PRIVILEGED AND CONFIDENTIAL ATTORNEY WORK PRODUCT
MEMORANDUM
TO: Harrison Wexford, Responsible Partner, Mergers & Acquisitions Beatrice Holloway, Billing Partner, Mergers & Acquisitions
FROM: Tiffany Rosenthal, Lead Associate, Mergers & Acquisitions Andrew Fitzpatrick, Working Associate, Mergers & Acquisitions
DATE: February 5, 2024
RE: Financing Cooperation Covenant Review — Section 6.14 of the Merger Agreement (Cloudium Technologies plc / Solara Digital Infrastructure Fund VI LP)
MATTER NO.: 1041-00003
FIRM: Calderwood & Harkness LLP 599 Lexington Avenue New York, NY 10022
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I. Executive Summary
This memorandum analyzes the scope, mechanics, and enforceability of the financing cooperation obligations imposed on Cloudium Technologies plc ("Cloudium" or the "Company") under Section 6.14 of the Agreement and Plan of Merger dated January 22, 2024 (the "Merger Agreement"), among Cloudium Technologies plc, Stratos Merger Sub Inc. ("Merger Sub"), and Solara Digital Infrastructure Fund VI LP ("Fund VI" or "Buyer"). The purpose of this memorandum is to provide the deal team with a comprehensive assessment of the financing cooperation covenant, identify potential areas of friction in its implementation, and set forth practical recommendations for ensuring timely and full compliance during the interim period between signing and closing.
The underlying transaction is a $6,800,000,000 reverse triangular merger in which Merger Sub will merge with and into Cloudium, with Cloudium surviving the merger as a wholly owned subsidiary of Fund VI. The transaction is structured as a cash take-private, with the per-share merger consideration payable to non-rolling stockholders of approximately $36.92. The aggregate cash merger consideration payable to non-rolling stockholders is approximately $6,183,944,048.
A substantial portion of the funding for the transaction will be provided by committed debt financing. The Debt Commitment Letter dated January 22, 2024 (the "DCL"), executed concurrently with the Merger Agreement, provides for $4,240,000,000 of committed debt financing from Meridian Atlantic Bank, N.A. (as lead arranger and administrative agent) and Ironclad Capital Markets LLC (as co-arranger). The committed debt financing comprises a $3,740,000,000 Term Loan B facility (7-year maturity; SOFR + 325 basis points) and a $500,000,000 Revolving Credit Facility (5-year maturity; SOFR + 275 basis points). Calderwood & Harkness LLP is serving as Buyer's counsel for the Credit Agreement negotiations, while Winthrop & Hale LLP (Christine Novak, Lead Partner, Finance) is serving as counsel to the lenders.
Key Conclusion. Section 6.14 of the Merger Agreement imposes comprehensive cooperation obligations on Cloudium during the interim period between signing (January 22, 2024) and the earlier of the closing of the merger or the valid termination of the Merger Agreement. These obligations are essential to ensuring the timely syndication, marketing, and closing of the committed debt financing. The covenant is well-structured and reflects prevailing market practice for large-cap take-private transactions. It includes appropriate protections for Cloudium and its directors and officers, including limitations on pre-closing effectiveness, expense reimbursement, and indemnification by Buyer. However, the deal team should monitor Cloudium's compliance actively throughout the interim period, coordinate all requests through established channels, and flag any instances of delay or non-cooperation promptly to the responsible partner. The successful syndication and closing of the debt financing is critical to Buyer's ability to consummate the merger prior to the outside date of June 30, 2024, and any material delay in Cloudium's cooperation could jeopardize the financing timeline and trigger significant economic consequences, including the accrual of ticking fees on the Term Loan B facility commencing April 22, 2024.
II. Background and Transaction Context
A. The Transaction
The transaction contemplated by the Merger Agreement is a reverse triangular merger under the General Corporation Law of the State of Delaware (the "DGCL"). Merger Sub, a Delaware corporation incorporated on January 8, 2024 (Delaware File No. 7923841), is a wholly owned subsidiary of Fund VI formed solely for the purpose of effecting the merger. At the Effective Time, Merger Sub will merge with and into Cloudium, with Cloudium continuing as the surviving corporation and becoming a wholly owned subsidiary of Fund VI. The Certificate of Merger will be filed with the Secretary of State of the State of Delaware in accordance with Section 251 of the DGCL.
The aggregate deal value of the transaction is $6,800,000,000. The per-share cash merger consideration payable to holders of Cloudium common stock (other than holders of rollover shares, dissenting shares, and shares owned by Buyer and its affiliates) is approximately $36.92, calculated on the basis of approximately 184,200,000 shares of Cloudium common stock outstanding as of the date of the Merger Agreement. This represents a premium of approximately 37% to Cloudium's unaffected closing stock price on September 1, 2023, the last full trading day prior to the public announcement of a potential strategic process.
Cloudium Technologies plc is a public limited company incorporated under the laws of England and Wales (Company No. 09734521). Cloudium's American Depositary Shares are listed on the Nasdaq Global Select Market under the ticker symbol "CLDM." The Company's United States headquarters are located at 600 Townsend Street, Suite 800, San Francisco, California 94103. Cloudium's registered office in England is at 45 Broadwick Street, London W1F 0DB, United Kingdom. Cloudium is a leading provider of cloud-native digital infrastructure solutions, including hybrid cloud orchestration, data pipeline management, and enterprise-grade SaaS applications for the telecommunications, financial services, and healthcare industries.
The Company's key financial metrics for the most recently completed fiscal year and the most recent interim period are as follows:
• LTM Revenue (FYE September 30, 2023): $1,620,000,000
• LTM Adjusted EBITDA (FYE September 30, 2023): $405,000,000
• Annual Recurring Revenue (ARR) (as of December 31, 2023): $1,740,000,000
Cloudium's senior management team includes CEO Jonathan Hargrove, CFO Sienna Whitfield, and General Counsel Nadia Chowdhury. Each of these individuals will play a significant role in the financing cooperation process, as discussed in greater detail below.
