PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGE ATTORNEY WORK PRODUCT
MEMORANDUM
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 18, 2023
RE: Material Contracts Diligence Summary — Skybridge Fintech Ltd. $60,000,000 Convertible Note Bridge Financing
MATTER NO.: 1009-00001
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I. Executive Summary
The purpose of this memorandum is to summarize the results of our review of the material contracts of Skybridge Fintech Ltd. ("Skybridge" or the "Company") undertaken in connection with the proposed $60,000,000 convertible promissory note bridge financing to be led by Ridgeline Ventures Fund IV, L.P. (together with any additional purchasers party to the Note Purchase Agreement, the "Purchasers"). This memorandum is intended to identify contractual provisions across the Company's material agreements that may affect the consummation or structuring of the proposed convertible note financing, as well as contractual provisions that, while not directly triggered by the current transaction, may become relevant in the context of a future conversion of the notes into equity, the Company's planned Series D equity round, or any subsequent Change of Control transaction.
Our review encompassed all contracts deemed material under applicable securities law standards and the contractual materiality thresholds described in Section II below, including: (i) customer agreements and other revenue-generating arrangements; (ii) vendor and technology supplier agreements, including cloud infrastructure, payment network and processor agreements, data provider agreements, and third-party software licenses; (iii) strategic partnership and channel agreements; (iv) the Company's existing venture debt facility with Kelvantis Lending Corp.; (v) real property leases for the Company's headquarters and satellite offices; and (vi) other significant commercial arrangements. We also cross-reference herein to companion diligence memoranda prepared by Calderwood & Harkness LLP addressing intellectual property matters, employment and benefits matters, insurance coverage, and regulatory and compliance considerations.
Overall Finding. Based on our review, no material contract of the Company contains provisions that would prevent the consummation of the convertible note financing, subject to two specific observations:
(a) Kelvantis Lending Corp. Venture Debt Facility. Section 7.1 of the Loan and Security Agreement dated August 15, 2022, between Kelvantis Lending Corp. ("Kelvantis") and the Company restricts the Company from incurring additional indebtedness — including convertible promissory notes — without Kelvantis's prior written consent. The proposed $60,000,000 convertible note issuance constitutes "Indebtedness" as defined therein and requires Kelvantis's consent. A consent request letter was transmitted to Theodore "Ted" Marsh at Kelvantis on December 15, 2023, and consent is anticipated prior to the targeted closing date. A Subordination Agreement between Kelvantis (as senior lender), the Purchasers (as subordinated noteholders), and the Company will be executed at closing.
(b) Customer, Vendor, and Partner Change-of-Control and Assignment Provisions. Certain customer agreements, vendor agreements, and a strategic partnership agreement contain change-of-control or anti-assignment provisions that, while not directly triggered by a convertible note issuance (which constitutes debt incurrence rather than a change of ownership or control), could be triggered upon a future conversion of the notes into equity at the planned Series D round or in connection with a subsequent Change of Control transaction. We have identified these provisions and assessed the risk level associated with each, as summarized in Section XI below.
This memorandum should be read in conjunction with the Company Disclosure Schedule currently being prepared by the Company for delivery under the Note Purchase Agreement. We recommend disclosure of certain contracts and provisions identified herein on the applicable schedules, as further detailed in Section XII.
All contracts reviewed in connection with this memorandum were accessed through the virtual data room maintained by the Company on the Crestline Solutions platform (the "Data Room"), supplemented by the Company's written responses to the Due Diligence Request List dated November 13, 2023 and the Supplemental Due Diligence Request List dated December 6, 2023, each as prepared and transmitted by Calderwood & Harkness LLP. Where additional information or clarification was required, we relied upon discussions with Priya Ramanathan, General Counsel, and Marcus Tillman, VP, Corporate Development, of the Company.
II. Methodology and Scope of Review
A. Universe of Contracts Reviewed
The universe of contracts reviewed in connection with this memorandum was assembled by the Company's legal and corporate development teams and made available through the Data Room. Priya Ramanathan, General Counsel, and Marcus Tillman, VP, Corporate Development, served as the primary points of contact for purposes of identifying, collecting, and producing the Company's material contracts. The Company represented to Calderwood & Harkness LLP that all contracts meeting the materiality thresholds described below have been produced in the Data Room. Calderwood & Harkness LLP has not independently verified the completeness of the contracts produced, and our analysis is based solely on the documents and information made available to us as of the date of this memorandum.
In total, we reviewed approximately 65 individual contracts and contract families (including associated amendments, addenda, statements of work, and order forms) across the categories described below.
B. Categories of Contracts Reviewed
Our review was organized into the following categories:
1. Customer and Revenue-Generating Agreements. Subscription agreements, payment processing addenda, master service agreements, order forms, and related documents governing the Company's relationships with its customers, with particular focus on the Company's top 20 customers by annualized recurring revenue ("ARR").
2. Vendor and Technology Supplier Agreements. Agreements with cloud infrastructure providers, payment networks and third-party payment processors, data providers, and third-party software licensors that are material to the Company's payments orchestration and embedded lending platform.
3. Strategic Partnership and Channel Agreements. Partnership agreements, co-marketing and integration agreements, referral agreements, and channel distribution agreements through which the Company expands distribution of its platform.
4. Debt and Financing Agreements. The Company's existing Loan and Security Agreement with Kelvantis Lending Corp., together with all related security agreements, promissory notes, and ancillary documents, as well as any other outstanding credit facilities or indebtedness instruments.
5. Real Property Leases. Lease agreements for the Company's headquarters and satellite office locations.
6. Employment-Related Agreements. Executive employment agreements, offer letters, consulting agreements, and related arrangements. Note: A detailed analysis of employment and benefits matters is set forth in the Employee & Benefits Diligence Memorandum dated December 21, 2023, prepared by our colleagues in the Employment and Benefits practice group. This memorandum summarizes key observations relevant to the convertible note financing but defers to that separate memorandum for comprehensive treatment.
