SELLER DISCLOSURE SCHEDULES
TO THE AGREEMENT AND PLAN OF MERGER
Calderwood & Harkness LLP Review Comments and Annotations
CONFIDENTIAL — ATTORNEY-CLIENT PRIVILEGED ATTORNEY WORK PRODUCT
January 22, 2024
Formatting Convention: Calderwood & Harkness LLP comments appear throughout the disclosure schedules as bracketed bold italic annotations prefixed "[C&H Comment]." Comments are categorized as follows:
(i) Requests for supplemental disclosure (requesting additional information or documentation from target or target's counsel);
(ii) Substantive concerns and flags for the Solara deal team (identifying issues that may affect transaction risk, indemnification, R&W insurance, or closing conditions); and
(iii) Cross-reference notes to other schedules, diligence findings, or transaction documents (ensuring internal consistency across the disclosure schedule package and the broader diligence record).
Where a comment reflects an issue that Calderwood & Harkness considers to be of heightened importance, the annotation is further designated as "CRITICAL."
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INTRODUCTORY NOTES AND GENERAL QUALIFICATIONS
Ridgeway Phelps & Sato LLP Prefatory Language
These Disclosure Schedules (the "Schedules") are delivered by Cloudium Technologies plc, a public limited company incorporated under the laws of England and Wales ("the Company"), to Solara Digital Infrastructure Fund VI LP, a Delaware limited partnership ("Parent"), and Stratos Merger Sub Inc., a Delaware corporation and wholly owned subsidiary of Parent ("Merger Sub"), pursuant to and in connection with the Agreement and Plan of Merger, dated as of January 22, 2024 (the "Merger Agreement"), among the Company, Parent, and Merger Sub. These Schedules qualify the representations and warranties of the Company set forth in Article IV of the Merger Agreement and are intended to be read in conjunction therewith.
Capitalized terms used but not otherwise defined in these Schedules shall have the meanings ascribed to such terms in the Merger Agreement. Unless the context otherwise requires, all references to "Sections" herein refer to the corresponding Sections of the Merger Agreement.
The disclosure of any item, event, condition, or other matter in a particular Schedule shall be deemed disclosed with respect to, and shall be deemed to qualify, any other representation or warranty set forth in the Merger Agreement and any other Schedule to which the relevance of such disclosure is reasonably apparent on its face, notwithstanding the absence of a specific cross-reference to such other representation, warranty, or Schedule. It is understood that the mere listing or inclusion of an item in these Schedules does not constitute, and shall not be deemed to be, an acknowledgment, admission, or determination by the Company that any such item is "material" or that such item meets any materiality or similar threshold or standard set forth in the Merger Agreement, would constitute a "Material Adverse Effect" as defined in the Merger Agreement, or would otherwise be required to be disclosed under the terms of the Merger Agreement. No disclosure in these Schedules shall be construed as an admission of liability or wrongdoing by the Company or any of its subsidiaries.
The headings, section references, and summaries of the representations and warranties contained in these Schedules are provided solely for convenience of reference and shall not affect the meaning or interpretation of the information disclosed herein. Unless otherwise indicated, all dollar amounts referenced in these Schedules are expressed in United States dollars.
The Company reserves the right to supplement or amend these Schedules at any time prior to the Closing, to the extent permitted under Section 6.6 of the Merger Agreement.
C&H General Annotations
*[C&H Comment] Note that the "reasonably apparent on its face" cross-reference standard in the prefatory language is a common formulation, but it should be read narrowly by the Solara deal team. We recommend that Parent not rely on items disclosed in one Schedule as qualifying representations and warranties in unrelated Sections of Article IV unless the cross-reference between such Schedules is explicit. In prior transactions, disputes have arisen where the seller claimed that disclosure on one schedule was "reasonably apparent" as qualifying a different representation, and courts have generally required a meaningful nexus. To the extent there are items on any Schedule that the Company believes also qualify other representations, we have requested that target's counsel at Ridgeway Phelps & Sato LLP include express cross-references. Any ambiguity in this regard should be resolved in favor of requiring specific disclosure.*
*[C&H Comment] The general materiality qualifier in the prefatory language (i.e., that inclusion of an item does not constitute an admission of materiality) is standard in disclosure schedule packages of this type. However, this qualifier does not override the specific materiality thresholds and Material Adverse Effect standards set forth in the representations and warranties themselves. Where a representation in Article IV is qualified by "material," "in all material respects," or "Material Adverse Effect," the applicable standard is governed by the definition in Section 1.1 of the Merger Agreement, and not by the generalized disclaimer in this prefatory language. The Solara deal team should evaluate each disclosed item against the specific materiality threshold applicable to the relevant representation.*
*[C&H Comment] Confirm with target's counsel that all Schedules are complete and final as of the date of execution of the Merger Agreement (January 22, 2024) and reflect all matters known to the Company as of such date. Note that the Company's obligation to supplement these Schedules between signing and closing is governed solely by Section 6.6 of the Merger Agreement, which requires the Company to promptly notify Parent in writing of any event, development, or condition that, if existing or occurring at or prior to the Closing Date, would render any representation or warranty of the Company set forth in Article IV inaccurate in any material respect. The Company's failure to deliver a timely supplement does not relieve it of its obligations under the bring-down condition in Section 7.2(a). We have flagged this for the deal team's attention in connection with the pre-closing bring-down analysis.*
SCHEDULE 4.1 — ORGANIZATION, GOOD STANDING, AND QUALIFICATION
Content of Disclosure
The following sets forth the jurisdictions in which the Company and each of its subsidiaries are organized, formed, or incorporated, together with the jurisdictions in which each such entity is qualified, licensed, or registered to do business as a foreign entity. This Schedule also identifies the registered office and principal office addresses for each entity and its public listing details, where applicable.
