German Foreign Trade and Payments Ordinance (Außenwirtschaftsverordnung, or AWV), as Cloudium Solutions GmbH does not appear to operate in sectors subject to mandatory screening (e.g., defense, critical infrastructure, certain high-technology sectors). This assessment is preliminary and will be confirmed as diligence progresses.

Indian FDI and Competition Commission of India ("CCI"). Preliminary analysis suggests no FDI filing is required in India, as Fund VI's investment in Cloudium Technologies India Pvt. Ltd. is indirect (through Cloudium's parent entity). The CCI filing thresholds are based on consolidated turnover and assets in India; based on available information, the Indian subsidiary's financials may fall below the applicable thresholds, but this will be confirmed once detailed financial information is obtained through diligence.

III. Analysis of Structural Alternatives

A. Option 1: Reverse Triangular Merger (Recommended)

1. Description of Mechanics. Under a reverse triangular merger structure, Fund VI would cause the formation of a new Delaware corporation — to be incorporated as Stratos Merger Sub Inc. ("Merger Sub") — as a direct, wholly owned subsidiary of Fund VI. Merger Sub would be formed for the sole purpose of effectuating the merger and would have no assets, liabilities, or operations other than those incident to its formation and the execution of the merger agreement and related documents.

At closing, Merger Sub would merge with and into Cloudium pursuant to Section 251 of the DGCL and in accordance with the terms and conditions of the definitive merger agreement to be entered into by and among Fund VI, Merger Sub, and Cloudium (the "Merger Agreement"). The merger would be consummated upon the filing of a Certificate of Merger with the Secretary of State of the State of Delaware and, if required, the registration of requisite filings with Companies House in England and Wales.

Upon the effective time of the merger:

(a) Cloudium would survive the merger as the surviving corporation and would become a direct, wholly owned subsidiary of Fund VI;

(b) Each outstanding share of Cloudium common stock (other than (i) shares held by stockholders who have properly exercised and perfected appraisal rights under DGCL § 262, (ii) rollover shares subject to rollover agreements with Hargrove and Pinnacle, and (iii) shares held by Cloudium as treasury shares or by Fund VI or Merger Sub) would be converted into the right to receive $36.92 in cash, without interest;

(c) The rollover shares held by Hargrove and Pinnacle would be excluded from conversion into cash and would instead be exchanged for equity interests in the surviving entity (or in a parent holding company, depending on the final rollover structure), pursuant to rollover agreements to be executed concurrently with the Merger Agreement;

(d) Each share of common stock of Merger Sub outstanding immediately prior to the effective time would be converted into one share of common stock of the surviving corporation; and

(e) The separate corporate existence of Merger Sub would cease.

Following the merger, Cloudium would continue to exist as a Delaware-incorporated or English-incorporated entity (depending on the final treatment of the surviving entity's corporate form) and would hold all of the assets, contracts, licenses, permits, and regulatory authorizations that it held immediately prior to the merger. The subsidiary structure — Cloudium UK, Cloudium India, and Cloudium Germany — would remain intact and unchanged.

2. Advantages. Contract Preservation. The most significant advantage of the reverse triangular merger for this transaction is the preservation of Cloudium's legal identity. Because Cloudium survives as the same legal entity after the merger, all of its contracts, licenses, permits, and regulatory authorizations continue by operation of law. There is no assignment or novation of contracts to a new entity; Cloudium remains the same contracting party, the same licensee, and the same permit holder. This is critically important given the volume and commercial significance of Cloudium's contractual relationships, including the Aegis Federal Master SaaS Agreement ($84 million ARR), the Helix Data Technology License, and thousands of customer SaaS agreements and vendor contracts across four jurisdictions. While change of control provisions in certain key contracts will still be triggered by the transaction — because the ultimate ownership of Cloudium will change — the number of contracts requiring formal assignment or novation is dramatically reduced compared to a forward triangular merger or an asset purchase. The distinction between a "change of control" (which typically requires consent or notice but does not disturb the underlying contractual relationship) and an "assignment" (which may void or require reformation of the entire contract) is of paramount importance in a transaction of this scale and complexity.

Succession by Operation of Law. Under DGCL § 259, the surviving corporation in a merger succeeds to all of the rights, privileges, powers, and franchises of each of the constituent corporations and becomes subject to all of the debts, liabilities, and duties of each constituent corporation in the same manner as if the surviving corporation had itself incurred them. This statutory succession eliminates the need for individual asset transfer documents, bills of sale, assignments, assumptions, or other instruments of conveyance for each asset and each contract. For a company of Cloudium's scale — with operations in four countries, approximately 6,800 employees, thousands of customer relationships, and a complex web of intellectual property, software licenses, and intercompany agreements — the efficiency of succession by operation of law is a substantial practical advantage.

Tax Efficiency for Rollover Participants. The reverse triangular merger has the potential to qualify as a tax-free reorganization under Section 368(a)(2)(E) of the Internal Revenue Code of 1986, as amended (the "Code"), with respect to the rollover equity portion of the transaction. If the merger qualifies under Section 368(a)(2)(E), the rollover participants — Hargrove and Pinnacle — would be able to exchange their Cloudium shares for equity interests in the surviving entity (or parent holding company) on a tax-deferred basis, recognizing gain only on the portion of their consideration received in cash. Given the anticipated rollover amounts ($142,814,544 for Hargrove and $473,241,408 for Pinnacle), the tax savings from deferral could be significant and represent a material component of the economic negotiation with these important stakeholders. Leonard Cross is currently analyzing the specific requirements for qualification under Section 368(a)(2)(E), including the continuity-of-interest and continuity-of-business-enterprise requirements, and will prepare a detailed tax structuring memorandum (see Section V below). Even if the merger does not qualify as fully tax-free under Section 368(a)(2)(E), the rollover contributions may be structured as tax-deferred exchanges under Section 351 of the Code, as discussed further below.

Familiar to Lenders. The reverse triangular merger is the standard, market-accepted structure for leveraged buyout transactions. Meridian Atlantic Bank, N.A. and Ironclad Capital Markets LLC — the committed debt financing sources for this transaction — are fully familiar with this structure and have premised their preliminary credit analysis on the assumption that the borrower under the new credit facilities will be the surviving Cloudium entity, which retains all of its assets, operations, revenue streams, and customer relationships. Using a different structure — particularly one in which Cloudium ceases to exist (forward triangular merger) or in which assets are disaggregated and transferred piecemeal to a new entity (asset purchase) — would require the lenders to restructure their credit analysis and underwriting, potentially resulting in less favorable pricing, more restrictive covenants, or reduced commitment certainty.

Single-Step Closing. Unlike a two-step tender offer (discussed in Section III.D below), a one-step reverse triangular merger requires only a single stockholder vote and a single closing. This simplicity is valuable in a transaction of this complexity, where the closing mechanics involve the simultaneous draw of $3,740,000,000 in term loan debt, the repayment of $820,000,000 in existing Cloudium indebtedness, the funding of an $544,000,000 escrow, the exchange of rollover shares for equity interests, and the payment of cash consideration to tens of thousands of public stockholders through the exchange agent. Coordinating these closing mechanics in a single event is significantly simpler than managing the timing mismatches inherent in a two-step tender offer and back-end merger.

Clean Post-Closing Structure. Following the reverse triangular merger, Cloudium will exist as a direct, wholly owned subsidiary of Fund VI. Cloudium's subsidiary structure — Cloudium UK, Cloudium India, and Cloudium Germany — will remain intact as wholly owned subsidiaries of Cloudium, with no changes to their corporate identity, domicile, or regulatory status. This clean post-closing structure facilitates integration planning and avoids the need for any pre-closing or post-closing corporate restructuring.

Indemnification, Escrow, and R&W Insurance Compatibility. The anticipated indemnification framework for this transaction — including a 15% cap, 8% escrow, buyer-side representations and warranties ("R&W") insurance, and customary survival periods, baskets, and de minimis thresholds — is standard for reverse triangular mergers in the private equity context. The reverse triangular merger structure is fully compatible with these arrangements, and there are no structural barriers to the implementation of escrow funding, R&W insurance underwriting, or post-closing indemnification claims. These arrangements are discussed in greater detail in Section IX.A below.

3. Disadvantages. While the reverse triangular merger is our recommended structure, it is not without certain disadvantages that should be acknowledged and considered:

Stockholder Approval Required. The reverse triangular merger requires approval by the stockholders of Cloudium at a duly called special meeting. Cloudium will be required to file a proxy statement (or, as a foreign private issuer, potentially a combined proxy statement/prospectus on Form F-4, depending on the treatment of the rollover equity) with the SEC, which must be reviewed and cleared by the SEC staff before it can be distributed to stockholders. The proxy solicitation and stockholder meeting process is expected to add approximately three to four months to the timeline between signing and the stockholder vote, which in turn affects the overall signing-to-closing timeline. However, as discussed in Section X below, we do not believe the timeline impact is materially different from what would be required for regulatory approvals (HSR, CMA) in any event.

Interim Period Risk. The period between signing the Merger Agreement and the closing of the merger (estimated at five to six months) creates inherent execution risk. During this interim period, the parties will be subject to interim operating covenants that restrict Cloudium's ability to conduct business outside the ordinary course, and the Merger Agreement will contain a material adverse effect ("MAE") closing condition that could, in extreme circumstances, provide Fund VI with a basis for terminating the transaction. Additionally, the Merger Agreement will contain a no-shop provision restricting Cloudium's ability to solicit or engage with alternative acquisition proposals during the interim period, subject to customary fiduciary-out provisions. These interim period risks are inherent in any structure that involves a gap between signing and closing and are not unique to the reverse triangular merger.

Appraisal Rights. Under DGCL § 262, stockholders of Cloudium who do not vote in favor of the merger, who properly demand appraisal prior to the stockholder vote, and who do not withdraw their demands are entitled to a judicial determination of the "fair value" of their shares, which may be higher or lower than the $36.92 per share merger consideration. Appraisal proceedings can be protracted and costly. However, appraisal risk is present in any merger structure (including the back-end merger in a two-step tender offer) and is a manageable risk. A separate memorandum on appraisal rights analysis is forthcoming (anticipated January 2024).