Cloudium operates through a number of key subsidiaries worldwide. The subsidiaries most relevant to the financing cooperation analysis are:
(i) Cloudium Technologies UK Ltd. (England and Wales, Company No. 11287456), which employs approximately 1,200 individuals and generated revenue of approximately £312,000,000 (approximately $390,000,000 at an exchange rate of $1.25/£) in the most recently completed fiscal year. Cloudium UK is the principal operating subsidiary in the EMEA region and will be a material subsidiary guarantor under the Credit Agreement.
(ii) Cloudium Technologies India Pvt. Ltd. (Bangalore, India), which employs approximately 2,400 individuals, primarily in engineering, product development, and customer support functions. Cloudium India is a significant operational hub and may be required to provide subsidiary guarantees depending on the final terms of the Guarantee and Collateral Agreement.
(iii) Cloudium Solutions GmbH (Berlin, Germany), which employs approximately 400 individuals and operates as the Company's Continental European sales and support center. Cloudium Germany may also be required to provide a subsidiary guarantee under the Credit Agreement.
B. The Debt Financing Structure
The debt financing for the transaction is committed under the Debt Commitment Letter ("DCL") executed on January 22, 2024, concurrent with the signing of the Merger Agreement. The DCL was negotiated by Calderwood & Harkness LLP on behalf of Buyer, with Winthrop & Hale LLP (Christine Novak, Lead Partner, Finance) representing the committed lenders. The DCL sets forth the principal terms and conditions upon which Meridian Atlantic Bank, N.A. and Ironclad Capital Markets LLC have committed to arrange and fund the debt financing.
The committed parties and their respective roles are as follows:
(a) Meridian Atlantic Bank, N.A. — Lead Arranger, Sole Bookrunner, and Administrative Agent. Lead contact: Graham Whitaker, Managing Director, Leveraged Finance, 383 Madison Avenue, New York, NY 10179.
(b) Ironclad Capital Markets LLC — Co-Arranger and Joint Bookrunner. Lead contact: Samuel Diaz, Director, Leveraged Finance, 200 West Street, New York, NY 10282.
The committed debt financing consists of two facilities:
Term Loan B Facility. The Term Loan B has an aggregate principal amount of $3,740,000,000, a maturity date of July 9, 2031 (7 years from the anticipated closing date), and an interest rate of SOFR plus 325 basis points. The DCL provides for a ticking fee of 0.25% per annum on undrawn commitments, which commences 90 days after the date of signing of the Merger Agreement (i.e., April 22, 2024). The annualized ticking fee, if triggered, would be approximately $9,350,000 (0.25% × $3,740,000,000). The ticking fee economics provide a powerful incentive for both parties to complete the syndication process and close the transaction expeditiously after April 22, 2024.
Revolving Credit Facility. The Revolving Credit Facility has an aggregate capacity of $500,000,000, a maturity date of July 9, 2029 (5 years from the anticipated closing date), and an interest rate of SOFR plus 275 basis points. The Revolving Credit Facility is expected to be undrawn at closing ($0 drawn at close). A commitment fee of 0.375% per annum will apply to undrawn commitments under the Revolving Credit Facility.
The key financial covenants under the contemplated Credit Agreement, as set forth in the term sheet annexed to the DCL, include:
• Total Net Leverage Ratio: Not to exceed 6.50:1.00 initially, stepping down to 6.00:1.00 at the end of year one, 5.50:1.00 at the end of year two, and 5.00:1.00 at the end of year three and thereafter.
• Springing First Lien Net Leverage Ratio: Not to exceed 5.00:1.00, tested only when the aggregate principal amount of revolving loans outstanding exceeds 40% of total revolving commitments (i.e., outstanding revolver utilization exceeds $200,000,000).
Closing-Date Leverage Analysis. On a raw basis, the closing-date leverage under the Term Loan B alone would be approximately 9.24x total leverage ($3,740,000,000 ÷ $405,000,000 LTM EBITDA). However, on a pro forma adjusted basis — incorporating management's estimate of $110,000,000 in run-rate cost synergies achievable within 24 months of closing, as reflected in Fund VI's investment committee memorandum and the arrangers' marketing materials — the pro forma net leverage would be approximately 6.91x (calculated as $3,740,000,000 less estimated closing-date cash of approximately $185,000,000, divided by adjusted EBITDA of approximately $515,000,000, being $405,000,000 plus $110,000,000 run-rate synergies). This pro forma net leverage of approximately 6.91x is within the initial covenant level of 6.50:1.00 on the assumption that a portion of the synergies will be reflected in trailing EBITDA by the first test date. The arrangers have confirmed comfort with this leverage profile for syndication purposes. We note, however, that the synergies assumptions will need to be carefully substantiated in the CIM and will be subject to scrutiny by prospective lenders during the syndication process.
The Credit Agreement is being drafted by Winthrop & Hale LLP in its capacity as lenders' counsel. The initial draft of the Credit Agreement is expected to be circulated by approximately March 20, 2024. Calderwood & Harkness will review and provide borrower-side comments on behalf of Buyer. The Credit Agreement will be executed at closing, at which time Cloudium (as the surviving entity in the merger) will become the Borrower thereunder.
C. Sources and Uses
The total funding requirement for the transaction is $7,188,944,048, allocated as follows:
Uses of Funds:
The existing Cloudium indebtedness to be repaid at closing consists of $620,000,000 outstanding under an existing term loan facility and $200,000,000 drawn on an existing revolving credit facility, each under a credit agreement dated March 15, 2021, with Atlas Commercial Lending Corp. as administrative agent. Payoff letters will need to be obtained from Atlas Commercial Lending Corp. in connection with the closing, and coordination of the payoff mechanics is a component of Cloudium's financing cooperation obligations under Section 6.14 (discussed in Section III.B.3 below).
Sources of Funds:
The equity contribution from Fund VI of $2,832,888,096 is committed under an Equity Commitment Letter dated January 22, 2024, delivered by Fund VI to Merger Sub concurrently with the execution of the Merger Agreement. The equity contribution includes a co-investment of $425,000,000 from Solara Digital Co-Invest VI-A LP, an affiliated co-investment vehicle subscribing alongside Fund VI.
