CONFIDENTIAL TREATMENT REQUESTED
SUMMARY OF TERMS AND CONDITIONS
SENIOR SECURED CREDIT FACILITIES
DRAFT — For Discussion Purposes Only
November 28, 2023
Prepared by: Calderwood & Harkness LLP, counsel to Solara Digital Infrastructure Fund VI LP
Matter No.: 1041-00003
Distribution: Confidential — For use solely in connection with discussions with Meridian Atlantic Bank, N.A. and Ironclad Capital Markets LLC regarding committed debt financing for the acquisition of Cloudium Technologies plc by Solara Digital Infrastructure Fund VI LP.
IMPORTANT NOTICE: This Summary of Terms and Conditions (this "Term Sheet") is provided for discussion purposes only. This Term Sheet is not intended to constitute, and shall not be deemed to constitute, a binding obligation, agreement, or commitment on the part of any party hereto, including Solara Digital Infrastructure Fund VI LP, Meridian Atlantic Bank, N.A., Ironclad Capital Markets LLC, or any of their respective affiliates. All terms and conditions set forth herein are preliminary, indicative, and subject to: (i) the negotiation and execution of a definitive Debt Commitment Letter and Fee Letter, (ii) completion of due diligence satisfactory to the lenders and their counsel, (iii) receipt of all required internal credit and investment committee approvals, and (iv) negotiation and execution of definitive loan documentation. Final terms will be governed exclusively by the definitive Credit Agreement and related documentation.
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I. TRANSACTION OVERVIEW
Borrower (Post-Closing): Cloudium Technologies plc (as the surviving corporation in the Merger, as defined below), a public limited company incorporated under the laws of England and Wales, Company No. 09734521 (the "Borrower"). It is currently anticipated that the Borrower will be re-domesticated to a United States jurisdiction following the Closing Date. Alternatively, the parties may determine, prior to the Closing Date, to designate a newly formed Delaware entity as the Borrower in lieu of Cloudium Technologies plc; such determination to be made in consultation with tax counsel and subject to lender consent. Any such restructuring shall not adversely affect the collateral package or the credit profile of the credit facilities.
Sponsor: Solara Digital Infrastructure Fund VI LP, a Delaware limited partnership ("Fund VI"). Fund VI is a 2022 vintage fund with $12.4 billion in committed capital. The general partner of Fund VI is Solara Fund VI GP LLC, a Delaware limited liability company. Fund VI is managed by Solara Digital Infrastructure LP and its affiliates.
Parent / Equity Holder: Solara Digital Infrastructure LP ("Solara" or "SDILP"), a Delaware limited partnership, with its principal office located at 1200 Market Street, Suite 3400, Wilmington, Delaware 19801. Solara manages approximately $38 billion in assets under management across multiple fund vintages and co-investment vehicles focused on digital infrastructure, enterprise software, and technology-enabled services.
Acquisition Target: Cloudium Technologies plc ("Cloudium" or the "Company"), a company incorporated under the laws of England and Wales, listed on the Nasdaq Global Select Market under the ticker symbol "CLDM." Cloudium is a cloud-based enterprise software company providing infrastructure-as-a-service and platform-as-a-service solutions to enterprise customers globally. The Company's U.S. headquarters are located at 600 Townsend Street, Suite 800, San Francisco, California 94103, and its registered office is at 45 Broadwick Street, London W1F 0DB, United Kingdom.
Transaction Description: Fund VI intends to acquire 100% of the issued and outstanding share capital of Cloudium Technologies plc (the "Acquisition") pursuant to a definitive Agreement and Plan of Merger (the "Merger Agreement") to be entered into among Fund VI, Stratos Merger Sub Inc. (a Delaware corporation and wholly owned subsidiary of Fund VI, formed for the purpose of effecting the Merger) ("Merger Sub"), and Cloudium. The Acquisition will be structured as a reverse triangular merger under the Delaware General Corporation Law (the "DGCL"), whereby Merger Sub will merge with and into Cloudium, with Cloudium surviving the Merger as a wholly owned subsidiary of Fund VI (the "Merger"). Upon consummation of the Merger, each outstanding share of Cloudium common stock (other than shares held by dissenting shareholders, shares cancelled in the Merger, and shares subject to rollover arrangements) will be converted into the right to receive the per-share Merger Consideration in cash.
Total Enterprise / Deal Value: $6,800,000,000 (six billion eight hundred million dollars).
Per-Share Merger Consideration: Approximately $36.92 per share, based on 184,200,000 shares of Cloudium common stock outstanding as of the date hereof (subject to adjustment for any shares issued, cancelled, or repurchased prior to the Closing Date, including shares issued upon the exercise of vested options or settlement of restricted stock units).
Selected Financial Data:
Sources and Uses of Funds
The following table sets forth the anticipated sources and uses of funds in connection with the Acquisition. All amounts are estimates and are subject to adjustment based on final share count, working capital adjustments, and actual transaction expenses at the time of closing.
Uses of Funds
The existing indebtedness to be repaid at closing consists of the following obligations of Cloudium currently outstanding under that certain Credit Agreement, dated as of March 15, 2021, among Cloudium Technologies plc, as borrower, Atlas Commercial Lending Corp., as administrative agent, and the lenders party thereto: (a) approximately $620,000,000 in aggregate principal amount outstanding under a senior secured term loan facility, and (b) approximately $200,000,000 in aggregate principal amount drawn under a senior secured revolving credit facility. The change of control provisions of the existing Atlas Commercial Lending Corp. credit agreement require mandatory prepayment of all outstanding obligations thereunder upon consummation of the Acquisition. Payoff letters and UCC-3 termination statements (and equivalent release documentation in applicable foreign jurisdictions) shall be delivered at or prior to the Closing Date.
