PRIVILEGED & CONFIDENTIAL ATTORNEY WORK PRODUCT
CALDERWOOD & HARKNESS LLP 599 Lexington Avenue New York, NY 10022
MEMORANDUM
July 12, 2024
TO: Solara Digital Infrastructure LP Deal Team
Marcus Elliston, Founder & Managing Partner Priya Narasimhan, Co-Managing Partner & Chief Investment Officer
FROM: Calderwood & Harkness LLP
Harrison Wexford, Responsible Partner, Mergers & Acquisitions Tiffany Rosenthal, Lead Associate, Mergers & Acquisitions
CC: Leonard Cross, Specialist Partner, Tax, Calderwood & Harkness LLP
Andrew Fitzpatrick, Working Associate, Mergers & Acquisitions, Calderwood & Harkness LLP
RE: Indemnification Claim Procedures — Acquisition of Cloudium Technologies plc
MATTER NO.: 1041-00003
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I. Purpose and Background
The purpose of this memorandum is to provide the Solara deal team with a comprehensive practical guide to the indemnification claim procedures established under Article IX of the Agreement and Plan of Merger (the "Merger Agreement"), dated January 22, 2024, among Cloudium Technologies plc, a public limited company organized under the laws of England and Wales ("Cloudium" or the "Target"), Stratos Merger Sub Inc., a Delaware corporation and wholly owned subsidiary of Solara Digital Infrastructure Fund VI LP ("Merger Sub"), and Solara Digital Infrastructure Fund VI LP, a Delaware limited partnership ("Solara" or the "Buyer") (collectively, the "Transaction"). The Merger Agreement is governed by the laws of the State of Delaware, without regard to conflict-of-laws principles that would result in the application of the laws of another jurisdiction.
As the Solara deal team is aware, the Transaction closed on July 9, 2024 (the "Closing Date"), with the Certificate of Merger filed with the Delaware Secretary of State at 11:59 PM Eastern Time. The aggregate deal value was approximately $6,800,000,000, representing merger consideration of approximately $36.92 per share for 184,200,000 outstanding shares of Cloudium common stock (Nasdaq: CLDM). Upon the effectiveness of the merger, Cloudium became a wholly owned subsidiary of Solara, and Merger Sub ceased to exist as a separate legal entity.
This memorandum is intended to serve as a working reference document for the Solara deal team during the post-closing indemnification period. It addresses the following topics in detail:
(a) the indemnification framework under the Merger Agreement, including the scope of indemnifiable losses and the parties' respective rights and obligations;
(b) the financial thresholds applicable to indemnification claims, including the de minimis threshold, the tipping basket, and the general indemnification cap;
(c) the escrow mechanics, including the escrow fund established at Cobalt Trust Company, the release schedule, and the procedures for making claims against the escrow;
(d) the role of the Stockholder Representative, Douglas Pemberton, including notice and communication requirements;
(e) the notice and timing requirements for asserting indemnification claims, including the survival periods applicable to different categories of representations and warranties;
(f) the interplay between the contractual indemnification provisions and the buyer-side representation and warranty insurance policy issued by Northfield Assurance Ltd. (Policy No. NFA-TRI-2024-00487); and
(g) recommended internal protocols for the Solara deal team to ensure timely identification, tracking, and prosecution of potential indemnification claims during the survival period.
This memorandum should be read in conjunction with the following executed Transaction documents, which are on file with Calderwood & Harkness and copies of which have been provided to the Solara deal team:
• The Merger Agreement (execution version, dated January 22, 2024);
• The Escrow Agreement (execution version, effective July 9, 2024), among Solara Digital Infrastructure Fund VI LP, Cobalt Trust Company (as escrow agent), and Douglas Pemberton (as Stockholder Representative);
• The Stockholder Representative Agreement (execution version, dated January 22, 2024);
• The Rollover Agreements for Jonathan Hargrove and Pinnacle Growth Ventures LLC (execution versions, dated January 22, 2024); and
• The Buyer-Side Representation and Warranty Insurance Policy issued by Northfield Assurance Ltd. (Policy No. NFA-TRI-2024-00487, effective July 9, 2024), brokered by Peregrine Advisory Group LLC.
Given that the survival period for general representations and warranties expires on January 9, 2026 — eighteen months from the Closing Date — and that the first escrow release is scheduled for July 9, 2025, it is imperative that the Solara deal team establish robust internal procedures for identifying and documenting potential claims as promptly as possible. This memorandum is designed to facilitate that objective.
II. Overview of the Indemnification Framework
A. Indemnifying Parties and Indemnified Parties
Under Article IX of the Merger Agreement, indemnification runs from the former stockholders of Cloudium Technologies plc (collectively, the "Indemnifying Parties") to Solara Digital Infrastructure Fund VI LP and its affiliates, including the surviving corporation (Cloudium, as it exists post-merger) and its direct and indirect subsidiaries (collectively, the "Indemnified Parties" or "Buyer Indemnified Parties"). The indemnification is designed to protect Solara against losses arising from breaches of the seller-side representations and warranties, as well as certain other specified matters, during the applicable survival periods.