The rollover equity of $616,055,952 consists of the following:
(a) Jonathan Hargrove (CEO) — approximately $142,814,544 in rollover equity, representing the conversion of a portion of Mr. Hargrove's existing Cloudium shares and equity awards into equity interests in the post-closing parent entity.
(b) Pinnacle Growth Ventures LLC — approximately $473,241,408 in rollover equity, representing the conversion of Pinnacle Growth Ventures' existing Cloudium shares into equity interests in the post-closing parent entity. Pinnacle Growth Ventures is an existing significant stockholder of Cloudium, holding approximately 12.8 million shares.
D. Why the Financing Cooperation Covenant Matters
The financing cooperation covenant set forth in Section 6.14 of the Merger Agreement is a critical contractual mechanism that bridges the gap between the signing-date financing commitment and the closing-date funding of the transaction. At the time of signing on January 22, 2024, the DCL was executed, establishing the arrangers' commitment to fund the debt financing. However, the Credit Agreement itself has not yet been negotiated, drafted, or executed. During the interim period between signing and closing, the arrangers intend to syndicate the Term Loan B to a group of institutional lenders (including CLOs, loan funds, and other institutional investors). This syndication process requires Cloudium's active and timely cooperation in several critical respects:
First, the arrangers will need detailed financial data, projections, and operational information from Cloudium to prepare the Confidential Information Memorandum ("CIM") that will be distributed to prospective lenders. The quality, accuracy, and timeliness of this financial information directly affects the success and pricing of the syndication.
Second, prospective lenders will expect to receive presentations from Cloudium's senior management, particularly the CEO and CFO, regarding the Company's business, financial performance, growth strategy, and the rationale for the transaction. Management participation in lender road shows and bank meetings is a critical element of the syndication process.
Third, the Credit Agreement and ancillary loan documents (including the Guarantee and Collateral Agreement, solvency certificates, and perfection documents) must be negotiated and finalized prior to closing. Although Cloudium will not execute these documents until the Effective Time, its cooperation during the drafting and negotiation process is essential to ensure that the documents are in agreed form and ready for execution at closing.
Fourth, the arrangers and prospective lenders will require KYC (Know Your Customer) and AML (Anti-Money Laundering) documentation from Cloudium and its subsidiaries, as well as beneficial ownership certifications, in order to satisfy their regulatory compliance obligations.
Fifth, Buyer intends to obtain corporate and instrument credit ratings from one or more rating agencies in connection with the debt financing. The rating process requires the participation of Cloudium's management and the provision of financial and operational data to the rating agencies.
Failure of Cloudium to cooperate timely and fully with these requirements could delay or jeopardize the debt financing. If the debt financing is not arranged and funded at closing, Buyer will be unable to fund the aggregate cash merger consideration, repay existing indebtedness, pay transaction expenses, and fund the escrow account. The Merger Agreement does not contain a financing condition — that is, Buyer's obligation to close is not conditioned on the receipt of debt financing. Accordingly, if Buyer fails to close because its financing falls through, Buyer would be exposed to the reverse termination fee and other remedies available to Cloudium under the Merger Agreement. The financing cooperation covenant thus serves a vital function in aligning Cloudium's interests and obligations with the successful completion of the debt financing.
III. Section 6.14 — Detailed Analysis of Financing Cooperation Obligations
A. Overview and Structure of Section 6.14
Section 6.14 of the Merger Agreement is titled "Financing Cooperation" and is situated within Article VI (Covenants). As drafted, Section 6.14 imposes a series of specific obligations on the Company to use "commercially reasonable efforts" to cooperate with and assist Buyer in connection with the arrangement of the Debt Financing (as defined in the Merger Agreement) and any Permitted Financing Alternative (as defined). The Permitted Financing Alternative concept provides Buyer with flexibility to substitute alternative debt financing arrangements for all or part of the committed debt financing, provided that any such alternative does not impose additional obligations on Cloudium beyond those contemplated by Section 6.14.
The cooperation obligations set forth in Section 6.14 apply during the interim period from the date of signing of the Merger Agreement (January 22, 2024) to the earlier of (i) the consummation of the merger (the "Closing") and (ii) the valid termination of the Merger Agreement in accordance with Article VIII. Upon the occurrence of either event, Cloudium's obligations under Section 6.14 cease.
The financing cooperation covenant in Section 6.14 is standard in leveraged buyout merger agreements and is modeled on prevailing market practice for large-cap take-private transactions involving private equity sponsors. The inclusion of such a covenant is virtually universal in private equity-backed public company acquisitions where the acquiror is relying on committed but not yet funded debt financing to consummate the transaction. The specific formulation of Section 6.14 in the Merger Agreement is consistent with the approach taken in recent comparable transactions, as discussed in Section VII below.
B. Specific Cooperation Obligations
The following subsections address each of the principal categories of cooperation obligations set forth in Section 6.14 of the Merger Agreement.
1. Financial Information and Data. Section 6.14(a) obligates Cloudium to furnish, and to cause its subsidiaries to furnish, to Buyer, the arrangers (Meridian Atlantic Bank, N.A. and Ironclad Capital Markets LLC), and their respective advisors and representatives, certain financial information and data reasonably requested in connection with the Debt Financing. The specific financial information deliverables include the following:
(i) Audited Consolidated Financial Statements. Cloudium is required to deliver audited consolidated financial statements for the three most recently completed fiscal years, being the fiscal years ended September 30, 2021, September 30, 2022, and September 30, 2023, in each case accompanied by the audit reports of Cloudium's independent registered public accounting firm, Harwell & Dobson LLP (Martin Chisholm, engagement partner). These audited financial statements have already been prepared and publicly filed with the Securities and Exchange Commission as part of Cloudium's Annual Reports on Form 20-F. Accordingly, the delivery of the audited financial statements should not present a compliance challenge. However, the arrangers may request supplemental presentations of the audited financial data in formats suitable for inclusion in the CIM and other marketing materials, which may require additional work by Cloudium's finance team.