Assumption of All Liabilities. Because Cloudium survives the merger and the surviving corporation succeeds to all debts, liabilities, and duties of the constituent corporations by operation of law under DGCL § 259, Fund VI will effectively acquire all of Cloudium's liabilities — both known and unknown, disclosed and undisclosed, contingent and matured. Unlike an asset purchase, there is no ability to selectively assume certain liabilities and leave others behind. This risk is mitigated through customary deal protections, including comprehensive representations and warranties in the Merger Agreement, indemnification provisions, escrow arrangements, and buyer-side R&W insurance.

4. Key Structural Considerations Specific to This Transaction. Cloudium's Incorporation in England and Wales. A threshold issue that warrants careful analysis is the fact that Cloudium is incorporated in England and Wales as a public limited company, even though it is listed on Nasdaq and has significant US operations. The reverse triangular merger would be effected under the DGCL because Merger Sub is a Delaware corporation merging with and into Cloudium. Several questions arise from this cross-border dimension:

(a) Applicability of the DGCL to a non-Delaware Target: Under the DGCL, a merger between a Delaware corporation and a corporation of another jurisdiction (including a foreign country) may be effected under Section 252 of the DGCL, which permits mergers between a Delaware corporation and a corporation organized under the laws of any other state, the United States, or a foreign country, provided that the laws of the other jurisdiction permit such a merger. We will need to confirm that English law does not prohibit Cloudium from being a constituent corporation in a Delaware statutory merger.

(b) Cloudium's Articles of Association: We need to review Cloudium's articles of association to determine whether they contain any provisions that would impose additional requirements or restrictions on the merger, including any supermajority voting requirements, board approval requirements, or other conditions.

(c) Companies Act 2006 Requirements: We need to assess whether the UK Companies Act 2006 imposes any requirements for the proposed transaction — for example, whether the merger constitutes a "compromise or arrangement" requiring court sanction under Part 26, or whether any filing or registration requirements apply with Companies House.

(d) Coordination with Target's Counsel: We will coordinate with Ridgeway Phelps & Sato LLP (Alistair Fenn, London) on all English law aspects and will also consult with Albright & Kerr LLP (Fiona McAllister) regarding any regulatory or competition law implications. Our preliminary view is that, because Cloudium is listed on Nasdaq and has submitted to Delaware jurisdiction for merger purposes (which we will confirm), the DGCL merger structure is workable. However, further analysis is required, and this issue represents a critical open item.

Rollover Mechanics. The reverse triangular merger readily accommodates the rollover equity elections by Hargrove and Pinnacle. The rollover shares would be excluded from conversion into cash consideration at the effective time of the merger and would instead be exchanged for equity interests in the surviving entity or a parent holding company, pursuant to rollover agreements to be negotiated and executed concurrently with the Merger Agreement. The rollover agreements will specify the number of shares subject to rollover, the exchange ratio, the form of equity interests to be received (e.g., common units, preferred units, or a combination thereof in a post-closing holding company), and other terms and conditions. The specific tax treatment of the rollover — whether under Section 368(a)(2)(E) or Section 351 of the Code — will be addressed in Leonard Cross's forthcoming tax memorandum.

Section 203 of the DGCL (Business Combination Statute). DGCL § 203 restricts certain business combinations between a Delaware corporation and an "interested stockholder" (generally defined as a person or group owning 15% or more of the corporation's outstanding voting stock) for a period of three years following the date on which the interested stockholder became such. Pinnacle Growth Ventures LLC holds approximately 11.6% of Cloudium's outstanding shares, which is below the 15% threshold but close enough to warrant consideration. More fundamentally, however, our preliminary view is that DGCL § 203 does not apply to Cloudium because Cloudium is an English public limited company, not a Delaware corporation, and Section 203 by its terms applies only to corporations organized under the DGCL. This preliminary conclusion will be confirmed in a separate memorandum anticipated for November 2023.

B. Option 2: Forward Triangular Merger

1. Description of Mechanics. Under a forward triangular merger structure, Fund VI would form Merger Sub as a new Delaware corporation (in the same manner as in the reverse triangular merger). However, instead of Merger Sub merging with and into Cloudium, the merger would proceed in the opposite direction: Cloudium would merge with and into Merger Sub. At the effective time of the merger, Merger Sub would be the surviving corporation and Cloudium would cease to exist. Each outstanding share of Cloudium common stock (other than rollover shares and dissenting shares) would be converted into the right to receive cash consideration, and the stockholders of Cloudium would surrender their shares in exchange for the merger consideration. Following the merger, Merger Sub would be a direct, wholly owned subsidiary of Fund VI, holding all of the assets formerly held by Cloudium (which would have transferred to Merger Sub by operation of law).

2. Advantages. The forward triangular merger shares certain structural advantages with the reverse triangular merger:

Structural Familiarity. The forward triangular merger is a recognized and well-established merger structure under the DGCL and is familiar to sophisticated market participants, including lenders, financial advisors, and institutional investors. Like the reverse triangular merger, it is effected through a statutory merger under the DGCL and follows a similar documentation framework (merger agreement, stockholder vote, Certificate of Merger).

Potential Liability Isolation. In theory, because Cloudium ceases to exist and its assets and liabilities are absorbed into Merger Sub by operation of law, the buyer has somewhat greater control over the post-closing entity's identity and governance. In certain contexts — particularly where the target entity has significant known liabilities — the forward merger may offer a marginal advantage in managing liability exposure. However, in practice, as the buyer in a negotiated acquisition, Fund VI would be assuming all of Cloudium's liabilities regardless of structure, and the distinction between forward and reverse merger structures for liability purposes is more theoretical than practical.

3. Disadvantages — and Why It Is Not Recommended. Despite its structural familiarity, the forward triangular merger suffers from several critical disadvantages that render it unsuitable for this transaction:

Critical Deficiency — Loss of Target's Legal Identity. The most significant disadvantage of the forward triangular merger is that Cloudium ceases to exist as a legal entity upon consummation of the merger. While the assets and liabilities of Cloudium transfer to the surviving Merger Sub by operation of law, the legal identity of Cloudium — including its name, its organizational documents, its contractual relationships, and its regulatory status — is extinguished. This has profound practical consequences:

(a) Contract Assignment/Novation. All contracts, licenses, permits, and regulatory authorizations held in Cloudium's name must be assigned or novated to the surviving Merger Sub entity. This triggers not only the change of control provisions present in many contracts (which would also be triggered in a reverse triangular merger) but also the assignment provisions, which are often more restrictive and more broadly drafted. Many contracts contain anti-assignment clauses that prohibit any transfer, assignment, or delegation of the contract without the prior written consent of the counterparty. A forward merger in which the contracting party ceases to exist constitutes an assignment by operation of law, and courts have consistently distinguished between a "change of control" (where the contracting party survives but its ownership changes) and an "assignment" (where the rights and obligations under the contract are transferred to a different legal entity). The distinction is not merely academic: certain contracts may provide that an assignment without consent renders the contract void or voidable, whereas a change of control may trigger only a consent or notification requirement.

(b) Impact on Key Contracts. For the Aegis Federal Master SaaS Agreement ($84 million ARR), a forward merger would constitute both a change of control and an assignment, potentially triggering a more onerous consent process or, in the worst case, providing Aegis Federal with a basis for voiding the agreement entirely. Similarly, the Helix Data Technology License could be terminated not only under its change of control clause but also under its anti-assignment clause. The sheer volume of customer SaaS agreements, vendor contracts, and IP licenses that would require affirmative assignment or novation makes this structure operationally impractical.

(c) FedRAMP and Regulatory Authorizations. If Cloudium holds any FedRAMP authorizations or other government security authorizations in its name (which our diligence is in the process of confirming), the loss of Cloudium's legal identity could jeopardize those authorizations, requiring the surviving Merger Sub entity to re-apply or transfer the authorizations — a process that can take months or years.

Subsidiary Structure Complications. Cloudium's UK subsidiary (Cloudium Technologies UK Ltd.) is currently a wholly owned subsidiary of Cloudium Technologies plc. If Cloudium ceases to exist in a forward merger, the equity in Cloudium UK would transfer to Merger Sub by operation of law, but all intercompany agreements between Cloudium plc and Cloudium UK would need to be assigned or novated. Additionally, bank accounts, regulatory filings with Companies House, HMRC (Her Majesty's Revenue & Customs), and other governmental authorities would need to be updated to reflect the change in the parent entity. The same considerations apply to the Indian and German subsidiaries.

Tax Treatment Less Favorable. A forward triangular merger may qualify as a tax-free reorganization under Section 368(a)(2)(D) of the Code, but the requirements for qualification are different from — and in certain respects more restrictive than — those applicable to a reverse triangular merger under Section 368(a)(2)(E). In particular, Section 368(a)(2)(D) requires that the acquiring corporation (Fund VI) acquire "substantially all" of the target's properties in the merger, which has been interpreted by the IRS to mean at least 90% of the fair market value of the target's net assets and at least 70% of the fair market value of the target's gross assets. While this test is generally met in a clean forward triangular merger, the analysis is more complex, and the different statutory framework creates additional uncertainty for the rollover participants. Leonard Cross has indicated that the reverse triangular merger provides a more straightforward path to tax-deferred treatment for the rollover equity.

Debt Financing Complications. The committed debt financing from Meridian Atlantic and Ironclad has been structured around the assumption that the borrower under the new credit facilities will be Cloudium — an operating company with an established credit history, revenue base, asset base, and customer relationships. A forward triangular merger would result in the borrower being Merger Sub — a newly formed shell entity with no independent operating history. While Merger Sub would hold all of Cloudium's assets and operations post-merger, the lenders' credit analysis, financial covenants, representations and warranties, and syndication materials would need to be restructured to account for the different borrower identity. This would likely result in delays, increased legal and advisory costs, and potentially less favorable financing terms.