Sources of Funds
The equity contribution from Fund VI includes a co-investment of $425,000,000 from Solara Digital Co-Invest VI-A LP, a special purpose co-investment vehicle organized as a Delaware limited partnership and managed by affiliates of Solara. The Revolving Credit Facility will not be drawn at closing but will be available for working capital and general corporate purposes of the Borrower and its subsidiaries following the Closing Date.
Rollover Equity — Detail: Certain existing shareholders of Cloudium have agreed, or are expected to agree, to contribute a portion of their equity interests in Cloudium to Fund VI (or a holding vehicle designated by Fund VI) in exchange for equity interests in the post-closing holding structure, in lieu of receiving the cash Merger Consideration for such shares. The rollover equity consists of:
(a) Jonathan Hargrove (Chief Executive Officer of Cloudium): Mr. Hargrove will roll over 50% of his 7,736,400 shares of Cloudium common stock (i.e., 3,868,200 shares), with an implied value of approximately $142,814,544, based on the per-share Merger Consideration of approximately $36.92.
(b) Pinnacle Growth Ventures LLC: Pinnacle Growth Ventures LLC, an existing institutional shareholder of Cloudium, will roll over 60% of its 21,367,200 shares of Cloudium common stock (i.e., 12,820,320 shares), with an implied value of approximately $473,241,408, based on the per-share Merger Consideration of approximately $36.92.
The terms of the rollover arrangements will be set forth in one or more Rollover Agreements to be executed concurrently with the Merger Agreement. The aggregate implied value of the rollover equity is approximately $616,055,952.
Closing Date Leverage
The following table summarizes the projected leverage profile of the Borrower on the Closing Date, on both an unadjusted and pro forma basis:
The leverage profile at closing is consistent with market precedents for sponsor-backed acquisitions of subscription-based software companies, where elevated closing leverage is customary in light of the predictability and recurring nature of the target's revenue streams, favorable free cash flow conversion characteristics, and the availability of identified cost savings and operational synergies.
II. CREDIT FACILITIES — SUMMARY
A. Term Loan B Facility
Type: Senior Secured Term Loan B Facility (the "Term Loan B" or the "Term Loan B Facility").
Aggregate Principal Amount: $3,740,000,000 (three billion seven hundred forty million dollars).
Lenders: Meridian Atlantic Bank, N.A. (in its capacity as Lead Arranger, Sole Bookrunner, and Administrative Agent) and Ironclad Capital Markets LLC (in its capacity as Co-Arranger and Joint Bookrunner) (collectively, the "Arrangers"), together with a syndicate of institutional lenders to be identified and assembled through a primary syndication process to be conducted by the Arrangers following execution of the definitive Debt Commitment Letter. The composition of the final lender syndicate shall be subject to the consent of the Borrower (which consent shall not be unreasonably withheld, conditioned, or delayed) with respect to any proposed lender that is included on the disqualified lender list maintained by the Borrower.
Lenders' Counsel: Winthrop & Hale LLP, 901 New York Avenue NW, Washington, DC 20001 (lead partner: Christine Novak; London office: 125 Old Broad Street, London EC2N 1AR, United Kingdom). Winthrop & Hale LLP will serve as primary counsel to the Administrative Agent and the Arrangers in connection with the preparation of the definitive Debt Commitment Letter, Fee Letter, Credit Agreement, and all ancillary loan documentation.
Maturity. The Term Loan B Facility will mature on the date that is seven (7) years after the Closing Date. If the Closing Date occurs on or around the currently scheduled outside date under the Merger Agreement of June 30, 2024, the maturity date would be approximately June 30, 2031. The actual maturity date will be determined based on the actual Closing Date. [Note to draft: Actual closing occurred on July 9, 2024; as such, the maturity date of the Term Loan B Facility is July 9, 2031.]
Interest Rate. Borrowings under the Term Loan B Facility shall bear interest at a rate per annum equal to:
Adjusted Term SOFR (as published by the Federal Reserve Bank of New York or its successor administrator, and as adjusted for a customary credit spread adjustment in accordance with market convention) plus 325 basis points (3.25%).
The following additional terms apply to the interest rate on the Term Loan B Facility:
(a) SOFR Floor: The Term SOFR component of the interest rate shall be subject to a floor of 0.50% per annum (i.e., if the applicable Term SOFR rate is less than 0.50%, the Term SOFR rate shall be deemed to be 0.50% for purposes of calculating interest).
(b) Interest Periods: The Borrower may select interest periods of one (1), three (3), or six (6) months at its election, subject to customary provisions regarding the availability of such interest periods and coordination with the payment dates.
(c) Default Rate: Upon the occurrence and during the continuance of any Event of Default, the interest rate on all outstanding obligations under the Term Loan B Facility shall be increased by an additional 2.00% per annum above the rate otherwise applicable (the "Default Rate"). The Default Rate shall apply automatically upon the occurrence of an Event of Default arising from non-payment or bankruptcy, and upon notice from the Administrative Agent (acting at the direction of the Required Lenders) for all other Events of Default.
Ticking Fee. A ticking fee shall accrue on the undrawn Term Loan B commitments at a rate of 0.25% per annum, calculated on the aggregate amount of undrawn commitments. The ticking fee shall:
(a) Commence on the date that is ninety (90) days after the date of execution of the Merger Agreement (i.e., if the Merger Agreement is executed on January 22, 2024, the ticking fee shall commence accruing on April 22, 2024);
(b) Be payable quarterly in arrears; and
(c) Cease accruing upon the earlier of (i) the funding of the Term Loan B on the Closing Date and (ii) the termination of the Term Loan B commitments (whether by expiration of the outside date, termination of the Merger Agreement, or otherwise).
Amortization. The Term Loan B Facility shall amortize at a rate equal to 1.00% per annum of the original aggregate principal amount thereof, payable in equal quarterly installments. Each quarterly amortization payment shall be equal to 0.25% of the original aggregate principal amount, which equals $9,350,000 per quarter (based on an original principal amount of $3,740,000,000). Amortization payments shall commence on the first full fiscal quarter-end following the Closing Date. The entire remaining outstanding principal balance of the Term Loan B shall be due and payable on the maturity date.
