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firpta-withholding-analysis-memo.docx DOCUMENT M&A / Corporate

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MEMORANDUM

PRIVILEGED & CONFIDENTIAL ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT

TO: Teresa Okafor, General Counsel, Skybridge Fintech Ltd. James Prentice, Partner, Calderwood & Harkness LLP

FROM: Leonard Cross, Partner, Tax Group, Calderwood & Harkness LLP

CC: Sandra Tung, Partner, Calderwood & Harkness LLP Naomi Petersen, Associate, Calderwood & Harkness LLP Ryan Kowalski, Associate, Calderwood & Harkness LLP Martin Cho, Partner, Cedarhurst Advisory Group LLC

DATE: May 2025

RE: FIRPTA and Withholding Analysis — Business Combination of Pinnacle Growth Acquisition Corp. and Skybridge Fintech Ltd.

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I. Executive Summary

This memorandum analyzes the application of the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"), codified in Sections 897 and 1445 of the Internal Revenue Code of 1986, as amended (the "Code"), and related withholding obligations under Sections 1445 and 1446 of the Code, to the de-SPAC business combination (the "Transaction") among Pinnacle Growth Acquisition Corp., a Cayman Islands exempted company ("Pinnacle" or "PGAC"), Pinnacle Merger Sub Inc., a Delaware corporation and direct wholly owned subsidiary of Pinnacle ("Merger Sub"), and Skybridge Fintech Ltd., a Delaware corporation ("Skybridge" or "SBF"). This memorandum has been prepared at the request of Teresa Okafor, General Counsel of Skybridge, and James Prentice, lead deal partner at Calderwood & Harkness LLP, in connection with the ongoing structuring and documentation of the Transaction.

The Transaction is structured as a forward triangular merger under the Delaware General Corporation Law (the "DGCL"). Pursuant to the Business Combination Agreement dated April 14, 2025 (the "BCA"), Merger Sub will merge with and into Skybridge, with Skybridge surviving as a wholly owned subsidiary of the entity that, immediately prior to the merger effective time, will have re-domiciled from the Cayman Islands to the State of Delaware and been renamed Skybridge Fintech Holdings, Inc. (the "Combined Company"). The Transaction carries an implied enterprise and equity value of approximately $450,000,000. At the effective time of the merger, the shareholders of Skybridge will receive aggregate merger consideration of 45,000,000 shares of the Combined Company's common stock at a per-share value of $10.00, plus the right to receive up to 5,000,000 additional earnout shares upon satisfaction of certain post-closing stock price milestones. The projected closing date for the Transaction is July 21, 2025.

Immediately prior to the merger effective time, Pinnacle will domesticate from the Cayman Islands to the State of Delaware pursuant to Section 388 of the DGCL and the applicable provisions of the Cayman Islands Companies Act (as revised). Upon domestication, Pinnacle's outstanding Cayman Islands ordinary shares will be exchanged on a one-for-one basis for shares of Delaware common stock, and the entity will be renamed Skybridge Fintech Holdings, Inc. Merger Sub will be formed as a direct wholly owned subsidiary of Pinnacle following domestication and immediately prior to the merger.

Key Conclusions. Based on our analysis, and subject to the scope limitations and factual assumptions described in Section II below, we reach the following principal conclusions:

1. Skybridge is not a "United States real property holding corporation" ("USRPHC") within the meaning of Section 897(c)(2) of the Code at any relevant testing date, including the anticipated closing date and at all times during the applicable five-year look-back period (or, if shorter, the period since Skybridge's incorporation on June 15, 2018). Skybridge has never owned any interest in real property located in the United States or abroad, and its asset ratio under Section 897(c)(2) is 0%, which is well below the 50% threshold.

2. FIRPTA does not apply to the merger consideration received by Skybridge shareholders in the Transaction. Because shares of Skybridge stock do not constitute "United States real property interests" ("USRPIs"), the disposition of those shares in the merger does not trigger taxation under Section 897(a) or withholding under Section 1445(a), regardless of the U.S. or foreign tax status of any particular Skybridge shareholder.

3. No FIRPTA withholding is required under Section 1445 in connection with the issuance of merger consideration shares, earnout shares, or PIPE shares in the Transaction.

4. A FIRPTA certificate should nonetheless be delivered at closing as a condition to the BCA and as a protective measure for the Combined Company and its transfer agent. The form and delivery requirements for such certificate are described in Section VIII below.

5. Section 1446 withholding is not directly implicated by the merger itself. Certain partnership shareholders may have independent Section 1446(a) obligations with respect to their own foreign partners, but those obligations rest with the partnerships and not with the Combined Company or its agents. Separately, the domestication of Pinnacle from the Cayman Islands to Delaware raises potential withholding obligations under Sections 1441 and 1442 with respect to non-U.S. Pinnacle shareholders, which are addressed in companion tax memoranda and flagged in Section VII.C below for coordination purposes.

II. Scope and Limitations

This memorandum has been prepared solely for the benefit of Skybridge Fintech Ltd. and the Calderwood & Harkness LLP deal team in connection with the Transaction. It is intended to analyze the application of FIRPTA (Sections 897 and 1445 of the Code) and related withholding provisions (Section 1446 of the Code) to the Transaction and does not address the full range of U.S. federal income tax consequences of the Transaction to any particular shareholder or class of shareholders.

Our analysis is based on the Internal Revenue Code of 1986, as amended, the Treasury Regulations promulgated thereunder (including proposed and temporary regulations where noted), published rulings and administrative guidance of the Internal Revenue Service (the "IRS"), and relevant judicial authority, in each case as in effect and available as of the date of this memorandum. The tax laws and their interpretation are subject to change, possibly with retroactive effect, and no assurance can be given that the IRS will not take a position contrary to any of the conclusions expressed herein or that any such contrary position would not be sustained by a court of competent jurisdiction.

In preparing this memorandum, we have relied upon factual representations, data, and documentation provided by the following sources:

• Skybridge management: Priya Chandrasekaran, Chief Executive Officer, and Marcus Ellingham, Chief Financial Officer, of Skybridge Fintech Ltd., who have provided representations regarding Skybridge's asset composition, real property holdings (or lack thereof), corporate history, and shareholder base.

• Skybridge's independent auditor: Graystone Thornton LLP (engagement partner: Helen Marchetti), which has provided audited financial statements of Skybridge for the fiscal year ended December 31, 2024, and interim unaudited financial data for the quarter ended March 31, 2025.

• Skybridge's tax advisor: Cedarhurst Advisory Group LLC (partner: Martin Cho), which has provided historical tax returns, work papers, and representations regarding Skybridge's tax attributes and asset composition over the relevant look-back period.

• Transaction documentation: Including the Business Combination Agreement dated April 14, 2025, the Domestication Plan, the form of Merger Sub Certificate of Incorporation, the PIPE Subscription Agreements, the Backstop Agreement with Velthryn Strategic Investments, LP, the Sponsor Letter Agreement, and the Registration Rights Agreement.

We have assumed, without independent investigation or verification, that all factual representations and information provided to us are true, correct, and complete in all material respects, and that all documents provided to us are genuine and accurate copies of the originals. We have not conducted an independent appraisal of any assets of Skybridge, Pinnacle, or any other party to the Transaction, nor have we independently verified the accuracy of any financial statements, balance sheet data, or tax returns provided to us.

This memorandum does not constitute a formal tax opinion, and no opinion of counsel is being rendered hereby. A separate draft tax opinion addressing the qualification of the Transaction as a reorganization under Section 368(a)(1)(A) of the Code (by reason of Section 368(a)(2)(D)) and the tax consequences of the domestication under Sections 368(a)(1)(F) and 367(b) of the Code is being prepared concurrently and will be delivered separately. This memorandum should be read in conjunction with the Tax Structure Memorandum dated May 2025, which addresses the broader reorganization qualification and domestication tax analysis.

This memorandum is protected by the attorney-client privilege and the work product doctrine and is not intended for distribution to any third party without the prior written consent of Calderwood & Harkness LLP and Skybridge Fintech Ltd.

III. Background — Transaction Structure

A. The Parties

1. Skybridge Fintech Ltd.

Skybridge Fintech Ltd. is a Delaware corporation, incorporated on June 15, 2018, and assigned Employer Identification Number 83-2471560. Skybridge maintains its principal executive offices and corporate headquarters at 1200 Market Street, Suite 1400, Wilmington, Delaware 19801, and operates an engineering and product development office at 450 Folsom Street, 7th Floor, San Francisco, California 94105. Both office locations are leased, and Skybridge does not own any real property.

Skybridge operates a cloud-based payment orchestration and embedded-finance software-as-a-service ("SaaS") platform that enables mid-market financial institutions, neobanks, and fintech companies to integrate, manage, and optimize payment processing across multiple payment rails and acquirers. Skybridge's technology platform is delivered entirely through cloud infrastructure and does not require the ownership or operation of physical data centers, real property, or other tangible real estate assets. Data center capacity is obtained through commercial cloud services agreements with third-party providers, principally Adriatic Technologies and Aldermere Technologies.

Skybridge currently employs approximately 340 persons across its Wilmington and San Francisco offices, with additional remote employees in various U.S. states. For the fiscal year ended December 31, 2024, Skybridge reported revenue of approximately $87.3 million, annualized recurring revenue ("ARR") of approximately $94.6 million, and earnings before interest, taxes, depreciation, and amortization ("EBITDA") of approximately $14.1 million, as reflected in the audited financial statements prepared by Graystone Thornton LLP.

2. Key Skybridge Shareholders

The principal shareholders of Skybridge on a fully diluted basis are as follows:

Based on due diligence conducted by Calderwood & Harkness LLP and representations provided by Skybridge management, all material shareholders of Skybridge are believed to be "United States persons" within the meaning of Section 7701(a)(30) of the Code. The two principal institutional shareholders — Harborview Partners and Atlas Horizon Ventures Fund II, LP — are each Delaware limited partnerships with domestic general partners. Priya Chandrasekaran and the members of the management team are U.S. citizens or permanent residents. Certain employee option holders within the ~7.7% employee equity pool may include individuals who are nonresident aliens; however, as discussed in Section VI below, the non-USRPHC status of Skybridge eliminates any FIRPTA concern with respect to these holders.

3. Pinnacle Growth Acquisition Corp.

Pinnacle Growth Acquisition Corp. is a Cayman Islands exempted company formed for the purpose of effecting a business combination with one or more operating businesses. Pinnacle's Class A ordinary shares are listed on the Nasdaq Stock Market under the ticker symbol "PGAC." Pinnacle completed its initial public offering on October 17, 2023, issuing 30,000,000 Class A ordinary shares at a price of $10.00 per share, for aggregate gross proceeds of $300,000,000. The IPO proceeds, net of underwriting commissions and offering expenses, were deposited in a trust account held at Glenridge National Bank, N.A. As of March 31, 2025, the balance in the trust account was approximately $312.6 million, reflecting interest earned on the trust assets. Pinnacle has been assigned Employer Identification Number 88-3654921.

Pinnacle does not conduct any operations and has no employees. Its sole activity since the IPO has been the identification and negotiation of a suitable business combination target. Pinnacle's assets consist exclusively of the trust account balance, cash held outside the trust for working capital purposes, and deferred offering costs. Pinnacle does not own or hold any interest in real property located in the United States or elsewhere.

4. Pinnacle Merger Sub Inc.

Pinnacle Merger Sub Inc. is a Delaware corporation to be formed as a direct wholly owned subsidiary of Pinnacle (or, more precisely, of the Combined Company following domestication) immediately prior to the merger effective time. Merger Sub will have no assets, liabilities, or operations other than those incidental to its formation and its role as the merging entity in the forward triangular merger. Merger Sub will cease to exist at the effective time of the merger, with Skybridge surviving as the surviving corporation.

5. Sponsor. Ridgeway Capital Holdings LLC is a Delaware limited liability company (EIN 87-1093847) controlled by Jonathan Mercer that serves as the sponsor of Pinnacle (the "Sponsor"). The Sponsor holds 7,500,000 Class B ordinary shares of Pinnacle (the "Founder Shares"), representing 20% of the total outstanding ordinary shares of Pinnacle on an as-converted basis (prior to giving effect to any redemptions), and 8,000,000 private placement warrants (the "Private Placement Warrants"), each exercisable for one Class A ordinary share at an exercise price of $11.50 per share. In connection with the Transaction, the Founder Shares will convert into shares of Combined Company common stock on a one-for-one basis, subject to certain anti-dilution adjustments, and the Private Placement Warrants will become exercisable for shares of Combined Company common stock on the same terms.

