Contract analysis

From: Leonard Ashford <lashford@calderwoodharkness.com> To: Priya Ramanathan <pramanathan@skybridgefintech.com> Cc: Victoria Chambers <vchambers@calderwoodharkness.com> Date: Thu, 28 Dec 2023 04:47:00 -0000 Subject: Skybridge — Convertible Note Bridge Financing: Summary of Open Negotiation Issues Following WPS Comments

I hope you had a restful holiday. I am writing with respect to Matter No. 1009-00001 (Skybridge FinTech, Inc. — Convertible Note Bridge Financing) to summarize the principal open negotiation points that require your input and direction before we can prepare a further revised draft of the Note Purchase Agreement.

As you know, we received Whitfield, Pratt & Soo LLP's (Graham Whitfield and Danielle Kwon) comments on our initial draft NPA that was circulated on December 11, 2023. The revised draft reflecting WPS's markup was circulated to the deal team on December 22, 2023. Nina and I have now completed our review of WPS's comments in full. Many of their comments were routine or clarifying in nature and have been or can be readi

**1. Scope of the Most Favored Nation (MFN) Provision**

*WPS/Investor Position:* Ridgeline Capital Partners (through WPS) is seeking a broad MFN clause that would cover any subsequent convertible note or SAFE issued by Skybridge on more favorable economic terms prior to the Qualified Financing. Notably, WPS wants the MFN adjustment rights to trigger automatically — not merely upon holder election — and to extend to all material terms of any subsequent issuance, not just p

*Current Draft Position:* Our initial draft limited the MFN to pricing-related terms (Discount rate, valuation cap, and interest rate) and required the holder to affirmatively elect to adopt the more favorable terms within 15 business days of notice.

*C&H Analysis/Recommendation:* We recommend accepting the expansion of scope to cover all material economic terms — including discount, valuation cap, interest rate, maturity date, and change of control multiple — as this is consistent with market practice in comparable bridge financings. However, we recommend pushing back firmly on the automatic application mechanic. Maintaining the holder-election approach avoids s

*Direction Requested:* Please let us know how broad Skybridge is comfortable going on the MFN scope. In particular, we would appreciate your guidance on whether non-economic terms — such as information rights, governance provisions, or consent rights — should be expressly excluded from the MFN, which is our recommendation.

**2. Information Rights for Northstar Innovation Fund II, L.P. (New Investor)**

*WPS/Investor Position:* WPS has requested that all Purchasers under the NPA — including Northstar Innovation Fund II, L.P. as a new investor — receive the same information rights as existing investors under the Amended and Restated Investors' Rights Agreement (IRA), including audited annual financial statements, unaudited quarterly financial statements, monthly management reports, and annual budgets and operating pl

*Current Position:* The existing IRA grants information rights to holders above certain ownership thresholds. Northstar's $10,000,000 commitment represents approximately 16.67% of the $60,000,000 round and is the smallest commitment among the non-Halcyon investors. As a new investor, Northstar is not currently a party to the IRA.

*C&H Analysis:* The planned Amendment No. 1 to the IRA would add all Purchasers as parties, which would address the structural issue. We note that granting full information rights to all noteholders, including a new investor at Northstar's commitment level, is standard in convertible bridge financings of this size. That said, we recommend confirming with Skybridge management whether there are any competitive sensitiv

*Related Consideration:* WPS has also requested that information rights granted under the NPA survive conversion — that is, carry over into the Series D Investors' Rights Agreement rather than terminating upon conversion of the notes. We recommend deferring this point to the Series D negotiation rather than pre-committing now. Agreeing to survivability at this stage could constrain Skybridge's flexibility in structur

*Direction Requested:* Please advise on your comfort level with granting Northstar full information rights under the IRA amendment, and whether you agree with our recommendation to defer the survivability question to the Series D.