Original Issue discount (OID)
The Term Loan B is expected to be issued at a discount to par value. The specific original issue discount is to be determined based on market conditions at the time of pricing and syndication, and is subject to the market flex provisions to be included in the definitive Debt Commitment Letter and Fee Letter. The current expectation, based on preliminary market feedback, is that the OID will be in the range of 99.50 to 99.75 cents on the dollar (i.e., a discount of 25 to 50 basis points). The final OID will be set at the time of pricing, in consultation between the Arrangers and the Sponsor.
B. Revolving Credit Facility
Type: Senior Secured Revolving Credit Facility (the "Revolving Facility" or the "Revolving Credit Facility").
Aggregate Commitment Amount: $500,000,000 (five hundred million dollars).
Drawn at Closing: $0. The Revolving Credit Facility is not expected to be drawn at the Closing Date. The Revolving Facility will be available for working capital needs, general corporate purposes, and permitted acquisitions of the Borrower and its restricted subsidiaries following the Closing Date.
Lenders: The Revolving Credit Facility will be provided by the same syndicate of lenders providing the Term Loan B Facility, or a subset thereof as determined through the syndication process. Meridian Atlantic Bank, N.A. shall serve as the Administrative Agent for the Revolving Facility.
Maturity. The Revolving Credit Facility will mature on the date that is five (5) years after the Closing Date. Based on an assumed Closing Date of approximately June 30, 2024, the maturity date for the Revolving Facility would be approximately June 30, 2029. [Note to draft: Actual closing occurred on July 9, 2024; as such, the maturity date of the Revolving Credit Facility is July 9, 2029.]
Interest Rate. Borrowings under the Revolving Credit Facility shall bear interest at a rate per annum equal to:
Adjusted Term SOFR (as published by the Federal Reserve Bank of New York or its successor administrator, and as adjusted for a customary credit spread adjustment in accordance with market convention) plus 275 basis points (2.75%).
The following additional terms apply:
(a) SOFR Floor: 0.00% (i.e., no floor on the SOFR component for the Revolving Credit Facility).
(b) Interest Periods: The Borrower may select interest periods of one (1), three (3), or six (6) months at its election, subject to customary provisions regarding the availability of such interest periods and coordination with payment dates.
(c) Default Rate: Upon the occurrence and during the continuance of any Event of Default, an additional 2.00% per annum above the otherwise applicable rate.
Commitment Fee. A commitment fee shall accrue on the daily average undrawn and uncancelled revolving commitments under the Revolving Credit Facility at a rate of 0.375% per annum. The commitment fee shall be payable quarterly in arrears, commencing on the first full fiscal quarter-end following the Closing Date, and shall be calculated on the basis of actual days elapsed over a 360-day year.
Sub-Facilities. The Revolving Credit Facility shall include the following sub-facilities:
(a) Letter of Credit Sub-Facility: A sub-limit of $75,000,000 shall be available for the issuance of standby and commercial letters of credit by the issuing bank (initially, Meridian Atlantic Bank, N.A., or such other issuing bank as may be designated). Letters of credit shall reduce availability under the Revolving Facility on a dollar-for-dollar basis. The maximum term of any letter of credit shall not exceed twelve (12) months (subject to auto-renewal provisions).
(b) Swingline Loan Sub-Facility: A sub-limit of $50,000,000 shall be available for same-day and overnight swingline borrowings from the swingline lender (initially, Meridian Atlantic Bank, N.A.). Swingline loans shall reduce availability under the Revolving Facility on a dollar-for-dollar basis and shall be repaid within a customary period (not to exceed seven (7) business days, unless converted into a revolving borrowing).
III. GUARANTORS AND COLLATERAL
A. Guarantors
The obligations of the Borrower under the Credit Agreement, the Revolving Credit Facility, and all related loan documents shall be guaranteed, jointly and severally, by each of the following entities (collectively, the "Guarantors"):
(a) All existing and future direct and indirect wholly owned domestic (United States) subsidiaries of the Borrower (the "Subsidiary Guarantors"). The term "domestic subsidiary" shall mean any subsidiary that is organized under the laws of any state of the United States or the District of Columbia.
(b) For the avoidance of doubt, Fund VI (in its capacity as equity holder of the Borrower) shall not be required to guarantee the obligations under the credit facilities. The credit facilities shall be non-recourse to the Sponsor and its affiliates, except to the extent any such entity is a Subsidiary Guarantor or to the extent of any equity cure contributions made pursuant to Section X hereof.
The following customary exclusions from the guarantee requirement shall apply:
(a) Immaterial Subsidiaries: Any domestic subsidiary that, together with its subsidiaries, as of the most recently delivered financial statements, constitutes less than 5.0% of the consolidated total assets or consolidated revenues of the Borrower and its restricted subsidiaries shall not be required to provide a guarantee; provided that the aggregate total assets and revenues of all excluded immaterial subsidiaries shall not exceed 10.0% of consolidated total assets or consolidated revenues, respectively.
(b) Unrestricted Subsidiaries: Any subsidiary designated as an "unrestricted subsidiary" by the Borrower in accordance with the terms of the Credit Agreement shall not be required to provide a guarantee.
(c) Foreign Subsidiaries: No subsidiary organized under the laws of a jurisdiction outside of the United States shall be required to provide a guarantee of the credit facilities. The exclusion of foreign subsidiaries from the guarantee package is designed to avoid adverse tax consequences (including, without limitation, deemed repatriation of earnings and withholding tax exposure) and to limit regulatory complexity in foreign jurisdictions. Notwithstanding the foregoing, the equity interests in first-tier foreign subsidiaries shall be pledged as described in Section III.B below.
