MEMORANDUM
PRIVILEGED & CONFIDENTIAL — ATTORNEY WORK PRODUCT
TO: Victoria Chambers, Responsible Partner Leonard Ashford, Of Counsel, Emerging Companies & Venture Capital Practice Group
FROM: Nina Reyes, Senior Associate, Emerging Companies & Venture Capital Practice Group
DATE: January 7, 2024
RE: Assumptions, Qualifications, and Limitations for Calderwood & Harkness LLP Legal Opinion in Connection with Skybridge Fintech Ltd. $60,000,000 Convertible Note Bridge Financing
Matter No.: 1009-00001
I. Purpose and Overview
This memorandum identifies and analyzes the assumptions, qualifications, limitations, and exclusions to be incorporated into the legal opinion letter that Calderwood & Harkness LLP ("C&H" or the "Firm") will deliver to the Purchasers in connection with the closing of the $60,000,000 convertible promissory note bridge financing (the "Bridge Financing") by Skybridge Fintech Ltd. (the "Company" or "Skybridge"). The Purchasers to whom the opinion letter will be addressed are:
(i) Ridgeline Ventures Fund IV, L.P. ("Ridgeline");
(ii) Beacon Hill Capital Partners, LLC ("Beacon Hill");
(iii) Northstar Innovation Fund II, L.P. ("Northstar"); and
(iv) Halcyon Growth Equity, L.P. ("Halcyon" and, together with Ridgeline, Beacon Hill, and Northstar, the "Purchasers").
The opinion will be delivered on the date of the Initial Closing (currently anticipated to be January 15, 2024) pursuant to the closing conditions set forth in Section 5.1(d) of the Note Purchase Agreement, dated as of January 15, 2024, by and among the Company and the Purchasers (the "NPA"). Delivery of a customary legal opinion by counsel to the Company is a condition precedent to the Purchasers' obligation to fund the initial tranche of the Bridge Financing.
The opinion addressees include all four Purchasers. The Bridge Financing contemplates a two-tranche closing structure, with the Initial Closing funding $45,000,000 in aggregate principal amount of convertible promissory notes (the "Notes") on or about January 15, 2024, and the Final Closing funding the remaining $15,000,000 in aggregate principal amount of Notes on or about January 26, 2024. The opinion delivered at the Initial Closing will also cover Notes issued at the Final Closing via either a bring-down letter or supplemental reliance confirmation, the form of which will be coordinated with investor counsel in advance. We anticipate that the bring-down letter will be a short-form confirmation that the conclusions of the Initial Closing opinion remain accurate as of the Final Closing date, subject to any updated certificates or additional documents delivered at the Final Closing.
This memorandum is intended for internal Calderwood & Harkness LLP use only. It is prepared to guide the drafting of the opinion letter and to facilitate review and discussion with the responsible partner and of counsel. A draft of the opinion letter itself will be circulated separately on or about January 8, 2024, and will be based on the framework and analysis set forth herein.
Investor counsel is Whitfield, Pratt & Soo LLP. Graham Whitfield is the lead partner on the transaction, and Danielle Kwon is the associate handling day-to-day matters, including review of the opinion letter. We anticipate that Whitfield, Pratt & Soo LLP will review and provide comments on the draft opinion on behalf of the Purchasers. Based on preliminary conversations with Ms. Kwon, we understand that the Purchasers expect a customary venture capital opinion letter and have not, to date, indicated any expectation for non-standard or expanded opinion coverage.
II. Scope of Opinions to Be Rendered
The following is a summary of the substantive opinions we intend to render in the opinion letter, together with preliminary notes on the scope and limitations of each opinion. Each opinion is discussed in greater detail in the sections that follow.
A. Due Organization and Valid Existence
We will opine that Skybridge Fintech Ltd. is a corporation duly incorporated, validly existing, and in good standing under the laws of the State of Delaware. This opinion will be rendered in reliance on a Good Standing Certificate from the Delaware Secretary of State, which was obtained on January 11, 2024, under Delaware File Number 6384291. As discussed further in Section III.D below, the opinion will include a temporal qualification noting that the Good Standing Certificate speaks only as of its date. Given the four-day gap between the date of the Good Standing Certificate and the anticipated closing date of January 15, 2024, we believe this gap is within the range customarily accepted in market practice (typically up to seven to ten days), and no bring-down or refreshed certificate should be required, though we will confirm this expectation with Whitfield, Pratt & Soo LLP.
It is important to note that this opinion is limited to Delaware corporate status only. We will not render any opinion regarding the Company's qualification to do business or good standing in any other jurisdiction, including New York, California, Massachusetts, or any other state in which the Company conducts business or maintains offices. Foreign qualification status is a matter that investor counsel may raise, and if so, we should be prepared to discuss the rationale for this customary limitation.
B. Corporate Power and Authority
We will opine that Skybridge has all requisite corporate power and authority under its Amended and Restated Certificate of Incorporation and Bylaws and under the Delaware General Corporation Law ("DGCL") to execute, deliver, and perform its obligations under the following agreements (collectively, the "Transaction Documents"):
(i) the Note Purchase Agreement;
(ii) the Convertible Promissory Notes (in the form attached as Exhibit A to the NPA);
(iii) the Subordination Agreement, among the Company, the Purchasers, and Kelvantis Lending Corp.;
(iv) the Escrow Agreement, among the Company, the Purchasers, and Granite Trust Company, N.A., as escrow agent (Escrow Account No. 4401-7829-SBF);
(v) Amendment No. 1 to the Amended and Restated Investors' Rights Agreement; and
(vi) Amendment No. 1 to the Right of First Refusal and Co-Sale Agreement.