7. IP-Related Agreements. intellectual property licenses, assignments, open-source software compliance matters, and related agreements. Note: A detailed analysis of IP matters is set forth in the IP Diligence Memorandum dated December 20, 2023, prepared by Peter Vassiliev and Wendy Schultz of our intellectual Property Transactions group. This memorandum cross-references that analysis where relevant but does not duplicate its scope.
8. Insurance Contracts. Directors and officers liability insurance, general commercial liability, cyber liability, errors and omissions, and related policies. Note: A detailed analysis of insurance coverage is set forth in the Insurance Coverage Review Memorandum dated December 23, 2023. This memorandum summarizes key observations relevant to the convertible note financing.
C. Key Provisions Analyzed
Across all categories of contracts reviewed, our analysis focused on the following provisions and contractual features, each of which has potential relevance to the proposed convertible note financing and the Company's anticipated subsequent transactions:
• Change-of-Control Clauses. Provisions that grant a counterparty the right to terminate, modify, or renegotiate the contract upon the occurrence of a "Change of Control" of the Company, however defined.
• Anti-Assignment Provisions. Restrictions on the Company's ability to assign or transfer its rights and obligations under the contract, including assignment by operation of law (e.g., in connection with a merger or consolidation).
• Consent and Notice Requirements. Provisions requiring the Company to obtain the consent of, or provide notice to, a counterparty prior to or following specified transactions, including debt incurrence, equity issuances, mergers, acquisitions, or changes in ownership or control.
• Most-Favored-Nation and Pricing Parity Clauses. Provisions entitling a customer or counterparty to pricing parity or most-favored-customer status relative to other similarly situated customers or counterparties.
• Termination-for-Convenience Rights. Provisions permitting either party to terminate the contract without cause upon specified notice, and the notice periods and other conditions applicable thereto.
• Exclusivity and Non-Compete Obligations. Provisions restricting the Company's ability to enter into competing arrangements or to offer competing products or services in specified markets or product verticals.
• Data Processing and Security Obligations. Data processing addenda, data security requirements, and related obligations imposed on the Company in its capacity as a data processor or service provider, including any provisions that are triggered or implicated by a change in ownership or control.
• Indemnification and Limitation-of-Liability Provisions. The allocation of risk, indemnification obligations, and any caps or exclusions on liability, to the extent relevant to the Company's overall risk profile in the context of the financing.
• Governing Law and Dispute Resolution. The governing law, jurisdiction, and dispute resolution mechanisms (including arbitration clauses) applicable to each material contract.
D. Materiality Threshold
For purposes of this review, we applied the following materiality threshold to determine which contracts warranted detailed analysis:
(i) Contracts generating or requiring aggregate payments in excess of $500,000 per annum (whether payable by or to the Company);
(ii) Contracts with initial or remaining terms longer than one year that are not terminable by the Company on 90 days' notice or less without penalty or material adverse consequence; and
(iii) Any contract otherwise deemed strategically significant to the Company's payments orchestration and embedded lending platform, regardless of the dollar amount involved, including contracts with key payment network partners, strategic distribution partners, and critical technology vendors.
This threshold was applied in consultation with the Company's management team and is consistent with the disclosure obligations anticipated under the Note Purchase Agreement and the representations and warranties to be made by the Company therein.
E. Treatment of Convertible Note Issuance Under Reviewed Contracts
As a general observation applicable to substantially all of the contracts reviewed, the issuance of the convertible promissory notes — as a debt incurrence transaction that does not involve a transfer of equity, a change in voting control, or an assignment of any contract — does not constitute a "Change of Control," "assignment," or other triggering event under the reviewed contracts. The vast majority of change-of-control provisions in the reviewed contracts define "Change of Control" by reference to the acquisition of majority voting power or beneficial ownership, a merger or consolidation, or a sale of all or substantially all assets of the Company. The issuance of convertible promissory notes, in and of itself, does not satisfy any of these definitions.
However, we note that certain contracts define "Change of Control" broadly enough that a future conversion of the notes into equity securities of the Company — particularly if such conversion occurs in connection with the planned Series D equity financing round (estimated Q3–Q4 2024) — could, depending on the resulting post-conversion ownership percentages and the applicable definition of "Change of Control" in each contract, constitute a triggering event. We have identified and flagged these contracts throughout this memorandum, and we recommend that the Company conduct a refreshed analysis of these provisions in advance of the Series D round and any future Change of Control transaction.
III. Debt and Financing Agreements
A. Kelvantis Lending Corp. — Loan and Security Agreement
The Company's sole material outstanding debt instrument is a Loan and Security Agreement dated August 15, 2022, between Kelvantis Lending Corp. ("Kelvantis"), as lender, and Skybridge Fintech Ltd., as borrower (the "Kelvantis LSA"). The key terms and provisions relevant to the proposed convertible note financing are summarized below.
Parties. Kelvantis Lending Corp. (as lender) and Skybridge Fintech Ltd. (as borrower).
Date. August 15, 2022.
Facility Amount. $15,000,000 venture debt facility. As of the date of this memorandum, the Company has drawn down the full $15,000,000 facility amount. The Company has made scheduled principal and interest payments to date and is current on all payment obligations under the Kelvantis LSA.
Maturity. August 15, 2025. The facility amortizes on a straight-line basis following an initial 12-month interest-only period that expired on August 15, 2023. The remaining outstanding principal balance as of December 1, 2023 is approximately $10,625,000, based on information provided by the Company.
Interest Rate. The Kelvantis LSA bears interest at the Wall Street Journal Prime Rate plus 2.50%, subject to a floor of 8.00% per annum. As of the date of this memorandum, the applicable interest rate is 10.50%.
