1009-00001 · Skybridge Fintech Ltd · Diligence

corporate-diligence-memo.docx DOCUMENT Funds

34 / 74 ← → ✕

Contract analysis Extract to table

MEMORANDUM

PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGED ATTORNEY WORK PRODUCT

TO: Arjun Mehta, CEO & Co-Founder; David Lindstrom, CFO; Priya Ramanathan, General Counsel — Skybridge Fintech Ltd.

FROM: Leonard Ashford, Of Counsel; Nina Reyes, Senior Associate — Calderwood & Harkness LLP

DATE: December 15, 2023

RE: Corporate Due Diligence — Entity Formation, Good Standing, and Capitalization of Skybridge Fintech Ltd.

MATTER NO.: 1009-00001

Purpose. This memorandum summarizes the findings of corporate due diligence conducted by Calderwood & Harkness LLP ("C&H") in connection with the proposed $60,000,000 convertible promissory note bridge financing (the "Bridge Financing") by Skybridge Fintech Ltd. ("Skybridge" or the "Company"). The diligence covered entity formation and organizational documents, good standing and foreign qualifications, governance documents, historical board and stockholder actions, capitalization, equity financing history, outstanding indebtedness, and equity incentive plan matters. This memorandum is intended to support the preparation of the Note Purchase Agreement, Company Disclosure Schedule, legal opinion letter to be delivered at closing, and related transaction documents. This memorandum is protected by the attorney-client privilege and the attorney work product doctrine and should not be disclosed to any third party without the prior written consent of Calderwood & Harkness LLP and Skybridge Fintech Ltd.

Right-click to update Table of Contents

I. Executive Summary

Calderwood & Harkness LLP has completed a comprehensive corporate due diligence review of Skybridge Fintech Ltd. in connection with the proposed Bridge Financing. The scope of the review encompassed entity formation and organizational documents, certificates of good standing and foreign qualification, governance documents and records, historical board of directors and stockholder actions, capitalization and equity financing history, the Company's equity incentive plan, outstanding indebtedness, and related corporate matters. This Section I provides a high-level summary of our principal findings; each topic is addressed in greater detail in subsequent sections of this memorandum.

Entity Status. Skybridge is a corporation organized under the General Corporation Law of the State of Delaware (the "DGCL"), classified as a C-corporation for U.S. federal income tax purposes. The Company's Employer Identification Number is 83-2147605, and its Delaware Secretary of State file number is 6384291. Skybridge was originally incorporated on March 14, 2017, and its principal executive offices are located at 1400 Market Street, Suite 2200, Wilmington, Delaware 19801. The Company maintains additional offices in New York, New York (operations and commercial headquarters) and San Francisco, California (engineering and product development).

Good Standing. The Company is validly existing and in good standing under the laws of the State of Delaware. A Certificate of Good Standing is expected to be obtained from the Delaware Secretary of State on or about January 11, 2024, and will be delivered at the closing of the Bridge Financing. Franchise taxes are current as of the date of this memorandum based on representations made by the Company's finance department.

Capitalization. The Company's capitalization consists of approximately 48,500,000 fully diluted shares across the following categories: (i) common stock held by founders, employees, and other holders; (ii) Series A Preferred Stock issued to Crestpoint Seed Partners, L.P. and other Series A investors in the Company's initial institutional round; (iii) Series B Preferred Stock issued to Halcyon Growth Equity, L.P. and other Series B investors; (iv) Series C Preferred Stock issued to Ridgeline Ventures Fund III, L.P., Beacon Hill Capital Partners, LLC, and other Series C investors in a financing that closed in July 2021 at a post-money valuation of $620,000,000; and (v) shares reserved under and subject to awards granted pursuant to the Company's equity incentive plan.

409A Valuation. The most recent Section 409A fair market value appraisal of the Company's common stock was prepared by Atlas Valuation Services, Inc. (contact: Martin Khoury, Managing Director) and dated September 15, 2023. The appraised fair market value per share of common stock was $8.42. Based on our review, all option grants made since the date of this appraisal have been made at exercise prices at or above $8.42 per share.

Valuation Metrics. The Series C post-money valuation was $620,000,000, established in connection with the closing of the Series C Preferred Stock financing in July 2021. The cap-implied conversion price for the proposed convertible promissory notes, based on the $750,000,000 valuation cap and approximately 48,500,000 fully diluted shares, is approximately $15.46 per share ($750,000,000 ÷ 48,500,000 = ~$15.46).

Existing Indebtedness. The Company has an existing venture debt facility with Kelvantis Lending Corp. in the amount of $15,000,000 outstanding principal, pursuant to a Loan and Security Agreement dated August 15, 2022, with a maturity date of August 15, 2025. The Kelvantis facility contains a negative covenant restricting additional indebtedness, and lender consent will be required prior to closing of the Bridge Financing. A formal consent and waiver request was transmitted by C&H to Kelvantis's counsel on December 15, 2023, and we anticipate receiving consent prior to the targeted closing date.

Issues Identified. Our review identified a limited number of issues requiring attention prior to closing, none of which we believe to be material impediments to the consummation of the Bridge Financing. These include: (a) one minor gap in the board consent record relating to the appointment of an officer in 2019, which we recommend be remediated by a ratifying board consent; (b) two entries in the stock ledger that require reconciliation with the Company's transfer agent records, involving a total of 4,200 shares of common stock; and (c) the need to confirm completion of foreign qualification filings in two states where the Company has recently expanded operations. These items are discussed in detail in Section XII below.

Companion Memoranda. This memorandum addresses entity formation, good standing, governance, and capitalization matters only. Separate companion diligence memoranda have been or are being prepared by C&H and address the following additional topics:

• IP Diligence Memorandum (Matter No. 1009-00001-IP)

• Material Contracts Diligence Summary (Matter No. 1009-00001-MC)

• Litigation Diligence Memorandum (Matter No. 1009-00001-LIT)

• Regulatory & Compliance Diligence Memorandum (Matter No. 1009-00001-RC)

• Employee & Benefits Diligence Memorandum (Matter No. 1009-00001-EB)

• Insurance Coverage Review Memorandum (Matter No. 1009-00001-INS)

Readers should refer to these companion memoranda for a complete picture of the diligence findings.

II. Scope and Methodology

Documents Reviewed. In conducting this corporate due diligence review, Calderwood & Harkness LLP reviewed the following categories of documents, each as made available by the Company through the Pemberton Systems virtual data room established for the Bridge Financing (the "Data Room"), supplemented by certain documents provided directly by the Company's General Counsel:

(a) Organizational Documents. The original Certificate of Incorporation of Skybridge Fintech Ltd. filed with the Delaware Secretary of State on March 14, 2017; each subsequent Certificate of Amendment and Amended and Restated Certificate of Incorporation (collectively, the "Charter"); and the current Amended and Restated Bylaws (the "Bylaws").

(b) Board of Directors Records. Minutes of meetings and unanimous written consents of the Board of Directors of the Company from the date of incorporation through December 2023, including all resolutions adopted in connection with equity financings, equity incentive plan matters, officer appointments, and material corporate actions.

(c) Stockholder Records. Minutes of meetings and written consents in lieu of meeting of the stockholders of the Company from the date of incorporation through December 2023, including all consents executed in connection with the adoption of the Charter amendments relating to the Series A, Series B, and Series C preferred stock financings.

(d) Capitalization Records. The Company's stock ledger and transfer records, the current capitalization table maintained by the Company, stock purchase agreements and related documentation for each equity financing round, individual stock option agreements, restricted stock purchase agreements, and equity award documentation.

(e) Equity Incentive Plan Documents. The Skybridge Fintech Ltd. 2017 Equity Incentive Plan, as amended and restated (the "Plan"), together with forms of award agreements, board and stockholder resolutions approving the Plan and amendments thereto, and the most recent Section 409A valuation report.

(f) Investor Agreements. The Amended and Restated Investors' Rights Agreement, the Amended and Restated Right of First Refusal and Co-Sale Agreement, and the Voting Agreement, in each case together with all amendments and joinder agreements.

(g) Venture Debt Documents. The Loan and Security Agreement dated August 15, 2022, between Kelvantis Lending Corp. and Skybridge Fintech Ltd., together with all promissory notes, security agreements, intellectual property security agreements, and related ancillary documents.

(h) Good Standing and Qualification Certificates. Certificate of Good Standing from the Delaware Secretary of State (to be obtained January 11, 2024) and certificates of authority or qualification from each state in which the Company is qualified to do business as a foreign corporation.

(i) Tax Records. Delaware franchise tax payment confirmations and related correspondence, provided for purposes of confirming good standing status.

Data Room Review

The Data Room was accessed by the C&H diligence team beginning on November 16, 2023. The Data Room index was organized into fourteen primary folders corresponding to the categories identified in the Due Diligence Request List. Documents were uploaded by the Company on a rolling basis through December 12, 2023. We reviewed all documents uploaded to Folders 1 (Corporate Organization), 2 (Governance), 3 (Capitalization), 4 (Financing Documents), 5 (Equity Incentive Plan), and 11 (Indebtedness) in their entirety. The total number of documents reviewed in connection with this memorandum was approximately 347 individual files across these folders.

Interviews Conducted. In addition to the document review, members of the C&H diligence team conducted interviews and follow-up discussions with the following individuals:

• Priya Ramanathan, General Counsel — Initial diligence call on November 20, 2023; follow-up calls on December 1, 2023, and December 8, 2023. Ms. Ramanathan provided context regarding the Company's corporate history, formation-era documentation, historical corporate actions, and the status of foreign qualification filings.

• David Lindstrom, CFO — Diligence call on November 22, 2023; follow-up call on December 5, 2023. Mr. Lindstrom provided information regarding the Company's capitalization table, equity financing history, venture debt facility, franchise tax payments, and financial aspects of the Section 409A valuation.

• Marcus Tillman, VP, Corporate Development — Diligence call on November 29, 2023. Mr. Tillman provided information regarding the Company's historical financing transactions, investor relationships, and the structure of the proposed Bridge Financing.

Reliance and Qualifications

This memorandum is based on documents and information made available to C&H through the Data Room, direct communications with the Company's management and legal team, and publicly available records. We have not independently verified the accuracy or completeness of the documents and information provided by the Company, and we have relied upon the Company's representations that all material corporate documents have been made available. Our review is subject to the following customary qualifications: (i) we have not conducted a search of UCC financing statements, judgment liens, or tax liens in any jurisdiction (such searches are being conducted separately by a title and lien search company engaged by C&H); (ii) our review of foreign qualification status is based on certificates and representations provided by the Company and has not been independently verified through state filings in all relevant jurisdictions; and (iii) this memorandum reflects the state of the diligence review as of the date hereof, and additional documents or information received after this date may affect our findings and conclusions.

Request Lists. Our document review was guided by the following request lists, copies of which are maintained in the C&H matter file:

• Due Diligence Request List, dated November 13, 2023 (transmitted to Priya Ramanathan, General Counsel)

• Supplemental Due Diligence Request List, dated December 6, 2023 (transmitted to Priya Ramanathan, General Counsel, and David Lindstrom, CFO, addressing follow-up items identified during the initial review)

III. Entity Formation and Organizational Documents

A. Certificate of Incorporation

Original Incorporation. Skybridge Fintech Ltd. was incorporated in the State of Delaware on March 14, 2017, by the filing of an original Certificate of Incorporation with the Delaware Secretary of State. The original Certificate of Incorporation was filed by incorporating attorney Rachel S. Tannenbaum of Apex Startup Law Group, PC, and named Pemberton Industries as the Company's initial registered agent. The Company was organized as a general stock corporation under the DGCL. The Delaware Secretary of State assigned the Company file number 6384291. The Company's Employer Identification Number, as assigned by the Internal Revenue Service, is 83-2147605.

The original Certificate of Incorporation authorized the issuance of 10,000,000 shares of common stock, par value $0.0001 per share, and 5,000,000 shares of preferred stock, par value $0.0001 per share, with the preferred stock to be issued in one or more series as determined by the Board of Directors pursuant to a "blank check" preferred stock provision.

