1041-00003 · Solara Digital Infrastructure LP · Transaction Documents/Merger Agreement

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CALDERWOOD & HARKNESS LLP

PRIVILEGED & CONFIDENTIAL

ATTORNEY WORK PRODUCT

This memorandum is protected by the attorney-client privilege and the work product doctrine. It is intended solely for the use of the client identified herein and may not be disclosed to any third party without the prior written consent of Calderwood & Harkness LLP. Inadvertent disclosure does not constitute a waiver of any applicable privilege.

January 12, 2024

INTERNAL MEMORANDUM

TO: Harrison Wexford, Responsible Partner, Mergers & Acquisitions

FROM: Tiffany Rosenthal, Lead Associate, Mergers & Acquisitions Andrew Fitzpatrick, Working Associate, Mergers & Acquisitions

RE: Review of Interim Operating Covenants — Section 6.1 of the Agreement and Plan of Merger Among Cloudium Technologies plc, Stratos Merger Sub Inc., and Solara Digital Infrastructure Fund VI LP

MATTER NO.: 1041-00003

CLIENT: Solara Digital Infrastructure LP

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I. Executive Summary

This memorandum presents our detailed analysis of Section 6.1 of the draft Agreement and Plan of Merger (Third Revised Draft, dated January 17, 2024, and anticipated to be the substantially final execution version dated January 22, 2024) (the "Merger Agreement") among Cloudium Technologies plc, a public limited company incorporated under the laws of England and Wales ("Cloudium" or the "Company"), Stratos Merger Sub Inc., a Delaware corporation and wholly owned subsidiary of Fund VI ("Merger Sub"), and Solara Digital Infrastructure Fund VI LP, a Delaware limited partnership ("Fund VI" and, together with the other parties, the "Parties"). Section 6.1 governs the operating restrictions applicable to Cloudium and its subsidiaries during the interim period between the signing of the Merger Agreement and the consummation of the transactions contemplated thereby (the "Interim Period").

The transaction is structured as a reverse triangular merger under the Delaware General Corporation Law (the "DGCL"), in which Merger Sub will merge with and into Cloudium, with Cloudium surviving as a wholly owned subsidiary of Fund VI. The aggregate transaction consideration is approximately $6,800,000,000, representing approximately $36.92 per share based on 184,200,000 shares of Cloudium common stock outstanding as of the date hereof. The Merger Agreement was negotiated through multiple drafts, with the most recent substantive negotiation session conducted in person at our offices in New York on January 15, 2024. Limited open items remain as of the date of this memorandum.

The Interim Period is expected to commence on the date of execution of the Merger Agreement (anticipated to be January 22, 2024) and extend through the closing of the merger (the "Closing"), which is contingent upon the satisfaction or waiver of customary closing conditions, including (a) the expiration or early termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), (b) clearance by the United Kingdom's Competition and Markets Authority (the "CMA"), and (c) approval by the holders of a majority of the outstanding shares of Cloudium common stock at a duly convened special meeting of stockholders. Based on the anticipated regulatory filing timeline and the time required to prepare and file the proxy statement with the Securities and Exchange Commission (the "SEC"), we estimate that the Interim Period could last approximately five to six months. The outside date for consummation of the merger, as specified in the Merger Agreement, is June 30, 2024, subject to limited extension provisions.

Section 6.1 is critical to the protection of Solara's investment thesis because, during this potentially extended Interim Period, Cloudium will continue to operate as an independent public company. Solara, as the acquiror, must ensure that the business it is paying $6.8 billion to acquire is not materially altered, impaired, or diminished between signing and closing. The interim operating covenants are designed to require Cloudium to operate in the ordinary course of business consistent with past practice and to refrain from undertaking transformative, extraordinary, or value-diminishing actions without Solara's prior written consent.

Our review of the Third Revised Draft has identified several areas in which the covenants are broadly protective and consistent with market practice for large-cap software acquisitions. However, we have also identified several areas that warrant additional attention and, in some cases, targeted modifications before execution. These areas include:

• Employee Retention: The prohibition on new equity grants and change-of-control arrangements during the Interim Period may create significant retention challenges in the competitive technology labor market. We recommend carving out a pre-agreed cash retention pool of $20,000,000 to $30,000,000.

• Cloud Infrastructure Capital Expenditures: Cloudium's annual recurring revenue ("ARR") growth depends on continued investment in cloud infrastructure. The capital expenditure covenant, while generally flexible, may need a separate, higher threshold for cloud infrastructure commitments.

• SaaS Customer Acquisition: Cloudium's sales teams will continue to pursue and close new customer deals during the Interim Period. The material contracts covenant must be calibrated to permit ordinary-course customer acquisition without creating bottlenecks.

• Material Contract Renewals: Certain key customer and vendor contracts may come up for renewal during the Interim Period. The consent process must be efficient enough to avoid disrupting these renewals while still protecting Solara's interests.

• Coordination with Existing Indebtedness: Cloudium's existing credit agreement with Atlas Commercial Lending Corp. contains its own restrictive covenants and change-of-control provisions. The Merger Agreement's interim covenants must be harmonized with these obligations.

• Financing Cooperation: The Merger Agreement's financing cooperation covenant (Section 6.14) requires Cloudium to take certain actions to support Solara's debt financing. These actions must be expressly carved out from the Section 6.1 restrictions.

Our specific recommendations for threshold adjustments and drafting modifications are set forth in detail below and summarized in Section XIX of this memorandum.

II. Background and Transaction Overview

A. The Parties

Solara Digital Infrastructure LP ("Solara" or "SDILP") is a Delaware limited partnership headquartered at 1200 Market Street, Suite 3400, Wilmington, Delaware 19801. Solara is a leading private equity sponsor focused on investments in digital infrastructure, enterprise software, and related technology sectors. Solara is managed by its co-managing partners, Marcus Elliston and Priya Narasimhan, and currently has aggregate assets under management of approximately $38 billion across multiple fund vintages and co-investment vehicles. Solara has a well-established track record of acquisitions in the enterprise software space, having completed more than twenty platform investments since its founding in 2008.

Solara Digital Infrastructure Fund VI LP ("Fund VI") is the investing fund for purposes of this transaction. Fund VI is a Delaware limited partnership with a vintage year of 2022 and total committed capital of $12.4 billion. The general partner of Fund VI is Solara Fund VI GP LLC, a Delaware limited liability company. Fund VI is a direct party to the Merger Agreement and will be the ultimate parent entity of the surviving corporation following the Closing. Fund VI's limited partner advisory committee has approved the transaction, and no additional fund-level consent is required.

Stratos Merger Sub Inc. ("Merger Sub") is a Delaware corporation that was incorporated on January 8, 2024 (Delaware Secretary of State File Number 7923841) as a direct, wholly owned subsidiary of Fund VI. Merger Sub was formed solely to effectuate the reverse triangular merger and has no assets, liabilities, operations, or employees other than those incidental to its formation and to the consummation of the transactions contemplated by the Merger Agreement. At the Closing, Merger Sub will merge with and into Cloudium and will cease to exist as a separate legal entity.

Cloudium Technologies plc ("Cloudium" or the "Company") is a public limited company incorporated under the laws of England and Wales (Companies House Company Number 09734521). Cloudium's registered office is located at 45 Broadwick Street, London W1F 0DB, United Kingdom, and its United States headquarters is located at 600 Townsend Street, Suite 800, San Francisco, California 94103. Cloudium's shares of common stock are listed on the Nasdaq Global Select Market under the ticker symbol "CLDM." Cloudium is a leading provider of cloud-native enterprise resource planning ("ERP"), customer relationship management ("CRM"), and business intelligence ("BI") software, delivered on a software-as-a-service ("SaaS") basis to enterprise customers globally. Cloudium's current management team includes Jonathan Hargrove (Chief Executive Officer), Sienna Whitfield (Chief Financial Officer), Nadia Chowdhury (General Counsel and Corporate Secretary), and Douglas Pemberton (Chair of the Board of Directors).

Pinnacle Growth Ventures LLC ("Pinnacle") is a Delaware limited liability company that holds approximately 11.6% of the outstanding shares of Cloudium common stock. Pinnacle's managing member is Evelyn Carmichael. Pinnacle has agreed to roll over approximately 60% of its equity stake in Cloudium into the post-closing capital structure, with the remaining 40% of its shares being converted into the right to receive the per-share merger consideration of $36.92. Pinnacle is entering into a rollover agreement and a stockholders' agreement at or prior to the signing of the Merger Agreement.

B. Transaction Structure and Economics

The transaction is structured as a reverse triangular merger under Section 251 of the DGCL. Merger Sub will merge with and into Cloudium, with Cloudium surviving the merger as a direct, wholly owned subsidiary of Fund VI. Following the Closing, Cloudium's shares will be delisted from the Nasdaq Global Select Market, and Cloudium will deregister under the Securities Exchange Act of 1934, as amended.

The key financial parameters of the transaction are as follows:

Cloudium's employee base of approximately 6,800 persons is distributed across four principal jurisdictions: the United States (approximately 2,800 employees), the United Kingdom (approximately 1,200 employees), India (approximately 2,400 employees), and Germany (approximately 400 employees).

Cloudium operates through the following key subsidiaries:

• Cloudium Technologies UK Ltd. (Companies House Company Number 11287456): headquartered in London, with an additional office in Manchester; approximately 1,200 employees; revenue of approximately £312,000,000 for the most recently completed fiscal year; conducts EMEA sales, customer success, and certain product development functions.

• Cloudium Technologies India Pvt. Ltd.: headquartered in Bangalore; approximately 2,400 employees; serves as the Company's primary research and development and customer support center.

• Cloudium Solutions GmbH: headquartered in Berlin; approximately 400 employees; responsible for DACH-region sales and customer success operations.

The sources of funds for the transaction are as follows:

The existing Cloudium indebtedness to be repaid at Closing consists of $620,000,000 outstanding under the term loan tranche and $200,000,000 currently drawn under the revolving credit facility, in each case under the Credit Agreement dated March 15, 2021, among Cloudium Technologies plc, as borrower, Atlas Commercial Lending Corp., as administrative agent and lender, and the other lenders party thereto (the "Atlas Credit Agreement"). The aggregate outstanding indebtedness of $820,000,000 will be repaid in full at Closing from the proceeds of the new financing facilities.

C. Anticipated Interim Period Timeline

The following timeline reflects our current best estimate of the key milestones between signing and Closing:

As the table above indicates, the Interim Period could last approximately five to six months. This is a significant period during which Cloudium will continue to operate as an independent company, executing its business plan, serving customers, managing employees, and meeting financial obligations. The length of the Interim Period underscores the importance of carefully drafted and appropriately calibrated interim operating covenants.

The most significant variable in the timeline is the regulatory review process. If either the Department of Justice or the Federal Trade Commission issues a Second Request under the HSR Act, or if the CMA refers the transaction to a Phase 2 investigation, the Interim Period could be extended significantly. The outside date of June 30, 2024 provides a buffer, but a protracted regulatory review could test the limits of the covenants.

D. Counsel Involved

The following law firms and advisors are engaged in connection with the transaction:

Buyer's Counsel:

Calderwood & Harkness LLP — M&A Group: Harrison Wexford (Responsible Partner), Beatrice Holloway (Partner), Tiffany Rosenthal (Lead Associate), Andrew Fitzpatrick (Working Associate); Antitrust & Competition Group: Elaine Forsythe (Partner); Tax Group: Leonard Cross (Partner).

Target's Counsel:

Ridgeway Phelps & Sato LLP — M&A Group: Catherine Answorth (Lead Partner), together with associates; London Corporate Group: Alistair Fenn (Partner), advising on English law matters.

Tax Structuring Advisors (Buyer-Side):

Glenmore Thornton LLP — Richard Okamura and Vanessa Liu.

UK Competition Counsel (Buyer-Side):

Albright & Kerr LLP — Fiona McAllister (Partner).