B. Collateral
The obligations of the Borrower and each Guarantor under the credit facilities shall be secured by a first-priority perfected security interest (subject only to customary permitted liens) in substantially all tangible and intangible assets of the Borrower and each Subsidiary Guarantor, including without limitation the following:
(a) Equity Interests in the Borrower: All equity interests in the Borrower to the extent owned by the direct parent entity of the Borrower (i.e., Fund VI or such holding entity as may be designated), including all certificates, instruments, and rights appurtenant thereto.
(b) Equity Interests in Domestic Subsidiaries: 100% of the equity interests (including both voting and non-voting interests) in each existing and future direct and indirect domestic subsidiary of the Borrower.
(c) Equity Interests in First-Tier Foreign Subsidiaries: 65% of the voting equity interests and 100% of the non-voting equity interests in each first-tier foreign subsidiary of the Borrower and each Subsidiary Guarantor. First-tier foreign subsidiaries as of the Closing Date are expected to include the following entities:
(i) Cloudium Technologies UK Ltd., a company organized under the laws of England and Wales, Company No. 11287456;
(ii) Cloudium Technologies India Pvt. Ltd., a company organized under the laws of India; and
(iii) Cloudium Solutions GmbH, a company organized under the laws of the Federal Republic of Germany.
The 65% limitation on the pledge of voting equity interests in foreign subsidiaries is imposed to avoid adverse U.S. federal income tax consequences that would arise from a pledge of more than 65% of the voting stock of a controlled foreign corporation under the Internal Revenue Code.
(d) Personal Property: All personal property of the Borrower and each Subsidiary Guarantor, including without limitation:
(i) all accounts receivable and other accounts;
(ii) all inventory;
(iii) all equipment;
(iv) all general intangibles (including payment intangibles and software);
(v) all intellectual property, including patents, trademarks, service marks, trade names, copyrights, domain names, and applications and registrations therefor, and all associated goodwill, trade secrets, and proprietary technology;
(vi) all instruments and promissory notes;
(vii) all chattel paper (including electronic chattel paper);
(viii) all deposit accounts;
(ix) all investment property (including securities accounts, commodity accounts, and financial assets);
(x) all letter-of-credit rights;
(xi) all commercial tort claims (to the extent identified and with a value in excess of a threshold to be agreed); and
(xii) all supporting obligations and related records.
(e) Proceeds: All proceeds (as defined in the Uniform Commercial Code) of the foregoing, including all cash and non-cash proceeds, insurance proceeds, and condemnation awards.
Customary Exceptions to Collateral: The security interest shall be subject to the following customary exceptions and exclusions:
(a) Real Property: No mortgages or deeds of trust on real property shall be required. The security package shall not include any liens on owned or leased real property of the Borrower or any Subsidiary Guarantor.
(b) Motor Vehicles: Motor vehicles and other assets subject to certificates of title shall be excluded from the collateral package to the extent the aggregate value of such assets does not exceed a threshold to be agreed (expected: $500,000).
(c) Other Standard Carveouts: Additional customary exclusions consistent with market practice for sponsor-backed leveraged financings, including exclusions for assets as to which the cost of obtaining a perfected security interest would be disproportionate to the benefit to the lenders, assets subject to contractual restrictions on assignment (to the extent such restrictions are enforceable), and governmental licenses and permits (to the extent a security interest therein would result in a violation of applicable law or such license or permit).
Release of Existing Liens: All existing liens on the assets of Cloudium and its subsidiaries securing obligations under the existing credit agreement with Atlas Commercial Lending Corp. shall be released concurrently with the Closing Date, upon repayment in full of all outstanding indebtedness thereunder (aggregating $820,000,000, as described in Section I above). UCC-3 termination statements, intellectual property lien releases, and equivalent release documentation in all applicable jurisdictions shall be prepared by counsel to Atlas Commercial Lending Corp. and delivered to the Administrative Agent on or prior to the Closing Date.
IV. CONDITIONS PRECEDENT TO CLOSING AND INITIAL FUNDING
A. Closing Conditions (Certain Funds / SunGard Conditionality)
The conditions precedent to the initial funding of the Term Loan B Facility and the establishment of the Revolving Credit Facility on the Closing Date shall be limited to those conditions customary for a "certain funds" or "SunGard"-style financing commitment. The parties acknowledge that the purpose of limiting the closing conditions is to provide the Borrower and the Sponsor with a high degree of certainty as to the availability of the committed financing on the Closing Date, subject only to the following conditions:
1. Consummation of the Acquisition. The Acquisition shall be consummated substantially concurrently with the initial funding of the Term Loan B Facility, in all material respects in accordance with the terms of the Merger Agreement, without giving effect to any amendment, modification, waiver, or consent with respect to any provision of the Merger Agreement that is materially adverse to the interests of the lenders, unless such amendment, modification, waiver, or consent has been approved by the Administrative Agent (such approval not to be unreasonably withheld, conditioned, or delayed).
2. Accuracy of Specified Representations and Warranties. The following representations and warranties shall be true and correct in all material respects (or, in the case of representations and warranties qualified by materiality or material adverse effect, in all respects) on and as of the Closing Date:
(a) Specified Acquisition Agreement Representations: Those representations and warranties made by Cloudium in the Merger Agreement that are conditions to the obligation of Fund VI (or Merger Sub) to consummate the Acquisition (i.e., the "bring-down" of the target's representations that must be satisfied for the buyer to be obligated to close under the Merger Agreement).