Subsequent Amendments. The Certificate of Incorporation has been amended on the following occasions:

1. Certificate of Amendment, dated October 2, 2018 — Filed in connection with the Series A Preferred Stock financing. This amendment increased the authorized shares of common stock from 10,000,000 to 30,000,000 shares and designated 6,500,000 shares of the authorized preferred stock as "Series A Preferred Stock," setting forth the rights, preferences, privileges, and restrictions of the Series A Preferred Stock, including liquidation preference, conversion rights, anti-dilution protection, and voting rights.

2. Amended and Restated Certificate of Incorporation, dated March 28, 2020 — Filed in connection with the Series B Preferred Stock financing. This amended and restated charter increased the authorized shares of common stock from 30,000,000 to 50,000,000 shares, designated an additional 5,000,000 shares of preferred stock as "Series B Preferred Stock," and set forth the rights, preferences, privileges, and restrictions of the Series B Preferred Stock, while preserving the existing terms of the Series A Preferred Stock. Total authorized preferred stock was increased to 15,000,000 shares, consisting of 6,500,000 shares of Series A Preferred Stock, 5,000,000 shares of Series B Preferred Stock, and 3,500,000 shares of undesignated preferred stock.

3. Second Amended and Restated Certificate of Incorporation, dated July 9, 2021 — Filed in connection with the Series C Preferred Stock financing. This second amended and restated charter further increased the authorized shares of common stock from 50,000,000 to 75,000,000 shares, designated an additional 8,000,000 shares of preferred stock as "Series C Preferred Stock," and set forth the rights, preferences, privileges, and restrictions of the Series C Preferred Stock. Total authorized preferred stock was increased to 23,000,000 shares, consisting of 6,500,000 shares of Series A Preferred Stock, 5,000,000 shares of Series B Preferred Stock, 8,000,000 shares of Series C Preferred Stock, and 3,500,000 shares of undesignated preferred stock. This is the currently operative charter document (the "Current Charter").

Current Authorized Share Capital. Under the Current Charter, the Company is authorized to issue a total of 98,000,000 shares of capital stock, consisting of:

Preferred Stock Terms. The Current Charter sets forth the following key terms for each series of preferred stock:

Series A Preferred Stock. The Series A Preferred Stock has a liquidation preference equal to 1x the original issue price of $1.54 per share, plus declared but unpaid dividends, on a non-participating basis. The Series A is convertible into common stock on a 1:1 basis (subject to adjustment for stock splits, dividends, and anti-dilution adjustments). Anti-dilution protection is on a broad-based weighted average basis. The Series A votes on an as-converted basis with the common stock and has a separate class vote on certain protective provisions, including amendments to the charter that adversely affect the rights of the Series A, authorization of senior or pari passu stock, and changes to the authorized number of Series A shares.

Series B Preferred Stock. The Series B Preferred Stock has a liquidation preference equal to 1x the original issue price of $5.12 per share, plus declared but unpaid dividends, on a non-participating basis. The Series B is senior to the Series A and common stock in liquidation. Conversion is on a 1:1 basis (subject to adjustment). Anti-dilution protection is on a broad-based weighted average basis. The Series B has similar protective provision rights as the Series A, plus an additional protective provision requiring Series B consent for the incurrence of indebtedness in excess of $10,000,000, unless such indebtedness is approved by the Board of Directors, including the affirmative vote of the Series B director designee.

Series C Preferred Stock. The Series C Preferred Stock has a liquidation preference equal to 1x the original issue price of $10.33 per share, plus declared but unpaid dividends, on a non-participating basis. The Series C is senior to the Series B, Series A, and common stock in liquidation. Conversion is on a 1:1 basis (subject to adjustment). Anti-dilution protection is on a broad-based weighted average basis. The Series C has protective provisions similar to the Series B, including a consent right over the incurrence of indebtedness in excess of $10,000,000 (subject to the same board approval exception) and an additional protective provision requiring Series C consent for any transaction constituting a "Deemed Liquidation Event" (as defined in the Current Charter), including mergers, acquisitions, and asset sales.

Sufficiency of Authorized Shares for Bridge Financing. Based on the proposed $750,000,000 valuation cap and approximately 48,500,000 fully diluted shares outstanding prior to the Bridge Financing, the cap-implied conversion price for the convertible notes would be approximately $15.46 per share ($750,000,000 ÷ 48,500,000). At a principal amount of $60,000,000 (plus any accrued interest at conversion), the convertible notes would be convertible into approximately 3,881,000 shares of preferred stock upon conversion (assuming conversion at the valuation cap price and excluding interest). The Company currently has 3,500,000 authorized but undesignated shares of preferred stock, which would be insufficient to accommodate the full conversion of the notes if the notes convert into a new series of preferred stock (e.g., Series D Preferred Stock). We note that, in connection with the next priced equity financing round (the "Qualified Financing"), the Company will need to file a further Amended and Restated Certificate of Incorporation to (i) designate a new series of preferred stock (Series D), (ii) authorize a sufficient number of shares of Series D Preferred Stock to accommodate the conversion of the notes and the issuance of shares in the Qualified Financing, and (iii) potentially increase the number of authorized shares of common stock to accommodate conversion of the Series D Preferred Stock into common stock. The note conversion mechanics in the Note Purchase Agreement should address this requirement and condition the conversion obligation upon the filing of such charter amendment.

B. Bylaws. Current Bylaws. The Company operates under Amended and Restated Bylaws adopted by the Board of Directors on July 9, 2021, in connection with the Series C financing. We have reviewed the Amended and Restated Bylaws in their entirety and summarize the key provisions below.

Board Composition and Size. The Bylaws provide that the number of directors shall be fixed from time to time by resolution of the Board of Directors, subject to the terms of the Voting Agreement, but shall not be fewer than three (3) nor more than nine (9). The current Board consists of seven (7) directors, as discussed in Section V.A below.

Quorum. A majority of the total number of directors then in office constitutes a quorum for the transaction of business at any meeting of the Board. Actions of the Board require the affirmative vote of a majority of the directors present at a meeting at which a quorum is present, except where the Current Charter, the Bylaws, or the DGCL requires a greater vote.

Written Consent in Lieu of Meeting. Consistent with DGCL § 141(f), the Bylaws provide that any action required or permitted to be taken at any meeting of the Board may be taken without a meeting if all members of the Board consent thereto in writing or by electronic transmission, and the consents are filed with the minutes of proceedings of the Board. For actions by stockholders, the Bylaws provide that stockholders may act by written consent in lieu of a meeting in accordance with DGCL § 228, which permits action by the written consent of stockholders having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted.

Officer Appointments. The Bylaws authorize the Board to appoint a Chief Executive Officer, a President, a Secretary, a Treasurer (or Chief Financial Officer), and such other officers as the Board may from time to time determine.

Indemnification. Article VI of the Bylaws provides for mandatory indemnification of directors and officers to the fullest extent permitted by the DGCL, including indemnification for expenses (including attorneys' fees), judgments, fines, and amounts paid in settlement in connection with any threatened, pending, or completed action, suit, or proceeding arising by reason of the fact that such person is or was a director or officer of the Company. The Bylaws also authorize the Company to advance expenses to directors and officers upon receipt of an undertaking to repay such amounts if it is ultimately determined that such person is not entitled to indemnification. These provisions are consistent with the DGCL § 145 framework and with market practice for Delaware venture-backed corporations.

Meeting and Notice Requirements. Regular meetings of the Board may be held without notice at such time and place as determined by the Board. Special meetings of the Board may be called by the Chairperson of the Board, the Chief Executive Officer, or any two directors, with at least 48 hours' notice if delivered personally or by telephone, or at least five days' notice if delivered by mail, facsimile, or electronic mail.

Restrictions on Convertible Debt Issuance. We have reviewed the Bylaws for any provisions that would restrict or condition the Company's ability to issue convertible promissory notes or other convertible debt instruments. The Bylaws do not contain any such restrictions. The Bylaws defer to the Current Charter and applicable provisions of the DGCL with respect to the authorization and issuance of securities. As noted in Section III.A above, the Current Charter's protective provisions relating to indebtedness in excess of $10,000,000 will require the consent of the holders of the Series B Preferred Stock and Series C Preferred Stock, which consent is expected to be obtained as part of the stockholder approval process described in Section VI.B below.

Board and Stockholder Approval Thresholds. The Bylaws do not impose approval thresholds for the Bridge Financing beyond those set forth in the Current Charter and the DGCL. Board approval of the Bridge Financing will require the affirmative vote of a majority of the directors present at a meeting at which a quorum exists, or the unanimous written consent of the Board. As discussed in Section XI below, we anticipate that Board approval will be obtained by unanimous written consent.

C. Registered Agent and Registered Office

The Company's current registered agent in the State of Delaware is Penmark Industries, with a registered office address at Cobalt Ridge Technologies, 1209 Orange Street, Wilmington, Delaware 19801. This registered agent has been continuously maintained since incorporation, with the exception of the period from March 14, 2017, through June 30, 2018, during which Pemberton Industries served as the registered agent. The change of registered agent was effected by the filing of a Certificate of Change of Registered Agent with the Delaware Secretary of State on July 1, 2018. We have confirmed that the registered agent designation is current and that annual franchise tax and registered agent fees have been paid through the current period.

IV. Good Standing and Foreign Qualifications

A. Delaware Good Standing

A Certificate of Good Standing from the Delaware Secretary of State is scheduled to be obtained on or about January 11, 2024. While the certificate has not yet been received as of the date of this memorandum, we note the following: (i) based on the Company's representations and documentary evidence provided (including Delaware franchise tax payment receipts for tax years 2017 through 2023), we have no reason to believe that the Company is not in good standing; (ii) the Delaware Secretary of State's online filing system confirms that the Company's status is listed as "Active" and that no delinquencies are noted; and (iii) the Company has represented to us that all franchise taxes are current and that no amounts are past due.

The Certificate of Good Standing will be delivered as a condition to closing under the Note Purchase Agreement and will be attached to the legal opinion to be delivered by C&H at closing. A copy of the certificate will be appended to this memorandum as Exhibit F upon receipt.

We further confirm that the Company is validly existing under the DGCL based on our review of the organizational documents described in Section III above.

B. Foreign Qualifications

Based on information provided by the Company, including employee location data, office lease agreements, and customer concentration analysis, Skybridge is currently qualified to do business as a foreign corporation in the following jurisdictions:

The Company currently has approximately 310 full-time employees across its offices and remote workforce. Based on the Company's employee distribution, operations footprint, and customer base, we have identified two additional states — Georgia and Colorado — where the Company may be required to qualify to do business as a foreign corporation but has not yet done so. The Company has represented that it commenced operations in Georgia in approximately August 2023 (with six employees currently based in the Atlanta metropolitan area) and in Colorado in approximately October 2023 (with four employees currently based in the Denver metropolitan area). We recommend that the Company promptly file qualification applications in both states to ensure compliance with the applicable qualification requirements. The failure to qualify in these states does not affect the Company's existence or good standing in Delaware, but could result in the inability to maintain or initiate litigation in those states' courts, potential penalties, and back-filing fees. We do not believe this issue is material for purposes of the representations and warranties in the Note Purchase Agreement, provided the Company can represent (or disclose on the Disclosure Schedule) that the failure to qualify has not had and would not reasonably be expected to have a material adverse effect on the Company.

For purposes of the Note Purchase Agreement, the Company will represent that it is duly qualified and in good standing in every jurisdiction where the nature of its business or the ownership or leasing of its properties requires such qualification, except where the failure to so qualify would not have a material adverse effect. The Georgia and Colorado qualification gaps should be disclosed on the Company Disclosure Schedule.