This opinion will be rendered in reliance on the Unanimous Written Consent of the Board of Directors dated January 10, 2024, and the Written Consent of Stockholders in Lieu of Special Meeting dated January 12, 2024, each as certified in the Secretary's Certificate. We have reviewed the Board Consent and Stockholder Consent in draft form and believe they are adequate to support the corporate power and authority opinion, subject to confirmation of final execution and certification by the Company's Secretary.
C. Due Authorization
We will opine that the execution, delivery, and performance of the Transaction Documents by Skybridge have been duly authorized by all necessary corporate action, including approval by the Board of Directors and, to the extent required under the DGCL and the Company's charter documents, by the stockholders of the Company.
Our analysis of authorization will include the following statutory provisions of the DGCL:
• Section 141(f): We will confirm that the Unanimous Written Consent of the Board of Directors satisfies the requirements for action by written consent in lieu of a meeting, including that the consent was signed by all members of the Board then in office. Based on our review of the draft Board Consent, all five directors (Arjun Mehta, David Lindstrom, Sarah Castellano, Dmitri Volkov, and Jennifer Okonkwo) have signed or are expected to sign.
• Section 228: We will confirm that the Written Consent of Stockholders in Lieu of Special Meeting satisfies the requirements for stockholder action by written consent. We understand that the holders of a majority of the outstanding shares entitled to vote on the applicable matters have executed the Stockholder Consent, and that notice of the action taken by written consent will be provided to non-consenting stockholders in accordance with Section 228(e) of the DGCL.
• Sections 152, 153, and 157: We will confirm that the Board of Directors has the authority under these sections to authorize the issuance of the Notes, which are convertible into shares of the Company's capital stock (anticipated to be shares of Series D Preferred Stock) upon the occurrence of certain conversion events. Section 157 of the DGCL authorizes the board to create and issue rights or options to acquire shares of the corporation's stock, and the conversion feature of the Notes falls within the scope of this authority. We will also confirm that appropriate consideration for the Notes has been authorized by the Board in accordance with Sections 152 and 153.
D. Due Execution and Delivery
We will opine that each Transaction Document has been duly executed and delivered by Skybridge. This opinion will be based on our reliance on incumbency and signature authority as confirmed via the Secretary's Certificate to be dated January 15, 2024. The Secretary's Certificate will certify that the persons who signed the Transaction Documents on behalf of Skybridge were duly authorized officers of the Company at the time of such execution and that their signatures are genuine. We will also rely on the factual assumptions regarding genuineness and legal capacity set forth in Section III.B below.
We will not independently confirm the delivery of the Transaction Documents by Skybridge; rather, we will rely on the fact that the documents will be exchanged at the closing and that delivery will be confirmed by the parties' respective counsel. Our opinion on delivery will be limited to the legal sufficiency of the act of delivery and will not address the logistics of document exchange.
E. Enforceability
We will opine that each Transaction Document constitutes a legal, valid, and binding obligation of Skybridge, enforceable against Skybridge in accordance with its terms. This opinion is the most heavily qualified of all the opinions to be rendered, and the enforceability qualifications are discussed in detail in Section IV below.
The enforceability opinion will be subject to the standard bankruptcy and insolvency qualification, the equitable principles qualification, and the additional limitations set forth in Sections IV.C through IV.F, including limitations on the enforceability of indemnification provisions, waiver provisions, and severability concepts. Consistent with customary practice, we will not opine that every individual provision of the Transaction Documents is enforceable; rather, we will opine that the Transaction Documents as a whole are enforceable and that the unenforceability of any particular provision would not render the balance of the Transaction Documents unenforceable.
F. No Conflicts
We will opine that the execution, delivery, and performance of the Transaction Documents by Skybridge do not and will not:
(i) violate any provision of the Amended and Restated Certificate of Incorporation or Bylaws of the Company;
(ii) violate any provision of applicable Delaware law, limited to the DGCL and those Delaware statutes customarily covered in legal opinions of this nature (including the Delaware Uniform Commercial Code to the extent applicable);
(iii) result in a breach of, default under, or the creation of any lien upon any property or assets of the Company pursuant to any material agreement identified on a specified list of agreements to be confirmed with the Company (the "Reviewed Agreements"); or
(iv) violate any order, judgment, injunction, writ, decree, or ruling known to us and applicable to the Company.
It is important to note several significant limitations on the no-conflicts opinion. First, we will not render any opinion regarding conflicts with or defaults under agreements that have not been reviewed by us or that are not included on the list of Reviewed Agreements. Second, we will expressly limit the scope of the contractual conflicts analysis to the Transaction Documents themselves and the Kelvantis Loan and Security Agreement dated August 15, 2022 (the "Kelvantis LSA"). The Kelvantis LSA is the Company's only existing credit agreement and contains restrictive covenants that are potentially implicated by the Bridge Financing, including negative pledge covenants, restricted payments covenants, and subordination requirements. We have reviewed the Kelvantis LSA in connection with the preparation of the Subordination Agreement and the lender consent process, and we believe that the Kelvantis consent and waiver letter received on January 12, 2024 adequately addresses any potential conflicts.