B. Transaction Steps

The Transaction will be effected through the following sequential steps, each as described in the BCA:

Step 1 — Domestication. Immediately prior to the merger effective time, Pinnacle will re-domicile from the Cayman Islands to the State of Delaware by filing a certificate of corporate domestication and a certificate of incorporation with the Secretary of State of the State of Delaware under Section 388 of the DGCL, and by de-registering as a Cayman Islands exempted company under the Cayman Islands Companies Act (as revised). Upon the effectiveness of the domestication, (a) each issued and outstanding Class A ordinary share of Pinnacle will automatically convert into one share of the Combined Company's common stock, par value $0.0001 per share, (b) each issued and outstanding Class B ordinary share of Pinnacle (held by the Sponsor) will automatically convert into one share of the Combined Company's common stock, (c) each outstanding public warrant and Private Placement Warrant of Pinnacle will automatically convert into a warrant to purchase one share of the Combined Company's common stock on the same terms, and (d) Pinnacle will be renamed "Skybridge Fintech Holdings, Inc." For U.S. federal income tax purposes, the domestication is intended to qualify as a reorganization under Section 368(a)(1)(F) of the Code.

Step 2 — Formation of Merger Sub. Following the domestication and immediately prior to the merger effective time, the Combined Company will form Merger Sub as a direct wholly owned Delaware subsidiary. Merger Sub will be capitalized with a nominal amount of cash and will have no material assets, liabilities, or operations.

Step 3 — Forward Triangular Merger. At the merger effective time, Merger Sub will merge with and into Skybridge pursuant to Section 251 of the DGCL, with Skybridge surviving as a wholly owned subsidiary of the Combined Company. As a result of the merger, the separate corporate existence of Merger Sub will cease, and Skybridge will continue as the surviving corporation.

Step 4 — Merger Consideration. At the effective time of the merger, each outstanding share of Skybridge common stock will be automatically cancelled and converted into the right to receive a pro rata portion of the aggregate merger consideration, consisting of 45,000,000 shares of Combined Company common stock at an implied per-share value of $10.00. In addition, former Skybridge shareholders will have the right to receive up to 5,000,000 earnout shares, allocated as follows:

• Tranche 1: 2,500,000 earnout shares, issuable if the volume-weighted average price ("VWAP") of the Combined Company's common stock equals or exceeds $12.50 for any 20 trading days within any period of 30 consecutive trading days occurring within the 24-month period following the closing date.

• Tranche 2: 2,500,000 earnout shares, issuable if the VWAP of the Combined Company's common stock equals or exceeds $15.00 for any 20 trading days within any period of 30 consecutive trading days occurring within the 36-month period following the closing date.

Step 5 — PIPE Investment. Concurrently with the closing of the merger, the Combined Company will issue and sell an aggregate of 15,000,000 shares of Combined Company common stock at a price of $10.00 per share in a private placement (the "PIPE"), for aggregate gross proceeds of $150,000,000. The PIPE investors and their respective commitments are as follows:

The PIPE shares will be issued pursuant to subscription agreements entered into between the Combined Company and each PIPE investor, and will be registered for resale pursuant to a registration rights agreement.

Step 6 — Backstop. Velthryn Strategic Investments, LP (the "Backstop Investor") has committed to purchase, at a price of $10.25 per share, up to 5,000,000 shares of Combined Company common stock from holders of Pinnacle Class A ordinary shares who elect to redeem their shares in connection with the Transaction, for maximum aggregate backstop proceeds of $51,250,000. The backstop is intended to provide minimum cash certainty at closing.

Step 7 — Payoff of Existing Indebtedness. At or promptly following the closing, Skybridge will repay in full all outstanding indebtedness under its revolving credit facility with Velthorn Commerce Bank, N.A., which bears an outstanding balance of approximately $18,500,000 as of the date of this memorandum (the "Velthorn Facility"). The Velthorn Facility was established pursuant to a Credit Agreement dated March 22, 2023, between Skybridge and Velthorn Commerce Bank, N.A., with a total commitment amount of $25,000,000.

Intended Tax Treatment. The merger is intended to qualify for U.S. federal income tax purposes as a reorganization under Section 368(a)(1)(A) of the Code by reason of Section 368(a)(2)(D). The domestication is intended to qualify as a reorganization under Section 368(a)(1)(F) of the Code. A separate Tax Structure Memorandum and draft tax opinion addressing these qualifications are being prepared concurrently.

IV. FIRPTA Framework — Legal Overview

A. Section 897 — Disposition of U.S. Real Property Interests

1. General Rule

Section 897(a) of the Code provides that gain or loss of a nonresident alien individual or a foreign corporation from the disposition of a "United States real property interest" ("USRPI") shall be taken into account as if the taxpayer were engaged in a trade or business within the United States during the taxable year and as if such gain or loss were effectively connected with such trade or business. This provision effectively subjects foreign persons to U.S. federal income tax on gains from dispositions of USRPIs at the same graduated rates applicable to U.S. persons on effectively connected income, rather than at the flat 30% withholding rate generally applicable to fixed or determinable annual or periodical income of foreign persons under Sections 871(a) and 881 of the Code.

The FIRPTA regime was enacted as part of the Foreign Investment in Real Property Tax Act of 1980, Pub. L. No. 96-499, and has been amended on multiple occasions since enactment, most recently by the Protecting Americans from Tax Hikes Act of 2015 ("PATH Act"), which, among other changes, increased the withholding rate under Section 1445 from 10% to 15% and modified the exceptions applicable to dispositions of interests in publicly traded corporations.

2. Definition of USRPI

Section 897(c)(1) of the Code defines a "United States real property interest" as:

(A) an interest in real property (including an interest in a mine, well, or other natural deposit) located in the United States or the United States Virgin Islands; and

(B) any interest (other than an interest solely as a creditor) in any domestic corporation unless the taxpayer establishes (at such time and in such manner as the Secretary by regulations prescribes) that such corporation was at no time a "United States real property holding corporation" during the applicable testing period described in Section 897(c)(1)(A)(ii).

The term "interest in real property" is defined broadly in Treasury Regulation Section 1.897-1(b) to include fee ownership interests, co-ownership interests, leaseholds, options to acquire real property, and any other interest in real property recognized under generally applicable principles of law, subject to certain exceptions. Notably, a leasehold interest in real property is not treated as a USRPI if: (i) the remaining unexpired term of the lease is less than 30 years, and (ii) the lease does not include an option to purchase the underlying real property at less than its fair market value. See Treas. Reg. § 1.897-1(b)(3).

3. United States Real Property Holding Corporation

Section 897(c)(2) of the Code defines a "United States real property holding corporation" ("USRPHC") as any corporation if the fair market value of its United States real property interests equals or exceeds 50 percent of the aggregate fair market value of:

(A) its United States real property interests;

(B) its interests in real property located outside the United States; and

This calculation is commonly referred to as the "Asset Ratio Test." The Asset Ratio Test is applied by comparing the fair market value of the corporation's USRPIs (the numerator) to the aggregate fair market value of the corporation's USRPIs, foreign real property interests, and all other trade or business assets (the denominator). If the ratio equals or exceeds 50%, the corporation is a USRPHC.

Treasury Regulation Section 1.897-2(b) provides further guidance on the application of the Asset Ratio Test, including the determination of fair market value for these purposes and the treatment of assets held through partnerships, trusts, and other entities.

4. Testing Dates and Look-Back Period

The USRPHC determination must be made as of the date of disposition of the corporation's stock by the foreign shareholder. However, Section 897(c)(1)(A)(ii) of the Code provides that an interest in a domestic corporation is treated as a USRPI if the corporation was a USRPHC at any time during the shorter of:

(i) the five-year period ending on the date of the disposition (the "Five-Year Look-Back Period"); or

(ii) the period during which the taxpayer held the interest.

This look-back provision is designed to prevent corporations from engaging in strategic asset dispositions immediately prior to a sale of their stock in order to avoid USRPHC status at the time of the transaction.

5. Cleansing Rule

Section 897(c)(1)(B) provides an important exception: an interest in a domestic corporation is not treated as a USRPI if the taxpayer establishes that the corporation was not a USRPHC at any time during the applicable look-back period (or, if shorter, the period during which the taxpayer held the interest). This is commonly referred to as the "cleansing rule." If the corporation has never been a USRPHC during the applicable testing period, the corporation's stock is not a USRPI, and dispositions of the stock by foreign persons are not subject to FIRPTA regardless of whether the corporation holds any U.S. real property interests at the time of disposition.

B. Section 897(d) and (e) — Nonrecognition Transactions

1. Section 897(d) — Distributions

Section 897(d) of the Code provides that any distribution by a foreign corporation or by a domestic corporation that is (or was) a USRPHC to a foreign person shall, to the extent attributable to USRPIs, be treated as gain from the disposition of a USRPI. This provision is designed to prevent the extraction of value from USRPIs through corporate distributions that might otherwise escape FIRPTA taxation.

2. Section 897(e) — Nonrecognition Exchanges

Section 897(e)(1) of the Code addresses the interaction between FIRPTA and the Code's nonrecognition provisions (such as those applicable to tax-free reorganizations under Section 368). Under Section 897(e)(1), a nonrecognition provision applies to a disposition of a USRPI by a foreign person only to the extent that the foreign person receives a USRPI in exchange for the USRPI disposed of. In other words, if a foreign shareholder of a USRPHC exchanges its shares in a tax-free reorganization for shares of another domestic corporation, the nonrecognition provisions of Section 354 apply to the exchange for FIRPTA purposes only if the shares received in the exchange also constitute USRPIs — i.e., only if the acquiring corporation is itself a USRPHC or is treated as a USRPHC.

This principle has practical significance in the reorganization context. If Skybridge were a USRPHC, the merger consideration (shares of the Combined Company) received by Skybridge's foreign shareholders would need to constitute USRPIs — meaning the Combined Company would also need to be a USRPHC — in order for the nonrecognition provisions of Section 354 to apply to the exchange for FIRPTA purposes. If the Combined Company were not a USRPHC, a foreign shareholder of Skybridge that received Combined Company shares in exchange for Skybridge shares would be treated as recognizing gain under FIRPTA to the extent of the fair market value of the non-USRPI property received.

However, as analyzed in detail in Section V below, Skybridge is not a USRPHC. Accordingly, shares of Skybridge stock are not USRPIs, and Section 897(e) is not implicated by the Transaction. The Section 897(e) analysis is therefore moot in the present context, but is included here for completeness and as a framework for evaluating future transactions involving the Combined Company.

C. Section 1445 — Withholding on Dispositions of USRPIs

1. General Withholding Obligation

Section 1445(a) of the Code imposes a withholding obligation on any transferee of a USRPI acquired from a foreign person. The transferee must deduct and withhold a tax equal to 15% of the "amount realized" by the foreign transferor on the disposition. The withholding obligation arises at the time of the transfer, and the withheld amounts must be remitted to the IRS within 20 days of the transfer using Form 8288 (U.S. Withholding Tax Return for Dispositions by Foreign Persons of U.S. Real Property Interests) and Form 8288-A (Statement of Withholding on Dispositions by Foreign Persons of U.S. Real Property Interests).

The "amount realized" for purposes of Section 1445(a) is determined in the same manner as under Section 1001 of the Code and includes the fair market value of any property received in the exchange, including stock or other non-cash consideration.

2. Exemption for Non-Foreign Transferors — Section 1445(b)(2)

Section 1445(b)(2) of the Code provides an exception to the withholding requirement if the transferor furnishes to the transferee an affidavit (commonly referred to as a "FIRPTA affidavit" or "FIRPTA certificate") stating, under penalty of perjury, that the transferor is not a "foreign person" within the meaning of the Code. The affidavit must include the transferor's name, address, and U.S. taxpayer identification number. A transferee who receives such an affidavit and does not have actual knowledge that the affidavit is false is relieved of the obligation to withhold under Section 1445(a).

This provision is significant in the individual asset acquisition context (e.g., sales of real estate by individuals) but is less commonly relied upon in corporate stock transactions, where the entity-level certification described below is more directly applicable.

3. Publicly Traded Exception — Section 1445(b)(3)

Section 1445(b)(3) of the Code provides that no withholding is required under Section 1445(a) on the disposition of an interest in a domestic corporation if the stock of the corporation is "regularly traded on an established securities market" within the meaning of Treasury Regulation Section 1.1445-2(c)(2)(iii). This exception recognizes the impracticability of imposing withholding obligations on routine stock market transactions.

