1041-00003 · Solara Digital Infrastructure LP · Tax

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MEMORANDUM

PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGE / ATTORNEY WORK PRODUCT

TO: Harrison Wexford, Responsible Partner, M&A, Calderwood & Harkness LLP Tiffany Rosenthal, Lead Associate, M&A, Calderwood & Harkness LLP Priya Narasimhan, Co-Managing Partner & CIO, Solara Digital Infrastructure LP

FROM: Leonard Cross, Specialist Partner, Tax, Calderwood & Harkness LLP

DATE: June 20, 2024

RE: Deductibility of Transaction Costs — Acquisition of Cloudium Technologies plc by Solara Digital Infrastructure Fund VI LP

Matter No.: 1041-00003

This memorandum is a privileged and confidential attorney-client communication and constitutes attorney work product prepared in anticipation of litigation or in connection with the provision of legal advice. It is intended solely for the use of the addressees and should not be disclosed, copied, or distributed to any person or entity other than the addressees without the prior written consent of Calderwood & Harkness LLP. Any disclosure to third parties, except as permitted under a common-interest agreement, may constitute a waiver of applicable privileges.

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I. Executive Summary

This memorandum analyzes the federal income tax treatment of estimated aggregate transaction expenses of approximately $185,000,000 incurred or to be incurred by Solara Digital Infrastructure Fund VI LP ("Fund VI" or the "Buyer"), Stratos Merger Sub Inc. ("Merger Sub"), and Cloudium Technologies plc ("Cloudium" or the "Target") in connection with the approximately $6,800,000,000 reverse triangular merger of Merger Sub with and into Cloudium (the "Transaction"). Specifically, this memorandum addresses the deductibility versus capitalization of each major category of transaction expense under the Internal Revenue Code of 1986, as amended (the "Code"), and the applicable Treasury Regulations.

The Transaction was structured as a reverse triangular merger in which Merger Sub, a newly formed Delaware corporation and wholly owned subsidiary of Fund VI, merges with and into Cloudium, with Cloudium surviving as a wholly owned subsidiary of Fund VI. The Agreement and Plan of Merger (the "Merger Agreement") was executed on January 22, 2024. Closing of the Transaction is anticipated on July 9, 2024, with the Certificate of Merger to be filed with the Delaware Secretary of State at 11:59 PM ET on such date. The aggregate per-share merger consideration is $36.92 in cash, resulting in aggregate equity consideration of approximately $6,800,000,000 (based on 184,200,000 shares of Cloudium common stock outstanding), subject to rollover equity arrangements with certain management and institutional shareholders as described in Section II below.

Key Conclusion. The majority of the estimated $185,000,000 in transaction costs must be capitalized under Section 263 of the Code as costs that facilitate the acquisition of a trade or business. Under Treasury Regulation § 1.263(a)-5, amounts paid to facilitate the acquisition of a trade or business — including investment banking fees, legal fees for drafting and negotiating transaction documents, accounting and due diligence fees, regulatory filing fees, and insurance costs directly related to the transaction — are "inherently facilitative" and must be capitalized regardless of when incurred. Certain limited categories of costs, however, may be currently deductible or amortizable under specific statutory provisions:

• Debt issuance costs associated with the Term Loan B and Revolving Credit Facility are treated as original issue discount ("OID") under Treasury Regulation § 1.446-5 and are amortizable over the term of the respective debt instruments using the constant-yield method.

• Ticking fees and commitment fees are classified as interest expense and are currently deductible under Section 163(a), subject to the business interest limitation of Section 163(j).

• Post-closing integration costs incurred by the surviving entity after the closing date in its capacity as an operating business may be deductible under Section 162 as ordinary and necessary business expenses, provided they do not create or enhance a separate and distinct intangible asset with a useful life extending substantially beyond the current taxable year.

• Organizational expenses of the co-investment vehicle (Solara Digital Co-Invest VI-A LP) are subject to Section 709, which permits a limited first-year deduction of up to $5,000 (subject to phase-out), with the remainder amortizable over 180 months.

• Pre-bright-line-date costs — certain limited employee compensation and overhead costs incurred before the earlier of the date the exclusivity agreement was executed (November 15, 2023) or the date on which the material terms of the Transaction were agreed — may be eligible for current deduction under the exception set forth in Treasury Regulation § 1.263(a)-5(e)(1), though this exception is narrow in application.

If a Section 338(h)(10) election is made with respect to the acquisition of Cloudium (a determination that is expected to be made by August 2024 in coordination with Solara management and Glenmore Thornton LLP), capitalized transaction costs would flow into the deemed purchase price for the acquired assets and would be allocated under the Section 1060 residual allocation methodology. Amounts allocated to Section 197 intangibles (including goodwill) would be amortizable over 15 years, generating a meaningful net present value tax benefit relative to permanent capitalization into stock basis. The magnitude of this benefit should be modeled by Glenmore Thornton LLP in connection with the Section 338(h)(10) election analysis.

This memorandum categorizes each major expense bucket, provides the applicable tax treatment, and identifies the relevant statutory and regulatory authority for each position. It should be read in conjunction with the following related memoranda and work product prepared in connection with the Transaction:

• Tax Structuring Memorandum — Section 368 Analysis (dated November 1, 2023);

• Tax Memorandum on UK Tax Implications (dated December 12, 2023);

• Purchase Price Allocation Methodology Memorandum (dated June 15, 2024); and

• Post-Closing Integration Tax Considerations Memorandum (to be prepared, expected date July 12, 2024).

This memorandum has been prepared in coordination with Glenmore Thornton LLP, our client's independent accounting firm (Richard Okamura, Lead Partner, Transaction Tax, and Vanessa Liu, Lead Partner, Financial Due Diligence), and certain portions of the analysis have been shared with Glenmore Thornton under the terms of the Common-Interest Agreement dated October 2, 2023.

II. Transaction Overview

A. Parties and Structure

Buyer. Solara Digital Infrastructure Fund VI LP ("Fund VI") is a Delaware limited partnership with a vintage year of 2022 and total committed capital of approximately $12.4 billion. Fund VI is focused on investments in digital infrastructure, cloud computing, data center services, and enterprise software. The general partner of Fund VI is Solara Fund VI GP LLC, a Delaware limited liability company. Fund VI is managed by Solara Capital Partners LLC, a registered investment adviser under the Investment Advisers Act of 1940. Priya Narasimhan serves as Co-Managing Partner and Chief Investment Officer of Solara Capital Partners LLC and is the primary investment committee member responsible for the Cloudium investment.

Merger Sub. Stratos Merger Sub Inc. ("Merger Sub") is a Delaware corporation that was incorporated on January 8, 2024 (Delaware File No. 7923841) for the sole purpose of effectuating the Transaction. The sole stockholder of Merger Sub is Fund VI. Merger Sub has no operations, assets, or liabilities other than those arising in connection with the Transaction. Following the merger, Merger Sub will cease to exist and its separate corporate existence will terminate.

Target. Cloudium Technologies plc ("Cloudium" or the "Target") is a public limited company incorporated under the laws of England and Wales (Company No. 09734521). Cloudium's shares of common stock are listed on the Nasdaq Global Select Market under the ticker symbol "CLDM." Cloudium's US headquarters are located at 600 Townsend Street, Suite 800, San Francisco, California 94103, and its registered office is located at 45 Broadwick Street, London W1F 0DB, United Kingdom. Cloudium is a leading provider of cloud infrastructure management, hybrid-cloud orchestration, and AI-driven workload optimization solutions for enterprise customers. Cloudium has a US employer identification number (EIN) of 83-2196754.

Merger Structure. The Transaction is structured as a reverse triangular merger under Delaware General Corporation Law § 251. Merger Sub will merge with and into Cloudium, with Cloudium surviving the merger as a wholly owned subsidiary of Fund VI. Upon the filing of the Certificate of Merger with the Delaware Secretary of State (anticipated at 11:59 PM ET on July 9, 2024), (i) each outstanding share of Cloudium common stock (other than shares subject to rollover arrangements, dissenting shares, and treasury shares) will be automatically converted into the right to receive $36.92 in cash (the "Per Share Merger Consideration"), and (ii) each outstanding share of Merger Sub common stock will be automatically converted into one share of common stock of the surviving corporation.

Merger Consideration. Based on approximately 184,200,000 shares of Cloudium common stock outstanding (on a fully diluted basis, accounting for in-the-money stock options and restricted stock units), the aggregate equity value of the Transaction is approximately $6,800,000,000.

Rollover Equity Participants. Two existing shareholders have entered into Rollover and Contribution Agreements pursuant to which they will contribute a portion of their existing Cloudium shares to Fund VI (or a designated holding vehicle) in exchange for limited partnership interests in Fund VI (or a designated co-investment vehicle), rather than receiving the Per Share Merger Consideration:

(i) Jonathan Hargrove, Chief Executive Officer of Cloudium, will roll over approximately 50% of his 7,736,400 shares of Cloudium common stock (approximately 3,868,200 shares) at the Per Share Merger Consideration of $36.92, representing aggregate rollover equity value of approximately $142,814,544.

(ii) Pinnacle Growth Ventures LLC, an existing institutional shareholder, will roll over approximately 60% of its 21,367,200 shares of Cloudium common stock (approximately 12,820,320 shares) at the Per Share Merger Consideration of $36.92, representing aggregate rollover equity value of approximately $473,241,408.

The total rollover equity is approximately $616,055,952. The tax treatment of the rollover contributions is addressed in the Tax Structuring Memorandum — Section 368 Analysis (dated November 1, 2023) and is not repeated herein.

Cash Consideration. After accounting for rollover equity, the aggregate cash merger consideration payable to non-rolling shareholders is approximately $6,183,944,048.

B. Funding Sources

The aggregate cash funding requirement for the Transaction is approximately $7,188,944,048, consisting of: (i) cash merger consideration of $6,183,944,048; (ii) estimated transaction expenses of $185,000,000; and (iii) repayment of existing Cloudium indebtedness of $820,000,000 (as described in Section II.C below). The Transaction will be funded from the following sources:

(i) Term Loan B: $3,740,000,000 first lien term loan (SOFR + 325 basis points, seven-year maturity, maturing July 9, 2031). Meridian Atlantic Bank, N.A. serves as lead arranger and administrative agent. Ironclad Capital Markets LLC serves as co-arranger. The Term Loan B is structured with 1.00% annual mandatory amortization (payable quarterly at 0.25% per quarter), with the remaining principal due at maturity.

(ii) Revolving Credit Facility: $500,000,000 revolving credit facility (SOFR + 275 basis points, five-year maturity, maturing July 9, 2029). No amounts will be drawn under the Revolving Credit Facility at closing. Meridian Atlantic Bank, N.A. serves as administrative agent.

(iii) Equity Contribution from Fund VI: $2,832,888,096 in cash equity contributed by Fund VI (funded through drawdowns on the capital commitments of Fund VI's limited partners).

(iv) Co-Investment by Solara Digital Co-Invest VI-A LP: $425,000,000 co-investment from a subset of Fund VI limited partners (structured as a co-investment vehicle), which represents a subset of the total equity contribution described in clause (iii) above.

C. Existing Indebtedness Repaid at Closing

As a condition to the closing of the Transaction, all existing indebtedness of Cloudium under its existing credit facility will be repaid in full simultaneously with the closing. The existing indebtedness consists of:

(i) A $620,000,000 term loan (outstanding principal balance as of the anticipated closing date); and

(ii) A $200,000,000 revolving credit facility (fully drawn as of the anticipated closing date).

The aggregate amount outstanding under the existing credit agreement is approximately $820,000,000. The credit agreement was dated March 15, 2021, with Atlas Commercial Lending Corp. serving as administrative agent. A payoff letter has been obtained from Atlas Commercial Lending Corp. dated July 5, 2024, confirming the per diem interest accrual and total payoff amount.

D. Cloudium Key Financials

The following key financial metrics are relevant to the analysis in this memorandum, the Section 163(j) limitation analysis, and the purchase price allocation:

• LTM Revenue (FYE September 30, 2023): $1,620,000,000

• LTM EBITDA (FYE September 30, 2023): $405,000,000

• Annual Recurring Revenue (as of December 31, 2023): $1,740,000,000

• Enterprise Value / EBITDA Multiple: approximately 16.8x (based on aggregate enterprise value of approximately $6,800,000,000 plus $820,000,000 existing debt less approximately $412,000,000 unrestricted cash on hand)

• Cloudium EIN (US taxpayer): 83-2196754

Cloudium's financial results reflect a high-growth, recurring-revenue business model with meaningful operational leverage. The premium valuation multiple of 16.8x EBITDA is consistent with comparable transactions in the cloud infrastructure sector.