Cloudium Technologies plc
Cloudium Technologies plc is qualified or registered as a foreign entity to do business in the following US jurisdictions:
• State of Delaware (registered agent: Pemberton Industries, 251 Little Falls Drive, Wilmington, DE 19808)
• State of California (registered agent: Pemberton Industries, 2710 Gateway Oaks Drive, Suite 150N, Sacramento, CA 95833)
• State of New York (registered agent: Pemberton Industries, 80 Ashbury Asset Advisors, Albany, NY 12207)
• State of Texas (registered agent: Pemberton Industries, 211 E. 7th Street, Suite 620, Austin, TX 78701)
• Commonwealth of Virginia (registered agent: Pemberton Industries, Northpoint Securities Center, 1111 East Main Street, Suite 1200, Richmond, VA 23219)
• State of Colorado (registered agent: Pemberton Industries, 1900 W. Littleton Boulevard, Littleton, CO 80120)
• State of Washington (registered agent: Pemberton Industries, 300 Deschutes Way SW, Suite 208, Tumwater, WA 98501)
• State of Georgia (registered agent: Pemberton Industries, 2 Ravinia Drive NW, Suite 500, Atlanta, GA 30346)
• State of Illinois (registered agent: Pemberton Industries, 801 Adlai Stevenson Drive, Springfield, IL 62703)
The Company is also registered for purposes of Value Added Tax in the United Kingdom (VAT Registration No. GB 287 4561 39) and is registered with the Information Commissioner's Office (ICO Registration No. ZA785412) in connection with its data processing activities.
Cloudium Technologies UK Ltd.
Cloudium Technologies UK Ltd. is a wholly owned subsidiary of Cloudium Technologies plc and conducts the Company's UK-based operations, including its Manchester office. Cloudium Technologies UK Ltd. does not maintain any foreign qualifications outside the United Kingdom.
Cloudium Technologies India Pvt. Ltd.
Cloudium Technologies India Pvt. Ltd. is a wholly owned subsidiary of Cloudium Technologies plc and serves as the Company's principal development and engineering center. As of the date hereof, Cloudium Technologies India Pvt. Ltd. employs approximately 2,400 employees. Cloudium Technologies India Pvt. Ltd. is registered with the Registrar of Companies, Karnataka, and maintains all registrations required under the Companies Act, 2013 (India), the Goods and Services Tax Act, and other applicable Indian statutes.
Cloudium Solutions GmbH
Cloudium Solutions GmbH is a wholly owned subsidiary of Cloudium Technologies plc and conducts the Company's German and Continental European operations. As of the date hereof, Cloudium Solutions GmbH employs approximately 400 employees and is subject to German co-determination laws. Cloudium Solutions GmbH is registered with the relevant German tax authorities (Steuernummer: 30/123/45678) and maintains all registrations required under the German Commercial Code (Handelsgesetzbuch) and applicable German statutes.
Jurisdictions Where Failure to Qualify Could Be Material
The Company is not aware of any jurisdiction in which any of the Company or its subsidiaries is required to be qualified, licensed, or registered to do business as a foreign entity where the failure to be so qualified, licensed, or registered would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, except as otherwise disclosed in this Schedule 4.1.
C&H Annotations to Schedule 4.1
*[C&H Comment] Cross-reference to the due diligence summary memorandum dated January 5, 2024 (prepared by Calderwood & Harkness, section on Corporate Organization and Good Standing). We have confirmed that the corporate organizational structure described in this Schedule 4.1 is consistent with the organizational chart and related documentation provided in the data room (Folder 1.01 — Corporate Organization). No discrepancies were identified between this Schedule and the data room materials.*
*[C&H Comment] Verify that the US EIN for Cloudium Technologies plc (83-2196754) is current and active with the Internal Revenue Service and that all foreign entity registrations and qualifications listed above are in good standing as of the signing date. We recommend that good standing certificates (or their local equivalents) be obtained from each US jurisdiction of qualification prior to the Closing Date and included in the closing deliverables package. This request should be added to the Master Closing Checklist.*
*[C&H Comment] We note that the subsidiary list includes four entities: Cloudium Technologies plc, Cloudium Technologies UK Ltd., Cloudium Technologies India Pvt. Ltd., and Cloudium Solutions GmbH. Confirm with Ridgeway Phelps & Sato LLP that this list is exhaustive and that no dormant, inactive, dissolved, or de minimis subsidiaries, joint ventures, minority investments, or variable interest entities exist that are not listed on this schedule. We request a written confirmation from target's counsel that the subsidiary list provided herein represents the complete legal entity structure of the Company group as of the signing date. Any entity that has been dissolved within the past five years should also be identified, together with confirmation that dissolution was properly completed and no residual liabilities remain.*
*[C&H Comment] With respect to the Nasdaq listing (ticker: CLDM), confirm that the Company is in compliance with all Nasdaq continued listing requirements as of the signing date and that no deficiency notices have been received. Following the closing of the merger, the Company's common stock will be delisted from the Nasdaq Global Select Market and deregistered under Section 12 of the Securities Exchange Act of 1934, as contemplated by Section 6.11 of the Merger Agreement.*
SCHEDULE 4.2 — CAPITALIZATION
Content of Disclosure
Authorized and Outstanding Share Capital
As of the date of the Merger Agreement, the authorized and outstanding share capital of Cloudium Technologies plc is as follows:
For purposes of the Merger Agreement, the per-share merger consideration is calculated based on the aggregate equity value of $6,800,000,000 divided by the number of fully diluted shares outstanding (as adjusted for the treatment of equity awards described below), yielding an approximate per-share price of $36.92.
Outstanding Equity Awards
The Company maintains the following equity incentive plans under which equity-based awards are outstanding:
(a) Cloudium Technologies plc 2017 Equity Incentive Plan (the "2017 Plan"), as amended and restated effective February 1, 2021;
(b) Cloudium Technologies plc 2021 Performance Equity Plan (the "2021 Plan"), adopted by the Board and approved by stockholders on February 15, 2021; and
(c) Cloudium Technologies plc 2016 Employee Share Purchase Plan (the "2016 ESPP"), as amended effective September 1, 2022.