V. Governance — Board of Directors

A. Current Board Composition

The Board of Directors currently consists of seven (7) members. The following table sets forth the current directors, their respective roles, and the capacity in which each serves:

The board composition is governed by the Voting Agreement, which provides for (i) two (2) Common Stock Directors to be designated by the holders of common stock, (ii) one (1) Series A Preferred Director to be designated by Crestpoint Seed Partners, L.P. (as the holder of a majority of the outstanding shares of Series A Preferred Stock), (iii) one (1) Series B Preferred Director to be designated by Halcyon Growth Equity, L.P. (as the holder of a majority of the outstanding shares of Series B Preferred Stock), (iv) two (2) Series C Preferred Directors to be designated by Ridgeline Ventures Fund III, L.P. and Beacon Hill Capital Partners, LLC, respectively (each as holders of significant positions in the Series C Preferred Stock), and (v) one (1) Independent Director to be mutually agreed upon by the Common Stock Directors and the Preferred Stock Directors. The current composition of the Board is consistent with the terms of the Voting Agreement.

Board Observer Rights. In addition to the seven directors, the Amended and Restated Investors' Rights Agreement grants board observer rights to Northstar Innovation Fund I, L.P., a participant in the Series C round. The observer is currently Claire Whitfield, a principal at Northstar Innovation Partners. Board observer rights are non-voting and are subject to exclusion from executive sessions and portions of meetings involving conflicts of interest or legally privileged communications.

B. Review of Board Minutes and Consents

We have reviewed the complete set of minutes of meetings and unanimous written consents of the Board of Directors from the date of the Company's incorporation on March 14, 2017, through December 2023. This review encompassed a total of forty-seven (47) board actions, consisting of twenty-three (23) regular or special meeting minutes and twenty-four (24) unanimous written consents. Our findings are summarized below.

Key Corporate Actions Authorized. We confirmed that the following key corporate actions were duly authorized by the Board of Directors through formal resolutions adopted at meetings or by written consent:

• Adoption of the initial Bylaws (March 14, 2017)

• Election of initial directors and appointment of initial officers (March 14, 2017)

• Adoption of the 2017 Equity Incentive Plan (September 8, 2017)

• Authorization of the Series A Preferred Stock financing, including approval of the Stock Purchase Agreement and related transaction documents, amendment to the Certificate of Incorporation, and the filing of the Certificate of Amendment (October 2, 2018)

• Amendments to the 2017 Equity Incentive Plan, including increases to the share reserve (April 15, 2019; February 10, 2020; June 22, 2021)

• Authorization of the Series B Preferred Stock financing, including approval of the Stock Purchase Agreement, Amended and Restated Certificate of Incorporation, Amended and Restated Investors' Rights Agreement, Amended and Restated Right of First Refusal and Co-Sale Agreement, and Voting Agreement (March 28, 2020)

• Authorization of the Series C Preferred Stock financing, including approval of the Stock Purchase Agreement, Second Amended and Restated Certificate of Incorporation, and amendments and restatements of the investor agreements (July 9, 2021)

• Authorization of the Kelvantis Lending Corp. venture debt facility (August 15, 2022)

• Approval of material contracts, including key customer agreements and strategic partnerships (various dates)

• Appointment and election of officers (various dates, as noted below)

• Approval of the most recent Section 409A valuation and adoption of fair market value for option pricing purposes (September 22, 2023)

Gaps and Irregularities. Our review identified one gap in the board approval record: the appointment of Marcus Tillman as Vice President, Corporate Development in June 2019 is referenced in subsequent board meeting minutes and in the Company's internal records, but we were unable to locate a formal board resolution or written consent specifically authorizing his appointment. The Company's General Counsel has confirmed that Mr. Tillman was appointed by the CEO and that the appointment was discussed at a board meeting on June 14, 2019, but the meeting minutes from that date do not include a specific resolution regarding his appointment. We recommend that the Board adopt a ratifying consent confirming Mr. Tillman's appointment, effective as of June 14, 2019, to cure this deficiency. We do not believe this gap is material, as the Bylaws authorize the CEO to appoint officers of the Company with the approval of the Board, and the Board's subsequent acknowledgment and treatment of Mr. Tillman as a duly appointed officer constitutes at least implicit ratification.

Upcoming Board Approval for Bridge Financing. Board approval of the Bridge Financing has not yet been obtained as of the date of this memorandum. A draft Unanimous Written Consent of the Board of Directors is being prepared by C&H and is expected to be circulated to all seven directors on or about January 7, 2024, with execution targeted for January 10, 2024. The draft consent will authorize the Company to (i) enter into the Note Purchase Agreement and issue the convertible promissory notes, (ii) execute and deliver all ancillary transaction documents, including the Subordination Agreement, Escrow Agreement, and amendments to the investor agreements, (iii) delegate to the officers of the Company the authority to negotiate and finalize the terms of the transaction documents within parameters approved by the Board, and (iv) take all other actions necessary or desirable to consummate the Bridge Financing.

C. Officers. The following individuals currently serve as officers of the Company:

*As noted above, Mr. Tillman's appointment requires ratification by the Board.

We have confirmed that each officer other than Mr. Tillman was duly appointed by the Board of Directors through formal resolutions contained in board meeting minutes or unanimous written consents. All appointments remain in effect and have not been revoked or superseded.

For purposes of the Bridge Financing, the Note Purchase Agreement and ancillary transaction documents are expected to be executed by Arjun Mehta, as CEO, or David Lindstrom, as CFO, on behalf of the Company, each of whom has incumbency and signature authority as confirmed by the Board's records. An incumbency certificate will be delivered at closing.

VI. Governance — Stockholder Actions

A. Review of Stockholder Consents and Minutes

We have reviewed all stockholder meeting minutes and written consents in lieu of meeting from the date of incorporation through December 2023. The Company has not held any formal meetings of its stockholders. All stockholder actions have been taken by written consent in lieu of meeting, in reliance on DGCL § 228, which permits corporations whose certificates of incorporation do not prohibit action by written consent to take stockholder action by the written consent of holders having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting. The Current Charter does not prohibit action by written consent, and the Bylaws expressly permit such action.

We confirmed that the following charter amendments received the requisite stockholder approval by written consent:

• Certificate of Amendment designating Series A Preferred Stock (October 2, 2018): Approved by written consent of holders of a majority of the then-outstanding shares of common stock (the only class then outstanding and entitled to vote), executed by Arjun Mehta and Elena Vasquez as the holders of 100% of the outstanding common stock.

• Amended and Restated Certificate of Incorporation designating Series B Preferred Stock (March 28, 2020): Approved by written consent of (i) holders of a majority of the outstanding shares of common stock, voting as a separate class, (ii) holders of a majority of the outstanding shares of Series A Preferred Stock, voting as a separate class, and (iii) holders of a majority of all outstanding shares of capital stock, voting together as a single class on an as-converted basis. The consent was executed by the founders, Crestpoint Seed Partners, L.P., and other Series A investors holding the requisite percentage of each voting class.

• Second Amended and Restated Certificate of Incorporation designating Series C Preferred Stock (July 9, 2021): Approved by written consent of (i) holders of a majority of the outstanding shares of common stock, voting as a separate class, (ii) holders of a majority of the outstanding shares of Series A Preferred Stock, voting as a separate class, (iii) holders of a majority of the outstanding shares of Series B Preferred Stock, voting as a separate class, and (iv) holders of a majority of all outstanding shares of capital stock, voting together as a single class on an as-converted basis. The consent was executed by the founders, Crestpoint Seed Partners, Halcyon Growth Equity, and other investors holding the requisite percentage of each voting class.

In each case, we confirmed that the written consents were duly executed by the holders of the requisite number of shares, and that the Company delivered a notice to non-consenting stockholders in accordance with DGCL § 228(e) within the required timeframe following the effective date of each consent.

B. Stockholder Approval Required for Bridge Financing

DGCL Analysis. Under the DGCL, the issuance of convertible promissory notes does not, by itself, require stockholder approval. However, to the extent the conversion of the notes would result in the issuance of a new series of preferred stock, the Company will need to amend its charter to designate such series and authorize the requisite number of shares, which will require stockholder approval under DGCL § 242 by holders of a majority of the outstanding shares entitled to vote thereon, as well as any applicable separate class votes. We note that this charter amendment is expected to occur at the time of the Qualified Financing (i.e., the next priced equity round), rather than at the closing of the Bridge Financing itself. Accordingly, stockholder approval of a charter amendment is not expected to be a condition to closing of the Bridge Financing.

Charter Protective Provisions. Notwithstanding the foregoing, the protective provisions contained in the Current Charter require the consent of the holders of a majority of the outstanding shares of Series B Preferred Stock and the holders of a majority of the outstanding shares of Series C Preferred Stock for the Company to incur indebtedness in excess of $10,000,000 (subject to the exception for indebtedness approved by the Board with the affirmative vote of the applicable preferred stock director designee). The proposed $60,000,000 Bridge Financing constitutes indebtedness in excess of $10,000,000, and the protective provision consent must be obtained. The Company anticipates obtaining this consent as part of the Written Consent of Stockholders in Lieu of Special Meeting to be circulated on or about January 12, 2024.

Investor Agreements. In addition to the charter protective provisions, the Amended and Restated Investors' Rights Agreement contains preemptive rights and rights of first offer that may be triggered by the issuance of the convertible notes, as discussed in Section VII.A below. The Company intends to provide the requisite notice and opportunity to participate to all rights holders.

Voting Agreement. The Voting Agreement does not contain any provisions that would require stockholder consent for the Bridge Financing beyond those already addressed by the charter protective provisions. The drag-along provisions of the Voting Agreement are applicable only to a "Deemed Liquidation Event" and are not implicated by the Bridge Financing.

Timeline. The Written Consent of Stockholders in Lieu of Special Meeting is expected to be circulated to all stockholders entitled to vote on or about January 12, 2024, with execution targeted for the same date. Following execution of the consent by the requisite holders, the Company will deliver a notice to all non-consenting stockholders in accordance with DGCL § 228(e) within ten (10) days of the effective date of the consent.

VII. Existing Investor Agreements

A. Amended and Restated Investors' Rights Agreement

The Amended and Restated Investors' Rights Agreement, dated July 9, 2021 (the "IRA"), is among Skybridge, the founders (Arjun Mehta and Elena Vasquez), Crestpoint Seed Partners, L.P., Halcyon Growth Equity, L.P., Ridgeline Ventures Fund III, L.P., Beacon Hill Capital Partners, LLC, Northstar Innovation Fund I, L.P., and the other investors named therein. The IRA sets forth the following key provisions:

Information Rights. The Company is obligated to provide "Major Investors" (as defined in the IRA, generally holders of preferred stock holding at least 500,000 shares on an as-converted basis) with annual audited financial statements, quarterly unaudited financial statements, monthly management reports, and an annual budget, each within specified time periods. The Company has represented that it is in compliance with these obligations.

Registration Rights. The IRA grants demand registration rights (exercisable by holders of at least 30% of the "Registrable Securities"), piggyback registration rights, and S-3 registration rights (if and when the Company becomes eligible) to the Major Investors. These provisions are not directly implicated by the Bridge Financing.

Preemptive / Participation Rights (Right of First Offer). Section 4 of the IRA grants Major Investors a right of first offer with respect to new issuances of equity securities by the Company, subject to customary carve-outs for issuances pursuant to the equity incentive plan, stock dividends, and other specified issuances. The issuance of convertible promissory notes in the Bridge Financing may be treated as a new issuance of equity securities (or, at a minimum, as an issuance of securities convertible into equity securities) for purposes of the right of first offer. We recommend that the Company provide the required notice to all Major Investors offering participation in the Bridge Financing on a pro rata basis, or, alternatively, obtain a waiver of the right of first offer from the Major Investors. The Company has indicated that each of the lead investors in the Bridge Financing — Ridgeline Ventures Fund IV, L.P., Beacon Hill Capital Partners, LLC, Northstar Innovation Fund II, L.P., and Halcyon Growth Equity, L.P. — will participate in the financing, and that the remaining Major Investors will be offered the opportunity to participate on a pro rata basis.

Board Observer Rights. As noted in Section V.A above, the IRA grants board observer rights to Northstar Innovation Fund I, L.P.

Amendment. The IRA may be amended by the Company and the holders of a majority of the Registrable Securities, provided that any amendment that adversely affects a particular investor in a manner different from other investors requires the consent of such investor.