Financial Advisor (Buyer-Side):

Osprey Bancroft & Co. — Damien Harlow (Managing Director).

The provisions of Section 6.1 analyzed in this memorandum reflect the Third Revised Draft of the Merger Agreement, which was circulated on January 17, 2024, following the January 15, 2024 in-person negotiation session at Calderwood & Harkness's offices in New York. As of the date of this memorandum, limited open items remain in the Merger Agreement, including certain bracketed thresholds and cross-references within Section 6.1 itself. We anticipate that these remaining points will be resolved in advance of the planned January 22, 2024 signing date.

III. Structural Overview of Section 6.1

A. General Ordinary-Course Obligation

Section 6.1(a) of the Merger Agreement establishes the overarching covenant governing Cloudium's conduct during the Interim Period. It provides, in relevant part:

During the period from the date of this Agreement until the earlier of the Effective Time and the termination of this Agreement in accordance with Article VIII (the "Interim Period"), except as (i) required by applicable Law, (ii) expressly contemplated, permitted, or required by this Agreement (including as set forth in the Disclosure Schedules), or (iii) consented to in writing by Parent (such consent not to be unreasonably withheld, conditioned, or delayed, except as otherwise expressly provided in Section 6.1(b)), the Company shall, and shall cause each of its Subsidiaries to, conduct their respective businesses in the ordinary course of business consistent with past practice in all material respects.

This formulation is standard for large-cap public company acquisitions and reflects the approach taken in the vast majority of comparable precedent transactions. The covenant imposes two cumulative requirements on Cloudium: first, that the business be conducted in the "ordinary course of business," meaning that Cloudium should carry on its day-to-day operations in a manner consistent with its established patterns of behavior and typical commercial activity; and second, that such conduct be "consistent with past practice," which provides an additional benchmark by reference to Cloudium's historical operational patterns over a reasonable look-back period.

The inclusion of the qualifier "in all material respects" provides Cloudium with a degree of operational flexibility. This qualifier recognizes that, in the real world, not every operational decision will fall precisely within the bounds of past practice, and that immaterial deviations should not constitute covenant violations. At the same time, the qualifier sets a minimum standard — material departures from ordinary-course operations are not permitted without Solara's consent.

Section 6.1(a) further provides that Cloudium shall use "commercially reasonable efforts" to:

(i) preserve its business organizations substantially intact;

(ii) maintain its existing relationships with customers (including, without limitation, Aegis Federal Solutions Inc., which contributes $84,000,000 in ARR and is Cloudium's largest single customer), suppliers, licensors, licensees, distributors, and other persons with which Cloudium has material business relationships;

(iii) keep available the services of its present officers, key employees, and key consultants; and

(iv) preserve the goodwill of the Company and its Subsidiaries and their relationships with governmental authorities in each jurisdiction where they conduct business (including the United States, the United Kingdom, India, and Germany).

The "commercially reasonable efforts" standard is a moderate efforts obligation that requires Cloudium to take steps that a reasonable businessperson in Cloudium's position would take, but does not require Cloudium to take extraordinary measures or incur disproportionate costs. This standard is appropriate given that Cloudium will remain an independent, publicly traded company during the Interim Period and must balance its obligations under the Merger Agreement with its ongoing fiduciary duties to its stockholders.

B. Negative Covenants — Consent-Required Actions

Section 6.1(b) sets forth an enumerated list of specific actions that Cloudium may not take during the Interim Period without the prior written consent of Solara (acting through Fund VI). The list is comprehensive and covers the following major categories:

(i) Capital structure and equity (Section 6.1(b)(i))

(ii) Indebtedness and financial obligations (Section 6.1(b)(ii))

(iii) Acquisitions and dispositions (Section 6.1(b)(iii))

(iv) Capital expenditures (Section 6.1(b)(iv))

(v) Material contracts (Section 6.1(b)(v))

(vi) Employment and compensation (Section 6.1(b)(vi))

(vii) intellectual property (Section 6.1(b)(vii))

(viii) Tax matters (Section 6.1(b)(viii))

(ix) Litigation and settlements (Section 6.1(b)(ix))

(x) Insurance (Section 6.1(b)(x))

(xi) Real property (Section 6.1(b)(xi))

(xii) Accounting (Section 6.1(b)(xii))

(xiii) Related-party transactions (Section 6.1(b)(xiii))

(xiv) Charter and organizational documents (Section 6.1(b)(xiv))

(xv) Agreements to do restricted acts (Section 6.1(b)(xv))

For most of these categories, Solara's consent is subject to a "not to be unreasonably withheld, conditioned, or delayed" standard. However, for certain categories that are deemed to be of particular significance to Solara's investment thesis, consent is in Solara's "sole discretion." We discuss each category in detail in Sections IV through XIV below.

C. Interaction with Fiduciary Duties

Section 6.1 is subject to the fiduciary-out provisions set forth in Section 6.4 of the Merger Agreement, which governs the no-shop covenant and the circumstances under which the Cloudium Board of Directors may respond to unsolicited superior proposals. However, the interim operating covenants in Section 6.1 do not themselves contain a standalone fiduciary exception. This means that, even if the Cloudium Board determines that its fiduciary duties under English law or applicable US securities laws require it to engage with or recommend a superior proposal, Cloudium remains obligated to comply with the operational restrictions in Section 6.1 unless and until the Merger Agreement is terminated in accordance with Article VIII.

The Cloudium Board retains its fiduciary duties under English law, including the duties set forth in Sections 171 through 177 of the Companies Act 2006 (including the duty to act within powers, the duty to promote the success of the company, the duty to exercise independent judgment, and the duty to exercise reasonable care, skill, and diligence). To the extent applicable, the Board also owes duties to its stockholders under Nasdaq listing standards and applicable US securities laws. These duties operate in parallel with, but do not override, the contractual obligations set forth in Section 6.1 of the Merger Agreement.

It bears noting that the no-shop provision in Section 6.4 becomes effective upon signing and prohibits the Cloudium Board from soliciting, initiating, or knowingly encouraging or facilitating any inquiry, proposal, or offer that constitutes or could reasonably be expected to lead to a competing acquisition proposal. The fiduciary-out exception permits the Board to respond to a bona fide, unsolicited superior proposal, subject to detailed procedural requirements, including a five-business-day matching right in favor of Solara. If the Merger Agreement is terminated in connection with a superior proposal, Cloudium is obligated to pay a termination fee of $221,000,000 (representing 3.25% of the aggregate deal value). None of this, however, affects the obligation of Cloudium to comply with the Section 6.1 interim operating covenants during the pendency of the Merger Agreement.

D. Knowledge and Oversight Mechanism

Section 6.1(c) establishes an affirmative notification obligation that complements the negative covenants in Section 6.1(b). Under this provision, Cloudium is required to provide Solara (through Fund VI, with copies to Calderwood & Harkness LLP) with prompt written notice of any event, circumstance, or proposed action that:

(i) would reasonably be expected to require consent under Section 6.1(b);

(ii) could reasonably be expected to result in a material adverse effect on the business, assets, financial condition, or results of operations of Cloudium and its subsidiaries, taken as a whole; or

(iii) could reasonably be expected to result in a breach of any representation, warranty, covenant, or agreement of Cloudium under the Merger Agreement.

This notification obligation is critical to Solara's ability to monitor Cloudium's operations during the Interim Period and to exercise its consent rights in a timely and informed manner. The effectiveness of this provision depends, in practice, on the willingness and ability of Cloudium's management team — particularly Nadia Chowdhury (General Counsel) and Sienna Whitfield (CFO) — to identify situations requiring notification and to communicate them promptly and completely.

In addition to the notification obligation in Section 6.1(c), Solara's oversight during the Interim Period is supported by two additional provisions of the Merger Agreement:

Section 6.2 — Financial Reporting: Cloudium is obligated to provide Solara with monthly unaudited consolidated financial statements within 30 calendar days following the end of each calendar month during the Interim Period, as well as quarterly financial statements consistent with Cloudium's SEC reporting obligations. These financial reports serve as a key monitoring tool for covenant compliance, as they allow Solara to track capital expenditures, indebtedness levels, and other financial metrics against the thresholds established in Section 6.1(b).

Section 6.3 — Access and Information Rights: Solara and its representatives (including Calderwood & Harkness, Osprey Bancroft & Co., and Glenmore Thornton LLP) are entitled to reasonable access to Cloudium's personnel, properties, books, and records during the Interim Period, upon reasonable notice and during normal business hours. This access is subject to customary limitations, including (a) confidentiality obligations, (b) restrictions on access to privileged information, and (c) compliance with antitrust gun-jumping limitations.

Together, these provisions create a comprehensive oversight framework that allows Solara to protect its investment during the potentially extended Interim Period while respecting Cloudium's continued independence as an operating company.

IV. Capital Structure and Equity — Section 6.1(b)(i)

A. Prohibition on Changes to Capital Structure

Section 6.1(b)(i) restricts Cloudium's ability to alter its capital structure during the Interim Period. The specific prohibitions include the following:

Issuance of Equity Securities. Cloudium may not issue, sell, grant, pledge, dispose of, or encumber any shares of capital stock, equity interests, or securities convertible into or exercisable or exchangeable for any equity interests of Cloudium or any of its subsidiaries. This prohibition extends to stock options, restricted stock units ("RSUs"), stock appreciation rights, phantom equity, and other equity-linked instruments. The prohibition is designed to prevent dilution of the equity value for which Solara is paying and to maintain the integrity of the per-share merger consideration calculation.

The prohibition is subject to two exceptions:

(1) Outstanding Equity Awards: Cloudium may issue shares of common stock upon the exercise of outstanding stock options or the settlement of RSUs that were granted prior to the signing of the Merger Agreement, in each case in accordance with their existing terms as disclosed in Schedule 4.3 (Capitalization) of the disclosure schedules. This exception is necessary to permit the continued operation of Cloudium's existing equity compensation program and to honor Cloudium's contractual obligations to employees holding vested equity awards.

(2) Employee Stock Purchase Plan: Cloudium may issue shares of common stock under its existing Employee Stock Purchase Plan ("ESPP") for the offering period that is in effect as of the date of the Merger Agreement, provided that no new offering period under the ESPP shall commence during the Interim Period. This exception recognizes that Cloudium's ESPP is an important component of its total compensation package and that the termination of an in-progress offering period could create legal and employee-relations issues.

Stock Splits and Reclassifications. Cloudium may not effect any stock split, reverse stock split, reclassification, combination, subdivision, or similar change with respect to its outstanding capital stock. Any such action could alter the per-share economics of the merger and create complications in the calculation of the merger consideration.

Dividends and Distributions. Cloudium may not declare, set aside, or pay any dividend or other distribution (whether in cash, stock, property, or otherwise) with respect to its capital stock, except for:

(a) regular quarterly cash dividends consistent with past practice and not to exceed the amounts set forth in Schedule 6.1(b)(i)(A) of the disclosure schedules (which reflects Cloudium's most recent quarterly dividend of $0.06 per share, or approximately $11,052,000 per quarter); and

(b) dividends or distributions by wholly owned subsidiaries of Cloudium to Cloudium or to other wholly owned subsidiaries of Cloudium in the ordinary course.

Share Repurchases and Redemptions. Cloudium may not repurchase, redeem, or otherwise acquire any shares of its capital stock or any securities convertible into or exercisable or exchangeable for any shares of its capital stock, except for the withholding of shares in connection with the satisfaction of tax obligations upon the vesting of RSUs, in accordance with the existing terms of Cloudium's equity compensation plans as in effect on the date of the Merger Agreement.

Consent Standard. Consent for any action under Section 6.1(b)(i) is in Solara's "sole discretion," reflecting the heightened importance of this provision to the economic terms of the transaction. This is one of the few categories where the more permissive "not unreasonably withheld" standard does not apply.

