Filed by Empatan Public Limited Company

Pursuant to Rule 425 under the Securities Act of 1933

and deemed filed pursuant to Rule 14a-12

of the Securities Exchange Act of 1934

Subject Company: Lionheart III Corp

Commission File No. 001-41011

Commission File No. for related Registration Statement: 333-267301

 

10 January 2023

SECURITY MATTERS LIMITED

First Court Hearing- Scheme of Arrangement

Approval of Scheme Booklet and Convening of Scheme Meeting and

Option Scheme Meeting, 1 February 2023

Further to previous updates to the market, the Directors are pleased to update the market that, on 9 January 2023, the Federal Court made orders, inter alia:

 

1.

Approving the distribution of a Scheme Booklet to shareholders and optionholders; and

 

2.

Convening a meeting of shareholders and a separate meeting of optionholders, to vote on and approve respective schemes.

As previously noted, a General Meeting to ratify the proposed Scheme Of Arrangement has been called for 10.00AM Melbourne time, on 1 February 2023.

Timetable

The matter is due to return to court on 23 January 2023 for further orders, and a further hearing to approve the Schemes (if approved by scheme members and at the General Meeting) is set for 6 February 2023.

Notices to shareholders and optionholders are being dispatched today, in accordance with the court’s orders, along with proxy forms.

Annexed to this announcement is a copy of the Scheme Booklet.

—Ends—

This announcement has been approved by release to ASX by the Chief Executive Officer.

For further information, please contact:

 

Media Enquiries - SMX Melissa Hamilton Media and Capital Partners P: 04 1775 0274 E: Melissa.hamilton@mcpartners.com.au		Corporate Enquiries Eric Dusansky Inflection Partners LLC P: +1 (917) 420 1309 E: eric@inflectionpartnersllc.com

About Lionheart III Corp

 

		Security Matters Ltd | ABN 78626192998 | C/- K&L Gates, Level 25, 525 Collins Street, Melbourne, 3000

 

Lionheart III Corp is a blank check company 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. For more information, visit: [https://lheartcapital.com/our-companies/lionheart-iii/.]

About Security Matters Limited

Security Matters Ltd (ASX:SMX) has commenced commercializing its innovative patented platform technology service and holds close to 100 patents, in various stages of approval, to permanently and irrevocably “mark” any object either solid, liquid or gas, to give materials memory.

SMX is the leader of Industry 5.0 evolution enabling companies to transform from a linear to circular economy.

 

Follow us through our social channel		@secmattersltd

Important Information and Where to Find It

In connection with the potential business combination (the “proposed business combination”), a registration statement on Form F-4 (the “Form F-4”) was filed by Empatan Public Limited Company, a public limited company incorporated in Ireland with registered number 722009 (the “Parent”) with the U.S. Securities and Exchange Commission (the “SEC”). Upon the closing of the proposed business combination, it is expected that the Parent will be the ultimate parent of Lionheart III Corp (“Lionheart”) and Security Matters Limited (“SMX”). The Form F-4 includes a preliminary proxy statement / prospectus to be distributed to holders of Lionheart’s common stock in connection with Lionheart’s solicitation of proxies for the vote of its stockholders in connection with the proposed business combination and other matters as described in the Form F-4, as well as a prospectus relating to the offer and sale of securities to be issued in connection with the completion of the business combination. This document does not contain all the information that should be considered concerning the proposed business combination and is not intended to form the basis of any investment decision or any other decision in respect of the proposed business combination. Lionheart and SMX urge investors, stockholders and other interested persons to read the Form F-4, including the proxy statement/prospectus included therein and the amendments thereto as well as any other documents filed with the SEC in connection with the proposed business combination as these materials will contain important information about SMX, Lionheart, the Parent and the proposed business combination. After the Form F-4 has been declared effective, the definitive proxy statement/prospectus will be mailed to Lionheart’s stockholders as of the record date established for voting on the proposed business combination. Lionheart’s stockholders will also be able to obtain copies of such documents, without charge, once available, at the SEC’s website at www.sec.gov, or by directing a request to: Lionheart III Corp, 4218 NE 2nd Avenue, Miami, Florida 3313.

