UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(MARK ONE)
For the quarter ended
For the transition period from to
Commission file number:
(Exact Name of Registrant as Specified in Its Charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices)
(Issuer’s telephone number)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Check whether the issuer (1) filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company | |||
If an emerging growth company, indicate by check
mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of August 18, 2023, there were
M3-BRIGADE ACQUISITION III CORP.
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2023
TABLE OF CONTENTS
i
PART I - FINANCIAL INFORMATION
Item 1. Interim Financial Statements.
M3-BRIGADE ACQUISITION III CORP.
CONDENSED BALANCE SHEETS
(UNAUDITED)
| June 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Prepaid expenses and other current assets | ||||||||
| Prepaid insurance | ||||||||
| Prepaid income taxes | ||||||||
| Total current assets | ||||||||
| Marketable securities held in Trust Account | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES, CLASS A COMMON STOCK SUBJECT TO POSSIBLE REDEMPTION AND STOCKHOLDERS’ DEFICIT | ||||||||
| Liabilities | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Due to related parties | ||||||||
| Income taxes payable | ||||||||
| Total current liabilities | ||||||||
| Forward purchase agreement liability | ||||||||
| Subscription purchase agreement liability | ||||||||
| Deferred underwriting fees | ||||||||
| Total liabilities | ||||||||
| Commitments and Contingencies (Note 6) | ||||||||
| Class A common stock subject to possible redemption | ||||||||
| Class A common stock subject to possible redemption, $ | ||||||||
| Stockholders’ Deficit | ||||||||
| Preferred stock, $ | ||||||||
| Class A common stock, $ | ||||||||
| Class B common stock. $ | ||||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Deficit | ( | ) | ( | ) | ||||
| TOTAL LIABILITIES, CLASS A COMMON STOCK SUBJECT TO POSSIBLE REDEMPTION AND STOCKHOLDERS’ DEFICIT | $ | $ | ||||||
The accompanying notes are an integral part of the unaudited condensed financial statements.
1
M3-BRIGADE ACQUISITION III CORP.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Operating costs | $ | $ | $ | $ | ||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Change in fair value of forward purchase agreement liability | ( | ) | ||||||||||||||
| Change in fair value of subscription purchase agreement liability | ( | ) | ||||||||||||||
| Gain on marketable securities (net), dividends and interest on cash and marketable securities held in Trust Account | $ | |||||||||||||||
| Total other income, net | ||||||||||||||||
| Income (Loss) before provision for income taxes | ( | ) | ||||||||||||||
| Provision for income taxes | ( | ) | ( | ) | ||||||||||||
| Net income (loss) | $ | $ | $ | $ | ( | ) | ||||||||||
| $ | $ | $ | $ | ( | ) | |||||||||||
| $ | $ | $ | ( | ) | $ | ( | ) | |||||||||
The accompanying notes are an integral part of the unaudited condensed financial statements.
2
M3-BRIGADE ACQUISITION III CORP.
CONDENSED STATEMENTS OF CHANGES IN CLASS A ORDINARY SHARES SUBJECT TO POSSIBLE REDEMPTION AND STOCKHOLDERS’ DEFICIT
(UNAUDITED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2023
| Class A common stock subject to possible redemption | Class B common stock | Additional Paid In | Accumulated | Total Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||
| Balance — January 1, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Accretion of Class A common stock to redemption value | ( | ) | ( | ) | ||||||||||||||||||||||||
| Net income | — | — | ||||||||||||||||||||||||||
| Balance — March 31, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Accretion of Class A common stock to redemption value | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Net income | — | — | ||||||||||||||||||||||||||
| Balance — June 30, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022
| Class A common stock subject to possible redemption |
Class B common stock |
Additional Paid In |
Accumulated | Total Stockholders’ |
||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||
| Balance — December 31, 2021 | $ | $ | $ | ( |
) | $ | ( |
) | ||||||||||||||||||||
| Accretion of Class A common Stock to Redemption Value | — | — | ( |
) | ( |
) | ||||||||||||||||||||||
| Net loss | — | — | ( |
) | ( |
) | ||||||||||||||||||||||
| Balance — March 31, 2022 | $ | $ | $ | ( |
) | $ | ( |
) | ||||||||||||||||||||
| Accretion of Class A common Stock to Redemption Value | — | — | ( |
) | ( |
) | ||||||||||||||||||||||
| Net income | — | — | ||||||||||||||||||||||||||
| Balance — June 30, 2022 | $ | $ | $ | ( |
) | $ | ( |
) | ||||||||||||||||||||
The accompanying notes are an integral part of the unaudited condensed financial statements.
3
M3-BRIGADE ACQUISITION III CORP.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| For the Six Months Ended June 30, | ||||||||
| 2023 | 2022 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net income (loss) | $ | $ | ( | ) | ||||
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||||||||
| Change in fair value of forward purchase agreement liability | ( | ) | ||||||
| Change in fair value of subscription purchase agreement liability | ||||||||
| Gain on marketable securities (net), dividends and interest on cash and marketable securities held in Trust Account | ( | ) | ( | ) | ||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses and other current assets | ( | ) | ( | ) | ||||
| Prepaid insurance | ||||||||
| Prepaid income taxes | ||||||||
| Income taxes payable | ||||||||
| Accounts payable and accrued expenses | ||||||||
| Net cash provided by (used in) operating activities | ( | ) | ||||||
| Cash Flows from Investing Activities: | ||||||||
| Investments of cash into Trust Account | ( | ) | ||||||
| Proceeds from redemption of U.S. government securities held in Trust Account | ||||||||
| Purchase of U.S. government securities | ( | ) | ||||||
| Purchase of marketable securities held in Trust Account | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ||||||
| Cash Flows from Financing Activities: | ||||||||
| Proceeds from related party | ||||||||
| Repayment of due to related parties | ( | ) | ||||||
| Net cash provided by (used in) financing activities | ( | ) | ||||||
| Net Change in Cash | ( | ) | ||||||
| Cash – Beginning of period | ||||||||
| Cash – End of period | $ | $ | ||||||
| Supplemental disclosure of non-cash investing and financing activities: | ||||||||
| Accretion of Class A common stock to redemption value | $ | $ | ||||||
| Supplemental cash information: | ||||||||
| Payment for income taxes | $ | $ | — | |||||
The accompanying notes are an integral part of the unaudited condensed financial statements.
4
M3-BRIGADE ACQUISITION III CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
June 30, 2023
(Unaudited)
NOTE 1 — ORGANIZATION AND BUSINESS OPERATIONS
M3-Brigade Acquisition III Corp. (the “Company”) is a blank check company incorporated as a Delaware corporation on March 25, 2021. The Company was formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses (“Business Combination”).
As of June 30, 2023, the Company had not commenced any operations. All activity for the period from March 25, 2021 (inception) through June 30, 2023 relates to the Company’s formation and the initial public offering (“IPO”), which is described below, and its activities relating to the sourcing of an initial Business Combination. The Company believes it will not generate any operating revenue until after the completion of a Business Combination, at the earliest. The Company will generate non-operating income in the form of dividend and interest income from the proceeds derived from the IPO.
The Company’s sponsor is M3-Brigade Sponsor III LP, a Delaware limited liability company (the “Sponsor”).
The registration statement for the Company’s
IPO was declared effective on October 21, 2021 (the “Effective Date”). On October 26, 2021, the Company consummated the IPO
of
Simultaneously with the closing of the IPO, the
Company consummated the sale of
Following the closing of the Initial Public Offering
on October 26, 2021, an amount of $
The Company’s management has broad discretion
with respect to the specific application of the net proceeds of the Initial Public Offering and the sale of Private Placement Warrants,
although substantially all of the net proceeds are intended to be applied generally toward consummating a Business Combination. There
is no assurance that the Company will be able to complete a Business Combination successfully. The Company must complete one or more initial
Business Combinations with one or more operating businesses or assets with a fair market value equal to at least
The Company, after signing a definitive agreement
for a Business Combination, will either (i) seek stockholder approval of the Business Combination at a meeting called for such purpose
in connection with which stockholders may seek to redeem their shares, regardless of whether they vote for or against the Business Combination,
for cash equal to their pro rata share of the aggregate amount then on deposit in the Trust Account as of two business days prior to the
consummation of the initial Business Combination, including interest but less taxes payable, or (ii) provide stockholders with the opportunity
to sell their shares to the Company by means of a tender offer (and thereby avoid the need for a stockholder vote) for an amount in cash
equal to their pro rata share of the aggregate amount then on deposit in the Trust Account as of two business days prior to commencement
of the tender offer, including interest but less taxes payable. The decision as to whether the Company will seek stockholder approval
of the Business Combination or will allow stockholders to sell their shares in a tender offer will be made by the Company, solely in its
discretion, and will be based on a variety of factors such as the timing of the transaction and whether the terms of the transaction would
otherwise require the Company to seek stockholder approval unless a vote is required by stock exchange rules. If the Company seeks stockholder
approval, it will complete its Business Combination only if a majority of the outstanding shares of common stock voted are voted in favor
of the Business Combination. However, in no event will the Company redeem its public shares in an amount that would cause its net tangible
assets to be less than $
5
M3-BRIGADE ACQUISITION III CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
June 30, 2023
(Unaudited)
The Company will provide the holders of the outstanding
Public Shares (the “Public Stockholders”) with the opportunity to redeem all or a portion of their Public Shares upon the
completion of a Business Combination either (i) in connection with a stockholder meeting called to approve the Business Combination or
(ii) by means of a tender offer. The decision as to whether the Company will seek stockholder approval of a Business Combination or conduct
a tender offer will be made by the Company. The Public Stockholders will be entitled to redeem their Public Shares for a pro rata portion
of the amount then in the Trust Account (initially anticipated to be $
All of the Public Shares contain a redemption feature which allows for the redemption of such Public Shares (a) in connection with the Company’s liquidation, (b) if there is a stockholder vote or tender offer in connection with the Company’s Business Combination and (c) in connection with certain amendments to the Company’s amended and restated certificate of incorporation (the “Certificate of Incorporation”). In accordance with the rules of the U.S. Securities and Exchange Commission (the “SEC”) and its guidance on redeemable equity instruments, which has been codified in ASC 480-10-S99, “Redeemable Non-controlling Interest, Equity”, redemption provisions not solely within the control of a company require common stock subject to redemption to be classified outside of permanent equity. Given that the Public Shares were issued with other freestanding instruments (i.e., public warrants), the initial carrying value of the shares of Class A common stock classified as temporary equity was the allocated proceeds determined in accordance with ASC 470-20, “Debt— Debt with Conversion and other Options”. Because of the redemption feature noted above, the shares of Class A common stock are subject to ASC 480-10-S99. If it is probable that the equity instrument will become redeemable, the Company has the option to either (i) accrete changes in the redemption value over the period from the date of issuance (or from the date that it becomes probable that the instrument will become redeemable, if later) to the earliest redemption date of the instrument or (ii) recognize changes in the redemption value immediately as they occur and adjust the carrying amount of the instrument to equal the redemption value at the end of each reporting period. The Company has elected to recognize the changes immediately. Such changes are reflected in additional paid-in capital, or in the absence of additional capital, in accumulated deficit.