The no-conflicts opinion will not extend to contractual covenants in agreements other than the Transaction Documents and the Kelvantis LSA. We will include a customary limitation stating that our opinion is based on a review of only those agreements identified on the list of Reviewed Agreements and that we express no opinion with respect to any agreements not so identified.
G. Securities Law Exemption
We will opine that the offer, sale, and issuance of the Convertible Promissory Notes in the aggregate principal amount of $60,000,000 are exempt from the registration requirements of Section 5 of the Securities Act of 1933, as amended (the "Securities Act"), pursuant to Section 4(a)(2) thereof and Rule 506(b) of Regulation D promulgated thereunder. As discussed in greater detail in Section V.B below, this opinion will be rendered as a "reasoned conclusion" (i.e., a "would" opinion rather than a "will" opinion), consistent with customary market practice for private placement opinions in the venture capital context. The distinction between a "would" opinion and an unqualified "will" opinion is that the "would" formulation indicates that, in our view, a court would conclude that the exemption is available, while acknowledging that the availability of the exemption is inherently a question of fact and law that depends on circumstances not entirely within our control or knowledge.
This opinion is limited to the federal securities law exemption analysis and does not extend to state "blue sky" or securities law compliance, which is addressed separately in Section V.E below. The opinion also does not address the availability of any exemption for the shares of preferred stock issuable upon conversion of the Notes, as such exemption analysis will need to be conducted at the time of the Qualified Financing (anticipated to be the Series D Preferred Stock financing).
H. No Governmental Approvals Required
We will opine that no consent, approval, authorization, order, or action of, or filing or registration with, any governmental authority is required in connection with the execution, delivery, or performance of the Transaction Documents by the Company or the issuance of the Notes, other than (i) any consent or approval that has already been obtained (specifically, the Kelvantis consent), and (ii) post-closing filings required to be made by the Company, including the filing of a Form D with the Securities and Exchange Commission (the "SEC") and applicable state blue sky notice filings, in each case which are not required to be made prior to the closing.
This opinion will not extend to regulatory approvals or licenses that may be required in connection with the Company's ongoing business operations, including money transmission licenses, state lending licenses, or other regulatory approvals applicable to Skybridge's payments orchestration and embedded lending platform. Those matters are addressed separately in the Regulatory & Compliance Diligence Memorandum referenced in Section V.F below.
III. Factual Assumptions
The opinion letter will include a number of factual assumptions upon which the opinions are expressly predicated. These assumptions are necessary because the scope of our engagement as company counsel does not extend to independent verification of all factual matters relevant to the opinions rendered. The following is a summary of the key assumptions to be included.
A. Assumptions Regarding Parties Other Than Skybridge
As is customary for an opinion rendered by company counsel, we will not render any opinions regarding the Purchasers or other third parties. Instead, we will expressly assume the following:
(a) Each Purchaser is duly organized, validly existing, and in good standing under the laws of its jurisdiction of organization. Based on our review of the relevant organizational documents provided by investor counsel, the Purchasers are organized as follows:
• Ridgeline Ventures Fund IV, L.P. — a Delaware limited partnership; general partner: Ridgeline Ventures Management IV, LLC, a Delaware limited liability company;
• Beacon Hill Capital Partners, LLC — a Delaware limited liability company;
• Northstar Innovation Fund II, L.P. — a Delaware limited partnership; general partner: Northstar Innovation GP II, LLC, a Delaware limited liability company; and
• Halcyon Growth Equity, L.P. — a Delaware limited partnership; general partner: Halcyon Growth Management, LLC, a Delaware limited liability company.
(b) Each Purchaser has full power, authority, and legal right to execute, deliver, and perform its obligations under the Transaction Documents to which it is a party.
(c) The execution, delivery, and performance of the Transaction Documents by each Purchaser have been duly authorized by all necessary action on the part of such Purchaser, including any required approvals by the general partner, managing member, limited partners, advisory committee, or other governing body of such Purchaser.
(d) Each Purchaser is an "accredited investor" as defined in Rule 501(a) of Regulation D under the Securities Act. This assumption is critical to our securities law exemption opinion and is discussed further in Section V.B below.
In addition to the Purchasers, we will assume the following with respect to other third parties involved in the transaction:
(e) Granite Trust Company, N.A. is duly organized and validly existing as a national banking association under the laws of the United States of America, and it has full power and authority to act as escrow agent under the Escrow Agreement and to perform its obligations thereunder. We have not reviewed Granite Trust's organizational documents or regulatory status and will expressly disclaim any opinion in this regard.
(f) Kelvantis Lending Corp. ("Kelvantis") had full authority to execute and deliver the consent and waiver letter received by the Company on January 12, 2024, which was drafted by C&H and signed by Theodore "Ted" Marsh in his capacity as Senior Vice President and authorized signatory of Kelvantis. We will assume that Mr. Marsh had the requisite authority to bind Kelvantis to the terms of the consent and waiver, and that no additional approvals were required on the part of Kelvantis to grant such consent.
B. Assumptions Regarding Authenticity and Genuineness
The opinion letter will include the following standard assumptions regarding the authenticity and genuineness of documents reviewed:
(a) All documents submitted to us as originals are authentic, complete, and accurate.
(b) All documents submitted to us as copies (whether certified, photostatic, facsimile, electronic, or otherwise) conform to the authentic originals of such documents.
(c) All signatures on all documents reviewed by us are genuine and were affixed by the persons identified as the signatories thereof.
