MEMORANDUM
PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGED ATTORNEY WORK PRODUCT
TO: Arjun Mehta, CEO & Co-Founder; David Lindstrom, CFO; Priya Ramanathan, General Counsel; and the Board of Directors — Skybridge Fintech Ltd.
FROM: Leonard Ashford, Of Counsel; Nina Reyes, Senior Associate; Peter Vassiliev, Lead Associate; Wendy Schultz, Working Associate — Calderwood & Harkness LLP
DATE: January 3, 2024
RE: Consolidated Due Diligence Summary and Risk Assessment — $60,000,000 Convertible Note Bridge Financing
Matter No.: 1009-00001
This memorandum constitutes attorney-client privileged communication and attorney work product prepared in connection with legal representation of Skybridge Fintech Ltd. by Calderwood & Harkness LLP. This document is intended solely for the use of the addressees listed above and should not be disclosed, distributed, or reproduced, in whole or in part, to any third party without the prior written consent of Calderwood & Harkness LLP. Inadvertent disclosure does not constitute a waiver of any applicable privilege.
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I. Executive Summary
The purpose of this memorandum is to consolidate and summarize the due diligence findings across all workstreams conducted by Calderwood & Harkness LLP ("C&H" or "Outside Counsel") in connection with Skybridge Fintech Ltd.'s (the "Company" or "Skybridge") proposed issuance of $60,000,000 in aggregate principal amount of convertible promissory notes (the "Notes") to a syndicate of investors (collectively, the "Purchasers") led by Ridgeline Ventures Fund IV, L.P. ("Ridgeline" or the "Lead Investor") pursuant to a Note Purchase Agreement (the "NPA"). This memorandum is intended to provide management and the Board of Directors with a comprehensive overview of the diligence results, an assessment of identified risks, and actionable recommendations for pre-closing remediation, disclosure schedule preparation, and post-closing follow-up.
Due diligence was conducted by C&H from November 13, 2023 (the date on which the initial due diligence request list was delivered to the Company) through late December 2023. A supplemental due diligence request list was issued on December 6, 2023 to address additional areas identified during the initial review, including expanded intellectual property diligence. The diligence effort encompassed seven principal workstreams:
(1) Corporate / Entity Formation / Capitalization;
(2) intellectual Property;
(3) Material Contracts;
(4) Regulatory and Compliance;
(5) Litigation and Threatened Claims;
(6) Employee and Benefits; and
(7) Insurance Coverage.
Individual workstream memoranda have been previously delivered to the Company and are incorporated herein by reference. The individual memoranda are listed below with their respective delivery dates:
• Corporate Diligence Memo — December 15, 2023
• Material Contracts Diligence Summary — December 18, 2023
• Litigation & Threatened Claims Diligence Memo — December 19, 2023
• intellectual Property Diligence Memo — December 20, 2023
• Employee & Benefits Diligence Memo — December 21, 2023
• IP Ownership & Assignment Analysis — December 22, 2023
• Regulatory & Compliance Diligence Memo — December 22, 2023
• Insurance Coverage Review Memo — December 23, 2023
Overall Assessment. Based on our comprehensive review across all workstreams, it is our assessment that Skybridge is well-positioned to consummate the convertible note bridge financing. The items identified during the course of due diligence are manageable in nature and have been, or are in the process of being, addressed through appropriate remedial actions. No findings were identified that would preclude closing of the transaction. As described in greater detail in this memorandum, we have specific recommendations for disclosure schedule items to be included in the NPA, certain pre-closing remedial actions that should be completed prior to signing, and post-closing follow-up items that will require ongoing attention.
Transaction Context. The proposed convertible note bridge financing is being pursued in advance of a planned Series D equity round that the Company estimates will be conducted in Q3–Q4 2024 (the "Series D Round"). The Notes will bear interest at a rate of 6.00% per annum (600 basis points), compounding annually, and will mature on January 15, 2026 (the "Maturity Date"). The Notes will convert into equity securities issued in a Qualified Financing (defined in the NPA as a preferred stock financing raising at least $80,000,000 in gross proceeds) at the lower of (a) a price per share equal to a 20% discount to the price per share paid by new investors in such Qualified Financing, and (b) the price per share implied by a pre-money valuation cap of $750,000,000 (the "Valuation Cap"). The conversion mechanics are designed to provide the Purchasers with downside protection while preserving flexibility for the Company in connection with the Series D Round.
The financing is structured as a two-tranche closing. The Initial Closing is targeted for on or about January 15, 2024, with aggregate subscriptions of $45,000,000, and a subsequent Final Closing of $15,000,000 is anticipated shortly thereafter. The bridge financing is critical to extending the Company's operating runway and enabling continued growth and operational execution in the period preceding the Series D Round.