Redemptions of the Company’s Public Shares may be subject to the satisfaction of conditions, including minimum cash conditions, pursuant to an agreement relating to the Company’s Business Combination. If the Company seeks stockholder approval of the Business Combination, the Company will proceed with a Business Combination if a majority of the shares voted are voted in favor of the Business Combination, or such other vote as required by law or stock exchange rule. If a stockholder vote is not required by applicable law or stock exchange listing requirements and the Company does not decide to hold a stockholder vote for business or other reasons, the Company will, pursuant to its Certificate of Incorporation, conduct the redemptions pursuant to the tender offer rules of the SEC and file tender offer documents with the SEC prior to completing a Business Combination. If, however, stockholder approval of the transaction is required by applicable law or stock exchange listing requirements, or the Company decides to obtain stockholder approval for business or other reasons, the Company will offer to redeem shares in conjunction with a proxy solicitation pursuant to the proxy rules and not pursuant to the tender offer rules. If the Company seeks stockholder approval in connection with a Business Combination, the Sponsor has agreed to vote its Founder Shares and any Public Shares purchased during or after the Initial Public Offering in favor of approving a Business Combination. Additionally, each Public Stockholder may elect to redeem their Public Shares without voting, and if they do vote, irrespective of whether they vote for or against the proposed transaction.
Notwithstanding the foregoing, if the Company
seeks stockholder approval of a Business Combination and it does not conduct redemptions pursuant to the tender offer rules, the Certificate
of Incorporation will provide that a Public Stockholder, together with any affiliate of such stockholder or any other person with whom
such stockholder is acting in concert or as a “group” (as defined under Section 13 of the Securities Exchange Act of 1934,
as amended (the “Exchange Act”)), will be restricted from redeeming its shares with respect to more than an aggregate of
The Sponsor has agreed (a) to waive its redemption
rights with respect to the Founder Shares and Public Shares held by it in connection with the completion of a Business Combination, (b)
to waive its rights to liquidating distributions from the Trust Account with respect to the Founder Shares (as defined in Note 4) if the
Company fails to complete a Business Combination within the Combination Period (as defined below) and (c) not to propose an amendment
to the Certificate of Incorporation (i) to modify the substance or timing of the Company’s obligation to allow redemptions in connection
with a Business Combination or to redeem
6
M3-BRIGADE ACQUISITION III CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
June 30, 2023
(Unaudited)
The Company’s charter provides that it initially
had until October 26, 2022, which was 12 months from the closing of the Initial Public Offering, to complete a Business Combination, but
also provides the Company with the right to (a) extend such period of time by up to 3 months, up to four times (each, an “Optional
Extension”) and (b) seek an extension of such time period to a later date pursuant to an amendment to the Company’s amended
and restated certificate of incorporation (the period in which to complete an initial Business Combination, after giving effect to any
extensions, being referred to as the “Combination Period”). In order to effect an Optional Extension, the Sponsor is required
to give at least five days’ advance notice to the Company prior to the applicable deadline and then to deposit an additional $
If the Company has not completed a Business Combination
within the Combination Period, the Company will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably
possible but not more than ten business days thereafter, redeem the Public Shares, at a per-share price, payable in cash, equal to the
aggregate amount then on deposit in the Trust Account, including interest earned on the funds held in the Trust Account and not previously
released to pay taxes or working capital requirements (less up to $
On April 13, 2023, the Company’s board of
directors, at the request of the Sponsor, approved an extension of the period of time the Company has to consummate its initial business
combination from April 26, 2023 to July 26, 2023. On April 18, 2023, in connection with such extension, the Sponsor and its affiliates
or designees deposited an additional of $
In order to protect the amounts held in the Trust
Account, the Sponsor has agreed to be liable to the Company if and to the extent any claims by a third party for services rendered or
products sold to the Company, or a prospective target business with which the Company has discussed entering into a transaction agreement,
reduce the amount of funds in the Trust Account to below the lesser of (i) $
Moreover, in the event that an executed waiver is deemed to be unenforceable against a third party, the Sponsor will not be responsible to the extent of any liability for such third-party claims. The Company will seek to reduce the possibility that the Sponsor will have to indemnify the Trust Account due to claims of creditors by endeavoring to have all vendors, service providers (except for the Company’s independent registered public accounting firm), prospective target businesses and other entities with which the Company does business, execute agreements with the Company waiving any right, title, interest or claim of any kind in or to monies held in the Trust Account.
The Company has not independently verified whether the Company’s Sponsor has sufficient funds to satisfy its indemnity obligations and the Company’s Sponsor may not be able to satisfy those obligations. The Company has not asked the Company’s Sponsor to reserve for such eventuality. The Company believes the likelihood of the Company’s Sponsor having to indemnify the Trust Account is limited because the Company will endeavor to have all vendors and prospective target businesses as well as other entities execute agreements with the Company waiving any right, title, interest or claim of any kind in or to monies held in the Trust Account.
7
M3-BRIGADE ACQUISITION III CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
June 30, 2023
(Unaudited)
Recent Developments
Appointment of new members to Board of Directors
On November 1, 2022, the Company appointed two
new members to its Board of Directors, each of whom was to be paid a fee of $
Business Combination Agreement
On December 14, 2022, the Company (“MBSC”) entered into a Business Combination Agreement (as amended on April 21, 2023 and June 15, 2023, and as may be further amended, supplemented or otherwise modified from time to time, the “Business Combination Agreement"), by and among MBSC, Greenfire Resources Ltd., an Alberta corporation (“PubCo”), DE Greenfire Merger Sub Inc., a Delaware corporation and a direct, wholly owned subsidiary of PubCo, 2476276 Alberta ULC, an Alberta corporation and a direct, wholly owned subsidiary of PubCo, and Greenfire Resources Inc., an Alberta corporation. The following description of the Business Combination Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Business Combination Agreement, a copy of which is included as Annex A to the definitive proxy statement filed with the SEC on August 14, 2023. Capitalized terms used but not otherwise defined herein have the meanings given to them in the Business Combination Agreement.
Conditions to the Closing
The consummation of the Transactions is subject to the satisfaction or waiver of certain customary closing conditions, among others (i) the approval of the Transactions and related matters by the equity holders of the Company and Greenfire, (ii) the absence of any laws or injunctions prohibiting the Transactions, (iii) the accuracy (subject to agreed materiality thresholds) of the parties’ representations and warranties contained in the Business Combination Agreement, (iv) the absence of any “Material Adverse Effect” on either the Company or Greenfire, (v) approval for listing of the PubCo Common Shares by the New York Stock Exchange, (vi) approval of the Plan of Arrangement by the Alberta Court of King’s Bench, and (vii) the parties’ compliance in all material respects with their respective covenants under the Business Combination Agreement.
Termination
The Business Combination Agreement may be terminated at any time prior to the Closing (a) by mutual written consent of the Company and Greenfire, (b) by either the Company or Greenfire, if the approval of the equity holders of the Company or Greenfire is not obtained, (c) by either the Company or Greenfire, if the other party has materially breached its covenants or representations under the Business Combination Agreement, (d) by either the Company or Greenfire, if the Closing has not occurred on or before September 14, 2023, subject to either party’s ability to extend such date by two three-month periods in the event that specified approvals have not been obtained, (e) by either the Company or Greenfire, if there is a final, non-appealable order of a governmental authority prohibiting the consummation of the Transactions, and (f) by the Company if Greenfire has not delivered certain specified financial statements by April 15, 2023. There have been no termination events to date of filing this Form 10-Q.
Subscription Purchase Agreements
On December 14, 2022, concurrently with the execution
of the Business Combination Agreement, the Company entered into subscription agreements (the “Subscription Purchase Agreements”)
with certain investors (the “Transaction Financing Investors”), pursuant to which the Transaction Financing Investors have
subscribed for an aggregate of (i)
The PIPE Investment will be automatically reduced based on the amount remaining in the Trust Account after giving effect to any redemptions by the Company’s Class A common shareholders.
Greenfire Shareholder Support Agreement
On December 14, 2022, concurrently with the execution of the Business Combination Agreement, the Company, PubCo, Merger Sub, Canadian Merger Sub and Greenfire entered into a Shareholder Support Agreement with certain Greenfire shareholders (the “Greenfire Shareholder Support Agreement”), pursuant to which, among other things, such Greenfire shareholders have agreed to vote their Greenfire Shares to approve and adopt the Business Combination Agreement and the Transactions.
Sponsor Agreement
On December 14, 2022, concurrently with the execution
of the Business Combination Agreement, the Sponsor, the Company, PubCo and Greenfire entered into a Sponsor Agreement (the “Sponsor
Agreement”), pursuant to which, among other things, the Sponsor has agreed to (a) vote in favor of and support the Business Combination
Agreement and the Transactions, (b) consummate the Sponsor Class B Share Forfeitures and the Sponsor Warrant Forfeiture in accordance
with the Business Combination Agreement and (c) make a cash payment of $
Investor Support Agreements
Concurrently with the execution of the Business
Combination Agreement, the Company entered into Investor Support Agreements with certain holders of the Company’s outstanding public
warrants, pursuant to which, among other things, such warrant holders agreed to vote all of the Company’s public warrants currently
held by them in favor of any amendment to the terms of the Company’s public warrants solely to amend the terms of the public warrants
together with any amendments required to give effect thereto such that all of the public warrants shall be exchanged for $
8
M3-BRIGADE ACQUISITION III CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
June 30, 2023
(Unaudited)
Risks and Uncertainties
In February 2022, the Russian Federation launched a military campaign against Ukraine. In response to these actions, the United States, the European Union and other governmental authorities have imposed a series of sanctions and penalties upon Russia and certain of its political and business leaders, and may impose additional sanctions and penalties, which restrict the ability of companies throughout the world to do business with Russia. In addition, a number of companies throughout the world who were not directly restricted by those sanctions have voluntarily elected to cease doing business with companies affiliated with Russia and it is anticipated that Russia will continue to retaliate with its own restrictions and sanctions. It is expected that these events will have an impact upon, among other things, financial markets for the foreseeable future. If the disruptions caused by these events continue for an extended period of time, our ability to search for a business combination or finance such business combination, and the business, operations and financial performance of any target business with which we ultimately consummate a business combination, may be materially adversely affected. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Liquidity and Going Concern
At June 30, 2023, the Company had $
Additionally, related parties have paid certain
offering and operating costs on behalf of the Company as needed. As of June 30, 2023 and December 31, 2022, the Company owed $
The Company has incurred and expects to continue to incur significant costs in pursuit of its financing and acquisition plans. The Company may need to raise additional capital through loans or additional investments from its Sponsor, stockholders, officers, directors, or third parties. The Company’s officers, directors and Sponsor may, but are not obligated to, loan the Company funds, from time to time or at any time, in whatever amount they deem reasonable in their sole discretion, to meet the Company’s working capital needs. Accordingly, the Company may not be able to obtain additional financing. If the Company is unable to raise additional capital, it may be required to take additional measures to conserve liquidity, which could include, but not necessarily be limited to, curtailing operations, suspending the pursuit of a potential Business Combination transaction, and reducing overhead expenses. The Company cannot provide any assurance that new financing will be available to it on commercially acceptable terms, if at all. These conditions raise substantial doubt about the Company’s ability to continue as a going concern one year from the date these financial statements are issued.