(d) All natural persons who have signed any documents reviewed by us had, at the time of signing, the legal capacity to do so.
These assumptions are standard in legal opinion practice and are consistent with the ABA Legal Opinion Accord and the TriBar Committee's guidance on customary practice for legal opinions. We do not anticipate any objection from investor counsel to the inclusion of these assumptions.
C. Assumptions Regarding Factual Matters
We will rely on the following certificates and representations as to factual matters relevant to the opinions rendered:
(a) Officers' Certificate. We will rely on the Officers' Certificate to be signed by Arjun Mehta (CEO & Co-Founder) and David Lindstrom (CFO) as to the accuracy of the Company's representations and warranties contained in the NPA as of the closing date (the "Bring-Down Certificate"). The Bring-Down Certificate is expected to be dated January 15, 2024, and will confirm that the representations and warranties are true and correct in all material respects (or in all respects for those representations qualified by materiality) as of the closing date.
(b) Secretary's Certificate. We will rely on the Secretary's Certificate to be dated January 15, 2024, which will attach true and complete copies of the Amended and Restated Certificate of Incorporation, the Bylaws, and the Unanimous Written Consent of the Board of Directors dated January 10, 2024, and will certify the incumbency and specimen signatures of the officers of the Company who are authorized to execute the Transaction Documents on behalf of the Company, including Arjun Mehta, David Lindstrom, and any other signing officers.
(c) Management Representations. We will rely on representations made by the Company's management team — specifically, Arjun Mehta (CEO & Co-Founder), David Lindstrom (CFO), and Priya Ramanathan (General Counsel) — regarding the factual accuracy and completeness of information provided to us in connection with our due diligence review and the preparation of the opinion letter. These representations include, without limitation, representations regarding the Company's corporate history, authorized and outstanding capitalization, material agreements, material litigation, regulatory compliance, and intellectual property.
(d) Company Disclosure Schedule. We have not independently verified the factual matters underlying the Company Disclosure Schedule (to be delivered on January 14, 2024 in final form). We will expressly disclaim any opinion as to the accuracy or completeness of the Company Disclosure Schedule and will rely on it solely to the extent that information contained therein is relevant to the scope of the opinions rendered. To the extent the Company Disclosure Schedule discloses exceptions to the Company's representations and warranties, we will assume that such exceptions are accurately and completely described.
D. Assumptions Regarding Good Standing
As noted in Section II.A, our opinion on the Company's good standing will be based on the Good Standing Certificate obtained from the Delaware Secretary of State on January 11, 2024, under Delaware File Number 6384291. We will include the following assumptions and qualifications in connection with this opinion:
(a) The Good Standing Certificate is current and accurate as of the closing date of the Initial Closing (January 15, 2024).
(b) No event has occurred between January 11, 2024 (the date of the Good Standing Certificate) and the closing date that would adversely affect the Company's good standing under the laws of the State of Delaware, including without limitation the failure to pay Delaware franchise taxes or the filing of a certificate of dissolution or revocation.
(c) Good standing certificates issued by the Delaware Secretary of State speak only as of their date of issuance and do not constitute a guarantee of good standing as of any subsequent date. Accordingly, the opinion letter will include a temporal qualification stating that our opinion on good standing is rendered in reliance on the Good Standing Certificate and is as of the date of such certificate.
The four-day gap between the date of the Good Standing Certificate (January 11, 2024) and the anticipated closing date (January 15, 2024) is within the range customarily accepted in market practice. Delaware Secretary of State good standing certificates are generally considered reliable for a period of up to seven to ten days following their issuance. We do not anticipate that investor counsel will require a bring-down or refreshed Good Standing Certificate for this four-day gap, though we will confirm this assumption in our communications with Danielle Kwon at Whitfield, Pratt & Soo LLP.
E. Assumptions Regarding Choice of Law
All Transaction Documents are governed by the laws of the State of Delaware. The opinion letter will include the following assumptions regarding choice of law:
(a) The Delaware choice-of-law provisions contained in each of the Transaction Documents are enforceable and valid, and a Delaware court or federal court sitting in Delaware would honor and apply Delaware law to the interpretation and enforcement of the Transaction Documents.
(b) All parties to the Transaction Documents have validly consented to exclusive jurisdiction in the Court of Chancery of the State of Delaware (or, if that court declines to exercise jurisdiction, the Superior Court of the State of Delaware), or the United States District Court for the District of Delaware, as specified in the forum selection provisions of the respective Transaction Documents.
(c) We will not render any opinion regarding the enforceability of the choice-of-law or forum selection provisions under the laws of any jurisdiction other than Delaware. We note that the enforceability of contractual choice-of-law and forum selection provisions is generally upheld under Delaware law, subject to the limitations set forth in the Restatement (Second) of Conflict of Laws and applicable public policy considerations.
IV. Standard Qualifications and Exceptions (Enforceability)
The enforceability opinion set forth in Section II.E above will be subject to the following standard qualifications and exceptions, each of which is customary in legal opinions delivered in connection with venture capital and private placement transactions.
A. Bankruptcy and Insolvency Qualification
The enforceability opinion will be qualified by a statement that enforceability is subject to applicable bankruptcy, insolvency, reorganization, moratorium, receivership, fraudulent conveyance, fraudulent transfer, and other similar laws of general applicability relating to or affecting the enforcement of creditors' rights generally. This is the most fundamental and universally accepted qualification in legal opinion practice and reflects the reality that the rights of creditors are always subject to limitation in the event of a bankruptcy or insolvency proceeding.