II. Scope and Methodology
Scope of Engagement
Calderwood & Harkness LLP was initially engaged by Skybridge Fintech Ltd. on November 6, 2023 to serve as outside counsel to the Company in connection with the proposed convertible note bridge financing. The initial scope of the engagement encompassed corporate diligence, material contracts review, regulatory and compliance analysis, litigation review, employee and benefits analysis, and insurance coverage review. On December 1, 2023, the scope of the engagement was expanded to include comprehensive intellectual property diligence, with Peter Vassiliev (Lead Associate, intellectual Property) and Wendy Schultz (Working Associate, intellectual Property) joining the diligence team to lead the IP workstream. The expansion of scope was prompted by investor-side counsel's request for enhanced IP diligence given the centrality of Skybridge's proprietary technology to its business model and valuation.
Materials Reviewed. The diligence team reviewed an extensive body of documents and materials, including the following principal categories:
• Documents produced by Skybridge in response to the initial due diligence request list delivered on November 13, 2023, comprising approximately 340 individual document productions spanning corporate records, contracts, regulatory filings, employment records, and financial materials;
• Documents produced by Skybridge in response to the supplemental due diligence request list delivered on December 6, 2023, comprising approximately 85 additional document productions, with particular emphasis on intellectual property records, open-source software usage logs, and contractor agreements;
• Virtual data room materials hosted on Thackeray Solutions, including organizational documents, board minutes, stockholder consents, equity grant records, and correspondence files;
• Public records, including Secretary of State filings in Delaware, Massachusetts, Illinois, California, and Washington;
• Patent and trademark database searches conducted through the United States Patent and Trademark Office (USPTO) Electronic Filing System (EFS) and the Trademark Electronic Search System (TESS);
• State regulatory databases for money transmission licensing status across all relevant jurisdictions; and
• Third-party reports and analyses, including the Company's audited financial statements and independent valuation reports.
Management Interviews. In addition to the documentary review, the diligence team conducted a series of management interviews to supplement and verify information obtained from the document review. The following individuals were interviewed:
• Arjun Mehta, CEO & Co-Founder — interviews conducted on November 17, 2023 and December 8, 2023, covering Company history, business strategy, competitive landscape, and key commercial relationships;
• Elena Vasquez, CTO & Co-Founder — interviews conducted on November 20, 2023 and December 11, 2023, covering technology architecture, intellectual property portfolio, open-source software usage, and engineering team composition;
• David Lindstrom, CFO — interviews conducted on November 21, 2023 and December 12, 2023, covering financial performance, cash flow projections, capitalization matters, and the Kelvantis venture debt facility;
• Priya Ramanathan, General Counsel — interviews conducted on November 15, 2023, December 4, 2023, and December 14, 2023, covering regulatory compliance, litigation matters, material contracts, and corporate governance; and
• Marcus Tillman, VP, Corporate Development — interview conducted on December 6, 2023, covering strategic partnerships, M&A pipeline, and investor relations.
Financial Materials Reviewed
The diligence team reviewed the following financial materials for contextual purposes (noting that comprehensive financial due diligence is the responsibility of the investor syndicate and its advisors):
• Audited financial statements for fiscal year 2022, prepared by Pinnacle Audit Group LLP (engagement partner: Lisa Johannsen). The audit report was unqualified, with no going concern modifications, material weaknesses, or significant deficiencies noted in the auditor's report;
• Reviewed (unaudited) financial statements for the quarter ended September 30, 2023 (Q3 2023), prepared by management and reviewed by Pinnacle Audit Group LLP; and
• 409A valuation report dated September 15, 2023, prepared by Atlas Valuation Services, Inc. (contact: Martin Khoury), which established a fair market value of $8.42 per share of Common Stock as of the valuation date.
Limitations. This memorandum and the underlying due diligence review are subject to the following limitations, which should be borne in mind when evaluating the findings and conclusions expressed herein:
• The due diligence review was based on documents, information, and management representations provided to C&H by the Company. C&H did not independently verify the accuracy, completeness, or authenticity of any financial data, management representations, or other information provided by the Company, except to the extent specifically noted herein;
• C&H did not conduct any environmental, tax, or actuarial due diligence, as such workstreams were outside the scope of the engagement;
• Certain documents and information may not have been produced by the Company, whether due to oversight, unavailability, or the inherent limitations of document retrieval processes. C&H relied on the Company's representations that all material documents responsive to the due diligence request lists were produced; and
• The conclusions expressed herein are based on applicable law and facts as of the date of this memorandum and are subject to change in the event of subsequent developments in law, regulation, or fact.
