DEF 14C: MSP Recovery Stockholders Approve Issuance of Shares Exceeding Exchange Cap Under Yorkville SEPA

MSP Recovery's stockholders approved the issuance of common stock exceeding the Exchange Cap under the Yorkville Standby Equity Purchase Agreement (SEPA) and Convertible Notes, as required by Nasdaq Rule 5635(d).

Summary

• MSP Recovery, Inc. notified its stockholders that on December 6, 2024, a majority of stockholders approved the issuance of shares of common stock exceeding the Exchange Cap under the Yorkville Standby Equity Purchase Agreement (SEPA) and Convertible Notes.
• This approval was obtained via written consent, as required by Nasdaq Rule 5635(d).
• The Yorkville SEPA, entered into on November 14, 2023, allows MSP Recovery to sell up to $250 million of its shares to YA PN II, Ltd. (Yorkville), subject to certain conditions.
• The company was limited to issuing 19.99% of outstanding shares, or 1,108,061 shares (the Exchange Cap), without shareholder consent.
• As of November 22, 2024, the Exchange Cap had been met.
• The approval allows the company to issue shares beyond the Exchange Cap pursuant to the Yorkville SEPA or Convertible Notes.
• As of December 6, 2024, the company estimates its current additional funding capacity under the Yorkville SEPA to be approximately $2.9 million, based on the closing price of $3.24 and the registration of two million shares for resale by Yorkville.

Sentiment

Score: 5

Explanation: The document is a formal notification of a previously agreed-upon action. While it removes a restriction on potential funding, it also highlights existing financial challenges and risks associated with the financing agreement. The sentiment is neutral overall.

Positives

• The stockholder approval removes a restriction on the company's ability to raise capital through the Yorkville SEPA and Convertible Notes.
• The company has access to a potential $250 million in funding through the Yorkville SEPA, with approximately $2.9 million currently available.

Negatives

• The company's common stock has been subject to a Floor Price Trigger, requiring monthly payments to Yorkville.
• The company does not currently have available liquidity to satisfy its obligations under the Convertible Notes, which became current on September 30, 2024.

Risks

• The company's ability to sell shares under the Yorkville SEPA is subject to market conditions, the trading price of the company's common stock, and the company's determination of appropriate funding sources.
• Events of default under the Yorkville SEPA and Convertible Notes could accelerate the repayment obligations.
• The Floor Price Trigger could result in ongoing monthly payments to Yorkville.
• The company's common stock has been below the Floor Price for ten consecutive trading days, resulting in a Floor Price Trigger.

Future Outlook

The company will control the timing and amount of any sales of shares of common stock to Yorkville, except with respect to Yorkville Advances. Actual sales will depend on various factors, including market conditions and the trading price of the company's common stock.

Management Comments

• The Board is not soliciting your proxy in connection with the adoption of these resolutions and proxies are not requested from stockholders.
• You are urged to read the Information Statement in its entirety for a description of the action taken by the majority stockholders.

Industry Context

Standby Equity Purchase Agreements (SEPAs) are a relatively common financing tool for publicly traded companies, particularly smaller companies seeking flexible access to capital. The use of convertible notes in conjunction with a SEPA is also a fairly standard practice.

Comparison to Industry Standards

• The terms of the Yorkville SEPA, including the potential for floor price triggers and the issuance of convertible notes, are generally consistent with similar financing agreements entered into by other small-cap companies.
• The 19.99% Exchange Cap is a common feature in these types of agreements, designed to avoid triggering certain shareholder approval requirements.
• Comparable companies that have utilized similar financing structures include companies in the biotechnology, technology, and resource sectors.

Stakeholder Impact

• Shareholders: The approval allows the company to potentially raise more capital, but also dilutes existing shareholders.
• Creditors: The company's ability to meet its obligations under the Convertible Notes is uncertain.
• Yorkville: Benefits from the ability to purchase shares at a discount and potentially convert notes into equity.

Next Steps

• The actions approved by the Majority Stockholders cannot become effective until twenty (20) days from the date of mailing of the Definitive Information Statement to our stockholders as of the Record Date.
• The Company will continue to evaluate market conditions and its funding needs to determine the timing and amount of any future sales of shares to Yorkville under the Yorkville SEPA.

Key Dates

Keywords

Yorkville SEPA, Convertible Notes, Share Issuance, Exchange Cap, Stockholder Approval, Funding, MSP Recovery