Security Interest. Kelvantis holds a blanket first-priority lien on substantially all assets of the Company, including accounts receivable, general intangibles, intellectual property, equipment, and deposit accounts, subject to customary carve-outs for (i) ordinary course purchase money security interests up to $250,000 in the aggregate, and (ii) deposits securing letters of credit and performance bonds in the ordinary course of business. Financing statements (UCC-1) have been filed in the State of Delaware reflecting Kelvantis's security interest. The breadth of Kelvantis's lien is relevant to the proposed convertible note financing because the Purchasers will be required to acknowledge the subordinated and unsecured nature of the convertible notes, which will be reflected in the Subordination Agreement to be executed at closing.
Key Covenant — Negative Covenant on Indebtedness (Section 7.1). Section 7.1 of the Kelvantis LSA contains a negative covenant restricting the Company from incurring, creating, assuming, or permitting to exist any "Indebtedness" (as defined therein) other than "Permitted Indebtedness." The defined term "Indebtedness" is broad and expressly includes "all obligations evidenced by notes, bonds, debentures, or similar instruments, including convertible or exchangeable securities." The enumerated categories of "Permitted Indebtedness" under the Kelvantis LSA do not include convertible promissory notes in the amount contemplated by the proposed transaction. Accordingly, the proposed issuance of $60,000,000 in aggregate principal amount of convertible promissory notes constitutes "Indebtedness" under the Kelvantis LSA and is not "Permitted Indebtedness," thereby requiring Kelvantis's prior written consent.
Failure to obtain Kelvantis's consent prior to the issuance of the convertible notes would constitute a breach of Section 7.1 and an Event of Default under Section 8.1(b) of the Kelvantis LSA (cross-default for breach of a negative covenant), which would entitle Kelvantis to accelerate the outstanding principal balance, enforce its security interest, and exercise all other remedies available under the Kelvantis LSA and applicable law. It is therefore essential that Kelvantis's consent be obtained prior to the closing of the convertible note financing.
Key Covenant — Liens (Section 7.2). Section 7.2 of the Kelvantis LSA prohibits the Company from creating, incurring, or permitting to exist any lien or encumbrance on any of its assets, other than "Permitted Liens" (which include Kelvantis's own lien, ordinary course liens, and certain other customary carve-outs). The proposed convertible notes are unsecured and do not involve the creation of any lien on the Company's assets. Accordingly, Section 7.2 is not implicated by the proposed transaction. The Subordination Agreement to be executed at closing will expressly confirm the subordinated and unsecured nature of the convertible notes and will contain an express acknowledgment by the Purchasers that they have no lien or security interest in any assets of the Company.
Key Covenant — Financial Covenants (Section 7.4). The Kelvantis LSA contains a minimum liquidity covenant requiring the Company to maintain unrestricted cash and cash equivalents of not less than $5,000,000 at all times. The proceeds of the convertible note issuance will significantly enhance the Company's liquidity position and are expected to ensure continued compliance with this covenant. No other financial covenants in the Kelvantis LSA are implicated by the proposed transaction.
Change of Control Provision (Section 8.1(f)). Section 8.1(f) of the Kelvantis LSA provides that a "Change of Control" constitutes an Event of Default. "Change of Control" is defined in the Kelvantis LSA as any transaction or series of related transactions resulting in any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) acquiring, directly or indirectly, beneficial ownership of more than 50% of the outstanding voting securities of the Company.
The issuance of the convertible promissory notes, standing alone, does not constitute a Change of Control under this definition because the notes are debt instruments and do not confer voting power or beneficial ownership of equity securities. However, upon conversion of the notes into equity securities of the Company — which is expected to occur automatically upon the closing of the Company's next "Qualified Equity Financing" (i.e., the planned Series D round) — the Purchasers would acquire equity securities of the Company. Whether such conversion could result in any single Purchaser or group of Purchasers holding more than 50% of the outstanding voting securities depends on the Series D pricing, the applicable conversion mechanics, and the post-conversion capitalization of the Company.
Based on the information provided by the Company, the convertible notes have a valuation cap of $750,000,000 and the Company has approximately 48,500,000 shares outstanding on a fully diluted basis as of the date hereof. At the valuation cap, the notes would convert into approximately 3,840,000 shares (subject to adjustment based on final terms), representing approximately 7.3% of the Company's fully diluted capitalization on a post-conversion basis. Given the relatively modest dilution anticipated at conversion, the risk that conversion would result in any Purchaser or group of Purchasers crossing the 50% threshold is low. Nevertheless, we recommend that the Company monitor this analysis in connection with the final Series D pricing and capitalization.
Consent Status. Calderwood & Harkness LLP, on behalf of the Company, transmitted a formal consent request letter to Theodore "Ted" Marsh, Senior Vice President and Head of Portfolio Management at Kelvantis Lending Corp., on December 15, 2023. The consent request letter describes the proposed convertible note financing in reasonable detail and requests Kelvantis's written consent and waiver of the restrictions in Section 7.1 of the Kelvantis LSA to the extent necessary to permit the issuance of the convertible notes. We have had preliminary discussions with Kelvantis's outside counsel at Grayson & Holt LLP, who have indicated that Kelvantis is reviewing the request and expects to respond within the week. Consent is anticipated prior to the targeted closing date, subject to Kelvantis's review and approval of the Subordination Agreement.
Subordination Agreement. As a condition to Kelvantis's consent, the Company anticipates that Kelvantis will require the execution of a Subordination Agreement among Kelvantis (as senior lender), the Purchasers (as subordinated noteholders), and the Company. The Subordination Agreement will provide, among other things, that: (i) the convertible notes are subordinate in right of payment to all obligations under the Kelvantis LSA; (ii) the Purchasers will not take any enforcement action against the Company with respect to the convertible notes during the pendency of an Event of Default under the Kelvantis LSA without Kelvantis's prior written consent; (iii) the Purchasers have no lien or security interest in any assets of the Company; and (iv) certain standstill and payment blockage provisions will apply during periods of default under the Kelvantis LSA. An initial draft of the Subordination Agreement was circulated by Calderwood & Harkness LLP on December 18, 2023 to Kelvantis's counsel and to Ridgeline Ventures' counsel at Whitfield, Park & Sung LLP for review and comment.