Amendment No. 1. In connection with the Bridge Financing, the Company is preparing Amendment No. 1 to the IRA, which will (i) add the Purchasers (Ridgeline Ventures Fund IV, L.P., Beacon Hill Capital Partners, LLC, Northstar Innovation Fund II, L.P., and Halcyon Growth Equity, L.P.) as parties to the IRA with information rights and participation rights, and (ii) make such other amendments as may be necessary or appropriate to reflect the terms of the Bridge Financing. A draft of Amendment No. 1 is being prepared by C&H and will be circulated for review.

B. Amended and Restated Right of First Refusal and Co-Sale Agreement

The Amended and Restated Right of First Refusal and Co-Sale Agreement, dated July 9, 2021 (the "ROFR Agreement"), is among Skybridge, the founders (as "Key Holders"), and the investors party thereto. The ROFR Agreement provides the Company and the investors with a right of first refusal on proposed transfers of shares by the Key Holders, and grants the investors co-sale (tag-along) rights with respect to any such transfers.

We have reviewed the ROFR Agreement and confirmed that its provisions are not directly triggered by the Bridge Financing, as the Bridge Financing does not involve a transfer of shares by the Key Holders. However, in connection with the Bridge Financing, the Company is preparing Amendment No. 1 to the ROFR Agreement, which will add the Purchasers as parties to the ROFR Agreement, entitling them to rights of first refusal and co-sale rights on future transfers of shares by the Key Holders.

C. Voting Agreement

The Voting Agreement, dated July 9, 2021 (the "VA"), is among Skybridge, the founders, and the investors party thereto. The VA governs the composition of the Board of Directors and includes the board seat designation provisions described in Section V.A above. The VA also contains drag-along provisions requiring all parties to vote in favor of a "Deemed Liquidation Event" if approved by (i) the Board of Directors, (ii) the holders of a majority of the outstanding shares of common stock, and (iii) the holders of a majority of the outstanding shares of preferred stock (voting together as a single class on an as-converted basis).

We have confirmed that the current composition of the Board is consistent with the terms of the VA. The drag-along provisions of the VA are not implicated by the Bridge Financing. No amendments to the VA are contemplated in connection with the Bridge Financing at this time, although the Purchasers may be added as parties in connection with the Qualified Financing.

VIII. Capitalization

A. Authorized Share Capital

As set forth in the Current Charter, the Company is authorized to issue a total of 98,000,000 shares of capital stock, consisting of the following:

In addition, the Company has reserved 8,000,000 shares of common stock for issuance under the Skybridge Fintech Ltd. 2017 Equity Incentive Plan, as amended and restated. These reserved shares are drawn from the authorized but unissued shares of common stock.

B. Issued and Outstanding Shares

Based on the Company's stock ledger and capitalization table, as of December 1, 2023, the issued and outstanding shares of capital stock of the Company are as follows:

All shares of common stock and preferred stock have been validly issued, are fully paid, and are nonassessable, based on our review of the applicable stock purchase agreements and board resolutions. Each issuance of preferred stock was made in compliance with applicable federal and state securities laws under exemptions from registration, principally Regulation D under the Securities Act of 1933, as amended (the "Securities Act"), and/or Section 4(a)(2) of the Securities Act.

C. Fully Diluted Capitalization

The following table sets forth the fully diluted capitalization of the Company on a pre-Bridge Financing basis, including all shares outstanding, all shares issuable upon conversion of preferred stock, all outstanding equity awards, and all shares reserved but unissued under the equity incentive plan:

The 250,000 warrants outstanding were issued to Kelvantis Lending Corp. in connection with the Loan and Security Agreement dated August 15, 2022, as discussed in Section VIII.F below.

Cap-Implied Conversion Price. Based on the proposed $750,000,000 valuation cap for the convertible notes and approximately 48,500,000 fully diluted shares outstanding, the cap-implied conversion price is approximately $15.46 per share ($750,000,000 ÷ 48,500,000 = $15.4639, rounded to $15.46). At this conversion price and assuming a principal amount of $60,000,000 (excluding accrued interest), the convertible notes would be convertible into approximately 3,881,000 shares of preferred stock.

D. Equity Financing History

The Company has completed three institutional equity financing rounds since inception. The following table summarizes the key terms of each round:

All equity financing rounds were conducted in compliance with applicable federal and state securities laws, primarily under Regulation D, Rule 506(b), of the Securities Act. Form D filings were made with the Securities and Exchange Commission and appropriate state blue sky filings were completed in connection with each round. We have reviewed copies of the Form D filings and confirmed that they were timely filed.

E. Stock Ledger and Transfer Records

We have reviewed the Company's stock ledger, which is maintained by the Company in electronic format (using Larkspur Software as its equity management platform). The stock ledger reflects all issuances, transfers, cancellations, and repurchases of shares of capital stock from the date of incorporation through December 1, 2023.

General Findings. The stock ledger is substantially complete and consistent with the board resolutions, stock purchase agreements, option grant documentation, and other supporting records reviewed during our diligence. All share issuances are supported by documented board approvals and executed stock purchase agreements or option exercise agreements, as applicable.

Irregularities Identified. We identified two entries in the stock ledger that require reconciliation:

(a) A transfer of 2,700 shares of common stock from an early employee (James Whitford) to the Company, recorded as a share repurchase on November 12, 2020, for which we were unable to locate the executed Stock Repurchase Agreement in the Data Room. The Company's General Counsel has represented that the repurchase was conducted at fair market value in connection with Mr. Whitford's departure from the Company, and that the executed agreement is being located. We recommend that the agreement be located and placed in the Data Room promptly.

(b) An issuance of 1,500 shares of common stock to a consultant (Sara Kessler) on April 3, 2021, for which the stock ledger reflects a certificate number that does not correspond to any certificate in the Company's records. The Company has represented that this issuance was made in uncertificated book-entry form through Sterling Reach Health IT, and that the certificate number entry was an error in the ledger. We recommend that the stock ledger be corrected to reflect the book-entry nature of the issuance.

Neither of these irregularities involves a material number of shares (4,200 shares in the aggregate, representing less than 0.01% of the fully diluted share count), and we do not believe they are material. However, we recommend that both items be resolved prior to closing to ensure the accuracy of the Company's capitalization representations in the Note Purchase Agreement.

F. Convertible Securities and Warrants

Warrants. In connection with the Kelvantis Lending Corp. venture debt facility, the Company issued warrants to Kelvantis to purchase 250,000 shares of common stock at an exercise price of $10.33 per share (equal to the Series C price per share). The warrants were issued on August 15, 2022, and have a term of ten (10) years, expiring on August 15, 2032. The warrants contain standard anti-dilution provisions on a broad-based weighted average basis and a net exercise (cashless exercise) feature. The issuance of the warrants was authorized by the Board of Directors in connection with its approval of the Kelvantis facility.

SAFEs and Other Convertible Securities. We have confirmed that there are no outstanding Simple Agreements for Future Equity (SAFEs), convertible notes, or other convertible securities (other than the Kelvantis warrants and the preferred stock conversion rights described above) outstanding as of the date of this memorandum.

Proposed Convertible Notes. The proposed $60,000,000 in convertible promissory notes to be issued in the Bridge Financing will be convertible into shares of preferred stock upon the occurrence of a Qualified Financing or at the election of the holders in certain other circumstances. As noted above, conversion at the $750,000,000 valuation cap would result in the issuance of approximately 3,881,000 shares (plus shares attributable to accrued interest), which would increase the fully diluted share count to approximately 52,381,000 shares. The pro forma impact on each stockholder's percentage ownership will be presented in the capitalization table to be delivered with the Note Purchase Agreement.

IX. Equity Incentive Plan

A. Plan Terms

The Company adopted the Skybridge Fintech Ltd. 2017 Equity Incentive Plan (the "Plan") on September 8, 2017, which was approved by the Board of Directors and the stockholders. The Plan has been amended and restated on three occasions: (i) April 15, 2019, to increase the share reserve in connection with the Series A financing; (ii) February 10, 2020, to increase the share reserve in connection with the Series B financing; and (iii) June 22, 2021, to increase the share reserve in connection with the Series C financing. Each amendment was approved by the Board and the stockholders, and we have reviewed the applicable resolutions.

Types of Awards. The Plan authorizes the grant of the following types of awards: (i) incentive stock options (within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code")), (ii) nonqualified stock options, (iii) restricted stock awards, (iv) restricted stock units ("RSUs"), and (v) other equity-based awards as determined by the Plan administrator.

Share Reserve. The Plan currently reserves a total of 11,000,000 shares of common stock for issuance pursuant to awards granted under the Plan. Of these, 6,850,000 shares are subject to outstanding stock options, 1,150,000 shares are subject to outstanding RSUs, and 3,000,000 shares remain available for future issuance.

Evergreen Provision. The Plan includes an automatic annual increase provision (the "Evergreen Provision") pursuant to which the share reserve is automatically increased on January 1 of each year (beginning January 1, 2022) by the lesser of (i) 2,000,000 shares, (ii) 4% of the total number of shares of common stock outstanding on December 31 of the immediately preceding calendar year, or (iii) a lesser number of shares determined by the Board. The Evergreen Provision was added in connection with the June 22, 2021 amendment and restatement. We note that the automatic increase for January 1, 2024, is expected to add up to 2,000,000 additional shares to the Plan reserve, subject to Board determination.

Administration. The Plan is administered by the Board of Directors or, if designated by the Board, by a compensation committee. The Board has not formally established a compensation committee; the full Board currently serves as the Plan administrator.

B. Outstanding Awards

As of December 1, 2023, the following awards are outstanding under the Plan:

The outstanding options have a ten-year term from the date of grant. The earliest options were granted in October 2017, with expiration dates beginning in October 2027. The most recent options were granted in November 2023 at an exercise price of $8.42 per share (equal to the most recent Section 409A fair market value).

Shares Available for Future Grant. As noted above, 3,000,000 shares remain available for future grants under the Plan (prior to any automatic increase under the Evergreen Provision). This available pool represents approximately 6.2% of the current fully diluted share count.

Acceleration Provisions. The Plan and the form of award agreements provide for the following acceleration events: (i) upon a "Change of Control" (as defined in the Plan, which includes a merger, asset sale, or other Deemed Liquidation Event), outstanding awards will be assumed, continued, or substituted by the successor entity; if awards are not assumed, continued, or substituted, 100% of the unvested shares subject to such awards will accelerate and become vested immediately prior to the effective time of the Change of Control ("single trigger" acceleration for non-assumed awards); and (ii) certain award agreements entered into with senior executives (including Arjun Mehta, Elena Vasquez, and David Lindstrom) contain "double trigger" acceleration provisions, pursuant to which 100% of the unvested shares will accelerate if the executive's employment is terminated without "Cause" or the executive resigns for "Good Reason" (each as defined in the applicable award agreement) within twelve (12) months following a Change of Control. The Bridge Financing does not constitute a Change of Control under the Plan.

C. 409A Valuation

The most recent Section 409A valuation of the Company's common stock was performed by Atlas Valuation Services, Inc. ("Atlas"), an independent valuation firm. The valuation was dated September 15, 2023, and the contact person at Atlas is Martin Khoury, Managing Director. The appraised fair market value per share of common stock was $8.42.

Atlas employed a combination of the income approach (Discounted cash flow analysis) and the market approach (guideline public company method), with the resulting enterprise value allocated among the Company's equity securities using the option pricing method (OPM). The valuation applied a discount for lack of marketability (DLOM) of 25% to reflect the illiquid nature of the Company's common stock as a private company.

We have confirmed that all stock options granted by the Company since September 15, 2023, have been granted at exercise prices equal to or greater than $8.42 per share, consistent with the requirements of Section 409A of the Code. We have also confirmed that all prior option grants were made at exercise prices at or above the then-applicable Section 409A fair market value, based on a review of the Company's grant history and the corresponding 409A valuations obtained by the Company at regular intervals (typically updated at least annually or in connection with material events).