B. Analysis and Recommendations

As of the date of this memorandum, Cloudium has 184,200,000 shares of common stock outstanding. Cloudium does not have a recent history of special dividends, extraordinary distributions, or share repurchase programs. The regular quarterly dividend of $0.06 per share ($11,052,000 per quarter, or approximately $44,208,000 on an annualized basis) is well within the exception provided in the covenant.

The continued operation of Cloudium's equity compensation plans during the Interim Period is critical for employee retention. Based on the information provided during due diligence, Cloudium has approximately 12,400,000 stock options outstanding (with a weighted average exercise price of $27.14) and approximately 8,600,000 RSUs outstanding (with a weighted average remaining vesting period of approximately 1.8 years). The ESPP currently has approximately 2,200 active participants with aggregate payroll deductions of approximately $18,000,000 per offering period.

Recommendation 1: We recommend that Solara confirm with Sienna Whitfield (CFO) and Nadia Chowdhury (General Counsel) the exact number, terms, and vesting schedules of all outstanding equity awards (options, RSUs, and any other equity-linked instruments) as of the anticipated signing date, as well as the current ESPP participation levels and the end date of the current offering period. This information is necessary to verify the accuracy of Schedule 4.3 (Capitalization) and to model the potential dilutive impact of equity award exercises and settlements during the Interim Period.

Recommendation 2: The prohibition on new equity grants during the Interim Period may create retention challenges, particularly over a five-to-six-month period in which Cloudium's most talented engineers, product managers, and sales professionals will be aware that the company is being acquired and may be recruited by competitors. Cloudium's management team has flagged this concern during the negotiation process, and Ridgeway Phelps & Sato has requested a narrow exception for retention-oriented equity grants below a specified dollar threshold (e.g., $5,000,000 in aggregate). This request was discussed during the January 15 negotiation session, and Ridgeway Phelps resisted a bright-line exception, preferring instead to rely on the consent mechanism (with consent not to be unreasonably withheld). As the draft currently stands, any new equity grant requires Solara's consent, which is in Solara's sole discretion. We note that this sole-discretion standard may be more restrictive than is necessary for small retention grants; Solara should consider whether a limited carveout for retention grants (subject to a dollar cap and limited to designated key employees) would be appropriate. This issue is related to the broader employee retention analysis discussed in Section IX below.

V. Indebtedness and Financial Obligations — Section 6.1(b)(ii)

A. Restrictions

Section 6.1(b)(ii) governs Cloudium's ability to incur, assume, or guarantee indebtedness during the Interim Period. The key provisions are as follows:

Indebtedness Thresholds. Cloudium may not incur, assume, or guarantee any indebtedness for borrowed money in excess of $10,000,000 individually or $25,000,000 in the aggregate during the Interim Period, without Solara's prior written consent. This threshold applies to all forms of indebtedness, including bank borrowings, notes, bonds, debentures, capital leases (to the extent classified as indebtedness), and similar obligations.

The prohibition is subject to two exceptions:

(a) Existing Revolving Credit Facility: Cloudium may continue to borrow and repay amounts under its existing revolving credit facility with Atlas Commercial Lending Corp., up to the existing committed capacity of $400,000,000. As of the date of this memorandum, $200,000,000 is currently drawn under the revolver, leaving $200,000,000 of available capacity. This exception recognizes that Cloudium relies on the revolving credit facility for working capital management and that restricting access to this facility could impair Cloudium's ability to fund ordinary-course operations.

(b) Intercompany Indebtedness: Cloudium and its wholly owned subsidiaries may incur intercompany indebtedness among themselves in the ordinary course of business. This exception is necessary to permit the continued operation of Cloudium's internal treasury management and intercompany funding arrangements, which are used to allocate capital among the parent company and its subsidiaries in the United States, the United Kingdom, India, and Germany.

Amendments to Existing Credit Agreement. Cloudium may not amend, modify, supplement, or waive any material term of the Atlas Credit Agreement without Solara's prior written consent. This restriction is designed to prevent Cloudium from taking any action with respect to its existing indebtedness that could complicate or impair the planned repayment at Closing or that could create new obligations or restrictions that would be binding on the surviving company.

Liens and Security Interests. Cloudium may not create, incur, assume, or suffer to exist any lien, security interest, charge, mortgage, pledge, or other encumbrance on any material asset of Cloudium or any subsidiary, other than (a) liens securing the existing indebtedness under the Atlas Credit Agreement, (b) permitted liens (as defined in the Merger Agreement to include statutory liens, mechanics' liens, tax liens not yet due and payable, and similar customary exceptions), and (c) liens incurred in the ordinary course of business consistent with past practice.

B. Analysis and Recommendations

Cloudium's existing indebtedness profile as of the date of this memorandum consists of the following:

The aggregate outstanding indebtedness of $820,000,000 will be repaid in full at Closing from the proceeds of the new financing facilities to be provided by Meridian Atlantic Bank, N.A. and Ironclad Capital Markets LLC. The interim covenant appropriately allows Cloudium to continue drawing on the existing revolving credit facility for working capital purposes while prohibiting the incurrence of new material indebtedness.

The individual and aggregate thresholds of $10,000,000 and $25,000,000, respectively, are reasonable for a company of Cloudium's size, with $1,620,000,000 in LTM revenue and $405,000,000 in LTM adjusted EBITDA. These thresholds provide sufficient headroom for immaterial borrowings (e.g., equipment financing, short-term credit facilities for foreign subsidiaries) while ensuring that any significant new indebtedness requires Solara's approval.

Key Consideration — Letters of Credit and Performance Bonds: Cloudium's enterprise SaaS business may require the issuance of letters of credit, bank guarantees, or performance bonds in connection with customer contracts, particularly government contracts and large enterprise engagements. We recommend confirming that these instruments are captured in the definition of "Permitted Indebtedness" in Article I of the Merger Agreement or are otherwise carved out from the restrictions in Section 6.1(b)(ii). If letters of credit and similar instruments are not expressly addressed, Cloudium could face operational difficulties in responding to customer requests during the Interim Period, potentially impairing customer relationships and revenue.

Key Consideration — Harmonization with Atlas Credit Agreement: The Atlas Credit Agreement contains its own restrictive covenants and, importantly, a change-of-control provision that will trigger a mandatory prepayment obligation upon the consummation of the merger. During the Interim Period, Cloudium must continue to comply with the financial covenants and other restrictions in the Atlas Credit Agreement, and the Merger Agreement's interim covenants must not conflict with these obligations. For example, if the Atlas Credit Agreement requires Cloudium to maintain a minimum interest coverage ratio or a maximum leverage ratio, any actions permitted under Section 6.1 of the Merger Agreement (such as additional borrowings under the revolving credit facility) must also be permissible under the Atlas Credit Agreement. We recommend that Tiffany Rosenthal or Andrew Fitzpatrick conduct a cross-reference review of the key covenants in both agreements to identify any potential conflicts.

Recommendation: No modifications to the thresholds in Section 6.1(b)(ii) are recommended at this time. The thresholds are consistent with market practice and appropriate for a company of Cloudium's size. However, we recommend confirming the treatment of letters of credit and performance bonds and conducting the cross-reference review described above.

VI. Acquisitions and Dispositions — Section 6.1(b)(iii)

A. Restrictions

Section 6.1(b)(iii) restricts Cloudium's ability to engage in acquisitions, dispositions, and strategic transactions during the Interim Period. The specific provisions are as follows:

Acquisitions. Cloudium may not acquire (whether by merger, consolidation, purchase of assets, equity purchase, or otherwise) any business, entity, division, or material asset group with a value in excess of $15,000,000 individually or $30,000,000 in the aggregate, without Solara's prior written consent (in Solara's sole discretion for individual acquisitions above $15,000,000). This prohibition extends to both domestic and international acquisitions and covers all forms of acquisition consideration, including cash, stock, assumption of liabilities, and earn-out payments.

Dispositions. Cloudium may not sell, lease, license, transfer, assign, or otherwise dispose of any material assets outside the ordinary course of business, except for:

(a) sales of inventory in the ordinary course of business consistent with past practice;

(b) dispositions of obsolete, worn-out, or surplus equipment or other assets that are no longer used or useful in the business; and

(c) non-exclusive licenses of intellectual property in the ordinary course of business consistent with past practice (this exception is critical for Cloudium's SaaS business model, as discussed further in Section X below).

Joint Ventures and Strategic Alliances. Cloudium may not enter into any joint venture, partnership, strategic alliance, or similar arrangement involving aggregate commitments, capital contributions, or other financial obligations in excess of $5,000,000, without Solara's prior written consent.

B. Analysis and Recommendations

The acquisition and disposition thresholds in Section 6.1(b)(iii) are appropriate given the strategic rationale for the transaction. Solara is acquiring Cloudium at a premium valuation (approximately 16.8x EV/EBITDA), and the investment thesis is predicated on the value of the existing business as constituted. Any material acquisition during the Interim Period could introduce new risks, liabilities, or integration challenges that were not contemplated in Solara's underwriting, and any material disposition could diminish the value of the acquired enterprise.

Cloudium's SaaS business model does not typically involve large asset dispositions. The primary assets of the business are intellectual property (software code, patents, trademarks), customer contracts, and human capital, none of which are susceptible to ordinary-course disposition in the traditional sense. The carveout for non-exclusive IP licenses is essential for business continuity, as Cloudium's revenue model is built on the licensing of its software on a subscription basis to enterprise customers.

The $15,000,000 individual acquisition threshold provides sufficient headroom for Cloudium to complete small tuck-in technology acquisitions or acqui-hires that may already be in the pipeline. Technology companies of Cloudium's size frequently evaluate and pursue small acquisitions to augment their product capabilities, acquire engineering talent, or expand into adjacent markets. Such acquisitions are typically in the $3,000,000 to $10,000,000 range and may be difficult to pause for an extended Interim Period without competitive consequences.

Recommendation 1: Solara should request from Cloudium management a list of all contemplated or in-process acquisitions, including those in the pipeline that may close during the Interim Period. This list should include a brief description of each target, the expected acquisition price, the strategic rationale, and the anticipated timing. To the extent any of these acquisitions exceed the $15,000,000 threshold, Solara should evaluate whether pre-signing consent can be provided.

Recommendation 2: We should confirm that cloud infrastructure procurement — specifically, long-term commitments for data center capacity, reserved instances under Ridgeway Industries ("Meridian Technologies") or Crestline Systems, and similar arrangements — is treated as an operating expense or lease commitment rather than an "acquisition" under Section 6.1(b)(iii). These commitments are essential to support Cloudium's ARR growth and are a routine part of Cloudium's business operations. If there is any ambiguity, we should propose clarifying language to ensure that such procurement is governed by the capital expenditure covenant (Section 6.1(b)(iv)) rather than the acquisition covenant.

VII. Capital Expenditures — Section 6.1(b)(iv)

A. Restrictions

Section 6.1(b)(iv) restricts Cloudium's capital expenditures during the Interim Period. The specific provisions are as follows:

Budget Cap. Cloudium's capital expenditures during the Interim Period may not exceed 110% of the amounts set forth in Cloudium's board-approved annual capital expenditure budget for the fiscal year ending September 30, 2024 (the "CapEx Budget"), measured on a quarterly basis, without Solara's prior written consent. The CapEx Budget is to be provided by Cloudium within 10 business days following the signing of the Merger Agreement and is to be attached as a supplement to the disclosure schedules.

The 110% threshold provides Cloudium with a reasonable degree of flexibility to manage normal fluctuations in the timing and amount of capital expenditures while protecting Solara against material overspend. The quarterly measurement period ensures that Cloudium cannot front-load expenditures early in the Interim Period and then claim compliance on an annualized basis.

Emergency Exception. Notwithstanding the foregoing budget cap, Cloudium may incur emergency capital expenditures that are necessary to protect life, safety, or property, or to prevent material disruption to business operations, in an amount not to exceed $5,000,000 per occurrence without Solara's prior written consent, provided that Cloudium delivers prompt written notice to Solara of any such emergency expenditure (including a description of the emergency, the nature and amount of the expenditure, and the expected impact on the CapEx Budget).