Cross-Reference. For a more detailed analysis of the Kelvantis LSA covenants and the consent and subordination requirements, please refer to our separate Memorandum: Analysis of Existing Kelvantis Venture Debt Covenants and Consent Requirements dated November 28, 2023, previously circulated to the deal team.
B. No Other Outstanding Debt Instruments
Other than the Kelvantis facility described in Section III.A above, the Company has confirmed that it has no outstanding credit facilities, term loans, bonds, debentures, promissory notes, or other material indebtedness. The Company has further confirmed that it has not issued any guarantees of third-party indebtedness and is not a party to any swap, hedging, or derivative arrangements.
We note that the Company maintains standard corporate credit cards (Pinnacle Partners LLC and Chase Visa) for ordinary business expenses and a minor equipment financing arrangement with Kestrel Corporation for certain office equipment, with an aggregate outstanding balance under such arrangement of less than $200,000. We have reviewed the terms and conditions applicable to the corporate credit cards and the equipment financing agreement and confirm that neither contains change-of-control provisions, consent requirements, or other restrictions that are material to or triggered by the proposed convertible note financing.
IV. Customer Agreements
A. Overview
Skybridge operates a cloud-based payments orchestration and embedded lending platform that serves mid-market e-commerce companies. The Company's platform enables its customers to integrate multiple payment methods, optimize payment routing, manage fraud detection, and access embedded lending products through a unified API. As of the end of Q3 2023, the Company reported the following key operating metrics:
• Annualized gross payment volume ("GPV") of approximately $4.2 billion processed through the platform;
• Annualized recurring revenue ("ARR") of approximately $78,000,000;
• Net revenue retention rate of approximately 128%, reflecting strong upsell and expansion revenue within the existing customer base; and
• Approximately 850 active customer accounts, with the top 20 customers by revenue representing approximately 72% of total ARR.
In connection with this review, we analyzed the Company's top 20 customer agreements by revenue contribution, which collectively account for approximately $56,160,000 in ARR. These agreements were provided in the Data Room in folders organized by customer name, along with associated amendments, addenda, order forms, and data processing agreements.
The Company's standard customer agreement is structured as a SaaS subscription agreement with a payment processing addendum. The typical contract term ranges from one to three years, with automatic renewal for successive one-year periods unless either party provides written notice of non-renewal at least 60 days prior to the end of the then-current term. Pricing is generally based on a combination of monthly subscription fees and transaction-based fees (stated as a percentage of gross payment volume processed through the platform plus a per-transaction fee). Several of the Company's larger customer agreements reflect negotiated terms that deviate from the standard form, as discussed in greater detail below.
B. Change-of-Control Provisions in Customer Agreements
Of the top 20 customer agreements reviewed, eight contain some form of change-of-control or assignment clause that grants the customer certain rights upon the occurrence of a "Change of Control" of Skybridge. The specific formulations vary across agreements, but the typical provision grants the customer the right to terminate the agreement upon 30 to 60 days' written notice following a "Change of Control" of Skybridge.
The definition of "Change of Control" in these customer agreements generally encompasses one or more of the following events:
(i) A merger, consolidation, or other business combination involving the Company in which the Company is not the surviving entity, or in which the stockholders of the Company immediately prior to the transaction do not hold a majority of the voting securities of the surviving entity;
(ii) A sale, transfer, exclusive license, or other disposition of all or substantially all of the assets of the Company;
(iii) A transaction or series of related transactions resulting in any person or group acquiring, directly or indirectly, beneficial ownership of more than 50% (or, in two cases, more than 40%) of the outstanding voting securities of the Company; or
(iv) A liquidation, dissolution, or winding up of the Company.
The convertible note issuance — as a debt incurrence transaction — does not constitute a "Change of Control" under any of the eight customer agreements containing such provisions. The issuance of the convertible notes does not involve a merger, consolidation, or asset sale, nor does it result in any person or group acquiring voting securities or beneficial ownership of the Company's equity.
However, we note that a future conversion of the notes into equity securities of the Company, particularly if such conversion occurs in connection with the planned Series D equity financing round, could — depending on the post-conversion ownership percentages and the specific definition of "Change of Control" in each agreement — theoretically constitute a triggering event under certain of the more broadly drafted change-of-control provisions. As noted in Section III.A above, based on the $750,000,000 valuation cap and the Company's current fully diluted capitalization, the anticipated dilution from note conversion is approximately 7.3%, which is well below the ownership thresholds specified in these agreements. Accordingly, the risk of triggering a change-of-control provision upon conversion is assessed as low based on currently available information. This assessment should be revisited if the Series D pricing materially differs from the valuation cap or if there are significant changes to the Company's capitalization table prior to conversion.
In addition to the change-of-control provisions, three of the top 20 customer agreements contain anti-assignment clauses that restrict Skybridge from assigning the agreement (including by operation of law, such as in connection with a merger) without the customer's prior written consent. These assignment restrictions are not triggered by the convertible note issuance, as the issuance does not involve an assignment or transfer of any customer agreement. However, these provisions would be relevant in the context of a future merger or acquisition transaction in which the Company's contracts would be assigned to an acquiring entity by operation of law.
Recommendation: No customer notice or consent is required at this stage in connection with the convertible note issuance. However, we recommend that the Company monitor the change-of-control and assignment provisions identified above in connection with the planned Series D equity round (estimated Q3–Q4 2024) and any future M&A transaction. If, at the time of the Series D, it appears that the conversion of the notes into equity could result in any Purchaser or group of Purchasers crossing the applicable ownership thresholds, the Company should assess whether customer consents or notifications are advisable.