(b) Specified Borrower Representations: Certain customary representations and warranties of the Borrower to be made in the Credit Agreement, limited to: (i) organization and existence; (ii) due authorization, execution, delivery, and enforceability of the loan documents; (iii) no conflicts with organizational documents, applicable law, or material agreements; (iv) solvency (on a consolidated basis after giving effect to the Acquisition and the related transactions); (v) compliance with Federal Reserve Regulations U and X (margin regulations); (vi) non-status as an "investment company" under the Investment Company Act of 1940, as amended; (vii) compliance with the USA PATRIOT Act, OFAC sanctions programs, and anti-corruption laws (including the Foreign Corrupt Practices Act and the UK Bribery Act 2010); and (viii) use of proceeds.
3. Delivery of Customary Closing Documents. The Borrower shall have delivered (or caused to be delivered) to the Administrative Agent the following closing documents, in each case in form and substance reasonably satisfactory to the Administrative Agent:
(a) Duly executed counterparts of the Credit Agreement, the Guarantee and Collateral Agreement, and each other security document and ancillary loan document required to be delivered on the Closing Date;
(b) A solvency certificate, executed by the Chief Financial Officer of the surviving entity (or such other senior financial officer as may be acceptable to the Administrative Agent), certifying that, after giving effect to the Acquisition, the Merger, the incurrence of indebtedness under the credit facilities, and the other transactions contemplated hereby, the Borrower and its subsidiaries, on a consolidated basis, are Solvent (as such term will be defined in the Credit Agreement). The form of the solvency certificate shall be prepared by Calderwood & Harkness LLP, counsel to the Sponsor;
(c) Officer's certificates, secretary's certificates (attaching copies of organizational documents, board or member resolutions, and incumbency information), and good standing certificates (or equivalent) for the Borrower and each Subsidiary Guarantor, issued by the appropriate governmental authorities in each entity's jurisdiction of organization;
(d) Legal opinions from Calderwood & Harkness LLP, as counsel to the Borrower, addressed to the Administrative Agent and the lenders, covering such matters as authorization, enforceability, no conflicts, and such other matters as are customary for transactions of this nature;
(e) Evidence of insurance coverage (including property, casualty, and liability insurance) satisfactory to the Administrative Agent, naming the Administrative Agent as additional insured and loss payee as its interests may appear, and including evidence of the representations and warranties insurance policy issued by Northfield Assurance Ltd., Policy No. NFA-TRI-2024-00487, in connection with the Acquisition;
(f) Payoff letters from Atlas Commercial Lending Corp. (as administrative agent under Cloudium's existing credit agreement), confirming the aggregate payoff amount and providing for the release of all liens and security interests upon receipt of such payoff amount, together with UCC-3 termination statements and intellectual property security interest release forms in recordable form;
(g) Such other customary closing documents, certificates, and instruments as may be reasonably requested by the Administrative Agent in connection with the closing of the credit facilities.
4. Payment of Fees and Expenses. All fees, premiums, expenses, and other amounts required to be paid on the Closing Date pursuant to the Credit Agreement, the Fee Letter, and any other loan documents shall have been paid (or arrangements for payment satisfactory to the Administrative Agent shall have been made), including without limitation: (a) the arrangement fees and upfront fees payable to the Arrangers as set forth in the Fee Letter; (b) the original issue discount on the Term Loan B; and (c) the legal fees and disbursements of Winthrop & Hale LLP as counsel to the Administrative Agent and the Arrangers.
5. Funds Flow Memorandum. The Borrower shall have delivered to the Administrative Agent, at least three (3) business days prior to the Closing Date, a funds flow memorandum setting forth in reasonable detail the sources and uses of all funds to be disbursed on the Closing Date, including wire transfer instructions and amounts for all payments to be made, in form and substance reasonably satisfactory to the Administrative Agent.
6. KYC / AML / Beneficial Ownership. The Administrative Agent and the lenders shall have received, at least ten (10) business days prior to the Closing Date, all documentation and information required under applicable "know your customer" rules, anti-money laundering regulations, the USA PATRIOT Act (Title III of Pub. L. 107-56), and the Beneficial Ownership Regulation (31 C.F.R. § 1010.230), to the extent such documentation and information has been reasonably requested by the Administrative Agent in writing at least fifteen (15) business days prior to the Closing Date.
7. No Company Material Adverse Effect. Since the date of the Merger Agreement, no "Company Material Adverse Effect" (as defined in the Merger Agreement) shall have occurred and be continuing as of the Closing Date.
8. No Injunction or Order. Since the date of the Merger Agreement, no temporary restraining order, preliminary or permanent injunction, or other order shall have been entered by any court of competent jurisdiction or any governmental authority of competent jurisdiction that prohibits, restrains, or enjoins the consummation of the Acquisition or the financing thereof, and no proceeding seeking any such order shall be pending before any such court or governmental authority.
For the avoidance of doubt, the conditions precedent to the initial funding shall not include any condition relating to (i) the absence of a default or event of default (other than a Payment Event of Default or Bankruptcy Event of Default, to the extent arising from the transactions contemplated hereby), (ii) the accuracy of representations and warranties other than the Specified Acquisition Agreement Representations and the Specified Borrower Representations described above, (iii) the delivery of any financial statements or projections other than those available to the Arrangers on or prior to the date hereof, or (iv) the completion of syndication.
B. Conditions to Revolving Facility Borrowings (Post-Closing)
Each borrowing under the Revolving Credit Facility after the Closing Date shall be subject to the following conditions precedent, each of which shall be satisfied (or waived by the Administrative Agent) as of the date of such borrowing and after giving effect thereto:
(a) The representations and warranties of the Borrower and each Guarantor set forth in the Credit Agreement shall be true and correct in all material respects (or, in the case of representations qualified by materiality or material adverse effect, in all respects) as of the date of such borrowing (except to the extent such representations relate to a specific earlier date, in which case they shall be true and correct in all material respects as of such earlier date);
(b) No Default or Event of Default shall have occurred and be continuing or would result from such borrowing; and
(c) The Borrower shall have delivered a duly executed borrowing notice to the Administrative Agent in accordance with the terms of the Credit Agreement (including as to timing and minimum borrowing amounts).