The following table summarizes all outstanding equity awards under the foregoing plans as of the date hereof:
All in-the-money stock options (i.e., options with an exercise price below the per-share merger consideration of $36.92) will be treated in accordance with Section 3.4 of the Merger Agreement (cancellation in exchange for cash consideration equal to the excess of the per-share merger consideration over the applicable exercise price, less applicable tax withholding). All outstanding RSUs and PSUs will be treated in accordance with Sections 3.5 and 3.6 of the Merger Agreement, respectively. PSUs shall be deemed earned at target level performance unless actual performance through the closing date exceeds target, in which case actual performance shall apply.
Warrants. As of the date hereof, there are no outstanding warrants to purchase shares of the Company's ordinary shares.
Convertible Instruments. As of the date hereof, there are no outstanding convertible notes, convertible preferred shares, or other instruments that are convertible into or exchangeable for ordinary shares of the Company.
Stockholder Agreements and Other Arrangements
The following agreements or arrangements affect, or relate to, the Company's capital structure:
(a) Amended and Restated Registration Rights Agreement, dated November 10, 2017, among the Company, Pinnacle Growth Ventures LLC, and certain other stockholders party thereto (the "Registration Rights Agreement"), granting demand and piggyback registration rights to Pinnacle Growth Ventures LLC and certain other holders;
(b) Investor Rights Agreement, dated November 10, 2017, among the Company, Pinnacle Growth Ventures LLC, and certain other stockholders party thereto (the "Investor Rights Agreement"), granting Pinnacle Growth Ventures LLC the right to designate two members of the Company's Board of Directors for so long as Pinnacle holds at least 8% of the outstanding ordinary shares;
(c) Rollover Agreement, dated January 22, 2024, among Solara Digital Infrastructure Fund VI LP, Jonathan Hargrove, and the Company, pursuant to which Mr. Hargrove has agreed to roll over 100% of his 7,736,400 shares (4.2% of outstanding ordinary shares) into equity of the post-closing surviving entity; and
(d) Rollover Agreement, dated January 22, 2024, among Solara Digital Infrastructure Fund VI LP, Pinnacle Growth Ventures LLC, and the Company, pursuant to which Pinnacle has agreed to roll over 100% of its 21,367,200 shares (11.6% of outstanding ordinary shares) into equity of the post-closing surviving entity.
Anti-Dilution Provisions. Other than standard anti-dilution adjustments in the equity incentive plans (adjustments for stock splits, stock dividends, recapitalizations, and similar events) and the Registration Rights Agreement, there are no anti-dilution protections, preemptive rights, rights of first refusal, or similar rights applicable to the Company's outstanding equity securities.
Transfer Agent and Registrar
Cascade Corporate Services Inc., 1350 Broadway, Suite 1600, New York, NY 10018, serves as the transfer agent and registrar for the Company's ordinary shares.
C&H Annotations to Schedule 4.2
*[C&H Comment] Confirm that the total fully diluted share count reconciles to the per-share merger consideration of approximately $36.92 ($6,800,000,000 ÷ 184,200,000 outstanding shares). However, we note that the fully diluted share count should also account for the treasury method dilution from in-the-money stock options (6,950,000 options outstanding at a weighted average exercise price below $36.92), the vested and unvested RSUs (8,650,000), and the PSUs (1,620,000 at target). Request that target's counsel and the Company's financial advisor (Veridian Partners LLC) provide a detailed waterfall calculation showing the allocation of the $6,800,000,000 aggregate equity value across all classes of equity and equity-based awards. This waterfall should reconcile with the merger consideration calculation set forth in Sections 3.1 through 3.6 of the Merger Agreement.*
*[C&H Comment] Cross-reference to the Rollover Agreements executed concurrently with the Merger Agreement. Jonathan Hargrove holds 7,736,400 shares (4.2% of issued and outstanding ordinary shares) and Pinnacle Growth Ventures LLC holds 21,367,200 shares (11.6% of issued and outstanding ordinary shares). Confirm that these share counts match the records of Cascade Corporate Services Inc. (transfer agent) and that no additional shares are held by either party through nominees, trusts, or other vehicles. The aggregate rollover shares represent 29,103,600 shares (approximately 15.8% of issued and outstanding ordinary shares), which will not be cashed out at closing and instead will be converted into equity interests in the surviving entity's parent. The rollover amount should be deducted from the aggregate cash consideration payable at closing for purposes of the sources and uses calculation.*
*[C&H Comment] Request an updated capitalization table as of the most recent practicable date prior to signing (ideally as of January 19, 2024 or later) reflecting any exercises of stock options, vesting of RSUs, or other changes occurring after September 30, 2023. Confirm that no new equity awards have been granted since September 30, 2023 without buyer consent as required under the interim operating covenants (once effective). Note that the capitalization table provided during diligence was dated September 30, 2023, and approximately four months have elapsed since that date during which option exercises, RSU settlements, and ESPP purchases may have occurred.*
*[C&H Comment] Note that Cascade Corporate Services Inc. serves as transfer agent and registrar. Confirm that Cascade's records have been reconciled with the capitalization information disclosed in this Schedule 4.2 and that a letter of transmittal and exchange agent agreement will be entered into with Cascade (or a replacement exchange agent) in connection with the closing. This item should be added to the Master Closing Checklist.*
*[C&H Comment] With respect to the 1,250,000 treasury shares, confirm the accounting treatment of these shares and whether they are included in or excluded from the 184,200,000 issued and outstanding share count. The standard convention is that treasury shares are excluded from "outstanding" shares, and the per-share merger consideration should be based on shares outstanding (excluding treasury). Confirm this treatment with the Company's CFO, Sienna Whitfield.*
SCHEDULE 4.3 — AUTHORITY AND ENFORCEABILITY
Content of Disclosure
Board Approvals. The Board of Directors of Cloudium Technologies plc (the "Board"), at a duly convened meeting held on January 21, 2024, with all twelve directors present (including by video conference), unanimously:
(a) determined that the Merger Agreement and the transactions contemplated thereby (including the Merger) are fair to and in the best interests of the Company and its stockholders;
(b) approved and declared advisable the Merger Agreement and the transactions contemplated thereby;
(c) resolved to recommend that the stockholders of the Company vote in favor of the adoption of the Merger Agreement at a special meeting of stockholders to be called for such purpose (the "Board Recommendation"); and
(d) directed that the Merger Agreement be submitted to the stockholders of the Company for adoption at the Special Meeting.