C. Most-Favored-Customer / Pricing Provisions
Two of the top 20 customer agreements contain most-favored-nation ("MFN") pricing clauses. These provisions entitle the applicable customer to receive pricing terms that are no less favorable than the pricing terms offered by the Company to any other similarly situated customer of comparable size, transaction volume, and product utilization. The MFN provisions are triggered by changes in the Company's commercial pricing practices and are not in any way triggered by or connected to the proposed convertible note financing or any other capital-raising transaction.
We note these provisions for completeness and because they are relevant to the Company's overall commercial risk profile. The Company's management has confirmed that it maintains pricing consistency across similarly situated customer segments and does not believe that any current pricing arrangement triggers an obligation under these MFN provisions.
D. Data Processing and Security Obligations
All 20 of the top customer agreements reviewed contain data processing addenda ("DPAs") or incorporate data security obligations as part of the master agreement. These DPAs typically require the Company to comply with applicable data protection laws (including the General Data Protection Regulation, the California Consumer Privacy Act, and applicable state privacy laws), to implement and maintain reasonable technical and organizational security measures, to promptly notify the customer of any security incidents, and to cooperate with the customer's audit and compliance requirements.
None of the DPAs or data security provisions reviewed contain change-of-control or financing-related triggers. The Company's obligations under these provisions are ongoing and operational in nature and are not affected by the proposed convertible note issuance.
For a comprehensive analysis of the Company's regulatory obligations relating to money transmission, state licensing, and data privacy compliance, please refer to the Regulatory & Compliance Diligence Memorandum being prepared under separate cover.
V. Vendor and Technology Supplier Agreements
A. Overview
We reviewed the Company's material vendor and technology supplier agreements to identify provisions that may be affected by or relevant to the proposed convertible note financing. The Company's payments orchestration and embedded lending platform relies on a number of critical third-party technology and service providers, including cloud infrastructure providers, payment networks and third-party payment processors, data providers, and enterprise software licensors. In total, we identified and reviewed approximately 15 material vendor and technology supplier relationships.
B. Cloud Infrastructure Agreement
The Company maintains an enterprise cloud infrastructure agreement with a major cloud services provider (the "Cloud Provider") for hosting, compute, storage, networking, and related cloud services essential to the operation of the Company's platform. The key terms of this agreement relevant to our analysis are as follows:
• Term: Three-year committed use term, commencing January 1, 2023 and expiring December 31, 2025, with a renewal option for successive one-year terms upon mutual agreement.
• Minimum Annual Spend: The Company has committed to a minimum annual spend of approximately $3,200,000, with usage-based charges applicable above the committed spend level. Actual spend for fiscal year 2023 is projected to exceed the minimum commitment.
• Anti-Assignment Clause: The agreement contains a standard anti-assignment provision requiring the Cloud Provider's prior written consent for any assignment of the agreement by the Company, with the Cloud Provider's consent not to be unreasonably withheld, conditioned, or delayed. This assignment restriction is not triggered by the convertible note issuance, as the issuance does not involve an assignment or transfer of the agreement.
• No Change-of-Control Provision: The agreement does not contain a change-of-control termination right in favor of the Cloud Provider. The Cloud Provider's standard enterprise terms include an anti-assignment clause but do not separately address changes in ownership or control of the customer.
No consent, notice, or other action is required under the cloud infrastructure agreement in connection with the convertible note financing.
C. Payment Network and Processor Agreements
Skybridge maintains agreements with multiple payment networks and third-party payment processors that are essential to the operation of its payments orchestration platform. These agreements govern the Company's ability to process card-present and card-not-present transactions, access payment rails, and route transactions through multiple processor endpoints. We reviewed the material agreements in this category, which collectively underpin the Company's ability to process the approximately $4.2 billion in annualized gross payment volume flowing through its platform.
Two of the payment network and processor agreements contain change-of-control provisions requiring the Company to provide written notice to the counterparty within 30 days of a Change of Control, with the counterparty having a right to terminate the agreement upon 90 days' written notice thereafter. In both agreements, "Change of Control" is defined as a change in majority ownership or voting control of the Company, encompassing transactions such as mergers, acquisitions, and sales of majority equity interests.
The convertible note issuance — as a debt incurrence — does not trigger the change-of-control provisions in either agreement. However, as with the customer agreements discussed in Section IV.B, a future conversion of the notes into equity, combined with the planned Series D equity round, could — depending on the resulting post-conversion ownership structure — constitute a Change of Control under these provisions if any single Purchaser or group of Purchasers were to acquire majority voting control. Based on currently available information, the risk of triggering these provisions upon conversion is assessed as low to moderate, and we recommend that the Company monitor these provisions in connection with the Series D round.
Additionally, one of the processor agreements contains an anti-assignment clause requiring the Company's prior written consent for any assignment of the agreement, including assignment by operation of law. This provision is not triggered by the current transaction structure but would be relevant in a future merger or acquisition.
D. Third-Party Software Licenses
We reviewed approximately eight material third-party software license agreements pursuant to which the Company licenses enterprise software, development tools, analytics platforms, and other technology utilized in the development and operation of its platform. The key observations from our review are as follows:
• Standard anti-assignment provisions are present in most of the reviewed software license agreements. These provisions typically restrict the Company from assigning the license agreement without the licensor's prior written consent. None of these anti-assignment provisions are triggered by the convertible note issuance.
• One enterprise software license agreement contains a change-of-control clause permitting the licensor to terminate the agreement upon 60 days' written notice following a "Change of Control" of the Company. "Change of Control" is defined in this agreement as the acquisition by any person or entity (or group of related persons or entities) of more than 50% of the equity interests of the Company, whether by purchase, merger, or otherwise. This provision is not triggered by the convertible note issuance. The risk of triggering this provision upon a future note conversion is assessed as low based on the anticipated post-conversion capitalization.