III. Applicable Legal Framework

This section sets forth the principal statutory and regulatory provisions governing the federal income tax treatment of transaction costs incurred in connection with the acquisition of a trade or business. The framework established by these provisions dictates whether a particular expense must be capitalized, may be currently deducted, or is amortizable over a prescribed period.

A. Section 263(a) — Capital Expenditures

Section 263(a) of the Code provides the general rule that no deduction shall be allowed for any amount paid out for new buildings or for permanent improvements or betterments made to increase the value of any property or estate, or for any amount expended in restoring property or in making good the exhaustion thereof for which an allowance has been made. More broadly, Section 263(a) prohibits the deduction of any amount paid or incurred to acquire property with a useful life extending substantially beyond the close of the taxable year.

Treasury Regulation § 1.263(a)-5 provides specific and detailed rules governing amounts paid to facilitate the acquisition of a trade or business, including the acquisition of the stock of a target. Under Treas. Reg. § 1.263(a)-5(a), an amount is paid to "facilitate" a transaction if the amount is paid in the process of investigating or otherwise pursuing the transaction. The term "facilitate" is construed broadly and encompasses costs that are directly or indirectly related to the transaction, subject to certain limited exceptions.

Inherently Facilitative Costs. Under Treas. Reg. § 1.263(a)-5(e)(2), certain categories of costs are treated as "inherently facilitative" and must be capitalized regardless of when they are incurred. These inherently facilitative costs include, but are not limited to:

(i) Amounts paid to determine the value or price of a transaction;

(ii) Amounts paid for tax advice on the structure of a transaction;

(iii) Amounts paid for legal services in connection with the drafting, negotiation, or execution of transaction documents;

(iv) Amounts paid for financial advisory or investment banking services in connection with a transaction;

(v) Amounts paid for accounting services in performing due diligence or in connection with the investigation or evaluation of a target;

(vi) Amounts paid to obtain regulatory approval of a transaction; and

(vii) Amounts paid to structure or negotiate the terms of a transaction.

The inherently facilitative cost categories are broadly defined and, as applied to the Transaction, encompass the majority of the $185,000,000 in estimated transaction expenses.

Bright-Line Date Test. Under Treas. Reg. § 1.263(a)-5(e)(1), amounts that are not inherently facilitative are treated as amounts paid to facilitate a transaction only if they are paid on or after the earlier of (i) the date on which a letter of intent, exclusivity agreement, or similar written communication (other than a confidentiality agreement) is executed by representatives of the acquirer and the target, or (ii) the date on which the material terms of the transaction are agreed to by the parties, even if subject to board approval or other conditions. For purposes of the Transaction, the relevant bright-line date is November 15, 2023 — the date on which Fund VI and Cloudium entered into an exclusivity agreement granting Fund VI a 45-day exclusive negotiation period. Accordingly, non-inherently-facilitative costs (principally, employee compensation and overhead) incurred before November 15, 2023 may, under certain circumstances, be treated as currently deductible expenses. However, this exception is narrow and does not apply to any cost that falls within one of the inherently facilitative categories enumerated in Treas. Reg. § 1.263(a)-5(e)(2), regardless of when such cost was incurred.

INDOPCO Framework. The Supreme Court's decision in INDOPCO, Inc. v. Commissioner, 503 U.S. 79 (1992), established the foundational principle that a taxpayer's expenditure that creates a significant long-term benefit must be capitalized, even if the expenditure does not create or enhance a separate and distinct asset. The INDOPCO decision built upon the Court's earlier holding in Commissioner v. Lincoln Savings & Loan Association, 403 U.S. 345 (1971), and the National Starch line of cases (National Starch & Chemical Corp. v. Commissioner, 918 F.2d 426 (3d Cir. 1990), aff'd sub nom. INDOPCO, Inc. v. Commissioner, 503 U.S. 79 (1992)). In INDOPCO, the Court held that costs incurred by a target in facilitating its own friendly acquisition by a third party were required to be capitalized, rejecting the taxpayer's argument that such costs were ordinary and necessary business expenses deductible under Section 162. The Treasury Regulations promulgated in 2003 and 2004 (Treas. Reg. §§ 1.263(a)-4 and 1.263(a)-5) substantially codified and refined the INDOPCO principles, providing greater certainty and administrability to the capitalization analysis.

B. Section 195 — Start-Up Expenditures

Section 195 of the Code addresses the treatment of start-up expenditures — that is, amounts paid or incurred in connection with investigating the creation or acquisition of an active trade or business, or in the creation of an active trade or business, or any activity engaged in for profit and for the production of income before the day on which the active trade or business begins. If Fund VI or Merger Sub is treated as entering a new trade or business as a result of the Transaction (rather than expanding an existing trade or business), certain investigatory costs incurred before the closing date could potentially be characterized as start-up expenditures under Section 195.

Under Section 195(b), a taxpayer may elect to deduct up to $5,000 of start-up expenditures in the taxable year in which the active trade or business begins, but this $5,000 amount is reduced (but not below zero) by the amount by which total start-up expenditures exceed $50,000. Given the magnitude of the transaction costs at issue here (approximately $185,000,000), the $5,000 first-year deduction would be entirely phased out. The remainder of any start-up expenditures would be amortized ratably over a period of 180 months (15 years), beginning with the month in which the active trade or business begins.

The relevance of Section 195 to the Transaction is limited, however, because: (i) Fund VI, as an investment partnership, may or may not be treated as conducting an active trade or business (the determination depends on the extent of Fund VI's management activities and the number and nature of its portfolio investments); and (ii) the surviving entity (Cloudium, post-merger) is an existing operating business, and costs incurred by the surviving entity in carrying on its existing trade or business would be governed by Section 162 and Section 263, not Section 195. Section 195 is most likely relevant to the extent that any investigatory costs are incurred by Fund VI in its capacity as a new participant in the cloud infrastructure business, but we expect this category to be minimal in the context of the overall transaction cost pool.

C. Section 167(a) / Section 197 — Amortization of Intangibles

Under the general rule of Section 167(a), a taxpayer is entitled to a deduction for a reasonable allowance for the exhaustion, wear and tear, and obsolescence of property used in a trade or business or held for the production of income. Section 197 provides specific rules for the amortization of certain intangible assets acquired in connection with the acquisition of a trade or business, prescribing a mandatory 15-year straight-line amortization period for "Section 197 intangibles," which include goodwill, going-concern value, covenants not to compete, customer-based intangibles, supplier-based intangibles, licenses, permits, and other specified intangible assets.

The relevance of Section 197 to the Transaction is primarily in connection with the purchase price allocation. If a Section 338(h)(10) election is made, the Transaction would be recharacterized for tax purposes as a deemed asset sale and purchase, and capitalized transaction costs would be included in the aggregate deemed sale price (ADSP) and allocated among the acquired assets under the residual allocation method of Section 1060 and Treasury Regulation § 1.338-6. Amounts allocated to Section 197 intangibles (including goodwill) would be amortizable over 15 years. The Purchase Price Allocation Methodology Memorandum (dated June 15, 2024) provides a detailed analysis of the expected allocation among asset classes and the resulting amortization deductions.

Certain capitalized costs that do not form part of the cost basis of acquired stock (e.g., debt issuance costs) are not affected by the Section 338(h)(10) election and follow their own amortization rules as discussed in Section III.F below.

D. Section 162 — Ordinary and Necessary Business Expenses

Section 162(a) of the Code permits a deduction for all ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business. To be deductible under Section 162, an expense must satisfy three requirements: (i) it must be "ordinary" (i.e., of the type commonly and frequently incurred in the particular trade or business); (ii) it must be "necessary" (i.e., appropriate and helpful to the taxpayer's business); and (iii) it must be incurred "in carrying on" an existing trade or business (as opposed to incurred in acquiring or starting a new business).

In the context of the Transaction, Section 162 is most relevant to post-closing integration costs incurred by the surviving entity (Cloudium, post-merger) in its capacity as an operating business. Integration costs such as IT system consolidation, employee relocation, facility rationalization, and rebranding expenses may qualify as ordinary and necessary business expenses of the surviving entity, provided that they do not create or enhance a separate and distinct intangible asset with a useful life extending substantially beyond the taxable year. The INDOPCO principle remains operative in this context: even post-closing expenditures that produce a long-term benefit must be capitalized if they create a significant future benefit. However, the Treasury Regulations (particularly Treas. Reg. § 1.263(a)-4(f)) provide a 12-month safe harbor under which amounts paid creating an intangible right or benefit that does not extend beyond the earlier of (i) 12 months after the date the taxpayer first realizes the right or benefit, or (ii) the end of the taxable year following the taxable year in which payment is made, are not required to be capitalized.

E. Section 709 — Organization and Syndication Expenses of Partnerships

Section 709(a) provides that, except as otherwise provided in Section 709(b), no deduction shall be allowed for amounts paid or incurred to organize a partnership or to promote the sale of (or to sell) an interest in a partnership. Section 709(b)(1) permits a partnership to elect to deduct up to $5,000 of organizational expenditures in the taxable year in which the partnership begins business, reduced by the amount by which total organizational expenditures exceed $50,000. The remainder of organizational expenditures is amortized ratably over a 180-month period beginning with the month in which the partnership begins business.

Syndication costs — that is, costs incurred in marketing, selling, or distributing partnership interests — are neither deductible nor amortizable under Section 709. They must be capitalized permanently and added to the cost basis of the partnership interest.

Section 709 is relevant to the Transaction to the extent that the co-investment vehicle, Solara Digital Co-Invest VI-A LP, incurred organizational and syndication expenses in connection with its formation and the raising of the $425,000,000 co-investment. Organizational expenses of the co-invest vehicle (e.g., legal fees for drafting the limited partnership agreement, state filing fees) are subject to the Section 709(b) amortization regime. Syndication expenses (e.g., costs of preparing offering materials, placement agent fees, costs of marketing the co-investment interests) are permanently non-deductible and non-amortizable.

F. Section 1275 / OID Rules — Debt Issuance Costs

Under Treasury Regulation § 1.446-5, debt issuance costs are treated as original issue discount ("OID") for federal income tax purposes, rather than as capitalized costs that are separately amortizable. This treatment was established by final Treasury Regulations promulgated in 2004 (T.D. 9174), which adopted the approach of treating debt issuance costs as a reduction in the issue price of the debt instrument. The effect is that debt issuance costs are amortized over the term of the applicable debt instrument using the constant-yield method prescribed by Section 1272(a) and Treasury Regulation § 1.1272-1, rather than the straight-line method.

As applied to the Transaction, the debt issuance costs associated with the $3,740,000,000 Term Loan B facility (including arrangement fees, upfront fees, and OID paid to the lenders) will be amortized over the seven-year term of the Term Loan B (maturing July 9, 2031). The debt issuance costs associated with the $500,000,000 Revolving Credit Facility will be amortized over the five-year term of the Revolving Credit Facility (maturing July 9, 2029). Legal fees paid to lenders' counsel (Winthrop & Hale LLP) in connection with the preparation of the credit documentation are similarly treated as debt issuance costs and amortized as OID over the term of the respective facilities.

Ticking fees payable on the undrawn Term Loan B commitments (0.25% per annum, commencing April 22, 2024, being 90 days after the date of the Merger Agreement) and commitment fees payable on the undrawn Revolving Credit Facility commitments (0.375% per annum) are classified as interest expense rather than debt issuance costs. As interest expense, these fees are currently deductible under Section 163(a), subject to the business interest limitation of Section 163(j), which generally limits the deduction for business interest expense to the sum of (i) the taxpayer's business interest income, plus (ii) 30% of the taxpayer's adjusted taxable income ("ATI") for the taxable year, plus (iii) the taxpayer's floor plan financing interest for the taxable year.

IV. Categorization and Analysis of Transaction Costs

A. Summary Table of Estimated Transaction Expenses ($185,000,000)

The following table summarizes the estimated transaction expenses of approximately $185,000,000, categorized by type, with the applicable tax treatment and statutory authority for each category. The amounts set forth below are based on current estimates derived from engagement letters, fee arrangements, and preliminary invoices received as of the date of this memorandum. Actual amounts will be finalized following closing upon receipt of final invoices from all advisors and service providers.