409A Compliance. Based on our review, we did not identify any instances of below-fair-market-value option grants or other Section 409A compliance issues with respect to the Company's equity compensation program. The Company has maintained a practice of obtaining updated 409A valuations within twelve months of each prior valuation, or sooner in the event of a material corporate event, and has consistently priced option grants at or above the appraised f

MEMORANDUM
PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGED ATTORNEY WORK PRODUCT
TO: Arjun Mehta, CEO & Co-Founder; David Lindstrom, CFO; Priya Ramanathan, General Counsel — Skybridge Fintech Ltd.
FROM: Leonard Ashford, Of Counsel; Nina Reyes, Senior Associate — Calderwood & Harkness LLP
DATE: December 15, 2023
RE: Corporate Due Diligence — Entity Formation, Good Standing, and Capitalization of Skybridge Fintech Ltd.
MATTER NO.: 1009-00001
Purpose. This memorandum summarizes the findings of corporate due diligence conducted by Calderwood & Harkness LLP ("C&H") in connection with the proposed $60,000,000 convertible promissory note bridge financing (the "Bridge Financing") by Skybridge Fintech Ltd. ("Skybridge" or the "Company"). The diligence covered entity formation and organizational documents, good standing and foreign qualifications, governance documents, historical board and stockholder actions, capitalization, equity financing history, outstanding indebtedness, and equity incentive plan matters. This memorandum is intended to support the preparation of the Note Purchase Agreement, Company Disclosure Schedule, legal opinion letter to be delivered at closing, and related transaction documents. This memorandum is protected by the attorney-client privilege and the attorney work product doctrine and should not be disclosed to any third party without the prior written consent of Calderwood & Harkness LLP and Skybridge Fintech Ltd.
Right-click to update Table of Contents
I. Executive Summary
Calderwood & Harkness LLP has completed a comprehensive corporate due diligence review of Skybridge Fintech Ltd. in connection with the proposed Bridge Financing. The scope of the review encompassed entity formation and organizational documents, certificates of good standing and foreign qualification, governance documents and records, historical board of directors and stockholder actions, capitalization and equity financing history, the Company's equity incentive plan, outstanding indebtedness, and related corporate matters. This Section I provides a high-level summary of our principal findings; each topic is addressed in greater detail in subsequent sections of this memorandum.
Entity Status. Skybridge is a corporation organized under the General Corporation Law of the State of Delaware (the "DGCL"), classified as a C-corporation for U.S. federal income tax purposes. The Company's Employer Identification Number is 83-2147605, and its Delaware Secretary of State file number is 6384291. Skybridge was originally incorporated on March 14, 2017, and its principal executive offices are located at 1400 Market Street, Suite 2200, Wilmington, Delaware 19801. The Company maintains additional offices in New York, New York (operations and commercial headquarters) and San Francisco, California (engineering and product development).
Good Standing. The Company is validly existing and in good standing under the laws of the State of Delaware. A Certificate of Good Standing is expected to be obtained from the Delaware Secretary of State on or about January 11, 2024, and will be delivered at the closing of the Bridge Financing. Franchise taxes are current as of the date of this memorandum based on representations made by the Company's finance department.
Capitalization. The Company's capitalization consists of approximately 48,500,000 fully diluted shares across the following categories: (i) common stock held by founders, employees, and other holders; (ii) Series A Preferred Stock issued to Crestpoint Seed Partners, L.P. and other Series A investors in the Company's initial institutional round; (iii) Series B Preferred Stock issued to Halcyon Growth Equity, L.P. and other Series B investors; (iv) Series C Preferred Stock issued to Ridgeline Ventures Fund III, L.P., Beacon Hill Capital Partners, LLC, and other Series C investors in a financing that closed in July 2021 at a post-money valuation of $620,000,000; and (v) shares reserved under and subject to awards granted pursuant to the Company's equity incentive plan.
409A Valuation. The most recent Section 409A fair market value appraisal of the Company's common stock was prepared by Atlas Valuation Services, Inc. (contact: Martin Khoury, Managing Director) and dated September 15, 2023. The appraised fair market value per share of common stock was $8.42. Based on our review, all option grants made since the date of this appraisal have been made at exercise prices at or above $8.42 per share.
Valuation Metrics. The Series C post-money valuation was $620,000,000, established in connection with the closing of the Series C Preferred Stock financing in July 2021. The cap-implied conversion price for the proposed convertible promissory notes, based on the $750,000,000 valuation cap and approximately 48,500,000 fully diluted shares, is approximately $15.46 per share ($750,000,000 ÷ 48,500,000 = ~$15.46).
Existing Indebtedness. The Company has an existing venture debt facility with Kelvantis Lending Corp. in the amount of $15,000,000 outstanding principal, pursuant to a Loan and Security Agreement dated August 15, 2022, with a maturity date of August 15, 2025. The Kelvantis facility contains a negative covenant restricting additional indebtedness, and lender consent will be required prior to closing of the Bridge Financing. A formal consent and waiver request was transmitted by C&H to Kelvantis's counsel on December 15, 2023, and we anticipate receiving consent prior to the targeted closing date.
Issues Identified. Our review identified a limited number of issues requiring attention prior to closing, none of which we believe to be material impediments to the consummation of the Bridge Financing. These include: (a) one minor gap in the board consent record relating to the appointment of an officer in 2019, which we recommend be remediated by a ratifying board consent; (b) two entries in the stock ledger that require reconciliation with the Company's transfer agent records, involving a total of 4,200 shares of common stock; and (c) the need to confirm completion of foreign qualification filings in two states where the Company has recently expanded operations. These items are discussed in detail in Section XII below.
Companion Memoranda. This memorandum addresses entity formation, good standing, governance, and capitalization matters only. Separate companion diligence memoranda have been or are being prepared by C&H and address the following additional topics:
• IP Diligence Memorandum (Matter No. 1009-00001-IP)
• Material Contracts Diligence Summary (Matter No. 1009-00001-MC)
• Litigation Diligence Memorandum (Matter No. 1009-00001-LIT)
• Regulatory & Compliance Diligence Memorandum (Matter No. 1009-00001-RC)
• Employee & Benefits Diligence Memorandum (Matter No. 1009-00001-EB)
• Insurance Coverage Review Memorandum (Matter No. 1009-00001-INS)
Readers should refer to these companion memoranda for a complete picture of the diligence findings.
II. Scope and Methodology
Documents Reviewed. In conducting this corporate due diligence review, Calderwood & Harkness LLP reviewed the following categories of documents, each as made available by the Company through the Pemberton Systems virtual data room established for the Bridge Financing (the "Data Room"), supplemented by certain documents provided directly by the Company's General Counsel:
(a) Organizational Documents. The original Certificate of Incorporation of Skybridge Fintech Ltd. filed with the Delaware Secretary of State on March 14, 2017; each subsequent Certificate of Amendment and Amended and Restated Certificate of Incorporation (collectively, the "Charter"); and the current Amended and Restated Bylaws (the "Bylaws").
(b) Board of Directors Records. Minutes of meetings and unanimous written consents of the Board of Directors of the Company from the date of incorporation through December 2023, including all resolutions adopted in connection with equity financings, equity incentive plan matters, officer appointments, and material corporate actions.
(c) Stockholder Records. Minutes of meetings and written consents in lieu of meeting of the stockholders of the Company from the date of incorporation through December 2023, including all consents executed in connection with the adoption of the Charter amendments relating to the Series A, Series B, and Series C preferred stock financings.
(d) Capitalization Records. The Company's stock ledger and transfer records, the current capitalization table maintained by the Company, stock purchase agreements and related documentation for each equity financing round, individual stock option agreements, restricted stock purchase agreements, and equity award documentation.
(e) Equity Incentive Plan Documents. The Skybridge Fintech Ltd. 2017 Equity Incentive Plan, as amended and restated (the "Plan"), together with forms of award agreements, board and stockholder resolutions approving the Plan and amendments thereto, and the most recent Section 409A valuation report.
(f) Investor Agreements. The Amended and Restated Investors' Rights Agreement, the Amended and Restated Right of First Refusal and Co-Sale Agreement, and the Voting Agreement, in each case together with all amendments and joinder agreements.
(g) Venture Debt Documents. The Loan and Security Agreement dated August 15, 2022, between Kelvantis Lending Corp. and Skybridge Fintech Ltd., together with all promissory notes, security agreements, intellectual property security agreements, and related ancillary documents.
(h) Good Standing and Qualification Certificates. Certificate of Good Standing from the Delaware Secretary of State (to be obtained January 11, 2024) and certificates of authority or qualification from each state in which the Company is qualified to do business as a foreign corporation.
(i) Tax Records. Delaware franchise tax payment confirmations and related correspondence, provided for purposes of confirming good standing status.
Data Room Review
The Data Room was accessed by the C&H diligence team beginning on November 16, 2023. The Data Room index was organized into fourteen primary folders corresponding to the categories identified in the Due Diligence Request List. Documents were uploaded by the Company on a rolling basis through December 12, 2023. We reviewed all documents uploaded to Folders 1 (Corporate Organization), 2 (Governance), 3 (Capitalization), 4 (Financing Documents), 5 (Equity Incentive Plan), and 11 (Indebtedness) in their entirety. The total number of documents reviewed in connection with this memorandum was approximately 347 individual files across these folders.
Interviews Conducted. In addition to the document review, members of the C&H diligence team conducted interviews and follow-up discussions with the following individuals:
• Priya Ramanathan, General Counsel — Initial diligence call on November 20, 2023; follow-up calls on December 1, 2023, and December 8, 2023. Ms. Ramanathan provided context regarding the Company's corporate history, formation-era documentation, historical corporate actions, and the status of foreign qualification filings.
• David Lindstrom, CFO — Diligence call on November 22, 2023; follow-up call on December 5, 2023. Mr. Lindstrom provided information regarding the Company's capitalization table, equity financing history, venture debt facility, franchise tax payments, and financial aspects of the Section 409A valuation.
• Marcus Tillman, VP, Corporate Development — Diligence call on November 29, 2023. Mr. Tillman provided information regarding the Company's historical financing transactions, investor relationships, and the structure of the proposed Bridge Financing.
Reliance and Qualifications
This memorandum is based on documents and information made available to C&H through the Data Room, direct communications with the Company's management and legal team, and publicly available records. We have not independently verified the accuracy or completeness of the documents and information provided by the Company, and we have relied upon the Company's representations that all material corporate documents have been made available. Our review is subject to the following customary qualifications: (i) we have not conducted a search of UCC financing statements, judgment liens, or tax liens in any jurisdiction (such searches are being conducted separately by a title and lien search company engaged by C&H); (ii) our review of foreign qualification status is based on certificates and representations provided by the Company and has not been independently verified through state filings in all relevant jurisdictions; and (iii) this memorandum reflects the state of the diligence review as of the date hereof, and additional documents or information received after this date may affect our findings and conclusions.
Request Lists. Our document review was guided by the following request lists, copies of which are maintained in the C&H matter file:
• Due Diligence Request List, dated November 13, 2023 (transmitted to Priya Ramanathan, General Counsel)
• Supplemental Due Diligence Request List, dated December 6, 2023 (transmitted to Priya Ramanathan, General Counsel, and David Lindstrom, CFO, addressing follow-up items identified during the initial review)
III. Entity Formation and Organizational Documents
A. Certificate of Incorporation
Original Incorporation. Skybridge Fintech Ltd. was incorporated in the State of Delaware on March 14, 2017, by the filing of an original Certificate of Incorporation with the Delaware Secretary of State. The original Certificate of Incorporation was filed by incorporating attorney Rachel S. Tannenbaum of Apex Startup Law Group, PC, and named Pemberton Industries as the Company's initial registered agent. The Company was organized as a general stock corporation under the DGCL. The Delaware Secretary of State assigned the Company file number 6384291. The Company's Employer Identification Number, as assigned by the Internal Revenue Service, is 83-2147605.
The original Certificate of Incorporation authorized the issuance of 10,000,000 shares of common stock, par value $0.0001 per share, and 5,000,000 shares of preferred stock, par value $0.0001 per share, with the preferred stock to be issued in one or more series as determined by the Board of Directors pursuant to a "blank check" preferred stock provision.
Subsequent Amendments. The Certificate of Incorporation has been amended on the following occasions:
1. Certificate of Amendment, dated October 2, 2018 — Filed in connection with the Series A Preferred Stock financing. This amendment increased the authorized shares of common stock from 10,000,000 to 30,000,000 shares and designated 6,500,000 shares of the authorized preferred stock as "Series A Preferred Stock," setting forth the rights, preferences, privileges, and restrictions of the Series A Preferred Stock, including liquidation preference, conversion rights, anti-dilution protection, and voting rights.
2. Amended and Restated Certificate of Incorporation, dated March 28, 2020 — Filed in connection with the Series B Preferred Stock financing. This amended and restated charter increased the authorized shares of common stock from 30,000,000 to 50,000,000 shares, designated an additional 5,000,000 shares of preferred stock as "Series B Preferred Stock," and set forth the rights, preferences, privileges, and restrictions of the Series B Preferred Stock, while preserving the existing terms of the Series A Preferred Stock. Total authorized preferred stock was increased to 15,000,000 shares, consisting of 6,500,000 shares of Series A Preferred Stock, 5,000,000 shares of Series B Preferred Stock, and 3,500,000 shares of undesignated preferred stock.
3. Second Amended and Restated Certificate of Incorporation, dated July 9, 2021 — Filed in connection with the Series C Preferred Stock financing. This second amended and restated charter further increased the authorized shares of common stock from 50,000,000 to 75,000,000 shares, designated an additional 8,000,000 shares of preferred stock as "Series C Preferred Stock," and set forth the rights, preferences, privileges, and restrictions of the Series C Preferred Stock. Total authorized preferred stock was increased to 23,000,000 shares, consisting of 6,500,000 shares of Series A Preferred Stock, 5,000,000 shares of Series B Preferred Stock, 8,000,000 shares of Series C Preferred Stock, and 3,500,000 shares of undesignated preferred stock. This is the currently operative charter document (the "Current Charter").
Current Authorized Share Capital. Under the Current Charter, the Company is authorized to issue a total of 98,000,000 shares of capital stock, consisting of:
Preferred Stock Terms. The Current Charter sets forth the following key terms for each series of preferred stock:
Series A Preferred Stock. The Series A Preferred Stock has a liquidation preference equal to 1x the original issue price of $1.54 per share, plus declared but unpaid dividends, on a non-participating basis. The Series A is convertible into common stock on a 1:1 basis (subject to adjustment for stock splits, dividends, and anti-dilution adjustments). Anti-dilution protection is on a broad-based weighted average basis. The Series A votes on an as-converted basis with the common stock and has a separate class vote on certain protective provisions, including amendments to the charter that adversely affect the rights of the Series A, authorization of senior or pari passu stock, and changes to the authorized number of Series A shares.
Series B Preferred Stock. The Series B Preferred Stock has a liquidation preference equal to 1x the original issue price of $5.12 per share, plus declared but unpaid dividends, on a non-participating basis. The Series B is senior to the Series A and common stock in liquidation. Conversion is on a 1:1 basis (subject to adjustment). Anti-dilution protection is on a broad-based weighted average basis. The Series B has similar protective provision rights as the Series A, plus an additional protective provision requiring Series B consent for the incurrence of indebtedness in excess of $10,000,000, unless such indebtedness is approved by the Board of Directors, including the affirmative vote of the Series B director designee.
Series C Preferred Stock. The Series C Preferred Stock has a liquidation preference equal to 1x the original issue price of $10.33 per share, plus declared but unpaid dividends, on a non-participating basis. The Series C is senior to the Series B, Series A, and common stock in liquidation. Conversion is on a 1:1 basis (subject to adjustment). Anti-dilution protection is on a broad-based weighted average basis. The Series C has protective provisions similar to the Series B, including a consent right over the incurrence of indebtedness in excess of $10,000,000 (subject to the same board approval exception) and an additional protective provision requiring Series C consent for any transaction constituting a "Deemed Liquidation Event" (as defined in the Current Charter), including mergers, acquisitions, and asset sales.
Sufficiency of Authorized Shares for Bridge Financing. Based on the proposed $750,000,000 valuation cap and approximately 48,500,000 fully diluted shares outstanding prior to the Bridge Financing, the cap-implied conversion price for the convertible notes would be approximately $15.46 per share ($750,000,000 ÷ 48,500,000). At a principal amount of $60,000,000 (plus any accrued interest at conversion), the convertible notes would be convertible into approximately 3,881,000 shares of preferred stock upon conversion (assuming conversion at the valuation cap price and excluding interest). The Company currently has 3,500,000 authorized but undesignated shares of preferred stock, which would be insufficient to accommodate the full conversion of the notes if the notes convert into a new series of preferred stock (e.g., Series D Preferred Stock). We note that, in connection with the next priced equity financing round (the "Qualified Financing"), the Company will need to file a further Amended and Restated Certificate of Incorporation to (i) designate a new series of preferred stock (Series D), (ii) authorize a sufficient number of shares of Series D Preferred Stock to accommodate the conversion of the notes and the issuance of shares in the Qualified Financing, and (iii) potentially increase the number of authorized shares of common stock to accommodate conversion of the Series D Preferred Stock into common stock. The note conversion mechanics in the Note Purchase Agreement should address this requirement and condition the conversion obligation upon the filing of such charter amendment.
B. Bylaws. Current Bylaws. The Company operates under Amended and Restated Bylaws adopted by the Board of Directors on July 9, 2021, in connection with the Series C financing. We have reviewed the Amended and Restated Bylaws in their entirety and summarize the key provisions below.
Board Composition and Size. The Bylaws provide that the number of directors shall be fixed from time to time by resolution of the Board of Directors, subject to the terms of the Voting Agreement, but shall not be fewer than three (3) nor more than nine (9). The current Board consists of seven (7) directors, as discussed in Section V.A below.
Quorum. A majority of the total number of directors then in office constitutes a quorum for the transaction of business at any meeting of the Board. Actions of the Board require the affirmative vote of a majority of the directors present at a meeting at which a quorum is present, except where the Current Charter, the Bylaws, or the DGCL requires a greater vote.
Written Consent in Lieu of Meeting. Consistent with DGCL § 141(f), the Bylaws provide that any action required or permitted to be taken at any meeting of the Board may be taken without a meeting if all members of the Board consent thereto in writing or by electronic transmission, and the consents are filed with the minutes of proceedings of the Board. For actions by stockholders, the Bylaws provide that stockholders may act by written consent in lieu of a meeting in accordance with DGCL § 228, which permits action by the written consent of stockholders having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted.
Officer Appointments. The Bylaws authorize the Board to appoint a Chief Executive Officer, a President, a Secretary, a Treasurer (or Chief Financial Officer), and such other officers as the Board may from time to time determine.
Indemnification. Article VI of the Bylaws provides for mandatory indemnification of directors and officers to the fullest extent permitted by the DGCL, including indemnification for expenses (including attorneys' fees), judgments, fines, and amounts paid in settlement in connection with any threatened, pending, or completed action, suit, or proceeding arising by reason of the fact that such person is or was a director or officer of the Company. The Bylaws also authorize the Company to advance expenses to directors and officers upon receipt of an undertaking to repay such amounts if it is ultimately determined that such person is not entitled to indemnification. These provisions are consistent with the DGCL § 145 framework and with market practice for Delaware venture-backed corporations.
Meeting and Notice Requirements. Regular meetings of the Board may be held without notice at such time and place as determined by the Board. Special meetings of the Board may be called by the Chairperson of the Board, the Chief Executive Officer, or any two directors, with at least 48 hours' notice if delivered personally or by telephone, or at least five days' notice if delivered by mail, facsimile, or electronic mail.
Restrictions on Convertible Debt Issuance. We have reviewed the Bylaws for any provisions that would restrict or condition the Company's ability to issue convertible promissory notes or other convertible debt instruments. The Bylaws do not contain any such restrictions. The Bylaws defer to the Current Charter and applicable provisions of the DGCL with respect to the authorization and issuance of securities. As noted in Section III.A above, the Current Charter's protective provisions relating to indebtedness in excess of $10,000,000 will require the consent of the holders of the Series B Preferred Stock and Series C Preferred Stock, which consent is expected to be obtained as part of the stockholder approval process described in Section VI.B below.
Board and Stockholder Approval Thresholds. The Bylaws do not impose approval thresholds for the Bridge Financing beyond those set forth in the Current Charter and the DGCL. Board approval of the Bridge Financing will require the affirmative vote of a majority of the directors present at a meeting at which a quorum exists, or the unanimous written consent of the Board. As discussed in Section XI below, we anticipate that Board approval will be obtained by unanimous written consent.
C. Registered Agent and Registered Office
The Company's current registered agent in the State of Delaware is Penmark Industries, with a registered office address at Cobalt Ridge Technologies, 1209 Orange Street, Wilmington, Delaware 19801. This registered agent has been continuously maintained since incorporation, with the exception of the period from March 14, 2017, through June 30, 2018, during which Pemberton Industries served as the registered agent. The change of registered agent was effected by the filing of a Certificate of Change of Registered Agent with the Delaware Secretary of State on July 1, 2018. We have confirmed that the registered agent designation is current and that annual franchise tax and registered agent fees have been paid through the current period.
IV. Good Standing and Foreign Qualifications
A. Delaware Good Standing
A Certificate of Good Standing from the Delaware Secretary of State is scheduled to be obtained on or about January 11, 2024. While the certificate has not yet been received as of the date of this memorandum, we note the following: (i) based on the Company's representations and documentary evidence provided (including Delaware franchise tax payment receipts for tax years 2017 through 2023), we have no reason to believe that the Company is not in good standing; (ii) the Delaware Secretary of State's online filing system confirms that the Company's status is listed as "Active" and that no delinquencies are noted; and (iii) the Company has represented to us that all franchise taxes are current and that no amounts are past due.
The Certificate of Good Standing will be delivered as a condition to closing under the Note Purchase Agreement and will be attached to the legal opinion to be delivered by C&H at closing. A copy of the certificate will be appended to this memorandum as Exhibit F upon receipt.
We further confirm that the Company is validly existing under the DGCL based on our review of the organizational documents described in Section III above.
B. Foreign Qualifications
Based on information provided by the Company, including employee location data, office lease agreements, and customer concentration analysis, Skybridge is currently qualified to do business as a foreign corporation in the following jurisdictions:
The Company currently has approximately 310 full-time employees across its offices and remote workforce. Based on the Company's employee distribution, operations footprint, and customer base, we have identified two additional states — Georgia and Colorado — where the Company may be required to qualify to do business as a foreign corporation but has not yet done so. The Company has represented that it commenced operations in Georgia in approximately August 2023 (with six employees currently based in the Atlanta metropolitan area) and in Colorado in approximately October 2023 (with four employees currently based in the Denver metropolitan area). We recommend that the Company promptly file qualification applications in both states to ensure compliance with the applicable qualification requirements. The failure to qualify in these states does not affect the Company's existence or good standing in Delaware, but could result in the inability to maintain or initiate litigation in those states' courts, potential penalties, and back-filing fees. We do not believe this issue is material for purposes of the representations and warranties in the Note Purchase Agreement, provided the Company can represent (or disclose on the Disclosure Schedule) that the failure to qualify has not had and would not reasonably be expected to have a material adverse effect on the Company.
For purposes of the Note Purchase Agreement, the Company will represent that it is duly qualified and in good standing in every jurisdiction where the nature of its business or the ownership or leasing of its properties requires such qualification, except where the failure to so qualify would not have a material adverse effect. The Georgia and Colorado qualification gaps should be disclosed on the Company Disclosure Schedule.
V. Governance — Board of Directors
A. Current Board Composition
The Board of Directors currently consists of seven (7) members. The following table sets forth the current directors, their respective roles, and the capacity in which each serves:
The board composition is governed by the Voting Agreement, which provides for (i) two (2) Common Stock Directors to be designated by the holders of common stock, (ii) one (1) Series A Preferred Director to be designated by Crestpoint Seed Partners, L.P. (as the holder of a majority of the outstanding shares of Series A Preferred Stock), (iii) one (1) Series B Preferred Director to be designated by Halcyon Growth Equity, L.P. (as the holder of a majority of the outstanding shares of Series B Preferred Stock), (iv) two (2) Series C Preferred Directors to be designated by Ridgeline Ventures Fund III, L.P. and Beacon Hill Capital Partners, LLC, respectively (each as holders of significant positions in the Series C Preferred Stock), and (v) one (1) Independent Director to be mutually agreed upon by the Common Stock Directors and the Preferred Stock Directors. The current composition of the Board is consistent with the terms of the Voting Agreement.
Board Observer Rights. In addition to the seven directors, the Amended and Restated Investors' Rights Agreement grants board observer rights to Northstar Innovation Fund I, L.P., a participant in the Series C round. The observer is currently Claire Whitfield, a principal at Northstar Innovation Partners. Board observer rights are non-voting and are subject to exclusion from executive sessions and portions of meetings involving conflicts of interest or legally privileged communications.
B. Review of Board Minutes and Consents
We have reviewed the complete set of minutes of meetings and unanimous written consents of the Board of Directors from the date of the Company's incorporation on March 14, 2017, through December 2023. This review encompassed a total of forty-seven (47) board actions, consisting of twenty-three (23) regular or special meeting minutes and twenty-four (24) unanimous written consents. Our findings are summarized below.
Key Corporate Actions Authorized. We confirmed that the following key corporate actions were duly authorized by the Board of Directors through formal resolutions adopted at meetings or by written consent:
• Adoption of the initial Bylaws (March 14, 2017)
• Election of initial directors and appointment of initial officers (March 14, 2017)
• Adoption of the 2017 Equity Incentive Plan (September 8, 2017)
• Authorization of the Series A Preferred Stock financing, including approval of the Stock Purchase Agreement and related transaction documents, amendment to the Certificate of Incorporation, and the filing of the Certificate of Amendment (October 2, 2018)
• Amendments to the 2017 Equity Incentive Plan, including increases to the share reserve (April 15, 2019; February 10, 2020; June 22, 2021)
• Authorization of the Series B Preferred Stock financing, including approval of the Stock Purchase Agreement, Amended and Restated Certificate of Incorporation, Amended and Restated Investors' Rights Agreement, Amended and Restated Right of First Refusal and Co-Sale Agreement, and Voting Agreement (March 28, 2020)
• Authorization of the Series C Preferred Stock financing, including approval of the Stock Purchase Agreement, Second Amended and Restated Certificate of Incorporation, and amendments and restatements of the investor agreements (July 9, 2021)
• Authorization of the Kelvantis Lending Corp. venture debt facility (August 15, 2022)
• Approval of material contracts, including key customer agreements and strategic partnerships (various dates)
• Appointment and election of officers (various dates, as noted below)
• Approval of the most recent Section 409A valuation and adoption of fair market value for option pricing purposes (September 22, 2023)
Gaps and Irregularities. Our review identified one gap in the board approval record: the appointment of Marcus Tillman as Vice President, Corporate Development in June 2019 is referenced in subsequent board meeting minutes and in the Company's internal records, but we were unable to locate a formal board resolution or written consent specifically authorizing his appointment. The Company's General Counsel has confirmed that Mr. Tillman was appointed by the CEO and that the appointment was discussed at a board meeting on June 14, 2019, but the meeting minutes from that date do not include a specific resolution regarding his appointment. We recommend that the Board adopt a ratifying consent confirming Mr. Tillman's appointment, effective as of June 14, 2019, to cure this deficiency. We do not believe this gap is material, as the Bylaws authorize the CEO to appoint officers of the Company with the approval of the Board, and the Board's subsequent acknowledgment and treatment of Mr. Tillman as a duly appointed officer constitutes at least implicit ratification.
Upcoming Board Approval for Bridge Financing. Board approval of the Bridge Financing has not yet been obtained as of the date of this memorandum. A draft Unanimous Written Consent of the Board of Directors is being prepared by C&H and is expected to be circulated to all seven directors on or about January 7, 2024, with execution targeted for January 10, 2024. The draft consent will authorize the Company to (i) enter into the Note Purchase Agreement and issue the convertible promissory notes, (ii) execute and deliver all ancillary transaction documents, including the Subordination Agreement, Escrow Agreement, and amendments to the investor agreements, (iii) delegate to the officers of the Company the authority to negotiate and finalize the terms of the transaction documents within parameters approved by the Board, and (iv) take all other actions necessary or desirable to consummate the Bridge Financing.
C. Officers. The following individuals currently serve as officers of the Company:
*As noted above, Mr. Tillman's appointment requires ratification by the Board.
We have confirmed that each officer other than Mr. Tillman was duly appointed by the Board of Directors through formal resolutions contained in board meeting minutes or unanimous written consents. All appointments remain in effect and have not been revoked or superseded.
For purposes of the Bridge Financing, the Note Purchase Agreement and ancillary transaction documents are expected to be executed by Arjun Mehta, as CEO, or David Lindstrom, as CFO, on behalf of the Company, each of whom has incumbency and signature authority as confirmed by the Board's records. An incumbency certificate will be delivered at closing.
VI. Governance — Stockholder Actions
A. Review of Stockholder Consents and Minutes
We have reviewed all stockholder meeting minutes and written consents in lieu of meeting from the date of incorporation through December 2023. The Company has not held any formal meetings of its stockholders. All stockholder actions have been taken by written consent in lieu of meeting, in reliance on DGCL § 228, which permits corporations whose certificates of incorporation do not prohibit action by written consent to take stockholder action by the written consent of holders having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting. The Current Charter does not prohibit action by written consent, and the Bylaws expressly permit such action.
We confirmed that the following charter amendments received the requisite stockholder approval by written consent:
• Certificate of Amendment designating Series A Preferred Stock (October 2, 2018): Approved by written consent of holders of a majority of the then-outstanding shares of common stock (the only class then outstanding and entitled to vote), executed by Arjun Mehta and Elena Vasquez as the holders of 100% of the outstanding common stock.
• Amended and Restated Certificate of Incorporation designating Series B Preferred Stock (March 28, 2020): Approved by written consent of (i) holders of a majority of the outstanding shares of common stock, voting as a separate class, (ii) holders of a majority of the outstanding shares of Series A Preferred Stock, voting as a separate class, and (iii) holders of a majority of all outstanding shares of capital stock, voting together as a single class on an as-converted basis. The consent was executed by the founders, Crestpoint Seed Partners, L.P., and other Series A investors holding the requisite percentage of each voting class.
• Second Amended and Restated Certificate of Incorporation designating Series C Preferred Stock (July 9, 2021): Approved by written consent of (i) holders of a majority of the outstanding shares of common stock, voting as a separate class, (ii) holders of a majority of the outstanding shares of Series A Preferred Stock, voting as a separate class, (iii) holders of a majority of the outstanding shares of Series B Preferred Stock, voting as a separate class, and (iv) holders of a majority of all outstanding shares of capital stock, voting together as a single class on an as-converted basis. The consent was executed by the founders, Crestpoint Seed Partners, Halcyon Growth Equity, and other investors holding the requisite percentage of each voting class.
In each case, we confirmed that the written consents were duly executed by the holders of the requisite number of shares, and that the Company delivered a notice to non-consenting stockholders in accordance with DGCL § 228(e) within the required timeframe following the effective date of each consent.
B. Stockholder Approval Required for Bridge Financing
DGCL Analysis. Under the DGCL, the issuance of convertible promissory notes does not, by itself, require stockholder approval. However, to the extent the conversion of the notes would result in the issuance of a new series of preferred stock, the Company will need to amend its charter to designate such series and authorize the requisite number of shares, which will require stockholder approval under DGCL § 242 by holders of a majority of the outstanding shares entitled to vote thereon, as well as any applicable separate class votes. We note that this charter amendment is expected to occur at the time of the Qualified Financing (i.e., the next priced equity round), rather than at the closing of the Bridge Financing itself. Accordingly, stockholder approval of a charter amendment is not expected to be a condition to closing of the Bridge Financing.
Charter Protective Provisions. Notwithstanding the foregoing, the protective provisions contained in the Current Charter require the consent of the holders of a majority of the outstanding shares of Series B Preferred Stock and the holders of a majority of the outstanding shares of Series C Preferred Stock for the Company to incur indebtedness in excess of $10,000,000 (subject to the exception for indebtedness approved by the Board with the affirmative vote of the applicable preferred stock director designee). The proposed $60,000,000 Bridge Financing constitutes indebtedness in excess of $10,000,000, and the protective provision consent must be obtained. The Company anticipates obtaining this consent as part of the Written Consent of Stockholders in Lieu of Special Meeting to be circulated on or about January 12, 2024.
Investor Agreements. In addition to the charter protective provisions, the Amended and Restated Investors' Rights Agreement contains preemptive rights and rights of first offer that may be triggered by the issuance of the convertible notes, as discussed in Section VII.A below. The Company intends to provide the requisite notice and opportunity to participate to all rights holders.
Voting Agreement. The Voting Agreement does not contain any provisions that would require stockholder consent for the Bridge Financing beyond those already addressed by the charter protective provisions. The drag-along provisions of the Voting Agreement are applicable only to a "Deemed Liquidation Event" and are not implicated by the Bridge Financing.
Timeline. The Written Consent of Stockholders in Lieu of Special Meeting is expected to be circulated to all stockholders entitled to vote on or about January 12, 2024, with execution targeted for the same date. Following execution of the consent by the requisite holders, the Company will deliver a notice to all non-consenting stockholders in accordance with DGCL § 228(e) within ten (10) days of the effective date of the consent.
VII. Existing Investor Agreements
A. Amended and Restated Investors' Rights Agreement
The Amended and Restated Investors' Rights Agreement, dated July 9, 2021 (the "IRA"), is among Skybridge, the founders (Arjun Mehta and Elena Vasquez), Crestpoint Seed Partners, L.P., Halcyon Growth Equity, L.P., Ridgeline Ventures Fund III, L.P., Beacon Hill Capital Partners, LLC, Northstar Innovation Fund I, L.P., and the other investors named therein. The IRA sets forth the following key provisions:
Information Rights. The Company is obligated to provide "Major Investors" (as defined in the IRA, generally holders of preferred stock holding at least 500,000 shares on an as-converted basis) with annual audited financial statements, quarterly unaudited financial statements, monthly management reports, and an annual budget, each within specified time periods. The Company has represented that it is in compliance with these obligations.
Registration Rights. The IRA grants demand registration rights (exercisable by holders of at least 30% of the "Registrable Securities"), piggyback registration rights, and S-3 registration rights (if and when the Company becomes eligible) to the Major Investors. These provisions are not directly implicated by the Bridge Financing.
Preemptive / Participation Rights (Right of First Offer). Section 4 of the IRA grants Major Investors a right of first offer with respect to new issuances of equity securities by the Company, subject to customary carve-outs for issuances pursuant to the equity incentive plan, stock dividends, and other specified issuances. The issuance of convertible promissory notes in the Bridge Financing may be treated as a new issuance of equity securities (or, at a minimum, as an issuance of securities convertible into equity securities) for purposes of the right of first offer. We recommend that the Company provide the required notice to all Major Investors offering participation in the Bridge Financing on a pro rata basis, or, alternatively, obtain a waiver of the right of first offer from the Major Investors. The Company has indicated that each of the lead investors in the Bridge Financing — Ridgeline Ventures Fund IV, L.P., Beacon Hill Capital Partners, LLC, Northstar Innovation Fund II, L.P., and Halcyon Growth Equity, L.P. — will participate in the financing, and that the remaining Major Investors will be offered the opportunity to participate on a pro rata basis.
Board Observer Rights. As noted in Section V.A above, the IRA grants board observer rights to Northstar Innovation Fund I, L.P.
Amendment. The IRA may be amended by the Company and the holders of a majority of the Registrable Securities, provided that any amendment that adversely affects a particular investor in a manner different from other investors requires the consent of such investor.
Amendment No. 1. In connection with the Bridge Financing, the Company is preparing Amendment No. 1 to the IRA, which will (i) add the Purchasers (Ridgeline Ventures Fund IV, L.P., Beacon Hill Capital Partners, LLC, Northstar Innovation Fund II, L.P., and Halcyon Growth Equity, L.P.) as parties to the IRA with information rights and participation rights, and (ii) make such other amendments as may be necessary or appropriate to reflect the terms of the Bridge Financing. A draft of Amendment No. 1 is being prepared by C&H and will be circulated for review.