(ii) Unaudited Quarterly Financial Statements. Cloudium is required to deliver unaudited quarterly financial statements within 45 days of the end of each fiscal quarter during the interim period. Given Cloudium's fiscal year-end of September 30, the quarterly financial statements relevant to the interim period include: Q1 FY2024 (October 1 – December 31, 2023), which would be due by approximately February 14, 2024; and Q2 FY2024 (January 1 – March 31, 2024), which would be due by approximately May 15, 2024. The Q1 FY2024 interim financials are particularly critical, as they will be required for inclusion in the CIM and will be closely scrutinized by prospective lenders during the syndication process.
(iii) Monthly Management Accounts. Cloudium is required to deliver monthly management accounts within 30 days of the end of each calendar month during the interim period. These management accounts will provide the arrangers and prospective lenders with more granular and timely visibility into Cloudium's financial performance during the pre-closing period and will serve as a basis for monitoring compliance with the business plan and financial projections.
(iv) Pro Forma Financial Statements. Cloudium is required to cooperate in the preparation of pro forma financial statements giving effect to the merger, the incurrence of the debt financing under the Credit Agreement, the repayment and retirement of existing indebtedness (including the $820,000,000 payoff to Atlas Commercial Lending Corp.), and other related transactions. The preparation of pro forma financials will require close coordination between Cloudium's finance team, the arrangers, and the financial due diligence advisors at Glenmore Thornton LLP (Vanessa Liu, Financial Due Diligence; Richard Okamura, Transaction Tax).
(v) Other Customary Financial Data, Business Data, and Projections. Cloudium is required to provide such other financial data, business data, operational information, and management projections as may be reasonably requested by the arrangers for use in the CIM, lender presentations, and rating agency presentations. This is a broad category that encompasses a wide range of information that may be requested during the syndication process, including customer and revenue concentration data, churn metrics, recurring revenue analysis, capital expenditure plans, working capital analysis, and other operational key performance indicators.
The quality and timeliness of the financial information deliverables described above is critical for the success of the syndication process. Any delay in Cloudium's delivery of required financial information could have a cascading effect on the syndication timeline, potentially delaying the preparation and distribution of the CIM, postponing the launch of the syndication, and causing the transaction to remain open past April 22, 2024, at which point the ticking fee on the Term Loan B facility commences.
Coordination with Glenmore Thornton LLP (Vanessa Liu for financial due diligence and Richard Okamura for transaction tax matters) may be required to ensure consistency between the financial data provided to the arrangers under the financing cooperation covenant and the financial due diligence and quality of earnings analysis being prepared in connection with the transaction. Any discrepancies between the financial information provided to lenders and the information set forth in the due diligence reports could undermine lender confidence and complicate the syndication process.
We note that Cloudium's fiscal year ends on September 30, which does not align with the calendar year convention used by most institutional lenders and CLO vehicles. The interim financial statements for Q1 FY2024 (covering October through December 2023) and Q2 FY2024 (covering January through March 2024) will be the most current financial data available to prospective lenders during the syndication period. The deal team should work with Cloudium's CFO, Sienna Whitfield, and with Harwell & Dobson to ensure that these interim financials are prepared promptly and in a format that meets the arrangers' requirements for the CIM and syndication marketing materials.
2. Management Participation in Lender Presentations and Road Shows. Section 6.14(b) obligates Cloudium to make its senior management team available to participate in various presentations, meetings, and due diligence sessions in connection with the marketing and syndication of the debt financing. Specifically, the covenant requires Cloudium's senior management — including CEO Jonathan Hargrove, CFO Sienna Whitfield, and such other senior officers as may be reasonably requested by Buyer — to participate in:
(i) Lender presentations and bank meetings with prospective lenders and investors in the Term Loan B syndication;
(ii) Rating agency presentations to support Buyer's efforts to obtain corporate and instrument credit ratings;
(iii) Due diligence sessions with prospective lenders, including detailed discussions of Cloudium's business, financial performance, technology platform, competitive positioning, and growth strategy;
(iv) Conference calls and one-on-one meetings with institutional investors during the syndication period, as is customary in large-cap leveraged loan syndications.
These management participation obligations are subject to customary limitations. Specifically, all such participation is required to take place "at reasonable times and upon reasonable prior notice" to Cloudium, and such participation shall not "unreasonably interfere" with the ongoing business operations of Cloudium and its subsidiaries. These qualifications are standard in financing cooperation covenants and are designed to protect the Company from excessive or disruptive demands on management time during the interim period.
As a practical matter, the availability of Jonathan Hargrove and Sienna Whitfield will be essential to the success of the lender presentations. Prospective lenders in large-cap leveraged loan transactions typically expect direct engagement with the CEO and CFO of the target company, and the quality of management's presentation can significantly influence the terms and pricing achieved in the syndication. Buyer's financial advisor, Osprey Bancroft & Co. (Damien Harlow, Managing Director, Technology M&A), and the lead arranger, Meridian Atlantic Bank, N.A. (Graham Whitaker), will coordinate the schedule for lender presentations. The deal team should proactively communicate with Cloudium's General Counsel, Nadia Chowdhury, and with Ridgeway Phelps & Sato LLP (Catherine Answorth) to ensure that scheduling is coordinated well in advance and that any conflicts with Cloudium's business obligations are identified and resolved early in the process.
3. Execution of Borrower-Side Documents. Section 6.14(c) obligates Cloudium to execute and deliver, or to use commercially reasonable efforts to cause to be executed and delivered, certain borrower-side documents in connection with the debt financing. The documents that Cloudium is required to cooperate with respect to include:
(i) The Credit Agreement and related loan documents. At closing, Cloudium (as the surviving entity in the merger) will execute and deliver the Credit Agreement as Borrower. During the interim period, Cloudium is required to cooperate in the negotiation and preparation of the Credit Agreement and related loan documents.
(ii) The Guarantee and Collateral Agreement. The Credit Agreement will be supported by subsidiary guarantees from Cloudium's material subsidiaries (including Cloudium Technologies UK Ltd., Cloudium Technologies India Pvt. Ltd., and Cloudium Solutions GmbH) and by pledges of the equity interests in such subsidiaries. Cloudium is required to cooperate in the preparation of these guarantee and collateral documents.
