Danielle,
Thank you for your email and for the productive call earlier today with you, Graham, Leonard, and me to work through the remaining open points on the Note Purchase Agreement. I wanted to memorialize our discussion and confirm the agreed resolutions on the two outstanding substantive issues: (i) the scope of the Information Rights provision under Section 4.3 of the NPA and (ii) the Most Favored Nation provision under Section 5.7 of the NPA.
With these points now resolved, we believe the NPA should be in substantially final form for circulation to all parties and their respective clients for final review ahead of the targeted signing date of January 15, 2024. A summary of the agreed positions follows below, and I have attached revised redlines of both sections against the second revised draft of the NPA circulated on January 4, 2024.
**Section 4.3 — Information Rights**
As background, your firm (on behalf of Ridgeline Ventures Fund IV, L.P. and the broader investor syndicate) had requested that all Purchasers under the NPA — including Northstar Innovation Fund II, L.P., which as a new investor committing $10,000,000 of the $60,000,000 aggregate principal amount is not currently a party to the Amended and Restated Investors' Rights Agreement — receive the same suite of information rights afforded to existing major investors under the IRA. The particular concern, which we understood, was ensuring that Northstar would not be disadvantaged relative to the existing investors (Ridgeline, Beacon Hill Capital Partners, LLC, and Halcyon Growth Equity, L.P.) during the period between closing and conversion.
Following our discussion, the parties agreed to the following framework:
1. **Major Noteholder Information Rights.** All Purchasers holding Notes with an aggregate original principal amount of at least $5,000,000 (each, a "Major Noteholder") will receive: (a) quarterly unaudited financial statements (balance sheet, income statement, and statement of cash flows) within 45 days following the end of each fiscal quarter; and (b) annual audited financial statements, audited by Pinnacle Audit Group LLP (or such other nationally recognized accounting firm as the Company may engage), within 120 days following the end of each fiscal year. Based on the current syndicate commitments — Ridgeline at $30,000,000, Beacon Hill at $15,000,000, Northstar at $10,000,000, and Halcyon at $5,000,000 — each Purchaser will qualify as a Major Noteholder at closing.
2. **Annual Operating Budget.** Major Noteholders will also receive a copy of the Company's annual operating budget within 30 days following the start of each fiscal year.
3. **Material Adverse Change Notice.** All Purchasers, regardless of whether they meet the Major Noteholder threshold, will receive prompt written notice of any material adverse change in the Company's business, financial condition, or operations.
4. **Termination.** The information rights granted under Section 4.3 will terminate automatically upon conversion of the Notes into equity securities of the Company (whether upon a Qualified Financing at the $80,000,000 threshold or otherwise), at which point each holder's information rights will be governed exclusively by Amendment No. 1 to the Amended and Restated Investors' Rights Agreement.
5. **Confidentiality.** The Company retains the right to require each Purchaser to execute a reasonable confidentiality and non-disclosure undertaking as a condition to receiving financial information under this section, consistent with the confidentiality provisions currently in effect under the IRA.
The revised Section 4.3 language reflecting this agreement is set forth in the attached redline (Attachment 1).
**Section 5.7 — Most Favored Nation (MFN)**
As you know, Ridgeline had proposed a broad MFN provision under which any subsequent convertible note, SAFE, or other convertible instrument issued by Skybridge on terms more favorable than those in the Notes (bearing interest at 6.00% per annum, a $750,000,000 valuation cap, and a 20% conversion discount) would trigger an automatic right for existing Noteholders to elect to amend their Notes to incorporate such more favorable terms. In our earlier markup, we pushed back on behalf of Skybridge on the breadth of the provision, seeking carve-outs for strategic/commercial partnership-related issuances below a de minimis threshold and for equipment financing and similar non-dilutive instruments.
Following our discussion, the parties agreed to the following:
1. **Scope.** The MFN provision applies to any convertible promissory note, SAFE, or similar convertible debt or equity instrument issued by the Company after the date of the NPA and prior to a Qualified Financing.
2. **Definition of "More Favorable Terms."** For purposes of the MFN, "more favorable terms" means a lower valuation cap, a greater conversion discount, a higher interest rate, more favorable change of control provisions, or other economic terms that are, taken as a whole, more favorable to the holder of such subsequent instrument than those set forth in the Notes.
3. **Carve-Outs.** The MFN will not apply to: (a) issuances of equity securities in a Qualified Financing; (b) issuances of equity securities pursuant to the Company's equity incentive plan, including stock options, restricted stock units, and similar equity awards approved by the Board of Directors; (c) issuances in connection with bona fide strategic or commercial partnerships approved by the Board of Directors, provided that the aggregate principal amount of instruments issued in any such transaction does not exceed $2,000,000; or (d) equipment financing or similar non-convertible debt instruments.
4. **Notice and Election.** Upon the issuance of any instrument that would trigger the MFN, the Company must provide written notice to all Noteholders within 10 business days of such issuance, together with a copy of the instrument and its material terms (subject to redaction of commercially sensitive counterparty information not relevant to the economic terms). Each Noteholder will then have 15 business days following receipt of such notice to elect, by written notice to the Company, to amend its Note to incorporate the more favorable terms identified therein.
5. **Non-Transferability.** The MFN election right is personal to each original Purchaser and is not transferable, except in connection with a permitted transfer of the Note itself in accordance with the transfer restrictions set forth in the NPA.
The revised Section 5.7 language reflecting this agreement is set forth in the attached redline (Attachment 2).
**Next Steps**
I will circulate a revised clean draft and blackline of the full NPA incorporating the agreed Section 4.3 and Section 5.7 language to all parties by end of day Monday, January 8, 2024. In the meantime, I would appreciate it if you and Graham could confirm by reply email that the attached redlines accurately reflect the agreement reached on today's call, so that Leonard and I can begin preparing the near-final execution draft.
For the benefit of all parties on copy, the remaining procedural and closing workstreams continue to track separately:
- **Board Consent:** A draft of the Board written consent authorizing the issuance of the Notes and the transactions contemplated by the NPA will be circulated tomorrow, January 7, with a target execution date of January 10, 2024. - **Stockholder Written Consent:** To follow upon Board approval. - **Kelvantis Lender Consent:** As you are aware, a consent request under the Loan and Security Agreement dated August 15, 2022 (the $15,000,000 venture debt facility with Kelvantis Lending Corp.) was sent on December 15, 2023. We expect to receive the executed consent shortly and are following up directly with Ted Marsh at Kelvantis. - **Escrow Agreement:** A draft escrow agreement with Granite Trust Company, N.A. was circulated on January 5, 2024. We are awaiting Granite Trust's comments. - **Legal Opinion:** Victoria Chambers and Leonard are preparing the draft legal opinion, which will be circulated in advance of signing.
Danielle and Graham, thank you again for your constructive approach in resolving these points efficiently. We are pleased to have the substantive terms aligned and look forward to moving toward execution on schedule.
Best regards,
**Nina Reyes** Senior Associate Emerging Companies & Venture Capital Calderwood & Harkness LLP 600 Lexington Avenue New York, NY 10022 D: (212) 554-7183 E: nreyes@calderwoodharkness.com
Matter Ref.: Skybridge Fintech Ltd. — Convertible Note Bridge Financing (Matter No. 1009-00001)
**Attachments:** 1. Revised Section 4.3 (Information Rights) — Redline v. Second Revised NPA Draft (Jan. 4, 2024) [.docx] 2. Revised Section 5.7 (Most Favored Nation) — Redline v. Second Revised NPA Draft (Jan. 4, 2024) [.docx]
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