Skybridge stock is not publicly traded prior to the closing of the Transaction. Accordingly, the publicly traded exception under Section 1445(b)(3) does not independently excuse withholding on the merger consideration received by Skybridge shareholders. Following the closing, shares of the Combined Company will trade on Nasdaq under the ticker symbol "SBFT," and future dispositions by foreign holders of Combined Company stock would potentially benefit from the publicly traded exception, subject to the 5% ownership threshold set forth in Treasury Regulation Section 1.1445-2(c)(2)(iii) (which provides that the exception does not apply to a disposition by a person who held more than 5% of the relevant class of stock at any time during the five-year period preceding the disposition).

4. Transferred Entity Certification — Treasury Regulation Section 1.1445-2(c)(3)

Treasury Regulation Section 1.1445-2(c)(3) provides an alternative basis for exemption from withholding in transactions involving the acquisition of an interest in a domestic corporation. Under this provision, a transferee may rely on a certification from the "transferred entity" — i.e., the domestic corporation whose stock is being acquired — that the corporation is not, and has not been at any time during the applicable look-back period, a USRPHC, and that the interests in the corporation therefore are not USRPIs.

The certification must:

(a) be made under penalty of perjury;

(b) state that the corporation is not and has not been a USRPHC during the applicable testing period;

(d) be signed by a responsible officer of the corporation.

A transferee who receives and relies upon such a certification in good faith and without actual knowledge that the certification is false is relieved of the obligation to withhold under Section 1445(a). This is the mechanism most directly applicable to the merger transaction, and the delivery of a FIRPTA certificate by Skybridge is required as a closing deliverable under the BCA.

D. Section 1446 — Withholding on Effectively Connected Income of Partnerships

1. Section 1446(a) — Partnership Withholding

Section 1446(a) of the Code requires any partnership that has effectively connected taxable income ("ECTI") allocable to one or more foreign partners to withhold tax on such income at the rates specified in Section 1446(b). The withholding obligation falls on the partnership itself, which must pay and report the withheld amounts on behalf of its foreign partners.

2. Section 1446(f) — Withholding on Transfers of Partnership Interests

Section 1446(f) of the Code, enacted as part of the Tax Cuts and Jobs Act of 2017, imposes a withholding obligation on the transferee of an interest in a partnership if any portion of the gain on the transfer would be treated as effectively connected with a U.S. trade or business under Section 864(c)(8). The withholding rate is generally 10% of the amount realized on the transfer. This provision is designed to enforce the FIRPTA-like rules applicable to transfers of partnership interests under Section 864(c)(8).

3. Application to the Transaction

Section 1446 has limited direct relevance to the Transaction. Skybridge is a C corporation, not a partnership, and the merger does not generate effectively connected income allocable through a partnership. Similarly, Section 1446(f) applies to transfers of interests in partnerships and does not apply to transfers of stock in a corporation.

However, certain Skybridge shareholders (including Harborview Partners and Atlas Horizon Ventures Fund II, LP) and certain PIPE investors (including Meridian Crossover Fund III, LP) are partnerships. To the extent any such partnership has one or more foreign partners, the partnership itself may bear responsibility for Section 1446(a) withholding on any effectively connected income allocated to those foreign partners. This responsibility rests with the individual partnerships, not with the Combined Company or its transfer agent, and is outside the scope of the Transaction-level analysis.

V. Analysis — Is Skybridge a USRPHC?

A. Identification of Skybridge's Assets

The determination of whether Skybridge is a USRPHC under Section 897(c)(2) of the Code requires a comprehensive analysis of the composition of Skybridge's assets. Based on our review of Skybridge's audited financial statements for the fiscal year ended December 31, 2024 (audited by Graystone Thornton LLP, engagement partner Helen Marchetti), interim unaudited balance sheet data for the quarter ended March 31, 2025, and representations provided by Marcus Ellingham (CFO) and Martin Cho (Cedarhurst Advisory Group LLC), we have identified the following categories of assets held by Skybridge:

Proprietary Software Platform and intellectual Property. Skybridge's principal asset is its proprietary cloud-based payment orchestration and embedded-finance SaaS platform. The platform is protected by a portfolio of patents, copyrights, trade secrets, and trademarks. These intellectual property assets are intangible personal property and do not constitute interests in real property within the meaning of Section 897(c)(1) or Treasury Regulation Section 1.897-1(b). Software and technology assets, including patents and copyrights relating to software, are not "interests in real property" for FIRPTA purposes.

Customer Contracts and Relationships. Skybridge maintains SaaS subscription agreements with a diversified base of mid-market financial institutions, neobanks, and fintech companies. The customer contracts and associated customer relationships are intangible assets that do not constitute interests in real property.

Cash and Cash Equivalents. Skybridge holds cash and cash equivalents in operating accounts, including funds available for working capital, capital expenditures, and debt service. Cash and cash equivalents are not interests in real property.

Accounts Receivable. Skybridge carries trade receivables from its subscription customers. Accounts receivable are not interests in real property.

Computer Equipment and Servers. Skybridge leases data center capacity through commercial cloud services agreements with Adriatic Technologies and Aldermere Technologies. Skybridge does not own or operate any physical data centers and does not own servers or significant tangible personal property relating to real estate. The computer equipment and related tangible assets used by Skybridge in its offices are personal property and are not interests in real property.

Office Leases. Skybridge leases office space at two locations: (i) 1200 Market Street, Suite 1400, Wilmington, Delaware 19801 (corporate headquarters), and (ii) 450 Folsom Street, 7th Floor, San Francisco, California 94105 (engineering office). Both leases are operating leases for office space. Under Treasury Regulation Section 1.897-1(b)(3), a lease of real property is not treated as a USRPI if the remaining unexpired term of the lease (including renewal options) is less than 30 years and the lease does not include an option to purchase the underlying real property at less than its fair market value. Based on our review of the lease agreements, both Skybridge leases have remaining terms well under 30 years and neither lease contains a purchase option at less than fair market value. Accordingly, neither leasehold interest constitutes a USRPI.

Goodwill and Other Intangible Assets. Skybridge carries goodwill and other identifiable intangible assets on its balance sheet, primarily arising from prior acquisitions. Goodwill and intangible assets are not interests in real property.

Critically, Skybridge does not own any real property in the United States or outside the United States. Skybridge has never acquired, held, or disposed of any fee simple interest, co-ownership interest, or other ownership interest in real property at any time since its incorporation on June 15, 2018. Skybridge does not hold any interests in entities that are USRPHCs. Skybridge does not hold any interests in mines, wells, or other natural deposits.

This conclusion is supported by the audited financial statements, the representations of Skybridge's management team, the balance sheet analysis prepared by Cedarhurst Advisory Group LLC, and the asset detail provided for the purposes of this analysis, a summary of which is attached as Appendix B.

B. Application of the Asset Ratio Test

Applying the Asset Ratio Test of Section 897(c)(2) to Skybridge's asset base as of the anticipated closing date (projected July 21, 2025), we determine:

Numerator — Fair Market Value of USRPIs: As described above, Skybridge holds no United States real property interests. The numerator of the Asset Ratio Test is therefore $0.

Denominator — Aggregate Fair Market Value of All Relevant Assets: The denominator of the Asset Ratio Test is the sum of (A) the fair market value of Skybridge's USRPIs ($0), (B) the fair market value of Skybridge's interests in real property located outside the United States ($0, as Skybridge holds no foreign real property interests), and (C) the fair market value of Skybridge's other assets used or held for use in a trade or business. The latter category encompasses Skybridge's intellectual property, customer contracts, cash, receivables, equipment, goodwill, and all other trade or business assets. Based on Skybridge's audited financials, its total book value of assets as of December 31, 2024 exceeds the amounts typically associated with a company generating $87.3 million in annual revenue and $14.1 million in EBITDA. The implied equity value of Skybridge in the Transaction is $450 million, reflecting significant intangible asset value in excess of book value.

Asset Ratio Calculation: $0 ÷ [Total Relevant Assets] = 0%.

An asset ratio of 0% is well below the 50% threshold established by Section 897(c)(2). Accordingly, Skybridge is not a USRPHC as of the anticipated closing date or any other reasonably foreseeable testing date.

We note that this conclusion is robust and does not depend on any close or marginal asset valuation judgments. Skybridge's USRPI balance is $0, and its other asset values are material and positive. Even under the most conservative assumptions regarding the fair market value of Skybridge's trade or business assets, the asset ratio would remain at 0% because the numerator is and has always been zero.

C. Look-Back Period Analysis

As described in Section IV.A.4 above, an interest in a domestic corporation can be treated as a USRPI if the corporation was a USRPHC at any time during the applicable Five-Year Look-Back Period. Accordingly, even though Skybridge is not a USRPHC as of the closing date, it is necessary to analyze whether Skybridge was a USRPHC at any time during the five-year period ending on the closing date (i.e., July 21, 2020 through July 21, 2025), or, if shorter, the period since Skybridge's incorporation on June 15, 2018.

Skybridge was incorporated on June 15, 2018. At no time since its incorporation has Skybridge owned any interest in real property located in the United States or abroad. Skybridge's business has at all times been a cloud-based technology and SaaS business, and its assets have at all times consisted exclusively of intellectual property, software, customer contracts, cash, receivables, equipment (personal property), and other non-real-property assets. Skybridge has never acquired or held any real property through any subsidiary or affiliate. The representations of Skybridge management, confirmed by the historical tax return work papers and balance sheet data provided by Cedarhurst Advisory Group LLC, establish that Skybridge has never satisfied the Asset Ratio Test at any time during its corporate existence.

Accordingly, Skybridge satisfies the cleansing rule under Section 897(c)(1)(B) of the Code. Because Skybridge was not a USRPHC at any time during the applicable look-back period (or, indeed, at any time since its incorporation), interests in Skybridge are not and have never been USRPIs. The cleansing rule provides a complete defense to any assertion that Skybridge stock constitutes a USRPI, and no further analysis of the look-back period is required.

D. Analysis of Combined Company

Although not strictly required for purposes of the FIRPTA withholding analysis on the merger consideration (which, as established above, does not involve the disposition of USRPIs), we briefly address the USRPHC status of the Combined Company (Skybridge Fintech Holdings, Inc.) for purposes of future warrant exercises, earnout share issuances, and dispositions of Combined Company stock by foreign persons.

Following the closing, the Combined Company will hold the following principal assets: (a) the assets of Skybridge (as described above — Intellectual property, software, customer contracts, cash, receivables, equipment, and goodwill), (b) the remaining trust account proceeds (cash, after giving effect to redemptions), (c) the PIPE investment proceeds (cash), and (d) any remaining amounts from the backstop transaction. None of these assets constitutes an interest in real property. The Combined Company will not own or hold any USRPIs at closing, and its asset ratio under Section 897(c)(2) will be 0%.

Accordingly, the Combined Company is not expected to be a USRPHC as of the closing date or at any time in the near-term future. This conclusion is relevant for the following post-closing events:

• Earnout share issuances: If the stock price milestones are achieved and earnout shares are issued to former Skybridge shareholders, the FIRPTA analysis at that time will depend on the Combined Company's USRPHC status. Based on the Combined Company's expected asset composition, USRPHC status is not anticipated.

• Warrant exercises: If foreign persons exercise public warrants or Private Placement Warrants following the closing, the FIRPTA implications will depend on the Combined Company's USRPHC status at the time of exercise. Again, USRPHC status is not expected.

• Publicly traded exception: Post-closing, the Combined Company's shares will trade on Nasdaq under the ticker symbol "SBFT." Foreign holders of Combined Company stock (other than holders of more than 5% of the outstanding stock during the applicable testing period) would benefit from the publicly traded exception under Section 1445(b)(3) in any event.

We recommend, however, that the Combined Company periodically monitor its asset composition post-closing to confirm continued non-USRPHC status, particularly in the event that the Combined Company acquires real property or interests in entities that hold significant real property in the future. This recommendation is reiterated in Section X below.

VI. Withholding Analysis — Section 1445

A. General Withholding Obligation

Under Section 1445(a) of the Code, the transferee of a USRPI acquired from a foreign person is required to deduct and withhold a tax equal to 15% of the "amount realized" by the foreign transferor on the disposition. In the context of the merger, Merger Sub (and its successor, Skybridge as the surviving entity, or more broadly the Combined Company) is the "transferee" that is acquiring interests in Skybridge from Skybridge's shareholders.