B. Investment Banking and Financial Advisory Fees

Buyer's Financial Advisor. Fund VI has retained Osprey Bancroft & Co. ("Osprey") as its lead financial advisor in connection with the Transaction. Damien Harlow, Managing Director, Technology M&A, is the primary Osprey banker responsible for the engagement. Osprey's scope of engagement encompasses: (i) financial and valuation analysis of the Target; (ii) strategic advisory and negotiation support; (iii) assistance in the structuring and arrangement of the debt and equity financing; (iv) coordination with the other professional advisors; and (v) assistance with the preparation of investor presentations and co-investment marketing materials. Osprey's compensation consists of a success fee equal to 0.80% of the aggregate enterprise value (approximately $57,000,000), plus a retainer fee of $500,000 per month (commencing August 2023, approximately $500,000 × 11 months = $5,500,000 through June 2024), with the retainer credited against the success fee. The net success fee payable at closing (after retainer credits and other adjustments) is estimated at approximately $52,000,000. When combined with uncredited retainer fees and out-of-pocket expenses, total buyer-side financial advisory fees are estimated at approximately $58,000,000.

Target's Financial Advisor. Cloudium has retained Veridian Partners LLC ("Veridian") as its financial advisor. Monica Pressler, Managing Director, serves as the lead banker for the engagement. Veridian delivered its fairness opinion to the Cloudium board of directors on January 21, 2024, opining that, as of such date and based upon and subject to the assumptions, qualifications, limitations, and other matters set forth therein, the Per Share Merger Consideration of $36.92 was fair, from a financial point of view, to the holders of Cloudium common stock (other than the rollover participants). Veridian's total compensation is estimated at approximately $42,000,000, consisting of a success fee payable at closing.

Analysis. Investment banking and financial advisory fees are classified as "inherently facilitative" costs under Treas. Reg. § 1.263(a)-5(e)(2). Amounts paid to determine the value or price of a transaction, to provide advice or recommendations regarding the structure of a transaction, or to provide negotiation assistance in connection with a transaction are inherently facilitative and must be capitalized regardless of when they are incurred. This classification applies to all components of the financial advisory compensation, including success fees, retainer fees (whether or not credited against the success fee), fairness opinion fees, and reimbursable out-of-pocket expenses.

Capitalized investment banking fees increase the cost basis of the acquired stock. If a Section 338(h)(10) election is made, these fees would flow into the aggregate deemed sale price and be allocated among the deemed-acquired assets under the Section 1060 residual allocation methodology, with amounts allocated to Section 197 intangibles (including goodwill) amortizable over 15 years.

With respect to the target-side financial advisory fees, to the extent these are borne by Cloudium and paid at closing from the merger proceeds (which is the typical arrangement), they are treated as transaction costs of the Target, not of the Buyer. From the Buyer's perspective, target-side advisory fees paid from the merger proceeds effectively reduce the net amount distributed to Cloudium's stockholders. To the extent that any target-side advisory fees are contractually borne by the Buyer (e.g., pursuant to the fee allocation provisions of the Merger Agreement), such fees would be treated as additional acquisition costs of the Buyer and capitalized accordingly.

C. Legal Fees

1. Buyer's Counsel: Calderwood & Harkness LLP. Calderwood & Harkness LLP ("C&H") serves as principal outside counsel to Fund VI and Merger Sub in connection with all aspects of the Transaction. The scope of C&H's engagement encompasses the drafting and negotiation of the Merger Agreement and all ancillary transaction documents (including the Equity Commitment Letter, the Limited Guarantee, the Rollover and Contribution Agreements, and the Voting and Support Agreements), legal due diligence (corporate, commercial contracts, intellectual property, real estate, regulatory, and litigation), debt financing documentation coordination, equity rollover mechanics, R&W insurance negotiation and binding, HSR Act and CMA regulatory filings and clearance, tax structuring, and closing.

C&H's work on the Transaction has been performed principally out of the firm's New York office (599 Lexington Avenue, New York, NY 10022), with antitrust and regulatory work performed by Elaine Forsythe and her team at the firm's Washington, D.C. office (1601 K Street NW, Washington, DC 20006), and UK regulatory coordination performed by the firm's London office (One Bartholomew Close, London EC1A 7BL). The principal C&H team members include: Harrison Wexford (responsible partner), Beatrice Holloway (billing partner), Tiffany Rosenthal (lead associate), Andrew Fitzpatrick (working associate), Leonard Cross (tax partner), and Elaine Forsythe (antitrust partner).

Estimated total legal fees for C&H in connection with the Transaction are approximately $18,500,000, inclusive of professional fees and disbursements.

Treatment. The overwhelming majority of C&H's legal fees are inherently facilitative under Treas. Reg. § 1.263(a)-5(e)(2)(i). Amounts paid for the drafting and negotiation of the Merger Agreement and ancillary transaction documents, the preparation and filing of HSR Act and CMA notifications, the conduct of due diligence investigations, the negotiation of the R&W insurance policy, the structuring and documentation of the debt financing, and the execution and closing of the Transaction are all costs incurred in the process of investigating or otherwise pursuing the Transaction and fall squarely within the inherently facilitative categories enumerated in the regulations. These costs must be capitalized.

Pre-Bright-Line-Date Exception. A limited exception may be available under Treas. Reg. § 1.263(a)-5(e)(1) for certain costs incurred before the bright-line date of November 15, 2023 (the date of the exclusivity agreement). Specifically, employee compensation and overhead costs of Fund VI (not external legal fees) incurred before November 15, 2023, in connection with the preliminary evaluation of the Transaction, may be deductible to the extent they are not inherently facilitative. However, external legal fees paid to C&H for preliminary due diligence and structuring analysis are themselves inherently facilitative (as they involve the investigation and evaluation of the Target and tax advice regarding the structure of the Transaction) and therefore must be capitalized regardless of when incurred. Similarly, the legal fees for drafting the Non-Disclosure Agreement (executed September 5, 2023) and managing the virtual data room are facilitative of the Transaction.

As a practical matter, the pre-bright-line-date exception is unlikely to yield a material deduction in the context of the overall $185,000,000 transaction cost pool. We nevertheless recommend that Fund VI's internal personnel costs attributable to transaction-related activities before November 15, 2023 be identified and documented, to the extent they may support a deduction for employee compensation and overhead under the pre-bright-line exception.

2. Buyer's UK Regulatory Counsel: Albright & Kerr LLP. Albright & Kerr LLP (Fiona McAllister, lead partner) has been retained as UK regulatory counsel to Fund VI in connection with the UK Competition and Markets Authority ("CMA") merger notification and clearance process. The CMA filing was submitted on February 12, 2024, and the matter was assigned CMA Case No. ME/7184/24. The CMA cleared the Transaction unconditionally on May 3, 2024, following a Phase 1 review. Estimated legal fees for Albright & Kerr LLP are approximately $1,200,000.

Treatment. Capitalize. Legal fees incurred in connection with obtaining regulatory approval of the Transaction are inherently facilitative under Treas. Reg. § 1.263(a)-5(e)(2). CMA clearance was a condition precedent to the closing of the Transaction under Article VII of the Merger Agreement, and the legal services provided by Albright & Kerr were directly related to obtaining such clearance. These fees must be capitalized as part of the cost of the acquisition.

3. Target's Counsel: Ridgeway Phelps & Sato LLP. Ridgeway Phelps & Sato LLP (Catherine Answorth, responsible partner; Alistair Fenn, corporate partner; Robert Tillman, employment partner) serves as principal outside counsel to Cloudium in connection with the Transaction. Estimated fees are approximately $12,000,000.

Treatment. To the extent these fees are paid from the closing proceeds or funded by Cloudium prior to or at closing, they are properly characterized as transaction costs of the Target (Cloudium). As target-side expenses, they do not increase the Buyer's cost basis in the acquired stock but effectively reduce the merger consideration available for distribution to Cloudium's stockholders. If any portion of the target's legal fees is contractually borne by the Buyer (which is not anticipated under the Merger Agreement as currently drafted), such fees would be treated as additional acquisition costs of the Buyer and capitalized under Section 263(a).

4. Lenders' Counsel: Winthrop & Hale LLP. Winthrop & Hale LLP (Christine Novak, lead partner) serves as counsel to the lender group in connection with the debt financing. Winthrop & Hale's scope of work includes the drafting and negotiation of the Credit Agreement, the Guarantee and Collateral Agreement, the Intercreditor Agreement, the First Lien Security Agreement, and related documentation. Estimated legal fees are approximately $4,800,000.

Treatment. Legal fees paid to lenders' counsel are treated as debt issuance costs and amortized as OID under Treas. Reg. § 1.446-5 over the term of the respective debt facilities. To the extent the fees are allocable to the Term Loan B, they are amortized over seven years (through July 9, 2031). To the extent the fees are allocable to the Revolving Credit Facility, they are amortized over five years (through July 9, 2029). Where the fees relate to both facilities and are not readily allocable, a reasonable allocation methodology (e.g., pro rata based on the principal amounts of the respective facilities) should be applied.

D. Accounting, Tax Advisory, and Due Diligence Fees

Glenmore Thornton LLP ("Glenmore Thornton") has been retained to provide financial due diligence, quality of earnings analysis, tax due diligence, purchase price allocation support, and tax structuring advice in connection with the Transaction. Richard Okamura, Lead Partner, Transaction Tax, and Vanessa Liu, Lead Partner, Financial Due Diligence, are the principal engagement partners. The scope of Glenmore Thornton's engagement encompasses:

(i) Buy-side financial due diligence, including quality of earnings analysis, working capital analysis, and net debt analysis;

(ii) Tax due diligence (US federal, state, and international), including review of Cloudium's historical tax positions, transfer pricing arrangements, tax attributes, and potential exposures;

(iii) Purchase price allocation support, including identification and preliminary valuation of identifiable intangible assets for purposes of ASC 805 (financial reporting) and Section 1060 / Section 338 (tax reporting);

(iv) Tax structuring advice, including analysis of the Section 338(h)(10) election and step-up benefits; and

(v) Post-closing transition assistance, including tax provision support and integration of tax compliance functions.

Estimated total fees for Glenmore Thornton LLP are approximately $9,200,000.

Treatment. Accounting, tax advisory, and due diligence fees are inherently facilitative costs under Treas. Reg. § 1.263(a)-5(e)(2). These fees relate directly to the investigation and evaluation of the Target, the determination of the purchase price and its allocation among acquired assets, and the structuring of the Transaction for tax purposes. All such costs must be capitalized under Section 263(a). Purchase price allocation work performed after signing (including the PPA Memorandum dated June 15, 2024) is similarly treated as a facilitative cost, because the purchase price allocation is a direct consequence of — and necessary incident to — the acquisition itself.

E. Auditor Fees

Harwell & Dobson LLP (Martin Chisholm, engagement partner) serves as the independent registered public accounting firm and statutory auditors of Cloudium. In connection with the Transaction, Harwell & Dobson has provided (or will provide): (i) consent letters for the inclusion of previously issued audit opinions in SEC filings; (ii) comfort letters to the lender group in connection with the debt financing; and (iii) review procedures with respect to interim financial statements included in the proxy statement. Estimated auditor fees attributable to Transaction-related work are approximately $1,800,000.

Treatment. To the extent these fees are borne by the Target (and funded from the merger consideration or from the Target's pre-closing cash), they are properly characterized as target-side expenses. To the extent any portion of these fees is borne by the Buyer (e.g., comfort letter fees allocated to the Buyer under the engagement letter), such fees should be capitalized as costs facilitating the acquisition. Comfort letter fees relating to the debt financing may be classified as debt issuance costs and amortized as OID, but the more conservative position is to treat them as acquisition-facilitative costs and capitalize them.

F. Debt Financing Costs

The debt financing for the Transaction involves two facilities: the $3,740,000,000 Term Loan B and the $500,000,000 Revolving Credit Facility, both arranged by Meridian Atlantic Bank, N.A. (as lead arranger and administrative agent) and Ironclad Capital Markets LLC (as co-arranger). The Fee Letter (a confidential side letter to the Commitment Letter dated January 22, 2024) sets forth the arrangement fees, upfront fees, and OID payable to the arranging banks and participating lenders in connection with the syndication and closing of the debt facilities.

The estimated aggregate debt financing costs are as follows:

• Arrangement fees (Meridian Atlantic Bank / Ironclad): Approximately $8,400,000

• Upfront / participation fees (syndicate lenders): Approximately $4,200,000

• OID (Discount on funded Term Loan B): Approximately $1,600,000

• Total debt issuance costs: Approximately $14,200,000

In addition to the upfront debt issuance costs described above, the financing arrangements give rise to periodic fee obligations:

• Ticking fee on undrawn Term Loan B commitments: 0.25% per annum on the committed but unfunded Term Loan B amount, commencing April 22, 2024 (90 days after the date of the Commitment Letter and Merger Agreement). Based on the approximately 78-day ticking period from April 22, 2024 to the anticipated closing date of July 9, 2024, estimated ticking fees are approximately $200,000.