4. Conclusion. For the reasons set forth above, the forward triangular merger is inferior to the reverse triangular merger for this transaction. The critical deficiency — the loss of Cloudium's legal identity and the resulting need to assign or novate every contract, license, permit, and regulatory authorization — creates unacceptable operational risk and transactional complexity. Combined with the less favorable tax treatment and the financing structure complications, the forward triangular merger is not recommended.

C. Option 3: Asset Purchase

1. Description of Mechanics. Under an asset purchase structure, Fund VI (or a newly formed acquisition vehicle) would purchase substantially all of the assets of Cloudium and its subsidiaries through one or more asset purchase agreements. The acquisition vehicle would assume only those liabilities expressly identified and agreed upon in the asset purchase agreements, and Cloudium would retain all excluded assets (if any) and all liabilities not expressly assumed by the acquirer. Following the closing of the asset sale, Cloudium would distribute the sale proceeds (net of retained liabilities, taxes, and transaction expenses) to its stockholders in one or more liquidating distributions, and would thereafter wind down its corporate existence.

The asset purchase would likely need to be structured as a series of separate but coordinated transactions across multiple jurisdictions, given that Cloudium's assets and operations are spread across the United States, the United Kingdom, India, and Germany. This would involve separate agreements for US assets (held by the parent entity), UK assets (held by Cloudium UK), Indian assets (held by Cloudium India), and German assets (held by Cloudium Germany), each governed by the applicable local law and subject to local transfer requirements.

2. Advantages. The asset purchase structure offers certain theoretical advantages:

Selective Acquisition of Assets and Liabilities. The principal advantage of an asset purchase is the buyer's ability to selectively acquire desired assets and assume only specified liabilities. The buyer can "cherry-pick" the assets it wants — contracts, intellectual property, equipment, real property — and leave behind assets it does not want, along with any liabilities it does not wish to assume. This provides the buyer with a degree of protection against unknown or contingent liabilities that is not available in a merger structure, where the surviving entity succeeds to all liabilities by operation of law.

No Appraisal Rights. Under the DGCL, appraisal rights are not available to stockholders in an asset sale. While stockholder approval is still required for a sale of substantially all assets under DGCL § 271, the absence of appraisal rights eliminates one potential source of post-closing litigation and uncertainty.

Flexibility in Purchase Price Allocation. An asset purchase permits the buyer and seller to negotiate the allocation of the purchase price among the acquired assets for federal income tax purposes under Section 1060 of the Code and the related regulations. This allocation can create favorable tax treatment for the buyer by allocating a greater portion of the purchase price to depreciable or amortizable assets (such as intellectual property, goodwill, and customer relationships), resulting in increased tax deductions in post-closing periods.

3. Disadvantages — and Why It Is Not Recommended. Notwithstanding the theoretical advantages, the asset purchase structure is entirely impractical for this transaction for the following reasons:

Massive Third-Party Consent Burden. In an asset purchase, every material contract, license, lease, and permit must be individually assigned from the seller (Cloudium) to the buyer (the acquisition vehicle). Unlike a merger — where contracts continue by operation of law or are subject only to change of control provisions — an asset sale requires the affirmative assignment of each contract to a new legal entity. For a company of Cloudium's scale, with approximately 6,800 employees, thousands of customer SaaS agreements, multiple IP licenses (including the commercially critical Helix Data Technology License), government contracts (including the $84 million Aegis Federal relationship), regulatory authorizations across four jurisdictions, vendor agreements, real property leases, equipment leases, and intercompany agreements, the consent and assignment process would be prohibitively time-consuming, resource-intensive, and risky. The failure to obtain consent for even a single material contract could result in the loss of a significant customer relationship, intellectual property license, or regulatory authorization. This risk is unacceptable given the scale of the transaction and the importance of Cloudium's contractual relationships to its business value.

Bulk Transfer / Successor Liability Risk. Even with an asset purchase structure that is carefully drafted to exclude specified liabilities, courts in multiple jurisdictions may impose successor liability on the buyer under various legal theories, including the "de facto merger" doctrine, the "mere continuation" doctrine, the "product line" exception, and statutory successor liability regimes. In the UK, the Transfer of Undertakings (Protection of Employment) Regulations 2006 ("TUPE") would require the automatic transfer of employees and their associated rights, obligations, and liabilities to the buyer, regardless of the terms of the asset purchase agreement. Similar employee protection regimes exist in Germany (Section 613a of the German Civil Code) and India (under various labor and employment statutes). These regimes significantly reduce the liability-isolation benefit that is the primary theoretical advantage of an asset purchase.

Tax Inefficiency. An asset purchase is treated for US federal income tax purposes as a taxable sale of assets by Cloudium. This creates a "double taxation" problem: Cloudium pays entity-level tax on the gain recognized on the sale of its assets (which, given the substantial goodwill and intangible asset value inherent in Cloudium's business, could result in significant tax liability), and Cloudium's stockholders subsequently pay tax on the liquidating distribution of the after-tax proceeds. The aggregate tax burden is substantially higher than in a merger structure, where there is no entity-level tax. Furthermore, the asset purchase structure provides no mechanism for tax-deferred rollover treatment for Hargrove and Pinnacle under Section 368 of the Code, as the rollover provisions of Section 368 apply only to corporate reorganizations (including mergers), not to asset sales. The rollover participants would be required to invest new cash in the post-closing entity rather than rolling their existing equity on a tax-deferred basis.

Regulatory Complications Across Jurisdictions. Transferring assets across multiple jurisdictions — the United States, the United Kingdom, India, and Germany — triggers a complex web of transfer taxes and regulatory filings. In the UK, transfers of assets (including choses in action, real property, and certain intangible property) may trigger stamp duty land tax, stamp duty reserve tax ("SDRT"), or stamp duty depending on the nature of the assets. In India, stamp duty applies to transfers of immovable property and certain instruments. In Germany, real estate transfer tax (Grunderwerbsteuer) applies to transfers of German real property, if applicable. Each of these transfer taxes adds cost and complexity to an asset purchase structure that would not be present in a merger, where the assets remain with the same legal entity.

Operational Disruption. The practical mechanics of an asset purchase for a business of Cloudium's scale would be extraordinarily disruptive. Transferring employees (including compliance with TUPE, Section 613a BGB, and Indian labor laws), migrating payroll and benefits administration, reassigning bank accounts, transferring IP registrations (including trademark registrations, patent assignments, and domain name transfers), migrating customer data (including compliance with GDPR and other data protection regimes), and transitioning IT infrastructure — all on an asset-by-asset basis — would create significant operational risk and transition cost. The risk of service disruptions to Cloudium's SaaS customers during the transition period could harm customer relationships and damage the business value that Solara is paying $6.8 billion to acquire.

Financing Structure Incompatible. The committed debt financing from Meridian Atlantic and Ironclad is structured around a going-concern acquisition of Cloudium as an operating entity. An asset purchase — in which the assets would be disaggregated and transferred to a new acquisition vehicle — would require a complete restructuring of the debt commitment letter, the credit agreement, and the lenders' underwriting analysis. The lenders have not underwritten an asset purchase structure, and adapting the financing to such a structure would likely result in significant delays, increased costs, and potentially less favorable terms.

Post-Closing Liquidation of Cloudium. Following an asset sale, Cloudium would need to wind down its corporate existence, satisfy remaining creditors (including tax authorities), and make a final liquidating distribution to stockholders. This post-closing process adds months of complexity and risk, including the risk that Cloudium's retained liabilities exceed expectations or that tax assessments reduce the net distributable amount.

4. Conclusion. For the reasons set forth above, the asset purchase structure is entirely impractical for this transaction. The scale of the transaction ($6.8 billion), the global nature of Cloudium's operations (four countries), the volume of contracts requiring assignment, the double taxation burden, the incompatibility with the committed debt financing, and the operational disruption inherent in an asset-by-asset transfer make the asset purchase structure untenable. This structure is not recommended.

D. Option 4: Tender Offer (One-Step or Two-Step)

1. Description of Mechanics — Two-Step Tender Offer. Under a two-step tender offer structure, Fund VI (or Merger Sub) would commence a cash tender offer directly to Cloudium's stockholders for all outstanding shares of Cloudium common stock at $36.92 per share. The tender offer would be conducted in accordance with the SEC's tender offer rules under Regulation 14D and Regulation 14E of the Securities Exchange Act of 1934, as amended. The minimum acceptance condition would typically be set at a majority of the outstanding shares (or such higher threshold as may be required to effect the back-end merger).

Upon achieving the minimum acceptance condition and the satisfaction of all other conditions to the tender offer, Fund VI would accept for payment and pay for all tendered shares, closing the first step of the transaction. Fund VI would then complete a second-step "back-end" merger to acquire the shares held by stockholders who did not tender. Depending on the percentage of shares acquired in the tender offer, the back-end merger could be effected as a short-form merger under DGCL § 253 (if Fund VI acquires at least 90% of the outstanding shares) or a medium-form merger under DGCL § 251(h) (if the merger agreement so provides and certain other conditions are satisfied).

2. Description of Mechanics — One-Step Tender Offer. As an alternative, if DGCL § 251(h) is available, the tender offer and back-end merger could be structured as a single, integrated transaction. Under Section 251(h), if the merger agreement expressly provides for it and the acquirer obtains at least the percentage of shares that would be required to approve the merger at a stockholder meeting, the back-end merger may be effected immediately upon consummation of the tender offer without a separate stockholder vote. This structure effectively collapses the two-step process into a single transaction from the stockholders' perspective.