III. Corporate and Entity Formation
A. Organization and Good Standing
Skybridge Fintech Ltd. was incorporated in the State of Delaware in 2017 as a Delaware C-corporation. The Company's Employer Identification Number (EIN) is 83-2147605, and its Delaware file number is 6384291. The Company's principal executive offices and headquarters are located at 1400 Market Street, Suite 2200, Wilmington, DE 19801.
The diligence team reviewed the Company's organizational documents, including the Amended and Restated Certificate of Incorporation (as most recently amended on July 16, 2021 in connection with the Series C financing) and the Amended and Restated Bylaws (as most recently amended on September 22, 2022). No material deficiencies were identified in the organizational documents. The Company's Certificate of Incorporation properly establishes the authorized capital stock structure, including the designations, powers, preferences, and rights of each series of Preferred Stock, and the Bylaws contain customary provisions regarding board governance, officer authority, indemnification, and stockholder meetings.
A good standing certificate from the Delaware Secretary of State was requested as part of the pre-closing diligence process. We note that this certificate was subsequently obtained on January 11, 2024, confirming that the Company is in good standing and current with all franchise tax obligations in Delaware. The Company has confirmed that it is duly qualified and in good standing as a foreign corporation in each jurisdiction where the nature of its business or the ownership of its properties requires such qualification, including Massachusetts, Illinois, California, and Washington.
Based on our review, we have confirmed proper formation and continuous good standing of the Company from its date of incorporation through the date of this memorandum.
B. Capitalization. The Company's capitalization has been carefully reviewed and reconciled against the Company's stock ledger, equity plan records, and organizational documents. As of the date of this memorandum, the Company's fully diluted shares outstanding (on a pre-bridge basis) total approximately 48,500,000 shares, inclusive of all outstanding shares of Common Stock, all shares of Preferred Stock (on an as-converted-to-Common-Stock basis), all outstanding options (whether vested or unvested) under the Company's equity incentive plan, and all outstanding restricted stock awards.
The Company's capital stock structure consists of the following classes and series:
• Common Stock — authorized and outstanding shares as reflected in the Company's stock ledger and capitalization table;
• Series A Preferred Stock — issued in connection with the Company's Series A financing, which was led by Crestpoint Seed Partners, L.P.;
• Series B Preferred Stock — issued in connection with the Company's Series B financing, which was led by Halcyon Growth Equity, L.P.; and
• Series C Preferred Stock — issued in connection with the Company's Series C financing, which closed in July 2021 and was co-led by Ridgeline Ventures Fund III, L.P. and Beacon Hill Capital Partners, LLC. The Series C round was completed at a post-money valuation of $620,000,000.
The Company's equity incentive plan (the "Plan") was reviewed in connection with the corporate diligence workstream. The most recent independent 409A valuation of the Company's Common Stock was conducted by Atlas Valuation Services, Inc. (contact: Martin Khoury) as of September 15, 2023, which established a fair market value of $8.42 per share of Common Stock. All outstanding options were reviewed, and the exercise prices of such options were confirmed to have been set at or above the fair market value of Common Stock at the time of grant, in compliance with Section 409A of the Internal Revenue Code of 1986, as amended. No irregularities were identified in the Company's equity compensation practices.
With respect to the conversion mechanics of the Notes, the Valuation Cap-implied conversion price is calculated as follows: $750,000,000 (Valuation Cap) ÷ 48,500,000 (fully diluted shares outstanding, pre-bridge) = approximately $15.46 per share. This conversion price will be compared to the discounted price per share (i.e., 80% of the Series D price per share) at the time of a Qualified Financing, and the lower of the two prices will determine the conversion rate for the Notes.
We have confirmed that the Company has sufficient authorized but unissued shares of Common Stock and Preferred Stock under its Certificate of Incorporation to accommodate the conversion of the Notes at the Valuation Cap price, taking into account all currently outstanding shares, options, and other convertible securities. This analysis was cross-referenced with our Charter review memorandum dated December 1, 2023, and no shortfall in authorized share capacity was identified. In the event that the Series D pricing implies a per-share conversion price below the Valuation Cap price (i.e., the 20% discount mechanism yields a lower price), additional shares would be issuable upon conversion, and we recommend that the Company monitor its authorized share capacity in connection with the Series D Round and consider whether an amendment to the Certificate of Incorporation increasing authorized shares may be warranted at that time.
C. Board and Stockholder Governance
The composition of the Board of Directors was reviewed, including the board's committee structure and the designation rights of the holders of each series of Preferred Stock. The Board's quorum and voting requirements, as set forth in the Bylaws and the Certificate of Incorporation, were analyzed in the context of the approvals required for the convertible note financing.