INVESTMENT IN ANY SECURITIES DESCRIBED HEREIN HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SEC OR ANY OTHER REGULATORY AUTHORITY NOR HAS ANY AUTHORITY PASSED UPON OR ENDORSED THE MERITS OF THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED THEREIN.

Participants in the Solicitation of Proxies

This communication is not a solicitation of a proxy from any investor or securityholder. Lionheart, SMX, and their respective directors, executive officers and other members of their management and employees, may, under SEC rules, be deemed to be participants in the solicitation of proxies of Lionheart’s stockholders in connection with the proposed business combination. Investors and securityholders may obtain more detailed information regarding the names, affiliations and interests of Lionheart’s directors and executive officers in Lionheart’s Annual Report on Form 10-K filed with the SEC on April 14, 2022, the proxy statement/prospectus, other relevant materials filed with the SEC in connection with the proposed business combination when they become available, and other reports filed with the SEC. These documents can be obtained free of charge from the sources indicated above.

No Offer or Solicitation

No offer or offering of equity interests or securities of any kind is being made, conducted or extended at this time. This communication is for informational purposes only and does not constitute or include an offer to sell, or a solicitation of an offer to purchase or subscribe for, equity interests or securities of any kind or a solicitation of any vote of approval, nor shall there be any sale, issuance or transfer of any such securities in any state or jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such jurisdiction. Any such offer or solicitation will be made only in connection with the delivery of a prospectus meeting the requirements of the Securities Act of 1933, as amended (“Securities Act”), or exemptions therefrom.

Forward-Looking Statements

This press release includes forward-looking statements that involve risks and uncertainties. Forward-looking statements are statements that are not historical facts. Such forward-looking statements, including the identification of a target business and potential business combination or other such transaction, are subject to risks and uncertainties, which could cause actual results to differ from the forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described in the section entitled “Risk Factors” in the annual report on Form 10-K filed by Lionheart on April 14, 2022 and the proxy statement/prospectus filed related to the proposed business combination. Important factors, among others, that may affect actual results or outcomes include: (i) changes in domestic and foreign business, market, financial, political and legal conditions; (ii) the inability of SMX and Lionheart to successfully or timely consummate the proposed business combination, including the risk that any required regulatory approvals are not obtained, are delayed or are subject to unanticipated conditions that could adversely affect the combined company or the expected benefits of the proposed business combination or that the approval of the stockholders of Lionheart or equity holders of SMX is not obtained; (iii) failure to realize the anticipated benefits of the proposed business combination; (iv) SMX’s limited operating history; (v) SMX’s ability to grow and manage its growth effectively; (vi) SMX’s ability to execute its business plan; (vii) SMX’s estimates of the size of the markets for its products; (viii) the rate and degree of market acceptance of SMX’s products; (ix) SMX’s ability to identify and integrate acquisitions; (x) SMX’s future investments in its technology and operations; (xi) potential litigation involving Lionheart or SMX or the validity or enforceability of SMX’s intellectual property; (xii) risks relating to the uncertainty of the projected financial information with respect to SMX; (xiii) the effects of competition on SMX’s business; (xiv) developments and changes in laws and regulations; (xv) the impact of significant investigative, regulatory or legal proceedings; (xvi) general economic and market conditions impacting demand for SMX’s products and services; (xvii) the amount of redemption requests made by Lionheart’s public stockholders; (xviii) the amount of cash available following any redemptions by Lionheart stockholders; (xix) the ability to meet Nasdaq’s listing standards following the consummation of the proposed transaction; (xx) the ability of Lionheart or the combined company to issue equity or equity-linked securities in connection with the proposed business combination or in the future; and such other risks and uncertainties as are discussed in the Lionheart’s annual report on Form 10-K filed with the SEC on April 14, 2022 and the proxy statement/prospectus filed related to the proposed business combination. Other factors include the possibility that the proposed business combination does not close, including due to the failure to receive required security holder approvals, or the failure of other closing conditions. Lionheart expressly disclaims any obligations or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in Lionheart’s expectations with respect thereto or any change in events, conditions or circumstances on which any statement is based.