The specific language to be used in the opinion letter will follow the standard formulation recommended by the TriBar Committee and the ABA Legal Opinion Accord:
"...subject to applicable bankruptcy, insolvency, reorganization, moratorium, receivership, fraudulent conveyance, fraudulent transfer, and similar laws of general applicability relating to or affecting the enforcement of creditors' rights generally."
This qualification encompasses, without limitation, the federal Bankruptcy Code (Title 11 of the United States Code), state fraudulent conveyance and fraudulent transfer statutes (including the Delaware Uniform Voidable Transactions Act), equitable subordination doctrines, and automatic stay provisions.
B. Equitable Principles Qualification
The enforceability opinion will also be qualified by a statement that enforceability is subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding at law or in equity), including but not limited to the discretion of any court of competent jurisdiction to deny an application for specific performance, injunctive relief, or other equitable remedies. This qualification reflects the inherent discretion of courts of equity to refuse to enforce contractual provisions that they deem unjust, inequitable, or otherwise contrary to fundamental principles of fairness.
In addition, the equitable principles qualification encompasses the following concepts, which may limit the enforcement of specific provisions of the Transaction Documents:
(a) the implied covenant of good faith and fair dealing;
(b) the doctrine of commercial reasonableness;
(c) the doctrine of unconscionability; and
(d) the concept that remedies at law must be inadequate before equitable relief will be granted.
We do not anticipate any objection from investor counsel to the inclusion of this standard qualification.
C. Public Policy Limitations
We will include a general qualification that enforceability of the Transaction Documents may be limited by applicable public policy considerations. This is a broad qualification that serves as a catch-all for any situation in which a court might decline to enforce a contractual provision on the grounds that it is contrary to public policy, even if the provision would otherwise be valid and enforceable under applicable law. While this qualification is somewhat open-ended, it is standard practice and is well understood in the legal opinion community.
D. Indemnification and Contribution Limitations
The NPA contains indemnification obligations on the part of the Company in favor of the Purchasers, including indemnification for breaches of representations and warranties and for losses arising from third-party claims. The opinion letter will include an express qualification regarding the enforceability of indemnification and contribution provisions to the extent they purport to indemnify against liabilities arising under the Securities Act of 1933 or other federal or state securities laws. This qualification is based on the well-established principle, reflected in Section 11(f) of the Securities Act and related SEC policy, that indemnification for liabilities arising under the Securities Act is contrary to public policy and therefore unenforceable.
The specific language of this qualification will state that the enforceability of the indemnification and contribution provisions of the Transaction Documents may be limited by applicable federal and state securities laws, including the Securities Act of 1933, as amended, and judicial interpretations thereof, to the extent that such provisions purport to provide indemnification or contribution with respect to liabilities arising under such laws.
E. Limitation on Remedies
Consistent with customary opinion practice, we will not opine that every individual provision of the Transaction Documents is enforceable. Rather, we will state that the unenforceability of any particular provision will not render the Transaction Documents as a whole unenforceable, provided that the remaining provisions contain all of the terms reasonably necessary to determine the rights and obligations of the parties thereunder. This formulation is supported by the severability clause contained in Section 9.8 of the NPA, which provides that if any provision of the NPA is held to be invalid, illegal, or unenforceable, the validity, legality, and enforceability of the remaining provisions shall not be affected or impaired thereby.
This approach is consistent with the TriBar Committee's recommendation that opinion givers need not opine on the enforceability of every provision of a complex agreement and instead should focus on the enforceability of the agreement as a whole, subject to the severability and reformation principles.
F. Waiver Provisions
The Transaction Documents contain various waiver provisions, including waivers of certain rights that may be available to the parties under applicable law. To the extent the Transaction Documents include a waiver of the right to trial by jury (as is customary in financing agreements of this nature), we will qualify our enforceability opinion by noting that such jury trial waivers may not be enforceable in all circumstances under applicable law. While jury trial waivers in commercial contracts are generally upheld in Delaware and in most federal courts, the enforceability of such waivers is not beyond question, and we believe a qualification is appropriate and consistent with market practice.
Additionally, to the extent the Transaction Documents contain waivers of statutory rights or constitutional rights (including, for example, waivers of rights under consumer protection statutes or due process rights), we will note that such waivers may be limited or unenforceable under applicable law. We do not believe the Transaction Documents contain any such problematic waivers, but the qualification is included out of an abundance of caution.
V. Limitations and Exclusions
In addition to the standard enforceability qualifications set forth in Section IV, the opinion letter will contain a number of affirmative limitations on the scope of the opinions rendered, excluding certain areas of law and certain types of matters from the opinion coverage. These limitations are standard in venture capital opinion practice and are necessary to ensure that the opinion does not extend to areas of law outside the expertise or review of the opinion-giving lawyers.
A. Laws Covered
The opinion will be expressly limited to the laws of the State of Delaware (including, without limitation, the DGCL) and the federal laws of the United States of America. We will expressly disclaim any opinion on the laws of any other state or jurisdiction, including, without limitation, the laws of the State of New York, the State of California, the Commonwealth of Massachusetts, or any other state in which the Company does business.