As established in Section V above, Skybridge is not a USRPHC, and shares of Skybridge stock do not constitute USRPIs within the meaning of Section 897(c)(1) of the Code. Because the property being acquired by the transferee — i.e., shares of Skybridge stock — is not a USRPI, the withholding obligation under Section 1445(a) does not arise, regardless of whether any Skybridge shareholder is a foreign person.

This conclusion applies equally to all Skybridge shareholders, whether U.S. persons or foreign persons, and whether individuals, corporations, or partnerships. The non-USRPHC status of Skybridge eliminates FIRPTA concerns at the entity level, making it unnecessary to determine the U.S. or foreign tax status of each individual Skybridge shareholder for FIRPTA withholding purposes.

We note, however, that based on the due diligence conducted by Calderwood & Harkness LLP and the representations provided by Skybridge management, all material Skybridge shareholders — including Harborview Partners (approximately 38.2% fully diluted), Atlas Horizon Ventures Fund II, LP (approximately 22.7% fully diluted), and Priya Chandrasekaran and the management team (approximately 31.4% fully diluted) — are U.S. persons for U.S. federal income tax purposes. Certain employee option holders within the approximately 7.7% employee equity pool may include nonresident alien individuals; however, as noted, the non-USRPHC determination renders the foreign person status of these holders immaterial for FIRPTA purposes.

Conclusion: No FIRPTA withholding is required under Section 1445(a) in connection with the merger consideration issued to Skybridge shareholders at the effective time of the merger.

B. Publicly Traded Exception — Section 1445(b)(3)

Skybridge stock is not publicly traded on an established securities market prior to the closing of the Transaction. Accordingly, the publicly traded exception under Section 1445(b)(3) does not independently serve as a basis for exemption from Section 1445 withholding in the merger.

This distinction is academic in the present case because the non-USRPHC status of Skybridge independently eliminates the withholding obligation. However, we note the distinction for completeness, as it would become relevant if Skybridge were a USRPHC and the publicly traded exception were the sole basis for an asserted withholding exemption.

Following the closing, shares of the Combined Company will trade on Nasdaq under the ticker symbol "SBFT." Future dispositions of Combined Company stock by foreign persons may benefit from the publicly traded exception, subject to the 5% ownership limitation in Treasury Regulation Section 1.1445-2(c)(2)(iii). Under that provision, the publicly traded exception does not apply to a disposition of stock by a person who held more than 5% of the relevant class of stock at any time during the shorter of (i) the five-year period ending on the date of the disposition, or (ii) the holder's holding period. Foreign holders who exceed the 5% threshold — which could include certain institutional shareholders — would need to rely on the non-USRPHC status of the Combined Company or other applicable exemptions.

C. FIRPTA Certificate as Alternative Basis for Exemption

Even though no FIRPTA withholding obligation arises in connection with the merger (because Skybridge is not a USRPHC), the BCA requires Skybridge to deliver a FIRPTA certificate at closing as a closing deliverable under the Transaction documents. The delivery of the FIRPTA certificate serves several important purposes:

Belt-and-Suspenders Protection. The FIRPTA certificate provides the Combined Company and its transfer agent (Continental Registrars, Inc.) with documentary evidence that Skybridge is not a USRPHC. In the event of any future IRS inquiry regarding the Transaction, the FIRPTA certificate — together with the supporting analysis in this memorandum and the underlying balance sheet data — will serve as the Combined Company's primary evidentiary support for its position that no FIRPTA withholding was required.

Compliance with BCA Requirements. Section [7.2(h)] of the BCA requires Skybridge to deliver, as a condition to Pinnacle's obligation to consummate the Transaction, a duly executed FIRPTA certificate in a form reasonably satisfactory to Pinnacle and its counsel, certifying that Skybridge is not and has not been a USRPHC during the applicable testing period. Failure to deliver the certificate would constitute a breach of Skybridge's closing obligations under the BCA.

Transfer Agent Reliance. Continental Registrars, Inc., in its capacity as transfer agent for the Combined Company, may require documentary confirmation that no FIRPTA withholding is required before processing the issuance of merger consideration shares to Skybridge shareholders. The FIRPTA certificate provides the necessary documentation.

Legal Basis. Treasury Regulation Section 1.1445-2(c)(3) provides the legal framework for the transferred entity certification mechanism. Under this provision, a transferee may rely on a certification from the corporation whose interests are being acquired that such corporation is not and has not been a USRPHC during the applicable testing period, and that the interests in such corporation are therefore not USRPIs. The form, content, and delivery requirements for the FIRPTA certificate are described in detail in Section VIII below.

VII. Withholding Analysis — Section 1446

A. Section 1446(a) — Partnership Withholding on ECI

Section 1446(a) of the Code requires a partnership that has effectively connected taxable income allocable to a foreign partner to pay a withholding tax on behalf of such foreign partner. The rate of withholding is the highest applicable rate of tax under Section 1 (for individuals) or Section 11 (for corporations), as applicable.

Section 1446(a) is not directly applicable to the Transaction. Skybridge is a C corporation, not a partnership, and the merger does not generate effectively connected income that is allocated through a partnership to foreign partners. The effectively connected income rules applicable to partnerships are separate and distinct from the FIRPTA rules applicable to dispositions of USRPIs (which, as discussed above, are not implicated by the Transaction in any event).

However, certain Skybridge shareholders are organized as limited partnerships: Harborview Partners and Atlas Horizon Ventures Fund II, LP. Additionally, certain PIPE investors are organized as limited partnerships, including Meridian Crossover Fund III, LP. To the extent any such partnership has one or more partners that are foreign persons (nonresident alien individuals or foreign corporations), the partnership itself may bear responsibility for Section 1446(a) withholding with respect to any effectively connected income allocated to those foreign partners. This includes any gain recognized by the partnership on the exchange of Skybridge stock for Combined Company stock in the merger (to the extent such gain is treated as effectively connected with a U.S. trade or business, which it would not be in the absence of FIRPTA — and FIRPTA does not apply here because Skybridge is not a USRPHC).

In summary, the Combined Company is not the withholding agent for purposes of Section 1446(a) with respect to the internal allocations of income among the partners of any Skybridge shareholder or PIPE investor that is organized as a partnership. Any Section 1446 withholding obligations, to the extent they exist, rest with those partnerships and are outside the scope of the Transaction-level withholding analysis.

B. Section 1446(f) — Withholding on Transfer of Partnership Interests

Section 1446(f) of the Code imposes a withholding obligation on the transferee of a partnership interest if any portion of the gain on the transfer would be treated as effectively connected with a U.S. trade or business under Section 864(c)(8). This provision applies exclusively to transfers of interests in partnerships; it does not apply to transfers of stock in a corporation.

The Transaction involves the acquisition of stock in Skybridge, a Delaware corporation. Accordingly, Section 1446(f) is not applicable to the merger or any other component of the Transaction.

C. Domestication — Withholding Considerations for Pinnacle Shareholders

The domestication of Pinnacle from the Cayman Islands to the State of Delaware is a separate taxable event for certain Pinnacle shareholders and raises withholding considerations that, while distinct from the FIRPTA analysis, are noted here for coordination purposes.

The domestication is intended to qualify as a reorganization under Section 368(a)(1)(F) of the Code. Under Section 367(b) of the Code and the Treasury Regulations promulgated thereunder (in particular, Treasury Regulation Section 1.367(b)-3), foreign shareholders of a foreign corporation that redomiciles as a domestic corporation may be required to include in income the "all earnings and profits amount" described in Treasury Regulation Section 1.367(b)-2(d), or the Section 1248 amount attributable to such shareholder's stock, whichever is applicable. This income inclusion is treated as a deemed dividend for certain purposes and may give rise to withholding obligations under Sections 1441 and 1442 of the Code.

Specifically, if any holder of Pinnacle Class A ordinary shares or Pinnacle Class B ordinary shares (i.e., the Sponsor's Founder Shares) is a nonresident alien individual or a foreign corporation, the Combined Company (as successor to Pinnacle following the domestication) may have an obligation to deduct and withhold U.S. tax on the deemed dividend amount under Section 1441 (for nonresident alien individuals) or Section 1442 (for foreign corporations), subject to any applicable treaty reductions or exemptions.

This analysis is more fully addressed in the separate Tax Structure Memorandum and the Draft Tax Opinion being prepared by our firm. We flag the issue here to ensure appropriate coordination between the FIRPTA / withholding work stream and the broader domestication tax analysis. The following parties have been advised of the potential need for withholding mechanics on the domestication and are coordinating on the implementation:

• Pinnacle SPAC Counsel: Ashland Burke & Thayer LLP (lead partner: William Ashford)

• Skybridge Tax Advisor: Cedarhurst Advisory Group LLC (partner: Martin Cho)

• Transfer Agent: Continental Registrars, Inc.

• Calderwood & Harkness LLP Tax Group: Leonard Cross, Sandra Tung, Naomi Petersen, Ryan Kowalski

The Combined Company's transfer agent will need to implement appropriate procedures to identify non-U.S. Pinnacle shareholders and apply the correct withholding amounts on the domestication. These procedures are being developed in consultation with Pinnacle's counsel and are expected to be finalized prior to the anticipated closing date.

VIII. FIRPTA Certificate — Form and Delivery Requirements

A. Legal Basis

As discussed in Section IV.C.4 above, Treasury Regulation Section 1.1445-2(c)(3) provides that, in a transaction involving the acquisition of an interest in a domestic corporation, the transferee may rely on a certification from the corporation (the "transferred entity") that the corporation is not and has not been a USRPHC during the applicable testing period. The regulation specifies the form and content requirements for such a certification and provides that a transferee who receives and relies upon the certification in good faith is relieved of any withholding obligation under Section 1445(a) with respect to the acquisition of interests in the transferor entity.

The FIRPTA certificate is a closing deliverable under the BCA and is being prepared in a standalone form document (firpta-certificate-form.docx) that has been circulated to the deal team and to Pinnacle's counsel at Ashland Burke & Thayer LLP for review. The form has been prepared in accordance with the requirements of Treasury Regulation Section 1.1445-2(c)(3) and incorporates the specific factual representations applicable to Skybridge.

B. Required Content of the Certificate

The FIRPTA certificate to be delivered by Skybridge at the closing must include the following elements, each of which is required by the applicable Treasury Regulations:

1. Statement of Non-USRPHC Status. A statement that Skybridge Fintech Ltd. is not, and has not been at any time during the five-year period ending on the date of the certificate (or, if shorter, the period of the corporation's existence beginning June 15, 2018 and ending on the date of the certificate), a "United States real property holding corporation" as defined in Section 897(c)(2) of the Internal Revenue Code of 1986, as amended.

2. Statement that Interests Are Not USRPIs. A statement that interests in Skybridge Fintech Ltd. are not "United States real property interests" within the meaning of Section 897(c)(1) of the Code.

3. Full Legal Name. The full legal name of the corporation: Skybridge Fintech Ltd.

4. Address. The address of the corporation's principal executive offices: 1200 Market Street, Suite 1400, Wilmington, Delaware 19801.

5. Employer Identification Number. The corporation's U.S. taxpayer identification number: 83-2471560.

6. Penalty of Perjury Declaration. An acknowledgment that the certificate is made under penalty of perjury and that the certifying officer understands that the certificate may be disclosed to the Internal Revenue Service and that any false statement contained therein could be punished by fine, imprisonment, or both.

7. Signature of Authorized Officer. The certificate must be signed by a responsible and authorized officer of Skybridge. We recommend that the certificate be executed by Priya Chandrasekaran, Chief Executive Officer, or Marcus Ellingham, Chief Financial Officer. Either officer has the authority and knowledge to execute the certificate on behalf of Skybridge.

8. Date. The certificate should be dated as of the Closing Date (projected to be July 21, 2025), or, if the closing occurs on a different date, as of the actual closing date.

C. Delivery Mechanics

The FIRPTA certificate is listed as a closing deliverable under Section [7.2(h)] of the BCA. The certificate must be delivered by Skybridge to the Combined Company (and, as a practical matter, to the Combined Company's counsel, Ashland Burke & Thayer LLP, and to Calderwood & Harkness LLP) at or immediately prior to the closing of the Transaction.

A separate draft of the FIRPTA certificate has been prepared as a standalone form document (firpta-certificate-form.docx) and is included in the closing deliverables package being assembled by Calderwood & Harkness LLP. The form has been circulated to Teresa Okafor (General Counsel, Skybridge), Martin Cho (Cedarhurst Advisory Group LLC), and William Ashford (Ashland Burke & Thayer LLP) for review and comment. We anticipate that the form will be finalized and agreed upon in advance of the closing.