B. Analysis and Recommendations

Cloudium is a cloud-native SaaS company whose capital expenditures are predominantly concentrated in the following categories:

(a) Internal-Use Software Development: Cloudium capitalizes certain costs associated with the development of its internal-use software platform under ASC 350-40 (Intangibles — Goodwill and Other: Internal-Use Software). These capitalized development costs represent a significant portion of Cloudium's total capital expenditures and are directly correlated with the company's R&D investment.

(b) Leasehold Improvements: Cloudium maintains leased office space in San Francisco, London, Manchester, Bangalore, and Berlin. Leasehold improvements include build-outs of new office space, renovations, and IT infrastructure installations.

(c) Data Center and IT Infrastructure: Although Cloudium's platform is primarily hosted on third-party cloud infrastructure (Meridian Technologies and Azure), the company does maintain certain proprietary data center assets, networking equipment, and other IT infrastructure.

The 110% budget cap is generally reasonable and consistent with market practice for comparable transactions. However, we note the following specific concern:

Cloud Infrastructure Investment Risk: Cloudium's ARR growth trajectory (from $1,620,000,000 in LTM revenue to $1,740,000,000 in ARR as of December 31, 2023) depends on continued investment in cloud infrastructure, including the expansion of hosting capacity, migration and optimization across cloud providers, and scaling of processing and storage resources. Any interruption or deferral of these investments during the Interim Period could impair Cloudium's ability to onboard new customers, support existing customers' growth, and maintain the performance and reliability of its platform. In a competitive SaaS market, even short-term performance degradation can result in customer churn and reputational damage that is difficult to reverse.

We understand from the due diligence process that Cloudium is currently evaluating a potential expansion of its Meridian Technologies hosting capacity to support anticipated growth in the second half of fiscal year 2024. This expansion could involve a multi-year committed spend arrangement with Meridian Technologies that may not be captured in the current CapEx Budget (which was developed before the specific terms of the expansion were finalized). If the committed spend exceeds the 110% quarterly cap, Cloudium would need to seek Solara's consent.

Recommendation 1: We recommend verifying with Sienna Whitfield (CFO) that the CapEx Budget adequately captures all planned cloud infrastructure spend for the fiscal year ending September 30, 2024, including any pending or contemplated committed spend arrangements with Meridian Technologies, Azure, or other cloud providers. If there is a risk that planned investments will exceed the 110% cap, we should consider negotiating a separate, higher threshold for cloud infrastructure commitments — for example, permitting cloud infrastructure expenditures up to 125% or 130% of the budgeted amount, or establishing a separate dollar-amount carveout for specific identified projects.

Recommendation 2: We should coordinate with the financing cooperation covenant in Section 6.14 to ensure that costs incurred by Cloudium in supporting Solara's debt financing process (such as the costs of providing financial information, obtaining comfort letters, participating in lender presentations, and related activities) are excluded from the CapEx Budget cap and treated as transaction expenses reimbursable by Solara. If these costs are inadvertently included in the CapEx calculation, they could consume headroom that Cloudium needs for operational investments.

VIII. Material Contracts — Section 6.1(b)(v)

A. Restrictions

Section 6.1(b)(v) governs Cloudium's ability to enter into, amend, modify, terminate, waive, or renew "Material Contracts" during the Interim Period. This is one of the most operationally significant covenants in Section 6.1 because Cloudium's business is contract-intensive and its revenue is derived almost entirely from subscription agreements with enterprise customers.

General Prohibition. Cloudium may not enter into, materially amend, modify, terminate, waive any material provision of, or renew any "Material Contract" (as defined in Section 1.1 of the Merger Agreement) without Solara's prior written consent.

The definition of "Material Contract" in Article I encompasses the following categories:

(i) contracts involving aggregate consideration or commitments in excess of $5,000,000 per annum;

(ii) contracts with any of Cloudium's top 25 customers by ARR;

(iii) contracts with key technology partners and platform providers (including Meridian Technologies, Crestline Systems, Pinnacle Health IT, and similar providers);

(iv) government contracts and subcontracts (including contracts with the United States federal government, UK government entities, and German public sector entities);

(v) real property leases; and

(vi) other contracts specifically identified in Schedule 4.12 (Material Contracts) of the disclosure schedules.

Customer Renewal Exception. Notwithstanding the general prohibition, Cloudium may renew existing customer subscription agreements in the ordinary course of business on substantially similar or improved terms, without Solara's prior written consent. However, this exception is subject to an important limitation: Cloudium may not agree to any pricing reduction exceeding 10% from the existing contracted rates for any customer with ARR above $5,000,000 without Solara's prior written consent. This pricing floor is designed to prevent value erosion through discounted renewals during the Interim Period.

Consent Standard. For Material Contracts generally, consent is subject to the "not unreasonably withheld, conditioned, or delayed" standard. However, for contracts with any of Cloudium's top 10 customers by ARR, consent is in Solara's sole discretion. This distinction reflects the disproportionate revenue concentration risk associated with Cloudium's largest customer relationships.

B. Analysis and Recommendations

Cloudium's top 25 customers by ARR represent a substantial portion of total revenue, and the stability and renewal of these relationships during the Interim Period is critical to preserving the value of the business. We highlight the following specific contracts that require particular attention:

Aegis Federal Solutions Inc. Aegis is Cloudium's largest customer, contributing $84,000,000 in ARR. The Master SaaS Agreement between Cloudium and Aegis contains a change-of-control consent requirement, meaning that Aegis's prior written consent must be obtained before the transaction can be consummated without triggering a termination or renegotiation right. This consent will need to be obtained prior to Closing as a practical matter (and is addressed separately in the closing conditions). During the Interim Period, Cloudium should not agree to any amendments to the Aegis contract that could complicate the consent process or give Aegis additional leverage in the consent negotiation. We recommend that any proposed amendments to the Aegis contract be reviewed by Calderwood & Harkness before they are presented to Solara for consent.

Helix Data Systems GmbH. Cloudium's Technology License Agreement with Helix Data Systems GmbH contains a termination-for-change-of-control clause that is similar in effect to the Aegis consent requirement. Cloudium licenses certain data integration technology from Helix that is embedded in the Cloudium platform. If Helix exercises its termination right, Cloudium would need to identify and integrate a replacement technology, which could take several months and impair the platform's functionality. During the Interim Period, no amendments should be made to the Helix agreement that could affect the change-of-control analysis or provide Helix with additional grounds for termination.

New Customer Contracts. Cloudium's sales teams will continue to pursue and close new customer deals throughout the Interim Period. This is essential for maintaining the ARR growth trajectory that underpins Solara's investment thesis. New customer contracts entered into in the ordinary course of business on Cloudium's standard terms and conditions should be permitted without Solara's consent, provided that the contract does not involve unusual terms, pricing below standard thresholds, commitments above $5,000,000 per annum, or other features that deviate materially from past practice.

Recommendation 1: Solara should designate a point person for the prompt review and processing of consent requests related to Material Contracts. Given the pace of Cloudium's sales operations, delays in the consent process could result in lost deals, customer dissatisfaction, or competitive harm. We suggest that a member of the Osprey Bancroft & Co. deal team or a Solara operating partner with relevant industry experience be designated to serve in this role, with authority to approve routine consent requests on an expedited basis. The unreasonable-withholding standard imposes an affirmative obligation on Solara to act in good faith, and any pattern of delay or obstruction could expose Solara to a claim of breach.

Recommendation 2: We recommend confirming that the customer renewal exception permits Cloudium's sales teams to renew SaaS subscriptions on standard terms without delay. The 10% pricing reduction cap provides a reasonable safeguard against value erosion, but we should verify that the exception is clear enough to be implemented at the sales-team level without requiring legal review of each individual renewal. For customers below $5,000,000 in ARR, the pricing cap does not apply, providing additional flexibility.

Recommendation 3: For new customer contracts, we recommend adding a clarifying provision to the effect that new SaaS subscription agreements entered into in the ordinary course of business on Cloudium's standard form of agreement, with aggregate annual commitments not exceeding $5,000,000, are deemed not to be "Material Contracts" for purposes of Section 6.1(b)(v) and may be entered into without Solara's consent. This clarification would reduce the administrative burden on both Cloudium and Solara and would be consistent with the definition of "Material Contract" in Article I.

IX. Employment and Compensation — Section 6.1(b)(vi)

A. Restrictions

Section 6.1(b)(vi) contains a comprehensive set of restrictions on Cloudium's employment and compensation practices during the Interim Period. These restrictions are among the most operationally sensitive provisions in Section 6.1, as they directly affect Cloudium's ability to attract, retain, and manage its workforce of approximately 6,800 employees across four jurisdictions.

Hiring Restrictions. Cloudium may not hire any employee with base compensation in excess of $300,000 per annum without Solara's prior written consent. This threshold captures senior-level hires, including vice presidents, senior directors, principal engineers, and other key roles in a technology company. Hires below the $300,000 threshold are permitted in the ordinary course without consent.

Compensation Increases. Cloudium may not materially increase the compensation or benefits of any existing employee, except for:

(a) annual merit increases consistent with past practice and not exceeding 5% in the aggregate across the entire employee base;

(b) promotions in the ordinary course of business consistent with past practice; and

(c) adjustments required by applicable law or existing contractual obligations, including any collective bargaining agreements to which Cloudium or any subsidiary is a party.

Benefit Plans. Cloudium may not enter into, adopt, or materially amend any employee benefit plan, severance plan, retention arrangement, change-of-control arrangement, or equity compensation plan. This restriction applies to all forms of compensation arrangements, whether cash-based or equity-based, and is designed to prevent Cloudium from creating new financial obligations or contingent liabilities that would be assumed by the surviving company at Closing.

Terminations. Cloudium may not terminate the employment of any employee with base compensation in excess of $300,000 per annum without prior notice to (but not the consent of) Solara, except for terminations for "cause" (as determined in good faith by Cloudium's management). This notice-only requirement for terminations (as opposed to the consent requirement for new hires) reflects the recognition that Cloudium must retain the ability to terminate underperforming or disruptive employees without undue delay.

Workforce Reductions. Cloudium may not implement any general workforce reduction or layoff affecting more than 50 employees in any single jurisdiction. This restriction is designed to prevent Cloudium from undertaking a restructuring or downsizing that could materially alter the size or composition of its workforce before Closing. The 50-employee threshold is calibrated to the requirements of the Worker Adjustment and Retraining Notification Act of 1988, as amended (the "WARN Act"), and equivalent UK notification requirements under the Trade Union and Labour Relations (Consolidation) Act 1992.