The Board meeting was chaired by Douglas Pemberton, Independent Chairman of the Board. The Board resolution was adopted unanimously, with no director dissenting or abstaining. The minutes of the Board meeting of January 21, 2024 have been provided in the data room.
Fairness Opinion. In connection with its deliberations, the Board received an opinion from Veridian Partners LLC (the "Fairness Opinion"), dated January 21, 2024, to the effect that, as of such date and based upon and subject to the assumptions, qualifications, and limitations set forth therein, the per-share merger consideration of $36.92 to be received by the holders of the Company's ordinary shares (other than the Rollover Holders, Dissenting Shares, and Cancelled Shares) pursuant to the Merger Agreement was fair, from a financial point of view, to such holders. A copy of the Fairness Opinion has been provided in the data room.
Stockholder Approval. The adoption of the Merger Agreement by the stockholders of the Company is required under applicable provisions of the Delaware General Corporation Law (the "DGCL") and the Companies Act 2006 of the United Kingdom (the "Companies Act"). Pursuant to the Company's Articles of Association and applicable law, the affirmative vote of the holders of a majority of the outstanding ordinary shares entitled to vote thereon is required to adopt the Merger Agreement.
The Company intends to hold a Special Meeting of Stockholders to seek stockholder approval of the adoption of the Merger Agreement as promptly as practicable following the effectiveness of the definitive proxy statement to be filed with the US Securities and Exchange Commission (the "SEC") pursuant to Section 6.2 of the Merger Agreement.
Required Governmental Consents and Approvals
Other than the following, no consent, approval, authorization, order, registration, or filing with any governmental authority is required in connection with the execution, delivery, and performance of the Merger Agreement by the Company or the consummation of the transactions contemplated thereby:
(a) filing of the pre-merger notification and report form under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), and the expiration or early termination of the applicable waiting period thereunder;
(b) submission of a merger notice to the UK Competition and Markets Authority (the "CMA") under the Enterprise Act 2002 and the receipt of clearance or the expiration of the applicable review period;
(c) the filing of the definitive proxy statement with the SEC and the effectiveness thereof;
(d) the filing of a Certificate of Merger with the Secretary of State of the State of Delaware; and
(e) notification to the Nasdaq Stock Market LLC of the anticipated delisting of the Company's ordinary shares following consummation of the Merger.
C&H Annotations to Schedule 4.3
*[C&H Comment] Confirm that the Board resolution adopted on January 21, 2024 includes the Board Recommendation and that no director dissented, abstained, or recused himself or herself from the vote. We have reviewed the draft minutes provided in the data room (Folder 2.03 — Board Materials) and note that the minutes reflect a unanimous vote. Request that final, executed minutes be placed in the data room promptly following execution of the Merger Agreement. The unanimity of the Board vote is relevant to the no-solicitation provisions (Section 6.3) and the Board Recommendation change provisions (Section 6.3(d)), as a unanimous recommendation reduces the risk of a subsequent change in recommendation.*
*[C&H Comment] Cross-reference to proxy statement preparation timeline. Pursuant to Section 6.2 of the Merger Agreement, the Company is required to file a preliminary proxy statement with the SEC within thirty (30) business days following the date of the Merger Agreement. Based on the current timeline, the preliminary proxy statement is expected to be filed on or about March 8, 2024, with the definitive proxy statement to be filed and mailed to stockholders on or about April 15, 2024. Blackthorn Proxy Advisors LLC has been retained as proxy solicitor. The Special Meeting is currently targeted for May 20, 2024, subject to SEC review and comment.*
*[C&H Comment] Note for the record: Based on information obtained subsequent to the signing date, stockholder approval was ultimately obtained at the Special Meeting held on May 20, 2024, with approximately 82.4% of the outstanding ordinary shares voting in favor of the adoption of the Merger Agreement, approximately 14.1% voting against, and approximately 3.5% abstaining. This annotation is made for completeness; the Schedule as delivered on the signing date reflects the pre-signing position only, and the stockholder approval is not a condition that existed as of the Schedule delivery date.*
*[C&H Comment] With respect to the HSR Act filing, we note that the filing was submitted on February 5, 2024, and early termination of the waiting period was granted on March 12, 2024 (no second request was issued). With respect to the UK CMA, we note that the merger was cleared on Phase 1 on April 8, 2024, subject to no conditions. These matters are noted for completeness and should be reflected in the Master Closing Checklist.*
SCHEDULE 4.4 — NO CONFLICTS; REQUIRED CONSENTS
Content of Disclosure
Agreements, Instruments, and Orders Potentially Affected by the Merger
The execution, delivery, and performance of the Merger Agreement by the Company, and the consummation of the transactions contemplated thereby (including the Merger), may violate, conflict with, result in a breach of, constitute a default (or an event that, with notice or lapse of time or both, would constitute a default) under, accelerate or give rise to rights under, or require a consent, waiver, or approval under, the following agreements, instruments, permits, orders, or other arrangements to which the Company or any of its subsidiaries is a party or by which any of them or any of their respective properties or assets is bound:
Change of Control Provisions Triggered
1. Existing Credit Agreement
Credit Agreement, dated as of March 15, 2021 (as amended by the First Amendment dated September 8, 2022, the Second Amendment dated April 3, 2023, and as further amended, restated, supplemented, or otherwise modified from time to time, the "Existing Credit Agreement"), among Cloudium Technologies plc, as borrower, the lenders party thereto from time to time, and Atlas Commercial Lending Corp., as administrative agent and collateral agent.