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X of the SEC. Certain information or footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a complete presentation of financial position, results of operations, or cash flows. In the opinion of management, the accompanying unaudited condensed financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented.
The accompanying unaudited condensed financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on March 31, 2023. The interim results for the three and six months ended June 30, 2023 are not necessarily indicative of the results to be expected for the year ending December 31, 2023 or for any future periods.
9
M3-BRIGADE ACQUISITION III CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
June 30, 2023
(Unaudited)
Emerging Growth Company
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended, (the “Securities Act”), as modified by the Jumpstart our Business Startups Act of 2012, (the “JOBS Act”), and it may take advantage of certain exemptions, including, but not limited to, not being required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company may elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
Use of Estimates
The preparation of the condensed financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements.
Making estimates requires management to exercise significant judgement. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate, could change in the near term one or more future confirming events. Accordingly, the actual results could differ significantly from those estimates.
Cash Equivalents
The Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents. The Company had no cash equivalents as of June 30, 2023 and December 31, 2022.
Marketable Securities Held in Trust Account
At June 30, 2023 and December 31, 2022, investment securities in the Company’s Trust Account consisted of U.S. government securities and mutual funds that invest primarily in U.S. government securities. Since all of the Company’s permitted investments consist of treasury securities, fair values of its investments are determined by Level 1 inputs utilizing quoted prices (unadjusted) in active markets for identical assets.
These securities are presented on the balance sheets at fair value at the end of each reporting period. Earnings on these securities are included in Gain on marketable securities (net), dividends and interest on cash and marketable securities held in Trust Account in the accompanying statements of operations and are automatically reinvested. The fair value for these securities is determined using quoted market prices in active markets for identical assets.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist of a cash account in a financial institution, which, at times, may exceed the Federal Deposit Insurance Corporation coverage. At June 30, 2023 and December 31, 2022, the Company has not experienced losses on this account and management believes the Company is not exposed to significant risks on such account.
Class A Common Stock Subject to Possible Redemption
The Company accounts for its Class A common stock subject to possible redemption in accordance with the guidance in ASC 480. Conditionally redeemable Class A common stock (including Class A common stock that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) is classified as temporary equity outside of the stockholders’ deficit section of the balance sheets.
The Company’s Class A common stock features certain redemption rights that are considered to be outside of the Company’s control and subject to the occurrence of uncertain future events. Accordingly, Class A common stock subject to possible redemption is presented at redemption value as temporary equity, outside of the stockholders’ deficit section of the Company’s balance sheets.
10
M3-BRIGADE ACQUISITION III CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
June 30, 2023
(Unaudited)
The Company recognizes changes in redemption value
immediately as they occur and adjusts the carrying value of redeemable common stock to equal the redemption value at the end of each reporting
period. Such changes are reflected in accumulated deficit. While the Trust Account balance is reduced by the actual tax payments and withdrawal
for payment of working capital expenses, it is acceptable for Class A common stock subject to possible redemption balance to be reduced
by the eligible tax expenses recorded (paid or unpaid) under the assumption that the accrued amount will be paid eventually, so such amount
does not belong to the public investors. For the six months ended June 30, 2023, the Company recorded $
Net Income (Loss) Per Common Stock
Net income (loss) per common stock is computed
by dividing net income (loss) by the weighted average number of shares of common stock outstanding for each of the periods, excluding
common shares forfeited. The Company has not considered the effect of the
The Company’s statements of operations include a presentation of net income (loss) per share for Class A common stock subject to possible redemption in a manner similar to the two-class method of net income (loss) per common stock. As of June 30, 2023 and December 31, 2022, the Company did not have any dilutive securities and other contracts that could, potentially, be exercised or converted into common stock and then share in the earnings of the Company. As a result, diluted net income (loss) per share is the same as basic net income (loss) per share for the periods presented.
| For the Three Months Ended June 30, 2023 | For the Three Months Ended June 30, 2022 | |||||||
| Net income | $ | $ | ||||||
| Accretion of temporary equity to redemption value | ( | ) | ( | ) | ||||
| Net (loss) income including accretion of temporary equity to redemption value | $ | ( | ) | $ | ||||
| For the Six Months Ended June 30, 2023 | For the Six Months Ended June 30, 2022 | |||||||
| Net income (loss) | $ | $ | ( | ) | ||||
| Accretion of temporary equity to redemption value | ( | ) | ( | ) | ||||
| Net loss including accretion of temporary equity to redemption value | $ | ( | ) | $ | ( | ) | ||
| For the Three Months Ended June 30, | ||||||||||||||||
| 2023 | 2022 | |||||||||||||||
| Class A | Class B | Class A | Class B | |||||||||||||
| Basic and diluted net (loss) income per share: | ||||||||||||||||
| Numerator: | ||||||||||||||||
| Allocation of net (loss) income including accretion of temporary equity | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||
| Allocation of accretion of temporary equity to redemption value | ||||||||||||||||
| Allocation of net (loss) income | $ | $ | ( | ) | $ | $ | ||||||||||
| Denominator: | ||||||||||||||||
| Weighted-average shares outstanding | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
11
M3-BRIGADE ACQUISITION III CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
June 30, 2023
(Unaudited)
| For the Six Months Ended June 30, | ||||||||||||||||
| 2023 | 2022 | |||||||||||||||
| Class A | Class B | Class A | Class B | |||||||||||||
| Basic and diluted net income (loss) per share: | ||||||||||||||||
| Numerator: | ||||||||||||||||
| Allocation of net loss including accretion of temporary equity | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Allocation of accretion of temporary equity to redemption value | ||||||||||||||||
| Allocation of net income (loss) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Denominator: | ||||||||||||||||
| Weighted-average shares outstanding | ||||||||||||||||
| $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||
Derivative Financial Instruments
The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives in accordance with ASC 815, “Derivatives and Hedging”. Derivative instruments are recorded at fair value on the grant date and re-valued at each reporting date, with changes in the fair value reported in the statements of operations. Derivative assets and liabilities are classified in the balance sheets as current or non-current based on whether or not net-cash settlement or conversion of the instrument could be required within 12 months of the balance sheet date.
Warrants
The Company accounts for the Public Warrants and Private Placement Warrants as equity-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in ASC 480 and ASC 815. The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own common stock and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent reporting period while the warrants are outstanding.
The Company allocated the IPO proceeds from the Units between Class A common stock and warrants, using the relative fair value method.
Forward Purchase Agreement Liability
On October 21, 2021, the Company entered into
a forward purchase agreement with M3-Brigade III FPA LP, an affiliate of the Sponsor, which provides for the purchase of up to $
On December 14, 2022, the Company entered into an FPA Termination Agreement, by and among the Company, M3-Brigade III FPA LP, HT Investments, LLC, Brigade Capital GP, LLC, and the Sponsor, pursuant to which, among other things, the parties agreed to terminate the forward purchase agreement, dated October 21, 2021, by and between the Company and M3-Brigade FPA LP. The termination of the forward purchase agreement is contingent upon the closing of the Business Combination.
The Company accounts for the Forward Purchase
Agreement (“FPA Agreement”) as a derivative instrument in accordance with the guidance in ASC 815-40. The instrument is subject
to re-measurement at each balance sheet date, with changes in fair value recognized in the statements of operations. The ability of the
Company to receive any of the proceeds of the FPA Agreement is dependent upon the financial metrics of the business combination target,
among other factors, rendering the receipt of such proceeds outside the control of the Company. Accordingly,
12
M3-BRIGADE ACQUISITION III CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
June 30, 2023
(Unaudited)
Subscription Purchase Agreement Liability
On December 14, 2022, the Company entered into
Subscription Purchase Agreements. The Company accounts for the Subscription Purchase Agreements as a derivative instrument in accordance
with the guidance in ASC 815-40. The instrument is subject to re-measurement at each balance sheet date, with changes in fair value recognized
in the statements of operations. The ability of the Company to receive any of the proceeds of the Subscription Purchase Agreements is
dependent upon the financial metrics of the business combination target, among other factors, rendering the receipt of such proceeds outside
the control of the Company. Accordingly,
Fair Value of Financial Instruments
The fair value of the Company’s assets and liabilities, with the exception of the forward purchase agreement, the subscription purchase agreement liability, and marketable securities held in Trust Account, approximates the carrying amounts as presented in the accompanying balance sheets, primarily due to their short-term nature.
Fair Value Measurements
Fair value is defined as the price that would be received for sale of an asset or paid for transfer of a liability, in an orderly transaction between market participants at the measurement date. GAAP establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). These tiers include:
| ● | Level 1, defined as observable inputs such as quoted prices (unadjusted) for identical instruments in active markets; |
| ● | Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and |
| ● | Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. |
Income Taxes
ASC 740 requires the recognition of deferred tax assets and liabilities for both the expected impact of differences between the unaudited condensed financial statements and tax basis of assets and liabilities and for the expected future tax benefit to be derived from tax loss and tax credit carry forwards. ASC 740 additionally requires a valuation allowance to be established when it is more likely than not that all or a portion of deferred tax assets will not be realized. As of June 30, 2023 and December 31, 2022, the Company’s deferred tax asset had a full valuation allowance recorded against it, respectively.
ASC 740-270-25-2 requires that an annual effective
tax rate be determined, and such annual effective rate applied to year-to-date income in interim periods under ASC 740-270-30-5. Our effective
tax rate was
ASC 740 also clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim period, disclosure and transition.
The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. There were no unrecognized tax benefits and no amounts accrued for interest and penalties as of June 30, 2023 and December 31, 2022. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position.
The Company has identified the United States as its only “major” tax jurisdiction. The Company may be subject to potential examination by federal and state taxing authorities in the areas of income taxes. These potential examinations may include questioning the timing and amount of deductions, the nexus of income among various tax jurisdictions and compliance with federal and state tax laws.
13
M3-BRIGADE ACQUISITION III CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
June 30, 2023
(Unaudited)
Recent Accounting Standards
Management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Company’s financial statements.