 

		Security Matters Ltd | ABN 78626192998 | C/- K&L Gates, Level 25, 525 Collins Street, Melbourne, 3000

Security Matters Limited

ACN 626 192 998

SCHEME BOOKLET

For the recommended Scheme of Arrangement, Option Scheme of Arrangement and Capital Reduction between

Security Matters Limited ACN 626 192 998

and its shareholders and optionholders

in relation to the proposed acquisition by Empatan PLC of all the issued shares in Security Matters Limited

Each Director recommends you VOTE IN FAVOUR of each of the Schemes and the Capital Reduction in the absence of a Superior Proposal.

The Independent Expert has concluded that the Scheme and Option Scheme are each in the best interest of SMX Shareholders and SMX Optionholders.

THIS IS AN IMPORTANT DOCUMENT AND REQUIRES YOUR IMMEDIATE ATTENTION

IF YOU HAVE ANY QUESTIONS IN RELATION TO THE SCHEME BOOKLET OR ANY OF THE SCHEME MEETINGS OR THE GENERAL MEETING PLEASE CONTACT YOUR LEGAL, INVESTMENT OR OTHER PROFESSIONAL ADVISER

 

		Mann Lawyers
		Legal Advisers www.Mannlawyers.com.au

Important notices

 

 

1

Forward looking statements

 

 

2

 

3

 

4

Table of Contents

 

Important notices					1
Table of Contents					5
Letter from the SMX Chair					10
1.		Highlights of the Schemes and the Capital Reduction			16
1.1		Summary of reasons to vote in favour of or against the Schemes and the Capital Reduction			16
1.2		What is a De-SPAC Transaction and How Does it Relate to this Proposed Scheme of Arrangement?			17
1.3		Independent Expert’s conclusion			18
1.4		Conditions for each of the Schemes			18
1.5		Consideration for each of the Schemes			19
1.6		Scheme Meeting, Option Scheme Meeting and General Meeting for Capital Reduction			20
1.7		Exclusivity and competing proposals			21
1.8		Break Fees			21
1.9		Lionheart Shareholder redemptions			21
1.10		PIPE Financing			22
1.11		Cost contribution			22
1.12		Carefully read and consider this Scheme Booklet			22
2.		Questions and answers			23
3.		What to do and how to vote			40
3.1		Carefully read and consider this Scheme Booklet			40
3.2		Consider the reasons to vote in favour of each of the Schemes and the Capital Reduction, the disadvantages of voting in favour of each of the Schemes and the Capital Reduction, and the risks of each of the Schemes and the Capital Reduction			40
3.3		Consider the recommendation of the SMX Directors’ and the opinion of the Independent Expert			40
3.4		Scheme Meeting, Option Scheme Meeting and General Meeting			40
3.5		Vote on the Schemes and the Capital Reduction in person online or by proxy			41
3.6		Voting entitlements			41
3.7		Voting at the Scheme Meeting			42
3.8		Guide to participating in the virtual Scheme Meeting, Option Scheme Meeting and General Meeting			44
3.9		If you have any further queries			44
4.		Assessment of the Scheme, Option Scheme and Capital Reduction and the reasons it is being proposed			46
4.1		SMX Board’s recommendation			46
4.2		Why SMX Shareholders and SMX Optionholders should vote in favour of each of the Schemes and the Capital Reduction			46
4.3		If the Schemes and the Capital Reduction do not proceed			47
4.4		Disadvantages of voting in favour of each of the Schemes and the Capital Reduction			48
5.		Overview of SMX			52
5.1		Business overview and history			52

 