Board approval of the convertible note financing is expected to be obtained by Unanimous Written Consent of the Board of Directors. The target date for circulation and execution of the Unanimous Written Consent is January 10, 2024. We have prepared a draft of the Unanimous Written Consent, which has been circulated to Priya Ramanathan for review and comment. The Unanimous Written Consent will approve, among other things, the execution and delivery of the NPA, the issuance of the Notes, the execution and delivery of amendments to the existing investor agreements, and the related transaction documents.
Stockholder approval will be obtained by Written Consent in Lieu of a Special Meeting of Stockholders, in accordance with Section 228 of the Delaware General Corporation Law (the "DGCL"). The Written Consent will be executed by stockholders holding a sufficient number of shares to constitute the requisite vote under the DGCL and the Company's Certificate of Incorporation. The Written Consent will approve the issuance of the Notes, the reservation of shares for issuance upon conversion of the Notes, and the amendments to the Amended and Restated Investors' Rights Agreement and the Right of First Refusal and Co-Sale Agreement.
Pursuant to Section 228(e) of the DGCL, prompt notice of the taking of corporate action by written consent without a meeting must be given to those stockholders who have not consented in writing and who, if the action had been taken at a meeting, would have been entitled to notice of the meeting. This notice must be delivered to non-consenting stockholders following the closing of the financing and is identified as a post-closing action item in Section XII of this memorandum.
We have confirmed that the authorization requirements under Sections 152, 153, and 157 of the DGCL have been satisfied or will be satisfied through the contemplated board and stockholder approval process. This analysis was set forth in detail in our Delaware law memorandum dated November 14, 2023, which has been previously provided to the Company's General Counsel.
D. Existing Investor Agreements
The Company is party to several existing investor agreements that govern the rights and obligations of the Company and its stockholders. Each of these agreements was reviewed in the context of the convertible note financing:
Amended and Restated Investors' Rights Agreement. The Amended and Restated Investors' Rights Agreement (the "IRA"), dated as of July 16, 2021, was entered into in connection with the Series C financing. The IRA provides the holders of Preferred Stock with certain information rights, registration rights, and pro rata participation rights (among other rights). An amendment to the IRA will be required to add the Purchasers as parties to the agreement and to extend certain rights (including information rights and pro rata participation rights) to the Purchasers following conversion of the Notes. The form of amendment has been prepared by C&H and is currently in negotiation with investor-side counsel.
Right of First Refusal and Co-Sale Agreement. The Amended and Restated Right of First Refusal and Co-Sale Agreement (the "ROFR Agreement"), dated as of July 16, 2021, was also entered into in connection with the Series C financing. The ROFR Agreement provides the holders of Preferred Stock and the Company with certain rights of first refusal and co-sale rights in connection with proposed transfers of shares by the Company's founders and certain other holders. An amendment to the ROFR Agreement will be required to extend these rights to the Purchasers upon conversion of the Notes.
Preemptive Rights. The preemptive rights of the existing holders of Preferred Stock under the IRA and the Company's Certificate of Incorporation were analyzed in the context of the convertible note issuance. Waivers of preemptive rights have been obtained from certain existing preferred holders, and additional waivers are expected to be obtained prior to closing. We are tracking the status of these waivers and will confirm their receipt as part of the pre-closing checklist.
Anti-Dilution Provisions. The anti-dilution provisions applicable to the Series A, Series B, and Series C Preferred Stock were reviewed in the context of the convertible note issuance. In particular, we analyzed the interaction between the broad-based weighted-average anti-dilution protections in the Certificate of Incorporation and the most-favored-nation (MFN) provision contained in the draft NPA. This analysis was set forth in our MFN/Anti-Dilution Interaction Analysis memorandum dated December 5, 2023. Our conclusion was that the issuance of the Notes at the current terms does not trigger any anti-dilution adjustment under the existing Certificate of Incorporation, as the Notes are not being issued at a price per share below the applicable conversion price of any series of Preferred Stock. However, conversion of the Notes in a down-round scenario (i.e., if the Series D price implies a per-share value below the existing Series C price) could trigger anti-dilution adjustments at that time, and this interaction should be monitored.
E. Risk Assessment — Corporate
Risk Level: Low.
All organizational documents are in order, and the Company's capitalization is clean and well-documented. The Company's governance procedures are adequate, and the contemplated board and stockholder approval process is straightforward and on track for execution within the anticipated timeline. The Company has sufficient authorized shares to accommodate the conversion of the Notes at the Valuation Cap price.
Recommendations:
• Include standard capitalization representations in the NPA, with customary bring-down and materiality qualifiers;
• Prepare a detailed disclosure schedule setting forth the Company's capitalization table, including all outstanding shares, options, warrants, and other convertible securities, on a fully diluted basis;
• Ensure that sufficient authorized but unissued shares are reserved for issuance upon conversion of the Notes; and
• Complete all board and stockholder approval actions in accordance with the timeline set forth in Section XII of this memorandum.