3. Advantages. Potentially Faster Timeline. The primary advantage of a tender offer structure is speed. Under SEC rules, a tender offer must remain open for a minimum of 20 business days (approximately four calendar weeks). This is significantly faster than the proxy solicitation process required for a one-step merger, which typically takes three to four months (including preparation, SEC review, and mailing of the proxy statement and scheduling of the stockholder meeting). In a tender offer, there is no need to prepare, file, and clear a proxy statement with the SEC (although the tender offer materials themselves are subject to SEC review), and there is no need to convene a stockholder meeting. In a transaction where speed is paramount — for example, a competitive auction or a hostile approach — the tender offer structure can reduce the signing-to-closing timeline by four to six weeks or more.

Reduced Interim Period Risk. The shorter period between signing and closing reduces the fund's exposure to material adverse effect events, market volatility, competitive dynamics, and other risks that can arise during an extended interim period. A shorter timeline also reduces the period during which interim operating covenants constrain Cloudium's management and the risk that a topping bid may emerge.

Market Standard for Hostile or Competitive Situations. The tender offer structure is particularly well-suited for hostile or competitive acquisition situations, where speed and direct access to target stockholders (bypassing the ta

MEMORANDUM
PRIVILEGED & CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGE / ATTORNEY WORK PRODUCT
TO: Harrison Wexford, Responsible Partner, Mergers & Acquisitions, Calderwood & Harkness LLP
FROM: Tiffany Rosenthal, Lead Associate, Mergers & Acquisitions, Calderwood & Harkness LLP
DATE: October 18, 2023
RE: Structuring Analysis — Acquisition of Cloudium Technologies plc by Solara Digital Infrastructure Fund VI LP
MATTER NO.: 1041-00003
Right-click to update Table of Contents
I. Executive Summary
The purpose of this memorandum is to evaluate four principal acquisition structures for the proposed acquisition of Cloudium Technologies plc ("Cloudium" or the "Target") by Solara Digital Infrastructure Fund VI LP ("Fund VI"), and to provide a recommendation as to the optimal structure based on the transaction's specific commercial, regulatory, tax, financing, and operational considerations.
The Client. Our client in this engagement is Solara Digital Infrastructure LP ("Solara"), a Delaware limited partnership and one of the preeminent digital infrastructure-focused private equity firms in the United States. Solara is acting through its investing vehicle, Fund VI, a Delaware limited partnership with a vintage year of 2022 and approximately $12.4 billion in total committed capital. Fund VI's general partner is Solara Fund VI GP LLC, a Delaware limited liability company. The Managing Partners of Solara are Marcus Elliston (Founder & Managing Partner) and Priya Narasimhan (Co-Managing Partner & Chief Investment Officer), each of whom will be the principal decision-makers on the buy side of this transaction.
The Target. Cloudium Technologies plc is a public limited company incorporated under the laws of England and Wales (Company No. 09734521) and listed on the Nasdaq Global Select Market under the ticker symbol "CLDM." Cloudium is a leading provider of cloud-native enterprise resource planning ("ERP"), customer relationship management ("CRM"), and business-intelligence software-as-a-service ("SaaS") solutions to mid-market and enterprise customers globally. The company employs approximately 6,800 people across its operations in the United States, the United Kingdom, India, and Germany. For the twelve-month period ending September 30, 2023 ("LTM"), Cloudium reported revenue of approximately $1,620,000,000 and EBITDA of approximately $405,000,000. The company's annual recurring revenue ("ARR") stood at approximately $1,740,000,000 as of December 31, 2023 (per management projections), reflecting strong net revenue retention and new customer acquisition. There are currently 184,200,000 shares of common stock outstanding.
Anticipated Deal Value. The anticipated aggregate deal value is approximately $6,800,000,000, implying a per-share cash consideration of approximately $36.92 and an EV/EBITDA multiple of approximately 16.8x LTM EBITDA. This valuation has been developed in consultation with Osprey Bancroft & Co., serving as buyer's financial advisor, and is subject to further negotiation with the Target and its advisors.
Key Structural Drivers. In assessing the appropriate transaction structure, we have focused on the following key considerations, each of which has been identified as a priority by the client:
(a) Preserving Cloudium's contracts, licenses, and regulatory authorizations, including minimizing the impact of change of control provisions in material customer, vendor, and IP license agreements;
(b) Accommodating rollover equity from Jonathan Hargrove (Chief Executive Officer of Cloudium, holding a 4.2% equity stake) and Pinnacle Growth Ventures LLC (holding an 11.6% equity stake), both of whom are expected to roll a portion of their equity into the post-closing entity;
(c) Facilitating the committed debt financing from Meridian Atlantic Bank, N.A. and Ironclad Capital Markets LLC, which is being structured around specific assumptions regarding the acquisition vehicle and borrower identity;
(d) Achieving tax-efficient treatment for the rollover participants, ideally qualifying the rollover equity exchange as a tax-deferred transaction under the Internal Revenue Code; and
(e) Minimizing third-party consent requirements and operational disruption to Cloudium's business during and after the transaction.
Recommendation. Based on the analysis set forth in this memorandum, we recommend that the acquisition be structured as a reverse triangular merger under the Delaware General Corporation Law ("DGCL"). Under the recommended structure, Fund VI would cause the formation of a new Delaware corporation (to be incorporated as "Stratos Merger Sub Inc." or such other name as may be selected by the client), which would serve as a wholly owned merger subsidiary of Fund VI. At closing, Stratos Merger Sub Inc. would merge with and into Cloudium, with Cloudium surviving the merger as a wholly owned subsidiary of Fund VI. Each outstanding share of Cloudium common stock (other than rollover shares and dissenting shares) would be converted into the right to receive $36.92 in cash, and the separate corporate existence of Stratos Merger Sub Inc. would cease.
Structures Analyzed. This memorandum evaluates four principal acquisition structures:
(1) Reverse Triangular Merger (recommended);
(2) Forward Triangular Merger;
(3) Asset Purchase; and
(4) Tender Offer (one-step or two-step).
Advisors Consulted. In preparing this memorandum, we have consulted with and received input from the following advisors:
• Osprey Bancroft & Co. — Damien Harlow, Managing Director, Technology M&A (buyer's financial advisor);
• Glenmore Thornton LLP — Richard Okamura, Lead Partner, Transaction Tax (buyer's accounting and tax advisor);
• Leonard Cross, Specialist Partner, Tax, Calderwood & Harkness LLP (internal tax structuring counsel);
• Elaine Forsythe, Specialist Partner, Antitrust & Competition, Calderwood & Harkness LLP (internal regulatory counsel).
This memorandum is preliminary in nature and is intended to frame the structuring discussion for the responsible partner. Several of the issues identified herein — including the detailed Section 368 tax analysis, the DGCL Section 203 analysis, the appraisal rights analysis, the CFIUS assessment, and the English law / UK Takeover Code analysis — will be addressed in separate, dedicated memoranda as noted throughout. We anticipate circulating the first of those follow-up memoranda by early November 2023.
II. Background and Key Transaction Parameters
A. Parties. Buyer. The buyer is Solara Digital Infrastructure Fund VI LP, a Delaware limited partnership formed for the purpose of making investments in digital infrastructure, enterprise software, and technology-enabled services businesses. Fund VI's general partner is Solara Fund VI GP LLC, a Delaware limited liability company. Solara's headquarters are located at 1200 Market Street, Suite 3400, Wilmington, Delaware 19801, and its principal offices are in San Francisco, California and New York, New York. Across its six flagship funds, Solara manages approximately $38 billion in assets under management. To date, Solara has completed 14 platform investments across Funds IV through VI, including several transactions of comparable size and complexity in the enterprise software sector. Fund VI reached its final close in the fourth quarter of 2022, and this proposed acquisition would represent Fund VI's fourth platform investment.
Target. Cloudium Technologies plc is a public limited company incorporated under the laws of England and Wales (Company No. 09734521). Cloudium's registered office is located at 45 Broadwick Street, London W1F 0DB, United Kingdom, and its United States headquarters are located at 600 Townsend Street, Suite 800, San Francisco, California 94103. Although incorporated in England and Wales, Cloudium is listed on the Nasdaq Global Select Market (ticker: CLDM) and files periodic reports with the United States Securities and Exchange Commission ("SEC") as a foreign private issuer under the Securities Exchange Act of 1934, as amended. Cloudium's ordinary shares are not listed on any UK-regulated market.
Target Management. The senior management team of Cloudium currently consists of:
• Jonathan Hargrove, Chief Executive Officer;
• Sienna Whitfield, Chief Financial Officer;
• Nadia Chowdhury, General Counsel and Corporate Secretary; and
• Douglas Pemberton, Chairman of the Board of Directors (independent).
Mr. Hargrove has served as CEO since 2018 and has been instrumental in Cloudium's transition to a fully cloud-native SaaS model. His continued involvement post-closing is a key element of Solara's investment thesis.
Target's Counsel. Cloudium is represented in this transaction by Ridgeway Phelps & Sato LLP. The lead partners for the Target's outside counsel team are Catherine Answorth (Lead M&A Partner, New York office) and Alistair Fenn (Lead Corporate Partner, London office). We anticipate that Alistair Fenn's team will address English law aspects of the transaction, including any corporate approvals required under Cloudium's articles of association and the Companies Act 2006, while Catherine Answorth's team will serve as lead deal counsel on the merger agreement and SEC filings.
Key Rollover Participants. Two existing stockholders of Cloudium are expected to participate in the rollover equity component of the transaction:
• Jonathan Hargrove (CEO): Mr. Hargrove holds 7,736,400 shares of Cloudium common stock, representing approximately 4.2% of the outstanding shares. Based on preliminary discussions between Solara and Mr. Hargrove (conducted through Osprey Bancroft & Co.), Mr. Hargrove is anticipated to roll over approximately 50% of his equity position, equivalent to 3,868,200 shares with an implied value of approximately $142,814,544 (at $36.92 per share).
• Pinnacle Growth Ventures LLC: Pinnacle is a growth equity fund managed by Evelyn Carmichael (Managing Member). Pinnacle holds 21,367,200 shares of Cloudium common stock, representing approximately 11.6% of the outstanding shares. Based on preliminary discussions, Pinnacle is anticipated to roll over approximately 60% of its equity position, equivalent to 12,820,320 shares with an implied value of approximately $473,241,408.
The total anticipated rollover equity is approximately $616,055,952, representing approximately 9.1% of the total deal value. The precise rollover amounts and percentages will be finalized in the rollover agreements to be negotiated and executed concurrently with the definitive merger agreement.
B. Target Corporate Structure and Subsidiaries
Cloudium operates through a holding company structure with subsidiaries in three countries in addition to its operations conducted at the parent level in the United States. The current corporate structure is as follows:
1. Cloudium Technologies plc (parent entity; incorporated in England and Wales; Company No. 09734521; registered office at 45 Broadwick Street, London W1F 0DB, UK). The parent entity holds the equity interests in each of the subsidiaries described below and conducts its US operations primarily through its San Francisco headquarters. The parent employs approximately 2,800 employees in the United States across engineering, product development, sales, marketing, and corporate functions.
2. Cloudium Technologies UK Ltd. (Company No. 11287456; registered at 45 Broadwick Street, London W1F 0DB, United Kingdom). The UK subsidiary employs approximately 1,200 people in London and Manchester and serves as the primary operating entity for Cloudium's EMEA sales, customer success, and professional services operations. For the fiscal year ending September 30, 2023, Cloudium UK reported revenue of approximately £312,000,000 (approximately $390,000,000 at an exchange rate of $1.25 per British pound sterling). Cloudium UK holds certain intellectual property licenses and is party to numerous customer agreements with UK and European customers.
3. Cloudium Technologies India Pvt. Ltd. (incorporated in Bangalore, Karnataka, India). The Indian subsidiary employs approximately 2,400 people and serves as Cloudium's primary center for research and development, quality assurance, and customer support. This entity holds certain Indian intellectual property registrations and is party to intercompany service agreements with the parent entity.
4. Cloudium Solutions GmbH (incorporated in Berlin, Germany). The German subsidiary employs approximately 400 people and is responsible for sales and customer success operations in the DACH region (Germany, Austria, and Switzerland). The entity is party to customer agreements with German, Austrian, and Swiss enterprise customers and holds certain local regulatory authorizations.
A detailed organizational chart of Cloudium and its subsidiaries is referenced as Appendix A to this memorandum and will be updated as diligence progresses.
C. Anticipated Deal Economics
The anticipated economics of the proposed acquisition are summarized below:
Total Enterprise / Deal Value: $6,800,000,000
Per-Share Cash Consideration: Approximately $36.92, subject to adjustment for rollover elections. This price represents a premium of approximately 28% to Cloudium's unaffected closing price of $28.85 per share on the Nasdaq Global Select Market on October 2, 2023 (the last trading day prior to market rumors of a potential transaction), and a premium of approximately 22% to Cloudium's 30-day volume-weighted average price of $30.25.
Anticipated Sources of Funds:
The total funding requirement of $7,188,944,048 covers the following anticipated uses: (a) approximately $6,183,944,048 in cash consideration payable to non-rolling stockholders; (b) estimated transaction expenses of $185,000,000 (including advisory fees, legal fees, financing fees, R&W insurance premiums, filing fees, and other customary closing costs); and (c) repayment of approximately $820,000,000 in existing Cloudium indebtedness at closing.
The Term Loan B is being arranged by Meridian Atlantic Bank, N.A. (as lead arranger and administrative agent) and Ironclad Capital Markets LLC (as co-arranger). The Revolving Credit Facility of $500,000,000 is expected to be undrawn at closing but available for post-closing working capital and general corporate purposes. Preliminary discussions with Graham Whitaker at Meridian Atlantic and Samuel Diaz at Ironclad indicate strong lender interest at the indicated pricing, subject to customary syndication, due diligence, and documentation conditions. We expect the debt commitment letter to be formalized by approximately December 15, 2023, with execution targeted to occur concurrently with the signing of the definitive merger agreement in late January 2024.
Existing Cloudium Indebtedness to Be Repaid at Closing. Cloudium currently has $820,000,000 of outstanding indebtedness under a credit agreement dated March 15, 2021, with Atlas Commercial Lending Corp. as administrative agent. This indebtedness consists of a $620,000,000 term loan and a $200,000,000 drawn revolving credit facility. The existing credit agreement contains a change of control provision that requires mandatory prepayment of all outstanding amounts upon the consummation of a change of control transaction. Accordingly, regardless of the acquisition structure selected, the existing Cloudium indebtedness will need to be repaid in full at or prior to closing, and the sources of funds have been sized to account for this requirement.
D. Key Contracts with Change of Control Triggers
Our preliminary due diligence review has identified several material contracts that contain change of control provisions. These provisions will be triggered by the proposed acquisition regardless of structure, but the nature of the required action (consent, notice, or potential termination) and the practical difficulty of compliance varies significantly depending on whether the Target survives the transaction as the same legal entity. The most significant contracts identified to date include:
1. Master SaaS Agreement with Aegis Federal Solutions Inc. Aegis Federal is a US government contractor and one of Cloudium's largest enterprise customers, contributing approximately $84,000,000 in ARR. The Master SaaS Agreement between Cloudium and Aegis Federal contains a provision requiring the prior written consent of Aegis Federal for any "change of control" of Cloudium, broadly defined to include any transaction in which a single person or group acquires more than 50% of the voting power or economic interests in Cloudium. Failure to obtain such consent constitutes a default under the agreement and entitles Aegis Federal to terminate the agreement upon 30 days' written notice. Given the magnitude of this customer relationship, obtaining Aegis Federal's consent is a critical workstream for any acquisition structure.
2. Technology License Agreement with Helix Data Systems GmbH (Frankfurt). Cloudium has a technology license agreement with Helix Data Systems GmbH pursuant to which Cloudium licenses certain proprietary data analytics and machine learning algorithms integrated into Cloudium's business-intelligence product suite. The Helix Data license contains a termination-for-change-of-control clause that provides Helix Data with the right (but not the obligation) to terminate the license upon written notice if a change of control of Cloudium occurs. This license is commercially significant, and the loss of the Helix Data technology would require Cloudium to develop or license alternative technology, with attendant cost and delay.
3. Existing Credit Agreement with Atlas Commercial Lending Corp. As noted above, the existing credit agreement contains a change of control provision requiring mandatory prepayment of all outstanding indebtedness. This provision will be triggered regardless of structure, and the repayment obligation has been accounted for in the sources and uses analysis.
4. Other Contracts. Our diligence review has identified numerous additional customer, vendor, and IP license agreements containing change of control notification or consent requirements of varying scope and materiality. A comprehensive analysis of these provisions is being prepared and will be delivered in a separate Issue-Specific Diligence Memorandum on Change of Control Provisions (targeted for circulation on January 8, 2024). The volume and nature of these provisions reinforce the importance of selecting a structure that minimizes the contractual impact of the transaction.
E. Regulatory Considerations
Hart-Scott-Rodino Antitrust Improvements Act of 1976 ("HSR Act"). The proposed acquisition exceeds the HSR Act size-of-transaction threshold (currently $111.4 million for 2023), and the size-of-person thresholds are met as well. Accordingly, an HSR Act filing is required, and the transaction may not close until the applicable waiting period has expired or been terminated. The initial waiting period is 30 calendar days from the date of filing. Based on preliminary competitive analysis, we do not expect this transaction to raise significant antitrust concerns, but we acknowledge the possibility of a Second Request from the Federal Trade Commission or the Department of Justice, which would extend the review period by several months. Elaine Forsythe is preparing a detailed HSR pre-filing memorandum.
UK Competition and Markets Authority ("CMA"). Given that Cloudium UK Ltd. has material UK turnover of approximately £312,000,000 for the most recent fiscal year, the transaction is expected to meet the UK merger notification thresholds. A CMA merger notification will be required. Coordination with Albright & Kerr LLP (Fiona McAllister, Lead Competition Partner, London) is underway. We anticipate a Phase 1 review timeline of approximately eight to ten weeks from the date of notification.
Committee on Foreign Investment in the United States ("CFIUS"). Our preliminary assessment, based on the information available to date, suggests that no CFIUS filing is required. Cloudium does not appear to constitute a "TID U.S. business" (i.e., a business involved in critical technology, critical infrastructure, or sensitive personal data within the meaning of the CFIUS regulations), and Cloudium does not own or operate "covered real estate" in proximity to sensitive government installations. However, this assessment is preliminary and is subject to confirmation by Elaine Forsythe's separate CFIUS analysis, which will consider the full scope of Cloudium's US government contracting relationships (including the Aegis Federal relationship) and any classified or controlled technology.
EU Merger Regulation. Based on publicly available financial information, Cloudium's EU-wide revenues are likely below the jurisdictional thresholds for a mandatory filing under the EU Merger Regulation (Council Regulation (EC) No. 139/2004). No EU merger filing is expected.
German Foreign Direct Investment ("FDI") Screening (AWV). Preliminary analysis suggests that the acquisition would not trigger a mandatory FDI notification under the German Foreign Trade and Payments Ordinance (Außenwirtschaftsverordnung, or AWV), as Cloudium Solutions GmbH does not appear to operate in sectors subject to mandatory screening (e.g., defense, critical infrastructure, certain high-technology sectors). This assessment is preliminary and will be confirmed as diligence progresses.
Indian FDI and Competition Commission of India ("CCI"). Preliminary analysis suggests no FDI filing is required in India, as Fund VI's investment in Cloudium Technologies India Pvt. Ltd. is indirect (through Cloudium's parent entity). The CCI filing thresholds are based on consolidated turnover and assets in India; based on available information, the Indian subsidiary's financials may fall below the applicable thresholds, but this will be confirmed once detailed financial information is obtained through diligence.
III. Analysis of Structural Alternatives
A. Option 1: Reverse Triangular Merger (Recommended)
1. Description of Mechanics. Under a reverse triangular merger structure, Fund VI would cause the formation of a new Delaware corporation — to be incorporated as Stratos Merger Sub Inc. ("Merger Sub") — as a direct, wholly owned subsidiary of Fund VI. Merger Sub would be formed for the sole purpose of effectuating the merger and would have no assets, liabilities, or operations other than those incident to its formation and the execution of the merger agreement and related documents.
At closing, Merger Sub would merge with and into Cloudium pursuant to Section 251 of the DGCL and in accordance with the terms and conditions of the definitive merger agreement to be entered into by and among Fund VI, Merger Sub, and Cloudium (the "Merger Agreement"). The merger would be consummated upon the filing of a Certificate of Merger with the Secretary of State of the State of Delaware and, if required, the registration of requisite filings with Companies House in England and Wales.
Upon the effective time of the merger:
(a) Cloudium would survive the merger as the surviving corporation and would become a direct, wholly owned subsidiary of Fund VI;
(b) Each outstanding share of Cloudium common stock (other than (i) shares held by stockholders who have properly exercised and perfected appraisal rights under DGCL § 262, (ii) rollover shares subject to rollover agreements with Hargrove and Pinnacle, and (iii) shares held by Cloudium as treasury shares or by Fund VI or Merger Sub) would be converted into the right to receive $36.92 in cash, without interest;
(c) The rollover shares held by Hargrove and Pinnacle would be excluded from conversion into cash and would instead be exchanged for equity interests in the surviving entity (or in a parent holding company, depending on the final rollover structure), pursuant to rollover agreements to be executed concurrently with the Merger Agreement;
(d) Each share of common stock of Merger Sub outstanding immediately prior to the effective time would be converted into one share of common stock of the surviving corporation; and
(e) The separate corporate existence of Merger Sub would cease.
Following the merger, Cloudium would continue to exist as a Delaware-incorporated or English-incorporated entity (depending on the final treatment of the surviving entity's corporate form) and would hold all of the assets, contracts, licenses, permits, and regulatory authorizations that it held immediately prior to the merger. The subsidiary structure — Cloudium UK, Cloudium India, and Cloudium Germany — would remain intact and unchanged.
2. Advantages. Contract Preservation. The most significant advantage of the reverse triangular merger for this transaction is the preservation of Cloudium's legal identity. Because Cloudium survives as the same legal entity after the merger, all of its contracts, licenses, permits, and regulatory authorizations continue by operation of law. There is no assignment or novation of contracts to a new entity; Cloudium remains the same contracting party, the same licensee, and the same permit holder. This is critically important given the volume and commercial significance of Cloudium's contractual relationships, including the Aegis Federal Master SaaS Agreement ($84 million ARR), the Helix Data Technology License, and thousands of customer SaaS agreements and vendor contracts across four jurisdictions. While change of control provisions in certain key contracts will still be triggered by the transaction — because the ultimate ownership of Cloudium will change — the number of contracts requiring formal assignment or novation is dramatically reduced compared to a forward triangular merger or an asset purchase. The distinction between a "change of control" (which typically requires consent or notice but does not disturb the underlying contractual relationship) and an "assignment" (which may void or require reformation of the entire contract) is of paramount importance in a transaction of this scale and complexity.
Succession by Operation of Law. Under DGCL § 259, the surviving corporation in a merger succeeds to all of the rights, privileges, powers, and franchises of each of the constituent corporations and becomes subject to all of the debts, liabilities, and duties of each constituent corporation in the same manner as if the surviving corporation had itself incurred them. This statutory succession eliminates the need for individual asset transfer documents, bills of sale, assignments, assumptions, or other instruments of conveyance for each asset and each contract. For a company of Cloudium's scale — with operations in four countries, approximately 6,800 employees, thousands of customer relationships, and a complex web of intellectual property, software licenses, and intercompany agreements — the efficiency of succession by operation of law is a substantial practical advantage.
Tax Efficiency for Rollover Participants. The reverse triangular merger has the potential to qualify as a tax-free reorganization under Section 368(a)(2)(E) of the Internal Revenue Code of 1986, as amended (the "Code"), with respect to the rollover equity portion of the transaction. If the merger qualifies under Section 368(a)(2)(E), the rollover participants — Hargrove and Pinnacle — would be able to exchange their Cloudium shares for equity interests in the surviving entity (or parent holding company) on a tax-deferred basis, recognizing gain only on the portion of their consideration received in cash. Given the anticipated rollover amounts ($142,814,544 for Hargrove and $473,241,408 for Pinnacle), the tax savings from deferral could be significant and represent a material component of the economic negotiation with these important stakeholders. Leonard Cross is currently analyzing the specific requirements for qualification under Section 368(a)(2)(E), including the continuity-of-interest and continuity-of-business-enterprise requirements, and will prepare a detailed tax structuring memorandum (see Section V below). Even if the merger does not qualify as fully tax-free under Section 368(a)(2)(E), the rollover contributions may be structured as tax-deferred exchanges under Section 351 of the Code, as discussed further below.
Familiar to Lenders. The reverse triangular merger is the standard, market-accepted structure for leveraged buyout transactions. Meridian Atlantic Bank, N.A. and Ironclad Capital Markets LLC — the committed debt financing sources for this transaction — are fully familiar with this structure and have premised their preliminary credit analysis on the assumption that the borrower under the new credit facilities will be the surviving Cloudium entity, which retains all of its assets, operations, revenue streams, and customer relationships. Using a different structure — particularly one in which Cloudium ceases to exist (forward triangular merger) or in which assets are disaggregated and transferred piecemeal to a new entity (asset purchase) — would require the lenders to restructure their credit analysis and underwriting, potentially resulting in less favorable pricing, more restrictive covenants, or reduced commitment certainty.
Single-Step Closing. Unlike a two-step tender offer (discussed in Section III.D below), a one-step reverse triangular merger requires only a single stockholder vote and a single closing. This simplicity is valuable in a transaction of this complexity, where the closing mechanics involve the simultaneous draw of $3,740,000,000 in term loan debt, the repayment of $820,000,000 in existing Cloudium indebtedness, the funding of an $544,000,000 escrow, the exchange of rollover shares for equity interests, and the payment of cash consideration to tens of thousands of public stockholders through the exchange agent. Coordinating these closing mechanics in a single event is significantly simpler than managing the timing mismatches inherent in a two-step tender offer and back-end merger.
Clean Post-Closing Structure. Following the reverse triangular merger, Cloudium will exist as a direct, wholly owned subsidiary of Fund VI. Cloudium's subsidiary structure — Cloudium UK, Cloudium India, and Cloudium Germany — will remain intact as wholly owned subsidiaries of Cloudium, with no changes to their corporate identity, domicile, or regulatory status. This clean post-closing structure facilitates integration planning and avoids the need for any pre-closing or post-closing corporate restructuring.
Indemnification, Escrow, and R&W Insurance Compatibility. The anticipated indemnification framework for this transaction — including a 15% cap, 8% escrow, buyer-side representations and warranties ("R&W") insurance, and customary survival periods, baskets, and de minimis thresholds — is standard for reverse triangular mergers in the private equity context. The reverse triangular merger structure is fully compatible with these arrangements, and there are no structural barriers to the implementation of escrow funding, R&W insurance underwriting, or post-closing indemnification claims. These arrangements are discussed in greater detail in Section IX.A below.
3. Disadvantages. While the reverse triangular merger is our recommended structure, it is not without certain disadvantages that should be acknowledged and considered:
Stockholder Approval Required. The reverse triangular merger requires approval by the stockholders of Cloudium at a duly called special meeting. Cloudium will be required to file a proxy statement (or, as a foreign private issuer, potentially a combined proxy statement/prospectus on Form F-4, depending on the treatment of the rollover equity) with the SEC, which must be reviewed and cleared by the SEC staff before it can be distributed to stockholders. The proxy solicitation and stockholder meeting process is expected to add approximately three to four months to the timeline between signing and the stockholder vote, which in turn affects the overall signing-to-closing timeline. However, as discussed in Section X below, we do not believe the timeline impact is materially different from what would be required for regulatory approvals (HSR, CMA) in any event.
Interim Period Risk. The period between signing the Merger Agreement and the closing of the merger (estimated at five to six months) creates inherent execution risk. During this interim period, the parties will be subject to interim operating covenants that restrict Cloudium's ability to conduct business outside the ordinary course, and the Merger Agreement will contain a material adverse effect ("MAE") closing condition that could, in extreme circumstances, provide Fund VI with a basis for terminating the transaction. Additionally, the Merger Agreement will contain a no-shop provision restricting Cloudium's ability to solicit or engage with alternative acquisition proposals during the interim period, subject to customary fiduciary-out provisions. These interim period risks are inherent in any structure that involves a gap between signing and closing and are not unique to the reverse triangular merger.
Appraisal Rights. Under DGCL § 262, stockholders of Cloudium who do not vote in favor of the merger, who properly demand appraisal prior to the stockholder vote, and who do not withdraw their demands are entitled to a judicial determination of the "fair value" of their shares, which may be higher or lower than the $36.92 per share merger consideration. Appraisal proceedings can be protracted and costly. However, appraisal risk is present in any merger structure (including the back-end merger in a two-step tender offer) and is a manageable risk. A separate memorandum on appraisal rights analysis is forthcoming (anticipated January 2024).
Assumption of All Liabilities. Because Cloudium survives the merger and the surviving corporation succeeds to all debts, liabilities, and duties of the constituent corporations by operation of law under DGCL § 259, Fund VI will effectively acquire all of Cloudium's liabilities — both known and unknown, disclosed and undisclosed, contingent and matured. Unlike an asset purchase, there is no ability to selectively assume certain liabilities and leave others behind. This risk is mitigated through customary deal protections, including comprehensive representations and warranties in the Merger Agreement, indemnification provisions, escrow arrangements, and buyer-side R&W insurance.
4. Key Structural Considerations Specific to This Transaction. Cloudium's Incorporation in England and Wales. A threshold issue that warrants careful analysis is the fact that Cloudium is incorporated in England and Wales as a public limited company, even though it is listed on Nasdaq and has significant US operations. The reverse triangular merger would be effected under the DGCL because Merger Sub is a Delaware corporation merging with and into Cloudium. Several questions arise from this cross-border dimension:
(a) Applicability of the DGCL to a non-Delaware Target: Under the DGCL, a merger between a Delaware corporation and a corporation of another jurisdiction (including a foreign country) may be effected under Section 252 of the DGCL, which permits mergers between a Delaware corporation and a corporation organized under the laws of any other state, the United States, or a foreign country, provided that the laws of the other jurisdiction permit such a merger. We will need to confirm that English law does not prohibit Cloudium from being a constituent corporation in a Delaware statutory merger.