The Existing Credit Agreement provides for (i) a term loan facility in the original principal amount of $620,000,000 (of which $620,000,000 remains outstanding as of the date hereof), and (ii) a revolving credit facility with an aggregate commitment of $400,000,000 (of which $200,000,000 is drawn as of the date hereof). The Existing Credit Agreement contains a mandatory prepayment provision (Section 7.01(c) thereof) requiring the Company to prepay all outstanding loans and terminate all commitments upon the occurrence of a "Change of Control" (as defined therein). The consummation of the Merger will constitute a "Change of Control" under the Existing Credit Agreement. Accordingly, the aggregate amount required to be prepaid at or prior to the Closing is $820,000,000 (plus accrued and unpaid interest and any applicable make-whole or prepayment premium).
2. Master SaaS Agreement with Aegis Federal Solutions Inc.
Master Software-as-a-Service Agreement, dated as of July 1, 2019 (as amended by the First Amendment dated January 15, 2021, the Second Amendment dated June 30, 2022, and the Third Amendment dated November 1, 2023), between Cloudium Technologies plc and Aegis Federal Solutions Inc. (the "Aegis Agreement").
The Aegis Agreement provides Cloudium's cloud infrastructure management platform to Aegis Federal Solutions Inc. for use in connection with Aegis's contracts with US federal government agencies. The current annual recurring revenue ("ARR") attributable to the Aegis Agreement is approximately $84,000,000. Section 14.3 of the Aegis Agreement provides that the Company may not assign or transfer the Aegis Agreement, or undergo a "Change of Control" (as defined therein, which includes any transaction resulting in a change in the identity of the person or group controlling more than 50% of the voting power of the Company), without the prior written consent of Aegis Federal Solutions Inc. The consummation of the Merger will require such consent.
3. Technology License Agreement with Helix Data Systems GmbH
Technology License Agreement, dated as of February 15, 2020 (as amended by the First Amendment dated August 1, 2022), between Cloudium Technologies plc and Helix Data Systems GmbH, a German limited liability company with its principal offices in Frankfurt am Main, Germany (the "Helix License Agreement").
The Helix License Agreement grants to the Company a non-exclusive, worldwide license to use certain data indexing and retrieval algorithms and related software libraries developed by Helix Data Systems GmbH in connection with the Company's core cloud infrastructure management platform. Section 9.2(b) of the Helix License Agreement provides that Helix Data Systems GmbH may terminate the Helix License Agreement upon sixty (60) days' written notice if the Company undergoes a "Change of Control" (as defined therein) and Helix has not provided its prior written consent to such Change of Control. The consummation of the Merger will trigger this termination right unless consent is obtained.
4. Other Contracts with Change of Control Notification or Consent Requirements
The following additional agreements contain change of control notification, consent, or termination provisions that may be triggered by the consummation of the Merger:
(a) Enterprise Cloud Services Agreement, dated April 1, 2021, between Cloudium Technologies plc and Meridian Healthcare Systems Inc. (ARR: approximately $31,500,000) — notification required within 30 days following change of control;
(b) Platform License and Services Agreement, dated September 15, 2020, between Cloudium Technologies plc and Brindoval Energy Partners LP (ARR: approximately $27,800,000) — consent required for assignment or change of control;
(c) Cloud Infrastructure Management Agreement, dated March 1, 2022, between Cloudium Technologies plc and Northbridge Financial Group Ltd. (ARR: approximately $22,400,000) — notification required within 15 business days following change of control;
(d) Master Services Agreement, dated June 1, 2021, between Cloudium Technologies UK Ltd. and Whitaker Defence & Aerospace Ltd. (ARR: approximately £14,200,000 / $17,750,000) — consent required for change of control;
(e) Strategic Alliance Agreement, dated November 1, 2019, between Cloudium Technologies plc and Orion Cloud Networks Inc. — mutual consent required for change of control;
(f) Data Center Colocation and Managed Services Agreement, dated January 15, 2022, between Cloudium Technologies plc and Summit Datacenter Holdings LLC — notification required within 30 days following change of control; and
(g) Software Reseller Agreement, dated May 1, 2021, between Cloudium Technologies plc and Pacifica Technology Distributors Inc. — consent required for assignment or change of control.
Required Governmental Consents and Filings
The following governmental consents, approvals, registrations, and filings are required in connection with the consummation of the Merger:
(a) Filing under the HSR Act and expiration or early termination of the applicable waiting period;
(b) Filing with and clearance by the UK CMA under the Enterprise Act 2002;
(c) Filing of the definitive proxy statement with the SEC and effectiveness thereof;
(d) Filing of the Certificate of Merger with the Secretary of State of the State of Delaware; and
(e) Notification to the Nasdaq Stock Market LLC regarding the delisting of the Company's ordinary shares.