5

5.2		Corporate structure			52
5.3		Business model			54
5.4		Products and applications			54
5.5		Business strategy			56
5.6		Research and development			56
5.7		Intellectual Property			58
5.8		Marketing and sales			58
5.9		Competitive advantage			61
5.10		Property and real estate			61
5.11		Government royalty obligations and regulations			61
5.12		SMX’s directors and executive team			63
5.13		Relevant Interests in SMX held by SMX Directors			66
5.14		Legal proceedings			66
5.15		SMX historical financial information			66
5.16		Material changes in SMX’s financial position since 30 June 2022			72
5.17		SMX securities on issue			73
5.18		Legacy Performance Options			78
5.19		Related party transactions			78
5.20		Bridge Loan			79
5.21		Standby Facility			80
5.22		SMX dividend policy			80
5.23		Recent share performance			80
5.24		SMX Board’s intentions			81
5.25		Continuously disclosing entity			81
5.26		Right to inspect and obtain copies of the SMX Register			84
6.		Overview of Lionheart			85
6.1		Introduction			85
6.2		Overview of Lionheart			85
6.3		Lionheart stockholder redemption rights			86
6.4		Lionheart’s Board and executive officers			88
6.5		Lionheart’s capital structure			92
6.6		Lionheart capital structure on or prior to the Merger Implementation Date			92
6.7		Interests of the Lionheart Directors and executive officers			92
6.8		Interests of Lionheart			94
6.9		No pre-transaction benefits			94
6.10		Disclosure of interests			94
6.11		Disclosure of fees and benefits			95
6.12		Litigation			95
6.13		Lionheart Historical Financial Information			95
6.14		PIPE Financing			97
6.15		Going concern of Lionheart			97
6.16		Further information			98
7.		Overview of Empatan			99
7.1		Introduction			99
7.2		Overview of Empatan			99
7.3		Empatan’s group structure			99
7.4		Empatan’s Board and key management			99
7.5		Empatan’s capital structure			99

 

6

7.6		Substantial shareholders			100
7.7		Interests of Empatan’s Directors			100
7.8		Empatan interest and dealings in SMX Shares			100
7.9		Rights and Liabilities attaching to New Empatan Shares following the implementation of the Schemes, Capital Reduction and Business Combination			101
7.10		Bridge Loan			104
8.		Overview of the Merged Group			105
8.1		Introduction			105
8.2		Overview			105
8.3		Formation of Merged Group			105
8.4		Corporate structure of Merged Group			106
8.5		Operating structure and business model			106
8.6		Strategy			106
8.7		Continuation of business			106
8.8		Dividend Policy			106
8.9		Employee incentive arrangements			106
8.10		Headquarters			107
8.11		Board and Management			107
8.12		Capital Structure			113
8.13		Interests of directors and key management in Empatan Shares following the Schemes and Business Combination			113
8.14		Emerging growth company			114
8.15		Foreign private issuer status			114
9.		Proforma Financial information			116
9.1		Introduction			116
9.2		Accounting for the Transactions			117
9.3		Unaudited Proforma Statement of Financial Position as at 30 June 2022			118
9.4		Unaudited pro forma combined statement of profit and loss for the year ended 31 December 2021			120
10.		Risks			121
10.1		Risks associated with the Scheme not proceeding			121
10.2		Risks associated with SMX’s business			121
10.3		General risks associated with SMX			122
10.4		Specific risks relating to Empatan			123
10.5		General risks relating to Empatan			124
10.6		Risks specific to the Scheme			126
10.7		Risks specific to creation of the Merged Group			127
11.		Implementation of the Scheme			132
11.1		Overall effect of the Scheme			132
11.2		People who are affected by the Scheme			132
11.3		Right to inspect and obtain copies of the SMX Register			132
11.4		Scheme Consideration			132
11.5		Share Sale Facility			133
11.6		Steps in implementing the Scheme			133
11.7		If the Scheme does not proceed			134
11.8		Effect of Scheme			135
11.9		Enforcement of Deed Polls			135

 