It is important to note that two parties — Jonathan Hargrove and Pinnacle Growth Ventures LLC — participated in the Transaction as rollover equity investors. Mr. Hargrove, who served as Chief Executive Officer of Cloudium prior to closing and continues in that capacity at the surviving entity, rolled over approximately 50% of his 7,736,400 shares of Cloudium common stock, resulting in rollover equity of approximately $142,814,544 (based on the $36.92 per share merger consideration). Pinnacle Growth Ventures LLC (Evelyn Carmichael, Managing Member), a significant institutional holder, rolled over approximately 60% of its 21,367,200 shares, resulting in rollover equity of approximately $473,241,408. In the aggregate, total rollover equity in the Transaction was approximately $616,055,952.
As rollover equity participants, Mr. Hargrove and Pinnacle Growth Ventures are subject to direct indemnification obligations under their respective Rollover Agreements, in addition to their pro rata share of the escrow fund. These direct indemnification obligations extend up to the general indemnification cap (discussed in Section III.C below), and the procedures for asserting claims against the rollover participants are addressed in Section VII of this memorandum.
B. Scope of Indemnifiable Losses
The Indemnifying Parties have agreed to indemnify the Buyer Indemnified Parties against losses arising from any of the following:
(i) Breaches of Seller Representations: Any breach of the representations and warranties of Cloudium (the "Seller Representations") set forth in Article IV of the Merger Agreement, as qualified by the disclosure schedules delivered at signing and updated in connection with the bring-down certificate delivered at closing;
(ii) Breaches of Pre-Closing Covenants: Any breach of the covenants and agreements of Cloudium or its stockholders that were required to be performed prior to the Closing Date, including the interim operating covenants set forth in Section 5.1 of the Merger Agreement;
(iii) Specified Indemnities: Certain specified indemnities that are not subject to the basket, de minimis threshold, or general indemnification cap, as discussed in detail in Section IV of this memorandum; and
(iv) Tax Indemnities: Losses arising from pre-closing tax liabilities of Cloudium and its subsidiaries, which are subject to a separate survival period and are not subject to the general cap.
For purposes of the indemnification provisions, "Losses" are broadly defined under Section 9.4 of the Merger Agreement to include damages, liabilities, obligations, losses, costs, expenses (including reasonable and documented attorneys' fees and expenses of investigation), judgments, fines, penalties, amounts paid in settlement, and any diminution in value. This definition is intentionally expansive and was the subject of significant negotiation during the drafting of the Merger Agreement. Notably, the definition of Losses does not include consequential, speculative, or punitive damages, except to the extent such damages are payable to a third party in connection with a third-party claim.
C. Survival Period
The survival of the Seller Representations and warranties is a critical element of the indemnification framework, as it establishes the window during which Solara may assert claims. The survival periods are structured as follows:
General Representations and Warranties. The general representations and warranties of Cloudium set forth in Article IV of the Merger Agreement survive for a period of eighteen (18) months following the Closing Date. Given that the Closing Date was July 9, 2024, the survival period for general representations and warranties will expire at 11:59 PM Eastern Time on January 9, 2026. No claim may be asserted for breach of a general representation or warranty after January 9, 2026, unless a written notice of such claim has been properly delivered to the Stockholder Representative prior to such date in accordance with the procedures described in Section VI of this memorandum. If proper notice is delivered before the expiration of the survival period, the claim will survive beyond the survival period until its final resolution, even if that resolution occurs after January 9, 2026.
Fundamental Representations. Certain representations and warranties that are considered "Fundamental Representations" under the Merger Agreement survive for the longer of (a) eighteen (18) months following the Closing Date, or (b) the expiration of the applicable statute of limitations (including any tolling or extension thereof). The Fundamental Representations are identified in Section 9.1(b) of the Merger Agreement and include the following:
• Organization and Good Standing (Section 4.1);
• Authority and Enforceability (Section 4.2);
• Capitalization (Section 4.4);
• Title to Shares (Section 4.5);
• Tax Matters (Section 4.14); and
• Broker's and Finder's Fees (Section 4.22).
Tax Representations and Covenants. The representations and warranties related to tax matters, as well as the pre-closing tax covenants, survive until sixty (60) days following the expiration of the applicable statute of limitations (including any extensions or waivers thereof). Given the multi-jurisdictional nature of Cloudium's operations — with subsidiaries in the United Kingdom (Cloudium Technologies UK Ltd.), India (Cloudium Technologies India Pvt. Ltd.), and Germany (Cloudium Solutions GmbH) — the applicable statutes of limitations will vary by jurisdiction and tax type. Leonard Cross of our Tax group is available to advise on the specific limitation periods applicable to each jurisdiction.
Fraud. There is no survival-period limitation applicable to claims based on actual fraud. Claims for fraud may be asserted at any time, subject only to the applicable statutes of limitations under governing law.
The differing survival periods create a staggered timeline for potential claims. The Solara deal team should be particularly mindful of the January 9, 2026 deadline for general representations and warranties, as the majority of post-closing indemnification claims in comparable transactions arise under the general representations.
III. Financial Thresholds and Limitations
The Merger Agreement establishes a tiered system of financial thresholds that govern the availability and extent of indemnification for breaches of general representations and warranties. Understanding the interaction among these thresholds is essential for the Solara deal team to assess the recoverability of any identified losses.
A. De Minimis Threshold
Section 9.5(a) of the Merger Agreement provides that individual claims (or a series of related claims arising from the same or substantially similar facts or circumstances) with aggregate losses below $500,000 are excluded entirely from the indemnification framework. These sub-threshold claims do not count toward the basket and are not recoverable under the general indemnification provisions, regardless of whether the basket is ultimately exceeded.