CALDERWOOD & HARKNESS LLP
PRIVILEGED & CONFIDENTIAL
ATTORNEY WORK PRODUCT
This memorandum is protected by the attorney-client privilege and the work product doctrine. It is intended solely for the use of the client identified herein and may not be disclosed to any third party without the prior written consent of Calderwood & Harkness LLP. Inadvertent disclosure does not constitute a waiver of any applicable privilege.
January 12, 2024
INTERNAL MEMORANDUM
TO: Harrison Wexford, Responsible Partner, Mergers & Acquisitions
FROM: Tiffany Rosenthal, Lead Associate, Mergers & Acquisitions Andrew Fitzpatrick, Working Associate, Mergers & Acquisitions
RE: Review of Interim Operating Covenants — Section 6.1 of the Agreement and Plan of Merger Among Cloudium Technologies plc, Stratos Merger Sub Inc., and Solara Digital Infrastructure Fund VI LP
MATTER NO.: 1041-00003
CLIENT: Solara Digital Infrastructure LP
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I. Executive Summary
This memorandum presents our detailed analysis of Section 6.1 of the draft Agreement and Plan of Merger (Third Revised Draft, dated January 17, 2024, and anticipated to be the substantially final execution version dated January 22, 2024) (the "Merger Agreement") among Cloudium Technologies plc, a public limited company incorporated under the laws of England and Wales ("Cloudium" or the "Company"), Stratos Merger Sub Inc., a Delaware corporation and wholly owned subsidiary of Fund VI ("Merger Sub"), and Solara Digital Infrastructure Fund VI LP, a Delaware limited partnership ("Fund VI" and, together with the other parties, the "Parties"). Section 6.1 governs the operating restrictions applicable to Cloudium and its subsidiaries during the interim period between the signing of the Merger Agreement and the consummation of the transactions contemplated thereby (the "Interim Period").
The transaction is structured as a reverse triangular merger under the Delaware General Corporation Law (the "DGCL"), in which Merger Sub will merge with and into Cloudium, with Cloudium surviving as a wholly owned subsidiary of Fund VI. The aggregate transaction consideration is approximately $6,800,000,000, representing approximately $36.92 per share based on 184,200,000 shares of Cloudium common stock outstanding as of the date hereof. The Merger Agreement was negotiated through multiple drafts, with the most recent substantive negotiation session conducted in person at our offices in New York on January 15, 2024. Limited open items remain as of the date of this memorandum.
The Interim Period is expected to commence on the date of execution of the Merger Agreement (anticipated to be January 22, 2024) and extend through the closing of the merger (the "Closing"), which is contingent upon the satisfaction or waiver of customary closing conditions, including (a) the expiration or early termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), (b) clearance by the United Kingdom's Competition and Markets Authority (the "CMA"), and (c) approval by the holders of a majority of the outstanding shares of Cloudium common stock at a duly convened special meeting of stockholders. Based on the anticipated regulatory filing timeline and the time required to prepare and file the proxy statement with the Securities and Exchange Commission (the "SEC"), we estimate that the Interim Period could last approximately five to six months. The outside date for consummation of the merger, as specified in the Merger Agreement, is June 30, 2024, subject to limited extension provisions.
Section 6.1 is critical to the protection of Solara's investment thesis because, during this potentially extended Interim Period, Cloudium will continue to operate as an independent public company. Solara, as the acquiror, must ensure that the business it is paying $6.8 billion to acquire is not materially altered, impaired, or diminished between signing and closing. The interim operating covenants are designed to require Cloudium to operate in the ordinary course of business consistent with past practice and to refrain from undertaking transformative, extraordinary, or value-diminishing actions without Solara's prior written consent.
Our review of the Third Revised Draft has identified several areas in which the covenants are broadly protective and consistent with market practice for large-cap software acquisitions. However, we have also identified several areas that warrant additional attention and, in some cases, targeted modifications before execution. These areas include:
• Employee Retention: The prohibition on new equity grants and change-of-control arrangements during the Interim Period may create significant retention challenges in the competitive technology labor market. We recommend carving out a pre-agreed cash retention pool of $20,000,000 to $30,000,000.
• Cloud Infrastructure Capital Expenditures: Cloudium's annual recurring revenue ("ARR") growth depends on continued investment in cloud infrastructure. The capital expenditure covenant, while generally flexible, may need a separate, higher threshold for cloud infrastructure commitments.
• SaaS Customer Acquisition: Cloudium's sales teams will continue to pursue and close new customer deals during the Interim Period. The material contracts covenant must be calibrated to permit ordinary-course customer acquisition without creating bottlenecks.
• Material Contract Renewals: Certain key customer and vendor contracts may come up for renewal during the Interim Period. The consent process must be efficient enough to avoid disrupting these renewals while still protecting Solara's interests.
• Coordination with Existing Indebtedness: Cloudium's existing credit agreement with Atlas Commercial Lending Corp. contains its own restrictive covenants and change-of-control provisions. The Merger Agreement's interim covenants must be harmonized with these obligations.
• Financing Cooperation: The Merger Agreement's financing cooperation covenant (Section 6.14) requires Cloudium to take certain actions to support Solara's debt financing. These actions must be expressly carved out from the Section 6.1 restrictions.
Our specific recommendations for threshold adjustments and drafting modifications are set forth in detail below and summarized in Section XIX of this memorandum.
II. Background and Transaction Overview
A. The Parties
Solara Digital Infrastructure LP ("Solara" or "SDILP") is a Delaware limited partnership headquartered at 1200 Market Street, Suite 3400, Wilmington, Delaware 19801. Solara is a leading private equity sponsor focused on investments in digital infrastructure, enterprise software, and related technology sectors. Solara is managed by its co-managing partners, Marcus Elliston and Priya Narasimhan, and currently has aggregate assets under management of approximately $38 billion across multiple fund vintages and co-investment vehicles. Solara has a well-established track record of acquisitions in the enterprise software space, having completed more than twenty platform investments since its founding in 2008.
Solara Digital Infrastructure Fund VI LP ("Fund VI") is the investing fund for purposes of this transaction. Fund VI is a Delaware limited partnership with a vintage year of 2022 and total committed capital of $12.4 billion. The general partner of Fund VI is Solara Fund VI GP LLC, a Delaware limited liability company. Fund VI is a direct party to the Merger Agreement and will be the ultimate parent entity of the surviving corporation following the Closing. Fund VI's limited partner advisory committee has approved the transaction, and no additional fund-level consent is required.
Stratos Merger Sub Inc. ("Merger Sub") is a Delaware corporation that was incorporated on January 8, 2024 (Delaware Secretary of State File Number 7923841) as a direct, wholly owned subsidiary of Fund VI. Merger Sub was formed solely to effectuate the reverse triangular merger and has no assets, liabilities, operations, or employees other than those incidental to its formation and to the consummation of the transactions contemplated by the Merger Agreement. At the Closing, Merger Sub will merge with and into Cloudium and will cease to exist as a separate legal entity.
Cloudium Technologies plc ("Cloudium" or the "Company") is a public limited company incorporated under the laws of England and Wales (Companies House Company Number 09734521). Cloudium's registered office is located at 45 Broadwick Street, London W1F 0DB, United Kingdom, and its United States headquarters is located at 600 Townsend Street, Suite 800, San Francisco, California 94103. Cloudium's shares of common stock are listed on the Nasdaq Global Select Market under the ticker symbol "CLDM." Cloudium is a leading provider of cloud-native enterprise resource planning ("ERP"), customer relationship management ("CRM"), and business intelligence ("BI") software, delivered on a software-as-a-service ("SaaS") basis to enterprise customers globally. Cloudium's current management team includes Jonathan Hargrove (Chief Executive Officer), Sienna Whitfield (Chief Financial Officer), Nadia Chowdhury (General Counsel and Corporate Secretary), and Douglas Pemberton (Chair of the Board of Directors).
Pinnacle Growth Ventures LLC ("Pinnacle") is a Delaware limited liability company that holds approximately 11.6% of the outstanding shares of Cloudium common stock. Pinnacle's managing member is Evelyn Carmichael. Pinnacle has agreed to roll over approximately 60% of its equity stake in Cloudium into the post-closing capital structure, with the remaining 40% of its shares being converted into the right to receive the per-share merger consideration of $36.92. Pinnacle is entering into a rollover agreement and a stockholders' agreement at or prior to the signing of the Merger Agreement.
B. Transaction Structure and Economics
The transaction is structured as a reverse triangular merger under Section 251 of the DGCL. Merger Sub will merge with and into Cloudium, with Cloudium surviving the merger as a direct, wholly owned subsidiary of Fund VI. Following the Closing, Cloudium's shares will be delisted from the Nasdaq Global Select Market, and Cloudium will deregister under the Securities Exchange Act of 1934, as amended.
The key financial parameters of the transaction are as follows:
Cloudium's employee base of approximately 6,800 persons is distributed across four principal jurisdictions: the United States (approximately 2,800 employees), the United Kingdom (approximately 1,200 employees), India (approximately 2,400 employees), and Germany (approximately 400 employees).
Cloudium operates through the following key subsidiaries:
• Cloudium Technologies UK Ltd. (Companies House Company Number 11287456): headquartered in London, with an additional office in Manchester; approximately 1,200 employees; revenue of approximately £312,000,000 for the most recently completed fiscal year; conducts EMEA sales, customer success, and certain product development functions.
• Cloudium Technologies India Pvt. Ltd.: headquartered in Bangalore; approximately 2,400 employees; serves as the Company's primary research and development and customer support center.
• Cloudium Solutions GmbH: headquartered in Berlin; approximately 400 employees; responsible for DACH-region sales and customer success operations.
The sources of funds for the transaction are as follows:
The existing Cloudium indebtedness to be repaid at Closing consists of $620,000,000 outstanding under the term loan tranche and $200,000,000 currently drawn under the revolving credit facility, in each case under the Credit Agreement dated March 15, 2021, among Cloudium Technologies plc, as borrower, Atlas Commercial Lending Corp., as administrative agent and lender, and the other lenders party thereto (the "Atlas Credit Agreement"). The aggregate outstanding indebtedness of $820,000,000 will be repaid in full at Closing from the proceeds of the new financing facilities.
C. Anticipated Interim Period Timeline
The following timeline reflects our current best estimate of the key milestones between signing and Closing:
As the table above indicates, the Interim Period could last approximately five to six months. This is a significant period during which Cloudium will continue to operate as an independent company, executing its business plan, serving customers, managing employees, and meeting financial obligations. The length of the Interim Period underscores the importance of carefully drafted and appropriately calibrated interim operating covenants.
The most significant variable in the timeline is the regulatory review process. If either the Department of Justice or the Federal Trade Commission issues a Second Request under the HSR Act, or if the CMA refers the transaction to a Phase 2 investigation, the Interim Period could be extended significantly. The outside date of June 30, 2024 provides a buffer, but a protracted regulatory review could test the limits of the covenants.
D. Counsel Involved
The following law firms and advisors are engaged in connection with the transaction:
Buyer's Counsel:
Calderwood & Harkness LLP — M&A Group: Harrison Wexford (Responsible Partner), Beatrice Holloway (Partner), Tiffany Rosenthal (Lead Associate), Andrew Fitzpatrick (Working Associate); Antitrust & Competition Group: Elaine Forsythe (Partner); Tax Group: Leonard Cross (Partner).
Target's Counsel:
Ridgeway Phelps & Sato LLP — M&A Group: Catherine Answorth (Lead Partner), together with associates; London Corporate Group: Alistair Fenn (Partner), advising on English law matters.
Tax Structuring Advisors (Buyer-Side):
Glenmore Thornton LLP — Richard Okamura and Vanessa Liu.
UK Competition Counsel (Buyer-Side):
Albright & Kerr LLP — Fiona McAllister (Partner).
Financial Advisor (Buyer-Side):
Osprey Bancroft & Co. — Damien Harlow (Managing Director).
The provisions of Section 6.1 analyzed in this memorandum reflect the Third Revised Draft of the Merger Agreement, which was circulated on January 17, 2024, following the January 15, 2024 in-person negotiation session at Calderwood & Harkness's offices in New York. As of the date of this memorandum, limited open items remain in the Merger Agreement, including certain bracketed thresholds and cross-references within Section 6.1 itself. We anticipate that these remaining points will be resolved in advance of the planned January 22, 2024 signing date.
III. Structural Overview of Section 6.1
A. General Ordinary-Course Obligation
Section 6.1(a) of the Merger Agreement establishes the overarching covenant governing Cloudium's conduct during the Interim Period. It provides, in relevant part:
During the period from the date of this Agreement until the earlier of the Effective Time and the termination of this Agreement in accordance with Article VIII (the "Interim Period"), except as (i) required by applicable Law, (ii) expressly contemplated, permitted, or required by this Agreement (including as set forth in the Disclosure Schedules), or (iii) consented to in writing by Parent (such consent not to be unreasonably withheld, conditioned, or delayed, except as otherwise expressly provided in Section 6.1(b)), the Company shall, and shall cause each of its Subsidiaries to, conduct their respective businesses in the ordinary course of business consistent with past practice in all material respects.
This formulation is standard for large-cap public company acquisitions and reflects the approach taken in the vast majority of comparable precedent transactions. The covenant imposes two cumulative requirements on Cloudium: first, that the business be conducted in the "ordinary course of business," meaning that Cloudium should carry on its day-to-day operations in a manner consistent with its established patterns of behavior and typical commercial activity; and second, that such conduct be "consistent with past practice," which provides an additional benchmark by reference to Cloudium's historical operational patterns over a reasonable look-back period.
The inclusion of the qualifier "in all material respects" provides Cloudium with a degree of operational flexibility. This qualifier recognizes that, in the real world, not every operational decision will fall precisely within the bounds of past practice, and that immaterial deviations should not constitute covenant violations. At the same time, the qualifier sets a minimum standard — material departures from ordinary-course operations are not permitted without Solara's consent.
Section 6.1(a) further provides that Cloudium shall use "commercially reasonable efforts" to:
(i) preserve its business organizations substantially intact;
(ii) maintain its existing relationships with customers (including, without limitation, Aegis Federal Solutions Inc., which contributes $84,000,000 in ARR and is Cloudium's largest single customer), suppliers, licensors, licensees, distributors, and other persons with which Cloudium has material business relationships;
(iii) keep available the services of its present officers, key employees, and key consultants; and
(iv) preserve the goodwill of the Company and its Subsidiaries and their relationships with governmental authorities in each jurisdiction where they conduct business (including the United States, the United Kingdom, India, and Germany).
The "commercially reasonable efforts" standard is a moderate efforts obligation that requires Cloudium to take steps that a reasonable businessperson in Cloudium's position would take, but does not require Cloudium to take extraordinary measures or incur disproportionate costs. This standard is appropriate given that Cloudium will remain an independent, publicly traded company during the Interim Period and must balance its obligations under the Merger Agreement with its ongoing fiduciary duties to its stockholders.
B. Negative Covenants — Consent-Required Actions
Section 6.1(b) sets forth an enumerated list of specific actions that Cloudium may not take during the Interim Period without the prior written consent of Solara (acting through Fund VI). The list is comprehensive and covers the following major categories:
(i) Capital structure and equity (Section 6.1(b)(i))
(ii) Indebtedness and financial obligations (Section 6.1(b)(ii))
(iii) Acquisitions and dispositions (Section 6.1(b)(iii))
(iv) Capital expenditures (Section 6.1(b)(iv))
(v) Material contracts (Section 6.1(b)(v))
(vi) Employment and compensation (Section 6.1(b)(vi))
(vii) intellectual property (Section 6.1(b)(vii))
(viii) Tax matters (Section 6.1(b)(viii))
(ix) Litigation and settlements (Section 6.1(b)(ix))
(x) Insurance (Section 6.1(b)(x))
(xi) Real property (Section 6.1(b)(xi))
(xii) Accounting (Section 6.1(b)(xii))
(xiii) Related-party transactions (Section 6.1(b)(xiii))
(xiv) Charter and organizational documents (Section 6.1(b)(xiv))
(xv) Agreements to do restricted acts (Section 6.1(b)(xv))
For most of these categories, Solara's consent is subject to a "not to be unreasonably withheld, conditioned, or delayed" standard. However, for certain categories that are deemed to be of particular significance to Solara's investment thesis, consent is in Solara's "sole discretion." We discuss each category in detail in Sections IV through XIV below.
C. Interaction with Fiduciary Duties
Section 6.1 is subject to the fiduciary-out provisions set forth in Section 6.4 of the Merger Agreement, which governs the no-shop covenant and the circumstances under which the Cloudium Board of Directors may respond to unsolicited superior proposals. However, the interim operating covenants in Section 6.1 do not themselves contain a standalone fiduciary exception. This means that, even if the Cloudium Board determines that its fiduciary duties under English law or applicable US securities laws require it to engage with or recommend a superior proposal, Cloudium remains obligated to comply with the operational restrictions in Section 6.1 unless and until the Merger Agreement is terminated in accordance with Article VIII.
The Cloudium Board retains its fiduciary duties under English law, including the duties set forth in Sections 171 through 177 of the Companies Act 2006 (including the duty to act within powers, the duty to promote the success of the company, the duty to exercise independent judgment, and the duty to exercise reasonable care, skill, and diligence). To the extent applicable, the Board also owes duties to its stockholders under Nasdaq listing standards and applicable US securities laws. These duties operate in parallel with, but do not override, the contractual obligations set forth in Section 6.1 of the Merger Agreement.
It bears noting that the no-shop provision in Section 6.4 becomes effective upon signing and prohibits the Cloudium Board from soliciting, initiating, or knowingly encouraging or facilitating any inquiry, proposal, or offer that constitutes or could reasonably be expected to lead to a competing acquisition proposal. The fiduciary-out exception permits the Board to respond to a bona fide, unsolicited superior proposal, subject to detailed procedural requirements, including a five-business-day matching right in favor of Solara. If the Merger Agreement is terminated in connection with a superior proposal, Cloudium is obligated to pay a termination fee of $221,000,000 (representing 3.25% of the aggregate deal value). None of this, however, affects the obligation of Cloudium to comply with the Section 6.1 interim operating covenants during the pendency of the Merger Agreement.
D. Knowledge and Oversight Mechanism
Section 6.1(c) establishes an affirmative notification obligation that complements the negative covenants in Section 6.1(b). Under this provision, Cloudium is required to provide Solara (through Fund VI, with copies to Calderwood & Harkness LLP) with prompt written notice of any event, circumstance, or proposed action that:
(i) would reasonably be expected to require consent under Section 6.1(b);
(ii) could reasonably be expected to result in a material adverse effect on the business, assets, financial condition, or results of operations of Cloudium and its subsidiaries, taken as a whole; or
(iii) could reasonably be expected to result in a breach of any representation, warranty, covenant, or agreement of Cloudium under the Merger Agreement.
This notification obligation is critical to Solara's ability to monitor Cloudium's operations during the Interim Period and to exercise its consent rights in a timely and informed manner. The effectiveness of this provision depends, in practice, on the willingness and ability of Cloudium's management team — particularly Nadia Chowdhury (General Counsel) and Sienna Whitfield (CFO) — to identify situations requiring notification and to communicate them promptly and completely.
In addition to the notification obligation in Section 6.1(c), Solara's oversight during the Interim Period is supported by two additional provisions of the Merger Agreement:
Section 6.2 — Financial Reporting: Cloudium is obligated to provide Solara with monthly unaudited consolidated financial statements within 30 calendar days following the end of each calendar month during the Interim Period, as well as quarterly financial statements consistent with Cloudium's SEC reporting obligations. These financial reports serve as a key monitoring tool for covenant compliance, as they allow Solara to track capital expenditures, indebtedness levels, and other financial metrics against the thresholds established in Section 6.1(b).
Section 6.3 — Access and Information Rights: Solara and its representatives (including Calderwood & Harkness, Osprey Bancroft & Co., and Glenmore Thornton LLP) are entitled to reasonable access to Cloudium's personnel, properties, books, and records during the Interim Period, upon reasonable notice and during normal business hours. This access is subject to customary limitations, including (a) confidentiality obligations, (b) restrictions on access to privileged information, and (c) compliance with antitrust gun-jumping limitations.
Together, these provisions create a comprehensive oversight framework that allows Solara to protect its investment during the potentially extended Interim Period while respecting Cloudium's continued independence as an operating company.
IV. Capital Structure and Equity — Section 6.1(b)(i)
A. Prohibition on Changes to Capital Structure
Section 6.1(b)(i) restricts Cloudium's ability to alter its capital structure during the Interim Period. The specific prohibitions include the following:
Issuance of Equity Securities. Cloudium may not issue, sell, grant, pledge, dispose of, or encumber any shares of capital stock, equity interests, or securities convertible into or exercisable or exchangeable for any equity interests of Cloudium or any of its subsidiaries. This prohibition extends to stock options, restricted stock units ("RSUs"), stock appreciation rights, phantom equity, and other equity-linked instruments. The prohibition is designed to prevent dilution of the equity value for which Solara is paying and to maintain the integrity of the per-share merger consideration calculation.
The prohibition is subject to two exceptions:
(1) Outstanding Equity Awards: Cloudium may issue shares of common stock upon the exercise of outstanding stock options or the settlement of RSUs that were granted prior to the signing of the Merger Agreement, in each case in accordance with their existing terms as disclosed in Schedule 4.3 (Capitalization) of the disclosure schedules. This exception is necessary to permit the continued operation of Cloudium's existing equity compensation program and to honor Cloudium's contractual obligations to employees holding vested equity awards.
(2) Employee Stock Purchase Plan: Cloudium may issue shares of common stock under its existing Employee Stock Purchase Plan ("ESPP") for the offering period that is in effect as of the date of the Merger Agreement, provided that no new offering period under the ESPP shall commence during the Interim Period. This exception recognizes that Cloudium's ESPP is an important component of its total compensation package and that the termination of an in-progress offering period could create legal and employee-relations issues.
Stock Splits and Reclassifications. Cloudium may not effect any stock split, reverse stock split, reclassification, combination, subdivision, or similar change with respect to its outstanding capital stock. Any such action could alter the per-share economics of the merger and create complications in the calculation of the merger consideration.
Dividends and Distributions. Cloudium may not declare, set aside, or pay any dividend or other distribution (whether in cash, stock, property, or otherwise) with respect to its capital stock, except for:
(a) regular quarterly cash dividends consistent with past practice and not to exceed the amounts set forth in Schedule 6.1(b)(i)(A) of the disclosure schedules (which reflects Cloudium's most recent quarterly dividend of $0.06 per share, or approximately $11,052,000 per quarter); and
(b) dividends or distributions by wholly owned subsidiaries of Cloudium to Cloudium or to other wholly owned subsidiaries of Cloudium in the ordinary course.
Share Repurchases and Redemptions. Cloudium may not repurchase, redeem, or otherwise acquire any shares of its capital stock or any securities convertible into or exercisable or exchangeable for any shares of its capital stock, except for the withholding of shares in connection with the satisfaction of tax obligations upon the vesting of RSUs, in accordance with the existing terms of Cloudium's equity compensation plans as in effect on the date of the Merger Agreement.
Consent Standard. Consent for any action under Section 6.1(b)(i) is in Solara's "sole discretion," reflecting the heightened importance of this provision to the economic terms of the transaction. This is one of the few categories where the more permissive "not unreasonably withheld" standard does not apply.
B. Analysis and Recommendations
As of the date of this memorandum, Cloudium has 184,200,000 shares of common stock outstanding. Cloudium does not have a recent history of special dividends, extraordinary distributions, or share repurchase programs. The regular quarterly dividend of $0.06 per share ($11,052,000 per quarter, or approximately $44,208,000 on an annualized basis) is well within the exception provided in the covenant.
The continued operation of Cloudium's equity compensation plans during the Interim Period is critical for employee retention. Based on the information provided during due diligence, Cloudium has approximately 12,400,000 stock options outstanding (with a weighted average exercise price of $27.14) and approximately 8,600,000 RSUs outstanding (with a weighted average remaining vesting period of approximately 1.8 years). The ESPP currently has approximately 2,200 active participants with aggregate payroll deductions of approximately $18,000,000 per offering period.
Recommendation 1: We recommend that Solara confirm with Sienna Whitfield (CFO) and Nadia Chowdhury (General Counsel) the exact number, terms, and vesting schedules of all outstanding equity awards (options, RSUs, and any other equity-linked instruments) as of the anticipated signing date, as well as the current ESPP participation levels and the end date of the current offering period. This information is necessary to verify the accuracy of Schedule 4.3 (Capitalization) and to model the potential dilutive impact of equity award exercises and settlements during the Interim Period.