7

11.10		Scheme Conditions			135
11.11		Status of Scheme Conditions			135
11.12		Termination			135
11.13		Effect of Termination			137
11.14		Damages			137
11.15		Break Fee			137
11.16		Payment of Break Fee			138
11.17		Establishing Scheme Participants			138
11.18		Suspension and termination of trading in SMX Shares			138
11.19		Covenants and releases by Scheme Participants			138
11.20		Warranties by Scheme Participants			138
12.		Implementation of the Option Scheme			140
12.1		Overall effect of the Option Scheme			140
12.2		People who are affected by the Option Scheme			140
12.3		Right to inspect and obtain copies of the SMX Register			140
12.4		Option Scheme Consideration			140
12.5		Steps in implementing the Option Scheme			141
12.6		If the Option Scheme does not proceed			142
12.7		Effect of Option Scheme			142
12.8		Enforcement of Option Scheme Deed Polls			142
12.9		Option Scheme Conditions			142
12.10		Status of Option Scheme Conditions			142
12.11		Establishing Scheme Participants			143
12.12		Details of Option Scheme Participants			143
12.13		Warranties by Option Scheme Participants			144
13.		Implementation of the Business Combination			145
13.1		Overview of the BCA			145
13.2		Formation of Merger Sub			145
13.3		Merger of Merger Sub into Lionheart			145
13.4		Conditions to the closing of the Business Combination			145
13.5		Termination of the BCA			145
13.6		Accounting treatment of the Business Combination			146
13.7		Other agreements related to the Business Combination			146
14.		Comparison of relevant Australian and Irish laws and relevant ASX and NASDAQ listing rules			149
15.		Additional information			160
15.1		Relevant Interests in Empatan and Lionheart held by SMX Directors			160
15.2		Relevant Interests of SMX in Empatan and Lionheart			160
15.3		Payments or other benefits to SMX Directors, secretaries or executive officers			160
15.4		Agreements or arrangements with SMX Directors			160
15.5		SMX Directors’ interests in Empatan and Lionheart contracts			161
15.6		Effect of Scheme on creditors			161
15.7		No unacceptable circumstances			161
15.8		Regulatory relief			161
15.9		Other material information			162
15.10		Consents			162
15.11		Supplementary information			164

 

8

16.		Glossary of terms			165
Annexure A – Taxation Implications of the Scheme					181
Annexure B – Expert Report					188
Annexure C – – Independent Limited Assurance Report					189
Annexure D – – Scheme Implementation Deed					190
Annexure E – – Deed Polls					191
Annexure F –Option Scheme Deed Polls					192
Annexure G –Scheme of Arrangement					193
Annexure H –Option Scheme					194
Annexure I –Notice of Scheme Meeting					195
		Explanatory Statement			197
1.2		Chair			197
1.3		Scheme Required Majorities			197
1.4		Court approval			197
1.5		Entitlement to attend and vote at the Scheme Meeting			197
1.6		How to vote at the Scheme Meeting			197
1.7		Joint holders			199
1.8		Questions			199
1.9		Technical difficulties			199
1.10		COVID-19 and unforeseen changes to the current arrangements			200
Annexure J – Notice of Option Scheme Meeting					201
1.1		Background			203
1.2		Chair			203
1.3		Option Scheme Required Majorities			203
1.4		Court approval			203
1.5		Entitlement to attend and vote at the Option Scheme Meeting			203
1.6		How to vote at the Option Scheme Meeting			203
1.7		Joint holders			205
1.8		Questions			205
1.9		Technical difficulties			205
1.10		COVID-19 and unforeseen changes to the current arrangements			206
Annexure K – Notice of General Meeting					207
Annexure L - Virtual Meeting Online Guide					213
Annexure M – Sample Proxy Forms					214
Corporate Directory					216

 

9

Letter from the SMX Chair

 

Dear SMX Shareholder and SMX Optionholder,

On behalf of the SMX Board, I am pleased to provide you with this Scheme Booklet that contains important information for your consideration about the proposed acquisition of SMX by Empatan PLC, a public limited company incorporated in Ireland with registered number 722009 (Empatan).

On 26 July 2022, SMX announced that it had entered into a Scheme Implementation Deed and Business Combination Agreement (BCA) with Lionheart III Corp (Lionheart) and Empatan, further details of which are set out below.

The Scheme and Capital Reduction in relation to SMX Shares

Under the Scheme Implementation Deed, it is proposed that all SMX Shares on issue will be cancelled and SMX will become a wholly owned subsidiary of Empatan by way of a Scheme of Arrangement, subject to approval by SMX Shareholders and the Court, and the satisfaction of certain other conditions (Scheme). On the Scheme Implementation Date, the SMX Board proposes to undertake an equal reduction of all of its share capital on issue as at the Record Date, subject to approval by the SMX Shareholders as at the Voting Eligibility Date (the Capital Reduction). SMX will then issue one (1) SMX Share to Empatan, making it the sole shareholder of SMX.