• Commitment fee on undrawn Revolving Credit Facility: 0.375% per annum on the undrawn Revolving Credit Facility commitments, commencing on the closing date. As no amounts will be drawn on the Revolving Credit Facility at closing, estimated commitment fees through the end of the 2024 fiscal year (approximately 6 months) are approximately $670,000 (annualized: approximately $1,875,000, but prorated for the partial year).

Treatment Under Treas. Reg. § 1.446-5. The arrangement fees, upfront fees, and OID (totaling approximately $14,200,000) are treated as debt issuance costs and amortized as original issue discount over the term of the respective debt instruments using the constant-yield method. Specifically:

(i) Term Loan B costs: Amortized over 7 years (maturity date: July 9, 2031). If the Term Loan B is refinanced or repaid prior to maturity, the unamortized balance of the debt issuance costs would be deductible in the year of repayment.

(ii) Revolving Credit Facility costs: Amortized over 5 years (maturity date: July 9, 2029). If the Revolving Credit Facility is refinanced, extended, or replaced prior to maturity, the tax treatment of the unamortized balance will depend on the specific facts and circumstances, including whether the refinancing constitutes a significant modification under Treas. Reg. § 1.1001-3.

Ticking Fees. The ticking fee of 0.25% per annum on the undrawn Term Loan B commitments is classified as interest expense under Section 163(a). The ticking fee represents compensation paid to the lenders for maintaining the availability of the committed capital during the period between signing and closing. Ticking fees are currently deductible as interest expense, subject to the business interest limitation of Section 163(j).

Commitment Fees. The commitment fee of 0.375% per annum on the undrawn Revolving Credit Facility commitments is similarly classified as interest expense. Commitment fees are deductible under Section 163(a), subject to Section 163(j).

Cross-Reference to Debt Covenant Compliance. The Credit Agreement contains a financial maintenance covenant requiring the surviving entity to maintain a Total Net Leverage Ratio (as defined in the Credit Agreement) of no greater than 6.50:1.00 as of the last day of the first full fiscal quarter following the closing date, stepping down to 6.00:1.00, 5.50:1.00, and ultimately 5.00:1.00 over the three-year period following closing. The closing-date Total Leverage Ratio is approximately 9.24x (based on $3,740,000,000 Term Loan B / $405,000,000 LTM EBITDA), and the closing-date Net Leverage Ratio is approximately 8.79x (net of approximately $182,000,000 in pro forma unrestricted cash). On a pro forma adjusted basis (applying $110,000,000 in anticipated run-rate cost synergies to be achieved within 24 months of closing), the pro forma Adjusted EBITDA is approximately $515,000,000, resulting in a pro forma Net Leverage Ratio of approximately 6.91x. These leverage levels are relevant to the Section 163(j) analysis, as the high closing-date leverage will result in material interest expense that may exceed 30% of adjusted taxable income in the early post-closing years.

G. R&W Insurance Premium and Broker Fee

Carrier and Policy. Fund VI has obtained a buyer-side representation and warranty insurance policy (the "R&W Policy") from Northfield Assurance Ltd. (Policy No. NFA-TRI-2024-00487). The R&W Policy was bound on January 19, 2024 (prior to the execution of the Merger Agreement). The principal terms of the R&W Policy are as follows:

• Policy limit: $680,000,000

• Premium: $13,600,000 (2.0% of the policy limit), payable in full upon binding

• Retention: $544,000,000 (equal to the indemnity escrow amount deposited with Cobalt Trust Company)

• Coverage period: 18 months from the closing date (expiring January 9, 2026), matching the survival period of the seller's representations and warranties under Article IV of the Merger Agreement

• Retention drop-down: 50% of the retention drops to $272,000,000 after the first 12 months following closing, provided no claims are pending under the R&W Policy at such time

Insurance Broker. The R&W Policy was placed through Peregrine Advisory Group LLC (Timothy Gallagher, Senior Vice President). The brokerage fee payable to Peregrine is approximately $680,000.

Analysis. The R&W insurance premium of $13,600,000 and the broker fee of $680,000 are costs incurred to facilitate the acquisition. The R&W Policy provides the Buyer with insurance coverage over the seller's representations and warranties set forth in Article IV of the Merger Agreement. The procurement of the R&W Policy was a condition to the execution of the Merger Agreement and served as a substitute for a portion of the seller's indemnification obligations. Under Treas. Reg. § 1.263(a)-5(e)(2), insurance costs directly related to the transaction — particularly where the insurance coverage is obtained as an integral part of the transaction structure — are inherently facilitative and must be capitalized.

Treatment. The $13,600,000 premium and $680,000 broker fee must be capitalized as part of the acquisition cost. These amounts are added to the cost basis of the acquired stock. If a Section 338(h)(10) election is made, they flow into the aggregate deemed sale price and are allocated under the Section 1060 residual method.

Alternative Analysis. We note that some practitioners have argued that a buyer-side R&W insurance policy is more properly characterized as a freestanding insurance contract with a multi-year coverage period (here, 18 months), and that the premium should accordingly be amortized over the coverage period of the policy as a prepaid expense, rather than capitalized into the acquisition cost. However, because the R&W Policy was obtained to facilitate the Transaction itself (it was a condition to the execution of the Merger Agreement and served as an integral component of the transaction structure), the more conservative and defensible position is that the premium is an inherently facilitative cost that must be capitalized. We do not recommend claiming a current deduction or amortizing the premium over the coverage period, as such a position would be vulnerable to challenge on audit.

The retention drop-down mechanism (50% reduction to $272,000,000 after 12 months if no claims are pending) is a mechanical feature of the R&W Policy and does not, standing alone, give rise to any separate tax consequence.

H. Regulatory Filing Fees

HSR Act Filing Fee. A Premerger Notification and Report Form under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 was filed with the Federal Trade Commission and the Department of Justice Antitrust Division on February 9, 2024. Based on the aggregate deal value of $6,800,000,000, the statutory filing fee under the FTC fee schedule (as adjusted effective February 2024) was approximately $2,280,000. The waiting period under the HSR Act expired on March 11, 2024, following the expiration of the initial 30-day waiting period without issuance of a Second Request.

UK CMA Filing Fee. A merger notice was submitted to the UK Competition and Markets Authority on February 12, 2024, in connection with CMA Case No. ME/7184/24. The CMA filing fee was approximately $120,000 (£95,000, converted at the prevailing exchange rate). The CMA granted unconditional Phase 1 clearance on May 3, 2024.

Treatment. Regulatory filing fees are inherently facilitative costs under Treas. Reg. § 1.263(a)-5(e)(2). The HSR Act filing and the CMA merger notification were required conditions to closing under Article VII of the Merger Agreement. Accordingly, the estimated $2,400,000 in aggregate regulatory filing fees must be capitalized as part of the acquisition cost.

I. Proxy Solicitation, Printing, and Mailing Costs

Cloudium retained Blackthorn Proxy Advisors LLC as the proxy solicitor for the stockholder vote on the Merger Agreement. Blackthorn's engagement encompassed stockholder identification, outreach, and solicitation efforts in advance of the Special Meeting of Stockholders held on May 20, 2024. At the Special Meeting, Cloudium stockholders approved the Merger Agreement and the transactions contemplated thereby with approximately 82.4% of the outstanding shares voting in favor of the proposal.

In connection with the proxy solicitation, Cloudium incurred costs for the printing and mailing of the Definitive Proxy Statement on Schedule 14A (filed with the SEC on April 15, 2024) to all record holders and beneficial owners of Cloudium common stock. Estimated proxy solicitation, printing, and mailing costs total approximately $1,400,000.

Treatment. These are target-side expenses incurred by Cloudium in connection with the solicitation of stockholder approval for the Transaction. To the extent they are borne by the Target (as is typical), they are the Target's transaction costs and reduce the net merger proceeds available for distribution to stockholders. If any portion is borne by the Buyer, such costs must be capitalized as inherently facilitative costs under Section 263(a).

J. Transfer Agent and Exchange-Agent Fees

Cascade Corporate Services Inc. serves as the transfer agent and registrar for Cloudium common stock and has been engaged as the exchange agent responsible for processing the Letters of Transmittal and distributing the Per Share Merger Consideration to eligible stockholders. The Letters of Transmittal are expected to be distributed to Cloudium stockholders on or about July 10, 2024 (the first business day following the closing). Estimated fees for transfer agent and exchange-agent services are approximately $750,000.

Treatment. Capitalize. These costs are incurred in connection with effectuating the exchange of Cloudium shares for the merger consideration and are inherently facilitative of the Transaction. They are added to the cost basis of the acquired stock (or deemed-acquired assets, if a Section 338(h)(10) election is made).

K. Escrow Agent Fees

Cobalt Trust Company (Laura Ng, Vice President) serves as the escrow agent for the $544,000,000 indemnity escrow fund established under the Merger Agreement and as the paying agent for the distribution of merger consideration. Estimated fees include an initial setup fee of approximately $250,000 (payable at closing) and an ongoing annual escrow administration fee of approximately $100,000 per year during the 18-month escrow period.

Treatment. The initial escrow agent setup fee of $250,000 is a cost incurred to effectuate the closing of the Transaction and must be capitalized under Section 263(a). The ongoing annual escrow administration fees incurred post-closing (approximately $100,000 per year) are ordinary and necessary business expenses of the surviving entity incurred in connection with the administration of the escrow fund and may be deductible under Section 162. For purposes of the summary table, the total escrow agent fees are estimated at $350,000 (setup fee plus prorated first-year administration fee).

L. Post-Closing Integration Costs

The surviving entity (Cloudium, post-merger) is expected to incur integration costs following the closing of the Transaction as it transitions to ownership by Fund VI. Examples of anticipated post-closing integration costs include:

• IT system integration and migration (integration of financial reporting, HR, and operational systems with Fund VI portfolio company standards);

• Employee relocation costs associated with consolidation of certain overlapping functions;

• Facility consolidation and lease termination costs;

• Rebranding expenses (to the extent Cloudium's public-facing brand is modified post-closing); and

• Change-management consulting and project management costs.

A detailed analysis of the post-closing integration plan and its tax implications will be provided in the Post-Closing Integration Tax Considerations Memorandum (expected date: July 12, 2024), to be prepared in coordination with the surviving entity's finance team, led by Sienna Whitfield, Chief Financial Officer. Estimated post-closing integration costs attributable to the period immediately following closing through the end of the 2024 fiscal year are approximately $1,500,000, with additional integration costs expected in fiscal year 2025.

Treatment. Post-closing integration costs incurred by the surviving entity in its capacity as an operating business after the closing date are potentially deductible under Section 162 as ordinary and necessary business expenses, to the extent they satisfy the following conditions: (i) the costs are ordinary in nature (i.e., of the type commonly and frequently incurred in the taxpayer's industry); (ii) the costs are necessary (i.e., appropriate and helpful to the conduct of the taxpayer's business); (iii) the costs are incurred in carrying on the taxpayer's existing trade or business (not in acquiring a new trade or business); and (iv) the costs do not create or enhance a separate and distinct intangible asset with a useful life extending substantially beyond the taxable year.

The INDOPCO caveat remains applicable in this context: integration costs that create long-term future benefits (e.g., a fundamental restructuring of the surviving entity's operations that produces significant economic benefits over a multi-year period) may need to be capitalized under the INDOPCO line of authority. However, Treasury Regulation § 1.263(a)-4(f) provides a 12-month safe harbor for amounts paid creating intangible rights or benefits of limited duration (i.e., rights or benefits that do not extend beyond the earlier of 12 months after the date the taxpayer first realizes the right or benefit, or the end of the taxable year following the year of payment). Many integration costs — such as consulting fees for discrete integration projects, relocation expenses, and lease termination payments — may fall within this safe harbor.

We recommend that each category of post-closing integration cost be evaluated on a case-by-case basis, with appropriate documentation supporting the characterization of each expenditure as either a currently deductible business expense or a capitalizable expenditure. Coordination with the surviving entity's finance team and with Glenmore Thornton LLP will be essential to ensure consistent and defensible tax return positions.

M. Miscellaneous Costs

The following miscellaneous costs are expected to be incurred in connection with the Transaction:

D&O Insurance Tail Policy. Pursuant to Section 6.07 of the Merger Agreement, the Buyer is required to maintain (or cause the surviving entity to maintain) directors' and officers' liability insurance for the pre-closing directors and officers of Cloudium for a period of six years following the closing. The estimated cost of the D&O tail policy is included in the miscellaneous category.

SEC Filing Fees. Cloudium has incurred and will incur filing fees with the Securities and Exchange Commission in connection with the Transaction, including fees for the filing of the proxy statement on Schedule 14A, the Schedule 13E-3 going-private transaction statement, and the Current Report on Form 8-K reporting the completion of the merger.