Recommendation 2: The prohibition on new equity grants during the Interim Period may create retention challenges, particularly over a five-to-six-month period in which Cloudium's most talented engineers, product managers, and sales professionals will be aware that the company is being acquired and may be recruited by competitors. Cloudium's management team has flagged this concern during the negotiation process, and Ridgeway Phelps & Sato has requested a narrow exception for retention-oriented equity grants below a specified dollar threshold (e.g., $5,000,000 in aggregate). This request was discussed during the January 15 negotiation session, and Ridgeway Phelps resisted a bright-line exception, preferring instead to rely on the consent mechanism (with consent not to be unreasonably withheld). As the draft currently stands, any new equity grant requires Solara's consent, which is in Solara's sole discretion. We note that this sole-discretion standard may be more restrictive than is necessary for small retention grants; Solara should consider whether a limited carveout for retention grants (subject to a dollar cap and limited to designated key employees) would be appropriate. This issue is related to the broader employee retention analysis discussed in Section IX below.
V. Indebtedness and Financial Obligations — Section 6.1(b)(ii)
A. Restrictions
Section 6.1(b)(ii) governs Cloudium's ability to incur, assume, or guarantee indebtedness during the Interim Period. The key provisions are as follows:
Indebtedness Thresholds. Cloudium may not incur, assume, or guarantee any indebtedness for borrowed money in excess of $10,000,000 individually or $25,000,000 in the aggregate during the Interim Period, without Solara's prior written consent. This threshold applies to all forms of indebtedness, including bank borrowings, notes, bonds, debentures, capital leases (to the extent classified as indebtedness), and similar obligations.
The prohibition is subject to two exceptions:
(a) Existing Revolving Credit Facility: Cloudium may continue to borrow and repay amounts under its existing revolving credit facility with Atlas Commercial Lending Corp., up to the existing committed capacity of $400,000,000. As of the date of this memorandum, $200,000,000 is currently drawn under the revolver, leaving $200,000,000 of available capacity. This exception recognizes that Cloudium relies on the revolving credit facility for working capital management and that restricting access to this facility could impair Cloudium's ability to fund ordinary-course operations.
(b) Intercompany Indebtedness: Cloudium and its wholly owned subsidiaries may incur intercompany indebtedness among themselves in the ordinary course of business. This exception is necessary to permit the continued operation of Cloudium's internal treasury management and intercompany funding arrangements, which are used to allocate capital among the parent company and its subsidiaries in the United States, the United Kingdom, India, and Germany.
Amendments to Existing Credit Agreement. Cloudium may not amend, modify, supplement, or waive any material term of the Atlas Credit Agreement without Solara's prior written consent. This restriction is designed to prevent Cloudium from taking any action with respect to its existing indebtedness that could complicate or impair the planned repayment at Closing or that could create new obligations or restrictions that would be binding on the surviving company.
Liens and Security Interests. Cloudium may not create, incur, assume, or suffer to exist any lien, security interest, charge, mortgage, pledge, or other encumbrance on any material asset of Cloudium or any subsidiary, other than (a) liens securing the existing indebtedness under the Atlas Credit Agreement, (b) permitted liens (as defined in the Merger Agreement to include statutory liens, mechanics' liens, tax liens not yet due and payable, and similar customary exceptions), and (c) liens incurred in the ordinary course of business consistent with past practice.
B. Analysis and Recommendations
Cloudium's existing indebtedness profile as of the date of this memorandum consists of the following:
The aggregate outstanding indebtedness of $820,000,000 will be repaid in full at Closing from the proceeds of the new financing facilities to be provided by Meridian Atlantic Bank, N.A. and Ironclad Capital Markets LLC. The interim covenant appropriately allows Cloudium to continue drawing on the existing revolving credit facility for working capital purposes while prohibiting the incurrence of new material indebtedness.
The individual and aggregate thresholds of $10,000,000 and $25,000,000, respectively, are reasonable for a company of Cloudium's size, with $1,620,000,000 in LTM revenue and $405,000,000 in LTM adjusted EBITDA. These thresholds provide sufficient headroom for immaterial borrowings (e.g., equipment financing, short-term credit facilities for foreign subsidiaries) while ensuring that any significant new indebtedness requires Solara's approval.
Key Consideration — Letters of Credit and Performance Bonds: Cloudium's enterprise SaaS business may require the issuance of letters of credit, bank guarantees, or performance bonds in connection with customer contracts, particularly government contracts and large enterprise engagements. We recommend confirming that these instruments are captured in the definition of "Permitted Indebtedness" in Article I of the Merger Agreement or are otherwise carved out from the restrictions in Section 6.1(b)(ii). If letters of credit and similar instruments are not expressly addressed, Cloudium could face operational difficulties in responding to customer requests during the Interim Period, potentially impairing customer relationships and revenue.
Key Consideration — Harmonization with Atlas Credit Agreement: The Atlas Credit Agreement contains its own restrictive covenants and, importantly, a change-of-control provision that will trigger a mandatory prepayment obligation upon the consummation of the merger. During the Interim Period, Cloudium must continue to comply with the financial covenants and other restrictions in the Atlas Credit Agreement, and the Merger Agreement's interim covenants must not conflict with these obligations. For example, if the Atlas Credit Agreement requires Cloudium to maintain a minimum interest coverage ratio or a maximum leverage ratio, any actions permitted under Section 6.1 of the Merger Agreement (such as additional borrowings under the revolving credit facility) must also be permissible under the Atlas Credit Agreement. We recommend that Tiffany Rosenthal or Andrew Fitzpatrick conduct a cross-reference review of the key covenants in both agreements to identify any potential conflicts.
Recommendation: No modifications to the thresholds in Section 6.1(b)(ii) are recommended at this time. The thresholds are consistent with market practice and appropriate for a company of Cloudium's size. However, we recommend confirming the treatment of letters of credit and performance bonds and conducting the cross-reference review described above.
VI. Acquisitions and Dispositions — Section 6.1(b)(iii)
A. Restrictions
Section 6.1(b)(iii) restricts Cloudium's ability to engage in acquisitions, dispositions, and strategic transactions during the Interim Period. The specific provisions are as follows:
Acquisitions. Cloudium may not acquire (whether by merger, consolidation, purchase of assets, equity purchase, or otherwise) any business, entity, division, or material asset group with a value in excess of $15,000,000 individually or $30,000,000 in the aggregate, without Solara's prior written consent (in Solara's sole discretion for individual acquisitions above $15,000,000). This prohibition extends to both domestic and international acquisitions and covers all forms of acquisition consideration, including cash, stock, assumption of liabilities, and earn-out payments.
Dispositions. Cloudium may not sell, lease, license, transfer, assign, or otherwise dispose of any material assets outside the ordinary course of business, except for:
(a) sales of inventory in the ordinary course of business consistent with past practice;
(b) dispositions of obsolete, worn-out, or surplus equipment or other assets that are no longer used or useful in the business; and
(c) non-exclusive licenses of intellectual property in the ordinary course of business consistent with past practice (this exception is critical for Cloudium's SaaS business model, as discussed further in Section X below).
Joint Ventures and Strategic Alliances. Cloudium may not enter into any joint venture, partnership, strategic alliance, or similar arrangement involving aggregate commitments, capital contributions, or other financial obligations in excess of $5,000,000, without Solara's prior written consent.
B. Analysis and Recommendations
The acquisition and disposition thresholds in Section 6.1(b)(iii) are appropriate given the strategic rationale for the transaction. Solara is acquiring Cloudium at a premium valuation (approximately 16.8x EV/EBITDA), and the investment thesis is predicated on the value of the existing business as constituted. Any material acquisition during the Interim Period could introduce new risks, liabilities, or integration challenges that were not contemplated in Solara's underwriting, and any material disposition could diminish the value of the acquired enterprise.
Cloudium's SaaS business model does not typically involve large asset dispositions. The primary assets of the business are intellectual property (software code, patents, trademarks), customer contracts, and human capital, none of which are susceptible to ordinary-course disposition in the traditional sense. The carveout for non-exclusive IP licenses is essential for business continuity, as Cloudium's revenue model is built on the licensing of its software on a subscription basis to enterprise customers.
The $15,000,000 individual acquisition threshold provides sufficient headroom for Cloudium to complete small tuck-in technology acquisitions or acqui-hires that may already be in the pipeline. Technology companies of Cloudium's size frequently evaluate and pursue small acquisitions to augment their product capabilities, acquire engineering talent, or expand into adjacent markets. Such acquisitions are typically in the $3,000,000 to $10,000,000 range and may be difficult to pause for an extended Interim Period without competitive consequences.
Recommendation 1: Solara should request from Cloudium management a list of all contemplated or in-process acquisitions, including those in the pipeline that may close during the Interim Period. This list should include a brief description of each target, the expected acquisition price, the strategic rationale, and the anticipated timing. To the extent any of these acquisitions exceed the $15,000,000 threshold, Solara should evaluate whether pre-signing consent can be provided.
Recommendation 2: We should confirm that cloud infrastructure procurement — specifically, long-term commitments for data center capacity, reserved instances under Ridgeway Industries ("Meridian Technologies") or Crestline Systems, and similar arrangements — is treated as an operating expense or lease commitment rather than an "acquisition" under Section 6.1(b)(iii). These commitments are essential to support Cloudium's ARR growth and are a routine part of Cloudium's business operations. If there is any ambiguity, we should propose clarifying language to ensure that such procurement is governed by the capital expenditure covenant (Section 6.1(b)(iv)) rather than the acquisition covenant.
VII. Capital Expenditures — Section 6.1(b)(iv)
A. Restrictions
Section 6.1(b)(iv) restricts Cloudium's capital expenditures during the Interim Period. The specific provisions are as follows:
Budget Cap. Cloudium's capital expenditures during the Interim Period may not exceed 110% of the amounts set forth in Cloudium's board-approved annual capital expenditure budget for the fiscal year ending September 30, 2024 (the "CapEx Budget"), measured on a quarterly basis, without Solara's prior written consent. The CapEx Budget is to be provided by Cloudium within 10 business days following the signing of the Merger Agreement and is to be attached as a supplement to the disclosure schedules.
The 110% threshold provides Cloudium with a reasonable degree of flexibility to manage normal fluctuations in the timing and amount of capital expenditures while protecting Solara against material overspend. The quarterly measurement period ensures that Cloudium cannot front-load expenditures early in the Interim Period and then claim compliance on an annualized basis.
Emergency Exception. Notwithstanding the foregoing budget cap, Cloudium may incur emergency capital expenditures that are necessary to protect life, safety, or property, or to prevent material disruption to business operations, in an amount not to exceed $5,000,000 per occurrence without Solara's prior written consent, provided that Cloudium delivers prompt written notice to Solara of any such emergency expenditure (including a description of the emergency, the nature and amount of the expenditure, and the expected impact on the CapEx Budget).
B. Analysis and Recommendations
Cloudium is a cloud-native SaaS company whose capital expenditures are predominantly concentrated in the following categories:
(a) Internal-Use Software Development: Cloudium capitalizes certain costs associated with the development of its internal-use software platform under ASC 350-40 (Intangibles — Goodwill and Other: Internal-Use Software). These capitalized development costs represent a significant portion of Cloudium's total capital expenditures and are directly correlated with the company's R&D investment.
(b) Leasehold Improvements: Cloudium maintains leased office space in San Francisco, London, Manchester, Bangalore, and Berlin. Leasehold improvements include build-outs of new office space, renovations, and IT infrastructure installations.
(c) Data Center and IT Infrastructure: Although Cloudium's platform is primarily hosted on third-party cloud infrastructure (Meridian Technologies and Azure), the company does maintain certain proprietary data center assets, networking equipment, and other IT infrastructure.
The 110% budget cap is generally reasonable and consistent with market practice for comparable transactions. However, we note the following specific concern:
Cloud Infrastructure Investment Risk: Cloudium's ARR growth trajectory (from $1,620,000,000 in LTM revenue to $1,740,000,000 in ARR as of December 31, 2023) depends on continued investment in cloud infrastructure, including the expansion of hosting capacity, migration and optimization across cloud providers, and scaling of processing and storage resources. Any interruption or deferral of these investments during the Interim Period could impair Cloudium's ability to onboard new customers, support existing customers' growth, and maintain the performance and reliability of its platform. In a competitive SaaS market, even short-term performance degradation can result in customer churn and reputational damage that is difficult to reverse.