In addition, the opinion will expressly disclaim any opinion on municipal, county, or local laws, rules, regulations, or ordinances. This exclusion is standard and reflects the practical impossibility of reviewing and opining on the patchwork of local laws that may be applicable to a company with multi-state operations.
B. Federal Securities Laws — Limitation
The opinion on the securities law exemption under Section 4(a)(2) of the Securities Act and Rule 506(b) of Regulation D will be rendered as a "reasoned conclusion" rather than an unqualified opinion. This means that the opinion will be phrased in terms of our view that the offer, sale, and issuance of the Notes "would be" (rather than "is") exempt from the registration requirements of Section 5 of the Securities Act. This formulation is consistent with customary market practice for private placement opinions and reflects the fact that the availability of the exemption under Section 4(a)(2) and Rule 506(b) depends on a number of factual conditions — including the accredited investor status of the purchasers, the absence of general solicitation, and the investment intent of the purchasers — that are not entirely within the knowledge or control of the opinion giver.
The opinion will be based on the following factual assumptions, which we will expressly state in the opinion letter:
(a) All factual representations made by the Company and the Purchasers regarding accredited investor status are accurate, complete, and not misleading.
(b) No form of general solicitation or general advertising (as those terms are used in Rule 502(c) of Regulation D) was used by the Company or any person acting on its behalf in connection with the offer and sale of the Notes.
(c) Each Purchaser is acquiring the Notes for its own account for investment purposes and not with a view to the distribution thereof within the meaning of Section 2(a)(11) of the Securities Act.
C&H has reviewed the investor questionnaires and accredited investor certifications provided by each of the four Purchasers, and we are satisfied that the responses are consistent with accredited investor status under Rule 501(a) of Regulation D. However, we have not independently verified the underlying facts stated in the questionnaires and certifications (such as the net assets of the Purchasers' respective fund vehicles or the assets under management of the Purchasers' respective management companies), and we will expressly disclaim any obligation to do so.
The following additional limitations will apply to our securities law opinion:
(d) Section 12(g) of the Securities Exchange Act of 1934. We will not render any opinion regarding compliance with the holder-of-record thresholds under Section 12(g) of the Exchange Act or the rules promulgated thereunder. The issuance of the Notes and any shares issuable upon conversion thereof may implicate the Section 12(g) reporting thresholds, but an analysis of this issue is beyond the scope of the opinion letter and will be addressed separately if and when the Company approaches the relevant thresholds.
(e) Conversion Shares. We will not render any opinion on the availability of any exemption from registration under the Securities Act for the shares of preferred stock (anticipated to be Series D Preferred Stock) issuable upon conversion of the Notes. The exemption analysis for the conversion shares will need to be conducted at the time of the Qualified Financing (Series D) and will depend on the terms and circumstances of that transaction, which are not yet known.
C. Tax Matters
The opinion letter will expressly disclaim any opinion on any federal, state, or local tax consequences of the transactions contemplated by the Transaction Documents, including without limitation any opinion regarding the characterization of the Notes for federal income tax purposes, the treatment of original issue discount ("OID") under Sections 1272 and 1273 of the Internal Revenue Code, the treatment of interest accruals, or the Delaware franchise tax consequences of the issuance of the Notes or the conversion shares. Tax analysis has been addressed separately in the tax memorandum prepared by the Firm's tax practice group dated November 22, 2023, which covers OID analysis under Section 1272/1273 and Delaware franchise tax considerations.
D. Intellectual Property
The opinion letter will expressly disclaim any opinion on the validity, enforceability, or ownership of any intellectual property rights of Skybridge, including without limitation patents, trademarks, service marks, trade names, copyrights, trade secrets, domain names, software, and other proprietary technology. Intellectual property due diligence has been conducted separately by Peter Vassiliev and Wendy Schultz of C&H's intellectual property practice group. Their work product includes the IP Diligence Memorandum dated December 20, 2023, and the IP Ownership & Assignment Analysis dated December 22, 2023. The results of the IP diligence are incorporated by reference in the Company Disclosure Schedule and are available to investor counsel upon request, subject to appropriate confidentiality protections.
E. State Blue Sky / Securities Laws
The opinion letter will expressly disclaim any opinion on compliance with the securities or "blue sky" laws of any state. State blue sky filing requirements applicable to the Bridge Financing are being tracked separately in a Blue Sky / State Notice Filings Memorandum to be prepared by Nina Reyes. Based on our preliminary analysis, the states requiring notice filings include Delaware, Massachusetts, Illinois, California, and Washington, based on the jurisdictions in which the Purchasers are organized or maintain their principal offices and the jurisdictions in which the Company has a principal place of business.
The Company will be required to file a Form D with the SEC within 15 days following the Initial Closing. We anticipate that the Form D will be filed on or about January 16, 2024. A Form D Amendment will be filed following the Final Closing to reflect the additional Notes issued at the Final Closing and any updated information.
F. Regulatory Matters
The opinion letter will expressly disclaim any opinion on compliance with money transmission laws, state licensing requirements (including state money transmitter licenses, lending licenses, and similar regulatory authorizations), banking regulations (including regulations promulgated by the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and state banking regulators), or any other regulatory matters applicable to Skybridge's payments orchestration and embedded lending business. These matters are highly specialized and are outside the scope of the legal opinion to be delivered in connection with the Bridge Financing.
Regulatory compliance has been reviewed separately by the Firm's financial services regulatory practice group, and the results are documented in the Regulatory & Compliance Diligence Memorandum dated December 22, 2023. The regulatory diligence is relevant to the Purchasers' investment decision but does not form part of the legal opinion.