In the event that Skybri

MEMORANDUM
PRIVILEGED & CONFIDENTIAL ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT
TO: Teresa Okafor, General Counsel, Skybridge Fintech Ltd. James Prentice, Partner, Calderwood & Harkness LLP
FROM: Leonard Cross, Partner, Tax Group, Calderwood & Harkness LLP
CC: Sandra Tung, Partner, Calderwood & Harkness LLP Naomi Petersen, Associate, Calderwood & Harkness LLP Ryan Kowalski, Associate, Calderwood & Harkness LLP Martin Cho, Partner, Cedarhurst Advisory Group LLC
DATE: May 2025
RE: FIRPTA and Withholding Analysis — Business Combination of Pinnacle Growth Acquisition Corp. and Skybridge Fintech Ltd.
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I. Executive Summary
This memorandum analyzes the application of the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"), codified in Sections 897 and 1445 of the Internal Revenue Code of 1986, as amended (the "Code"), and related withholding obligations under Sections 1445 and 1446 of the Code, to the de-SPAC business combination (the "Transaction") among Pinnacle Growth Acquisition Corp., a Cayman Islands exempted company ("Pinnacle" or "PGAC"), Pinnacle Merger Sub Inc., a Delaware corporation and direct wholly owned subsidiary of Pinnacle ("Merger Sub"), and Skybridge Fintech Ltd., a Delaware corporation ("Skybridge" or "SBF"). This memorandum has been prepared at the request of Teresa Okafor, General Counsel of Skybridge, and James Prentice, lead deal partner at Calderwood & Harkness LLP, in connection with the ongoing structuring and documentation of the Transaction.
The Transaction is structured as a forward triangular merger under the Delaware General Corporation Law (the "DGCL"). Pursuant to the Business Combination Agreement dated April 14, 2025 (the "BCA"), Merger Sub will merge with and into Skybridge, with Skybridge surviving as a wholly owned subsidiary of the entity that, immediately prior to the merger effective time, will have re-domiciled from the Cayman Islands to the State of Delaware and been renamed Skybridge Fintech Holdings, Inc. (the "Combined Company"). The Transaction carries an implied enterprise and equity value of approximately $450,000,000. At the effective time of the merger, the shareholders of Skybridge will receive aggregate merger consideration of 45,000,000 shares of the Combined Company's common stock at a per-share value of $10.00, plus the right to receive up to 5,000,000 additional earnout shares upon satisfaction of certain post-closing stock price milestones. The projected closing date for the Transaction is July 21, 2025.
Immediately prior to the merger effective time, Pinnacle will domesticate from the Cayman Islands to the State of Delaware pursuant to Section 388 of the DGCL and the applicable provisions of the Cayman Islands Companies Act (as revised). Upon domestication, Pinnacle's outstanding Cayman Islands ordinary shares will be exchanged on a one-for-one basis for shares of Delaware common stock, and the entity will be renamed Skybridge Fintech Holdings, Inc. Merger Sub will be formed as a direct wholly owned subsidiary of Pinnacle following domestication and immediately prior to the merger.
Key Conclusions. Based on our analysis, and subject to the scope limitations and factual assumptions described in Section II below, we reach the following principal conclusions:
1. Skybridge is not a "United States real property holding corporation" ("USRPHC") within the meaning of Section 897(c)(2) of the Code at any relevant testing date, including the anticipated closing date and at all times during the applicable five-year look-back period (or, if shorter, the period since Skybridge's incorporation on June 15, 2018). Skybridge has never owned any interest in real property located in the United States or abroad, and its asset ratio under Section 897(c)(2) is 0%, which is well below the 50% threshold.
2. FIRPTA does not apply to the merger consideration received by Skybridge shareholders in the Transaction. Because shares of Skybridge stock do not constitute "United States real property interests" ("USRPIs"), the disposition of those shares in the merger does not trigger taxation under Section 897(a) or withholding under Section 1445(a), regardless of the U.S. or foreign tax status of any particular Skybridge shareholder.
3. No FIRPTA withholding is required under Section 1445 in connection with the issuance of merger consideration shares, earnout shares, or PIPE shares in the Transaction.
4. A FIRPTA certificate should nonetheless be delivered at closing as a condition to the BCA and as a protective measure for the Combined Company and its transfer agent. The form and delivery requirements for such certificate are described in Section VIII below.
5. Section 1446 withholding is not directly implicated by the merger itself. Certain partnership shareholders may have independent Section 1446(a) obligations with respect to their own foreign partners, but those obligations rest with the partnerships and not with the Combined Company or its agents. Separately, the domestication of Pinnacle from the Cayman Islands to Delaware raises potential withholding obligations under Sections 1441 and 1442 with respect to non-U.S. Pinnacle shareholders, which are addressed in companion tax memoranda and flagged in Section VII.C below for coordination purposes.
II. Scope and Limitations
This memorandum has been prepared solely for the benefit of Skybridge Fintech Ltd. and the Calderwood & Harkness LLP deal team in connection with the Transaction. It is intended to analyze the application of FIRPTA (Sections 897 and 1445 of the Code) and related withholding provisions (Section 1446 of the Code) to the Transaction and does not address the full range of U.S. federal income tax consequences of the Transaction to any particular shareholder or class of shareholders.
Our analysis is based on the Internal Revenue Code of 1986, as amended, the Treasury Regulations promulgated thereunder (including proposed and temporary regulations where noted), published rulings and administrative guidance of the Internal Revenue Service (the "IRS"), and relevant judicial authority, in each case as in effect and available as of the date of this memorandum. The tax laws and their interpretation are subject to change, possibly with retroactive effect, and no assurance can be given that the IRS will not take a position contrary to any of the conclusions expressed herein or that any such contrary position would not be sustained by a court of competent jurisdiction.
In preparing this memorandum, we have relied upon factual representations, data, and documentation provided by the following sources:
• Skybridge management: Priya Chandrasekaran, Chief Executive Officer, and Marcus Ellingham, Chief Financial Officer, of Skybridge Fintech Ltd., who have provided representations regarding Skybridge's asset composition, real property holdings (or lack thereof), corporate history, and shareholder base.
• Skybridge's independent auditor: Graystone Thornton LLP (engagement partner: Helen Marchetti), which has provided audited financial statements of Skybridge for the fiscal year ended December 31, 2024, and interim unaudited financial data for the quarter ended March 31, 2025.
• Skybridge's tax advisor: Cedarhurst Advisory Group LLC (partner: Martin Cho), which has provided historical tax returns, work papers, and representations regarding Skybridge's tax attributes and asset composition over the relevant look-back period.
• Transaction documentation: Including the Business Combination Agreement dated April 14, 2025, the Domestication Plan, the form of Merger Sub Certificate of Incorporation, the PIPE Subscription Agreements, the Backstop Agreement with Velthryn Strategic Investments, LP, the Sponsor Letter Agreement, and the Registration Rights Agreement.
We have assumed, without independent investigation or verification, that all factual representations and information provided to us are true, correct, and complete in all material respects, and that all documents provided to us are genuine and accurate copies of the originals. We have not conducted an independent appraisal of any assets of Skybridge, Pinnacle, or any other party to the Transaction, nor have we independently verified the accuracy of any financial statements, balance sheet data, or tax returns provided to us.
This memorandum does not constitute a formal tax opinion, and no opinion of counsel is being rendered hereby. A separate draft tax opinion addressing the qualification of the Transaction as a reorganization under Section 368(a)(1)(A) of the Code (by reason of Section 368(a)(2)(D)) and the tax consequences of the domestication under Sections 368(a)(1)(F) and 367(b) of the Code is being prepared concurrently and will be delivered separately. This memorandum should be read in conjunction with the Tax Structure Memorandum dated May 2025, which addresses the broader reorganization qualification and domestication tax analysis.
This memorandum is protected by the attorney-client privilege and the work product doctrine and is not intended for distribution to any third party without the prior written consent of Calderwood & Harkness LLP and Skybridge Fintech Ltd.
III. Background — Transaction Structure
A. The Parties
1. Skybridge Fintech Ltd.
Skybridge Fintech Ltd. is a Delaware corporation, incorporated on June 15, 2018, and assigned Employer Identification Number 83-2471560. Skybridge maintains its principal executive offices and corporate headquarters at 1200 Market Street, Suite 1400, Wilmington, Delaware 19801, and operates an engineering and product development office at 450 Folsom Street, 7th Floor, San Francisco, California 94105. Both office locations are leased, and Skybridge does not own any real property.
Skybridge operates a cloud-based payment orchestration and embedded-finance software-as-a-service ("SaaS") platform that enables mid-market financial institutions, neobanks, and fintech companies to integrate, manage, and optimize payment processing across multiple payment rails and acquirers. Skybridge's technology platform is delivered entirely through cloud infrastructure and does not require the ownership or operation of physical data centers, real property, or other tangible real estate assets. Data center capacity is obtained through commercial cloud services agreements with third-party providers, principally Adriatic Technologies and Aldermere Technologies.
Skybridge currently employs approximately 340 persons across its Wilmington and San Francisco offices, with additional remote employees in various U.S. states. For the fiscal year ended December 31, 2024, Skybridge reported revenue of approximately $87.3 million, annualized recurring revenue ("ARR") of approximately $94.6 million, and earnings before interest, taxes, depreciation, and amortization ("EBITDA") of approximately $14.1 million, as reflected in the audited financial statements prepared by Graystone Thornton LLP.
2. Key Skybridge Shareholders
The principal shareholders of Skybridge on a fully diluted basis are as follows:
Based on due diligence conducted by Calderwood & Harkness LLP and representations provided by Skybridge management, all material shareholders of Skybridge are believed to be "United States persons" within the meaning of Section 7701(a)(30) of the Code. The two principal institutional shareholders — Harborview Partners and Atlas Horizon Ventures Fund II, LP — are each Delaware limited partnerships with domestic general partners. Priya Chandrasekaran and the members of the management team are U.S. citizens or permanent residents. Certain employee option holders within the ~7.7% employee equity pool may include individuals who are nonresident aliens; however, as discussed in Section VI below, the non-USRPHC status of Skybridge eliminates any FIRPTA concern with respect to these holders.
3. Pinnacle Growth Acquisition Corp.
Pinnacle Growth Acquisition Corp. is a Cayman Islands exempted company formed for the purpose of effecting a business combination with one or more operating businesses. Pinnacle's Class A ordinary shares are listed on the Nasdaq Stock Market under the ticker symbol "PGAC." Pinnacle completed its initial public offering on October 17, 2023, issuing 30,000,000 Class A ordinary shares at a price of $10.00 per share, for aggregate gross proceeds of $300,000,000. The IPO proceeds, net of underwriting commissions and offering expenses, were deposited in a trust account held at Glenridge National Bank, N.A. As of March 31, 2025, the balance in the trust account was approximately $312.6 million, reflecting interest earned on the trust assets. Pinnacle has been assigned Employer Identification Number 88-3654921.
Pinnacle does not conduct any operations and has no employees. Its sole activity since the IPO has been the identification and negotiation of a suitable business combination target. Pinnacle's assets consist exclusively of the trust account balance, cash held outside the trust for working capital purposes, and deferred offering costs. Pinnacle does not own or hold any interest in real property located in the United States or elsewhere.
4. Pinnacle Merger Sub Inc.
Pinnacle Merger Sub Inc. is a Delaware corporation to be formed as a direct wholly owned subsidiary of Pinnacle (or, more precisely, of the Combined Company following domestication) immediately prior to the merger effective time. Merger Sub will have no assets, liabilities, or operations other than those incidental to its formation and its role as the merging entity in the forward triangular merger. Merger Sub will cease to exist at the effective time of the merger, with Skybridge surviving as the surviving corporation.
5. Sponsor. Ridgeway Capital Holdings LLC is a Delaware limited liability company (EIN 87-1093847) controlled by Jonathan Mercer that serves as the sponsor of Pinnacle (the "Sponsor"). The Sponsor holds 7,500,000 Class B ordinary shares of Pinnacle (the "Founder Shares"), representing 20% of the total outstanding ordinary shares of Pinnacle on an as-converted basis (prior to giving effect to any redemptions), and 8,000,000 private placement warrants (the "Private Placement Warrants"), each exercisable for one Class A ordinary share at an exercise price of $11.50 per share. In connection with the Transaction, the Founder Shares will convert into shares of Combined Company common stock on a one-for-one basis, subject to certain anti-dilution adjustments, and the Private Placement Warrants will become exercisable for shares of Combined Company common stock on the same terms.
B. Transaction Steps
The Transaction will be effected through the following sequential steps, each as described in the BCA:
Step 1 — Domestication. Immediately prior to the merger effective time, Pinnacle will re-domicile from the Cayman Islands to the State of Delaware by filing a certificate of corporate domestication and a certificate of incorporation with the Secretary of State of the State of Delaware under Section 388 of the DGCL, and by de-registering as a Cayman Islands exempted company under the Cayman Islands Companies Act (as revised). Upon the effectiveness of the domestication, (a) each issued and outstanding Class A ordinary share of Pinnacle will automatically convert into one share of the Combined Company's common stock, par value $0.0001 per share, (b) each issued and outstanding Class B ordinary share of Pinnacle (held by the Sponsor) will automatically convert into one share of the Combined Company's common stock, (c) each outstanding public warrant and Private Placement Warrant of Pinnacle will automatically convert into a warrant to purchase one share of the Combined Company's common stock on the same terms, and (d) Pinnacle will be renamed "Skybridge Fintech Holdings, Inc." For U.S. federal income tax purposes, the domestication is intended to qualify as a reorganization under Section 368(a)(1)(F) of the Code.
Step 2 — Formation of Merger Sub. Following the domestication and immediately prior to the merger effective time, the Combined Company will form Merger Sub as a direct wholly owned Delaware subsidiary. Merger Sub will be capitalized with a nominal amount of cash and will have no material assets, liabilities, or operations.
Step 3 — Forward Triangular Merger. At the merger effective time, Merger Sub will merge with and into Skybridge pursuant to Section 251 of the DGCL, with Skybridge surviving as a wholly owned subsidiary of the Combined Company. As a result of the merger, the separate corporate existence of Merger Sub will cease, and Skybridge will continue as the surviving corporation.
Step 4 — Merger Consideration. At the effective time of the merger, each outstanding share of Skybridge common stock will be automatically cancelled and converted into the right to receive a pro rata portion of the aggregate merger consideration, consisting of 45,000,000 shares of Combined Company common stock at an implied per-share value of $10.00. In addition, former Skybridge shareholders will have the right to receive up to 5,000,000 earnout shares, allocated as follows:
• Tranche 1: 2,500,000 earnout shares, issuable if the volume-weighted average price ("VWAP") of the Combined Company's common stock equals or exceeds $12.50 for any 20 trading days within any period of 30 consecutive trading days occurring within the 24-month period following the closing date.
• Tranche 2: 2,500,000 earnout shares, issuable if the VWAP of the Combined Company's common stock equals or exceeds $15.00 for any 20 trading days within any period of 30 consecutive trading days occurring within the 36-month period following the closing date.
Step 5 — PIPE Investment. Concurrently with the closing of the merger, the Combined Company will issue and sell an aggregate of 15,000,000 shares of Combined Company common stock at a price of $10.00 per share in a private placement (the "PIPE"), for aggregate gross proceeds of $150,000,000. The PIPE investors and their respective commitments are as follows:
The PIPE shares will be issued pursuant to subscription agreements entered into between the Combined Company and each PIPE investor, and will be registered for resale pursuant to a registration rights agreement.
Step 6 — Backstop. Velthryn Strategic Investments, LP (the "Backstop Investor") has committed to purchase, at a price of $10.25 per share, up to 5,000,000 shares of Combined Company common stock from holders of Pinnacle Class A ordinary shares who elect to redeem their shares in connection with the Transaction, for maximum aggregate backstop proceeds of $51,250,000. The backstop is intended to provide minimum cash certainty at closing.
Step 7 — Payoff of Existing Indebtedness. At or promptly following the closing, Skybridge will repay in full all outstanding indebtedness under its revolving credit facility with Velthorn Commerce Bank, N.A., which bears an outstanding balance of approximately $18,500,000 as of the date of this memorandum (the "Velthorn Facility"). The Velthorn Facility was established pursuant to a Credit Agreement dated March 22, 2023, between Skybridge and Velthorn Commerce Bank, N.A., with a total commitment amount of $25,000,000.
Intended Tax Treatment. The merger is intended to qualify for U.S. federal income tax purposes as a reorganization under Section 368(a)(1)(A) of the Code by reason of Section 368(a)(2)(D). The domestication is intended to qualify as a reorganization under Section 368(a)(1)(F) of the Code. A separate Tax Structure Memorandum and draft tax opinion addressing these qualifications are being prepared concurrently.
IV. FIRPTA Framework — Legal Overview
A. Section 897 — Disposition of U.S. Real Property Interests
1. General Rule
Section 897(a) of the Code provides that gain or loss of a nonresident alien individual or a foreign corporation from the disposition of a "United States real property interest" ("USRPI") shall be taken into account as if the taxpayer were engaged in a trade or business within the United States during the taxable year and as if such gain or loss were effectively connected with such trade or business. This provision effectively subjects foreign persons to U.S. federal income tax on gains from dispositions of USRPIs at the same graduated rates applicable to U.S. persons on effectively connected income, rather than at the flat 30% withholding rate generally applicable to fixed or determinable annual or periodical income of foreign persons under Sections 871(a) and 881 of the Code.
The FIRPTA regime was enacted as part of the Foreign Investment in Real Property Tax Act of 1980, Pub. L. No. 96-499, and has been amended on multiple occasions since enactment, most recently by the Protecting Americans from Tax Hikes Act of 2015 ("PATH Act"), which, among other changes, increased the withholding rate under Section 1445 from 10% to 15% and modified the exceptions applicable to dispositions of interests in publicly traded corporations.
2. Definition of USRPI
Section 897(c)(1) of the Code defines a "United States real property interest" as:
(A) an interest in real property (including an interest in a mine, well, or other natural deposit) located in the United States or the United States Virgin Islands; and
(B) any interest (other than an interest solely as a creditor) in any domestic corporation unless the taxpayer establishes (at such time and in such manner as the Secretary by regulations prescribes) that such corporation was at no time a "United States real property holding corporation" during the applicable testing period described in Section 897(c)(1)(A)(ii).
The term "interest in real property" is defined broadly in Treasury Regulation Section 1.897-1(b) to include fee ownership interests, co-ownership interests, leaseholds, options to acquire real property, and any other interest in real property recognized under generally applicable principles of law, subject to certain exceptions. Notably, a leasehold interest in real property is not treated as a USRPI if: (i) the remaining unexpired term of the lease is less than 30 years, and (ii) the lease does not include an option to purchase the underlying real property at less than its fair market value. See Treas. Reg. § 1.897-1(b)(3).
3. United States Real Property Holding Corporation
Section 897(c)(2) of the Code defines a "United States real property holding corporation" ("USRPHC") as any corporation if the fair market value of its United States real property interests equals or exceeds 50 percent of the aggregate fair market value of:
(A) its United States real property interests;
(B) its interests in real property located outside the United States; and
(C) any other assets used or held for use in a trade or business.
This calculation is commonly referred to as the "Asset Ratio Test." The Asset Ratio Test is applied by comparing the fair market value of the corporation's USRPIs (the numerator) to the aggregate fair market value of the corporation's USRPIs, foreign real property interests, and all other trade or business assets (the denominator). If the ratio equals or exceeds 50%, the corporation is a USRPHC.
Treasury Regulation Section 1.897-2(b) provides further guidance on the application of the Asset Ratio Test, including the determination of fair market value for these purposes and the treatment of assets held through partnerships, trusts, and other entities.
4. Testing Dates and Look-Back Period
The USRPHC determination must be made as of the date of disposition of the corporation's stock by the foreign shareholder. However, Section 897(c)(1)(A)(ii) of the Code provides that an interest in a domestic corporation is treated as a USRPI if the corporation was a USRPHC at any time during the shorter of:
(i) the five-year period ending on the date of the disposition (the "Five-Year Look-Back Period"); or
(ii) the period during which the taxpayer held the interest.
This look-back provision is designed to prevent corporations from engaging in strategic asset dispositions immediately prior to a sale of their stock in order to avoid USRPHC status at the time of the transaction.
5. Cleansing Rule
Section 897(c)(1)(B) provides an important exception: an interest in a domestic corporation is not treated as a USRPI if the taxpayer establishes that the corporation was not a USRPHC at any time during the applicable look-back period (or, if shorter, the period during which the taxpayer held the interest). This is commonly referred to as the "cleansing rule." If the corporation has never been a USRPHC during the applicable testing period, the corporation's stock is not a USRPI, and dispositions of the stock by foreign persons are not subject to FIRPTA regardless of whether the corporation holds any U.S. real property interests at the time of disposition.
B. Section 897(d) and (e) — Nonrecognition Transactions
1. Section 897(d) — Distributions
Section 897(d) of the Code provides that any distribution by a foreign corporation or by a domestic corporation that is (or was) a USRPHC to a foreign person shall, to the extent attributable to USRPIs, be treated as gain from the disposition of a USRPI. This provision is designed to prevent the extraction of value from USRPIs through corporate distributions that might otherwise escape FIRPTA taxation.
2. Section 897(e) — Nonrecognition Exchanges
Section 897(e)(1) of the Code addresses the interaction between FIRPTA and the Code's nonrecognition provisions (such as those applicable to tax-free reorganizations under Section 368). Under Section 897(e)(1), a nonrecognition provision applies to a disposition of a USRPI by a foreign person only to the extent that the foreign person receives a USRPI in exchange for the USRPI disposed of. In other words, if a foreign shareholder of a USRPHC exchanges its shares in a tax-free reorganization for shares of another domestic corporation, the nonrecognition provisions of Section 354 apply to the exchange for FIRPTA purposes only if the shares received in the exchange also constitute USRPIs — i.e., only if the acquiring corporation is itself a USRPHC or is treated as a USRPHC.
This principle has practical significance in the reorganization context. If Skybridge were a USRPHC, the merger consideration (shares of the Combined Company) received by Skybridge's foreign shareholders would need to constitute USRPIs — meaning the Combined Company would also need to be a USRPHC — in order for the nonrecognition provisions of Section 354 to apply to the exchange for FIRPTA purposes. If the Combined Company were not a USRPHC, a foreign shareholder of Skybridge that received Combined Company shares in exchange for Skybridge shares would be treated as recognizing gain under FIRPTA to the extent of the fair market value of the non-USRPI property received.
However, as analyzed in detail in Section V below, Skybridge is not a USRPHC. Accordingly, shares of Skybridge stock are not USRPIs, and Section 897(e) is not implicated by the Transaction. The Section 897(e) analysis is therefore moot in the present context, but is included here for completeness and as a framework for evaluating future transactions involving the Combined Company.
C. Section 1445 — Withholding on Dispositions of USRPIs
1. General Withholding Obligation
Section 1445(a) of the Code imposes a withholding obligation on any transferee of a USRPI acquired from a foreign person. The transferee must deduct and withhold a tax equal to 15% of the "amount realized" by the foreign transferor on the disposition. The withholding obligation arises at the time of the transfer, and the withheld amounts must be remitted to the IRS within 20 days of the transfer using Form 8288 (U.S. Withholding Tax Return for Dispositions by Foreign Persons of U.S. Real Property Interests) and Form 8288-A (Statement of Withholding on Dispositions by Foreign Persons of U.S. Real Property Interests).
The "amount realized" for purposes of Section 1445(a) is determined in the same manner as under Section 1001 of the Code and includes the fair market value of any property received in the exchange, including stock or other non-cash consideration.
2. Exemption for Non-Foreign Transferors — Section 1445(b)(2)
Section 1445(b)(2) of the Code provides an exception to the withholding requirement if the transferor furnishes to the transferee an affidavit (commonly referred to as a "FIRPTA affidavit" or "FIRPTA certificate") stating, under penalty of perjury, that the transferor is not a "foreign person" within the meaning of the Code. The affidavit must include the transferor's name, address, and U.S. taxpayer identification number. A transferee who receives such an affidavit and does not have actual knowledge that the affidavit is false is relieved of the obligation to withhold under Section 1445(a).
This provision is significant in the individual asset acquisition context (e.g., sales of real estate by individuals) but is less commonly relied upon in corporate stock transactions, where the entity-level certification described below is more directly applicable.
3. Publicly Traded Exception — Section 1445(b)(3)
Section 1445(b)(3) of the Code provides that no withholding is required under Section 1445(a) on the disposition of an interest in a domestic corporation if the stock of the corporation is "regularly traded on an established securities market" within the meaning of Treasury Regulation Section 1.1445-2(c)(2)(iii). This exception recognizes the impracticability of imposing withholding obligations on routine stock market transactions.