IV. Intellectual Property
A. Patent Portfolio
The diligence team conducted a comprehensive review of all patents and patent applications owned or licensed by Skybridge. The Company's patent portfolio is centered on its core payments orchestration technology and its proprietary embedded lending algorithms, which together form the foundation of the Company's platform and its competitive differentiation in the market.
We catalogued and reviewed each issued patent and pending patent application, including the patent claims, prosecution history, assignment records, and maintenance fee status. The Company's patents are properly assigned to and held in the name of Skybridge Fintech Ltd. No material encumbrances, security interests, or third-party ownership claims were identified with respect to any patent in the Company's portfolio. All maintenance fees are current, and no patents are at risk of lapse due to missed maintenance deadlines.
The diligence team also conducted freedom-to-operate searches within the USPTO database to identify any potentially relevant third-party patents that could present infringement risks. While a comprehensive freedom-to-operate opinion was beyond the scope of this engagement, the preliminary search results did not reveal any patents that appear to present a material risk of infringement by the Company's current products or technology.
B. Trademarks and Brands
The Company's registered trademarks and pending trademark applications were reviewed through searches of the USPTO Trademark Electronic Search System (TESS) and the Company's own trademark portfolio records. The "SKYBRIDGE" mark and related product and service marks are confirmed as properly registered and maintained in the relevant classes of goods and services. Registration renewals have been timely filed, and all required declarations of use and renewal filings are current.
No material oppositions, cancellation proceedings, or other trademark disputes are currently pending before the Trademark Trial and Appeal Board (TTAB) or any court. The Company's trademark portfolio provides adequate protection for its brand identity and product names in the relevant markets.
C. Copyrights and Software
The Company's proprietary software, which powers its payments orchestration and embedded lending platform, was reviewed as part of the IP diligence workstream. The software is developed and maintained by the Company's internal engineering team, with limited use of third-party contractors for certain specialized development tasks (particularly in the Company's early stages).
A significant component of the supplemental due diligence request (issued December 6, 2023) focused on the Company's use of open-source software components. The diligence team conducted a thorough review of the Company's open-source software usage, including an analysis of the licenses applicable to each open-source component incorporated into or distributed with the Company's proprietary software. The review assessed whether any open-source components are subject to "copyleft" licenses (such as the GNU General Public License (GPL) v2 or v3) that could potentially require the Company to disclose or license its proprietary source code.
Based on our review, no copyleft contamination issues were identified that would materially impair the Company's proprietary intellectual property. The Company's engineering team maintains an open-source usage policy and an internal registry of approved open-source components, which is reviewed and updated on a quarterly basis. The Company's use of open-source software is overwhelmingly under permissive licenses (such as MIT, Apache 2.0, and BSD licenses) that do not impose significant restrictions on the Company's ability to commercialize its proprietary software.
The Company's trade secret and confidential information protections were also evaluated. The Company maintains reasonable measures to protect its trade secrets and confidential information, including access controls, encryption, employee and contractor confidentiality agreements, and physical and digital security measures.
D. IP Ownership and Assignment
A critical component of the IP diligence workstream was the verification of the Company's ownership of its intellectual property, including an analysis of the assignment chains from individual creators (founders, employees, and contractors) to the Company.
Founder Assignments. The IP assignment agreements executed by each of the Company's co-founders were reviewed:
• Arjun Mehta (CEO & Co-Founder) — Mr. Mehta executed a comprehensive IP assignment agreement assigning to the Company all intellectual property created by him in connection with his role at Skybridge, including any prior work product that was incorporated into the Company's technology. The assignment agreement is properly executed and enforceable.
• Elena Vasquez (CTO & Co-Founder) — Ms. Vasquez executed a comprehensive IP assignment agreement on substantially the same terms as Mr. Mehta's agreement, assigning to the Company all intellectual property created by her in connection with her role at Skybridge. The assignment agreement is properly executed and enforceable.
Employee IP Assignments. The Proprietary Information and Inventions Assignment (PIIA) agreements for all current employees (approximately 310 full-time equivalents) were reviewed. Substantially all employees have executed PIIA agreements containing customary provisions regarding the assignment of inventions, the protection of confidential information, and post-employment non-competition and non-solicitation obligations (to the extent enforceable under applicable state law). No material gaps were identified in the employee PIIA coverage.