Nasdaq Delisting and SEC Deregistration. Following the

MEMORANDUM
PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGE / ATTORNEY WORK PRODUCT
TO: Harrison Wexford, Responsible Partner, M&A, Calderwood & Harkness LLP Tiffany Rosenthal, Lead Associate, M&A, Calderwood & Harkness LLP Priya Narasimhan, Co-Managing Partner & CIO, Solara Digital Infrastructure LP
FROM: Leonard Cross, Specialist Partner, Tax, Calderwood & Harkness LLP
DATE: June 20, 2024
RE: Deductibility of Transaction Costs — Acquisition of Cloudium Technologies plc by Solara Digital Infrastructure Fund VI LP
Matter No.: 1041-00003
This memorandum is a privileged and confidential attorney-client communication and constitutes attorney work product prepared in anticipation of litigation or in connection with the provision of legal advice. It is intended solely for the use of the addressees and should not be disclosed, copied, or distributed to any person or entity other than the addressees without the prior written consent of Calderwood & Harkness LLP. Any disclosure to third parties, except as permitted under a common-interest agreement, may constitute a waiver of applicable privileges.
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I. Executive Summary
This memorandum analyzes the federal income tax treatment of estimated aggregate transaction expenses of approximately $185,000,000 incurred or to be incurred by Solara Digital Infrastructure Fund VI LP ("Fund VI" or the "Buyer"), Stratos Merger Sub Inc. ("Merger Sub"), and Cloudium Technologies plc ("Cloudium" or the "Target") in connection with the approximately $6,800,000,000 reverse triangular merger of Merger Sub with and into Cloudium (the "Transaction"). Specifically, this memorandum addresses the deductibility versus capitalization of each major category of transaction expense under the Internal Revenue Code of 1986, as amended (the "Code"), and the applicable Treasury Regulations.
The Transaction was structured as a reverse triangular merger in which Merger Sub, a newly formed Delaware corporation and wholly owned subsidiary of Fund VI, merges with and into Cloudium, with Cloudium surviving as a wholly owned subsidiary of Fund VI. The Agreement and Plan of Merger (the "Merger Agreement") was executed on January 22, 2024. Closing of the Transaction is anticipated on July 9, 2024, with the Certificate of Merger to be filed with the Delaware Secretary of State at 11:59 PM ET on such date. The aggregate per-share merger consideration is $36.92 in cash, resulting in aggregate equity consideration of approximately $6,800,000,000 (based on 184,200,000 shares of Cloudium common stock outstanding), subject to rollover equity arrangements with certain management and institutional shareholders as described in Section II below.
Key Conclusion. The majority of the estimated $185,000,000 in transaction costs must be capitalized under Section 263 of the Code as costs that facilitate the acquisition of a trade or business. Under Treasury Regulation § 1.263(a)-5, amounts paid to facilitate the acquisition of a trade or business — including investment banking fees, legal fees for drafting and negotiating transaction documents, accounting and due diligence fees, regulatory filing fees, and insurance costs directly related to the transaction — are "inherently facilitative" and must be capitalized regardless of when incurred. Certain limited categories of costs, however, may be currently deductible or amortizable under specific statutory provisions:
• Debt issuance costs associated with the Term Loan B and Revolving Credit Facility are treated as original issue discount ("OID") under Treasury Regulation § 1.446-5 and are amortizable over the term of the respective debt instruments using the constant-yield method.
• Ticking fees and commitment fees are classified as interest expense and are currently deductible under Section 163(a), subject to the business interest limitation of Section 163(j).
• Post-closing integration costs incurred by the surviving entity after the closing date in its capacity as an operating business may be deductible under Section 162 as ordinary and necessary business expenses, provided they do not create or enhance a separate and distinct intangible asset with a useful life extending substantially beyond the current taxable year.
• Organizational expenses of the co-investment vehicle (Solara Digital Co-Invest VI-A LP) are subject to Section 709, which permits a limited first-year deduction of up to $5,000 (subject to phase-out), with the remainder amortizable over 180 months.
• Pre-bright-line-date costs — certain limited employee compensation and overhead costs incurred before the earlier of the date the exclusivity agreement was executed (November 15, 2023) or the date on which the material terms of the Transaction were agreed — may be eligible for current deduction under the exception set forth in Treasury Regulation § 1.263(a)-5(e)(1), though this exception is narrow in application.
If a Section 338(h)(10) election is made with respect to the acquisition of Cloudium (a determination that is expected to be made by August 2024 in coordination with Solara management and Glenmore Thornton LLP), capitalized transaction costs would flow into the deemed purchase price for the acquired assets and would be allocated under the Section 1060 residual allocation methodology. Amounts allocated to Section 197 intangibles (including goodwill) would be amortizable over 15 years, generating a meaningful net present value tax benefit relative to permanent capitalization into stock basis. The magnitude of this benefit should be modeled by Glenmore Thornton LLP in connection with the Section 338(h)(10) election analysis.
This memorandum categorizes each major expense bucket, provides the applicable tax treatment, and identifies the relevant statutory and regulatory authority for each position. It should be read in conjunction with the following related memoranda and work product prepared in connection with the Transaction:
• Tax Structuring Memorandum — Section 368 Analysis (dated November 1, 2023);
• Tax Memorandum on UK Tax Implications (dated December 12, 2023);
• Purchase Price Allocation Methodology Memorandum (dated June 15, 2024); and
• Post-Closing Integration Tax Considerations Memorandum (to be prepared, expected date July 12, 2024).
This memorandum has been prepared in coordination with Glenmore Thornton LLP, our client's independent accounting firm (Richard Okamura, Lead Partner, Transaction Tax, and Vanessa Liu, Lead Partner, Financial Due Diligence), and certain portions of the analysis have been shared with Glenmore Thornton under the terms of the Common-Interest Agreement dated October 2, 2023.
II. Transaction Overview
A. Parties and Structure
Buyer. Solara Digital Infrastructure Fund VI LP ("Fund VI") is a Delaware limited partnership with a vintage year of 2022 and total committed capital of approximately $12.4 billion. Fund VI is focused on investments in digital infrastructure, cloud computing, data center services, and enterprise software. The general partner of Fund VI is Solara Fund VI GP LLC, a Delaware limited liability company. Fund VI is managed by Solara Capital Partners LLC, a registered investment adviser under the Investment Advisers Act of 1940. Priya Narasimhan serves as Co-Managing Partner and Chief Investment Officer of Solara Capital Partners LLC and is the primary investment committee member responsible for the Cloudium investment.
Merger Sub. Stratos Merger Sub Inc. ("Merger Sub") is a Delaware corporation that was incorporated on January 8, 2024 (Delaware File No. 7923841) for the sole purpose of effectuating the Transaction. The sole stockholder of Merger Sub is Fund VI. Merger Sub has no operations, assets, or liabilities other than those arising in connection with the Transaction. Following the merger, Merger Sub will cease to exist and its separate corporate existence will terminate.
Target. Cloudium Technologies plc ("Cloudium" or the "Target") is a public limited company incorporated under the laws of England and Wales (Company No. 09734521). Cloudium's shares of common stock are listed on the Nasdaq Global Select Market under the ticker symbol "CLDM." Cloudium's US headquarters are located at 600 Townsend Street, Suite 800, San Francisco, California 94103, and its registered office is located at 45 Broadwick Street, London W1F 0DB, United Kingdom. Cloudium is a leading provider of cloud infrastructure management, hybrid-cloud orchestration, and AI-driven workload optimization solutions for enterprise customers. Cloudium has a US employer identification number (EIN) of 83-2196754.
Merger Structure. The Transaction is structured as a reverse triangular merger under Delaware General Corporation Law § 251. Merger Sub will merge with and into Cloudium, with Cloudium surviving the merger as a wholly owned subsidiary of Fund VI. Upon the filing of the Certificate of Merger with the Delaware Secretary of State (anticipated at 11:59 PM ET on July 9, 2024), (i) each outstanding share of Cloudium common stock (other than shares subject to rollover arrangements, dissenting shares, and treasury shares) will be automatically converted into the right to receive $36.92 in cash (the "Per Share Merger Consideration"), and (ii) each outstanding share of Merger Sub common stock will be automatically converted into one share of common stock of the surviving corporation.
Merger Consideration. Based on approximately 184,200,000 shares of Cloudium common stock outstanding (on a fully diluted basis, accounting for in-the-money stock options and restricted stock units), the aggregate equity value of the Transaction is approximately $6,800,000,000.
Rollover Equity Participants. Two existing shareholders have entered into Rollover and Contribution Agreements pursuant to which they will contribute a portion of their existing Cloudium shares to Fund VI (or a designated holding vehicle) in exchange for limited partnership interests in Fund VI (or a designated co-investment vehicle), rather than receiving the Per Share Merger Consideration:
(i) Jonathan Hargrove, Chief Executive Officer of Cloudium, will roll over approximately 50% of his 7,736,400 shares of Cloudium common stock (approximately 3,868,200 shares) at the Per Share Merger Consideration of $36.92, representing aggregate rollover equity value of approximately $142,814,544.
(ii) Pinnacle Growth Ventures LLC, an existing institutional shareholder, will roll over approximately 60% of its 21,367,200 shares of Cloudium common stock (approximately 12,820,320 shares) at the Per Share Merger Consideration of $36.92, representing aggregate rollover equity value of approximately $473,241,408.
The total rollover equity is approximately $616,055,952. The tax treatment of the rollover contributions is addressed in the Tax Structuring Memorandum — Section 368 Analysis (dated November 1, 2023) and is not repeated herein.
Cash Consideration. After accounting for rollover equity, the aggregate cash merger consideration payable to non-rolling shareholders is approximately $6,183,944,048.
B. Funding Sources
The aggregate cash funding requirement for the Transaction is approximately $7,188,944,048, consisting of: (i) cash merger consideration of $6,183,944,048; (ii) estimated transaction expenses of $185,000,000; and (iii) repayment of existing Cloudium indebtedness of $820,000,000 (as described in Section II.C below). The Transaction will be funded from the following sources:
(i) Term Loan B: $3,740,000,000 first lien term loan (SOFR + 325 basis points, seven-year maturity, maturing July 9, 2031). Meridian Atlantic Bank, N.A. serves as lead arranger and administrative agent. Ironclad Capital Markets LLC serves as co-arranger. The Term Loan B is structured with 1.00% annual mandatory amortization (payable quarterly at 0.25% per quarter), with the remaining principal due at maturity.
(ii) Revolving Credit Facility: $500,000,000 revolving credit facility (SOFR + 275 basis points, five-year maturity, maturing July 9, 2029). No amounts will be drawn under the Revolving Credit Facility at closing. Meridian Atlantic Bank, N.A. serves as administrative agent.
(iii) Equity Contribution from Fund VI: $2,832,888,096 in cash equity contributed by Fund VI (funded through drawdowns on the capital commitments of Fund VI's limited partners).
(iv) Co-Investment by Solara Digital Co-Invest VI-A LP: $425,000,000 co-investment from a subset of Fund VI limited partners (structured as a co-investment vehicle), which represents a subset of the total equity contribution described in clause (iii) above.
C. Existing Indebtedness Repaid at Closing
As a condition to the closing of the Transaction, all existing indebtedness of Cloudium under its existing credit facility will be repaid in full simultaneously with the closing. The existing indebtedness consists of:
(i) A $620,000,000 term loan (outstanding principal balance as of the anticipated closing date); and
(ii) A $200,000,000 revolving credit facility (fully drawn as of the anticipated closing date).
The aggregate amount outstanding under the existing credit agreement is approximately $820,000,000. The credit agreement was dated March 15, 2021, with Atlas Commercial Lending Corp. serving as administrative agent. A payoff letter has been obtained from Atlas Commercial Lending Corp. dated July 5, 2024, confirming the per diem interest accrual and total payoff amount.
D. Cloudium Key Financials
The following key financial metrics are relevant to the analysis in this memorandum, the Section 163(j) limitation analysis, and the purchase price allocation:
• LTM Revenue (FYE September 30, 2023): $1,620,000,000
• LTM EBITDA (FYE September 30, 2023): $405,000,000
• Annual Recurring Revenue (as of December 31, 2023): $1,740,000,000
• Enterprise Value / EBITDA Multiple: approximately 16.8x (based on aggregate enterprise value of approximately $6,800,000,000 plus $820,000,000 existing debt less approximately $412,000,000 unrestricted cash on hand)
• Cloudium EIN (US taxpayer): 83-2196754
Cloudium's financial results reflect a high-growth, recurring-revenue business model with meaningful operational leverage. The premium valuation multiple of 16.8x EBITDA is consistent with comparable transactions in the cloud infrastructure sector.
III. Applicable Legal Framework
This section sets forth the principal statutory and regulatory provisions governing the federal income tax treatment of transaction costs incurred in connection with the acquisition of a trade or business. The framework established by these provisions dictates whether a particular expense must be capitalized, may be currently deducted, or is amortizable over a prescribed period.
A. Section 263(a) — Capital Expenditures