NOTE 3 — PRIVATE PLACEMENT
Simultaneously with the closing of the Initial
Public Offering, the Company consummated the private sale (the “Private Placement”) to the Sponsor and the Underwriter of
an aggregate of
A portion of the proceeds from the Private Placement Warrants was added to the proceeds from the Initial Public Offering held in the Trust Account. If the Company does not complete a Business Combination within the Combination Period, the proceeds from the sale of the Private Placement Warrants held in the Trust Account will be used to fund the redemption of the Public Shares (subject to the requirements of applicable law) and the Private Placement Warrants will be worthless.
The Sponsor and the Company’s officers and
directors agreed, subject to limited exceptions, not to transfer, assign or sell any of their Private Placement Warrants until
NOTE 4 — RELATED PARTY TRANSACTIONS
Founder Shares
On April 12, 2021, the Sponsor purchased
The Sponsor has agreed, subject to limited exceptions,
not to transfer, assign or sell any of the Founder Shares until the earlier to occur of: (A) one year after the completion of a Business
Combination and (B) subsequent to a Business Combination, (x) if the closing price of the shares of Class A common stock equal or exceeds
$
14
M3-BRIGADE ACQUISITION III CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
June 30, 2023
(Unaudited)
Private Placement Warrants
The Sponsor and Cantor Fitzgerald & Co. (“Cantor”)
have purchased from the Company an aggregate of
If the Company does not complete a Business Combination, then the proceeds will be part of the liquidating distribution to the public stockholders and the Public Warrants issued to the Sponsor will expire worthless.
Due to Related Parties
An affiliate of the Sponsor paid $
Forward Purchase Agreement
On October 21, 2021, the Company entered into
a forward purchase agreement with M3-Brigade III FPA LP, an affiliate of the Sponsor, which provides for the purchase of up to $
The Company accounts for the Forward Purchase
Agreement in accordance with the guidance in ASC 815-40 and accounts for such agreements as derivative liability. The liability is subject
to re-measurement at each balance sheet date, with changes in fair value recognized in the statements of operations. As of June 30, 2023
and December 31, 2022, the liability on account of the Forward Purchase Agreement was $
On December 14, 2022, the Company entered into an FPA Termination Agreement, by and among the Company, M3-Brigade III FPA LP, HT Investments, LLC, Brigade Capital GP, LLC, and the Sponsor, pursuant to which, among other things, the parties agreed to terminate the forward purchase agreement, dated October 21, 2021, by and between the Company and M3-Brigade FPA LP. The termination of the Forward Purchase Agreement is contingent upon the closing of the Business Combination.
Working Capital Loans
In order to finance transaction costs in connection
with a Business Combination, the Sponsor or an affiliate of the Sponsor, or certain of the Company’s officers and directors may,
but are not obligated to, loan the Company funds as may be required (“Working Capital Loans”). If the Company completes a
Business Combination, the Company would repay the Working Capital Loans out of the proceeds of the Trust Account released to the Company.
Otherwise, the Working Capital Loans would be repaid only out of funds held outside the Trust Account and interest accrued on funds in
the Trust Account. In the event that a Business Combination does not close, the Company may use a portion of proceeds held outside the
Trust Account and any interest accrued on funds in the Trust Account to repay the Working Capital Loans, but no proceeds held in the Trust
Account, other than such interest earnings, would be used to repay the Working Capital Loans. Except for the foregoing, the terms of such
Working Capital Loans, if any, have not been determined and no written agreements exist with respect to such loans. The Working Capital
Loans would either be repaid upon consummation of a Business Combination, without interest, or, at the lender’s discretion, up to
$
15
M3-BRIGADE ACQUISITION III CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
June 30, 2023
(Unaudited)
NOTE 5 — ACCRUED EXPENSES
| Professional fees and expenses | $ | |||
| Delaware franchise tax | ||||
| Other expenses | ||||
| Total | $ |
The Company’s accrued expenses as of December 31, 2022 were comprised as follows:
| Professional fees and expenses | $ | |||
| Delaware franchise tax | ||||
| Other expenses | ||||
| Total | $ |
Of such accrued expenses at June 30, 2023 and
December 31, 2022, $
NOTE 6 — COMMITMENTS AND CONTINGENCIES
Registration Rights
The holders of the Founder Shares, Private Placement Warrants and warrants that may be issued upon conversion of Working Capital Loans (and any shares of Class A common stock issuable upon the exercise of the Private Placement Warrants and warrants that may be issued upon conversion of Working Capital Loans and upon conversion of the Founder Shares) are entitled to registration rights pursuant to a registration rights agreement (the “Registration Rights Agreement”) signed prior to the effective date of the Initial Public Offering requiring the Company to register such securities for resale (in the case of the Founder Shares, only after conversion into shares of Class A common stock). The holders of these securities are entitled to make up to three demands, excluding short form registration demands, that the Company register such securities. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to the completion of a Business Combination and rights to require the Company to register for resale such securities pursuant to Rule 415 under the Securities Act. The Registration Rights Agreement does not contain liquidated damages or other cash settlement provisions resulting from delays in registering our securities. The Company will bear the expenses incurred in connection with the filing of any such registration statement.
Underwriting Agreement
The Company granted the Underwriter a 45-day option
from the date of Initial Public Offering to purchase up to
The Underwriter was paid a cash underwriting discount
of $
Contingent Fee Arrangement
The Company entered into an agreement with a
legal vendor to provide services in the event of a potential business combination. This agreement provides for payments of
completion of due diligence and drafting of a definitive merger agreement, resulting in total payments of up to approximately
$
16
M3-BRIGADE ACQUISITION III CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
June 30, 2023
(Unaudited)
NOTE 7 — CLASS A COMMON STOCK SUBJECT TO POSSIBLE REDEMPTION
| Proceeds at issuance date (October 26, 2021) | $ | |||
| Less: | ||||
| Proceeds allocated to public warrants | ( | ) | ||
| Class A common stock issuance cost | ( | ) | ||
| Plus: | ||||
| Accretion of carrying value to redemption value | ||||
| Balance at December 31, 2022 | ||||
| Plus: | ||||
| Accretion of carrying value to redemption value | ||||
| Balance at March 31, 2023 | ||||
| Plus: | ||||
| Accretion of carrying value to redemption value | ||||
| Balance at June 30, 2023 | $ |
NOTE 8 — STOCKHOLDERS’ DEFICIT
Preferred Stock — The Company
is authorized to issue a total of
Class A Common Stock — The
Company is authorized to issue a total of
Class B Common Stock — The
Company is authorized to issue
Holders of Class B common stock will have the right to elect all of the Company’s directors prior to a Business Combination. Holders of shares of Class A common stock and holders of shares of Class B common stock will vote together as a single class on all matters submitted to a vote of our stockholders except as otherwise required by law.
The shares of Class B common stock will automatically
convert into shares of Class A common stock at the time of a Business Combination on a one-for-one basis, subject to adjustment. In the
case that additional shares of Class A common stock, or equity-linked securities, are issued or deemed issued in excess of the amounts
sold in the Initial Public Offering and related to the closing of a Business Combination, the ratio at which shares of Class B common
stock shall convert into shares of Class A common stock will be adjusted (unless the holders of a majority of the outstanding shares of
Class B common stock agree to waive such anti-dilution adjustment with respect to any such issuance or deemed issuance) so that the number
of shares of Class A common stock issuable upon conversion of all shares of Class B common stock will equal, in the aggregate, on an as-converted
basis
Warrants — Public Warrants may only be exercised for a whole number of shares. No fractional Public Warrants will be issued upon separation of the Units and only whole Public Warrants will trade. The Public Warrants will become exercisable 30 days after the completion of a Business Combination. The Public Warrants will expire five years after the completion of a Business Combination or earlier upon redemption or liquidation.
17
M3-BRIGADE ACQUISITION III CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
June 30, 2023
(Unaudited)
The Company will not be obligated to deliver any shares of Class A common stock pursuant to the exercise of a Public Warrant and will have no obligation to settle such warrant exercise unless a registration statement under the Securities Act covering the issuance of the shares of Class A common stock underlying the warrants is then effective and a prospectus relating thereto is current, subject to the Company satisfying its obligations with respect to registration. No warrant will be exercisable and the Company will not be obligated to issue shares of Class A common stock upon exercise of a warrant unless the shares of Class A common stock issuable upon such warrant exercise has been registered, qualified or deemed to be exempt under the securities laws of the state of residence of the registered holder of the warrants.
The Company has agreed that as soon as practicable, but in no event later than 20 business days after the closing of a Business Combination, it will use its reasonable best efforts to file with the SEC, and within 60 business days following a Business Combination to have declared effective, a registration statement covering the issuance of the shares of Class A common stock issuable upon exercise of the warrants and to maintain a current prospectus relating thereto until the warrants expire or, in the case of Public Warrants only, are redeemed. Notwithstanding the above, if the shares of Class A common stock are at the time of any exercise of a warrant not listed on a national securities exchange such that it satisfies the definition of a “covered security” under Section 18(b)(1) of the Securities Act, the Company may, at its option, require holders of Public Warrants who exercise their Public Warrants to do so on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act and, in the event the Company so elects, the Company will not be required to file or maintain in effect a registration statement, but will use its reasonable best efforts to qualify the shares under applicable blue sky laws to the extent an exemption is not available.
Redemption for Public Warrants. Once the Public Warrants become exercisable, the Company may redeem for cash the outstanding Public Warrants:
| ● | in whole and not in part; |
| ● | at a price of $ |
| ● | upon a minimum of 30 days’ prior written notice of redemption, or the 30-day redemption period, to each Public Warrant holder; and |
| ● | if, and only if, the last reported sale price of the Class A common stock has been at least $ |
The Company will not redeem the Public Warrants as described above unless a registration statement under the Securities Act covering the shares of Class A common stock issuable upon exercise of the Public Warrants is then effective and a current prospectus relating to those shares of Class A common stock is available throughout the 30-day redemption period or the Company elected to require the exercise of the Public Warrants on a “cashless basis” as described below. If and when the Public Warrants become redeemable by the Company, the Company may exercise its redemption right even if it is unable to register or qualify the underlying securities for sale under all applicable state securities laws.