**3. Conversion Mechanics at Maturity (Optional Conversion)**

*WPS/Investor Position:* In the event no Qualified Financing (defined as at least $80,000,000 in new equity capital) occurs by the January 15, 2026 maturity date, WPS is pushing for each holder to have the unilateral right to elect either: (a) conversion at the $750,000,000 valuation cap price (approximately $15.46 per share based on approximately 48,500,000 fully diluted shares), or (b) demand repayment of outstandi

In addition, WPS wants the repayment obligation to be immediately due and payable upon demand at maturity, with no cure period or extended repayment schedule. WPS has also proposed a "deemed liquidation" trigger: if Skybridge is unable to repay the demanded amounts within 30 days of a repayment demand at maturity, the failure would constitute a deemed liquidation event, activating the liquidation preference waterfall

*C&H Analysis/Recommendation:* The holder-by-holder election right (conversion vs. repayment) is fairly standard in transactions of this type, and we do not recommend resisting it. However, the immediate repayment demand with no cure period is aggressive, and the deemed liquidation trigger is particularly so — it would effectively give the noteholders the ability to force a liquidation-equivalent outcome if Skybridge

For context, at full principal plus two years of accrued interest at the 6.00% annual rate, the maximum aggregate repayment obligation would be approximately $67,200,000 ($60,000,000 in principal plus approximately $7,200,000 in accrued interest over 24 months). This figure would need to be assessed against Skybridge's projected cash position in early 2026 — David and Marcus may wish to run downside scenarios on this

*Interaction with Kelvantis Facility:* I also want to flag that the existing Kelvantis Capital venture debt facility ($15,000,000 outstanding) matures on August 15, 2025 — approximately five months before the convertible notes would mature. If the Kelvantis facility is not refinanced, extended, or repaid by that date, there could be competing repayment demands in relatively close proximity. The subordination agreemen

*Direction Requested:* Please advise on the acceptable cure/repayment period (we recommend 90 days but could see a range of 60–120 days being defensible) and whether you agree that we should resist the deemed liquidation concept entirely.

For completeness, I wanted to note the status of several other items:

- **Qualified Financing Threshold:** WPS accepted the $80,000,000 threshold as drafted. No open issue.

- **Conversion discount and Valuation Cap:** The 20% discount and $750,000,000 valuation cap are agreed, consistent with the executed term sheet dated December 4, 2023. No open issue.

- **Change of Control Provision:** WPS accepted the 2.0x multiple on principal plus accrued interest. WPS has proposed minor drafting changes to the definition of "Change of Control," specifically requesting the inclusion of an exclusive licensing of substantially all of Skybridge's intellectual property as a trigger event. We recommend accepting this addition with a materiality qualifier (e.g., "exclusive licensing

- **Board Observer Rights:** WPS has requested that Ridgeline receive a board observer seat for the period during which the convertible notes are outstanding. This is not uncommon for a lead investor at a $30,000,000 commitment level, but we flag it for your consideration given Skybridge's existing board composition and dynamics. Please let us know if you would like to discuss.

- **Indemnification Provisions:** WPS is seeking an expansion of the indemnification provisions for the benefit of Purchasers. We recommend a standard mutual indemnification framework, limited to breaches of representations and warranties, with a cap for each party at the respective Purchaser's aggregate commitment amount. This is consistent with market practice and should be acceptable to WPS.

We would appreciate it if you could coordinate internally with Arjun, David, and Marcus and provide direction on the open points summarized above, ideally by early the week of January 1, 2024. We recognize the holiday timing and are happy to accommodate a brief call if that would be more efficient than written responses.

Once we receive client direction, Nina and I will prepare a further revised draft of the NPA incorporating the agreed resolutions and circulate it to WPS. We are targeting circulation of that revised draft by approximately January 4, 2024.

As a reminder, the target timeline contemplates board approval in early-to-mid January, with signing and initial closing targeted for mid-January. Given Skybridge's current cash position and burn rate (approximately $4.8 million per month, representing roughly 3.9 months of pre-bridge runway as of late December), it is important that we keep the process moving expeditiously.

On a separate track, the Kelvantis consent request was sent on December 15, and we are following up separately with Ted Marsh at Kelvantis on timing for their response. We will keep you posted on that.

Please do not hesitate to reach out if you would like to schedule a call to discuss any of the above in more detail. Nina and I are both available tomorrow and through the remainder of the week.

Leonard Ashford Of Counsel Emerging Companies & Venture Capital Calderwood & Harkness LLP 600 Lexington Avenue New York, NY 10022 Tel: (212) 555-4830 lashford@calderwoodharkness.com

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