(iii) Solvency Certificate. The CFO of the surviving entity (expected to be Sienna Whitfield) will be required to deliver a solvency certificate at closing, certifying that, after giving effect to the merger and the incurrence of the debt financing, the surviving entity and its subsidiaries, on a consolidated basis, are solvent. The form of the solvency certificate will be prepared by Calderwood & Harkness.
(iv) Customary officer's certificates, secretary's certificates, and incumbency certificates. These certificates will be delivered at closing and will certify the authority of the officers executing the loan documents, the adoption of authorizing resolutions, and the incumbency of authorized signatories.
(v) UCC-1 financing statements and other perfection documents. The collateral package under the Credit Agreement will require the filing of UCC-1 financing statements and other perfection documents to perfect the lenders' security interest in the pledged collateral.
(vi) Payoff letters and lien releases. Cloudium is required to cooperate in obtaining payoff letters from Atlas Commercial Lending Corp. (administrative agent under the existing credit agreement dated March 15, 2021) in connection with the repayment of $820,000,000 of existing indebtedness at closing. The payoff letters will specify the aggregate amount required to repay and discharge all obligations under the existing credit facilities, and Atlas Commercial Lending Corp. will be required to deliver lien releases upon receipt of the payoff amount.
Importantly, Section 6.14 provides that none of the borrower-side documents described above are required to be executed by Cloudium or any of its directors, officers, or employees until the Closing. During the interim period, Cloudium's obligation is to cooperate in the negotiation and preparation of such documents so that they are in agreed form and ready for execution at the Effective Time. This limitation ensures that Cloudium and its current board and management are not bound by or exposed to liability under the new credit facility prior to the consummation of the merger.
Additionally, Section 6.14 expressly provides that no obligation under the financing cooperation covenant shall require any director or officer of Cloudium to incur personal liability in connection with the debt financing. This protection is critical and appropriate, given that the directors and officers of Cloudium owe fiduciary duties to Cloudium's stockholders (and not to Buyer or the arrangers) until the merger is consummated.
4. Comfort Letters and Auditor Cooperation. Section 6.14(d) obligates Cloudium to use commercially reasonable efforts to cause its independent registered public accounting firm, Harwell & Dobson LLP, to provide customary comfort letters in connection with the debt financing. The comfort letters required include:
(i) Cold comfort letters addressed to the arrangers (Meridian Atlantic Bank, N.A. and Ironclad Capital Markets LLC) and, to the extent required, to the lenders participating in the syndication. Cold comfort letters typically confirm the consistency of financial data included in the CIM and other offering materials with the underlying audited and unaudited financial statements, and address matters such as the absence of material changes in specified financial metrics since the date of the most recent financial statements.
(ii) Bring-down comfort letters delivered at or shortly before closing, updating and reaffirming the matters addressed in the initial cold comfort letters as of a date closer to the closing date.
(iii) Consent to inclusion of audited financial statements in the CIM and other marketing materials distributed to prospective lenders in connection with the syndication.
The provision of comfort letters by Harwell & Dobson may require Cloudium to enter into supplemental engagement letters with the auditors, as auditing firms customarily require a separate engagement letter (and separate fee arrangements) for the provision of comfort letters in connection with financing transactions. The costs associated with such supplemental engagement letters and the auditor's fees for providing comfort letters are to be borne by Buyer under the expense reimbursement provisions of Section 6.14 (discussed in Section IV.E below).
We note that the timing of auditor cooperation is important. The cold comfort letters should ideally be delivered prior to the launch of syndication (expected in March 2024) to provide prospective lenders with assurance regarding the accuracy of the financial information in the CIM. The deal team should engage with Harwell & Dobson (Martin Chisholm, engagement partner) promptly to discuss the scope and timing of the comfort letter process.
5. Cooperation with Rating Agency Process. Section 6.14(e) requires Cloudium to reasonably cooperate in connection with Buyer's efforts to obtain corporate and instrument credit ratings from one or more rating agencies for the debt financing. The rating process is a standard component of leveraged loan syndications and typically involves engagement with one or both of the major credit rating agencies (S&P Global Ratings and Moody's Investors Service).
Cloudium's cooperation obligations in connection with the rating process include providing financial and operational data to the rating agencies, participating in rating agency presentations (which typically involve the CFO and other senior finance team members), and making management available for question-and-answer sessions with rating agency analysts. The rating agency presentations are expected to take place in late February or early March 2024, in advance of the launch of syndication.
The ratings assigned by the rating agencies will directly affect the pricing and terms of the syndicated Term Loan B facility, as institutional lenders and CLO vehicles often have investment mandates that reference credit ratings. CFO Sienna Whitfield will be the primary contact for the rating agency presentations, supported by members of Cloudium's finance and investor relations teams. The deal team should coordinate with Meridian Atlantic and Osprey Bancroft to schedule the rating agency presentations and ensure that Cloudium's management is adequately prepared.
6. Legal and Regulatory Cooperation. Section 6.14(f) requires Cloudium to furnish information and documents reasonably necessary for the arrangers and prospective lenders to satisfy their regulatory compliance requirements, including:
(i) KYC (Know Your Customer) documentation, including entity formation documents (certificates of incorporation, articles of association, certificates of good standing), organizational charts, and identification of authorized signatories;
(ii) AML (Anti-Money Laundering) documentation, including representations and certifications regarding compliance with applicable anti-money laundering laws and regulations;
(iii) Beneficial ownership certifications, as required under the Customer Due Diligence rule promulgated by the Financial Crimes Enforcement Network (FinCEN) under 31 C.F.R. § 1010.230;
(iv) Patriot Act and Bank Secrecy Act compliance documentation, including Cloudium's Employer Identification Number (EIN: 83-2196754) and related identifying information.
The KYC and AML documentation requirements are particularly important in the context of a large syndicated credit facility, as each participating lender will need to satisfy its own compliance requirements before committing to the facility. Delays in providing KYC documentation can slow the commitment process for individual lenders and thereby delay the completion of the syndication. The deal team should ensure that Cloudium's legal department, under the direction of General Counsel Nadia Chowdhury, is prepared to respond promptly to KYC requests from the arrangers and prospective lenders.