If the Company calls the Public Warrants for redemption, management will have the option to require all holders that wish to exercise the Public Warrants to do so on a “cashless basis,” as described in the agreement governing the Public Warrants. In determining whether to require all holders to exercise their Public Warrants on a “cashless basis”, the Company’s management will consider, among other factors, its cash position, the number of Public Warrants that are outstanding and the dilutive effect on the Company’s stockholders of issuing the maximum number of shares of Class A common stock issuable upon the exercise of the Public Warrants. In such event, each holder would pay the exercise price by surrendering the Public Warrants for that number of shares of Class A common stock equal to the quotient obtained by dividing (x) the product of the number of shares of Class A common stock underlying the Public Warrants, multiplied by the excess of the “fair market value” (as defined below) of the number of shares of Class A common stock over the exercise price of the Public Warrants by (y) the “fair market value.” Solely for purposes of this paragraph, the “fair market value” means the volume-weighted average last reported sale price of the shares of Class A common stock as reported for the ten trading days ending on the third trading day prior to the date on which the notice of redemption is sent to the holders of the Public Warrants. However, except as described below, the Public Warrants will not be adjusted for issuances of shares of Class A common stock at a price below their exercise price. Additionally, in no event will the Company be required to net cash settle the Public Warrants. If the Company is unable to complete a Business Combination within the Combination Period and the Company liquidates the funds held in the Trust Account, holders of warrants will not receive any of such funds with respect to their Public Warrants, nor will they receive any distribution from the Company’s assets held outside of the Trust Account with the respect to such warrants. Accordingly, the Public Warrants may expire worthless.
18
M3-BRIGADE ACQUISITION III CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
June 30, 2023
(Unaudited)
The Private Placement Warrants are identical to the Public Warrants underlying the Units being sold in the Initial Public Offering, except that the Private Placement Warrants and the shares of Class A common stock issuable upon the exercise of the Private Placement Warrants will not be transferable, assignable or saleable until 30 days after the completion of a Business Combination, subject to certain limited exceptions. Additionally, the Private Placement Warrants will be non-redeemable and will be exercisable at the election of the holder on a “cashless basis.”
A holder of a warrant may notify the Company in
writing in the event it elects to be subject to a requirement that such holder will not have the right to exercise such warrant to the
extent that after giving effect to such exercise, such person (together with such person’s affiliates), to the warrant agent’s
actual knowledge, would beneficially own in excess of
If the number of outstanding shares of Class A common stock is increased by a stock dividend payable in shares of Class A common stock, or by a split- up of shares of Class A common stock or other similar event, then, on the effective date of such stock dividend, split-up or similar event, the number of shares of Class A common stock issuable on exercise of each warrant will be increased in proportion to such increase in the outstanding shares of Class A common stock. A rights offering to holders of Class A common stock entitling holders to purchase shares of Class A common stock at a price less than the fair market value will be deemed a stock dividend of a number of shares of Class A common stock equal to the product of (i) the number of shares of Class A common stock actually sold in such rights offering (or issuable under any other equity securities sold in such rights offering that are convertible into or exercisable for Class A common stock) multiplied by (ii) one (1) minus the quotient of (x) the price per share of Class A common stock paid in such rights offering divided by (y) the fair market value. For these purposes (i) if the rights offering is for securities convertible into or exercisable for Class A common stock, in determining the price payable for Class A common stock, there will be taken into account any consideration received for such rights, as well as any additional amount payable upon exercise or conversion and (ii) fair market value means the volume weighted average price of Class A common stock as reported during the ten (10) trading day period ending on the trading day prior to the first date on which the shares of Class A common stock trade on the applicable exchange or in the applicable market, regular way, without the right to receive such rights.
In addition, if the Company, at any time while
the warrants are outstanding and unexpired, pays a dividend or makes a distribution in cash, securities or other assets to the holders
of Class A common stock on account of such shares of Class A common stock (or other shares of the Company’s capital stock into which
the warrants are convertible), other than (a) as described above, (b) certain ordinary cash dividends of which are dividends up to $
19
M3-BRIGADE ACQUISITION III CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
June 30, 2023
(Unaudited)
In case of any reclassification or reorganization
of the outstanding shares of Class A common stock (other than those described above or any that solely affects the par value of such shares
of Class A common stock), or in the case of any merger or consolidation of the Company with or into another corporation (other than a
consolidation or merger in which the Company is are the continuing corporation and that does not result in any reclassification or reorganization
of the Company’s outstanding shares of Class A common stock), or in the case of any sale or conveyance to another corporation or
entity of the assets or other property of the Company as an entirety or substantially as an entirety in connection with which the Company
is dissolved, the holders of the warrants will thereafter have the right to purchase and receive, upon the basis and upon the terms and
conditions specified in the warrants and in lieu of the shares of the Company’s Class A common stock immediately theretofore purchasable
and receivable upon the exercise of the rights represented thereby, the kind and amount of shares of stock or other securities or property
(including cash) receivable upon such reclassification, reorganization, merger or consolidation, or upon a dissolution following any such
sale or transfer, that the holder of the warrants would have received if such holder had exercised their warrants immediately prior to
such event. However, if such holders were entitled to exercise a right of election as to the kind or amount of securities, cash or other
assets receivable upon such consolidation or merger, then the kind and amount of securities, cash or other assets for which each warrant
will become exercisable will be deemed to be the weighted average of the kind and amount received per share by such holders in such consolidation
or merger that affirmatively make such election, and if a tender, exchange or redemption offer has been made to and accepted by such holders
(other than a tender, exchange or redemption offer made by the company in connection with redemption rights held by stockholders of the
company as provided for in the company’s amended and restated certificate of incorporation or as a result of the repurchase of shares
of Class A common stock by the company if a proposed initial business combination is presented to the stockholders of the company for
approval) under circumstances in which, upon completion of such tender or exchange offer, the maker thereof, together with members of
any group (within the meaning of Rule 13d-5(b)(1) under the Exchange Act) of which such maker is a part, and together with any affiliate
or associate of such maker (within the meaning of Rule 12b-2 under the Exchange Act) and any members of any such group of which any such
affiliate or associate is a part, own beneficially (within the meaning of Rule 13d-3 under the Exchange Act) more than
The warrants will be issued in registered form
under a warrant agreement between Continental Stock Transfer & Trust Company, as warrant agent, and the Company. The warrant agreement
provides that the terms of the warrants may be amended without the consent of any holder to cure any ambiguity or correct any mistake,
including to conform the provisions of the warrant agreement to the description of the terms of the warrants and the warrant agreement
set forth in this prospectus, or to correct any defective provision, but requires the approval by the holders of at least
20
M3-BRIGADE ACQUISITION III CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
June 30, 2023
(Unaudited)
The warrants may be exercised upon surrender of the warrant certificate on or prior to the expiration date at the offices of the warrant agent, with the exercise form on the reverse side of the warrant certificate completed and executed as indicated, accompanied by full payment of the exercise price (or on a cashless basis, if applicable), by certified or official bank check payable to the Company, for the number of warrants being exercised. The warrant holders do not have the rights or privileges of holders of Class A common stock and any voting rights until they exercise their warrants and receive shares of Class A common stock. After the issuance of shares of Class A common stock upon exercise of the warrants, each holder will be entitled to one vote for each share held of record on all matters to be voted on by stockholders.
Warrants may be exercised only for a whole number of shares of Class A common stock. No fractional shares will be issued upon exercise of the warrants. If, upon exercise of the warrants, a holder would be entitled to receive a fractional interest in a share, the Company will, upon exercise, round down to the nearest whole number the number of shares of Class A common stock to be issued to the warrant holder. As a result, warrant holders not purchasing an even number of warrants must sell any odd number of warrants in order to obtain full value from the fractional interest that will not be issued The private placement warrants (including the Class A common stock issuable upon exercise of the private placement warrants) will not be transferable, assignable or salable until 30 days after the completion of the Company’s initial business combination (except, among other limited exceptions as described under “Principal Stockholders— Transfers of Founder Shares and Private Placement Warrants,” to the Company’s officers and directors and other persons or entities affiliated with the sponsor) and they will not be redeemable by the Company so long as they are held by the sponsor or its permitted transferees. Otherwise, the private placement warrants have terms and provisions that are identical to those of the warrants being sold as part of the units in the IPO. If the private placement warrants are held by holders other than the sponsor or its permitted transferees, the private placement warrants will be redeemable by the Company and exercisable by the holders on the same basis as the warrants included in the units being sold in the IPO.
If holders of the private placement warrants elect to exercise them on a cashless basis, they would pay the exercise price by surrendering his, her or its warrants for that number of shares of Class A common stock equal to the quotient obtained by dividing (x) the product of the number of shares of Class A common stock underlying the warrants, multiplied by the difference between the exercise price of the warrants and the “fair market value” (defined below) by (y) the fair market value. The “fair market value” shall mean the average reported last sale price of the Class A common stock for the 10 trading days ending on the third trading day prior to the date on which the notice of warrant exercise is sent to the warrant agent. The reason that the Company has agreed that these warrants will be exercisable on a cashless basis so long as they are held by the Company’s sponsor and permitted transferees is because it is not known at this time whether they will be affiliated with the Company following a business combination. If they remain affiliated with the Company, their ability to sell the Company’s securities in the open market will be significantly limited. We expect to have policies in place that prohibit insiders from selling the Company’s securities except during specific periods of time. Even during such periods of time when insiders will be permitted to sell the Company’s securities, an insider cannot trade in the Company’s securities if he or she is in possession of material non-public information. Accordingly, unlike public stockholders who could exercise their warrants and sell the shares of Class A common stock received upon such exercise freely in the open market in order to recoup the cost of such exercise, the insiders could be significantly restricted from selling such securities. As a result, The Company believes that allowing the holders to exercise such warrants on a cashless basis is appropriate.
In order to finance transaction costs in connection
with an intended initial business combination, the Company’s sponsor or an affiliate of the Company’s sponsor or certain of
the Company’s officers and directors may, but are not obligated to, loan the Company funds as may be required. If the Company completes
the Company’s initial business combination, the Company would repay such loaned amounts out of the proceeds of the Trust Account
released to the Company. In the event that the Company’s initial business combination does not close, the Company may use a portion
of the working capital held outside the Trust Account to repay such loaned amounts but no proceeds from the Company’s Trust Account
would be used to repay such loaned amounts. Up to $
Neither the Private Placement Warrants nor Public Warrants contain any provisions that change depending upon the characteristics of the holder of the warrant. The warrant agreements contain a provision wherein warrant holders can receive an alternative issuance, including as a result of a tender offer that constitutes a change of control. For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. The Company’s Public and Private Placement Warrants are accounted for as equity.
21
M3-BRIGADE ACQUISITION III CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
June 30, 2023
(Unaudited)
NOTE 9 — RECURRING FAIR VALUE MEASUREMENTS
At June 30, 2023 and December 31, 2022, the assets held in the Trust Account were substantially held in U.S. government securities and in mutual funds that invest primarily in U.S. government securities and (in either such case) reported at fair value. Fair values of these investments are determined by Level 1 inputs utilizing quoted prices (unadjusted) in active markets for identical assets.
The Company’s Forward Purchase Agreement liability and subscription purchase agreement liability are based on a valuation model utilizing management judgment and pricing inputs from observable and unobservable markets with less volume and transaction frequency than active markets. Significant deviations from these estimates and inputs could result in a material change in fair value.