Contractor IP Assignments. The IP assignment provisions in the Company's contractor agreements were reviewed. While the Company's current contractor agreement templates contain robust IP assignment provisions, the diligence team identified minor gaps in certain early-stage contractor agreements (pre-2019). Specifically, a small number of contractor agreements from the Company's earliest years (2017–2018) either (a) did not contain express IP assignment provisions, or (b) contained IP assignment provisions that were ambiguous in scope. The work product contributed by these contractors was limited in scope and has been substantially superseded by subsequent development efforts by the Company's internal engineering team; however, to eliminate any residual risk, we have recommended that the Company obtain confirmatory IP assignments from the identified contractors. The Company's General Counsel has initiated the process of contacting the relevant contractors to obtain confirmatory assignments, and this effort is ongoing.
Domain Names. The Company's internet domain names, including the primary domain used for its platform, were confirmed as properly registered in the Company's name, with appropriate registrar protections (including registrar lock and WHOIS privacy) in place.
E. Risk Assessment — Intellectual Property
Risk Level: Low to Moderate.
The Company's core intellectual property portfolio is strong and properly owned. The patent portfolio is well-maintained, the trademark registrations are current, the software is proprietary and free from material copyleft contamination, and the founder and employee IP assignment chains are intact. The identification of minor gaps in certain early-stage contractor agreements (pre-2019) elevates the IP risk assessment from "Low" to "Low to Moderate," though we note that the practical risk associated with these gaps is limited given the nature and scope of the work product contributed by the relevant contractors.
Recommendations:
• Disclose the IP assignment gaps in the applicable section of the Company Disclosure Schedule;
• Complete the confirmatory IP assignments from the identified early-stage contractors prior to closing, or promptly following closing if any assignments remain outstanding;
• Include standard IP representations and warranties in the NPA, covering ownership, non-infringement, and absence of material encumbrances; and
• Continue to maintain the Company's open-source software usage policy and quarterly review process.
V. Material Contracts
A. Customer Agreements
The diligence team reviewed the Company's material customer contracts, with a particular focus on the Company's top customer relationships in its payments orchestration and embedded lending business segments. These customers are predominantly mid-market e-commerce companies that utilize Skybridge's platform for payment processing, orchestration, and embedded lending products.
The customer agreements were reviewed for provisions that could be relevant to the proposed financing, including change-of-control provisions, assignment restrictions, notification requirements, and termination triggers. Several customer agreements contain change-of-control provisions; however, the issuance of convertible promissory notes does not constitute a "change of control" as defined in any of the reviewed customer agreements. We note, however, that the subsequent conversion of the Notes into equity securities, or a future acquisition of the Company, could potentially trigger change-of-control provisions in certain customer agreements, and this issue should be revisited in connection with the Series D Round and any future M&A activity.
No customer contract provisions were identified that would restrict or prohibit the issuance of the Notes.
B. Vendor and Technology Agreements
The Company's key vendor and technology agreements were reviewed, including agreements with cloud infrastructure providers, data services vendors, and payment processor partners. These agreements are central to the Company's operations, as the Company's platform relies on third-party cloud infrastructure for hosting, data services for credit decisioning and risk management, and payment processor relationships for settlement and funds flow.
The vendor agreements were reviewed for consent requirements, change-of-control provisions, and restrictions on additional indebtedness or equity issuances. No material consent requirements were identified as being triggered by the proposed financing. The Company's vendor relationships appear to be on customary commercial terms, with standard service level agreements and termination provisions.
C. Partnership and Strategic Agreements
The Company's strategic partnership agreements were reviewed, including relationships with financial institutions, technology partners, and distribution partners. These agreements provide Skybridge with access to complementary customer bases, technology integrations, and market channels. The partnership agreements were reviewed for restrictions on additional indebtedness or equity issuances. No such restrictions were identified, and the proposed financing does not require consent or notification under any of the reviewed partnership agreements.
D. Kelvantis Lending Corp. — Venture Debt Facility
The Company is party to a Loan and Security Agreement dated August 15, 2022 (the "Kelvantis LSA") with Kelvantis Lending Corp. ("Kelvantis"), pursuant to which Kelvantis extended a venture debt facility to the Company. The key terms of the Kelvantis facility and the results of our covenant analysis are summarized below:
• Outstanding Principal: $15,000,000
• Maturity Date: August 15, 2025
• Relationship Manager: Theodore "Ted" Marsh (Kelvantis)
• Security Interest: The Kelvantis LSA is secured by a first-priority security interest in substantially all of the Company's assets, subject to customary permitted liens and exceptions.
• Financial Covenants: The Kelvantis LSA contains certain financial covenants, including minimum liquidity requirements and maximum leverage ratios. As of the date of this memorandum, the Company is in compliance with all financial covenants under the Kelvantis LSA.
• Negative Covenants: The Kelvantis LSA contains a negative covenant restricting the Company from incurring additional indebtedness without the prior written consent of Kelvantis. The issuance of the Notes constitutes "Indebtedness" as defined in the Kelvantis LSA, and accordingly, the prior written consent of Kelvantis is required before the Notes may be issued.