For the avoidance of doubt, compliance with the financial covenant set forth in Section VI.A shall not be a condition precedent to any revolving borrowing. The financial covenant is tested only at the end of each fiscal quarter in which revolving utilization exceeds the 40% threshold described in Section VI.A below, and is not a condition to drawing.
V. REPRESENTATIONS AND WARRANTIES
The Credit Agreement will contain representations and warranties customary for sponsor-backed leveraged acquisition financings of this type and size. The representations and warranties to be made by the Borrower and each Guarantor (as of the Closing Date and, except as otherwise specified, as of the date of each borrowing under the Revolving Facility) shall include, without limitation, the following:
(a) Organization; Corporate Power and Authority. Each of the Borrower and each Guarantor is duly organized, validly existing, and in good standing under the laws of its jurisdiction of organization, and has all requisite corporate or other organizational power and authority to own its properties, conduct its business, and perform its obligations under the loan documents.
(b) Authorization; Enforceability; No Conflicts. The execution, delivery, and performance of the loan documents have been duly authorized by all necessary corporate, limited liability company, or partnership action, as applicable. The loan documents constitute the valid, legally binding, and enforceable obligations of each loan party, enforceable in accordance with their respective terms (subject to customary enforceability exceptions). The execution, delivery, and performance of the loan documents do not conflict with any applicable law, any organizational document, or any material agreement or instrument binding upon any loan party.
(c) Financial Statements. The financial statements of the Borrower and its subsidiaries delivered to the Administrative Agent and the lenders: (i) with respect to audited annual financial statements, present fairly in all material respects the consolidated financial position, results of operations, and cash flows of the Borrower and its subsidiaries as of the dates and for the periods indicated, in conformity with GAAP (or, to the extent applicable, IFRS) consistently applied; and (ii) with respect to unaudited interim financial statements, present fairly in all material respects the consolidated financial position and results of operations of the Borrower and its subsidiaries, subject to normal year-end adjustments and the absence of footnotes. The auditor for the Borrower as of the Closing Date is Harwell & Dobson LLP (engagement partner: Martin Chisholm). Post-closing financial condition will be based on Cloudium's audited financial statements for the fiscal year ended September 30, 2023, and subsequent interim financial statements as available.
(d) No Material Adverse Change. Since the date of the most recently delivered audited financial statements (or, at closing, since the date of the Merger Agreement), no event, circumstance, condition, or change has occurred that, individually or in the aggregate, has had or would reasonably be expected to have a Material Adverse Effect. The definition of "Material Adverse Effect" shall be consistent with the definition of "Company Material Adverse Effect" in the Merger Agreement, including customary carveouts for: (i) changes in general economic, financial, or market conditions; (ii) changes in the industry in which the Borrower operates; (iii) pandemics, epidemics, and public health emergencies; (iv) acts of war, terrorism, sabotage, or armed hostilities; (v) changes in applicable law or regulations or interpretations thereof; (vi) changes in GAAP or applicable accounting standards; and (vii) the announcement or pendency of the Acquisition itself.
(e) Litigation; Compliance with Laws. There is no pending or, to the knowledge of the Borrower, threatened action, suit, proceeding, or investigation by or before any court, arbitrator, or governmental authority that would reasonably be expected to have a Material Adverse Effect. The Borrower and each Guarantor are in compliance with all applicable laws, rules, and regulations, except where the failure to comply would not reasonably be expected to have a Material Adverse Effect.
(f) Solvency. After giving effect to the Acquisition, the Merger, the incurrence of indebtedness under the credit facilities, and the other transactions contemplated hereby, the Borrower and its subsidiaries, on a consolidated basis, are Solvent. For purposes of this representation, "Solvent" means that (i) the fair value of the assets exceeds the total amount of liabilities (including contingent liabilities), (ii) the present fair saleable value of the assets is sufficient to pay the total amount of liabilities as they become due, (iii) the Borrower and its subsidiaries do not have unreasonably small capital, and (iv) the Borrower and its subsidiaries are able to pay their debts and liabilities as they become due.
(g) Environmental Compliance. The Borrower and its subsidiaries are in compliance with all applicable environmental laws and regulations in all material respects, and no environmental condition exists that would reasonably be expected to result in material liability.
(h) ERISA Compliance. No ERISA Event has occurred or is reasonably expected to occur that, individually or in the aggregate, would reasonably be expected to result in material liability. All employee benefit plans maintained by the Borrower and its ERISA Affiliates are in compliance with ERISA and the Internal Revenue Code in all material respects.
(i) Tax Matters. The Borrower and its subsidiaries have filed all material tax returns required to be filed and have paid all material taxes due and owing, except where contested in good faith by appropriate proceedings and for which adequate reserves have been established.
(j) intellectual Property. The Borrower and its subsidiaries own or have valid licenses to use all intellectual property reasonably necessary for the conduct of their business as currently conducted, and no claims or proceedings are pending or threatened challenging the ownership, validity, or enforceability of any material intellectual property, except as would not reasonably be expected to have a Material Adverse Effect.
(k) Use of Proceeds; Federal Reserve Regulations U and X. The proceeds of the credit facilities will be used solely for the purposes described herein. No part of the proceeds of the credit facilities will be used to purchase or carry "margin stock" (as defined in Regulation U of the Board of Governors of the Federal Reserve System), and the Borrower is not engaged in the business of extending credit for the purpose of purchasing or carrying margin stock.
(l) Investment Company Act. Neither the Borrower nor any Guarantor is an "investment company" or a company "controlled by" an "investment company" within the meaning of the Investment Company Act of 1940, as amended.