As at the date of this Scheme Booklet, in consideration for their SMX Shares being cancelled, SMX Shareholders are to receive 1 New Empatan Share for every 10.3207 SMX Shares held on the Record Date (Scheme Consideration) at an issue price of US$10.00 per New Empatan Share. As this share ratio is not fixed, and is subject to any changes arising in SMX’s capital structure up to the Scheme Record Date, the number of New Empatan Shares to be received by SMX Shareholders in the context of the Scheme may change up to the Scheme Record Date.

The Scheme Consideration values the equity of SMX at approximately US$200 million. As a condition to implementation of the Scheme, Empatan is to seek approval for quotation on NASDAQ in relation to the Empatan Shares and Empatan Public Warrants. Following implementation of the Scheme, SMX will apply to be de-listed from the ASX with the exact de-listing date to follow implementation of the Scheme as agreed with ASX.

The Option Scheme in relation to SMX Options

In addition to the Scheme, and immediately prior to the Scheme Implementation Date, the SMX Board proposes that all SMX Options on issue will be exercised, by way of a scheme of arrangement, subject to approval by SMX Optionholders and the Court, and the satisfaction of certain other conditions (Option Scheme). In consideration for their SMX Options being exercised, SMX Optionholders are to be issued SMX Shares based on a Black Scholes Model (BSM) calculation for each tranche of relevant SMX Options (Option Scheme Consideration), which will subsequently be cancelled in consideration for shares in Empatan (Cancellation Consideration).

If the Option Scheme becomes Effective, on the Option Scheme Implementation Date, SMX Optionholders will be deemed to have exercised their SMX Options and, in consideration, will receive SMX Shares, which will be cancelled in consideration for Empatan shares. Each Option Scheme Participant, being a person who is registered as a SMX Optionholder on the Option Scheme Record Date, will be entitled to receive:

 

(a)	SMX Shares, and, in turn;

 

(b)	the Cancellation Consideration in respect of each of their Scheme Shares.

Business Combination in relation to the Lionheart merger

Lionheart is a SPAC, a blank cheque company, incorporated on 14 January 2021 in Delaware, United States, for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. Following completion of its initial public offering and listing on NASDAQ on 3 November 2021, Lionheart commenced a search for prospective businesses and assets to acquire. Please refer to Section 6 of this Scheme Booklet for further information in relation to Lionheart.

 

10

Under the Business Combination Agreement, a wholly owned subsidiary of Empatan (Merger Sub) will merge with and into Lionheart, with Lionheart surviving the merger as a wholly owned subsidiary of Empatan. As a result, existing Lionheart shareholders will receive New Empatan Shares in exchange for their existing Lionheart shares and Lionheart warrants will be automatically adjusted to become exercisable in respect of Empatan shares instead of Lionheart shares.

SMX Shareholders and SMX Optionholders will not be voting in relation to the Business Combination, however completion of each of the Scheme, Option Scheme, Capital Reduction and Business Combination are interdependent and conditional on each other. Following implementation of each of the Scheme, Capital Reduction, Option Scheme and Business Combination, the Merged Group will be formed.

Independent Expert

SMX has appointed Nexia Australia as the Independent Expert to prepare the Independent Expert’s Report, including an opinion as to whether each of the Scheme and Option Scheme is in the best interest of SMX Shareholders. The Independent Expert, Nexia Australia, has concluded that each of the Scheme and Option Scheme is in the best interest of all SMX Shareholders and SMX Optionholders in the absence of a Superior Proposal.

A full copy of the Independent Expert’s Report is included as Annexure B to this Scheme Booklet.

NASDAQ listing requirements and foreign private issuer status of the Merged Group

As a result of the Schemes, Capital Reduction and Business Combination outlined in this Scheme Booklet, Empatan Shares are intended to be quoted on the financial market operated by NASDAQ. Accordingly, the Merged Group will be required to comply with the listing rules of NASDAQ as they apply to the Merged Group.