7. Corporate Actions and Authorizations. Section 6.14(g) obligates Cloudium to take all corporate actions reasonably requested by Buyer to permit the consummation of the debt financing at closing. These corporate actions include:
(i) Board resolutions of the surviving entity authorizing the execution, delivery, and performance of the Credit Agreement, the Guarantee and Collateral Agreement, and related loan documents. These resolutions will be adopted by the board of directors of Cloudium (as the surviving entity) at or immediately following the Effective Time.
(ii) Resolutions of subsidiary boards for guarantee and collateral purposes. Each material subsidiary of Cloudium that is required to provide a guarantee or pledge under the Guarantee and Collateral Agreement will need to adopt authorizing resolutions. This includes the boards of Cloudium Technologies UK Ltd., Cloudium Technologies India Pvt. Ltd., and Cloudium Solutions GmbH.
Section 6.14 customarily provides that such corporate authorizations need only be effective at or following the consummation of the merger and are not required to be adopted prior to closing. During the interim period, Cloudium's obligation is to cooperate in the preparation of the forms of resolution and to take such preliminary steps as may be necessary to ensure that the required corporate authorizations can be obtained at closing. This may include, for example, identifying the appropriate officers and directors who will be in place at the surviving entity following the merger and ensuring that the organizational documents of Cloudium and its subsidiaries do not contain restrictions that would prevent the adoption of the required resolutions.
8. Cooperation with Marketing Materials. Section 6.14(h) requires Cloudium to cooperate in the preparation of customary marketing materials for the debt syndication. These marketing materials include:
(i) The Confidential Information Memorandum ("CIM"), which is the principal marketing document distributed to prospective lenders in a syndicated loan transaction. The CIM typically contains a detailed description of the borrower's business, financial performance, industry position, competitive strengths, and growth strategy, as well as a summary of the terms of the credit facilities, pro forma capitalization, and financial projections.
(ii) Lender presentation slides, which are used in connection with lender road shows and bank meetings.
(iii) Term sheets and summaries of terms, which provide prospective lenders with a concise overview of the key terms of the credit facilities.
Cloudium is required to review and provide comments on drafts of the CIM and other marketing materials in a timely manner and to certify the accuracy of all Cloudium-related information contained therein. The accuracy certification is important because it provides lenders with assurance that the information in the CIM is reliable and because inaccuracies in the CIM could give rise to liability for the arrangers and potentially for the borrower.
The CIM will be prepared primarily by Osprey Bancroft & Co. (Buyer's financial advisor) and the arrangers (Meridian Atlantic Bank, N.A. and Ironclad Capital Markets LLC), in coordination with Calderwood & Harkness and Cloudium's management team. Cloudium's cooperation is essential for data verification, accuracy review, and the provision of supplemental information as requested by the arrangers during the CIM preparation process.
IV. Protections and Limitations on Cooperation Obligations
A. "Commercially Reasonable Efforts" Standard
The financing cooperation covenant in Section 6.14 is qualified by a "commercially reasonable efforts" standard. This means that Cloudium is required to use commercially reasonable efforts to cooperate with and assist Buyer in connection with the debt financing, but is not required to guarantee the success of the financing or to take actions that go beyond what is commercially reasonable under the circumstances.
The "commercially reasonable efforts" standard is the dominant standard used in financing cooperation covenants in leveraged buyout merger agreements. Courts interpreting this standard have generally held that it requires a party to take actions that a reasonable person in the party's position would take under the circumstances, taking into account the costs, risks, and other factors relevant to the particular situation. The standard has been interpreted as less demanding than "best efforts" (which may require a party to exhaust all possible avenues to achieve the desired result) but more demanding than a mere "good faith" obligation (which may be satisfied by the absence of bad faith). In practice, the "commercially reasonable efforts" standard provides appropriate flexibility for Cloudium to manage competing demands on its time and resources during the interim period while still imposing a meaningful obligation to cooperate actively with the financing process.
B. No Unreasonable Interference with Operations
Section 6.14 provides that all cooperation activities required of Cloudium must be conducted "at reasonable times and upon reasonable prior notice" and shall not "unreasonably interfere" with the ongoing business operations of Cloudium and its subsidiaries. This limitation recognizes that Cloudium is a large, operationally complex enterprise with approximately 6,800 employees globally, and that its senior management must continue to manage the business effectively during the interim period.
The "no unreasonable interference" standard is inherently fact-specific and will depend on the particular circumstances at any given time during the interim period. Factors that may be relevant in assessing whether a particular request for cooperation would "unreasonably interfere" with Cloudium's operations include the timing and duration of the requested activity, the seniority and availability of the personnel involved, the urgency of the business matters that would be displaced, and the degree of advance notice provided by Buyer. As a general matter, the deal team should endeavor to provide Cloudium with as much advance notice as possible when scheduling management presentations, due diligence sessions, and other activities requiring the participation of Cloudium's senior officers.
C. No Pre-Closing Effectiveness
Section 6.14 expressly provides that no obligation under the financing cooperation covenant shall require Cloudium or any of its directors, officers, or employees to:
(i) Execute any agreement, certificate, instrument, or other document that would be effective prior to the consummation of the merger;
(ii) Incur any personal liability in connection with the debt financing; or
(iii) Pay any fees, expenses, commitment fees, or other amounts prior to the closing, all such costs to be advanced or reimbursed by Buyer as described in Section IV.E below.
This limitation is a critical protection for Cloudium and its directors and officers. It ensures that the board and management of Cloudium are not exposed to liability under the new credit facility — including guarantees, pledges, and other obligations — before the merger is consummated. Until the Effective Time, Cloudium remains an independent public company whose board owes fiduciary duties to Cloudium's stockholders. The board would be unable to authorize Cloudium to assume obligations under a new credit facility for the benefit of Buyer and the arrangers in advance of the closing without potentially breaching those fiduciary duties. The pre-closing effectiveness limitation appropriately addresses this concern.
D. Conditions to Cooperation
Cloudium's cooperation obligations under Section 6.14 are subject to the condition that the Merger Agreement has not been validly terminated in accordance with Article VIII. If the Merger Agreement is terminated for any reason — whether by mutual agreement, by either party upon the occurrence of certain specified events (such as the expiration of the outside date), or by either party due to a material breach by the other party — all cooperation obligations immediately cease and Cloudium has no further obligations in connection with the debt financing.
