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Northern Lights (NLIT) Adds Backstops of Up to $50M to Safe Harbor Deal
by Marlena Haddad on 2022-06-17 at 1:16pm

Northern Lights (NASDAQ:NLIT) has entered into a redemption backstop agreement for up to $50 million with cannabis fintech provider Safe Harbor to help ensure the maximum redemption threshold condition is met.

The backstop is made up of an OTC Equity Prepaid Forward Transaction from Midtown East Management NL LLC. And as part of the arrangement, Midtown East intends, but is not obligated, to purchase shares (after the date of the Forward Purchase Agreement) from public holders that have requested to redeem or have indicated their interest in redeeming at the combination vote. Midtown East has also agreed to waive any redemption rights with respect to any shares purchased with the amount being no more than the lesser of 5,000,000 and the maximum number of shares such that Midtown East does not beneficially own greater than 9.9% on a post-combination pro forma basis.

In return,  one business day following the closing, the Company will pay to Midtown East, out of the funds held in the Company’s trust account, an amount equal to the Redemption Price per share (the “Initial Price”) multiplied by the aggregate number of purchased. They will also pay to Midtown Madison Management LLC a structuring fee in the amount of $5,000 per quarter, paid on the first business day of each calendar quarter after the closing of the Business Combination.

Furthermore, on the date occurring one settlement cycle following the valuation date (which shall occur on the earlier of (i) the third anniversary of the closing of the Business Combination and (ii) the date specified by Midtown East), during any 30 consecutive scheduled trading day-period following the closing of the Business Combination, the VWAP price per share for 20 scheduled trading days during such period shall have been less than $3.00 per share, Midtown East shall deliver to the Company the Number of Shares less any Terminated Shares.

The “Terminated Shares” are any shares Midtown East sells and at the end of each calendar month during which any such early termination occurs, Midtown East will pay to the Company an amount equal to the product of (x) the number of shares terminated during such calendar month and (y) the Reset Price, where “Reset Price” refers to, initially, the Redemption Price.

The Reset Price will be adjusted on the first scheduled trading day of each month commencing on the first calendar month following the closing to be the lowest of (a) the then-current Reset Price, (b) $10.00 and (c) the VWAP Price of the last ten (10) scheduled trading days of the prior calendar month, but not lower than $5.00.  Provided, however, that if the Company offers and sells shares in a follow-on offering, or series of related offerings, at a price lower than the then-current Reset Price (the “Offering Price”), then the Reset Price shall be further reduced to equal the Offering Price.

In return, Northern Lights and Safe Harbor have agreed to pay to Midtown East a break-up fee equal to the sum of all quarterly structuring fees, attorney fees, and other reasonable expenses incurred plus $1 million upon the occurrence of an “Additional Termination Event.”

Needless to say, this is fairly complicated, but the bottom line is that this is being done to satisfy closing conditions and in a way that Midtown East can dribble out the shares they accumulate in the process as opposed to one single event where they sell that hurts the share price post close.

Northern Lights originally brought about $117.3 million into the deal from its current trust supplemented by a $60 million Series A Convertible Preferred PIPE. The PIPE includes warrants to purchase up to a number of shares of the Class A Common Stock equal to 50% of shares issuable upon conversion of the PIPE Shares, with an exercise price of $11.50 per share. The SPAC must maintain at least $5,000,001 in tangible net assets in order for the deal to close.

With redemptions high, the additional agreement is being secured ahead of Northern Light’s shareholder vote next Friday, June 24. The SPAC initially announced its $327 million deal earlier this year on February 22. Arvada, Colorado-based Safe Harbor provides commercial banking and other financial services to the cannabis industry.

 

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