For a comprehensive analysis of the Company's software licensing arrangements, including open-source software compliance, proprietary license terms, and IP-related risks, please refer to the IP Diligence Memorandum dated December 20, 2023, prepared by Peter Vassiliev and Wendy Schultz.
E. Data Provider Agreements
We reviewed two material data provider agreements pursuant to which the Company licenses access to third-party data feeds, identity verification services, and credit data utilized in connection with the Company's embedded lending platform. Both agreements are on standard commercial terms with annual subscription fees and usage-based pricing components.
Neither data provider agreement contains change-of-control or consent provisions that are relevant to the proposed convertible note financing. Both agreements contain standard anti-assignment clauses, but these provisions are not triggered by the convertible note issuance. No further action is required in connection with these agreements.
VI. Strategic Partnership and Channel Agreements
A. Overview
Skybridge has entered into several strategic partnership and referral/channel agreements designed to expand distribution of its payments orchestration and embedded lending platform. These agreements typically involve API integrations with partner platforms, co-marketing arrangements, and revenue-sharing structures that incentivize partner referrals. We reviewed three material partnership and channel agreements, as identified by the Company's management team.
B. Key Partnership Agreement — Co-Marketing and Integration
The most significant of the Company's strategic partnership arrangements is a co-marketing and API integration agreement with a leading mid-market e-commerce platform provider (the "E-Commerce Partner"). Under this agreement, Skybridge's payments orchestration and embedded lending capabilities are integrated into the E-Commerce Partner's platform via API, and the parties engage in joint marketing activities to promote the integrated solution to the E-Commerce Partner's merchant base.
The key terms of this agreement relevant to our analysis are as follows:
• Term: Initial term of two years, with automatic renewal for successive one-year terms unless either party provides 90 days' written notice of non-renewal prior to the end of the then-current term. The agreement is currently in its first renewal period.
• Exclusivity: The agreement contains mutual exclusivity provisions in the embedded lending product vertical for mid-market e-commerce merchants. Specifically, the Company has agreed not to enter into a similar co-marketing and integration arrangement with a competing e-commerce platform provider for embedded lending products during the term of the agreement, and the E-Commerce Partner has agreed not to integrate with a competing embedded lending provider. The exclusivity provisions are commercial in nature and do not restrict the Company's ability to raise capital, incur debt, or issue convertible securities.
• Revenue Sharing: The parties share revenue generated from merchants acquired through the partnership on a negotiated percentage basis. The specific revenue-sharing percentages are commercially sensitive and are detailed in the Data Room materials.
• Change-of-Control Provision: Either party may terminate the agreement upon 90 days' written notice following a "Change of Control" of the other party. "Change of Control" is defined as the acquisition of majority voting control of a party, a merger or consolidation in which the party is not the surviving entity (or in which the party's pre-transaction stockholders do not hold a majority of the voting securities of the surviving entity), or a sale of substantially all of the party's assets. This provision is not triggered by the convertible note issuance. As with the other change-of-control provisions discussed in this memorandum, the risk of triggering this provision upon a future conversion of the notes into equity is assessed as low based on currently available capitalization information, but the provision should be monitored in connection with the planned Series D and any future Change of Control event.
Recommendation: No action is required under this partnership agreement in connection with the convertible note issuance. The Company should monitor the change-of-control provision in connection with the Series D and any future M&A transaction, and should assess at that time whether the partnership agreement should be amended to provide carve-outs or protections against inadvertent triggering.
C. Referral and Channel Agreements
The remaining two material partnership arrangements are referral and channel agreements pursuant to which the Company's platform is promoted and distributed through third-party channel partners in exchange for referral fees or revenue-sharing arrangements. Both agreements are on the Company's standard referral agreement form and contain the following key terms:
• Terms of one year each, with automatic annual renewals;
• Revenue-sharing arrangements providing the channel partner with a percentage of recurring revenue generated from referred customers;
• Standard representations and warranties, indemnification provisions, and confidentiality obligations; and
• No change-of-control, assignment, or consent provisions that are triggered by the proposed convertible note financing or that are otherwise material to the current transaction.
No action is required under these referral and channel agreements in connection with the convertible note issuance.
VII. Real Property Leases
A. Headquarters Lease
The Company's principal executive offices are located at 1400 Market Street, Suite 2200, Wilmington, Delaware 19801, pursuant to an office lease agreement (the "Headquarters Lease") between Market Street Partners LLC (as landlord) and the Company (as tenant). The key terms of the Headquarters Lease are summarized below:
• Premises: Approximately 18,500 rentable square feet on the 22nd floor of a Class A office building.
• Lease Term: Seven-year initial term commencing March 1, 2021 and expiring February 28, 2028, with one five-year renewal option exercisable by the Company upon 12 months' prior written notice.
• Annual Base Rent: Approximately $555,000 per annum (escalating annually at 3% per year), plus the Company's proportionate share of operating expenses and real estate taxes.
• Landlord Consent to Assignment: The Headquarters Lease contains a standard provision requiring the landlord's prior written consent (not to be unreasonably withheld, conditioned, or delayed) for any assignment or transfer of the lease by the Company. The lease defines "assignment" to include assignment by operation of law, such as in connection with a merger or consolidation. Subletting is permitted with prior written notice to the landlord, subject to the landlord's right to recapture the subleased premises under specified conditions.
• No Change-of-Control Provision: The Headquarters Lease does not contain a separate change-of-control provision. The assignment restrictions described above are the sole provisions relevant to changes in ownership or control. These assignment restrictions are not triggered by the convertible note issuance.
No consent, notice, or other action is required under the Headquarters Lease in connection with the proposed convertible note financing. No other material issues were identified.