This de minimis threshold functions as a per-claim floor designed to filter out minor or immaterial losses. Only claims that individually (or as a group of related claims) meet or exceed the $500,000 threshold are "qualifying claims" eligible for inclusion in the basket calculation.
Notwithstanding the exclusionary effect of the de minimis threshold, we recommend that Solara track all potential claims, including those that individually fall below the $500,000 de minimis amount. There are two reasons for this recommendation. First, claims that initially appear to involve losses below $500,000 may, upon further investigation or as additional facts emerge, prove to involve losses above the threshold. Second, a series of claims arising from related facts or circumstances may, when aggregated, exceed the de minimis threshold, even if each individual claim would not do so on a standalone basis. The Merger Agreement applies the de minimis threshold to "a series of related claims," and the characterization of claims as "related" may itself be a matter of dispute with the Stockholder Representative.
B. Indemnity Basket (Tipping)
Section 9.5(b) of the Merger Agreement establishes a basket of $51,000,000, which represents 0.75% of the $6,800,000,000 deal value. The aggregate amount of all qualifying indemnifiable losses (i.e., losses that individually exceed the $500,000 de minimis threshold) must exceed $51,000,000 before any indemnification obligation of the Indemnifying Parties arises under the general indemnification provisions.
Critically, this basket is structured as a tipping basket (sometimes referred to as a "first-dollar basket") rather than a true deductible. The distinction is as follows:
• Tipping Basket: Once the aggregate qualifying losses exceed the $51,000,000 threshold, the Indemnifying Parties are liable for the full amount of all qualifying losses, starting from dollar one. In other words, the basket "tips" and the Buyer Indemnified Parties are entitled to first-dollar recovery for the entire amount of qualifying losses, not merely the excess above the threshold.
• Deductible Basket (Not Applicable Here): Under a deductible basket, the Indemnifying Parties would be liable only for the amount of qualifying losses in excess of the basket amount. For example, if qualifying losses totaled $55,000,000 and the basket were structured as a deductible, recovery would be limited to $4,000,000 (i.e., $55,000,000 minus $51,000,000). That is not the structure here.
The tipping basket structure was a significant point of negotiation and is favorable to Solara as the Buyer. Once the threshold is crossed, Solara's recovery extends back to include all qualifying losses from the first dollar. However, it also means that if qualifying losses fall short of $51,000,000 — even by a small margin — no recovery is available under the contractual indemnification provisions (though the R&W insurance policy may provide an alternative source of recovery, as discussed in Section VIII below).
C. General Indemnification Cap
Section 9.5(c) of the Merger Agreement caps the maximum aggregate indemnification obligation of the Indemnifying Parties for breaches of general representations and warranties at 15% of the deal value, which equals $1,020,000,000. This cap represents the ceiling on Solara's contractual indemnification recovery for general claims.
The general indemnification cap does not apply to the following categories of losses, which are discussed in detail in Section IV below:
• Losses arising from actual fraud;
• Losses arising from willful breach of any representation, warranty, or covenant;
• Losses arising from pre-closing tax liabilities (tax indemnities); and
• Losses arising from specified litigation matters identified in the disclosure schedules as uncapped special indemnities.
D. Practical Implications of Financial Thresholds
To illustrate the operation of the financial thresholds in practice, we provide the following examples:
Example 1 — Basket Not Met. Assume that Solara identifies qualifying losses totaling $48,000,000. Because the aggregate qualifying losses do not exceed the $51,000,000 basket, no recovery is available under the general indemnification provisions of the Merger Agreement. Solara would bear these losses directly, although the R&W insurance policy may provide coverage if the policy's own retention and conditions are separately satisfied.
Example 2 — Basket Tipped. Assume that Solara identifies qualifying losses totaling $55,000,000. Because the aggregate qualifying losses exceed the $51,000,000 basket, the basket has tipped. Solara is entitled to recover the full $55,000,000 from the Indemnifying Parties — not merely the $4,000,000 in excess of the basket — subject to the $1,020,000,000 general indemnification cap.
Example 3 — De Minimis Filtering. Assume that Solara identifies the following potential losses: (i) $300,000 arising from a breach of the environmental representations, (ii) $2,500,000 arising from a breach of the intellectual property representations, and (iii) $49,000,000 arising from a breach of the financial statements representations. The $300,000 claim falls below the $500,000 de minimis threshold and is excluded. The remaining qualifying losses total $51,500,000, which exceeds the basket. Recovery is available for the full $51,500,000. The $300,000 sub-threshold amount remains unrecoverable.
The following table summarizes the key financial thresholds:
IV. Uncapped / Special Indemnities
As noted above, certain categories of losses are not subject to the de minimis threshold, the basket, or the general indemnification cap. These are referred to as "Uncapped" or "Special" indemnities under the Merger Agreement and represent categories of risk that were deemed sufficiently significant during the negotiation process to warrant unlimited indemnification coverage (subject only to the aggregate merger consideration and the Indemnifying Parties' ability to satisfy claims). The categories of uncapped losses are as follows:
Fraud. Losses arising from actual fraud by the Target, its officers, or its directors in connection with the making of the Seller Representations are fully indemnifiable without regard to any financial threshold or cap. For purposes of the Merger Agreement, "fraud" is defined as actual and intentional fraud involving a knowing misrepresentation of a material fact with the intent to deceive and upon which the Buyer Indemnified Parties actually and justifiably relied to their detriment. Constructive fraud and negligent misrepresentation do not constitute "fraud" within the meaning of the Merger Agreement. Importantly, no survival-period limitation applies to fraud claims; they may be brought at any time, subject only to the applicable statute of limitations under Delaware law.