B. Amended and Restated Right of First Refusal and Co-Sale Agreement
The Amended and Restated Right of First Refusal and Co-Sale Agreement, dated July 9, 2021 (the "ROFR Agreement"), is among Skybridge, the founders (as "Key Holders"), and the investors party thereto. The ROFR Agreement provides the Company and the investors with a right of first refusal on proposed transfers of shares by the Key Holders, and grants the investors co-sale (tag-along) rights with respect to any such transfers.
We have reviewed the ROFR Agreement and confirmed that its provisions are not directly triggered by the Bridge Financing, as the Bridge Financing does not involve a transfer of shares by the Key Holders. However, in connection with the Bridge Financing, the Company is preparing Amendment No. 1 to the ROFR Agreement, which will add the Purchasers as parties to the ROFR Agreement, entitling them to rights of first refusal and co-sale rights on future transfers of shares by the Key Holders.
C. Voting Agreement
The Voting Agreement, dated July 9, 2021 (the "VA"), is among Skybridge, the founders, and the investors party thereto. The VA governs the composition of the Board of Directors and includes the board seat designation provisions described in Section V.A above. The VA also contains drag-along provisions requiring all parties to vote in favor of a "Deemed Liquidation Event" if approved by (i) the Board of Directors, (ii) the holders of a majority of the outstanding shares of common stock, and (iii) the holders of a majority of the outstanding shares of preferred stock (voting together as a single class on an as-converted basis).
We have confirmed that the current composition of the Board is consistent with the terms of the VA. The drag-along provisions of the VA are not implicated by the Bridge Financing. No amendments to the VA are contemplated in connection with the Bridge Financing at this time, although the Purchasers may be added as parties in connection with the Qualified Financing.
VIII. Capitalization
A. Authorized Share Capital
As set forth in the Current Charter, the Company is authorized to issue a total of 98,000,000 shares of capital stock, consisting of the following:
In addition, the Company has reserved 8,000,000 shares of common stock for issuance under the Skybridge Fintech Ltd. 2017 Equity Incentive Plan, as amended and restated. These reserved shares are drawn from the authorized but unissued shares of common stock.
B. Issued and Outstanding Shares
Based on the Company's stock ledger and capitalization table, as of December 1, 2023, the issued and outstanding shares of capital stock of the Company are as follows:
All shares of common stock and preferred stock have been validly issued, are fully paid, and are nonassessable, based on our review of the applicable stock purchase agreements and board resolutions. Each issuance of preferred stock was made in compliance with applicable federal and state securities laws under exemptions from registration, principally Regulation D under the Securities Act of 1933, as amended (the "Securities Act"), and/or Section 4(a)(2) of the Securities Act.
C. Fully Diluted Capitalization
The following table sets forth the fully diluted capitalization of the Company on a pre-Bridge Financing basis, including all shares outstanding, all shares issuable upon conversion of preferred stock, all outstanding equity awards, and all shares reserved but unissued under the equity incentive plan:
The 250,000 warrants outstanding were issued to Kelvantis Lending Corp. in connection with the Loan and Security Agreement dated August 15, 2022, as discussed in Section VIII.F below.
Cap-Implied Conversion Price. Based on the proposed $750,000,000 valuation cap for the convertible notes and approximately 48,500,000 fully diluted shares outstanding, the cap-implied conversion price is approximately $15.46 per share ($750,000,000 ÷ 48,500,000 = $15.4639, rounded to $15.46). At this conversion price and assuming a principal amount of $60,000,000 (excluding accrued interest), the convertible notes would be convertible into approximately 3,881,000 shares of preferred stock.
D. Equity Financing History
The Company has completed three institutional equity financing rounds since inception. The following table summarizes the key terms of each round:
All equity financing rounds were conducted in compliance with applicable federal and state securities laws, primarily under Regulation D, Rule 506(b), of the Securities Act. Form D filings were made with the Securities and Exchange Commission and appropriate state blue sky filings were completed in connection with each round. We have reviewed copies of the Form D filings and confirmed that they were timely filed.
E. Stock Ledger and Transfer Records
We have reviewed the Company's stock ledger, which is maintained by the Company in electronic format (using Larkspur Software as its equity management platform). The stock ledger reflects all issuances, transfers, cancellations, and repurchases of shares of capital stock from the date of incorporation through December 1, 2023.
General Findings. The stock ledger is substantially complete and consistent with the board resolutions, stock purchase agreements, option grant documentation, and other supporting records reviewed during our diligence. All share issuances are supported by documented board approvals and executed stock purchase agreements or option exercise agreements, as applicable.
Irregularities Identified. We identified two entries in the stock ledger that require reconciliation:
(a) A transfer of 2,700 shares of common stock from an early employee (James Whitford) to the Company, recorded as a share repurchase on November 12, 2020, for which we were unable to locate the executed Stock Repurchase Agreement in the Data Room. The Company's General Counsel has represented that the repurchase was conducted at fair market value in connection with Mr. Whitford's departure from the Company, and that the executed agreement is being located. We recommend that the agreement be located and placed in the Data Room promptly.
(b) An issuance of 1,500 shares of common stock to a consultant (Sara Kessler) on April 3, 2021, for which the stock ledger reflects a certificate number that does not correspond to any certificate in the Company's records. The Company has represented that this issuance was made in uncertificated book-entry form through Sterling Reach Health IT, and that the certificate number entry was an error in the ledger. We recommend that the stock ledger be corrected to reflect the book-entry nature of the issuance.
Neither of these irregularities involves a material number of shares (4,200 shares in the aggregate, representing less than 0.01% of the fully diluted share count), and we do not believe they are material. However, we recommend that both items be resolved prior to closing to ensure the accuracy of the Company's capitalization representations in the Note Purchase Agreement.
F. Convertible Securities and Warrants
Warrants. In connection with the Kelvantis Lending Corp. venture debt facility, the Company issued warrants to Kelvantis to purchase 250,000 shares of common stock at an exercise price of $10.33 per share (equal to the Series C price per share). The warrants were issued on August 15, 2022, and have a term of ten (10) years, expiring on August 15, 2032. The warrants contain standard anti-dilution provisions on a broad-based weighted average basis and a net exercise (cashless exercise) feature. The issuance of the warrants was authorized by the Board of Directors in connection with its approval of the Kelvantis facility.
SAFEs and Other Convertible Securities. We have confirmed that there are no outstanding Simple Agreements for Future Equity (SAFEs), convertible notes, or other convertible securities (other than the Kelvantis warrants and the preferred stock conversion rights described above) outstanding as of the date of this memorandum.
Proposed Convertible Notes. The proposed $60,000,000 in convertible promissory notes to be issued in the Bridge Financing will be convertible into shares of preferred stock upon the occurrence of a Qualified Financing or at the election of the holders in certain other circumstances. As noted above, conversion at the $750,000,000 valuation cap would result in the issuance of approximately 3,881,000 shares (plus shares attributable to accrued interest), which would increase the fully diluted share count to approximately 52,381,000 shares. The pro forma impact on each stockholder's percentage ownership will be presented in the capitalization table to be delivered with the Note Purchase Agreement.
IX. Equity Incentive Plan
A. Plan Terms
The Company adopted the Skybridge Fintech Ltd. 2017 Equity Incentive Plan (the "Plan") on September 8, 2017, which was approved by the Board of Directors and the stockholders. The Plan has been amended and restated on three occasions: (i) April 15, 2019, to increase the share reserve in connection with the Series A financing; (ii) February 10, 2020, to increase the share reserve in connection with the Series B financing; and (iii) June 22, 2021, to increase the share reserve in connection with the Series C financing. Each amendment was approved by the Board and the stockholders, and we have reviewed the applicable resolutions.
Types of Awards. The Plan authorizes the grant of the following types of awards: (i) incentive stock options (within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code")), (ii) nonqualified stock options, (iii) restricted stock awards, (iv) restricted stock units ("RSUs"), and (v) other equity-based awards as determined by the Plan administrator.
Share Reserve. The Plan currently reserves a total of 11,000,000 shares of common stock for issuance pursuant to awards granted under the Plan. Of these, 6,850,000 shares are subject to outstanding stock options, 1,150,000 shares are subject to outstanding RSUs, and 3,000,000 shares remain available for future issuance.
Evergreen Provision. The Plan includes an automatic annual increase provision (the "Evergreen Provision") pursuant to which the share reserve is automatically increased on January 1 of each year (beginning January 1, 2022) by the lesser of (i) 2,000,000 shares, (ii) 4% of the total number of shares of common stock outstanding on December 31 of the immediately preceding calendar year, or (iii) a lesser number of shares determined by the Board. The Evergreen Provision was added in connection with the June 22, 2021 amendment and restatement. We note that the automatic increase for January 1, 2024, is expected to add up to 2,000,000 additional shares to the Plan reserve, subject to Board determination.
Administration. The Plan is administered by the Board of Directors or, if designated by the Board, by a compensation committee. The Board has not formally established a compensation committee; the full Board currently serves as the Plan administrator.
B. Outstanding Awards
As of December 1, 2023, the following awards are outstanding under the Plan:
The outstanding options have a ten-year term from the date of grant. The earliest options were granted in October 2017, with expiration dates beginning in October 2027. The most recent options were granted in November 2023 at an exercise price of $8.42 per share (equal to the most recent Section 409A fair market value).
Shares Available for Future Grant. As noted above, 3,000,000 shares remain available for future grants under the Plan (prior to any automatic increase under the Evergreen Provision). This available pool represents approximately 6.2% of the current fully diluted share count.
Acceleration Provisions. The Plan and the form of award agreements provide for the following acceleration events: (i) upon a "Change of Control" (as defined in the Plan, which includes a merger, asset sale, or other Deemed Liquidation Event), outstanding awards will be assumed, continued, or substituted by the successor entity; if awards are not assumed, continued, or substituted, 100% of the unvested shares subject to such awards will accelerate and become vested immediately prior to the effective time of the Change of Control ("single trigger" acceleration for non-assumed awards); and (ii) certain award agreements entered into with senior executives (including Arjun Mehta, Elena Vasquez, and David Lindstrom) contain "double trigger" acceleration provisions, pursuant to which 100% of the unvested shares will accelerate if the executive's employment is terminated without "Cause" or the executive resigns for "Good Reason" (each as defined in the applicable award agreement) within twelve (12) months following a Change of Control. The Bridge Financing does not constitute a Change of Control under the Plan.
C. 409A Valuation
The most recent Section 409A valuation of the Company's common stock was performed by Atlas Valuation Services, Inc. ("Atlas"), an independent valuation firm. The valuation was dated September 15, 2023, and the contact person at Atlas is Martin Khoury, Managing Director. The appraised fair market value per share of common stock was $8.42.
Atlas employed a combination of the income approach (Discounted cash flow analysis) and the market approach (guideline public company method), with the resulting enterprise value allocated among the Company's equity securities using the option pricing method (OPM). The valuation applied a discount for lack of marketability (DLOM) of 25% to reflect the illiquid nature of the Company's common stock as a private company.
We have confirmed that all stock options granted by the Company since September 15, 2023, have been granted at exercise prices equal to or greater than $8.42 per share, consistent with the requirements of Section 409A of the Code. We have also confirmed that all prior option grants were made at exercise prices at or above the then-applicable Section 409A fair market value, based on a review of the Company's grant history and the corresponding 409A valuations obtained by the Company at regular intervals (typically updated at least annually or in connection with material events).
409A Compliance. Based on our review, we did not identify any instances of below-fair-market-value option grants or other Section 409A compliance issues with respect to the Company's equity compensation program. The Company has maintained a practice of obtaining updated 409A valuations within twelve months of each prior valuation, or sooner in the event of a material corporate event, and has consistently priced option grants at or above the appraised f

MEMORANDUM

PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGED ATTORNEY WORK PRODUCT

MATTER NO.: 1009-00001

Record

Parties

Dates

Amounts