C&H Annotations to Schedule 4.4
*[C&H Comment] CRITICAL: The Atlas Commercial Lending Corp. Existing Credit Agreement requires mandatory prepayment of all outstanding amounts upon a Change of Control. The aggregate payoff amount of $820,000,000 (consisting of $620,000,000 of term loan principal and $200,000,000 drawn on the revolving credit facility, plus accrued interest and fees) has been incorporated into the sources and uses analysis for the transaction. A payoff letter is to be obtained from Atlas Commercial Lending Corp. prior to closing. For the record, the payoff letter was obtained on July 5, 2024, reflecting a payoff amount of $823,417,628.91 (inclusive of accrued interest and fees through the anticipated closing date of July 15, 2024). The lien releases, UCC-3 termination statements, and other release documentation were delivered at closing. This item has been tracked on the Master Closing Checklist.*
*[C&H Comment] CRITICAL: The Aegis Federal Solutions Inc. consent is among the most significant commercial consent requirements in this transaction. Aegis is Cloudium's largest identified government-contractor customer, representing approximately $84,000,000 in ARR. Failure to obtain the consent of Aegis Federal would result in Aegis having the right to terminate the Aegis Agreement, which would represent a loss of approximately 4.8% of the Company's total ARR ($84,000,000 ÷ $1,740,000,000). Depending on the circumstances, loss of this contract could, individually, constitute a Material Adverse Effect. Confirm that Cloudium's management team (specifically Jonathan Hargrove, CEO, and Nadia Chowdhury, General Counsel) have initiated the consent process with Aegis Federal and can provide a status update. We note that government contractor consent processes often involve extended timelines due to internal compliance and DCAA review requirements. Cross-reference to the Calderwood & Harkness diligence memorandum on change of control provisions, dated January 8, 2024, prepared by Andrew Fitzpatrick, which provides a comprehensive analysis of all change of control triggers and the associated risk assessment.*
*[C&H Comment] CRITICAL: The Helix Data Systems GmbH license is a significant risk item. The termination right under Section 9.2(b) of the Helix License Agreement gives Helix the unilateral right to terminate the license within sixty (60) days of a Change of Control if Helix does not consent. Confirm with the Company the scope of the licensed technology (data indexing and retrieval algorithms and related software libraries), whether this technology is integrated into Cloudium's core platform, and whether substitute technology is available in the market or could be developed internally within a reasonable timeframe and at a reasonable cost. If the Helix technology is mission-critical and no commercially reasonable substitute exists, loss of this license could have a Material Adverse Effect on the Company's business, products, and services. Confirm that the consent process has been initiated. Cross-reference to Schedule 4.11 (Intellectual Property), where the Helix License Agreement is also disclosed as a material inbound IP license.*
*[C&H Comment] We note that the list of contracts with change of control provisions on this Schedule 4.4 appears to be limited to contracts that the Company considers "material" under the Merger Agreement definition. We request that Ridgeway Phelps & Sato LLP provide a complete list of all contracts containing change of control provisions, including those below the materiality threshold set forth in the Merger Agreement. Certain contracts that fall below a dollar-based materiality threshold may nonetheless be operationally significant or may, in the aggregate, be material. This is particularly important for the buyer's integration planning and for the R&W insurance underwriting process.*
*[C&H Comment] Note for the record: Both the Aegis Federal Solutions Inc. consent and the Helix Data Systems GmbH consent were obtained prior to the closing of the Merger. The Aegis consent was received on June 18, 2024, and the Helix consent was received on May 29, 2024. All other consents listed in items (a) through (g) above were either obtained or confirmed to be notification-only obligations that were satisfied prior to or at closing. This annotation is made for completeness and does not change the analysis of risk as of the signing date.*
SCHEDULE 4.5 — FINANCIAL STATEMENTS
Content of Disclosure
Financial Statements Delivered to Buyer
The following financial statements of the Company and its consolidated subsidiaries have been delivered to Parent and Merger Sub in connection with the Merger Agreement:
Audited Financial Statements:
(a) Audited consolidated balance sheet, consolidated statement of comprehensive income, consolidated statement of changes in equity, and consolidated statement of cash flows of Cloudium Technologies plc and its consolidated subsidiaries for the fiscal year ended September 30, 2021, together with the notes thereto and the report of independent auditors thereon;
(b) Audited consolidated balance sheet, consolidated statement of comprehensive income, consolidated statement of changes in equity, and consolidated statement of cash flows of Cloudium Technologies plc and its consolidated subsidiaries for the fiscal year ended September 30, 2022, together with the notes thereto and the report of independent auditors thereon; and
(c) Audited consolidated balance sheet, consolidated statement of comprehensive income, consolidated statement of changes in equity, and consolidated statement of cash flows of Cloudium Technologies plc and its consolidated subsidiaries for the fiscal year ended September 30, 2023, together with the notes thereto and the report of independent auditors thereon.
All audited financial statements referenced above were prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the United Kingdom, applied on a consistent basis throughout the periods presented, and were audited by Harwell & Dobson LLP, Chartered Accountants (engagement partner: Martin Chisholm, FCPA). Each of the audit opinions delivered by Harwell & Dobson LLP with respect to the foregoing financial statements is an unqualified opinion.
Unaudited Interim Financial Statements:
(d) Unaudited consolidated balance sheet and consolidated statement of comprehensive income of Cloudium Technologies plc and its consolidated subsidiaries for the three-month period ended December 31, 2023 (the "Interim Financial Statements").
The Interim Financial Statements were prepared in accordance with IFRS on a basis consistent with the audited financial statements described above, subject to the absence of notes and normal year-end audit adjustments.
Key Financial Metrics
The following key financial metrics are provided for reference:
Subsidiary Revenue — Cloudium Technologies UK Ltd.
Cloudium Technologies UK Ltd. reported revenue of £312,000,000 (approximately $390,000,000 at an exchange rate of $1.25 per £1.00) for the fiscal year ended September 30, 2023. This revenue is included in the consolidated financial results of Cloudium Technologies plc.
Off-Balance-Sheet Arrangements and Contingent Liabilities
Except as set forth in the notes to the audited financial statements for the fiscal year ended September 30, 2023, the Company is not party to any off-balance-sheet arrangements (as such term is defined in Item 303(a)(4) of Regulation S-K promulgated by the SEC) that have, or are reasonably likely to have, a current or future effect on the Company's financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to stockholders.
Contingent liabilities as of September 30, 2023 are disclosed in Note 22 to the audited financial statements for the fiscal year ended September 30, 2023, which has been provided in the data room.