Upon termination of the Merger Agreement, any documents, financial information, or other materials delivered by Cloudium in connection with the financing cooperation process must be returned to Cloudium or destroyed in accordance with the confidentiality provisions described in Section IV.F below. This ensures that Cloudium's proprietary financial and operational information does not remain in the hands of the arrangers or prospective lenders after the transaction is abandoned.
E. Expense Reimbursement and Indemnification
Section 6.14 contains two important protective provisions relating to costs and liabilities incurred by Cloudium in connection with the financing cooperation:
Expense Reimbursement. Buyer (Fund VI) is obligated to promptly reimburse Cloudium for all reasonable and documented out-of-pocket costs and expenses incurred by Cloudium and its subsidiaries in connection with the financing cooperation. This includes, without limitation:
(i) Fees of Harwell & Dobson LLP for the provision of comfort letters and related auditor services;
(ii) Supplemental auditor engagement fees for any additional engagement letters required by Harwell & Dobson in connection with the comfort letter process;
(iii) Costs of producing, formatting, and delivering financial data and other information requested by the arrangers;
(iv) Travel and related expenses incurred by Cloudium's management and employees in connection with lender presentations, rating agency presentations, and due diligence sessions; and
(v) Legal fees and expenses incurred by Cloudium in connection with the review and negotiation of borrower-side documents.
Indemnification. Buyer is further obligated to indemnify and hold harmless Cloudium, its subsidiaries, and their respective directors, officers, employees, and representatives from and against any and all losses, damages, claims, costs, or expenses (including reasonable attorneys' fees) arising out of or relating to the financing cooperation, except to the extent that such losses, damages, claims, costs, or expenses arise from the bad faith, willful misconduct, or gross negligence of Cloudium or its representatives. This indemnification obligation survives the termination of the Merger Agreement to the extent that it relates to losses, damages, or claims arising from cooperation activities undertaken prior to termination.
These provisions are market-standard and are designed to ensure that Cloudium is made whole for the costs and risks of assisting Buyer's financing efforts. The expense reimbursement and indemnification obligations provide important assurance to Cloudium that its participation in the financing cooperation process will not result in unreimbursed out-of-pocket costs or unindemnified exposure to third-party claims.
F. Information Confidentiality
Section 6.14 provides that all non-public information furnished by Cloudium to the arrangers, prospective lenders, and their respective advisors in connection with the financing cooperation process is subject to customary confidentiality restrictions. The arrangers and prospective lenders will be required to execute confidentiality or non-disclosure undertakings prior to receiving any non-public information from Cloudium. These confidentiality undertakings are required to be consistent with the terms of the Confidentiality Agreement between Solara Digital Infrastructure Fund VI LP and Cloudium Technologies plc dated September 5, 2023.
The confidentiality protections are particularly important in the context of the debt syndication process, during which detailed non-public financial and operational information about Cloudium will be shared with a potentially large number of institutional investors and their advisors. The deal team should ensure that the arrangers maintain a comprehensive list of all parties that receive non-public information during the syndication process and that each such party has executed an appropriate confidentiality undertaking.
V. Interplay with Other Merger Agreement Provisions
A. Closing Conditions (Article VII)
The Merger Agreement does not contain a financing condition. That is, Buyer's obligation to consummate the merger under Sections 7.1 and 7.2 is not conditioned upon Buyer's receipt of the debt financing committed under the DCL or any other financing. This is standard in private equity-backed public company acquisitions and reflects the allocation of financing risk to Buyer and its equity sponsors.
However, the absence of a financing condition does not diminish the practical importance of the financing cooperation covenant. While Buyer has committed to close the merger regardless of whether the debt financing is obtained, the reality is that Buyer requires the debt financing to fund the aggregate cash merger consideration of $6,183,944,048 payable to non-rolling stockholders, repay existing Cloudium indebtedness of $820,000,000 to Atlas Commercial Lending Corp., fund the escrow of $544,000,000 with Cobalt Trust Company, and pay estimated transaction expenses of $185,000,000. The equity commitment from Fund VI of $2,832,888,096 is insufficient on its own to fund the total transaction cost of $7,188,944,048; the debt financing is structurally necessary.
If Buyer fails to consummate the merger due to a failure to obtain the debt financing, Buyer's exposure includes:
(i) Reverse Termination Fee. The Merger Agreement provides for a reverse termination fee of $374,000,000 (approximately 5.5% of deal value), payable by Buyer to Cloudium in the event that the Merger Agreement is terminated under circumstances in which Buyer has failed to consummate the merger at a time when all conditions to Buyer's obligation to close have been satisfied or waived.
(ii) Limited Guarantee. The reverse termination fee obligation is supported by a Limited Guarantee from Solara Fund VI GP LLC, the general partner of Fund VI, capping Buyer's aggregate exposure at $246,000,000 (consisting of $221,000,000 for the termination fee and $25,000,000 for enforcement costs, in lieu of the full $374,000,000 reverse termination fee).
The absence of a financing condition thus places significant economic pressure on Buyer to ensure that the debt financing is arranged and funded at closing. This, in turn, amplifies the importance of the financing cooperation covenant — without Cloudium's active and timely cooperation, the risk of a financing failure (and the consequent exposure to the reverse termination fee) is materially increased.
B. Interim Operating Covenants (Section 6.1)
Section 6.14 must be read in conjunction with Section 6.1 of the Merger Agreement, which sets forth the interim operating covenants that restrict Cloudium's operations during the period between signing and closing. The interim operating covenants are designed to preserve the value of Cloudium's business and prevent Cloudium from taking actions outside the ordinary course of business without Buyer's prior written consent.
There is a potential for tension between the financing cooperation obligations in Section 6.14 and the operating restrictions in Section 6.1. For example, actions taken by Cloudium in compliance with its financing cooperation obligations — such as the preparation of pro forma financial statements, the execution of supplemental auditor engagement letters, or the provision of non-public financial information to the arrangers — could theoretically be characterized as actions outside the ordinary course of business that require Buyer's prior consent under Section 6.1.