(m) PATRIOT Act; OFAC Sanctions; Anti-Corruption. The Borrower and each of its subsidiaries and their respective directors, officers, employees, and agents are in compliance with all applicable anti-money laundering laws and regulations, including the USA PATRIOT Act. Neither the Borrower nor any of its subsidiaries, nor any of their respective directors, officers, or employees, nor, to the knowledge of the Borrower, any agent or representative acting on behalf of the Borrower or its subsidiaries, is a Sanctioned Person or is located in, organized under the laws of, or a resident of a Sanctioned Country, in each case as defined under the economic and trade sanctions programs administered by the U.S. Department of the Treasury's Office of Foreign Assets Control ("OFAC"). The Borrower and its subsidiaries have implemented and maintain policies and procedures reasonably designed to ensure compliance with all applicable anti-corruption laws, including the U.S. Foreign Corrupt Practices Act of 1977, as amended, and the UK Bribery Act 2010.
(n) Accuracy of Information; No Material Misstatements. All written information (other than projections, forward-looking statements, and information of a general economic or industry-specific nature) provided by or on behalf of the Borrower, any Guarantor, or the Sponsor to the Administrative Agent or the lenders in connection with the credit facilities was, as of the date provided, true, complete, and correct in all material respects, and did not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained therein, in light of the circumstances under which they were made, not misleading.
(o) Insurance. The Borrower and its subsidiaries maintain insurance coverage with financially sound and reputable insurance companies in such amounts, covering such risks, and with such deductibles and self-insurance retentions as are customary for companies of similar size engaged in similar businesses.
(p) Labor Matters. No strikes, lockouts, slowdowns, or work stoppages are pending or, to the knowledge of the Borrower, threatened against the Borrower or any subsidiary that would reasonably be expected to have a Material Adverse Effect.
(q) Collateral Matters; Perfection of Security Interests. The security interests granted under the Guarantee and Collateral Agreement and the other security documents create valid and enforceable first-priority perfected security interests (subject only to permitted liens) in the Collateral described therein, in favor of the Administrative Agent for the benefit of the secured parties.
Specified Acquisition Agreement Representations. As noted in Section IV.A.2(a) above, certain representations and warranties of Cloudium made in the Merger Agreement (the "Specified Acquisition Agreement Representations") shall be brought down at closing as a condition to the initial funding of the credit facilities. The Specified Acquisition Agreement Representations are limited exclusively to those representations in the Merger Agreement the accuracy of which is a condition to the obligation of Fund VI (or Merger Sub) to consummate the Acquisition. The purpose of this formulation is to ensure that the conditionality of the financing does not exceed the conditionality of the Acquisition itself, consistent with market practice for SunGard-style commitments.
VI. FINANCIAL COVENANTS
A. Total Net Leverage Ratio (Maintenance Covenant — Applicable Only to the Revolving Facility)
The Credit Agreement shall include a single maintenance financial covenant applicable exclusively to the Revolving Credit Facility. The Term Loan B Facility shall be "covenant-lite" and shall not be subject to any maintenance financial covenant.
Testing: The financial covenant shall be tested as of the last day of each fiscal quarter, but only if the aggregate principal amount of revolving loans outstanding on the last day of such fiscal quarter (excluding up to $25,000,000 of undrawn letters of credit for purposes of this threshold calculation) exceeds 40% of the total revolving commitments as of such date (i.e., outstanding revolving loans exceeding $200,000,000 based on current revolving commitments of $500,000,000). This is a "springing" financial covenant — it is only tested in quarters where revolving utilization exceeds the specified threshold.
Covenant Level: As of the last day of any fiscal quarter in which the financial covenant is required to be tested, the First Lien Net Leverage Ratio shall not exceed 5.00:1.00.
Definition: The First Lien Net Leverage Ratio shall be calculated as follows:
First Lien Net Leverage Ratio = (First Lien Debt − Unrestricted Cash and Cash Equivalents (capped at $200,000,000)) ÷ Consolidated Adjusted EBITDA (for the trailing four consecutive fiscal quarters ending on such date)
Where:
• "First Lien Debt" means all funded indebtedness of the Borrower and its restricted subsidiaries that is secured by a first-priority lien on the Collateral (including, without limitation, the outstanding principal amount of the Term Loan B and any drawn amounts under the Revolving Credit Facility, and any incremental first lien debt incurred pursuant to the terms of the Credit Agreement).
• "Unrestricted Cash and Cash Equivalents" means unrestricted cash and cash equivalents of the Borrower and its restricted subsidiaries on a consolidated basis as of the date of determination, subject to a cap of $200,000,000 for purposes of netting against First Lien Debt.
B. Total Net Leverage Ratio — Incurrence-Based (Applicable to Both Facilities)
In addition to the maintenance financial covenant described above, the Credit Agreement will include an incurrence-based Total Net Leverage Ratio test that will govern the availability of various negative covenant baskets, including (without limitation) baskets for incremental debt, restricted payments, investments, and other limited activities. The incurrence-based test is not independently tested or reported; rather, it serves as a gating condition for specific actions under the negative covenants.
Definition: The Total Net Leverage Ratio shall be calculated as follows:
Total Net Leverage Ratio = (Total Funded Debt − Unrestricted Cash and Cash Equivalents (capped at $200,000,000)) ÷ Consolidated Adjusted EBITDA (for the trailing four consecutive fiscal quarters ending on such date)
Where "Total Funded Debt" means all funded indebtedness of the Borrower and its restricted subsidiaries on a consolidated basis (including both first-lien and second-lien or unsecured funded debt), determined on a pro forma basis after giving effect to the applicable transaction and any related incurrence or repayment of debt.