Willful Breach. Losses arising from an intentional and knowing breach of any representation, warranty, or covenant set forth in the Merger Agreement are indemnifiable without regard to the basket or general cap. "Willful breach" is defined as a breach that is a consequence of an act or omission undertaken by the breaching party with actual knowledge (as opposed to constructive or imputed knowledge) that the taking of such act or failure to take such act would, or would reasonably be expected to, constitute or result in a breach of the Merger Agreement.
Tax Indemnities. Losses arising from pre-closing tax liabilities of Cloudium and its subsidiaries — including Cloudium Technologies UK Ltd. (United Kingdom), Cloudium Technologies India Pvt. Ltd. (India), and Cloudium Solutions GmbH (Germany) — are indemnifiable without regard to the basket or general cap. These losses are subject to the extended survival period described in Section II.C above (sixty (60) days following expiration of the applicable statute of limitations, including extensions). Given the multi-jurisdictional scope of Cloudium's operations, pre-closing tax exposures may be substantial and may emerge over an extended period. Leonard Cross of our Tax group is available to advise on the identification and quantification of potential pre-closing tax claims.
Specified Litigation Matters. Certain litigation matters identified on the disclosure schedules to the Merger Agreement have been designated as uncapped special indemnities. These are matters that were identified during the due diligence process as involving potentially significant exposure and for which the parties agreed that the Indemnifying Parties would bear full responsibility. The specific matters are set forth in Schedule 9.6(d) to the Merger Agreement. We will not enumerate those matters in this memorandum for confidentiality reasons, but the Solara deal team should refer to Schedule 9.6(d) for the complete list, and Calderwood & Harkness is available to discuss any specific matter as needed.
Claims falling within any of the above uncapped categories should be identified, documented, and tracked separately from general indemnification claims. We recommend maintaining distinct sections in the centralized claims log (discussed in Section IX.A below) for each category, as the notice requirements, financial parameters, and strategic considerations may differ significantly.
V. Escrow Mechanics
A. Escrow Fund
At the closing on July 9, 2024, an aggregate amount of $544,000,000 — representing 8% of the $6,800,000,000 deal value — was deposited with Cobalt Trust Company as the escrow agent. This deposit was confirmed by wire confirmation received on the Closing Date. The contact at Cobalt Trust Company for escrow-related matters is Laura Ng, Vice President, Escrow Services, located at 100 Wall Street, New York, NY 10005.
The escrow fund constitutes Solara's first source of recovery for general indemnification claims. Pursuant to the Merger Agreement and the Escrow Agreement, Solara is required to pursue recovery from the escrow fund before seeking recovery under the R&W insurance policy for any general representation and warranty breach claims. The escrow fund is held in an interest-bearing account at Cobalt Trust Company, and interest earned on the escrow fund accrues for the benefit of the former stockholders of Cloudium (subject to reduction for any amounts paid to Solara in satisfaction of indemnification claims).
The Escrow Agreement is a three-party agreement among Solara Digital Infrastructure Fund VI LP, Cobalt Trust Company (as escrow agent), and Douglas Pemberton (in his capacity as the Stockholder Representative). The terms of the Escrow Agreement govern the mechanics for claiming against the escrow fund, releasing funds from escrow, and resolving disputes regarding escrow claims. The Escrow Agreement is subject to and consistent with the indemnification provisions of the Merger Agreement, and in the event of any conflict between the two agreements, the terms of the Merger Agreement control.
B. Escrow Release Schedule
The escrow fund is subject to a scheduled release in two tranches, as follows:
First Release — July 9, 2025 (12 Months Post-Closing). Fifty percent (50%) of the initial escrow deposit, or $272,000,000, is scheduled to be released to the former stockholders of Cloudium on July 9, 2025. However, the amount available for release at this date will be reduced by the aggregate amount of any then-pending indemnification claims — that is, claims for which a proper claim notice has been delivered to the Stockholder Representative and the escrow agent but which have not been finally resolved (whether by agreement, deemed acceptance, or court order) as of the first release date. For purposes of the first release, a "pending claim" is a claim for which notice has been given and the claimed amount has not been finally determined or paid.
Second Release — January 9, 2026 (18 Months Post-Closing). The remaining balance of the escrow fund is scheduled to be released to the former stockholders on January 9, 2026, which coincides with the expiration of the general survival period. As with the first release, the amount available for release will be reduced by the aggregate amount of any then-pending indemnification claims at the time of the second release.
Pending Claims Reserve. If any indemnification claims are pending at the time of either scheduled release, Cobalt Trust Company is instructed to retain in the escrow account an amount equal to the aggregate claimed losses for all such pending claims (a "Pending Claims Reserve"). This reserve will be maintained in escrow until each pending claim is finally resolved. Upon resolution, the retained amount (less any amounts paid to Solara in satisfaction of the resolved claim) will be released to the former stockholders in accordance with the terms of the Escrow Agreement.
It is critical to note that the first escrow release date (July 9, 2025) coincides with the twelve-month retention drop-down date under the R&W insurance policy issued by Northfield Assurance (discussed in Section VIII.C below). This alignment means that the financial landscape for indemnification recovery will shift significantly on July 9, 2025: half of the escrow will be released (reducing the direct recovery pool) while, simultaneously, the R&W policy retention may drop (expanding access to insurance coverage). The Solara deal team should be mindful of this dynamic when planning claim strategy.
