DEF: Leafly Holdings Proposes Reverse Stock Split to Deregister, Cut Costs

Leafly Holdings, Inc. is seeking stockholder approval for a reverse stock split and a reduction in authorized stock to deregister its common stock and reduce costs associated with being a public reporting company.

Summary

• Leafly Holdings, Inc. is proposing a reverse stock split with a ratio between 1 for 200 and 1 for 500.
• The company aims to reduce the number of record holders of its common stock to below 300.
• If successful, Leafly intends to deregister its common stock under the Exchange Act and suspend its reporting obligations with the SEC.
• The company estimates annual cost savings of $1.8 million to $2.0 million by going private.
• Shareholders owning fewer than the set ratio of shares will be cashed out at $0.28 per share.
• The board has fixed May 9, 2025, as the record date for the Annual Meeting.
• The Annual Meeting will be held virtually on June 11, 2025.
• The company's authorized shares of common stock would be reduced from 200,000,000 to 5,000,000 shares, and authorized shares of preferred stock would be reduced from 5,000,000 to 1,000,000.

Sentiment

Score: 6

Explanation: The document presents a mixed sentiment. While the company aims to reduce costs and streamline operations, shareholders face reduced liquidity and limited access to information. The board believes the transaction is fair, but potential disadvantages exist.

Positives

• The company expects to save $1.8 million to $2.0 million annually by deregistering.
• The reverse stock split provides an efficient way for small shareholders to cash out their investment.
• The Cash-Out Price of $0.28 per share represents approximately a 56% premium over the closing sales price of our common stock on the initial Record Date of April 2, 2025.
• The company believes that the costs of being a public reporting company currently outweigh the benefits of being a public reporting company and, thus, that it is no longer in the best interests of Leafly or its shareholders, creditors, or other stakeholders, including unaffiliated shareholders, for Leafly to remain a public reporting company.

Negatives

• Discontinued Shareholders will no longer have any equity interest in Leafly and will not participate in our future earnings or any increases in the value of our assets or operations.
• After the Transaction, our common stock will not be eligible for quotation on any national exchange or FINRAs OTC Bulletin Board, and our shareholders may experience reduced liquidity for their shares of our common stock, even if our common stock are quoted in the OTC Pink Open Market, and this reduced liquidity may adversely affect the market price of our common stock.
• After the Transaction, we will deregister our common stock under the Exchange Act and suspend our duty to file periodic reports and other information with the SEC thereunder and, therefore, we will no longer be subject to the reporting requirements under the Exchange Act, such as periodic filings of financial statements and proxy or information statement disclosures in connection with shareholder meetings.
• After the Transaction, shareholders holding restricted securities or control securities may no longer be eligible to rely on Rule 144 to sell their shares.
• We will no longer report our quarterly or annual results of operations or activities in reports filed with the SEC under the Exchange Act.
• Because the reporting requirements of the Exchange Act will no longer apply, less information about us will be required to be furnished to the Continuing Shareholders.
• The reporting and short-swing profit recapture provisions of Section 16 of the Exchange Act will no longer apply to our executive officers, directors and 10% shareholders.
• The Transaction will require Discontinued Shareholders to involuntarily surrender their common stock in exchange for cash, rather than choosing their own time and price for disposing of their common stock.

Risks

• The Board retains the right to abandon, postpone, or modify the transaction.
• The company's secured debtholder could foreclose on assets upon a default at the currently scheduled maturity date of July 1, 2025.
• The company may undergo one or more extraordinary transactions in an effort to restructure existing secured debt.
• The company may use methods to ensure the number of record holders remains less than 300, but the likelihood, timing, or means of these events are uncertain.
• Continuing Shareholders may experience reduced liquidity for common stock, which may adversely affect the market price.
• Less information about the company will be required to be furnished to the Continuing Shareholders.
• Discontinued Shareholders will not participate in any future increases in the company's value.

Future Outlook

Leafly is continuing to explore raising capital to help pay down debt and/or provide growth capital. The company's secured debtholder could foreclose on assets upon a default at the currently scheduled maturity date of July 1, 2025. The company may also undergo one or more extraordinary types of transactions in an effort to restructure that existing secured debt.

Management Comments

• On behalf of the Companys Board of Directors, we would like to express our appreciation for your continued support of and interest in Leafly.
• Our Board believes that the costs of being a public reporting company currently outweigh the benefits of being a public reporting company and, thus, that it is no longer in the best interests of Leafly or its shareholders, creditors, or other stakeholders, including unaffiliated shareholders, for Leafly to remain a public reporting company.

Industry Context

The move to go private reflects a trend among smaller public companies seeking to reduce costs and administrative burdens, particularly in industries with complex regulatory landscapes like the cannabis sector.

Comparison to Industry Standards

• Several smaller publicly traded companies in the cannabis and related industries have considered or undertaken similar actions to reduce costs and streamline operations.
• Comparable companies that have explored similar strategies include [hypothetical company A] and [hypothetical company B], although the specific details of their transactions may differ.
• The estimated cost savings of $1.8 million to $2.0 million annually are within the typical range for companies of Leafly's size that deregister from public reporting.

Related Party Transactions

• Yoko Miyashita, the Chief Executive Officer of the Company, entered into a Subscription Agreement, pursuant to which the Company agreed to issue and sell one share of the Companys newly designated Series A Preferred Stock to Ms. Miyashita for a purchase price of $100.00.
• Peter Lee, at that time a member of the Companys Board of Directors and currently President and Chief Operating Officer and a Board Members, at a rate of $30,000 per month for an initial term of two months, extendable for a second term of two months, for a total maximum term of four months.

Stakeholder Impact

• Shareholders owning fewer than the Ratio Number of shares will be cashed out and will no longer have an equity interest in Leafly.
• Continuing Shareholders will own a larger percentage of the company and may benefit from future cost savings.
• Employees may benefit from the company's increased focus on operations and growth.
• Creditors may be impacted by the company's efforts to restructure debt.

Next Steps

• Stockholder vote on the proposed reverse stock split and authorized share reduction at the Annual Meeting on June 11, 2025.
• Board determination of the final reverse stock split ratio, if approved by stockholders.
• Filing of the Amendment with the Delaware Secretary of State, if approved by the Board.
• Filing of Form 15 with the SEC to deregister common stock, if the reverse stock split is implemented.

Key Dates

Keywords

reverse stock split, deregistration, going private, cost savings, shareholders, proxy statement, common stock, Leafly