C&H Annotations to Schedule 4.5
*[C&H Comment] Cross-reference to the financial due diligence report prepared by Glenmore Thornton LLP (lead partner: Vanessa Liu; engagement team included Richard Okamura for tax matters), delivered January 12, 2024. The Glenmore Thornton report includes a quality-of-earnings analysis, working capital analysis, and indebtedness/cash analysis. Confirm that the quality-of-earnings adjustments identified by Glenmore Thornton have been reviewed by the Solara deal team and that any material adjustments to reported EBITDA have been reflected in the valuation analysis and the negotiated purchase price. We note that the Glenmore Thornton quality-of-earnings analysis identified approximately $18,500,000 in add-backs to reported EBITDA, primarily related to one-time restructuring charges ($7,200,000), non-recurring legal settlement costs ($4,800,000), and stock-based compensation adjustments ($6,500,000). The resulting adjusted EBITDA was approximately $423,500,000.*
*[C&H Comment] Note that the financial statements are prepared under IFRS as adopted by the United Kingdom, not US GAAP. Confirm that any differences between IFRS and US GAAP that could be material to the Company's financial position or results of operations have been identified and quantified. The most significant potential IFRS-to-GAAP differences for a SaaS company of this type typically relate to (i) revenue recognition (IFRS 15 vs. ASC 606), (ii) lease accounting (IFRS 16 vs. ASC 842), (iii) stock-based compensation (IFRS 2 vs. ASC 718), and (iv) intangible asset treatment. To the extent that Solara intends to have the surviving entity report under US GAAP post-closing, a conversion analysis should be prepared. Glenmore Thornton LLP has been requested to prepare an IFRS-to-GAAP bridge as part of its Phase II financial diligence scope.*
*[C&H Comment] Verify the reconciliation of ARR ($1,740,000,000 as of December 31, 2023) to LTM revenue ($1,620,000,000 for FYE September 30, 2023). ARR exceeds LTM revenue by $120,000,000 (approximately 7.4%), which is consistent with expectations for a growing SaaS business where new bookings and expansion revenue are layered on during the course of the year. However, confirm the Company's methodology for calculating ARR, including (i) whether ARR includes only committed, contractually recurring revenue or also includes usage-based or variable components, (ii) the treatment of multi-year contracts with step-ups or escalators, (iii) the inclusion or exclusion of professional services and implementation fees, and (iv) the treatment of churned or downgraded customers. The ARR methodology should be consistent with the ARR-related representations in Section 4.5(e) of the Merger Agreement.*
*[C&H Comment] Confirm that Harwell & Dobson LLP's audit opinions for all three fiscal years (September 30, 2021, 2022, and 2023) are unqualified (i.e., "clean" opinions with no modifications, qualifications, disclaimers, or emphasis-of-matter paragraphs other than standard going concern language, if any). If any emphasis-of-matter paragraphs exist, these should be separately disclosed. Also confirm that Harwell & Dobson LLP has not withdrawn or modified any previously issued audit opinion and that the Company has not received any "management letter" or other communication from Harwell & Dobson LLP identifying material weaknesses or significant deficiencies in internal controls over financial reporting.*
SCHEDULE 4.6 — ABSENCE OF CERTAIN CHANGES
Content of Disclosure
Except as set forth below, since September 30, 2023 (the most recent fiscal year end) through the date of the Merger Agreement:
(a) the Company and its subsidiaries have conducted their respective businesses in the ordinary course of business consistent with past practice in all material respects;
(b) there has not been any event, change, occurrence, development, condition, or state of facts that has had, or would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect;
(c) the Company has not declared, set aside, or paid any dividend or other distribution (whether in cash, stock, or property) with respect to any shares of its capital stock;
(d) the Company has not repurchased, redeemed, or otherwise acquired any shares of its capital stock or any rights, warrants, or options to acquire any such shares;
(e) the Company has not made any change in its accounting methods, principles, or practices, except as required by changes in IFRS or applicable law;
(f) the Company has not incurred any indebtedness for borrowed money or issued any debt securities, or assumed, guaranteed, or endorsed the obligations of any other person, in each case in excess of $10,000,000 in the aggregate, other than borrowings in the ordinary course of business under the revolving credit facility of the Existing Credit Agreement;
(g) the Company has not made any capital expenditure or commitment for capital expenditure in excess of $25,000,000 individually, or $50,000,000 in the aggregate, other than capital expenditures contemplated by the Company's approved budget for fiscal year 2024; and
(h) the Company has not entered into any agreement or commitment to take any of the actions described in clauses (c) through (g) above.
Exceptions:
(i) On October 15, 2023, the Company entered into the Third Amendment to the Aegis Agreement (described on Schedule 4.4 and Schedule 4.10), which extended the term of the Aegis Agreement by three years through June 30, 2027, and increased the annual subscription fees by approximately 8%, resulting in the current ARR of $84,000,000. The Company considers the entry into this amendment to be in the ordinary course of business.
(ii) On November 22, 2023, the Company completed a planned workforce reduction affecting approximately 120 employees (approximately 1.8% of the global headcount), primarily in the Company's US and UK operations. The restructuring charges associated with this workforce reduction were approximately $7,200,000 and are reflected in the Interim Financial Statements. The Company considers this action to be within the ordinary course of business as part of its ongoing cost optimization initiatives.
(iii) On December 8, 2023, the Company granted equity awards to newly hired employees in the ordinary course of business under the 2021 Plan, consisting of 185,000 RSUs with a standard three-year vesting schedule.