Skybridge stock is not publicly traded prior to the closing of the Transaction. Accordingly, the publicly traded exception under Section 1445(b)(3) does not independently excuse withholding on the merger consideration received by Skybridge shareholders. Following the closing, shares of the Combined Company will trade on Nasdaq under the ticker symbol "SBFT," and future dispositions by foreign holders of Combined Company stock would potentially benefit from the publicly traded exception, subject to the 5% ownership threshold set forth in Treasury Regulation Section 1.1445-2(c)(2)(iii) (which provides that the exception does not apply to a disposition by a person who held more than 5% of the relevant class of stock at any time during the five-year period preceding the disposition).
4. Transferred Entity Certification — Treasury Regulation Section 1.1445-2(c)(3)
Treasury Regulation Section 1.1445-2(c)(3) provides an alternative basis for exemption from withholding in transactions involving the acquisition of an interest in a domestic corporation. Under this provision, a transferee may rely on a certification from the "transferred entity" — i.e., the domestic corporation whose stock is being acquired — that the corporation is not, and has not been at any time during the applicable look-back period, a USRPHC, and that the interests in the corporation therefore are not USRPIs.
The certification must:
(a) be made under penalty of perjury;
(b) state that the corporation is not and has not been a USRPHC during the applicable testing period;
(c) include the corporation's name, address, and U.S. taxpayer identification number; and
(d) be signed by a responsible officer of the corporation.
A transferee who receives and relies upon such a certification in good faith and without actual knowledge that the certification is false is relieved of the obligation to withhold under Section 1445(a). This is the mechanism most directly applicable to the merger transaction, and the delivery of a FIRPTA certificate by Skybridge is required as a closing deliverable under the BCA.
D. Section 1446 — Withholding on Effectively Connected Income of Partnerships
1. Section 1446(a) — Partnership Withholding
Section 1446(a) of the Code requires any partnership that has effectively connected taxable income ("ECTI") allocable to one or more foreign partners to withhold tax on such income at the rates specified in Section 1446(b). The withholding obligation falls on the partnership itself, which must pay and report the withheld amounts on behalf of its foreign partners.
2. Section 1446(f) — Withholding on Transfers of Partnership Interests
Section 1446(f) of the Code, enacted as part of the Tax Cuts and Jobs Act of 2017, imposes a withholding obligation on the transferee of an interest in a partnership if any portion of the gain on the transfer would be treated as effectively connected with a U.S. trade or business under Section 864(c)(8). The withholding rate is generally 10% of the amount realized on the transfer. This provision is designed to enforce the FIRPTA-like rules applicable to transfers of partnership interests under Section 864(c)(8).
3. Application to the Transaction
Section 1446 has limited direct relevance to the Transaction. Skybridge is a C corporation, not a partnership, and the merger does not generate effectively connected income allocable through a partnership. Similarly, Section 1446(f) applies to transfers of interests in partnerships and does not apply to transfers of stock in a corporation.
However, certain Skybridge shareholders (including Harborview Partners and Atlas Horizon Ventures Fund II, LP) and certain PIPE investors (including Meridian Crossover Fund III, LP) are partnerships. To the extent any such partnership has one or more foreign partners, the partnership itself may bear responsibility for Section 1446(a) withholding on any effectively connected income allocated to those foreign partners. This responsibility rests with the individual partnerships, not with the Combined Company or its transfer agent, and is outside the scope of the Transaction-level analysis.
V. Analysis — Is Skybridge a USRPHC?
A. Identification of Skybridge's Assets
The determination of whether Skybridge is a USRPHC under Section 897(c)(2) of the Code requires a comprehensive analysis of the composition of Skybridge's assets. Based on our review of Skybridge's audited financial statements for the fiscal year ended December 31, 2024 (audited by Graystone Thornton LLP, engagement partner Helen Marchetti), interim unaudited balance sheet data for the quarter ended March 31, 2025, and representations provided by Marcus Ellingham (CFO) and Martin Cho (Cedarhurst Advisory Group LLC), we have identified the following categories of assets held by Skybridge:
Proprietary Software Platform and intellectual Property. Skybridge's principal asset is its proprietary cloud-based payment orchestration and embedded-finance SaaS platform. The platform is protected by a portfolio of patents, copyrights, trade secrets, and trademarks. These intellectual property assets are intangible personal property and do not constitute interests in real property within the meaning of Section 897(c)(1) or Treasury Regulation Section 1.897-1(b). Software and technology assets, including patents and copyrights relating to software, are not "interests in real property" for FIRPTA purposes.
Customer Contracts and Relationships. Skybridge maintains SaaS subscription agreements with a diversified base of mid-market financial institutions, neobanks, and fintech companies. The customer contracts and associated customer relationships are intangible assets that do not constitute interests in real property.
Cash and Cash Equivalents. Skybridge holds cash and cash equivalents in operating accounts, including funds available for working capital, capital expenditures, and debt service. Cash and cash equivalents are not interests in real property.
Accounts Receivable. Skybridge carries trade receivables from its subscription customers. Accounts receivable are not interests in real property.
Computer Equipment and Servers. Skybridge leases data center capacity through commercial cloud services agreements with Adriatic Technologies and Aldermere Technologies. Skybridge does not own or operate any physical data centers and does not own servers or significant tangible personal property relating to real estate. The computer equipment and related tangible assets used by Skybridge in its offices are personal property and are not interests in real property.
Office Leases. Skybridge leases office space at two locations: (i) 1200 Market Street, Suite 1400, Wilmington, Delaware 19801 (corporate headquarters), and (ii) 450 Folsom Street, 7th Floor, San Francisco, California 94105 (engineering office). Both leases are operating leases for office space. Under Treasury Regulation Section 1.897-1(b)(3), a lease of real property is not treated as a USRPI if the remaining unexpired term of the lease (including renewal options) is less than 30 years and the lease does not include an option to purchase the underlying real property at less than its fair market value. Based on our review of the lease agreements, both Skybridge leases have remaining terms well under 30 years and neither lease contains a purchase option at less than fair market value. Accordingly, neither leasehold interest constitutes a USRPI.
Goodwill and Other Intangible Assets. Skybridge carries goodwill and other identifiable intangible assets on its balance sheet, primarily arising from prior acquisitions. Goodwill and intangible assets are not interests in real property.
Critically, Skybridge does not own any real property in the United States or outside the United States. Skybridge has never acquired, held, or disposed of any fee simple interest, co-ownership interest, or other ownership interest in real property at any time since its incorporation on June 15, 2018. Skybridge does not hold any interests in entities that are USRPHCs. Skybridge does not hold any interests in mines, wells, or other natural deposits.
This conclusion is supported by the audited financial statements, the representations of Skybridge's management team, the balance sheet analysis prepared by Cedarhurst Advisory Group LLC, and the asset detail provided for the purposes of this analysis, a summary of which is attached as Appendix B.
B. Application of the Asset Ratio Test
Applying the Asset Ratio Test of Section 897(c)(2) to Skybridge's asset base as of the anticipated closing date (projected July 21, 2025), we determine:
Numerator — Fair Market Value of USRPIs: As described above, Skybridge holds no United States real property interests. The numerator of the Asset Ratio Test is therefore $0.
Denominator — Aggregate Fair Market Value of All Relevant Assets: The denominator of the Asset Ratio Test is the sum of (A) the fair market value of Skybridge's USRPIs ($0), (B) the fair market value of Skybridge's interests in real property located outside the United States ($0, as Skybridge holds no foreign real property interests), and (C) the fair market value of Skybridge's other assets used or held for use in a trade or business. The latter category encompasses Skybridge's intellectual property, customer contracts, cash, receivables, equipment, goodwill, and all other trade or business assets. Based on Skybridge's audited financials, its total book value of assets as of December 31, 2024 exceeds the amounts typically associated with a company generating $87.3 million in annual revenue and $14.1 million in EBITDA. The implied equity value of Skybridge in the Transaction is $450 million, reflecting significant intangible asset value in excess of book value.
Asset Ratio Calculation: $0 ÷ [Total Relevant Assets] = 0%.
An asset ratio of 0% is well below the 50% threshold established by Section 897(c)(2). Accordingly, Skybridge is not a USRPHC as of the anticipated closing date or any other reasonably foreseeable testing date.
We note that this conclusion is robust and does not depend on any close or marginal asset valuation judgments. Skybridge's USRPI balance is $0, and its other asset values are material and positive. Even under the most conservative assumptions regarding the fair market value of Skybridge's trade or business assets, the asset ratio would remain at 0% because the numerator is and has always been zero.
C. Look-Back Period Analysis
As described in Section IV.A.4 above, an interest in a domestic corporation can be treated as a USRPI if the corporation was a USRPHC at any time during the applicable Five-Year Look-Back Period. Accordingly, even though Skybridge is not a USRPHC as of the closing date, it is necessary to analyze whether Skybridge was a USRPHC at any time during the five-year period ending on the closing date (i.e., July 21, 2020 through July 21, 2025), or, if shorter, the period since Skybridge's incorporation on June 15, 2018.
Skybridge was incorporated on June 15, 2018. At no time since its incorporation has Skybridge owned any interest in real property located in the United States or abroad. Skybridge's business has at all times been a cloud-based technology and SaaS business, and its assets have at all times consisted exclusively of intellectual property, software, customer contracts, cash, receivables, equipment (personal property), and other non-real-property assets. Skybridge has never acquired or held any real property through any subsidiary or affiliate. The representations of Skybridge management, confirmed by the historical tax return work papers and balance sheet data provided by Cedarhurst Advisory Group LLC, establish that Skybridge has never satisfied the Asset Ratio Test at any time during its corporate existence.
Accordingly, Skybridge satisfies the cleansing rule under Section 897(c)(1)(B) of the Code. Because Skybridge was not a USRPHC at any time during the applicable look-back period (or, indeed, at any time since its incorporation), interests in Skybridge are not and have never been USRPIs. The cleansing rule provides a complete defense to any assertion that Skybridge stock constitutes a USRPI, and no further analysis of the look-back period is required.
D. Analysis of Combined Company
Although not strictly required for purposes of the FIRPTA withholding analysis on the merger consideration (which, as established above, does not involve the disposition of USRPIs), we briefly address the USRPHC status of the Combined Company (Skybridge Fintech Holdings, Inc.) for purposes of future warrant exercises, earnout share issuances, and dispositions of Combined Company stock by foreign persons.
Following the closing, the Combined Company will hold the following principal assets: (a) the assets of Skybridge (as described above — Intellectual property, software, customer contracts, cash, receivables, equipment, and goodwill), (b) the remaining trust account proceeds (cash, after giving effect to redemptions), (c) the PIPE investment proceeds (cash), and (d) any remaining amounts from the backstop transaction. None of these assets constitutes an interest in real property. The Combined Company will not own or hold any USRPIs at closing, and its asset ratio under Section 897(c)(2) will be 0%.
Accordingly, the Combined Company is not expected to be a USRPHC as of the closing date or at any time in the near-term future. This conclusion is relevant for the following post-closing events:
• Earnout share issuances: If the stock price milestones are achieved and earnout shares are issued to former Skybridge shareholders, the FIRPTA analysis at that time will depend on the Combined Company's USRPHC status. Based on the Combined Company's expected asset composition, USRPHC status is not anticipated.
• Warrant exercises: If foreign persons exercise public warrants or Private Placement Warrants following the closing, the FIRPTA implications will depend on the Combined Company's USRPHC status at the time of exercise. Again, USRPHC status is not expected.
• Publicly traded exception: Post-closing, the Combined Company's shares will trade on Nasdaq under the ticker symbol "SBFT." Foreign holders of Combined Company stock (other than holders of more than 5% of the outstanding stock during the applicable testing period) would benefit from the publicly traded exception under Section 1445(b)(3) in any event.
We recommend, however, that the Combined Company periodically monitor its asset composition post-closing to confirm continued non-USRPHC status, particularly in the event that the Combined Company acquires real property or interests in entities that hold significant real property in the future. This recommendation is reiterated in Section X below.
VI. Withholding Analysis — Section 1445
A. General Withholding Obligation
Under Section 1445(a) of the Code, the transferee of a USRPI acquired from a foreign person is required to deduct and withhold a tax equal to 15% of the "amount realized" by the foreign transferor on the disposition. In the context of the merger, Merger Sub (and its successor, Skybridge as the surviving entity, or more broadly the Combined Company) is the "transferee" that is acquiring interests in Skybridge from Skybridge's shareholders.