G. ERISA and Employee Benefit Matters
The opinion letter will expressly disclaim any opinion on compliance with the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or any employee benefit plan matters, including without limitation any opinion regarding the Company's employee benefit plans, stock option plans, equity incentive plans, or the application of ERISA to any of the Purchasers.
H. Environmental Laws
The opinion letter will expressly disclaim any opinion on any environmental law matters, including without limitation any opinion regarding compliance with the Comprehensive Environmental Response, Compensation, and Liability Act, the Resource Conservation and Recovery Act, or any analogous state or local environmental statutes. We note that this exclusion is not expected to be of practical significance given that Skybridge operates a software-as-a-service ("SaaS") and financial technology platform and does not engage in manufacturing, real estate ownership, or other activities that would typically give rise to environmental liabilities.
I. Subordination Agreement
Our enforceability opinion with respect to the Subordination Agreement will be limited to its effect as between the parties thereto — namely, Kelvantis Lending Corp., the Purchasers, and Skybridge — and will address the contractual subordination of the Notes to the existing venture debt under the Kelvantis facility. We will not render any opinion regarding the relative priority of claims in a bankruptcy or insolvency proceeding, which is governed by federal bankruptcy law (including Section 510 of the Bankruptcy Code) and applicable state law principles, including equitable subordination and equitable disallowance doctrines.
For reference, the outstanding venture debt under the Kelvantis Loan and Security Agreement as of the date hereof is approximately $15,000,000 in principal amount, with a maturity date of August 15, 2025. The Subordination Agreement provides that all obligations under the Notes are subordinated in right of payment to all obligations under the Kelvantis LSA, subject to certain exceptions for regularly scheduled interest payments and permitted conversions.
J. Anti-Fraud Provisions
The opinion letter will expressly disclaim any opinion regarding the application of the anti-fraud provisions of the federal or state securities laws, including without limitation Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, Section 17(a) of the Securities Act of 1933, and analogous state anti-fraud provisions. This exclusion is universal in private placement opinion practice and reflects the fact that compliance with the anti-fraud provisions depends on factual matters (including the completeness and accuracy of disclosures made to investors) that are not within the scope of the opinion giver's review.
VI. Documents to Be Reviewed and Relied Upon
The opinion letter will specify the documents that have been reviewed by C&H in connection with the preparation of the opinion. The following is a comprehensive list of the documents to be reviewed and relied upon, organized by category.
A. Transaction Documents
1. Note Purchase Agreement — Execution Version, dated January 15, 2024 (the "NPA"), by and among Skybridge Fintech Ltd. and the Purchasers.
2. Form of Convertible Promissory Note — Execution Version, in substantially the form attached as Exhibit A to the NPA.
3. Schedule of Purchasers — Schedule 1 to the NPA, reflecting the following Purchasers and their respective capital commitments and allocation percentages:
4. Subordination Agreement — Execution Version, dated January 15, 2024, by and among the Company, the Purchasers, and Kelvantis Lending Corp.
5. Amendment No. 1 to Amended and Restated Investors' Rights Agreement — Execution Version, by and among the Company and the investors party thereto.
6. Amendment No. 1 to Right of First Refusal and Co-Sale Agreement — Execution Version, by and among the Company, the founders, and the investors party thereto.
7. Escrow Agreement — Execution Version, by and among the Company, the Purchasers, and Granite Trust Company, N.A., as escrow agent (Escrow Account No. 4401-7829-SBF).
B. Corporate Documents
1. Amended and Restated Certificate of Incorporation of Skybridge Fintech Ltd. (as currently in effect), as filed with the Delaware Secretary of State.
2. Bylaws of Skybridge Fintech Ltd. (as currently in effect).
3. Unanimous Written Consent of the Board of Directors of Skybridge Fintech Ltd. dated January 10, 2024 (approving the Bridge Financing and authorizing the execution, delivery, and performance of the Transaction Documents).
4. Written Consent of Stockholders in Lieu of Special Meeting of Skybridge Fintech Ltd. dated January 12, 2024 (approving the Bridge Financing and the issuance of the Notes and the related amendments to the Investors' Rights Agreement and the Right of First Refusal and Co-Sale Agreement).
C. Certificates and Other Documents
1. Good Standing Certificate of Skybridge Fintech Ltd. issued by the Delaware Secretary of State, obtained January 11, 2024 (DE File Number 6384291).
2. Secretary's Certificate of the Company, to be dated January 15, 2024, with the following attachments: (a) the Amended and Restated Certificate of Incorporation, (b) the Bylaws, and (c) the Unanimous Written Consent of the Board of Directors dated January 10, 2024. The Secretary's Certificate will also certify the incumbency and specimen signatures of the Company's officers authorized to execute the Transaction Documents, including Arjun Mehta (CEO & Co-Founder), David Lindstrom (CFO), and any other signing officers.
3. Officers' Certificate — Representations & Warranties Bring-Down, to be dated January 15, 2024 and signed by Arjun Mehta and David Lindstrom, confirming that the representations and warranties of the Company set forth in the NPA are true and correct in all material respects (or, in the case of representations qualified by materiality, in all respects) as of the closing date.