We understand from the due diligence process that Cloudium is currently evaluating a potential expansion of its Meridian Technologies hosting capacity to support anticipated growth in the second half of fiscal year 2024. This expansion could involve a multi-year committed spend arrangement with Meridian Technologies that may not be captured in the current CapEx Budget (which was developed before the specific terms of the expansion were finalized). If the committed spend exceeds the 110% quarterly cap, Cloudium would need to seek Solara's consent.
Recommendation 1: We recommend verifying with Sienna Whitfield (CFO) that the CapEx Budget adequately captures all planned cloud infrastructure spend for the fiscal year ending September 30, 2024, including any pending or contemplated committed spend arrangements with Meridian Technologies, Azure, or other cloud providers. If there is a risk that planned investments will exceed the 110% cap, we should consider negotiating a separate, higher threshold for cloud infrastructure commitments — for example, permitting cloud infrastructure expenditures up to 125% or 130% of the budgeted amount, or establishing a separate dollar-amount carveout for specific identified projects.
Recommendation 2: We should coordinate with the financing cooperation covenant in Section 6.14 to ensure that costs incurred by Cloudium in supporting Solara's debt financing process (such as the costs of providing financial information, obtaining comfort letters, participating in lender presentations, and related activities) are excluded from the CapEx Budget cap and treated as transaction expenses reimbursable by Solara. If these costs are inadvertently included in the CapEx calculation, they could consume headroom that Cloudium needs for operational investments.
VIII. Material Contracts — Section 6.1(b)(v)
A. Restrictions
Section 6.1(b)(v) governs Cloudium's ability to enter into, amend, modify, terminate, waive, or renew "Material Contracts" during the Interim Period. This is one of the most operationally significant covenants in Section 6.1 because Cloudium's business is contract-intensive and its revenue is derived almost entirely from subscription agreements with enterprise customers.
General Prohibition. Cloudium may not enter into, materially amend, modify, terminate, waive any material provision of, or renew any "Material Contract" (as defined in Section 1.1 of the Merger Agreement) without Solara's prior written consent.
The definition of "Material Contract" in Article I encompasses the following categories:
(i) contracts involving aggregate consideration or commitments in excess of $5,000,000 per annum;
(ii) contracts with any of Cloudium's top 25 customers by ARR;
(iii) contracts with key technology partners and platform providers (including Meridian Technologies, Crestline Systems, Pinnacle Health IT, and similar providers);
(iv) government contracts and subcontracts (including contracts with the United States federal government, UK government entities, and German public sector entities);
(v) real property leases; and
(vi) other contracts specifically identified in Schedule 4.12 (Material Contracts) of the disclosure schedules.
Customer Renewal Exception. Notwithstanding the general prohibition, Cloudium may renew existing customer subscription agreements in the ordinary course of business on substantially similar or improved terms, without Solara's prior written consent. However, this exception is subject to an important limitation: Cloudium may not agree to any pricing reduction exceeding 10% from the existing contracted rates for any customer with ARR above $5,000,000 without Solara's prior written consent. This pricing floor is designed to prevent value erosion through discounted renewals during the Interim Period.
Consent Standard. For Material Contracts generally, consent is subject to the "not unreasonably withheld, conditioned, or delayed" standard. However, for contracts with any of Cloudium's top 10 customers by ARR, consent is in Solara's sole discretion. This distinction reflects the disproportionate revenue concentration risk associated with Cloudium's largest customer relationships.
B. Analysis and Recommendations
Cloudium's top 25 customers by ARR represent a substantial portion of total revenue, and the stability and renewal of these relationships during the Interim Period is critical to preserving the value of the business. We highlight the following specific contracts that require particular attention:
Aegis Federal Solutions Inc. Aegis is Cloudium's largest customer, contributing $84,000,000 in ARR. The Master SaaS Agreement between Cloudium and Aegis contains a change-of-control consent requirement, meaning that Aegis's prior written consent must be obtained before the transaction can be consummated without triggering a termination or renegotiation right. This consent will need to be obtained prior to Closing as a practical matter (and is addressed separately in the closing conditions). During the Interim Period, Cloudium should not agree to any amendments to the Aegis contract that could complicate the consent process or give Aegis additional leverage in the consent negotiation. We recommend that any proposed amendments to the Aegis contract be reviewed by Calderwood & Harkness before they are presented to Solara for consent.
Helix Data Systems GmbH. Cloudium's Technology License Agreement with Helix Data Systems GmbH contains a termination-for-change-of-control clause that is similar in effect to the Aegis consent requirement. Cloudium licenses certain data integration technology from Helix that is embedded in the Cloudium platform. If Helix exercises its termination right, Cloudium would need to identify and integrate a replacement technology, which could take several months and impair the platform's functionality. During the Interim Period, no amendments should be made to the Helix agreement that could affect the change-of-control analysis or provide Helix with additional grounds for termination.
New Customer Contracts. Cloudium's sales teams will continue to pursue and close new customer deals throughout the Interim Period. This is essential for maintaining the ARR growth trajectory that underpins Solara's investment thesis. New customer contracts entered into in the ordinary course of business on Cloudium's standard terms and conditions should be permitted without Solara's consent, provided that the contract does not involve unusual terms, pricing below standard thresholds, commitments above $5,000,000 per annum, or other features that deviate materially from past practice.
Recommendation 1: Solara should designate a point person for the prompt review and processing of consent requests related to Material Contracts. Given the pace of Cloudium's sales operations, delays in the consent process could result in lost deals, customer dissatisfaction, or competitive harm. We suggest that a member of the Osprey Bancroft & Co. deal team or a Solara operating partner with relevant industry experience be designated to serve in this role, with authority to approve routine consent requests on an expedited basis. The unreasonable-withholding standard imposes an affirmative obligation on Solara to act in good faith, and any pattern of delay or obstruction could expose Solara to a claim of breach.
Recommendation 2: We recommend confirming that the customer renewal exception permits Cloudium's sales teams to renew SaaS subscriptions on standard terms without delay. The 10% pricing reduction cap provides a reasonable safeguard against value erosion, but we should verify that the exception is clear enough to be implemented at the sales-team level without requiring legal review of each individual renewal. For customers below $5,000,000 in ARR, the pricing cap does not apply, providing additional flexibility.
Recommendation 3: For new customer contracts, we recommend adding a clarifying provision to the effect that new SaaS subscription agreements entered into in the ordinary course of business on Cloudium's standard form of agreement, with aggregate annual commitments not exceeding $5,000,000, are deemed not to be "Material Contracts" for purposes of Section 6.1(b)(v) and may be entered into without Solara's consent. This clarification would reduce the administrative burden on both Cloudium and Solara and would be consistent with the definition of "Material Contract" in Article I.
IX. Employment and Compensation — Section 6.1(b)(vi)
A. Restrictions
Section 6.1(b)(vi) contains a comprehensive set of restrictions on Cloudium's employment and compensation practices during the Interim Period. These restrictions are among the most operationally sensitive provisions in Section 6.1, as they directly affect Cloudium's ability to attract, retain, and manage its workforce of approximately 6,800 employees across four jurisdictions.
Hiring Restrictions. Cloudium may not hire any employee with base compensation in excess of $300,000 per annum without Solara's prior written consent. This threshold captures senior-level hires, including vice presidents, senior directors, principal engineers, and other key roles in a technology company. Hires below the $300,000 threshold are permitted in the ordinary course without consent.
Compensation Increases. Cloudium may not materially increase the compensation or benefits of any existing employee, except for:
(a) annual merit increases consistent with past practice and not exceeding 5% in the aggregate across the entire employee base;
(b) promotions in the ordinary course of business consistent with past practice; and
(c) adjustments required by applicable law or existing contractual obligations, including any collective bargaining agreements to which Cloudium or any subsidiary is a party.
Benefit Plans. Cloudium may not enter into, adopt, or materially amend any employee benefit plan, severance plan, retention arrangement, change-of-control arrangement, or equity compensation plan. This restriction applies to all forms of compensation arrangements, whether cash-based or equity-based, and is designed to prevent Cloudium from creating new financial obligations or contingent liabilities that would be assumed by the surviving company at Closing.
Terminations. Cloudium may not terminate the employment of any employee with base compensation in excess of $300,000 per annum without prior notice to (but not the consent of) Solara, except for terminations for "cause" (as determined in good faith by Cloudium's management). This notice-only requirement for terminations (as opposed to the consent requirement for new hires) reflects the recognition that Cloudium must retain the ability to terminate underperforming or disruptive employees without undue delay.
Workforce Reductions. Cloudium may not implement any general workforce reduction or layoff affecting more than 50 employees in any single jurisdiction. This restriction is designed to prevent Cloudium from undertaking a restructuring or downsizing that could materially alter the size or composition of its workforce before Closing. The 50-employee threshold is calibrated to the requirements of the Worker Adjustment and Retraining Notification Act of 1988, as amended (the "WARN Act"), and equivalent UK notification requirements under the Trade Union and Labour Relations (Consolidation) Act 1992.
WARN Act Compliance. Cloudium is obligated to comply with the WARN Act and all equivalent state, local, and foreign notification requirements in connection with any employment actions taken during the Interim Period.
B. Analysis and Recommendations
The employment and compensation covenants present some of the most significant practical challenges of the Interim Period. Cloudium operates in a highly competitive technology labor market, and the announcement of the pending acquisition (expected January 23, 2024) will likely trigger heightened attrition risk as employees evaluate their options, respond to competitive recruiting, and seek certainty about their future roles and compensation.
Retention Risk Analysis. Based on our review of the due diligence materials and discussions with Cloudium's management team, we identify the following key retention risk factors:
(i) Engineering Talent: Cloudium's R&D operations, particularly in Bangalore (approximately 2,400 employees) and San Francisco (approximately 800 engineers), employ highly skilled software engineers who are in demand across the technology sector. The announcement of the merger is likely to prompt an increase in recruiter outreach to Cloudium employees.
(ii) Sales Professionals: Cloudium's enterprise sales team, which includes approximately 500 account executives and sales engineers across the US, UK, and Germany, is critical to maintaining the ARR growth trajectory during the Interim Period. Sales professionals with established customer relationships and industry expertise are particularly vulnerable to competitive recruiting.
(iii) Executive Team: The retention of Cloudium's senior leadership during the Interim Period is essential for business continuity and for the successful execution of the post-closing integration. Jonathan Hargrove (CEO) and Sienna Whitfield (CFO) are entering into non-competition and non-solicitation agreements at signing, which provides some assurance of their continued engagement. However, other members of the senior leadership team (including the CTO, VP of Engineering, VP of Product, and VP of Sales) are not similarly committed.
(iv) Equity Compensation Gap: The prohibition on new equity grants during the Interim Period removes one of the most powerful retention tools available to technology companies. Employees whose unvested equity is underwater or who have recently completed vesting cycles may be particularly susceptible to competing offers that include equity grants.
Recommendation — Retention Pool Carveout: We recommend discussing with Solara whether a pre-agreed cash retention pool of $20,000,000 to $30,000,000 should be carved out from the consent requirements of Section 6.1(b)(vi). This retention pool would be available for Cloudium's management to allocate among designated key employees (subject to reasonable parameters, such as individual limits and eligible employee categories) without the need to seek Solara's consent on a case-by-case basis. This approach was raised during the due diligence process and is likely to be a post-signing business need. The retention pool could be structured as a supplement to the disclosure schedules, with a list of eligible employees and allocation guidelines agreed upon at or prior to signing.
This recommendation should be evaluated in conjunction with the broader post-closing retention and compensation strategy that Solara intends to implement. If Solara plans to offer retention packages to k

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ATTORNEY WORK PRODUCT

INTERNAL MEMORANDUM

MATTER NO.: 1041-00003

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