B. Other Office Locations
In addition to its Wilmington headquarters, the Company maintains smaller office and co-working spaces in two additional locations: (i) a flexible office arrangement in San Francisco, California, utilized by the Company's West Coast engineering team; and (ii) a co-working membership in Austin, Texas, utilized by members of the Company's sales and customer success team. Details of these arrangements, including the applicable lease or membership agreements, are provided in the Data Room.
We reviewed the terms of both arrangements and confirm that neither contains change-of-control, assignment, or consent provisions that are triggered by or relevant to the proposed convertible note financing. Both arrangements are on relatively short-term, flexible terms (month-to-month or 12-month commitments) and do not involve material financial commitments. No material issues were identified.
VIII. Employment and Consulting Agreements
A detailed analysis of the Company's employment agreements, benefit plans, equity compensation arrangements, and related matters is set forth in the Employee & Benefits Diligence Memorandum dated December 21, 2023, prepared by our colleagues in the Employment and Benefits practice group at Calderwood & Harkness LLP. We cross-reference that memorandum for comprehensive treatment of those matters and provide here only a summary of observations directly relevant to the convertible note financing.
Executive Employment Agreements. The Company has entered into written employment agreements with each of its five senior executive officers: Arjun Mehta (Chief Executive Officer and Co-Founder), Elena Vasquez (Chief Technology Officer), David Lindstrom (Chief Financial Officer), Priya Ramanathan (General Counsel), and Marcus Tillman (Vice President, Corporate Development). Each executive employment agreement contains change-of-control provisions applicable to the executive's equity awards. Specifically:
• The employment agreements for Mr. Mehta, Ms. Vasquez, and Mr. Lindstrom provide for "double trigger" acceleration, meaning that 100% of unvested equity awards will accelerate upon the occurrence of both (i) a Change of Control and (ii) a termination of the executive's employment without Cause or a resignation by the executive for Good Reason within 12 months following the Change of Control.
• The employment agreements for Ms. Ramanathan and Mr. Tillman provide for "single trigger" acceleration of 50% of unvested equity awards upon a Change of Control, with the remaining 50% subject to "double trigger" acceleration as described above.
• "Change of Control" is defined in each employment agreement by reference to the definition in the Company's 2020 Equity Incentive Plan, which generally encompasses mergers, consolidations, sales of substantially all assets, and acquisitions of more than 50% of voting power.
These change-of-control acceleration provisions are not triggered by the convertible note issuance. They would be relevant in the event of a future Change of Control transaction, such as an acquisition of the Company, and are noted here for completeness and for purposes of the Company Disclosure Schedule.
General Workforce. The Company currently employs approximately 310 full-time equivalent employees. The Company's non-executive employees are employed on an at-will basis pursuant to standard offer letters. The Company has confirmed that it is not a party to any collective bargaining agreement and that none of its employees are represented by a labor union.
Consulting Agreements. The Company maintains consulting agreements with a number of individual and entity consultants, primarily in the areas of technology development, product design, and business development. We reviewed the material consulting agreements provided in the Data Room and confirmed that they contain standard intellectual property assignment and confidentiality provisions. A more detailed analysis of IP assignment provisions in consulting agreements is set forth in the IP Ownership & Assignment Analysis dated December 22, 2023, prepared under separate cover. No change-of-control, consent, or other provisions relevant to the convertible note financing were identified in the consulting agreements.
IX. Insurance Contracts
A detailed analysis of the Company's insurance coverage is set forth in the Insurance Coverage Review Memorandum dated December 23, 2023, prepared under separate cover. We cross-reference that memorandum and provide here only a summary of observations relevant to the convertible note financing.
Directors & Officers Insurance. The Company maintains a directors and officers ("D&O") liability insurance policy with a per-occurrence limit and aggregate limit appropriate for a company of the Company's size and stage. The D&O policy contains a change-of-control provision requiring the Company to provide notice to the carrier upon the occurrence of a "Change of Control," as defined in the policy. The convertible note issuance does not constitute a Change of Control under the D&O policy and does not trigger the notice requirement. However, a future Change of Control — such as an acquisition of the Company — would trigger this provision and require the Company to arrange for "tail" or "run-off" coverage, as applicable.
Other Insurance Policies. The Company maintains commercial general liability, cyber liability and technology errors and omissions, employment practices liability, and workers' compensation insurance policies appropriate for its operations. We did not identify any provisions in these policies that are triggered by or relevant to the proposed convertible note financing.
No material issues were identified with respect to the Company's insurance coverage in connection with the proposed transaction.
X. Contracts Requiring Specific Action Prior to Closing
Based on our comprehensive review of the Company's material contracts, we have identified the following contracts requiring specific action prior to the closing of the convertible note financing:
A. Kelvantis Lending Corp. — Consent Required
As described in detail in Section III.A above, the Loan and Security Agreement dated August 15, 2022, between Kelvantis Lending Corp. and the Company requires Kelvantis's prior written consent for the incurrence of additional Indebtedness, including the proposed $60,000,000 convertible promissory notes. The following actions are required prior to closing:
1. Lender Consent and Waiver. Obtain Kelvantis's written consent to the incurrence of the convertible note indebtedness, together with a limited waiver of Section 7.1 of the Kelvantis LSA to the extent necessary to permit the issuance of the convertible notes.
2. Subordination Agreement. Execute the Subordination Agreement among Kelvantis (as senior lender), the Purchasers (as subordinated noteholders), and the Company, confirming the subordinated and unsecured nature of the convertible notes and establishing the priority of Kelvantis's claims relative to the Purchasers' claims.
Status: A consent request letter was transmitted to Theodore "Ted" Marsh at Kelvantis on December 15, 2023. An initial draft of the Subordination Agreement was circulated on December 18, 2023. Kelvantis's counsel at Grayson & Holt LLP has indicated that Kelvantis is reviewing the request and is expected to respond shortly. Consent is anticipated prior to the targeted closing date, and we are actively engaged with Kelvantis's counsel to finalize the consent and Subordination Agreement on an expedited timeline.