C. Escrow Claim Procedures
To initiate a claim against the escrow fund, Solara must deliver a written claim notice to both of the following parties:
(i) The Stockholder Representative: Douglas Pemberton, at the notice address specified in the Stockholder Representative Agreement; and
(ii) The Escrow Agent: Cobalt Trust Company, Attention: Laura Ng, VP, Escrow Services, 100 Wall Street, New York, NY 10005.
The claim notice must comply with the form and content requirements specified in the Escrow Agreement, which are substantively consistent with the requirements for indemnification claim notices under the Merger Agreement (described in detail in Section VI below). The claim notice must be in writing and must be delivered by the methods specified in the notice provisions of the Escrow Agreement (generally, overnight courier, personal delivery, or email with confirmation of receipt).
Upon receipt of a claim notice, Cobalt Trust Company will release funds from the escrow only upon the occurrence of one of the following:
(i) Joint Written Instructions: Written instructions signed by both Solara (or its authorized representative) and the Stockholder Representative directing the escrow agent to release a specified amount from the escrow to Solara. This scenario typically occurs when the parties have reached agreement on the validity and amount of a claim, or when the Stockholder Representative has failed to object within the Response Period (as described in Section VI.C below), resulting in a deemed acceptance; or
(ii) Court Order: A final, non-appealable order of a court of competent jurisdiction directing the escrow agent to release a specified amount from the escrow to Solara (or to the former stockholders, as the case may be).
Disputes regarding escrow claims that cannot be resolved by agreement between Solara and the Stockholder Representative are subject to the dispute resolution provisions set forth in the Merger Agreement. As discussed in Section VI.C, the Merger Agreement designates the Delaware Court of Chancery (or, if the Court of Chancery declines jurisdiction, any federal or state court in the State of Delaware) as the exclusive forum for the resolution of disputes arising under or in connection with the Merger Agreement and the Escrow Agreement.
Solara should be prepared for the possibility that some claims may be contested by the Stockholder Representative and may require judicial resolution. In such cases, the amounts in dispute will be held in the Pending Claims Reserve until a final resolution is achieved. Calderwood & Harkness is prepared to assist with any necessary litigation or arbitration proceedings.
VI. Notice Requirements and Claim Procedures
A. Notice to Stockholder Representative
Stockholder Representative. Douglas Pemberton has been appointed as the Stockholder Representative under the Stockholder Representative Agreement dated January 22, 2024. Mr. Pemberton served as the Independent Board Chair of Cloudium Technologies plc prior to the closing of the Transaction and was selected by the requisite vote of Cloudium's stockholders to serve in this capacity. In his role as Stockholder Representative, Mr. Pemberton is authorized to act on behalf of the former stockholders of Cloudium in connection with all post-closing matters arising under the Merger Agreement, including the receipt and resolution of indemnification claims, the negotiation of disputed claims, and the instruction of the escrow agent with respect to releases from the escrow fund.
All indemnification claim notices under the Merger Agreement must be delivered to the Stockholder Representative in writing, in accordance with the notice provisions of the Merger Agreement and the Escrow Agreement. Notices should be delivered to Mr. Pemberton at the address specified in the Stockholder Representative Agreement, with copies delivered simultaneously to the escrow agent (Cobalt Trust Company) and, where applicable, to Northfield Assurance (as discussed in Section VIII.D below).
Required Contents of a Claim Notice. To constitute a valid claim notice under the Merger Agreement and the Escrow Agreement, the notice must include all of the following information:
1. Description of the Claim. A description of the claim in reasonable detail, including the nature of the alleged breach and the specific factual basis for the claim. The description should identify the representation, warranty, or covenant that has been breached and the circumstances giving rise to the breach.
2. Identification of Applicable Provisions. Identification of the specific section(s) of the Merger Agreement (and, where applicable, the disclosure schedules) that have been breached or that form the basis for the claim.
3. Estimated Amount of Losses. The estimated amount of losses, if reasonably determinable at the time of notice. If the amount of losses is not yet reasonably determinable, the notice must include a statement to that effect, together with a description of the basis for the claim and the reasons why the amount is not yet ascertainable. In such cases, Solara should update the estimated loss amount as additional information becomes available.
4. Supporting Documentation. Copies of any supporting documentation available at the time of notice, including but not limited to correspondence, contracts, reports, analyses, and other materials that are relevant to the claim. While the Merger Agreement does not require that all supporting documentation be included at the time of initial notice, providing available documentation at the outset strengthens the claim and may facilitate a more expeditious resolution.
5. Categorization of the Claim. A statement as to whether the claim is asserted as (a) a general indemnification claim subject to the de minimis threshold, basket, and general cap, or (b) an uncapped or special indemnity claim (i.e., fraud, willful breach, tax indemnity, or specified litigation matter).
6. R&W Insurance Status. A statement as to whether a corresponding claim is being or will be submitted under the R&W insurance policy issued by Northfield Assurance (Policy No. NFA-TRI-2024-00487), and the status of any such submission.
We recommend that all claim notices be drafted or reviewed by Calderwood & Harkness prior to submission to ensure compliance with the form and content requirements of the Merger Agreement and the Escrow Agreement. Deficient notices could provide the Stockholder Representative with grounds to challenge the timeliness or validity of a claim, which could, in turn, delay or jeopardize recovery.