(b) Cloudium's Articles of Association: We need to review Cloudium's articles of association to determine whether they contain any provisions that would impose additional requirements or restrictions on the merger, including any supermajority voting requirements, board approval requirements, or other conditions.
(c) Companies Act 2006 Requirements: We need to assess whether the UK Companies Act 2006 imposes any requirements for the proposed transaction — for example, whether the merger constitutes a "compromise or arrangement" requiring court sanction under Part 26, or whether any filing or registration requirements apply with Companies House.
(d) Coordination with Target's Counsel: We will coordinate with Ridgeway Phelps & Sato LLP (Alistair Fenn, London) on all English law aspects and will also consult with Albright & Kerr LLP (Fiona McAllister) regarding any regulatory or competition law implications. Our preliminary view is that, because Cloudium is listed on Nasdaq and has submitted to Delaware jurisdiction for merger purposes (which we will confirm), the DGCL merger structure is workable. However, further analysis is required, and this issue represents a critical open item.
Rollover Mechanics. The reverse triangular merger readily accommodates the rollover equity elections by Hargrove and Pinnacle. The rollover shares would be excluded from conversion into cash consideration at the effective time of the merger and would instead be exchanged for equity interests in the surviving entity or a parent holding company, pursuant to rollover agreements to be negotiated and executed concurrently with the Merger Agreement. The rollover agreements will specify the number of shares subject to rollover, the exchange ratio, the form of equity interests to be received (e.g., common units, preferred units, or a combination thereof in a post-closing holding company), and other terms and conditions. The specific tax treatment of the rollover — whether under Section 368(a)(2)(E) or Section 351 of the Code — will be addressed in Leonard Cross's forthcoming tax memorandum.
Section 203 of the DGCL (Business Combination Statute). DGCL § 203 restricts certain business combinations between a Delaware corporation and an "interested stockholder" (generally defined as a person or group owning 15% or more of the corporation's outstanding voting stock) for a period of three years following the date on which the interested stockholder became such. Pinnacle Growth Ventures LLC holds approximately 11.6% of Cloudium's outstanding shares, which is below the 15% threshold but close enough to warrant consideration. More fundamentally, however, our preliminary view is that DGCL § 203 does not apply to Cloudium because Cloudium is an English public limited company, not a Delaware corporation, and Section 203 by its terms applies only to corporations organized under the DGCL. This preliminary conclusion will be confirmed in a separate memorandum anticipated for November 2023.
B. Option 2: Forward Triangular Merger
1. Description of Mechanics. Under a forward triangular merger structure, Fund VI would form Merger Sub as a new Delaware corporation (in the same manner as in the reverse triangular merger). However, instead of Merger Sub merging with and into Cloudium, the merger would proceed in the opposite direction: Cloudium would merge with and into Merger Sub. At the effective time of the merger, Merger Sub would be the surviving corporation and Cloudium would cease to exist. Each outstanding share of Cloudium common stock (other than rollover shares and dissenting shares) would be converted into the right to receive cash consideration, and the stockholders of Cloudium would surrender their shares in exchange for the merger consideration. Following the merger, Merger Sub would be a direct, wholly owned subsidiary of Fund VI, holding all of the assets formerly held by Cloudium (which would have transferred to Merger Sub by operation of law).
2. Advantages. The forward triangular merger shares certain structural advantages with the reverse triangular merger:
Structural Familiarity. The forward triangular merger is a recognized and well-established merger structure under the DGCL and is familiar to sophisticated market participants, including lenders, financial advisors, and institutional investors. Like the reverse triangular merger, it is effected through a statutory merger under the DGCL and follows a similar documentation framework (merger agreement, stockholder vote, Certificate of Merger).
Potential Liability Isolation. In theory, because Cloudium ceases to exist and its assets and liabilities are absorbed into Merger Sub by operation of law, the buyer has somewhat greater control over the post-closing entity's identity and governance. In certain contexts — particularly where the target entity has significant known liabilities — the forward merger may offer a marginal advantage in managing liability exposure. However, in practice, as the buyer in a negotiated acquisition, Fund VI would be assuming all of Cloudium's liabilities regardless of structure, and the distinction between forward and reverse merger structures for liability purposes is more theoretical than practical.
3. Disadvantages — and Why It Is Not Recommended. Despite its structural familiarity, the forward triangular merger suffers from several critical disadvantages that render it unsuitable for this transaction:
Critical Deficiency — Loss of Target's Legal Identity. The most significant disadvantage of the forward triangular merger is that Cloudium ceases to exist as a legal entity upon consummation of the merger. While the assets and liabilities of Cloudium transfer to the surviving Merger Sub by operation of law, the legal identity of Cloudium — including its name, its organizational documents, its contractual relationships, and its regulatory status — is extinguished. This has profound practical consequences:
(a) Contract Assignment/Novation. All contracts, licenses, permits, and regulatory authorizations held in Cloudium's name must be assigned or novated to the surviving Merger Sub entity. This triggers not only the change of control provisions present in many contracts (which would also be triggered in a reverse triangular merger) but also the assignment provisions, which are often more restrictive and more broadly drafted. Many contracts contain anti-assignment clauses that prohibit any transfer, assignment, or delegation of the contract without the prior written consent of the counterparty. A forward merger in which the contracting party ceases to exist constitutes an assignment by operation of law, and courts have consistently distinguished between a "change of control" (where the contracting party survives but its ownership changes) and an "assignment" (where the rights and obligations under the contract are transferred to a different legal entity). The distinction is not merely academic: certain contracts may provide that an assignment without consent renders the contract void or voidable, whereas a change of control may trigger only a consent or notification requirement.
(b) Impact on Key Contracts. For the Aegis Federal Master SaaS Agreement ($84 million ARR), a forward merger would constitute both a change of control and an assignment, potentially triggering a more onerous consent process or, in the worst case, providing Aegis Federal with a basis for voiding the agreement entirely. Similarly, the Helix Data Technology License could be terminated not only under its change of control clause but also under its anti-assignment clause. The sheer volume of customer SaaS agreements, vendor contracts, and IP licenses that would require affirmative assignment or novation makes this structure operationally impractical.
(c) FedRAMP and Regulatory Authorizations. If Cloudium holds any FedRAMP authorizations or other government security authorizations in its name (which our diligence is in the process of confirming), the loss of Cloudium's legal identity could jeopardize those authorizations, requiring the surviving Merger Sub entity to re-apply or transfer the authorizations — a process that can take months or years.
Subsidiary Structure Complications. Cloudium's UK subsidiary (Cloudium Technologies UK Ltd.) is currently a wholly owned subsidiary of Cloudium Technologies plc. If Cloudium ceases to exist in a forward merger, the equity in Cloudium UK would transfer to Merger Sub by operation of law, but all intercompany agreements between Cloudium plc and Cloudium UK would need to be assigned or novated. Additionally, bank accounts, regulatory filings with Companies House, HMRC (Her Majesty's Revenue & Customs), and other governmental authorities would need to be updated to reflect the change in the parent entity. The same considerations apply to the Indian and German subsidiaries.
Tax Treatment Less Favorable. A forward triangular merger may qualify as a tax-free reorganization under Section 368(a)(2)(D) of the Code, but the requirements for qualification are different from — and in certain respects more restrictive than — those applicable to a reverse triangular merger under Section 368(a)(2)(E). In particular, Section 368(a)(2)(D) requires that the acquiring corporation (Fund VI) acquire "substantially all" of the target's properties in the merger, which has been interpreted by the IRS to mean at least 90% of the fair market value of the target's net assets and at least 70% of the fair market value of the target's gross assets. While this test is generally met in a clean forward triangular merger, the analysis is more complex, and the different statutory framework creates additional uncertainty for the rollover participants. Leonard Cross has indicated that the reverse triangular merger provides a more straightforward path to tax-deferred treatment for the rollover equity.
Debt Financing Complications. The committed debt financing from Meridian Atlantic and Ironclad has been structured around the assumption that the borrower under the new credit facilities will be Cloudium — an operating company with an established credit history, revenue base, asset base, and customer relationships. A forward triangular merger would result in the borrower being Merger Sub — a newly formed shell entity with no independent operating history. While Merger Sub would hold all of Cloudium's assets and operations post-merger, the lenders' credit analysis, financial covenants, representations and warranties, and syndication materials would need to be restructured to account for the different borrower identity. This would likely result in delays, increased legal and advisory costs, and potentially less favorable financing terms.
4. Conclusion. For the reasons set forth above, the forward triangular merger is inferior to the reverse triangular merger for this transaction. The critical deficiency — the loss of Cloudium's legal identity and the resulting need to assign or novate every contract, license, permit, and regulatory authorization — creates unacceptable operational risk and transactional complexity. Combined with the less favorable tax treatment and the financing structure complications, the forward triangular merger is not recommended.
C. Option 3: Asset Purchase
1. Description of Mechanics. Under an asset purchase structure, Fund VI (or a newly formed acquisition vehicle) would purchase substantially all of the assets of Cloudium and its subsidiaries through one or more asset purchase agreements. The acquisition vehicle would assume only those liabilities expressly identified and agreed upon in the asset purchase agreements, and Cloudium would retain all excluded assets (if any) and all liabilities not expressly assumed by the acquirer. Following the closing of the asset sale, Cloudium would distribute the sale proceeds (net of retained liabilities, taxes, and transaction expenses) to its stockholders in one or more liquidating distributions, and would thereafter wind down its corporate existence.