Section 263(a) of the Code provides the general rule that no deduction shall be allowed for any amount paid out for new buildings or for permanent improvements or betterments made to increase the value of any property or estate, or for any amount expended in restoring property or in making good the exhaustion thereof for which an allowance has been made. More broadly, Section 263(a) prohibits the deduction of any amount paid or incurred to acquire property with a useful life extending substantially beyond the close of the taxable year.
Treasury Regulation § 1.263(a)-5 provides specific and detailed rules governing amounts paid to facilitate the acquisition of a trade or business, including the acquisition of the stock of a target. Under Treas. Reg. § 1.263(a)-5(a), an amount is paid to "facilitate" a transaction if the amount is paid in the process of investigating or otherwise pursuing the transaction. The term "facilitate" is construed broadly and encompasses costs that are directly or indirectly related to the transaction, subject to certain limited exceptions.
Inherently Facilitative Costs. Under Treas. Reg. § 1.263(a)-5(e)(2), certain categories of costs are treated as "inherently facilitative" and must be capitalized regardless of when they are incurred. These inherently facilitative costs include, but are not limited to:
(i) Amounts paid to determine the value or price of a transaction;
(ii) Amounts paid for tax advice on the structure of a transaction;
(iii) Amounts paid for legal services in connection with the drafting, negotiation, or execution of transaction documents;
(iv) Amounts paid for financial advisory or investment banking services in connection with a transaction;
(v) Amounts paid for accounting services in performing due diligence or in connection with the investigation or evaluation of a target;
(vi) Amounts paid to obtain regulatory approval of a transaction; and
(vii) Amounts paid to structure or negotiate the terms of a transaction.
The inherently facilitative cost categories are broadly defined and, as applied to the Transaction, encompass the majority of the $185,000,000 in estimated transaction expenses.
Bright-Line Date Test. Under Treas. Reg. § 1.263(a)-5(e)(1), amounts that are not inherently facilitative are treated as amounts paid to facilitate a transaction only if they are paid on or after the earlier of (i) the date on which a letter of intent, exclusivity agreement, or similar written communication (other than a confidentiality agreement) is executed by representatives of the acquirer and the target, or (ii) the date on which the material terms of the transaction are agreed to by the parties, even if subject to board approval or other conditions. For purposes of the Transaction, the relevant bright-line date is November 15, 2023 — the date on which Fund VI and Cloudium entered into an exclusivity agreement granting Fund VI a 45-day exclusive negotiation period. Accordingly, non-inherently-facilitative costs (principally, employee compensation and overhead) incurred before November 15, 2023 may, under certain circumstances, be treated as currently deductible expenses. However, this exception is narrow and does not apply to any cost that falls within one of the inherently facilitative categories enumerated in Treas. Reg. § 1.263(a)-5(e)(2), regardless of when such cost was incurred.
INDOPCO Framework. The Supreme Court's decision in INDOPCO, Inc. v. Commissioner, 503 U.S. 79 (1992), established the foundational principle that a taxpayer's expenditure that creates a significant long-term benefit must be capitalized, even if the expenditure does not create or enhance a separate and distinct asset. The INDOPCO decision built upon the Court's earlier holding in Commissioner v. Lincoln Savings & Loan Association, 403 U.S. 345 (1971), and the National Starch line of cases (National Starch & Chemical Corp. v. Commissioner, 918 F.2d 426 (3d Cir. 1990), aff'd sub nom. INDOPCO, Inc. v. Commissioner, 503 U.S. 79 (1992)). In INDOPCO, the Court held that costs incurred by a target in facilitating its own friendly acquisition by a third party were required to be capitalized, rejecting the taxpayer's argument that such costs were ordinary and necessary business expenses deductible under Section 162. The Treasury Regulations promulgated in 2003 and 2004 (Treas. Reg. §§ 1.263(a)-4 and 1.263(a)-5) substantially codified and refined the INDOPCO principles, providing greater certainty and administrability to the capitalization analysis.
B. Section 195 — Start-Up Expenditures
Section 195 of the Code addresses the treatment of start-up expenditures — that is, amounts paid or incurred in connection with investigating the creation or acquisition of an active trade or business, or in the creation of an active trade or business, or any activity engaged in for profit and for the production of income before the day on which the active trade or business begins. If Fund VI or Merger Sub is treated as entering a new trade or business as a result of the Transaction (rather than expanding an existing trade or business), certain investigatory costs incurred before the closing date could potentially be characterized as start-up expenditures under Section 195.
Under Section 195(b), a taxpayer may elect to deduct up to $5,000 of start-up expenditures in the taxable year in which the active trade or business begins, but this $5,000 amount is reduced (but not below zero) by the amount by which total start-up expenditures exceed $50,000. Given the magnitude of the transaction costs at issue here (approximately $185,000,000), the $5,000 first-year deduction would be entirely phased out. The remainder of any start-up expenditures would be amortized ratably over a period of 180 months (15 years), beginning with the month in which the active trade or business begins.
The relevance of Section 195 to the Transaction is limited, however, because: (i) Fund VI, as an investment partnership, may or may not be treated as conducting an active trade or business (the determination depends on the extent of Fund VI's management activities and the number and nature of its portfolio investments); and (ii) the surviving entity (Cloudium, post-merger) is an existing operating business, and costs incurred by the surviving entity in carrying on its existing trade or business would be governed by Section 162 and Section 263, not Section 195. Section 195 is most likely relevant to the extent that any investigatory costs are incurred by Fund VI in its capacity as a new participant in the cloud infrastructure business, but we expect this category to be minimal in the context of the overall transaction cost pool.
C. Section 167(a) / Section 197 — Amortization of Intangibles
Under the general rule of Section 167(a), a taxpayer is entitled to a deduction for a reasonable allowance for the exhaustion, wear and tear, and obsolescence of property used in a trade or business or held for the production of income. Section 197 provides specific rules for the amortization of certain intangible assets acquired in connection with the acquisition of a trade or business, prescribing a mandatory 15-year straight-line amortization period for "Section 197 intangibles," which include goodwill, going-concern value, covenants not to compete, customer-based intangibles, supplier-based intangibles, licenses, permits, and other specified intangible assets.
The relevance of Section 197 to the Transaction is primarily in connection with the purchase price allocation. If a Section 338(h)(10) election is made, the Transaction would be recharacterized for tax purposes as a deemed asset sale and purchase, and capitalized transaction costs would be included in the aggregate deemed sale price (ADSP) and allocated among the acquired assets under the residual allocation method of Section 1060 and Treasury Regulation § 1.338-6. Amounts allocated to Section 197 intangibles (including goodwill) would be amortizable over 15 years. The Purchase Price Allocation Methodology Memorandum (dated June 15, 2024) provides a detailed analysis of the expected allocation among asset classes and the resulting amortization deductions.
Certain capitalized costs that do not form part of the cost basis of acquired stock (e.g., debt issuance costs) are not affected by the Section 338(h)(10) election and follow their own amortization rules as discussed in Section III.F below.
D. Section 162 — Ordinary and Necessary Business Expenses
Section 162(a) of the Code permits a deduction for all ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business. To be deductible under Section 162, an expense must satisfy three requirements: (i) it must be "ordinary" (i.e., of the type commonly and frequently incurred in the particular trade or business); (ii) it must be "necessary" (i.e., appropriate and helpful to the taxpayer's business); and (iii) it must be incurred "in carrying on" an existing trade or business (as opposed to incurred in acquiring or starting a new business).
In the context of the Transaction, Section 162 is most relevant to post-closing integration costs incurred by the surviving entity (Cloudium, post-merger) in its capacity as an operating business. Integration costs such as IT system consolidation, employee relocation, facility rationalization, and rebranding expenses may qualify as ordinary and necessary business expenses of the surviving entity, provided that they do not create or enhance a separate and distinct intangible asset with a useful life extending substantially beyond the taxable year. The INDOPCO principle remains operative in this context: even post-closing expenditures that produce a long-term benefit must be capitalized if they create a significant future benefit. However, the Treasury Regulations (particularly Treas. Reg. § 1.263(a)-4(f)) provide a 12-month safe harbor under which amounts paid creating an intangible right or benefit that does not extend beyond the earlier of (i) 12 months after the date the taxpayer first realizes the right or benefit, or (ii) the end of the taxable year following the taxable year in which payment is made, are not required to be capitalized.
E. Section 709 — Organization and Syndication Expenses of Partnerships
Section 709(a) provides that, except as otherwise provided in Section 709(b), no deduction shall be allowed for amounts paid or incurred to organize a partnership or to promote the sale of (or to sell) an interest in a partnership. Section 709(b)(1) permits a partnership to elect to deduct up to $5,000 of organizational expenditures in the taxable year in which the partnership begins business, reduced by the amount by which total organizational expenditures exceed $50,000. The remainder of organizational expenditures is amortized ratably over a 180-month period beginning with the month in which the partnership begins business.
Syndication costs — that is, costs incurred in marketing, selling, or distributing partnership interests — are neither deductible nor amortizable under Section 709. They must be capitalized permanently and added to the cost basis of the partnership interest.
Section 709 is relevant to the Transaction to the extent that the co-investment vehicle, Solara Digital Co-Invest VI-A LP, incurred organizational and syndication expenses in connection with its formation and the raising of the $425,000,000 co-investment. Organizational expenses of the co-invest vehicle (e.g., legal fees for drafting the limited partnership agreement, state filing fees) are subject to the Section 709(b) amortization regime. Syndication expenses (e.g., costs of preparing offering materials, placement agent fees, costs of marketing the co-investment interests) are permanently non-deductible and non-amortizable.
F. Section 1275 / OID Rules — Debt Issuance Costs
Under Treasury Regulation § 1.446-5, debt issuance costs are treated as original issue discount ("OID") for federal income tax purposes, rather than as capitalized costs that are separately amortizable. This treatment was established by final Treasury Regulations promulgated in 2004 (T.D. 9174), which adopted the approach of treating debt issuance costs as a reduction in the issue price of the debt instrument. The effect is that debt issuance costs are amortized over the term of the applicable debt instrument using the constant-yield method prescribed by Section 1272(a) and Treasury Regulation § 1.1272-1, rather than the straight-line method.
As applied to the Transaction, the debt issuance costs associated with the $3,740,000,000 Term Loan B facility (including arrangement fees, upfront fees, and OID paid to the lenders) will be amortized over the seven-year term of the Term Loan B (maturing July 9, 2031). The debt issuance costs associated with the $500,000,000 Revolving Credit Facility will be amortized over the five-year term of the Revolving Credit Facility (maturing July 9, 2029). Legal fees paid to lenders' counsel (Winthrop & Hale LLP) in connection with the preparation of the credit documentation are similarly treated as debt issuance costs and amortized as OID over the term of the respective facilities.
Ticking fees payable on the undrawn Term Loan B commitments (0.25% per annum, commencing April 22, 2024, being 90 days after the date of the Merger Agreement) and commitment fees payable on the undrawn Revolving Credit Facility commitments (0.375% per annum) are classified as interest expense rather than debt issuance costs. As interest expense, these fees are currently deductible under Section 163(a), subject to the business interest limitation of Section 163(j), which generally limits the deduction for business interest expense to the sum of (i) the taxpayer's business interest income, plus (ii) 30% of the taxpayer's adjusted taxable income ("ATI") for the taxable year, plus (iii) the taxpayer's floor plan financing interest for the taxable year.
IV. Categorization and Analysis of Transaction Costs
A. Summary Table of Estimated Transaction Expenses ($185,000,000)
The following table summarizes the estimated transaction expenses of approximately $185,000,000, categorized by type, with the applicable tax treatment and statutory authority for each category. The amounts set forth below are based on current estimates derived from engagement letters, fee arrangements, and preliminary invoices received as of the date of this memorandum. Actual amounts will be finalized following closing upon receipt of final invoices from all advisors and service providers.
B. Investment Banking and Financial Advisory Fees