• Subordination Requirement: In connection with obtaining Kelvantis's consent, Kelvantis has required that the Notes be subordinated in right of payment to the obligations under the Kelvantis LSA. A Subordination Agreement among Kelvantis, the Purchasers, and Skybridge is required to be executed and delivered as a condition to closing.
C&H prepared and delivered a consent request letter to Kelvantis on December 15, 2023, requesting Kelvantis's consent to the issuance of the Notes and the execution of the Subordination Agreement. As of the date of this memorandum, Kelvantis is reviewing the consent request and has indicated through preliminary communications with Ted Marsh that it expects to provide consent subject to review and approval of the final Subordination Agreement. We subsequently received confirmation that Kelvantis's consent was formally granted on January 12, 2024, and the Subordination Agreement is being finalized for execution at closing.
This analysis is cross-referenced with the Kelvantis Covenant Analysis Memorandum dated November 28, 2023, which was previously provided to the Company's General Counsel and CFO.
E. Risk Assessment — Material Contracts
Risk Level: Low.
No material contract provisions were identified that would prevent closing of the convertible note financing. The key action item in the material contracts workstream is the obtainment of Kelvantis's consent to the issuance of the Notes and the execution of the Subordination Agreement. As noted above, Kelvantis's consent has been requested and is expected to be (and was subsequently) received prior to closing.
Recommendations:
• Include a comprehensive material contracts disclosure in the NPA Disclosure Schedule, listing all contracts that are material to the Company's business, including the Kelvantis LSA;
• Ensure that Kelvantis's consent is received and the Subordination Agreement is fully executed at or prior to closing, as this is a condition to closing under the NPA; and
• Monitor change-of-control provisions in customer agreements in connection with any future equity financing or M&A transaction.
VI. Regulatory and Compliance
A. Money Transmission Licensing
Skybridge operates a payments orchestration platform that processes approximately $4.2 billion in annualized gross payment volume (GPV). Given the nature of its operations — which involve the facilitation of payment transactions, including the receipt, transmission, and settlement of funds — the Company is subject to state money transmission licensing requirements in the jurisdictions where it conducts business.
The diligence team conducted a state-by-state review of the Company's money transmission licensing status, examining each applicable state's money transmitter licensing database and cross-referencing the results with the Company's internal records of licenses held. Based on this review, Skybridge holds all required money transmission licenses in every state where it currently operates. All licenses are current, and there are no pending applications that would create a material gap in licensing coverage. The Company's compliance team maintains a license renewal tracking system and has established processes for timely filing of renewal applications, surety bond maintenance, and required examination submissions.
We note that the regulatory landscape for money transmission at the state level continues to evolve, with several states considering amendments to their money transmission statutes or pursuing adoption of model legislation. The Company should continue to monitor these developments and engage proactively with regulators as necessary.
B. Federal Regulatory Compliance
The diligence team reviewed the Company's compliance program with respect to applicable federal regulatory requirements, including the Bank Secrecy Act ("BSA") and the anti-money laundering ("AML") regulations administered by the Financial Crimes Enforcement Network ("FinCEN").
The Company has implemented a BSA/AML compliance program that includes the following elements: (i) designation of a compliance officer responsible for day-to-day administration of the program; (ii) written policies and procedures for the identification, monitoring, and reporting of suspicious activity; (iii) Know-Your-Customer ("KYC") procedures for the onboarding and ongoing monitoring of customers; (iv) an independent audit function to test the effectiveness of the compliance program; and (v) training programs for employees with BSA/AML compliance responsibilities.
No pending federal regulatory inquiries, investigations, or enforcement actions were identified in connection with the Company's operations. The Company has not received any subpoenas, civil investigative demands, or other formal requests for information from FinCEN, the Consumer Financial Protection Bureau ("CFPB"), or any other federal regulatory agency.
C. State Regulatory Compliance
In addition to the money transmission licensing review described in Section VI.A above, the diligence team reviewed the Company's compliance with state regulatory requirements more broadly, including state consumer protection laws, state lending laws (to the extent applicable to the Company's embedded lending products), and state data privacy and security regulations.
State licensing renewal schedules were reviewed for all jurisdictions, and all licenses were confirmed to be current. No pending or threatened state regulatory inquiries, investigations, or enforcement actions were identified. The Company has maintained a clean regulatory record across all jurisdictions.
D. Data Privacy and Security
The diligence team reviewed the Company's data privacy and cybersecurity practices and compliance posture. Given the volume of payment data processed by the Company (approximately $4.2 billion in annualized GPV) and the sensitivity of the personal and financial information handled through the Company's platform, data privacy and security are critical areas of risk for the Company.