The fair value of the Forward Purchase
Agreement liability is classified within Level 3 of the fair value hierarchy and a value of $
| Description | Level | June 30, 2023 | December 31, 2022 | |||||||||
| Assets: | ||||||||||||
| Investments and marketable securities held in Trust Account | 1 | $ | $ | |||||||||
| Liabilities: | ||||||||||||
| Forward purchase agreement liability | 3 | $ | $ | |||||||||
| Subscription purchase agreement liability | 3 | $ | $ | |||||||||
Forward Purchase Agreement Liability
| June 30, 2023 | December 31, 2022 | |||||||
| Probability of business combination | % | % | ||||||
| Underlying common stock price | $ | $ | ||||||
| Risk-free rate | % | % | ||||||
| Unit purchase price | $ | $ | ||||||
| Estimated maturity date | ||||||||
22
M3-BRIGADE ACQUISITION III CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
June 30, 2023
(Unaudited)
| FPA | ||||
| Fair value as of January 1, 2023 | $ | |||
| Change in fair value | ( | ) | ||
| Fair value as of March 31, 2023 | $ | |||
| Change in fair value | ( | ) | ||
| Fair value as of June 30, 2023 | $ | |||
| FPA | ||||
| Fair value as of January 1, 2022 | $ | |||
| Change in fair value | ||||
| Fair value as of March 31, 2022 | $ | |||
| Change in fair value | ( | ) | ||
| Fair value as of June 30, 2022 | $ | |||
The changes in the fair value of the forward
purchase agreement liability for the three and six months ended June 30, 2023 are $
Subscription Purchase Agreement Liability
In order to calculate the fair value of the subscription purchase agreement liability, the Company utilized the following inputs:
| June 30, 2023 | December 31, 2022 | |||||||
| Probability of business combination | % | % | ||||||
| Underlying common stock price | $ | $ | ||||||
| Risk-free rate | % | % | ||||||
| Unit purchase price | $ | |||||||
| Estimated maturity date | ||||||||
The following table presents the changes in the fair value of the subscription purchase agreement (“SPA”) liability:
| SPA | ||||
| Fair value as of January 1, 2023 | $ | |||
| Change in fair value | ||||
| Fair value as of March 31, 2023 | $ | |||
| Change in fair value | ( | ) | ||
| Fair value as of June 30, 2023 | $ | |||
The changes in the fair value of the subscription
purchase agreement liability for the three and six months ended June 30, 2023 are $
There were no transfers between fair value levels during the periods ended June 30, 2023 and 2022.
NOTE 10 — SUBSEQUENT EVENTS
The Company evaluated events and transactions that occurred after the balance sheet date up to the date that the unaudited condensed financial statements were issued. Based upon this review, other than described below, the Company did not identify any events that would have required adjustment to or disclosure in the unaudited condensed financial statements.
On July 20, 2023, the Company issued a press
release announcing the approval by the Company’s board of directors, at the request of M3-Brigade Sponsor III LP (the “Sponsor”),
of an extension of the period of time the Company has to consummate its initial business combination until October 26, 2023. In connection
with such extension, the Sponsor or its affiliates or designees are required deposit an additional $
On July 27, 2023, the
Company issued a press release announcing the receipt of a deposit of $
23
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
References in this report (the “Quarterly Report”) to “we,” “us” or the “Company” refer to M3-Brigade Acquisition III Corp. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the financial statements and the notes thereto contained elsewhere in this Quarterly Report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.
Special Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q includes forward-looking statements. We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “continue,” or the negative of such terms or other similar expressions. Factors that might cause or contribute to such a discrepancy include, but are not limited to, those described in our other SEC filings.
Overview
We are a blank check company formed under the laws of the State of Delaware on March 25, 2021 for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or other similar Business Combination with one or more businesses. We intend to effectuate our Business Combination using cash from the proceeds of the Initial Public Offering and the sale of the private placement warrants, our capital stock, debt or a combination of cash, stock and debt.
Recent Developments
Appointment of new members to Board of Directors
On November 1, 2022, the Company appointed two new members to its Board of Directors, each of whom was to be paid a fee of $125,000 for his services. Such fees were paid in full in December 2022.
Business Combination Agreement
On December 14, 2022, the Company (“MBSC”) entered into a Business Combination Agreement (as amended on April 21, 2023 and June 15, 2023, and as may be further amended, supplemented or otherwise modified from time to time, the “Business Combination Agreement"), by and among MBSC, Greenfire Resources Ltd., an Alberta corporation (“PubCo”), DE Greenfire Merger Sub Inc., a Delaware corporation and a direct, wholly owned subsidiary of PubCo, 2476276 Alberta ULC, an Alberta corporation and a direct, wholly owned subsidiary of PubCo, and Greenfire Resources Inc., an Alberta corporation. The following description of the Business Combination Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Business Combination Agreement, a copy of which is included as Annex A to the definitive proxy statement filed with the SEC on August 14, 2023. Capitalized terms used but not otherwise defined herein have the meanings given to them in the Business Combination Agreement.
Conditions to the Closing
The consummation of the Transactions is subject to the satisfaction or waiver of certain customary closing conditions, among others (i) the approval of the Transactions and related matters by the equity holders of MBSC and Greenfire, (ii) the absence of any laws or injunctions prohibiting the Transactions, (iii) the accuracy (subject to agreed materiality thresholds) of the parties’ representations and warranties contained in the Business Combination Agreement, (iv) the absence of any “Material Adverse Effect” on either MBSC or Greenfire (as defined in the Business Combination Agreement), (v) approval for listing of the PubCo Common Shares by the New York Stock Exchange, (vi) approval of the Plan of Arrangement by the Alberta Court of King’s Bench, and (vii) the parties’ compliance in all material respects with their respective covenants under the Business Combination Agreement.
Termination
The Business Combination Agreement may be terminated at any time prior to the Closing (a) by mutual written consent of MBSC and Greenfire, (b) by either MBSC or Greenfire, if the approval of the equity holders of MBSC or Greenfire is not obtained, (c) by either MBSC or Greenfire, if the other party has materially breached its covenants or representations under the Business Combination Agreement, (d) by either MBSC or Greenfire, if the Closing has not occurred on or before September 14, 2023, subject to either party’s ability to extend such date by two three-month periods in the event that specified approvals have not been obtained, (e) by either MBSC or Greenfire, if there is a final, non-appealable order of a governmental authority prohibiting the consummation of the Transactions, and (f) by MBSC if Greenfire has not delivered certain specified financial statements by April 15, 2023. There has been no termination to date of filing this Form 10-Q.
24
Subscription Agreements
On December 14, 2022, concurrently with the execution of the Business Combination Agreement, MBSC entered into subscription agreements with certain investors, pursuant to which the Transaction Financing Investors have subscribed for an aggregate of (i) 4,950,496 SPAC Class A Shares for an aggregate purchase price of approximately $50,000,000 and (ii) $50,000,000 aggregate principal amount of PubCo’s 9.00% Convertible Senior Notes due 2028. The Transaction Financing will be consummated prior to or substantially concurrently with the Closing.
Each of the PIPE Investment and the PubCo Debt Financing will be automatically reduced based on the amount remaining in the trust account after giving effect to the SPAC Stockholder Redemption, with the PubCo Debt Financing being reduced first, and, if reduced in its entirety, the PIPE Investment being thereafter reduced.
The foregoing description of the Greenfire Subscription Agreements does not purport to be complete and is qualified in its entirety by reference to the full text of the form of Subscription Agreement, a copy of which is included as Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on December 20, 2022.
Greenfire Shareholder Support Agreement
On December 14, 2022, concurrently with the execution of the Business Combination Agreement, MBSC, PubCo, Merger Sub, Canadian Merger Sub and Greenfire entered into a Shareholder Support Agreement with certain Greenfire shareholders (the “Greenfire Shareholder Support Agreement”), pursuant to which, among other things, such Greenfire shareholders have agreed to vote their Greenfire Shares to approve and adopt the Business Combination Agreement and the Transactions.
The foregoing description of the Greenfire Shareholder Support Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the form of Shareholder Support Agreement, a copy of which is included as Exhibit 10.2 to the Current Report on Form 8-K filed with the SEC on December 20, 2022.
Sponsor Agreement
On December 14, 2022, concurrently with the execution of the Business Combination Agreement, the sponsor, MBSC, PubCo and Greenfire entered into a Sponsor Agreement (the “Sponsor Agreement”), pursuant to which, among other things, the sponsor has agreed to (a) vote in favor of and support the Business Combination Agreement and the Transactions, (b) consummate the sponsor Class B Share Forfeitures and the sponsor Warrant Forfeiture in accordance with the Business Combination Agreement and (c) make a cash payment of $1,000,000 to Greenfire promptly following the Closing.
The foregoing description of the Sponsor Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Sponsor Agreement, a copy of which is included as Exhibit 10.3 to the Current Report on Form 8-K filed with the SEC on December 20, 2022.
Lock-Up Agreement
At the Closing, PubCo, the sponsor and certain Greenfire Shareholders will become parties to a Lock-Up Agreement (the “Lock-Up Agreement”), pursuant to which, among other things, each of the sponsor and the Greenfire Shareholders party thereto will agree not to effect any sale or distribution of any Equity Securities of PubCo held by any of them during the period beginning on the Closing Date and ending on the earliest of (i) the date that is 180 days after the Closing Date, (ii) the date on which the last reported closing price of a PubCo Common Share equals or exceeds $12.00 per share (as adjusted for share splits, share dividends, reorganizations, recapitalizations and the like) for any twenty (20) trading days within any thirty (30)-trading day period commencing at least seventy-five (75) days after the Closing Date and (iii) the date on which PubCo completes a liquidation, merger, amalgamation, arrangement, share exchange, reorganization or other similar transaction that results in all of PubCo’s shareholders having the right to exchange their shares of capital stock for cash, securities or other property.
25
Investor Rights Agreement
At the Closing, PubCo, the sponsor, the other holders of SPAC Class B Shares, the Transaction Financing Investors and certain Greenfire Shareholders will become parties to an Investor Rights Agreement, pursuant to which, among other things, (a) each of the sponsor, the Transaction Financing Investors and such Greenfire Shareholders will be granted certain registration rights with respect to their respective PubCo Common Shares and (b) the sponsor will be granted certain board representation rights with respect to PubCo’s board of directors, in each case, on the terms and subject to the conditions set forth therein. Pursuant to the Investor Rights Agreement, the sponsor will have the right to designate one director for appointment to the PubCo Board following the Closing, which director will be in the class of directors up for reelection at the third annual shareholder meeting of PubCo.
Investor Support Agreements
Concurrently with the execution of the Business Combination Agreement, MBSC entered into Investor Support Agreements with holders of a majority of MBSC’s outstanding public SPAC Warrants, pursuant to which, among other things, such warrant holders agreed to vote all of the SPAC Warrants currently held by them in favor of any amendment to the terms of the SPAC Warrants solely to amend the terms of the SPAC Warrants together with any amendments required to give effect thereto such that all of the SPAC Warrants shall be exchanged for $0.50 per whole SPAC Warrant upon the Closing.
