Lionheart III Corp. (LION) Secures $25M Standby Equity Purchase Agreement
by Marlena Haddad on 2023-03-01 at 5:57pm

Lionheart III (NASDAQ:LION) announced this afternoon that it has secured a Standby Equity Purchase Agreement with YA II, managed by Yorkville Advisors Global, in connection to its previously approved deal with advanced materials company Security Matters.

Lionheart shareholders approved its combination with the target company at a special meeting held on January 30, but have not completed the deal just yet.

Upon closing of the deal with Security Matters, the combined company will have the right to issue and sell to the investor up to $25 million of the newly issued shares of its ordinary shares.

The shares will be purchased at a price equal to 96% of the VWAP of the ordinary shares during the period commencing upon receipt by Security Matters of written confirmation of acceptance of an advance notice by the investor. Additionally, this confirmation should specify the commencement time, and ending on 4:00 p.m. EST on the applicable advance notice date or 97% of the lowest daily VWAP of the ordinary shares during the three consecutive trading days starting on the notice date. The company may establish a minimum acceptable price in each notice below which it will not be obligated to make any sales to the investor.

In connection with the agreement, YA II will give a pre-paid advance of $3.5 million to Security Matters in the form of a convertible promissory note, which will be disbursed in two separate installments. The first installment will be for $1.5 million at the closing of the merger and the second for $2 million upon the effectiveness of the resale registration statement.

The purchase price for this will be 92.0% of the pre-paid advance. It will be offset upon the issuance of ordinary shares to YA II at a price per share equal to the lower of 100% of the daily VWAP of the ordinary shares as of the trading day immediately prior to the date of the disbursement of the pre-paid advance or 93.0% of the lowest daily VWAP of the shares during the seven trading days immediately prior to each purchase.

But, the purchase price is not allowed to be less than the lower of $0.50 per share or 20% of the VWAP on the trading day immediately prior to the effectiveness of the initial registration statement for the underlying ordinary shares. In terms of interest, it shall accrue on the outstanding balance of any pre-paid advance at an annual rate equal to 0%, subject to an increase to 15% upon default. The maturity date will be 12 months after the initial closing of the pre-paid advance.

If at any time after a pre-paid advance is issued and the daily VWAP is less than the floor price for five trading days during a period of 7 consecutive trading days, or the company has issued in excess of 95% of the ordinary shares available under the exchange cap, then the company will have to make monthly payments starting on the 10th trading day after the trigger date and continuing on the same day of each successive calendar month.

Each of these monthly payments will have to be in an amount equal to the sum of $500,000 of principal among all promissory notes issued to the YA II plus a payment premium of 7% of the principal amount. Security Matter’s obligation to make monthly prepayments will stop if any time after the trigger date the daily VWAP is greater than 110% of the floor price a period of five consecutive trading days in the event of a floor price trigger, or the date the company has obtained approval to increase the number of common stock.

Additionally, the issuance of the ordinary shares under the agreement will be subject to certain limitations, including that YA II may not purchase any ordinary shares that would result in it owning more than 4.99% of the company’s ordinary shares or the aggregate number of ordinary shares issued pursuant to pre-paid advances. Regarding the exchange cap, it will not be applicable if the company’s stockholders have approved the issuance of common shares in excess of the exchange cap in accordance with the applicable rules of the principal market or to the extent that the average price for the issuance of ordinary shares equals or exceed the lower of its closing price immediately preceding the sixth trading day following the closing of the deal or the average closing price for the five trading days preceding the effective date.

In connection with the entry of the equity purchase agreement, the company has also entered into a registration rights agreement with the YA II. The company has agreed to file within 15 business days of the date of the standby equity purchase agreement, a registration statement with the SEC covering the resale of the ordinary shares requested to be included in the registration statement. The company also intends to use its best efforts to have the registration statement declared effective as soon as practicable after the filing, but in no event later than the 30th calendar day following the filing or in the event that there is a pre-paid advance outstanding, the 30th calendar day following the date of the registration rights agreement.

Lionheart III announced its $244 million combination with Security Matters on August 26, 2022. Australia-listed Security Matters Limited is developing a hidden chemical-based “barcode” designed to irrevocably mark an object, allowing products and materials to be tracked and scanned to provide more information via blockchain technology.

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