The Company's data privacy compliance was assessed against applicable state privacy laws (including the California Consumer Privacy Act, as amended by the California Privacy Rights Act), relevant federal requirements (including the Gramm-Leach-Bliley Act, to the extent applicable), and industry standards (including the Payment Card Industry Data Security Standard (PCI DSS)). The Company maintains a comprehensive privacy policy, data processing agreements with third-party service providers, and internal data governance procedures.
The Company's cybersecurity practices were evaluated, including its information security policies, access controls, encryption standards, vulnerability management program, and incident response plan. The Company has implemented a formal incident response plan that provides for notification to affected individuals, regulators, and law enforcement in the event of a qualifying data breach.
No material data breaches, privacy incidents, or cybersecurity events were identified during the review period. The Company has not been subject to any regulatory investigation or enforcement action relating to data privacy or cybersecurity.
E. Risk Assessment — Regulatory and Compliance
Risk Level: Low.
The Company's regulatory posture is strong for a fintech company of Skybridge's scale and operational complexity. The Company holds all required money transmission licenses, maintains a robust BSA/AML compliance program, and has not been subject to any regulatory enforcement actions or material inquiries.
Recommendations:
• Include comprehensive regulatory compliance representations in the NPA, covering licensing, BSA/AML compliance, data privacy, and absence of pending regulatory proceedings;
• Prepare a disclosure schedule section listing all regulatory licenses held by the Company, organized by state and license type;
• Continue to monitor the evolving state money transmission regulatory landscape, including pending legislative and rulemaking activity; and
• Maintain and periodically update the Company's data privacy and cybersecurity compliance programs in light of new regulatory requirements.
VII. Litigation and Threatened Claims
A. Pending Litigation
The diligence team conducted a comprehensive review of all pending litigation, arbitration, and administrative proceedings involving the Company, whether as plaintiff, defendant, or third-party. The review encompassed a search of court records in the jurisdictions where the Company operates, a review of the Company's internal litigation files and correspondence, and discussions with the Company's General Counsel regarding any pending matters.
No material pending litigation was identified that would, individually or in the aggregate, reasonably be expected to have a material adverse effect on the Company, its financial condition, results of operations, or prospects. The Company is not party to any pending class action litigation, securities litigation, regulatory enforcement proceedings, or intellectual property infringement actions.
B. Threatened Claims
The diligence team reviewed all demand letters, pre-litigation correspondence, and other communications reflecting potential threatened claims against the Company. This review included an examination of the Company's correspondence files, discussions with the Company's General Counsel, and a review of any communications with third parties that could indicate potential future litigation or dispute.
No material threatened claims were identified. The Company has not received any demand letters, cease-and-desist letters, or other pre-litigation communications that, in our assessment, present a material risk of litigation or liability.
C. Recently Resolved Matters
The diligence team reviewed litigation, claims, and disputes that were resolved during the three-year period preceding the date of this memorandum. The purpose of this review was to identify any recently resolved matters that could create ongoing exposure, indemnification obligations, or other residual liabilities of material concern to the Company.
No recently resolved matters were identified that would create ongoing exposure or indemnification obligations of material concern. The Company's litigation history during the review period was minimal, reflecting the Company's proactive approach to risk management and dispute resolution.
D. Regulatory Proceedings
No pending or threatened regulatory enforcement proceedings were identified in connection with the Company's operations. This finding is consistent with the regulatory compliance analysis set forth in Section VI of this memorandum, which confirmed the Company's clean regulatory record across all relevant jurisdictions.
E. Risk Assessment — Litigation
Risk Level: Low.
No material litigation risk was identified. The Company's litigation profile is clean, with no pending or threatened matters that would present material exposure.
Recommendations:
• Include standard litigation representations in the NPA, covering the absence of material pending or threatened litigation;
• Prepare the litigation section of the Company Disclosure Schedule, noting the absence of material matters (or, if applicable, listing any minor matters that fall below the materiality threshold but that the Company elects to disclose for transparency purposes); and
• Continue the Company's proactive approach to risk management and dispute resolution.
VIII. Employee and Benefits Matters
A. Employment Agreements and Arrangements
The diligence team reviewed the employment agreements and arrangements for the Company's key executives:
• Arjun Mehta, CEO & Co-Founder — at-will employment agreement with customary non-compete, non-solicitation, and confidentiality provisions; no change-of-control severance provisions;
• Elena Vasquez, CTO & Co-Founder — at-will employment agreement with customary non-compete, non-solicitation, and confidentiality provisions; no change-of-control severance provisions;
• David Lindstrom, CFO — at-will employment agreement with customary non-compete, non-solicitation, and confidentiality provisions; no change-of-control severance provisions;