B. No Other Contracts Requiring Consent or Waiver for the Convertible Note Issuance
Based on our review of all material contracts described in this memorandum, no customer, vendor, partner, landlord, or other counterparty consent or waiver is required for the issuance of the convertible promissory notes, other than the Kelvantis consent described in Section X.A above. The convertible note issuance — as a debt incurrence transaction — does not constitute a "Change of Control," "assignment," or other triggering event under any reviewed material contract (other than the Kelvantis negative covenant on indebtedness).
XI. Contracts with Potential Future Triggers
The following table summarizes the contracts identified in our review that contain change-of-control or assignment provisions which, while not triggered by the convertible note issuance, could be triggered upon: (a) conversion of the notes into equity securities at the planned Series D equity financing (estimated Q3–Q4 2024); (b) a separate Change of Control transaction (such as an acquisition of the Company); or (c) certain post-conversion changes in the Company's ownership structure.
The risk assessments set forth in the table above are based on currently available information regarding the Company's capitalization, the valuation cap applicable to the convertible notes, and the anticipated terms of the Series D equity round. These assessments should be revisited and updated as the Series D pricing, investor composition, and post-conversion capitalization become more definitive.
XII. Disclosure Schedule Recommendations
Based on our review of the Company's material contracts, we recommend disclosure of the following items on the Company Disclosure Schedule to be prepared and delivered by the Company under the Note Purchase Agreement:
1. Existing Indebtedness. The Kelvantis Lending Corp. Loan and Security Agreement dated August 15, 2022, including the outstanding principal balance (approximately $10,625,000 as of December 1, 2023), the blanket first-priority lien on substantially all assets of the Company, the maturity date (August 15, 2025), and the material covenants and restrictions contained therein. This disclosure should appear on the schedule corresponding to the Company's representation regarding existing indebtedness and the schedule corresponding to the Company's representation regarding liens and encumbrances.
2. Customer Agreements with Change-of-Control Provisions. The eight customer agreements identified in Section IV.B of this memorandum that contain change-of-control provisions granting the customer the right to terminate upon a Change of Control. This disclosure should appear on the schedule corresponding to the Company's representation regarding the absence of conflicts or required consents, to the extent such representation is qualified by the Disclosure Schedule.
3. Payment Processor Agreements with Change-of-Control and Assignment Restrictions. The two payment network and processor agreements identified in Section V.C of this memorandum that contain change-of-control and/or assignment provisions. These agreements are critical to the Company's operations and should be disclosed on the applicable schedules.
4. Strategic Partnership Agreement with Exclusivity and Change-of-Control Provisions. The co-marketing and integration agreement with the E-Commerce Partner described in Section VI.B of this memorandum, including the mutual exclusivity provisions and the change-of-control termination right. This agreement should be disclosed on the schedule corresponding to the Company's representations regarding material contracts and restrictive covenants.
5. Enterprise Software License with Change-of-Control Termination Right. The enterprise software license agreement identified in Section V.D of this memorandum. This agreement should be disclosed on the applicable schedule.
6. Executive Employment Agreements with Change-of-Control Acceleration Provisions. The employment agreements for Mr. Mehta, Ms. Vasquez, Mr. Lindstrom, Ms. Ramanathan, and Mr. Tillman, each of which contains change-of-control equity acceleration provisions. These agreements should be disclosed on the schedule corresponding to the Company's representations regarding employee and benefits matters.
We recommend coordinating with the Company's management team and with Ridgeline Ventures' counsel at Whitfield, Park & Sung LLP to ensure that the Disclosure Schedule is comprehensive and consistent with the representations and warranties in the Note Purchase Agreement. Additional disclosure recommendations arising from our IP, regulatory, litigation, and benefits diligence reviews will be set forth in the applicable companion memoranda and should be cross-referenced and consolidated into the final Disclosure Schedule.
XIII. Recommendations and Next Steps
Based on our review and analysis, we recommend the following actions:
1. Kelvantis Consent. Continue to pursue and obtain the lender consent and waiver from Kelvantis Lending Corp. prior to the closing of the convertible note financing. Calderwood & Harkness LLP is actively engaged with Kelvantis's counsel at Grayson & Holt LLP to finalize the consent letter and the Subordination Agreement. We anticipate that consent will be obtained prior to the targeted closing date, but we recommend that the Company be prepared to address any conditions or modifications that Kelvantis may request as a condition to granting its consent.
2. No Other Pre-Closing Consents Required. Based on our review, no customer, vendor, partner, landlord, or other third-party consent or waiver is required for the issuance of the convertible promissory notes. The Company may proceed with the convertible note financing without obtaining any consents other than the Kelvantis consent described above, subject to the execution of the Subordination Agreement at closing.
3. Series D and Future Transactions. In connection with the planned Series D equity financing round (estimated Q3–Q4 2024) and any future Change of Control transaction, the Company should conduct a refreshed and comprehensive analysis of the change-of-control and assignment provisions in its material contracts to determine whether consents, waivers, or notifications are required. This analysis should be updated to reflect the actual Series D pricing, the post-conversion capitalization table, and the resulting ownership percentages held by the former noteholders and any new Series D investors. We recommend that this analysis be initiated well in advance of the anticipated Series D closing to allow sufficient time to obtain any required consents.
4. Disclosure Schedule. The Company should prepare disclosure schedule entries for the contracts identified in Section XII of this memorandum for inclusion in the Company Disclosure Schedule to be delivered under the Note Purchase Agreement. We recommend that the Company work closely with Calderwood & Harkness LLP and with Ridgeline Ventures' counsel to ensure that the Disclosure Schedule is complete and accurate, and that all disclosure items are presented in a manner consistent with the specific representations and