C&H Annotations to Schedule 4.6
*[C&H Comment] The Material Adverse Effect definition in Section 1.1 of the Merger Agreement includes negotiated carveouts for (among other things) (i) general economic, financial, or market conditions, (ii) pandemics or public health emergencies, (iii) acts of war, terrorism, or hostilities, (iv) changes in applicable law or IFRS/US GAAP, (v) changes generally affecting the industry in which the Company operates, (vi) the announcement or pendency of the Merger, and (vii) the Company's failure to meet internal or published projections or forecasts (provided that the underlying causes of such failure are not excluded from the MAE analysis). Each of these carveouts is subject to a "disproportionate impact" exception requiring that the relevant condition not disproportionately affect the Company relative to similarly situated companies. The disclosures on this Schedule should be evaluated against this negotiated MAE definition, and any items disclosed as exceptions should be analyzed to determine whether they fall within a carveout.*
*[C&H Comment] Cross-reference to the Calderwood & Harkness annotated redline of the Material Adverse Effect definition, dated December 22, 2023, prepared by Tiffany Rosenthal, which provides a detailed analysis of the scope of each carveout and the "disproportionate impact" exception. This redline was the basis for the final negotiated MAE definition.*
*[C&H Comment] With respect to the workforce reduction disclosed in exception (ii) above, confirm that all applicable WARN Act notice requirements (for US employees), TUPE consultation requirements (for UK employees, if applicable), and German works council consultation requirements (for German employees, if applicable) have been satisfied. Also confirm that all severance payments and other separation costs have been paid or adequately accrued and that no claims arising from the workforce reduction are pending or threatened. Cross-reference to Schedule 4.7 (Litigation) and Schedule 4.13 (Employee Matters).*
*[C&H Comment] Request confirmation from Ridgeway Phelps & Sato LLP and the Company that no material developments have occurred between the date of the Interim Financial Statements (December 31, 2023) and the signing date of the Merger Agreement (January 22, 2024) that should be separately disclosed on this Schedule. This includes any material customer losses, significant contract amendments, regulatory developments, litigation filings, or other events that could affect the accuracy of the representations in Section 4.6 of the Merger Agreement. The twenty-two-day gap between the Interim Financial Statements and signing represents a period during which undisclosed developments could exist.*
SCHEDULE 4.7 — LITIGATION AND PROCEEDINGS
Content of Disclosure
The following sets forth all pending litigation, arbitration, administrative proceedings, or investigations (or, to the knowledge of the Company, threatened litigation, arbitration, administrative proceedings, or investigations) involving the Company or any of its subsidiaries, in each case as of the date of the Merger Agreement:
Pending Litigation. 1. Stratton Cybersecurity Partners LLC v. Cloudium Technologies plc
2. Ex-Employees Class Action — Ramirez et al. v. Cloudium Technologies plc
3. Cloudium Technologies plc v. Nextera Data Solutions Inc.
Threatened Litigation. 4. On or about November 3, 2023, the Company received a demand letter from Orion Cloud Networks Inc. alleging that the Company breached certain exclusivity provisions of the Strategic Alliance Agreement, dated November 1, 2019, between the Company and Orion Cloud Networks Inc. The demand letter seeks unspecified damages and requests a meeting to discuss resolution. No litigation has been filed as of the date hereof. The Company's General Counsel, Nadia Chowdhury, has engaged with Orion's counsel and believes the claim to be without merit. Estimated exposure if litigation were to be filed: $2,000,000 to $5,000,000.
Governmental Investigations, Subpoenas, or Inquiries
None.
Consent Decrees, Injunctions, or Settlement Agreements
5. Settlement Agreement and Mutual Release, dated March 1, 2022, between Cloudium Technologies plc and Vortex Analytics Inc. The Company entered into this settlement to resolve a trade secret misappropriation claim brought by Vortex. Under the settlement, the Company paid $3,750,000 and agreed to certain ongoing confidentiality obligations with respect to the disputed technology. The confidentiality obligations continue through March 1, 2027. The Company is in compliance with all ongoing obligations under this settlement.
C&H Annotations to Schedule 4.7
*[C&H Comment] Cross-reference to the litigation section of the Calderwood & Harkness due diligence summary memorandum dated January 5, 2024 (prepared by Andrew Fitzpatrick). We have confirmed that all matters identified during the litigation diligence process are reflected on this Schedule 4.7. No discrepancies were identified between this Schedule and the litigation summary provided in the data room (Folder 7.01 — Litigation and Claims).*
*[C&H Comment] With respect to the Stratton Cybersecurity patent infringement matter (Item 1), the estimated exposure range of $15,000,000 to $40,000,000 is significant. Confirm whether this matter falls within the category of "Specified Litigation Matters" that are subject to uncapped special indemnification under Section 9.2(b) of the Merger Agreement. If this matter is not a Specified Litigation Matter, confirm that it is covered by the general indemnification provisions of Article IX and that the R&W insurance policy provides coverage for losses arising from this matter (subject to the retention and policy terms). We recommend that the deal team obtain a supplemental litigation risk assessment from the Company's outside patent litigation counsel and that the estimated exposure be validated independently.*
*[C&H Comment] With respect to the Ramirez class action (Item 2), confirm the class certification timeline and the Company's assessment of the likelihood of class certification. If the class is certified, the exposure could increase materially above the current estimate. Also confirm whether this matter triggers any notification obligations under the Company's employment practices liability insurance (EPLI) policy.*
*[C&H Comment] Flag all disclosed litigation matters for the R&W insurance underwriting process. Any matter that was known to the Company and the buyer as of the signing date may fall within the "known-loss" or "known circumstances" exclusion under the R&W insurance policy issued by Northfield Assurance Ltd. (Policy No. NFA-TRI-2024-00487, $680,000,000 limit). Cross-reference to the Northfield Assurance underwriting call memorandum dated January 16, 2024 (prepared by Tiffany Rosenthal and Andrew Fitzpatrick) and the R&W insurance policy exclusions gap analysis dated January 20, 2024. Confirm that all items on this Schedule 4.7 were disclosed to the Northfield underwriting team and are reflected in the policy's schedule of known matters. Any losses arising from these known matters will not be covered under the R&W policy and will be governed solely by the direct indemnification provisions of Article IX of the Merger Agreement.*
*[C&H Comment] With respect to the Orion Cloud Networks threatened claim (Item 4), cross-reference to Schedule 4.10 (Material Contracts) where the Strategic Alliance Agreement with Orion is listed. The alleged breach of exclusivity provisions should be reviewed in connection with the ongoing commercial relationship and the change of control consent requirement identified on Schedule 4.4.*
SCHEDULE 4.8 — COMPLIANCE WITH LAWS; PERMITS