Buyer's Financial Advisor. Fund VI has retained Osprey Bancroft & Co. ("Osprey") as its lead financial advisor in connection with the Transaction. Damien Harlow, Managing Director, Technology M&A, is the primary Osprey banker responsible for the engagement. Osprey's scope of engagement encompasses: (i) financial and valuation analysis of the Target; (ii) strategic advisory and negotiation support; (iii) assistance in the structuring and arrangement of the debt and equity financing; (iv) coordination with the other professional advisors; and (v) assistance with the preparation of investor presentations and co-investment marketing materials. Osprey's compensation consists of a success fee equal to 0.80% of the aggregate enterprise value (approximately $57,000,000), plus a retainer fee of $500,000 per month (commencing August 2023, approximately $500,000 × 11 months = $5,500,000 through June 2024), with the retainer credited against the success fee. The net success fee payable at closing (after retainer credits and other adjustments) is estimated at approximately $52,000,000. When combined with uncredited retainer fees and out-of-pocket expenses, total buyer-side financial advisory fees are estimated at approximately $58,000,000.
Target's Financial Advisor. Cloudium has retained Veridian Partners LLC ("Veridian") as its financial advisor. Monica Pressler, Managing Director, serves as the lead banker for the engagement. Veridian delivered its fairness opinion to the Cloudium board of directors on January 21, 2024, opining that, as of such date and based upon and subject to the assumptions, qualifications, limitations, and other matters set forth therein, the Per Share Merger Consideration of $36.92 was fair, from a financial point of view, to the holders of Cloudium common stock (other than the rollover participants). Veridian's total compensation is estimated at approximately $42,000,000, consisting of a success fee payable at closing.
Analysis. Investment banking and financial advisory fees are classified as "inherently facilitative" costs under Treas. Reg. § 1.263(a)-5(e)(2). Amounts paid to determine the value or price of a transaction, to provide advice or recommendations regarding the structure of a transaction, or to provide negotiation assistance in connection with a transaction are inherently facilitative and must be capitalized regardless of when they are incurred. This classification applies to all components of the financial advisory compensation, including success fees, retainer fees (whether or not credited against the success fee), fairness opinion fees, and reimbursable out-of-pocket expenses.
Capitalized investment banking fees increase the cost basis of the acquired stock. If a Section 338(h)(10) election is made, these fees would flow into the aggregate deemed sale price and be allocated among the deemed-acquired assets under the Section 1060 residual allocation methodology, with amounts allocated to Section 197 intangibles (including goodwill) amortizable over 15 years.
With respect to the target-side financial advisory fees, to the extent these are borne by Cloudium and paid at closing from the merger proceeds (which is the typical arrangement), they are treated as transaction costs of the Target, not of the Buyer. From the Buyer's perspective, target-side advisory fees paid from the merger proceeds effectively reduce the net amount distributed to Cloudium's stockholders. To the extent that any target-side advisory fees are contractually borne by the Buyer (e.g., pursuant to the fee allocation provisions of the Merger Agreement), such fees would be treated as additional acquisition costs of the Buyer and capitalized accordingly.
C. Legal Fees
1. Buyer's Counsel: Calderwood & Harkness LLP. Calderwood & Harkness LLP ("C&H") serves as principal outside counsel to Fund VI and Merger Sub in connection with all aspects of the Transaction. The scope of C&H's engagement encompasses the drafting and negotiation of the Merger Agreement and all ancillary transaction documents (including the Equity Commitment Letter, the Limited Guarantee, the Rollover and Contribution Agreements, and the Voting and Support Agreements), legal due diligence (corporate, commercial contracts, intellectual property, real estate, regulatory, and litigation), debt financing documentation coordination, equity rollover mechanics, R&W insurance negotiation and binding, HSR Act and CMA regulatory filings and clearance, tax structuring, and closing.
C&H's work on the Transaction has been performed principally out of the firm's New York office (599 Lexington Avenue, New York, NY 10022), with antitrust and regulatory work performed by Elaine Forsythe and her team at the firm's Washington, D.C. office (1601 K Street NW, Washington, DC 20006), and UK regulatory coordination performed by the firm's London office (One Bartholomew Close, London EC1A 7BL). The principal C&H team members include: Harrison Wexford (responsible partner), Beatrice Holloway (billing partner), Tiffany Rosenthal (lead associate), Andrew Fitzpatrick (working associate), Leonard Cross (tax partner), and Elaine Forsythe (antitrust partner).
Estimated total legal fees for C&H in connection with the Transaction are approximately $18,500,000, inclusive of professional fees and disbursements.
Treatment. The overwhelming majority of C&H's legal fees are inherently facilitative under Treas. Reg. § 1.263(a)-5(e)(2)(i). Amounts paid for the drafting and negotiation of the Merger Agreement and ancillary transaction documents, the preparation and filing of HSR Act and CMA notifications, the conduct of due diligence investigations, the negotiation of the R&W insurance policy, the structuring and documentation of the debt financing, and the execution and closing of the Transaction are all costs incurred in the process of investigating or otherwise pursuing the Transaction and fall squarely within the inherently facilitative categories enumerated in the regulations. These costs must be capitalized.
Pre-Bright-Line-Date Exception. A limited exception may be available under Treas. Reg. § 1.263(a)-5(e)(1) for certain costs incurred before the bright-line date of November 15, 2023 (the date of the exclusivity agreement). Specifically, employee compensation and overhead costs of Fund VI (not external legal fees) incurred before November 15, 2023, in connection with the preliminary evaluation of the Transaction, may be deductible to the extent they are not inherently facilitative. However, external legal fees paid to C&H for preliminary due diligence and structuring analysis are themselves inherently facilitative (as they involve the investigation and evaluation of the Target and tax advice regarding the structure of the Transaction) and therefore must be capitalized regardless of when incurred. Similarly, the legal fees for drafting the Non-Disclosure Agreement (executed September 5, 2023) and managing the virtual data room are facilitative of the Transaction.
As a practical matter, the pre-bright-line-date exception is unlikely to yield a material deduction in the context of the overall $185,000,000 transaction cost pool. We nevertheless recommend that Fund VI's internal personnel costs attributable to transaction-related activities before November 15, 2023 be identified and documented, to the extent they may support a deduction for employee compensation and overhead under the pre-bright-line exception.
2. Buyer's UK Regulatory Counsel: Albright & Kerr LLP. Albright & Kerr LLP (Fiona McAllister, lead partner) has been retained as UK regulatory counsel to Fund VI in connection with the UK Competition and Markets Authority ("CMA") merger notification and clearance process. The CMA filing was submitted on February 12, 2024, and the matter was assigned CMA Case No. ME/7184/24. The CMA cleared the Transaction unconditionally on May 3, 2024, following a Phase 1 review. Estimated legal fees for Albright & Kerr LLP are approximately $1,200,000.
Treatment. Capitalize. Legal fees incurred in connection with obtaining regulatory approval of the Transaction are inherently facilitative under Treas. Reg. § 1.263(a)-5(e)(2). CMA clearance was a condition precedent to the closing of the Transaction under Article VII of the Merger Agreement, and the legal services provided by Albright & Kerr were directly related to obtaining such clearance. These fees must be capitalized as part of the cost of the acquisition.
3. Target's Counsel: Ridgeway Phelps & Sato LLP. Ridgeway Phelps & Sato LLP (Catherine Answorth, responsible partner; Alistair Fenn, corporate partner; Robert Tillman, employment partner) serves as principal outside counsel to Cloudium in connection with the Transaction. Estimated fees are approximately $12,000,000.
Treatment. To the extent these fees are paid from the closing proceeds or funded by Cloudium prior to or at closing, they are properly characterized as transaction costs of the Target (Cloudium). As target-side expenses, they do not increase the Buyer's cost basis in the acquired stock but effectively reduce the merger consideration available for distribution to Cloudium's stockholders. If any portion of the target's legal fees is contractually borne by the Buyer (which is not anticipated under the Merger Agreement as currently drafted), such fees would be treated as additional acquisition costs of the Buyer and capitalized under Section 263(a).
4. Lenders' Counsel: Winthrop & Hale LLP. Winthrop & Hale LLP (Christine Novak, lead partner) serves as counsel to the lender group in connection with the debt financing. Winthrop & Hale's scope of work includes the drafting and negotiation of the Credit Agreement, the Guarantee and Collateral Agreement, the Intercreditor Agreement, the First Lien Security Agreement, and related documentation. Estimated legal fees are approximately $4,800,000.
Treatment. Legal fees paid to lenders' counsel are treated as debt issuance costs and amortized as OID under Treas. Reg. § 1.446-5 over the term of the respective debt facilities. To the extent the fees are allocable to the Term Loan B, they are amortized over seven years (through July 9, 2031). To the extent the fees are allocable to the Revolving Credit Facility, they are amortized over five years (through July 9, 2029). Where the fees relate to both facilities and are not readily allocable, a reasonable allocation methodology (e.g., pro rata based on the principal amounts of the respective facilities) should be applied.
D. Accounting, Tax Advisory, and Due Diligence Fees
Glenmore Thornton LLP ("Glenmore Thornton") has been retained to provide financial due diligence, quality of earnings analysis, tax due diligence, purchase price allocation support, and tax structuring advice in connection with the Transaction. Richard Okamura, Lead Partner, Transaction Tax, and Vanessa Liu, Lead Partner, Financial Due Diligence, are the principal engagement partners. The scope of Glenmore Thornton's engagement encompasses:
(i) Buy-side financial due diligence, including quality of earnings analysis, working capital analysis, and net debt analysis;
(ii) Tax due diligence (US federal, state, and international), including review of Cloudium's historical tax positions, transfer pricing arrangements, tax attributes, and potential exposures;
(iii) Purchase price allocation support, including identification and preliminary valuation of identifiable intangible assets for purposes of ASC 805 (financial reporting) and Section 1060 / Section 338 (tax reporting);
(iv) Tax structuring advice, including analysis of the Section 338(h)(10) election and step-up benefits; and
(v) Post-closing transition assistance, including tax provision support and integration of tax compliance functions.
Estimated total fees for Glenmore Thornton LLP are approximately $9,200,000.
Treatment. Accounting, tax advisory, and due diligence fees are inherently facilitative costs under Treas. Reg. § 1.263(a)-5(e)(2). These fees relate directly to the investigation and evaluation of the Target, the determination of the purchase price and its allocation among acquired assets, and the structuring of the Transaction for tax purposes. All such costs must be capitalized under Section 263(a). Purchase price allocation work performed after signing (including the PPA Memorandum dated June 15, 2024) is similarly treated as a facilitative cost, because the purchase price allocation is a direct consequence of — and necessary incident to — the acquisition itself.
E. Auditor Fees
Harwell & Dobson LLP (Martin Chisholm, engagement partner) serves as the independent registered public accounting firm and statutory auditors of Cloudium. In connection with the Transaction, Harwell & Dobson has provided (or will provide): (i) consent letters for the inclusion of previously issued audit opinions in SEC filings; (ii) comfort letters to the lender group in connection with the debt financing; and (iii) review procedures with respect to interim financial statements included in the proxy statement. Estimated auditor fees attributable to Transaction-related work are approximately $1,800,000.
Treatment. To the extent these fees are borne by the Target (and funded from the merger consideration or from the Target's pre-closing cash), they are properly characterized as target-side expenses. To the extent any portion of these fees is borne by the Buyer (e.g., comfort letter fees allocated to the Buyer under the engagement letter), such fees should be capitalized as costs facilitating the acquisition. Comfort letter fees relating to the debt financing may be classified as debt issuance costs and amortized as OID, but the more conservative position is to treat them as acquisition-facilitative costs and capitalize them.
F. Debt Financing Costs
The debt financing for the Transaction involves two facilities: the $3,740,000,000 Term Loan B and the $500,000,000 Revolving Credit Facility, both arranged by Meridian Atlantic Bank, N.A. (as lead arranger and administrative agent) and Ironclad Capital Markets LLC (as co-arranger). The Fee Letter (a confidential side letter to the Commitment Letter dated January 22, 2024) sets forth the arrangement fees, upfront fees, and OID payable to the arranging banks and participating lenders in connection with the syndication and closing of the debt facilities.
The estimated aggregate debt financing costs are as follows:
• Arrangement fees (Meridian Atlantic Bank / Ironclad): Approximately $8,400,000
• Upfront / participation fees (syndicate lenders): Approximately $4,200,000
• OID (Discount on funded Term Loan B): Approximately $1,600,000
• Total debt issuance costs: Approximately $14,200,000
In addition to the upfront debt issuance costs described above, the financing arrangements give rise to periodic fee obligations:
• Ticking fee on undrawn Term Loan B commitments: 0.25% per annum on the committed but unfunded Term Loan B amount, commencing April 22, 2024 (90 days after the date of the Commitment Letter and Merger Agreement). Based on the approximately 78-day ticking period from April 22, 2024 to the anticipated closing date of July 9, 2024, estimated ticking fees are approximately $200,000.
• Commitment fee on undrawn Revolving Credit Facility: 0.375% per annum on the undrawn Revolving Credit Facility commitments, commencing on the closing date. As no amounts will be drawn on the Revolving Credit Facility at closing, estimated commitment fees through the end of the 2024 fiscal year (approximately 6 months) are approximately $670,000 (annualized: approximately $1,875,000, but prorated for the partial year).