To address this concern, Section 6.14 customarily includes a carveout providing that actions taken by Cloudium in compliance with its financing cooperation obligations shall not be deemed a violation of the interim operating covenants set forth in Section 6.1. This carveout is present in Section 6.14 of the Merger Agreement and provides appropriate protection against the risk that compliance with the financing cooperation covenant could inadvertently trigger a breach of the operating restrictions.
We note, however, that there may be circumstances during the interim period in which financing cooperation actions intersect with operating restrictions in ways that are not clearly covered by the Section 6.14 carveout. In such cases, it may be necessary to obtain a waiver from Buyer under Section 6.1. The deal team should be alert to such situations and should be prepared to address them through the waiver letter mechanism, as was done in connection with the April 29, 2024 waiver for the $12,000,000 hosting agreement that Cloudium entered into in the ordinary course of its business operations.
C. Termination Provisions (Article VIII)
The financing cooperation covenant has important implications in the context of the termination provisions set forth in Article VIII of the Merger Agreement:
Material Breach by Cloudium. If Cloudium materially breaches its financing cooperation obligations under Section 6.14 and such breach is not cured within the applicable cure period (if any), such breach could constitute a material breach of Cloudium's covenants under the Merger Agreement. A material covenant breach by Cloudium could have several consequences: (i) Buyer could seek damages for any losses resulting from the breach; (ii) Buyer could seek specific performance of the financing cooperation covenant (discussed in Section V.D below); and (iii) depending on the materiality of the breach, it could potentially prevent Cloudium from exercising its own termination rights under Article VIII (for example, Cloudium would not be entitled to terminate the Merger Agreement on the grounds that Buyer has failed to consummate the merger if Cloudium's own material breach of the financing cooperation covenant caused or contributed to the financing failure).
Termination of Cooperation Obligations. Conversely, if the Merger Agreement is validly terminated for any reason, all of Cloudium's cooperation obligations under Section 6.14 immediately cease and Cloudium has no further obligations in connection with the debt financing. This provides Cloudium with a clean exit from the financing cooperation process in the event that the transaction is abandoned.
Outside Date. The outside date for the transaction is June 30, 2024. Either party may terminate the Merger Agreement if the closing has not occurred by the outside date, subject to customary carveouts (including the inability to terminate if the terminating party's own breach caused the failure to close by the outside date). The financing cooperation covenant is designed to ensure that the debt financing is arranged and funded well before the outside date, thereby minimizing the risk that the transaction will remain pending past June 30, 2024.
D. Specific Performance (Section 10.12 or Equivalent)
The Merger Agreement grants Buyer the right to seek specific performance of Cloudium's obligations, including the financing cooperation obligations set forth in Section 6.14. This is an important remedial provision because money damages may be inadequate to compensate Buyer for a failure by Cloudium to cooperate with the financing process. If Cloudium fails to make its management available for lender presentations, fails to deliver required financial information, or otherwise fails to fulfill its cooperation obligations, the resulting delay or failure of the debt syndication could jeopardize the entire transaction. In such circumstances, an award of money damages would not adequately compensate Buyer, because the harm (the loss of the transaction) cannot be remedied by a monetary payment.
Delaware courts have recognized the appropriateness of specific performance as a remedy for breach of financing cooperation covenants in comparable take-private transactions. The Delaware Court of Chancery's decisions in Hexion Specialty Chemicals, Inc. v. Huntsman Corp., C.A. No. 3841-VCL (Del. Ch. Sept. 29, 2008), and subsequent cases have affirmed that specific performance is available to enforce interim covenants in merger agreements, including financing cooperation obligations, where the legal remedy of damages would be inadequate. The inclusion of a specific performance provision in the Merger Agreement is consistent with this line of authority and is increasingly standard in large-cap leveraged buyout merger agreements.
E. Representations and Warranties / R&W Insurance
The financing cooperation covenant in Section 6.14 does not directly implicate the representations and warranties insurance ("R&WI") policy obtained in connection with the transaction. The R&WI policy (Policy No. NFA-TRI-2024-00487, issued by Northfield Assurance Ltd., with a policy limit of $680,000,000) covers breaches of the seller's representations and warranties set forth in Article IV of the Merger Agreement. The policy does not cover breaches of interim covenants, including the financing cooperation covenant in Section 6.14.
However, there is an indirect connection between the financing cooperation process and the R&WI policy. Information provided by Cloudium to the arrangers and prospective lenders during the financing cooperation process — including financial statements, pro forma financial data, business data, and management projections — will be closely scrutinized by the arrangers and lenders. If any of the information provided by Cloudium during the financing cooperation process is materially inaccurate, and such inaccuracy relates to a matter covered by one or more of the representations and warranties in Article IV (for example, the accuracy and completeness of the financial statements, the absence of undisclosed liabilities, or the accuracy of material contracts disclosures), such inaccuracy could give rise to a claim under the R&WI policy. Additionally, the escrow of $544,000,000 deposited with Cobalt Trust Company may serve as a source of recovery for any such claims.
The deal team should be mindful of this indirect connection and should ensure that the financial information and data provided by Cloudium during the financing cooperation process is consistent with the representations and warranties set forth in Article IV. Any discrepancies or potential inaccuracies should be flagged immediately and assessed in the context of both the financing cooperation process and the R&WI policy.
VI. Practical Considerations and Recommendations
A. Monitoring and Compliance Tracking
We recommend establishing a comprehensive financing cooperation compliance tracker to monitor Cloudium's compliance with its obligations under Section 6.14 throughout the interim period. The compliance tracker should be maintained by the Calderwood & Harkness deal team and should track, at a minimum, the following categories of information:
• Deadlines for delivery of financial information, including quarterly and monthly financial reports, pro forma financial statements, and other financial data requested by the arrangers;
• Status of CIM preparation, including data requests, draft reviews, accuracy certifications, and distribution timeline;
• Scheduling and completion of management participation in lender presentations, rating agency presentations, due diligence sessions, and investor meetings;
• Status of borrower-side document negotiations,