4. Kelvantis Lending Corp. — Lender Consent and Waiver Letter, received January 12, 2024, signed by Theodore "Ted" Marsh, Senior Vice President, Kelvantis Lending Corp. (drafted by C&H; consenting to the Bridge Financing and waiving any default or event of default that would otherwise arise under the Kelvantis LSA as a result of the Bridge Financing).
5. Company Disclosure Schedule, to be delivered January 14, 2024 (setting forth the exceptions to the Company's representations and warranties in the NPA).
D. Other Materials
In addition to the Transaction Documents, corporate documents, and certificates listed above, we have reviewed or will review the following materials in connection with the preparation of the opinion:
1. Investor accredited investor questionnaires and certifications submitted by each of the four Purchasers.
2. Capitalization table of the Company, showing approximately 48,500,000 fully diluted shares outstanding on a pre-bridge basis (including all outstanding shares of common stock, preferred stock, vested and unvested stock options, restricted stock units, and other convertible securities).
3. Kelvantis Loan and Security Agreement, dated August 15, 2022, by and between Skybridge Fintech Ltd. (as borrower) and Kelvantis Lending Corp. (as lender), including all amendments, modifications, supplements, and related documents.
4. Amended and Restated Investors' Rights Agreement (existing, prior to amendment), by and among the Company and the investors party thereto.
5. Right of First Refusal and Co-Sale Agreement (existing, prior to amendment), by and among the Company, the founders, and the investors party thereto.
6. Audited financial statements of the Company for the fiscal year ended December 31, 2022, and reviewed (unaudited) financial statements of the Company for the nine-month period ended September 30, 2023, in each case prepared or reviewed by Pinnacle Audit Group LLP, engagement partner Lisa Johannsen.
7. 409A valuation report dated September 15, 2023, prepared by Atlas Valuation Services, Inc. (contact: Martin Khoury), establishing a fair market value of $8.42 per share of common stock of the Company as of the valuation date.
VII. Key Deal Terms Affecting Opinion Scope
The following is a summary of the key commercial and economic terms of the Bridge Financing that are relevant to the scope, analysis, and formulation of the opinions to be rendered. These terms are set forth in the NPA and the form of Convertible Promissory Note and have been taken into account in our analysis of the assumptions, qualifications, and limitations discussed herein.
Interest Rate. The Notes bear interest at a rate of 6.00% per annum (600 basis points), computed on the basis of a 365-day year and the actual number of days elapsed, on a simple (non-compounding) interest basis. Based on the full aggregate principal amount of $60,000,000, the annual interest obligation of the Company is $3,600,000. Interest is payable at maturity or upon conversion, and is not payable currently during the term of the Notes.
Maturity Date. The Notes mature on January 15, 2026, which is 24 months from the date of the Initial Closing. Upon maturity, unless the Notes have been previously converted or repaid, the full outstanding principal amount plus accrued and unpaid interest will be due and payable.
Automatic Conversion. The Notes will automatically convert into shares of the Company's preferred stock upon the closing of a Qualified Financing, defined as an equity financing in which the Company raises at least $80,000,000 in new equity capital (exclusive of any amounts converted from the Notes). The anticipated Qualified Financing is the Company's Series D Preferred Stock financing.
Conversion Price. Upon conversion, the Notes will convert at the lower of (i) 80% of the per-share price paid by new investors in the Qualified Financing (the "Discount Price") or (ii) the per-share price implied by a pre-money valuation cap of $750,000,000 (the "Valuation Cap Price"). Based on the current fully diluted share count of approximately 48,500,000 shares, the Valuation Cap Price is approximately $15.46 per share ($750,000,000 ÷ 48,500,000 = ~$15.46).
Change of Control. In the event of a Change of Control (as defined in the NPA) prior to the conversion or repayment of the Notes, the holders will be entitled to receive the greater of (i) 2.0x the outstanding principal amount plus accrued and unpaid interest or (ii) the amount that would be payable upon conversion of the Notes at the Valuation Cap Price. At issuance, the maximum Change of Control payment (assuming no accrued interest) would be $120,000,000 (2.0 × $60,000,000).
MFN Provision. The NPA contains a most-favored-nation provision pursuant to which, if the Company issues additional convertible promissory notes or simple agreements for future equity ("SAFEs") on terms more favorable to the holders thereof than the terms of the Notes, the holders of the Notes will have the right to amend their Notes to incorporate such more favorable terms.
Subordination. The Notes are expressly subordinated to the Company's existing venture debt facility with Kelvantis Lending Corp. The outstanding principal amount under the Kelvantis Loan and Security Agreement as of the date hereof is approximately $15,000,000, with a maturity date of August 15, 2025.
Two-Tranche Closing Structure. The Bridge Financing will close in two tranches:
• Initial Closing (anticipated January 15, 2024): $45,000,000 in aggregate principal amount of Notes, funded by Ridgeline ($30,000,000), Beacon Hill ($10,000,000), and Halcyon ($5,000,000).
• Final Closing (anticipated January 26, 2024): $15,000,000 in aggregate principal amount of Notes, funded by Beacon Hill ($5,000,000) and Northstar ($10,000,000).
The two-tranche structure is relevant to the scope of the opinion because the opinion delivered at the Initial Closing will need to be supplemented or confirmed at the Final Closing. As discussed in Section VIII below, we intend to deliver a bring-down letter or supplemental reliance confirmation at the Final Closing to extend the coverage of the Initial Closing opinion to the Notes issued at the Final Closing.
VIII. Form and Style Considerations