B. Timing Requirements
Survival Period Deadline. Claims for breach of general representations and warranties must be delivered to the Stockholder Representative prior to the expiration of the applicable survival period. For general representations and warranties, this means that claim notices must be received by the Stockholder Representative no later than 11:59 PM Eastern Time on January 9, 2026. Any claim for which notice is not properly delivered before the expiration of the survival period will be forever barred, regardless of the merits of the underlying claim.
Survival of Timely-Noticed Claims. Once a proper claim notice has been delivered before the expiration of the survival period, the claim survives beyond the survival period until its final resolution. This means that even if the resolution of a timely-noticed claim extends past January 9, 2026 — whether through negotiation, litigation, or other dispute resolution proceedings — the claim remains viable and enforceable. The survival period is a deadline for notice, not a deadline for resolution.
Internal Deadline Recommendation. To ensure adequate time for the identification, documentation, and review of potential claims, we strongly recommend that the Solara deal team establish an internal deadline of no later than December 1, 2025 to finalize and deliver any known or potential claim notices. This buffer of approximately five weeks before the January 9, 2026 contractual deadline allows time for:
• Final diligence and investigation of potential claims that have been identified but not yet fully developed;
• Preparation and internal review of claim notices by the Solara deal team;
• Legal review by Calderwood & Harkness to ensure compliance with the Merger Agreement and Escrow Agreement requirements;
• Delivery of notices by the required methods and confirmation of receipt by the Stockholder Representative and escrow agent; and
• Coordination with Northfield Assurance for parallel notice under the R&W policy.
C. Response and Resolution Period
Upon receipt of a claim notice, the Stockholder Representative has a period of thirty (30) calendar days (the "Response Period") within which to deliver a written response to Solara. The response may take one of three forms:
(i) Acceptance: The Stockholder Representative may accept the claim in whole or in part, in which case the accepted amount will be released from escrow by joint written instruction.
(ii) Objection: The Stockholder Representative may object to the claim in whole or in part by delivering a written objection to Solara specifying the grounds for objection, the amount in dispute, and any factual or legal basis for the objection.
(iii) No Response (Deemed Acceptance): If the Stockholder Representative does not deliver a written objection within the thirty (30) day Response Period, the claim is deemed accepted in its entirety. Upon deemed acceptance, Solara and the Stockholder Representative will jointly instruct Cobalt Trust Company to release the claimed amount from the escrow fund to Solara.
If the Stockholder Representative objects to a claim within the Response Period, the parties will enter a thirty (30) day negotiation period during which they will attempt in good faith to resolve the disputed claim. During this negotiation period, the parties may exchange additional information, documentation, and analyses in an effort to reach agreement on the validity and amount of the claim.
If the disputed claim remains unresolved following the expiration of the thirty (30) day negotiation period, either party may seek resolution through the dispute resolution provisions of the Merger Agreement. The Merger Agreement designates the Delaware Court of Chancery as the exclusive forum for the resolution of disputes. If the Court of Chancery declines to accept jurisdiction, any federal or state court in the State of Delaware will have exclusive jurisdiction. Both parties have waived any objection to venue in Delaware and have consented to the personal jurisdiction of the Delaware courts for purposes of any dispute arising under the Merger Agreement.
D. Third-Party Claims
Where an indemnification claim arises from a third-party claim — such as pending or threatened litigation, a regulatory investigation or enforcement action, a customer dispute, or a claim by a government authority — specific procedures apply under Section 9.7 of the Merger Agreement.
Prompt Notice. Solara must provide prompt written notice to the Stockholder Representative upon becoming aware of any third-party claim that may give rise to an indemnification obligation. The notice should describe the third-party claim in reasonable detail, identify the relevant Seller Representations or covenants implicated, and attach any relevant pleadings, correspondence, or other documentation.
Control of Defense. Solara has the right to control the defense of any third-party claim, including the selection of counsel, the conduct of litigation or settlement negotiations, and the overall litigation strategy. This right is subject to the following conditions:
• The Stockholder Representative has the right, at the expense of the former stockholders, to participate in the defense of any third-party claim, including the right to attend depositions, review filings, and receive copies of material correspondence with the third-party claimant or relevant governmental authorities.
• Solara may not consent to or enter into any settlement of a third-party claim that would impose obligations on the former stockholders beyond their indemnification obligations under the escrow and the Merger Agreement (including, without limitation, injunctive relief, admissions of liability, or ongoing performance obligations) without the prior written consent of the Stockholder Representative, which consent shall not be unreasonably withheld, conditioned, or delayed.
Effect of Delayed Notice. Failure by Solara to provide prompt notice of a third-party claim does not relieve the Indemnifying Parties of their indemnification obligations, except to the extent that the Stockholder Representative demonstrates that such failure resulted in actual and material prejudice to the Indemnifying Parties. This is a "prejudice" standard rather than a strict-compliance standard, and it is generally favorable to Solara. Nevertheless, we strongly recommend that the Solara deal team implement procedures to ensure that notice of third-party claims is delivered to the Stockholder Representative as soon as practicable after the Solara team becomes aware of the claim.