Supplemental Warrant Agreement
In accordance with the terms of the Company Warrant Agreement, as amended by the Supplemental Warrant Agreement: (a) a certain number of Company Bond Warrants shall be deemed to be cancelled in exchange for a cash payment from Greenfire equal to the pro rata share of the Cash Consideration payable to holders of Company Bond Warrants as determined in accordance with the Supplemental Warrant Agreement; following which (b) each remaining Company Bond Warrant shall be deemed to be exercised for Greenfire Shares pursuant to the terms of the Company Warrant Agreement as amended by the Supplemental Warrant Agreement, and each former holder of Company Bond Warrants shall, following the Amalgamation, receive PubCo Common Shares as determined in accordance with the Supplemental Warrant Agreement.
The Business Combination Agreement, the form of Subscription Agreement, the Greenfire Shareholder Support Agreement, the Sponsor Agreement, the form of Investor Support Agreement and the Supplemental Warrant Agreement have been included to provide investors with information regarding their terms. They are not intended to provide any other factual information about MBSC, Greenfire or their respective affiliates. The representations, warranties, covenants and agreements contained in the Business Combination Agreement, the Subscription Agreements, the Greenfire Shareholder Support Agreement, the Sponsor Agreement, the Investor Support Agreements and the Supplemental Warrant Agreement and the other documents related thereto were made only for purposes of the Transactions as of the specific dates therein, were solely for the benefit of the parties to the Business Combination Agreement, the Subscription Agreements, the Greenfire Shareholder Support Agreement, the Sponsor Agreement, the Investor Support Agreements and the Supplemental Warrant Agreement, as applicable, may be subject to limitations agreed upon by the contracting parties, including being qualified by confidential disclosures made for the purposes of allocating contractual risk between the parties to the Business Combination Agreement, the Subscription Agreements, the Greenfire Shareholder Support Agreement, the Sponsor Agreement, the Investor Support Agreements and the Supplemental Warrant Agreement, as applicable, instead of establishing these matters as facts, and may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to investors. Investors are not third-party beneficiaries under the Business Combination Agreement, the Subscription Agreements, the Greenfire Shareholder Support Agreement, the Sponsor Agreement, the Investor Support Agreements and the Supplemental Warrant Agreement, as applicable, and should not rely on the representations, warranties, covenants and agreements or any descriptions thereof as characterizations of the actual state of facts or condition of the parties thereto or any of their respective affiliates. Moreover, information concerning the subject matter of representations and warranties may change after the date of the Business Combination Agreement, the Subscription Agreements, the Greenfire Shareholder Support Agreement, the Sponsor Agreement, the Investor Support Agreements and the Supplemental Warrant Agreement, as applicable, which subsequent information may or may not be fully reflected in MBSC’s public disclosures.
Results of Operations
We have neither engaged in any operations nor generated any revenues to date. Our only activities from March 25, 2021 (inception) through June 30, 2023 were the search for a target company for a Business Combination and activities in connection with the Greenfire Business Combination. We do not expect to generate any operating revenues until after the completion of our Business Combination. We expect to generate non-operating income in the form of dividend and interest income on cash and marketable securities held in trust account after the Initial Public Offering. We incur expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses.
26
For the three months ended June 30, 2023, we had a net income of $2,664,135, which consists of a change in fair value of forward purchase agreement liability of $43,105, dividend on cash and marketable securities held in trust account of $3,607,144 and change in fair value of subscription purchase agreement liability of $318,612 offset by operating and formation costs of $557,726 and provision for income taxes of $747,000.
For the six months ended June 30, 2023, we had a net income of $4,307,697, which consists of dividend on cash and marketable securities held in trust account of $6,916,363, offset by change in fair value of forward purchase agreement liability of $338,517, offset by change in fair value of subscription purchase agreement liability of $598,686, operating and formation costs of $917,060 and provision for income taxes of $1,431,437.
For the three months ended June 30, 2022, we had a net income of $140,117, which consists of the change in fair value of derivative liabilities – forward purchase agreement of $341,659 and the gain on marketable securities (net), dividends and interest on cash held in Trust Account of $61,838, offset by operating and formation costs of $263,380.
For the six months ended June 30, 2022, we had a net loss of $561,832, which consists of operating and formation costs of $615,801 and the change in fair value of derivative liabilities – forward purchase agreement of $38,381, offset by the gain on marketable securities (net), dividends and interest on cash held in Trust Account of $92,350.
Liquidity and Capital Resources
On October 26, 2021, we consummated the Initial Public Offering of 30,000,000 Units at a price of $10.00 per Unit, which includes the partial exercise by the underwriters of the over-allotment option to purchase an additional 3,900,000 Units, generating gross proceeds of $300,000,000. Simultaneously with the closing of the Initial Public Offering, we consummated the sale of 7,526,667 Private Placement Warrants at a price of $1.50 per Private Placement Warrant in a private placement to our Sponsor, generating gross proceeds of $11,290,000.
On October 26, 2021, following the Initial Public Offering, the partial exercise of the over-allotment option by the underwriters’ and the sale of the Private Placement Warrants, a total of $303,000,000 (including $3,000,000 from the proceeds of the Private Placement Warrants) was placed in the trust account.
For the six months ended June 30, 2023, cash provided by operating activities was $322,611. Net income for the six months ended June 30, 2023 was $4,307,697 and was affected by dividends and interest on cash held in Trust Account of $6,916,363, change in fair value of forward purchase agreement liability of $338,517 and change in fair value of subscription purchase agreement liability of $598,686. Changes in operating assets and liabilities provided $1,860,622 of cash from operating activities.
For the six months ended June 30, 2022, cash used in operating activities was $140,259. Net loss for the six months ended June 30, 2022 was $561,832 and was affected by dividends and interest on cash held in Trust Account of $92,350, offset by change in fair value of derivative liabilities - forward purchase agreement of $38,381 and changes in operating assets and liabilities, which provided $475,542 of cash from operating activities.
As of June 30, 2023, we had cash and marketable securities held in the trust account of $312,953,334. We intend to use substantially all of the funds held in the trust account, including any amounts representing interest earned on the trust account to complete our Business Combination. We may withdraw interest to pay franchise and income taxes and for working capital purposes. During the three and six months ended June 30, 2023, the Company withdrew $1,646,500 of dividend and interest income from the trust account for working capital and to pay taxes. During the three and six months ended June 30, 2022, the Company did not withdraw any dividend and interest income from the trust account for working capital and to pay taxes. To the extent that our capital stock or debt is used, in whole or in part, as consideration to complete our Business Combination, the remaining proceeds held in the trust account will be used as working capital to finance the operations of the target business or businesses, make other acquisitions and pursue our growth strategies.
27
As of June 30, 2023, we had cash of $498,089 outside of the trust account. We intend to use the funds held outside the trust account to pay taxes, with the excess amounts outside the trust account being used primarily to identify and evaluate target businesses, perform business due diligence on prospective target businesses, travel to and from the offices, plants or similar locations of prospective target businesses or their representatives or owners, review corporate documents and material agreements of prospective target businesses, and structure, negotiate and complete a Business Combination.
In order to fund working capital deficiencies or finance transaction costs in connection with a Business Combination, the Sponsor, an affiliate of the Sponsor, or our officers and directors may, but are not obligated to, loan us funds as may be required. If we complete a Business Combination, we would repay such loaned amounts. In the event that a Business Combination does not close, we may use a portion of the working capital held outside the trust account to repay such loaned amounts but no proceeds from our trust account would be used for such repayment. Up to $1,500,000 of such loans may be convertible into warrants, at a price of $1.50 per warrant at the option of the lender. The warrants would be identical to the Private Placement Warrants, including as to exercise price, exercisability and exercise period. The terms of such loans by our officers and directors, if any, have not been determined and no written agreements exist with respect to such loans. The loans would be repaid upon consummation of a Business Combination, without interest. As of June 30, 2023 and December 31, 2022, there were no working capital loans outstanding.
An affiliate of the sponsor paid $192,374 of expenses on behalf of the Company prior to the Initial Public Offering. Such advances were to be repaid by the Company out of funds held outside the trust account and were repaid on March 30, 2022. As of June 30, 2023 and December 31, 2022, there were $20,747 and $19,477 outstanding balance under due to related parties, respectively.
We have incurred and expects to continue to incur significant costs in pursuit of its financing and acquisition plans. We expect that we will need to raise additional funds in order to meet the expenditures required for operating our business, pay our existing liabilities and pay for the costs of identifying a target business, undertaking in-depth due diligence and negotiating a Business Combination. Additionally, we may need to obtain additional financing either to complete our Business Combination or because we become obligated to redeem a significant number of our public shares upon consummation of our Business Combination, in which case we may issue additional securities or incur debt in connection with such Business Combination. Subject to compliance with applicable securities laws, we would only complete such financing simultaneously with the completion of our Business Combination. If we are unable to complete our Business Combination because we do not have sufficient funds available to us, we will be forced to cease operations and liquidate the trust account. In addition, following our Business Combination, if cash on hand is insufficient, we may need to obtain additional financing in order to meet our obligations. These conditions raise substantial doubt about our ability to continue as a going concern one year from the date of our financial statements are issued.
Contractual obligations
We do not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities.
The underwriters are entitled to a deferred fee of $0.45 per Unit issued at our initial public offering and $0.65 per Unit issued upon exercise by the underwriters of their overallotment option, or $14,280,000 in the aggregate. The deferred fee will be waived by the underwriters in the event that we do not complete a Business Combination, subject to the terms of the underwriting agreement.
28
Critical Accounting Estimates
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates. We have not identified any critical accounting estimates, other than the following:
Derivative Liabilities
Forward purchase agreement and subscription purchase agreement are accounted for as liabilities in accordance with Accounting Standards Codification (“ASC”) 815, “Derivatives and Hedging”, and presented as derivative liabilities on the June 30, 2023 and December 31, 2022 balance sheets. The derivative liabilities were measured at fair value at inception and on a recurring basis, which changes in fair values are presented within change in fair value of derivative liabilities in the statements of operations. In order to capture the market conditions associated with the forward purchase agreement and subscription purchase agreement derivative liabilities, the Company engaged third-party valuation firm to conduct valuation on these derivative liabilities using Probability Weighted Expected Return Method (“PWERM”). PWERM is a multistep process in which value is estimated on the probability-weighted present value of various future outcomes. Future security value under each scenario is estimated. Each outcome and related security values are weighted based on the probability of the outcome occurring. The security values are discounted back to the valuation date using appropriate discount rate.