Treatment Under Treas. Reg. § 1.446-5. The arrangement fees, upfront fees, and OID (totaling approximately $14,200,000) are treated as debt issuance costs and amortized as original issue discount over the term of the respective debt instruments using the constant-yield method. Specifically:
(i) Term Loan B costs: Amortized over 7 years (maturity date: July 9, 2031). If the Term Loan B is refinanced or repaid prior to maturity, the unamortized balance of the debt issuance costs would be deductible in the year of repayment.
(ii) Revolving Credit Facility costs: Amortized over 5 years (maturity date: July 9, 2029). If the Revolving Credit Facility is refinanced, extended, or replaced prior to maturity, the tax treatment of the unamortized balance will depend on the specific facts and circumstances, including whether the refinancing constitutes a significant modification under Treas. Reg. § 1.1001-3.
Ticking Fees. The ticking fee of 0.25% per annum on the undrawn Term Loan B commitments is classified as interest expense under Section 163(a). The ticking fee represents compensation paid to the lenders for maintaining the availability of the committed capital during the period between signing and closing. Ticking fees are currently deductible as interest expense, subject to the business interest limitation of Section 163(j).
Commitment Fees. The commitment fee of 0.375% per annum on the undrawn Revolving Credit Facility commitments is similarly classified as interest expense. Commitment fees are deductible under Section 163(a), subject to Section 163(j).
Cross-Reference to Debt Covenant Compliance. The Credit Agreement contains a financial maintenance covenant requiring the surviving entity to maintain a Total Net Leverage Ratio (as defined in the Credit Agreement) of no greater than 6.50:1.00 as of the last day of the first full fiscal quarter following the closing date, stepping down to 6.00:1.00, 5.50:1.00, and ultimately 5.00:1.00 over the three-year period following closing. The closing-date Total Leverage Ratio is approximately 9.24x (based on $3,740,000,000 Term Loan B / $405,000,000 LTM EBITDA), and the closing-date Net Leverage Ratio is approximately 8.79x (net of approximately $182,000,000 in pro forma unrestricted cash). On a pro forma adjusted basis (applying $110,000,000 in anticipated run-rate cost synergies to be achieved within 24 months of closing), the pro forma Adjusted EBITDA is approximately $515,000,000, resulting in a pro forma Net Leverage Ratio of approximately 6.91x. These leverage levels are relevant to the Section 163(j) analysis, as the high closing-date leverage will result in material interest expense that may exceed 30% of adjusted taxable income in the early post-closing years.
G. R&W Insurance Premium and Broker Fee
Carrier and Policy. Fund VI has obtained a buyer-side representation and warranty insurance policy (the "R&W Policy") from Northfield Assurance Ltd. (Policy No. NFA-TRI-2024-00487). The R&W Policy was bound on January 19, 2024 (prior to the execution of the Merger Agreement). The principal terms of the R&W Policy are as follows:
• Policy limit: $680,000,000
• Premium: $13,600,000 (2.0% of the policy limit), payable in full upon binding
• Retention: $544,000,000 (equal to the indemnity escrow amount deposited with Cobalt Trust Company)
• Coverage period: 18 months from the closing date (expiring January 9, 2026), matching the survival period of the seller's representations and warranties under Article IV of the Merger Agreement
• Retention drop-down: 50% of the retention drops to $272,000,000 after the first 12 months following closing, provided no claims are pending under the R&W Policy at such time
Insurance Broker. The R&W Policy was placed through Peregrine Advisory Group LLC (Timothy Gallagher, Senior Vice President). The brokerage fee payable to Peregrine is approximately $680,000.
Analysis. The R&W insurance premium of $13,600,000 and the broker fee of $680,000 are costs incurred to facilitate the acquisition. The R&W Policy provides the Buyer with insurance coverage over the seller's representations and warranties set forth in Article IV of the Merger Agreement. The procurement of the R&W Policy was a condition to the execution of the Merger Agreement and served as a substitute for a portion of the seller's indemnification obligations. Under Treas. Reg. § 1.263(a)-5(e)(2), insurance costs directly related to the transaction — particularly where the insurance coverage is obtained as an integral part of the transaction structure — are inherently facilitative and must be capitalized.
Treatment. The $13,600,000 premium and $680,000 broker fee must be capitalized as part of the acquisition cost. These amounts are added to the cost basis of the acquired stock. If a Section 338(h)(10) election is made, they flow into the aggregate deemed sale price and are allocated under the Section 1060 residual method.
Alternative Analysis. We note that some practitioners have argued that a buyer-side R&W insurance policy is more properly characterized as a freestanding insurance contract with a multi-year coverage period (here, 18 months), and that the premium should accordingly be amortized over the coverage period of the policy as a prepaid expense, rather than capitalized into the acquisition cost. However, because the R&W Policy was obtained to facilitate the Transaction itself (it was a condition to the execution of the Merger Agreement and served as an integral component of the transaction structure), the more conservative and defensible position is that the premium is an inherently facilitative cost that must be capitalized. We do not recommend claiming a current deduction or amortizing the premium over the coverage period, as such a position would be vulnerable to challenge on audit.
The retention drop-down mechanism (50% reduction to $272,000,000 after 12 months if no claims are pending) is a mechanical feature of the R&W Policy and does not, standing alone, give rise to any separate tax consequence.
H. Regulatory Filing Fees
HSR Act Filing Fee. A Premerger Notification and Report Form under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 was filed with the Federal Trade Commission and the Department of Justice Antitrust Division on February 9, 2024. Based on the aggregate deal value of $6,800,000,000, the statutory filing fee under the FTC fee schedule (as adjusted effective February 2024) was approximately $2,280,000. The waiting period under the HSR Act expired on March 11, 2024, following the expiration of the initial 30-day waiting period without issuance of a Second Request.
UK CMA Filing Fee. A merger notice was submitted to the UK Competition and Markets Authority on February 12, 2024, in connection with CMA Case No. ME/7184/24. The CMA filing fee was approximately $120,000 (£95,000, converted at the prevailing exchange rate). The CMA granted unconditional Phase 1 clearance on May 3, 2024.
Treatment. Regulatory filing fees are inherently facilitative costs under Treas. Reg. § 1.263(a)-5(e)(2). The HSR Act filing and the CMA merger notification were required conditions to closing under Article VII of the Merger Agreement. Accordingly, the estimated $2,400,000 in aggregate regulatory filing fees must be capitalized as part of the acquisition cost.
I. Proxy Solicitation, Printing, and Mailing Costs
Cloudium retained Blackthorn Proxy Advisors LLC as the proxy solicitor for the stockholder vote on the Merger Agreement. Blackthorn's engagement encompassed stockholder identification, outreach, and solicitation efforts in advance of the Special Meeting of Stockholders held on May 20, 2024. At the Special Meeting, Cloudium stockholders approved the Merger Agreement and the transactions contemplated thereby with approximately 82.4% of the outstanding shares voting in favor of the proposal.
In connection with the proxy solicitation, Cloudium incurred costs for the printing and mailing of the Definitive Proxy Statement on Schedule 14A (filed with the SEC on April 15, 2024) to all record holders and beneficial owners of Cloudium common stock. Estimated proxy solicitation, printing, and mailing costs total approximately $1,400,000.
Treatment. These are target-side expenses incurred by Cloudium in connection with the solicitation of stockholder approval for the Transaction. To the extent they are borne by the Target (as is typical), they are the Target's transaction costs and reduce the net merger proceeds available for distribution to stockholders. If any portion is borne by the Buyer, such costs must be capitalized as inherently facilitative costs under Section 263(a).
J. Transfer Agent and Exchange-Agent Fees
Cascade Corporate Services Inc. serves as the transfer agent and registrar for Cloudium common stock and has been engaged as the exchange agent responsible for processing the Letters of Transmittal and distributing the Per Share Merger Consideration to eligible stockholders. The Letters of Transmittal are expected to be distributed to Cloudium stockholders on or about July 10, 2024 (the first business day following the closing). Estimated fees for transfer agent and exchange-agent services are approximately $750,000.
Treatment. Capitalize. These costs are incurred in connection with effectuating the exchange of Cloudium shares for the merger consideration and are inherently facilitative of the Transaction. They are added to the cost basis of the acquired stock (or deemed-acquired assets, if a Section 338(h)(10) election is made).
K. Escrow Agent Fees
Cobalt Trust Company (Laura Ng, Vice President) serves as the escrow agent for the $544,000,000 indemnity escrow fund established under the Merger Agreement and as the paying agent for the distribution of merger consideration. Estimated fees include an initial setup fee of approximately $250,000 (payable at closing) and an ongoing annual escrow administration fee of approximately $100,000 per year during the 18-month escrow period.
Treatment. The initial escrow agent setup fee of $250,000 is a cost incurred to effectuate the closing of the Transaction and must be capitalized under Section 263(a). The ongoing annual escrow administration fees incurred post-closing (approximately $100,000 per year) are ordinary and necessary business expenses of the surviving entity incurred in connection with the administration of the escrow fund and may be deductible under Section 162. For purposes of the summary table, the total escrow agent fees are estimated at $350,000 (setup fee plus prorated first-year administration fee).
L. Post-Closing Integration Costs
The surviving entity (Cloudium, post-merger) is expected to incur integration costs following the closing of the Transaction as it transitions to ownership by Fund VI. Examples of anticipated post-closing integration costs include:
• IT system integration and migration (integration of financial reporting, HR, and operational systems with Fund VI portfolio company standards);
• Employee relocation costs associated with consolidation of certain overlapping functions;
• Facility consolidation and lease termination costs;
• Rebranding expenses (to the extent Cloudium's public-facing brand is modified post-closing); and
• Change-management consulting and project management costs.
A detailed analysis of the post-closing integration plan and its tax implications will be provided in the Post-Closing Integration Tax Considerations Memorandum (expected date: July 12, 2024), to be prepared in coordination with the surviving entity's finance team, led by Sienna Whitfield, Chief Financial Officer. Estimated post-closing integration costs attributable to the period immediately following closing through the end of the 2024 fiscal year are approximately $1,500,000, with additional integration costs expected in fiscal year 2025.
Treatment. Post-closing integration costs incurred by the surviving entity in its capacity as an operating business after the closing date are potentially deductible under Section 162 as ordinary and necessary business expenses, to the extent they satisfy the following conditions: (i) the costs are ordinary in nature (i.e., of the type commonly and frequently incurred in the taxpayer's industry); (ii) the costs are necessary (i.e., appropriate and helpful to the conduct of the taxpayer's business); (iii) the costs are incurred in carrying on the taxpayer's existing trade or business (not in acquiring a new trade or business); and (iv) the costs do not create or enhance a separate and distinct intangible asset with a useful life extending substantially beyond the taxable year.
The INDOPCO caveat remains applicable in this context: integration costs that create long-term future benefits (e.g., a fundamental restructuring of the surviving entity's operations that produces significant economic benefits over a multi-year period) may need to be capitalized under the INDOPCO line of authority. However, Treasury Regulation § 1.263(a)-4(f) provides a 12-month safe harbor for amounts paid creating intangible rights or benefits of limited duration (i.e., rights or benefits that do not extend beyond the earlier of 12 months after the date the taxpayer first realizes the right or benefit, or the end of the taxable year following the year of payment). Many integration costs — such as consulting fees for discrete integration projects, relocation expenses, and lease termination payments — may fall within this safe harbor.
We recommend that each category of post-closing integration cost be evaluated on a case-by-case basis, with appropriate documentation supporting the characterization of each expenditure as either a currently deductible business expense or a capitalizable expenditure. Coordination with the surviving entity's finance team and with Glenmore Thornton LLP will be essential to ensure consistent and defensible tax return positions.
M. Miscellaneous Costs
The following miscellaneous costs are expected to be incurred in connection with the Transaction:
D&O Insurance Tail Policy. Pursuant to Section 6.07 of the Merger Agreement, the Buyer is required to maintain (or cause the surviving entity to maintain) directors' and officers' liability insurance for the pre-closing directors and officers of Cloudium for a period of six years following the closing. The estimated cost of the D&O tail policy is included in the miscellaneous category.
SEC Filing Fees. Cloudium has incurred and will incur filing fees with the Securities and Exchange Commission in connection with the Transaction, including fees for the filing of the proxy statement on Schedule 14A, the Schedule 13E-3 going-private transaction statement, and the Current Report on Form 8-K reporting the completion of the merger.
Nasdaq Delisting and SEC Deregistration. Following the

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