VII. Claims Against Rollover Participants
As noted in Section II.A above, Jonathan Hargrove and Pinnacle Growth Ventures LLC (Evelyn Carmichael, Managing Member; 777 Third Avenue, 28th Floor, New York, NY 10017) participated in the Transaction as rollover equity investors. Under the terms of their respective Rollover Agreements (execution versions, dated January 22, 2024), both Mr. Hargrove and Pinnacle Growth Ventures are subject to direct indemnification obligations to the Buyer Indemnified Parties.
Scope of Rollover Participant Indemnification. The direct indemnification obligations of the rollover participants are coextensive with the indemnification obligations of the Indemnifying Parties generally, covering breaches of the Seller Representations, breaches of pre-closing covenants, and applicable special and uncapped indemnities. Each rollover participant's direct indemnification obligation is limited to its respective pro rata share of the general indemnification cap of $1,020,000,000. This direct obligation is in addition to each rollover participant's pro rata share of the escrow fund.
Priority of Recovery. The Merger Agreement and the Rollover Agreements establish the following priority for Solara's recovery of indemnifiable losses:
1. First: Solara's first recourse is to the escrow fund held by Cobalt Trust Company ($544,000,000 at closing).
2. Second: To the extent that the escrow fund is insufficient to fully satisfy Solara's indemnifiable losses (whether because the escrow has been partially released or because losses exceed the escrow balance), Solara may pursue direct claims against the rollover participants — Mr. Hargrove and Pinnacle Growth Ventures — up to their respective pro rata shares of the general indemnification cap.
3. Third: For losses in excess of the retention, Solara may submit claims under the R&W insurance policy issued by Northfield Assurance (discussed in Section VIII below).
Notice and Timing. Claims against the rollover participants follow the same notice and timing procedures as claims against the escrow and the Stockholder Representative, as described in Section VI above. In addition to delivering claim notices to the Stockholder Representative and Cobalt Trust Company, Solara must also deliver claim notices directly to the individual rollover participants (or their designated counsel) at the notice addresses specified in the respective Rollover Agreements.
We recommend that whenever a claim notice is delivered to the Stockholder Representative, a parallel notice be simultaneously delivered to Mr. Hargrove and Pinnacle Growth Ventures to ensure that all potential sources of recovery are preserved. Calderwood & Harkness will coordinate the preparation and delivery of all such notices.
VIII. R&W Insurance — Claim Submission Procedures
A. Policy Overview
In connection with the Transaction, Solara obtained a buyer-side representation and warranty insurance policy from Northfield Assurance Ltd. The key parameters of the policy are summarized below:
The R&W policy is a direct contract between Solara (as the named insured) and Northfield Assurance Ltd. (as the insurer). It is not a guarantee or surety of the former stockholders' indemnification obligations; rather, it is an independent insurance product that provides Solara with a supplemental source of recovery for losses arising from breaches of the Seller Representations, in excess of the policy retention.
B. Interplay Between Escrow, Indemnification, and R&W Insurance
The recovery framework for general indemnification claims operates as a three-layer waterfall, as follows:
Layer 1 — Escrow and Direct Indemnification. Solara's first recourse for general indemnification claims is the escrow fund of $544,000,000 held by Cobalt Trust Company. If the escrow fund is insufficient, Solara may also pursue direct indemnification from the rollover participants (Mr. Hargrove and Pinnacle Growth Ventures). The aggregate direct indemnification is subject to the general indemnification cap of $1,020,000,000.
Layer 2 — R&W Insurance. Once aggregate qualifying losses exceed the policy retention — $544,000,000 initially, or $272,000,000 after the twelve-month retention drop-down — Solara may submit a claim under the R&W insurance policy for the excess losses, up to the $680,000,000 policy limit. The retention can be satisfied through a combination of losses incurred by Solara (whether or not recovered from the escrow or the Indemnifying Parties) and amounts actually recovered from the escrow or direct indemnification.
Layer 3 — Residual Risk. For losses exceeding the aggregate of the escrow fund, direct indemnification, and the R&W policy limit, Solara bears the risk. This residual risk exposure exists for the portion of losses that falls between the combined recovery available from all sources and the total amount of losses incurred.
The total theoretical maximum recovery for general claims can be summarized as follows:
• Escrow: $544,000,000
• R&W Policy: $680,000,000
• Combined Maximum: $1,224,000,000
However, it is important to note that the contractual indemnification from the Indemnifying Parties (including the escrow and direct indemnification from rollover participants) is subject to the general cap of $1,020,000,000. The R&W policy is an independent source of recovery and is not itself subject to the contractual cap; the policy limit of $680,000,000 sits above the retention and is payable by Northfield Assurance irrespective of whether Solara has fully exhausted its contractual remedies. As a result, the combined theoretical recovery from the contractual indemnification and the R&W policy exceeds the contractual cap alone, providing Solara with meaningful incremental protection.
C. Retention Drop-Down Mechanics
The R&W policy includes a retention drop-down provision that operates as follows:
Initial Retention Period (Closing through July 9, 2025). During the first twelve months following the Closing Date, the retention under the R&W policy is $544,000,000 — the full amount of the escrow deposit. Solara must incur (or demonstrate entitlement to recover) aggregate qualifying losses exceeding this amount before R&W coverage attaches.
Retention Drop-Down (July 9, 2025). At twelve months post-closing, provided that there are no pending claims under the R&W policy as of that date, the retention drops by 50% to $272,000,000. This means that for any new claims arising after the drop-down date, R&W coverage will attach once aggregate losses exceed $272,000,000 — a significantly lower threshold. The drop-down enables Solara to access R&W coverage at a substantially reduced retention level for the second half of the survival period, when losses may have had additional time to materialize.