Step-Down Schedule: The maximum Total Net Leverage Ratio for incurrence purposes shall be subject to the following step-down schedule:
C. Consolidated Adjusted EBITDA — Definition
"Consolidated Adjusted EBITDA" shall mean, for any applicable period, the consolidated net income of the Borrower and its restricted subsidiaries for such period, adjusted as follows:
Addbacks (items added to consolidated net income):
(a) Cash and non-cash interest expense (net of interest income) for such period;
(b) Provision for income taxes (whether paid, accrued, or deferred) for such period;
(c) Depreciation and amortization expense for such period;
(d) All non-cash charges, expenses, and losses for such period (including, without limitation, stock-based compensation expense, non-cash impairment charges, non-cash purchase accounting adjustments, and non-cash charges arising from the application of ASC 842 or similar lease accounting standards);
(e) Transaction costs, fees, and expenses incurred in connection with the Acquisition (including advisory fees, legal fees, financing fees, insurance premiums, regulatory filing fees, proxy solicitation expenses, and similar costs), capped at $185,000,000 in the aggregate;
(f) Cost savings, synergies, and operating improvements that are projected in good faith by the Borrower to be realized within twenty-four (24) months following the Closing Date (or, with respect to a subsequent acquisition, within twenty-four months of the consummation thereof), as if such cost savings, synergies, and operating improvements had been realized on the first day of the applicable measurement period. [Note: The Sponsor proposes that the cost savings add-back be uncapped for the first 24 months following the Closing Date. The expected run-rate synergies are $110,000,000. The cap on aggregate pro forma adjustments (synergies plus cost savings) is to be negotiated — see below.]
(g) Restructuring and integration charges incurred in connection with the Acquisition or any subsequent permitted acquisition, capped at the greater of $[●] and [●]% of Consolidated Adjusted EBITDA (each as determined before giving effect to such addbacks);
(h) Management fees, monitoring fees, and transaction advisory fees paid to the Sponsor or its affiliates in accordance with any management agreement permitted under the Credit Agreement;
(i) Extraordinary, unusual, or non-recurring losses, charges, and expenses;
Subtractions (items subtracted from consolidated net income):
(j) Non-cash gains and income for such period (to the extent included in consolidated net income);
(k) Extraordinary, unusual, or non-recurring gains for such period;
Pro Forma Adjustments:
(l) Pro forma adjustments shall be permitted for acquisitions, dispositions, and other designated events (including, without limitation, facility closures, cost reduction programs, and operational restructurings) that occur during the applicable measurement period, as if such events had occurred on the first day of such period, in each case calculated in good faith by a responsible financial officer of the Borrower and supported by reasonable detail delivered to the Administrative Agent.
Add-Back Limitations: Total pro forma adjustments (consisting of projected cost savings, synergies, and operating improvements described in clause (f) above) shall not exceed [●]% of Consolidated Adjusted EBITDA (calculated before giving effect to such pro forma adjustments) for any measurement period. Current market practice for add-back caps in leveraged acquisition financings is in the range of 25% to 35%; the specific cap applicable to the credit facilities is to be negotiated between the Sponsor and the Arrangers during the commitment letter negotiation process.
VII. NEGATIVE COVENANTS
The Credit Agreement will contain negative covenants customary for sponsor-backed leveraged acquisition financings of this type and size. Each negative covenant shall be subject to baskets, exceptions, and other carveouts, as more fully described in the definitive Credit Agreement. The following is a summary of the principal negative covenants:
A. Indebtedness
The Borrower and its restricted subsidiaries shall not incur, create, assume, or otherwise become liable for any indebtedness, except as follows:
(a) Incremental Term Loan Facility. The Borrower may incur incremental term loan indebtedness under the Credit Agreement in an aggregate principal amount not to exceed the greater of: (i) a fixed dollar basket of $[●] (to be negotiated; expected amount approximately $500,000,000) and (ii) an incurrence-based amount such that, on a pro forma basis after giving effect to the incurrence of such incremental term loans and the application of proceeds thereof, the First Lien Net Leverage Ratio does not exceed the Closing Date First Lien Net Leverage Ratio or 5.00:1.00 (whichever is greater). The fixed dollar basket and the incurrence-based basket may be used simultaneously and in combination. Incremental term loans shall have terms and conditions substantially consistent with those of the Term Loan B (or, to the extent the terms are not substantially consistent, shall be reasonably satisfactory to the Administrative Agent), and shall mature no earlier than the maturity date of the Term Loan B.
(b) Incremental Revolving Commitments. The Borrower may obtain incremental revolving commitments under the Revolving Credit Facility, subject to terms and conditions to be agreed in the definitive Credit Agreement.
(c) Incremental Equivalent Debt. The Borrower may incur incremental equivalent debt (i.e., indebtedness incurred outside of the Credit Agreement but secured on a pari passu or junior lien basis with the obligations under the credit facilities), subject to compliance with the applicable leverage incurrence test and entry into a customary intercreditor agreement with the Administrative Agent.
(d) Ratio Debt (Unsecured or Junior Lien). The Borrower may incur unsecured or junior lien indebtedness, subject to an incurrence test requiring that the pro forma Total Net Leverage Ratio does not exceed [●]:1.00 (to be negotiated).
(e) Additional Permitted Indebtedness. Additional carveouts for: (i) capital leases and purchase money indebtedness (subject to a basket); (ii) general indebtedness basket of $[●] or [●]% of total assets; (iii) non-recourse indebtedness of unrestricted subsidiaries; (iv) intercompany indebtedness (subject to subordination requirements for intercompany loans from non-guarantor subsidiaries to loan parties); (v) indebtedness in respect of letters of credit, bank guarantees, and performance bonds; (vi) indebtedness arising under hedging agreements entered into in the ordinary course; and (vii) such other customary exceptions as may be agreed.
B. Liens
The Borrower and its restricted subsidiaries shall not create, incur, assume, or permit to exist any lien on any of their respective properties or assets, except for customary permitted liens, including without limitation:
(a) Liens securing obligations under the credit facilities;
(b) Liens securing permitted indebtedness (including incremental debt and incremental equivalent debt, subject to applicable intercreditor arrangements);
(c) Purchase money liens and liens securing capital lease obligations, in each case limited to the assets acquired or financed;