The key inputs used for forward purchase agreement liability were as follow:
| June 30, 2023 | December 31, 2022 | |||||||
| Probability of business combination | 95 | % | 90 | % | ||||
| Underlying common stock price | $ | 10.45 | $ | 10.14 | ||||
| Risk-free rate | 5.24 | % | 3.99 | % | ||||
| Unit purchase price | $ | 10.00 | $ | 10.00 | ||||
| Estimated maturity date | 09/01/2023 | 06/20/2023 | ||||||
The key inputs used for subscription purchase agreement liability were as follow:
| June 30, 2023 | December 31, 2022 | |||||||
| Probability of business combination | 95 | % | 90 | % | ||||
| Underlying common stock price | $ | 10.45 | $ | 10.14 | ||||
| Risk-free rate | 5.24 | % | 3.99 | % | ||||
| Unit purchase price | $ | 10.10 | 10.10 | |||||
| Estimated maturity date | 9/01/2023 | 6/20/2023 | ||||||
Recent Accounting Standards
Management does not believe that any other recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on our financial statements.
29
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Following the consummation of our Initial Public Offering, the net proceeds of our Initial Public Offering, including amounts in the Trust Account, have been invested in U.S. government treasury bills, notes or bonds with a maturity of 185 days or less or in certain money market funds that invest solely in US treasuries, except that funds held by us outside of the Trust Account are invested in non-interest-bearing bank deposits. Due to the short-term nature of these investments, we believe there will be no associated material exposure to interest rate risk.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
As required by Rules 13a-15 and 15d-15 under the Exchange Act, our management carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures under the supervision of our Chief Executive Officer and our Chief Financial Officer. They concluded that our disclosure controls and procedures were not effective as of June 30, 2023 as the material weaknesses in our (a) control environment which resulted in inadequate oversight over the performance of controls and our control activities due to a lack of sufficient personnel with an appropriate level of internal controls and accounting knowledge, training and experience commensurate with our financial reporting requirements, which resulted in additional material weaknesses in our financial reporting process, specifically related to (b) a failure to properly design and implement controls over (i) the presentation of earnings per share and cash flow activity; (ii) complex accounting; and (iii) the review of third party valuations, all of which were previously identified and disclosed as of December 31, 2022 in our 2022 Annual report on Form 10-K and continue to exist as of June 30, 2023. During the first and second quarters of 2023, these material weaknesses resulted in a failure to detect errors in the valuation of the forward purchase agreement and subscription purchase agreement. A material weakness, as defined in the SEC regulations, is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. In light of this material weakness, we performed additional analysis as deemed necessary to ensure that our financial statements were prepared in accordance with U.S. generally accepted accounting principles.
Remediation Plans
Management plans to remediate the material weaknesses by enhancing our processes to identify and appropriately apply applicable accounting requirements and increased communication among our personnel and third-party professionals with whom we consult regarding accounting applications. The elements of our remediation plan can only be accomplished over time, and we can offer no assurance that these initiatives will ultimately have the intended effects.
Changes in Internal Control over Financial Reporting
Except for the remediation plans in connection with the material weaknesses described above, there were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during the second fiscal quarter ended June 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
30
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 1A. Risk Factors
Factors that could cause the Company’s actual business, financial condition and/or results of operations to differ materially from those in this Quarterly Report are any of the risks factors described in the Registration Statement and in the Company’s Annual Report on Form 10-K for the period from March 25, 2021 (inception) through December 31, 2022. As of the date of this Quarterly Report, there have been no material changes with respect to those risk factors previously disclosed in our Registration Statement or such Annual Report filed with the SEC. Any of these risk factors could result in a significant or material adverse effect on the Company’s business, financial condition and/or results of operations. Additional risk factors not presently known to the Company or that the Company currently deems immaterial may also impair the Company’s business, financial condition and/or results of operations.
In addition, we may be subject to the following risk in connection with changes in laws and regulations. Changes in laws or regulations, or a failure to comply with any laws and regulations, may adversely affect our business, including our ability to negotiate and complete our initial business combination and results of operations.
We are subject to laws and regulations enacted by national, regional and local governments. In particular, we will be required to comply with certain SEC and other legal requirements. Compliance with, and monitoring of, applicable laws and regulations may be difficult, time consuming and costly. Those laws and regulations and their interpretation and application may also change from time to time and those changes could have a material adverse effect on our business, investments and results of operations. In addition, a failure to comply with applicable laws or regulations, as interpreted and applied, could have a material adverse effect on our business, including our ability to negotiate and complete our initial business combination and results of operations.
On March 30, 2022, the SEC issued proposed rules relating to, among other items, disclosures in business combination transactions involving special purpose acquisition companies (“SPACs”) and private operating companies; the financial statement requirements applicable to transactions involving shell companies; the use of projections in SEC filings in connection with proposed business combination transactions; the potential liability of certain participants in proposed business combination transactions; and the extent to which SPACs could become subject to regulation under the Investment Company Act of 1940, as amended, including a proposed rule that would provide SPACs a safe harbor from treatment as an investment company if they satisfy certain conditions that limit a SPAC’s duration, asset composition, business purpose and activities. These rules, if adopted, whether in the form proposed or in a revised form, may increase the costs of and the time needed to negotiate and complete an initial business combination, and may constrain the circumstances under which we could complete an initial business combination.
Inflation Reduction Act of 2022
On August 16, 2022, the Inflation Reduction Act of 2022 (the “IR Act”) was signed into federal law. The IR Act provides for, among other things, a new U.S. federal 1% excise tax on certain repurchases of stock by publicly traded U.S. domestic corporations and certain U.S. domestic subsidiaries of publicly traded foreign corporations occurring on or after January 1, 2023. The excise tax is imposed on the repurchasing corporation itself, not its shareholders from which shares are repurchased. The amount of the excise tax is generally 1% of the fair market value of the shares repurchased at the time of the repurchase. However, for purposes of calculating the excise tax, repurchasing corporations are permitted to net the fair market value of certain new stock issuances against the fair market value of stock repurchases during the same taxable year. In addition, certain exceptions apply to the excise tax. The U.S. Department of the Treasury (the “Treasury”) has been given authority to provide regulations and other guidance to carry out and prevent the abuse or avoidance of the excise tax.
Any redemption or other repurchase that occurs after December 31, 2022, in connection with a Business Combination, extension vote, liquidation, or otherwise, may be subject to the excise tax. Whether and to what extent the Company would be subject to the excise tax in connection with a Business Combination, extension vote or otherwise would depend on a number of factors, including (i) the fair market value of the redemptions and repurchases in connection with the Business Combination, extension or otherwise, (ii) the structure of a Business Combination, (iii) the nature and amount of any “PIPE” or other equity issuances in connection with a Business Combination (or otherwise issued not in connection with a Business Combination but issued within the same taxable year of a Business Combination) and (iv) the content of regulations and other guidance from the Treasury. In addition, because the excise tax would be payable by the Company and not by the redeeming holder, the mechanics of any required payment of the excise tax have not been determined. The foregoing could cause a reduction in the cash available on hand to complete a Business Combination and in the Company’s ability to complete a Business Combination. It could also result in the diminution of the amounts available to the holders of Class A common shares upon any redemption.
31
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Unregistered Sales of Equity Securities
In April 2021, the Sponsor purchased an aggregate 11,500,000 founder shares for an aggregate purchase price of $25,000. On September 7, 2021, the Company effected a reverse stock split of 0.625 of a share of Class B common stock for each outstanding share of Class B common stock, resulting in the Sponsor holding 7,187,500 founder shares. On October 21, 2021, the Company effected a stock dividend of .044 of a share of Class B common stock for each outstanding share of Class B common stock, resulting in the Sponsor holding 7,503,750 founder shares. As the underwriter’s over-allotment was exercised in part as part of the Initial Public Offering, the Sponsor forfeited 3,750 Founder Shares. The shares of the Class B common stock were issued in connection with the Company’ s organization pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act.
On October 26, 2021, the Company consummated the Initial Public Offering of 30,000,000 units, which included the partial exercise by the underwriter of its over-allotment option to purchase up to 3,915,000 additional units. Each unit consists of one share of the Class A common stock and one-third of one redeemable public warrant of the Company, with each whole public warrant entitling the holder thereof to purchase one share of the Class A common stock at a price of $11.50 per share, subject to adjustment. The units were sold at a price of $10.00 per unit, generating gross proceeds of $300,000,000 to the Company. Cantor acted as the sole book-running manager for the Initial Public Offering. The securities sold in the Initial Public Offering were registered under the Securities Act on the Registration Statement. The SEC declared the Registration Statement effective on October 21, 2021.
Concurrently with the consummation of the Initial Public Offering, the Company consummated the Private Placement of an aggregate of 7,526,667 Private Placement Warrants to the Sponsor and Cantor at a price of $1.50 per Private Placement Warrant, generating gross proceeds of $11,290,000 to the Company. The Private Placement Warrants are identical to the warrants included as part of the units sold in the Initial Public Offering, except that the Private Placement Warrants (i) are not redeemable by the Company, subject to certain limited exceptions set forth in the Registration Statement, (ii) may not (including the Class A common stock issuable upon the exercise of the Private Placement Warrants) be transferred, assigned or sold until thirty (30) days after the completion of the initial Business Combination, subject to certain limited exceptions set forth in the Registration Statement, (iii) may be exercised on a cashless basis and (iv) are entitled to registration rights. No underwriting discount was paid with respect to the private placement of the Private Placement Warrants to the Sponsor. The issuance and sale of the Private Placement Warrants was made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act.
Use of Proceeds
Of the gross proceeds received from the Initial Public Offering and the sale of the Private Placement Warrants, $303,000,000 was placed in the Trust Account, which comprised of $300,000,000 of the proceeds from the Initial Public Offering (which amount includes $14,280,000 of the underwriting deferred discounts and commissions) and $3,000,000 of the proceeds from the sale of the Private Placement Warrants. The Company paid a total of $5,220,000 in underwriting fees and paid approximately $623,000 (out of approximately $900,000 total costs incurred) for other costs and expenses related to the Initial Public Offering.
For a description of the use of the proceeds generated in the Initial Public Offering, see Part I, Item 2 of this Quarterly Report.
Item 3. Defaults Upon Senior Securities
None
Item 4. Mine Safety Disclosures
None
Item 5. Other Information
None
32
Item 6. Exhibits
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.
| * | Filed herewith. |
| ** | These certifications are furnished to the SEC pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as amended, and are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall they be deemed incorporated by reference in any filing under the Securities Act, except as shall be expressly set forth by specific reference in such filing. |
33
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| M3-BRIGADE ACQUISITION III CORP. | ||
| Date: August 18, 2023 | By: | /s/ Mohsin Y. Meghji |
| Name: | Mohsin Y. Meghji | |
| Title: | Executive Chairman | |
| Date: August 18, 2023 | By: | /s/ Christopher Good |
| Name: | Christopher Good | |
| Title: | Chief Financial Officer | |
34