The asset purchase would likely need to be structured as a series of separate but coordinated transactions across multiple jurisdictions, given that Cloudium's assets and operations are spread across the United States, the United Kingdom, India, and Germany. This would involve separate agreements for US assets (held by the parent entity), UK assets (held by Cloudium UK), Indian assets (held by Cloudium India), and German assets (held by Cloudium Germany), each governed by the applicable local law and subject to local transfer requirements.
2. Advantages. The asset purchase structure offers certain theoretical advantages:
Selective Acquisition of Assets and Liabilities. The principal advantage of an asset purchase is the buyer's ability to selectively acquire desired assets and assume only specified liabilities. The buyer can "cherry-pick" the assets it wants — contracts, intellectual property, equipment, real property — and leave behind assets it does not want, along with any liabilities it does not wish to assume. This provides the buyer with a degree of protection against unknown or contingent liabilities that is not available in a merger structure, where the surviving entity succeeds to all liabilities by operation of law.
No Appraisal Rights. Under the DGCL, appraisal rights are not available to stockholders in an asset sale. While stockholder approval is still required for a sale of substantially all assets under DGCL § 271, the absence of appraisal rights eliminates one potential source of post-closing litigation and uncertainty.
Flexibility in Purchase Price Allocation. An asset purchase permits the buyer and seller to negotiate the allocation of the purchase price among the acquired assets for federal income tax purposes under Section 1060 of the Code and the related regulations. This allocation can create favorable tax treatment for the buyer by allocating a greater portion of the purchase price to depreciable or amortizable assets (such as intellectual property, goodwill, and customer relationships), resulting in increased tax deductions in post-closing periods.
3. Disadvantages — and Why It Is Not Recommended. Notwithstanding the theoretical advantages, the asset purchase structure is entirely impractical for this transaction for the following reasons:
Massive Third-Party Consent Burden. In an asset purchase, every material contract, license, lease, and permit must be individually assigned from the seller (Cloudium) to the buyer (the acquisition vehicle). Unlike a merger — where contracts continue by operation of law or are subject only to change of control provisions — an asset sale requires the affirmative assignment of each contract to a new legal entity. For a company of Cloudium's scale, with approximately 6,800 employees, thousands of customer SaaS agreements, multiple IP licenses (including the commercially critical Helix Data Technology License), government contracts (including the $84 million Aegis Federal relationship), regulatory authorizations across four jurisdictions, vendor agreements, real property leases, equipment leases, and intercompany agreements, the consent and assignment process would be prohibitively time-consuming, resource-intensive, and risky. The failure to obtain consent for even a single material contract could result in the loss of a significant customer relationship, intellectual property license, or regulatory authorization. This risk is unacceptable given the scale of the transaction and the importance of Cloudium's contractual relationships to its business value.
Bulk Transfer / Successor Liability Risk. Even with an asset purchase structure that is carefully drafted to exclude specified liabilities, courts in multiple jurisdictions may impose successor liability on the buyer under various legal theories, including the "de facto merger" doctrine, the "mere continuation" doctrine, the "product line" exception, and statutory successor liability regimes. In the UK, the Transfer of Undertakings (Protection of Employment) Regulations 2006 ("TUPE") would require the automatic transfer of employees and their associated rights, obligations, and liabilities to the buyer, regardless of the terms of the asset purchase agreement. Similar employee protection regimes exist in Germany (Section 613a of the German Civil Code) and India (under various labor and employment statutes). These regimes significantly reduce the liability-isolation benefit that is the primary theoretical advantage of an asset purchase.
Tax Inefficiency. An asset purchase is treated for US federal income tax purposes as a taxable sale of assets by Cloudium. This creates a "double taxation" problem: Cloudium pays entity-level tax on the gain recognized on the sale of its assets (which, given the substantial goodwill and intangible asset value inherent in Cloudium's business, could result in significant tax liability), and Cloudium's stockholders subsequently pay tax on the liquidating distribution of the after-tax proceeds. The aggregate tax burden is substantially higher than in a merger structure, where there is no entity-level tax. Furthermore, the asset purchase structure provides no mechanism for tax-deferred rollover treatment for Hargrove and Pinnacle under Section 368 of the Code, as the rollover provisions of Section 368 apply only to corporate reorganizations (including mergers), not to asset sales. The rollover participants would be required to invest new cash in the post-closing entity rather than rolling their existing equity on a tax-deferred basis.
Regulatory Complications Across Jurisdictions. Transferring assets across multiple jurisdictions — the United States, the United Kingdom, India, and Germany — triggers a complex web of transfer taxes and regulatory filings. In the UK, transfers of assets (including choses in action, real property, and certain intangible property) may trigger stamp duty land tax, stamp duty reserve tax ("SDRT"), or stamp duty depending on the nature of the assets. In India, stamp duty applies to transfers of immovable property and certain instruments. In Germany, real estate transfer tax (Grunderwerbsteuer) applies to transfers of German real property, if applicable. Each of these transfer taxes adds cost and complexity to an asset purchase structure that would not be present in a merger, where the assets remain with the same legal entity.
Operational Disruption. The practical mechanics of an asset purchase for a business of Cloudium's scale would be extraordinarily disruptive. Transferring employees (including compliance with TUPE, Section 613a BGB, and Indian labor laws), migrating payroll and benefits administration, reassigning bank accounts, transferring IP registrations (including trademark registrations, patent assignments, and domain name transfers), migrating customer data (including compliance with GDPR and other data protection regimes), and transitioning IT infrastructure — all on an asset-by-asset basis — would create significant operational risk and transition cost. The risk of service disruptions to Cloudium's SaaS customers during the transition period could harm customer relationships and damage the business value that Solara is paying $6.8 billion to acquire.
Financing Structure Incompatible. The committed debt financing from Meridian Atlantic and Ironclad is structured around a going-concern acquisition of Cloudium as an operating entity. An asset purchase — in which the assets would be disaggregated and transferred to a new acquisition vehicle — would require a complete restructuring of the debt commitment letter, the credit agreement, and the lenders' underwriting analysis. The lenders have not underwritten an asset purchase structure, and adapting the financing to such a structure would likely result in significant delays, increased costs, and potentially less favorable terms.
Post-Closing Liquidation of Cloudium. Following an asset sale, Cloudium would need to wind down its corporate existence, satisfy remaining creditors (including tax authorities), and make a final liquidating distribution to stockholders. This post-closing process adds months of complexity and risk, including the risk that Cloudium's retained liabilities exceed expectations or that tax assessments reduce the net distributable amount.
4. Conclusion. For the reasons set forth above, the asset purchase structure is entirely impractical for this transaction. The scale of the transaction ($6.8 billion), the global nature of Cloudium's operations (four countries), the volume of contracts requiring assignment, the double taxation burden, the incompatibility with the committed debt financing, and the operational disruption inherent in an asset-by-asset transfer make the asset purchase structure untenable. This structure is not recommended.
D. Option 4: Tender Offer (One-Step or Two-Step)
1. Description of Mechanics — Two-Step Tender Offer. Under a two-step tender offer structure, Fund VI (or Merger Sub) would commence a cash tender offer directly to Cloudium's stockholders for all outstanding shares of Cloudium common stock at $36.92 per share. The tender offer would be conducted in accordance with the SEC's tender offer rules under Regulation 14D and Regulation 14E of the Securities Exchange Act of 1934, as amended. The minimum acceptance condition would typically be set at a majority of the outstanding shares (or such higher threshold as may be required to effect the back-end merger).
Upon achieving the minimum acceptance condition and the satisfaction of all other conditions to the tender offer, Fund VI would accept for payment and pay for all tendered shares, closing the first step of the transaction. Fund VI would then complete a second-step "back-end" merger to acquire the shares held by stockholders who did not tender. Depending on the percentage of shares acquired in the tender offer, the back-end merger could be effected as a short-form merger under DGCL § 253 (if Fund VI acquires at least 90% of the outstanding shares) or a medium-form merger under DGCL § 251(h) (if the merger agreement so provides and certain other conditions are satisfied).
2. Description of Mechanics — One-Step Tender Offer. As an alternative, if DGCL § 251(h) is available, the tender offer and back-end merger could be structured as a single, integrated transaction. Under Section 251(h), if the merger agreement expressly provides for it and the acquirer obtains at least the percentage of shares that would be required to approve the merger at a stockholder meeting, the back-end merger may be effected immediately upon consummation of the tender offer without a separate stockholder vote. This structure effectively collapses the two-step process into a single transaction from the stockholders' perspective.
3. Advantages. Potentially Faster Timeline. The primary advantage of a tender offer structure is speed. Under SEC rules, a tender offer must remain open for a minimum of 20 business days (approximately four calendar weeks). This is significantly faster than the proxy solicitation process required for a one-step merger, which typically takes three to four months (including preparation, SEC review, and mailing of the proxy statement and scheduling of the stockholder meeting). In a tender offer, there is no need to prepare, file, and clear a proxy statement with the SEC (although the tender offer materials themselves are subject to SEC review), and there is no need to convene a stockholder meeting. In a transaction where speed is paramount — for example, a competitive auction or a hostile approach — the tender offer structure can reduce the signing-to-closing timeline by four to six weeks or more.
Reduced Interim Period Risk. The shorter period between signing and closing reduces the fund's exposure to material adverse effect events, market volatility, competitive dynamics, and other risks that can arise during an extended interim period. A shorter timeline also reduces the period during which interim operating covenants constrain Cloudium's management and the risk that a topping bid may emerge.
Market Standard for Hostile or Competitive Situations. The tender offer structure is particularly well-suited for hostile or competitive acquisition situations, where speed and direct access to target stockholders (bypassing the ta

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