Conditions for Drop-Down. The retention drop-down is conditional upon there being no pending claims under the R&W policy as of the twelve-month anniversary. If there are pending claims at that date, the retention remains at $544,000,000 until all pending claims are resolved. Once all pending claims are resolved, the retention will drop to $272,000,000 for future claims.
Coordination with Escrow Release. As noted in Section V.B above, the first escrow release of $272,000,000 is also scheduled for July 9, 2025. The simultaneous reduction in both the escrow balance and the R&W retention creates a seamless transition: as $272,000,000 is released from the escrow to the former stockholders, the R&W retention drops to $272,000,000, thereby maintaining continuous access to coverage for losses exceeding the reduced retention.
D. R&W Policy Claim Notice Procedures
Timely and proper notice to Northfield Assurance is essential to preserve Solara's rights under the R&W policy. The following procedures should be followed:
Prompt Written Notice. Solara must provide Northfield Assurance with prompt written notice of any claim or potential claim under the policy as soon as practicable after Solara becomes aware of facts or circumstances that may give rise to a covered loss. Notice should be directed to:
Patrick Graves Senior Vice President, Transactional Risk Northfield Assurance Ltd. 30 St Mary Axe London EC3A 8BF
With a copy to the insurance broker:
Timothy Gallagher Lead Broker Peregrine Advisory Group LLC 1166 Avenue of the Americas New York, NY 10036
Required Contents of Notice. The notice to Northfield Assurance must include the following:
1. A description of the loss event and the relevant representation(s) or warranty(ies) that have been or are alleged to have been breached;
2. The estimated loss amount, if reasonably determinable, or a statement that the amount is not yet ascertainable with a description of the basis for the claim;
3. Copies of the indemnification claim notice delivered to the Stockholder Representative and the escrow agent;
4. Copies of any supporting documentation relevant to the claim;
5. Confirmation that the retention has been exceeded or is expected to be exceeded, together with a summary of the amounts incurred or expected to be incurred toward the retention; and
6. Any other information reasonably requested by Northfield Assurance in connection with its evaluation of the claim.
Timing and Late Notice. While the R&W policy requires prompt notice, late notice does not automatically vitiate coverage. However, if Northfield Assurance can demonstrate that it was prejudiced by the delay in receiving notice — for example, if the delay impaired its ability to investigate the claim, mitigate losses, or exercise subrogation rights — the carrier may seek to reduce the recoverable amount. Accordingly, we strongly recommend that the Solara deal team provide notice to Northfield as early as practicable.
Parallel Notices. Whenever Solara delivers an indemnification claim notice to the Stockholder Representative and the escrow agent under the Merger Agreement and the Escrow Agreement, Solara should simultaneously deliver notice to Northfield Assurance and copy Peregrine Advisory Group to preserve its R&W insurance rights. Maintaining parallel notice streams ensures that there is no gap in coverage and that Northfield has the maximum amount of time to evaluate the claim and coordinate its response.
Cooperation. The R&W policy includes a cooperation clause obligating Solara to cooperate in good faith with Northfield Assurance's investigation and evaluation of any claim. This may include providing access to documents, personnel, and records relating to the claim, as well as participating in interviews and responding to information requests. Failure to cooperate may, in extreme cases, provide Northfield with grounds to deny or reduce coverage. Solara should ensure that relevant personnel at the surviving entity are aware of this obligation and are prepared to cooperate promptly with any inquiries from the carrier.
E. Key Policy Exclusions and Limitations
The R&W policy contains certain standard exclusions and limitations that the Solara deal team should be aware of:
Known-Loss Exclusion. The policy does not cover losses arising from matters that were actually known to Solara's deal team at or prior to the Closing Date and that constitute a breach of the Seller Representations. The scope of "actual knowledge" for purposes of this exclusion is defined in the policy and is generally limited to the actual (not constructive or imputed) knowledge of specified members of the Solara deal team identified in the No-Claims Declaration. The No-Claims Declaration was signed by authorized representatives of Solara at closing on July 9, 2024, and confirmed that, as of the Closing Date, no member of the Solara deal team had actual knowledge of any breach of the Seller Representations. Any post-closing claim that implicates information known to the deal team prior to closing should be carefully evaluated against the terms of the No-Claims Declaration before submission.
Fraud. The R&W policy covers losses arising from fraud by the Target, its officers, or its directors. However, in cases of fraud, Northfield Assurance retains full subrogation rights against the individuals who committed the fraud. This means that while Solara can recover from Northfield under the policy, Northfield may then pursue recovery against the responsible individuals.
Subrogation Waiver. Outside of fraud scenarios, Northfield Assurance has waived its subrogation rights against Cloudium and its former officers and directors. This is a standard provision in buyer-side R&W policies and ensures that the former stockholders are not exposed to back-door claims from the insurer for non-fraud losses. The subrogation waiver does not extend to fraud.
Standard Exclusions. The policy includes standard exclusions for the following, among others:
• Purchase price adjustments and post-closing working capital true-ups;
• Forward-looking projections, estimates, and forecasts;
• Consequential damages, subject to certain negotiated carve-backs agreed during the underwriting process;
• Covenants and agreements (as distinguished from representations and warranties);
• Matters specifically excluded during the underwriting process, as set forth in the policy's schedule of exclusions; and