As established in Section V above, Skybridge is not a USRPHC, and shares of Skybridge stock do not constitute USRPIs within the meaning of Section 897(c)(1) of the Code. Because the property being acquired by the transferee — i.e., shares of Skybridge stock — is not a USRPI, the withholding obligation under Section 1445(a) does not arise, regardless of whether any Skybridge shareholder is a foreign person.
This conclusion applies equally to all Skybridge shareholders, whether U.S. persons or foreign persons, and whether individuals, corporations, or partnerships. The non-USRPHC status of Skybridge eliminates FIRPTA concerns at the entity level, making it unnecessary to determine the U.S. or foreign tax status of each individual Skybridge shareholder for FIRPTA withholding purposes.
We note, however, that based on the due diligence conducted by Calderwood & Harkness LLP and the representations provided by Skybridge management, all material Skybridge shareholders — including Harborview Partners (approximately 38.2% fully diluted), Atlas Horizon Ventures Fund II, LP (approximately 22.7% fully diluted), and Priya Chandrasekaran and the management team (approximately 31.4% fully diluted) — are U.S. persons for U.S. federal income tax purposes. Certain employee option holders within the approximately 7.7% employee equity pool may include nonresident alien individuals; however, as noted, the non-USRPHC determination renders the foreign person status of these holders immaterial for FIRPTA purposes.
Conclusion: No FIRPTA withholding is required under Section 1445(a) in connection with the merger consideration issued to Skybridge shareholders at the effective time of the merger.
B. Publicly Traded Exception — Section 1445(b)(3)
Skybridge stock is not publicly traded on an established securities market prior to the closing of the Transaction. Accordingly, the publicly traded exception under Section 1445(b)(3) does not independently serve as a basis for exemption from Section 1445 withholding in the merger.
This distinction is academic in the present case because the non-USRPHC status of Skybridge independently eliminates the withholding obligation. However, we note the distinction for completeness, as it would become relevant if Skybridge were a USRPHC and the publicly traded exception were the sole basis for an asserted withholding exemption.
Following the closing, shares of the Combined Company will trade on Nasdaq under the ticker symbol "SBFT." Future dispositions of Combined Company stock by foreign persons may benefit from the publicly traded exception, subject to the 5% ownership limitation in Treasury Regulation Section 1.1445-2(c)(2)(iii). Under that provision, the publicly traded exception does not apply to a disposition of stock by a person who held more than 5% of the relevant class of stock at any time during the shorter of (i) the five-year period ending on the date of the disposition, or (ii) the holder's holding period. Foreign holders who exceed the 5% threshold — which could include certain institutional shareholders — would need to rely on the non-USRPHC status of the Combined Company or other applicable exemptions.
C. FIRPTA Certificate as Alternative Basis for Exemption
Even though no FIRPTA withholding obligation arises in connection with the merger (because Skybridge is not a USRPHC), the BCA requires Skybridge to deliver a FIRPTA certificate at closing as a closing deliverable under the Transaction documents. The delivery of the FIRPTA certificate serves several important purposes:
Belt-and-Suspenders Protection. The FIRPTA certificate provides the Combined Company and its transfer agent (Continental Registrars, Inc.) with documentary evidence that Skybridge is not a USRPHC. In the event of any future IRS inquiry regarding the Transaction, the FIRPTA certificate — together with the supporting analysis in this memorandum and the underlying balance sheet data — will serve as the Combined Company's primary evidentiary support for its position that no FIRPTA withholding was required.
Compliance with BCA Requirements. Section [7.2(h)] of the BCA requires Skybridge to deliver, as a condition to Pinnacle's obligation to consummate the Transaction, a duly executed FIRPTA certificate in a form reasonably satisfactory to Pinnacle and its counsel, certifying that Skybridge is not and has not been a USRPHC during the applicable testing period. Failure to deliver the certificate would constitute a breach of Skybridge's closing obligations under the BCA.
Transfer Agent Reliance. Continental Registrars, Inc., in its capacity as transfer agent for the Combined Company, may require documentary confirmation that no FIRPTA withholding is required before processing the issuance of merger consideration shares to Skybridge shareholders. The FIRPTA certificate provides the necessary documentation.
Legal Basis. Treasury Regulation Section 1.1445-2(c)(3) provides the legal framework for the transferred entity certification mechanism. Under this provision, a transferee may rely on a certification from the corporation whose interests are being acquired that such corporation is not and has not been a USRPHC during the applicable testing period, and that the interests in such corporation are therefore not USRPIs. The form, content, and delivery requirements for the FIRPTA certificate are described in detail in Section VIII below.
VII. Withholding Analysis — Section 1446
A. Section 1446(a) — Partnership Withholding on ECI
Section 1446(a) of the Code requires a partnership that has effectively connected taxable income allocable to a foreign partner to pay a withholding tax on behalf of such foreign partner. The rate of withholding is the highest applicable rate of tax under Section 1 (for individuals) or Section 11 (for corporations), as applicable.
Section 1446(a) is not directly applicable to the Transaction. Skybridge is a C corporation, not a partnership, and the merger does not generate effectively connected income that is allocated through a partnership to foreign partners. The effectively connected income rules applicable to partnerships are separate and distinct from the FIRPTA rules applicable to dispositions of USRPIs (which, as discussed above, are not implicated by the Transaction in any event).
However, certain Skybridge shareholders are organized as limited partnerships: Harborview Partners and Atlas Horizon Ventures Fund II, LP. Additionally, certain PIPE investors are organized as limited partnerships, including Meridian Crossover Fund III, LP. To the extent any such partnership has one or more partners that are foreign persons (nonresident alien individuals or foreign corporations), the partnership itself may bear responsibility for Section 1446(a) withholding with respect to any effectively connected income allocated to those foreign partners. This includes any gain recognized by the partnership on the exchange of Skybridge stock for Combined Company stock in the merger (to the extent such gain is treated as effectively connected with a U.S. trade or business, which it would not be in the absence of FIRPTA — and FIRPTA does not apply here because Skybridge is not a USRPHC).
In summary, the Combined Company is not the withholding agent for purposes of Section 1446(a) with respect to the internal allocations of income among the partners of any Skybridge shareholder or PIPE investor that is organized as a partnership. Any Section 1446 withholding obligations, to the extent they exist, rest with those partnerships and are outside the scope of the Transaction-level withholding analysis.
B. Section 1446(f) — Withholding on Transfer of Partnership Interests
Section 1446(f) of the Code imposes a withholding obligation on the transferee of a partnership interest if any portion of the gain on the transfer would be treated as effectively connected with a U.S. trade or business under Section 864(c)(8). This provision applies exclusively to transfers of interests in partnerships; it does not apply to transfers of stock in a corporation.
The Transaction involves the acquisition of stock in Skybridge, a Delaware corporation. Accordingly, Section 1446(f) is not applicable to the merger or any other component of the Transaction.
C. Domestication — Withholding Considerations for Pinnacle Shareholders
The domestication of Pinnacle from the Cayman Islands to the State of Delaware is a separate taxable event for certain Pinnacle shareholders and raises withholding considerations that, while distinct from the FIRPTA analysis, are noted here for coordination purposes.
The domestication is intended to qualify as a reorganization under Section 368(a)(1)(F) of the Code. Under Section 367(b) of the Code and the Treasury Regulations promulgated thereunder (in particular, Treasury Regulation Section 1.367(b)-3), foreign shareholders of a foreign corporation that redomiciles as a domestic corporation may be required to include in income the "all earnings and profits amount" described in Treasury Regulation Section 1.367(b)-2(d), or the Section 1248 amount attributable to such shareholder's stock, whichever is applicable. This income inclusion is treated as a deemed dividend for certain purposes and may give rise to withholding obligations under Sections 1441 and 1442 of the Code.
Specifically, if any holder of Pinnacle Class A ordinary shares or Pinnacle Class B ordinary shares (i.e., the Sponsor's Founder Shares) is a nonresident alien individual or a foreign corporation, the Combined Company (as successor to Pinnacle following the domestication) may have an obligation to deduct and withhold U.S. tax on the deemed dividend amount under Section 1441 (for nonresident alien individuals) or Section 1442 (for foreign corporations), subject to any applicable treaty reductions or exemptions.
This analysis is more fully addressed in the separate Tax Structure Memorandum and the Draft Tax Opinion being prepared by our firm. We flag the issue here to ensure appropriate coordination between the FIRPTA / withholding work stream and the broader domestication tax analysis. The following parties have been advised of the potential need for withholding mechanics on the domestication and are coordinating on the implementation:
• Pinnacle SPAC Counsel: Ashland Burke & Thayer LLP (lead partner: William Ashford)
• Skybridge Tax Advisor: Cedarhurst Advisory Group LLC (partner: Martin Cho)
• Transfer Agent: Continental Registrars, Inc.
• Calderwood & Harkness LLP Tax Group: Leonard Cross, Sandra Tung, Naomi Petersen, Ryan Kowalski
The Combined Company's transfer agent will need to implement appropriate procedures to identify non-U.S. Pinnacle shareholders and apply the correct withholding amounts on the domestication. These procedures are being developed in consultation with Pinnacle's counsel and are expected to be finalized prior to the anticipated closing date.
VIII. FIRPTA Certificate — Form and Delivery Requirements
A. Legal Basis
As discussed in Section IV.C.4 above, Treasury Regulation Section 1.1445-2(c)(3) provides that, in a transaction involving the acquisition of an interest in a domestic corporation, the transferee may rely on a certification from the corporation (the "transferred entity") that the corporation is not and has not been a USRPHC during the applicable testing period. The regulation specifies the form and content requirements for such a certification and provides that a transferee who receives and relies upon the certification in good faith is relieved of any withholding obligation under Section 1445(a) with respect to the acquisition of interests in the transferor entity.
The FIRPTA certificate is a closing deliverable under the BCA and is being prepared in a standalone form document (firpta-certificate-form.docx) that has been circulated to the deal team and to Pinnacle's counsel at Ashland Burke & Thayer LLP for review. The form has been prepared in accordance with the requirements of Treasury Regulation Section 1.1445-2(c)(3) and incorporates the specific factual representations applicable to Skybridge.
B. Required Content of the Certificate
The FIRPTA certificate to be delivered by Skybridge at the closing must include the following elements, each of which is required by the applicable Treasury Regulations:
1. Statement of Non-USRPHC Status. A statement that Skybridge Fintech Ltd. is not, and has not been at any time during the five-year period ending on the date of the certificate (or, if shorter, the period of the corporation's existence beginning June 15, 2018 and ending on the date of the certificate), a "United States real property holding corporation" as defined in Section 897(c)(2) of the Internal Revenue Code of 1986, as amended.
2. Statement that Interests Are Not USRPIs. A statement that interests in Skybridge Fintech Ltd. are not "United States real property interests" within the meaning of Section 897(c)(1) of the Code.
3. Full Legal Name. The full legal name of the corporation: Skybridge Fintech Ltd.
4. Address. The address of the corporation's principal executive offices: 1200 Market Street, Suite 1400, Wilmington, Delaware 19801.
5. Employer Identification Number. The corporation's U.S. taxpayer identification number: 83-2471560.
6. Penalty of Perjury Declaration. An acknowledgment that the certificate is made under penalty of perjury and that the certifying officer understands that the certificate may be disclosed to the Internal Revenue Service and that any false statement contained therein could be punished by fine, imprisonment, or both.
7. Signature of Authorized Officer. The certificate must be signed by a responsible and authorized officer of Skybridge. We recommend that the certificate be executed by Priya Chandrasekaran, Chief Executive Officer, or Marcus Ellingham, Chief Financial Officer. Either officer has the authority and knowledge to execute the certificate on behalf of Skybridge.
8. Date. The certificate should be dated as of the Closing Date (projected to be July 21, 2025), or, if the closing occurs on a different date, as of the actual closing date.
C. Delivery Mechanics
The FIRPTA certificate is listed as a closing deliverable under Section [7.2(h)] of the BCA. The certificate must be delivered by Skybridge to the Combined Company (and, as a practical matter, to the Combined Company's counsel, Ashland Burke & Thayer LLP, and to Calderwood & Harkness LLP) at or immediately prior to the closing of the Transaction.
A separate draft of the FIRPTA certificate has been prepared as a standalone form document (firpta-certificate-form.docx) and is included in the closing deliverables package being assembled by Calderwood & Harkness LLP. The form has been circulated to Teresa Okafor (General Counsel, Skybridge), Martin Cho (Cedarhurst Advisory Group LLC), and William Ashford (Ashland Burke & Thayer LLP) for review and comment. We anticipate that the form will be finalized and agreed upon in advance of the closing.
In the event that Skybri

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