As a foreign private issuer, Empatan will also be permitted to follow certain home country corporate governance practices instead of those otherwise required under the applicable rules of NASDAQ for domestic U.S. issuers. These circumstances are outlined throughout the NASDAQ listing rules and include:

 

(a)

the requirement to disclose third party director and nominee compensation set out in Rule 5250(b)(3) of the NASDAQ listing rules; and

 

(b)

the requirement to distribute annual and interim reports set out in Rule 5250(d) of the NASDAQ listing rules,

provided, however, that such a foreign private issuer comply with:

 

(c)

the Notification of Noncompliance requirement (Rule 5625), the Voting Rights requirement (Rule 5640)

 

(d)

the Diverse Board Representation Rule (Rule 5605(f))

 

(e)

the Board Diversity Disclosure Rule (Rule 5606)

 

(f)

have an audit committee that satisfies Rule 5605(c)(3) of the NASDAQ listing rules; and

 

(g)

ensure that such audit committee’s members meet the independence requirement in Rule 5605(c)(2)(A)(ii) of the NASDAQ listing rules.

The NASDAQ listing rules provide that a foreign private issuer that follows a home country practice in lieu of one or more of the NASDAQ listing rules shall disclose in its annual reports filed with the Commission each requirement that it does not follow and describe the home country practice followed by the Company in lieu of such requirements.

Alternatively, a foreign private issuer that is not required to file its annual report with the Commission on Form 20-F may make this disclosure only on its website. A foreign private issuer that follows a home country practice in lieu of the requirement in Rule 5605(d)(2) of the NASDAQ listing rules to have an independent compensation committee must disclose in its annual reports filed with the Commission the reasons why it does not have such an independent committee.

Empatan does not currently envisage any specific circumstances whereby it will depart from the requirements of the NASDAQ listing rules.

SMX Board Recommendations

SMX Directors have considered the advantages and disadvantages of each of the Scheme, Option Scheme and Capital Reduction. Each Director recommends that SMX Shareholders and SMX Optionholders vote in favour of each the Scheme, Option Scheme and Capital Reduction (as the case may be) in the absence of a Superior Proposal. Each Director who holds SMX Shares or SMX Options intends to vote in favour of each of the Scheme, Option Scheme and Capital Reduction (as the case may be) in the absence of a Superior Proposal.

 

11

Please note that some directors of SMX will receive benefits conditional on or in connection with the Schemes and Capital Reduction becoming Effective.

 

(a)

Following the successful implementation of the Schemes, Capital Reduction and Business Combination, Mr Everardus Hofland will retire as a director of SMX. Accordingly, Mr Hofland is entitled to receive a termination payment equal to ILS264,000 (approximately US$79,332). This will be subject to the Corporations Act provisions regarding termination payments and related party benefits under Chapter 2D and Chapter 2E at the time.

 

(b)

As the Schemes, Capital Reduction and Business Combination, when considered together, result in a change of control and capital raising of above US$20 million in aggregate in a single transaction, Mr Everardus Hofland will be entitled to receive, prior to his retirement an increase of his base remuneration to ILS22,000 per month (ILS264,000 per year, equating to approximately US$79,332 per year).

 

(c)

Mr Hofland is the holder of 167,000 SMX ESOP Options with an exercise price of $0.70 and expiry date of 15-Aug-26. As a condition under the Scheme Implementation Deed, SMX and each holder of SMX ESOP Options (SMX ESOP Optionholders) must enter into option cancellation agreements in respect of the SMX ESOP Options. Accordingly, Mr Hofland will receive the 1 new option in Empatan (New ESOP Option) with a new exercise price of US$5.12 and on the same terms as his SMX ESOP Options.

 

(d)

Mr Haggai Alon is the holder of 5,135,949 SMX Shares. Following the successful implementation of the Schemes, Capital Reduction and Business Combination, these shares will be converted to 496,275 Empatan’s shares with expected valuation of US$4.96 million.

 

(e)

Mr Haggai Alon is the holder of 500,000 SMX ESOP Options with an exercise price of $0.70 and expiry date of 15-Aug-26. As a condition under the Scheme Implementation Deed, SMX and SMX ESOP Optionholder must enter into option cancellation agreements in respect of the SMX ESOP Options. Accordingly, Mr Alon will receive the 1 New ESOP Option with a new exercise price of US$5.12 and on the same terms as his SMX ESOP Options. The benefit raised from the conversion of the options amounts to US$ 235,771.

 

(f)

Furthermore, Mr Haggai Alon will be employed by Empatan as the Chief Executive Officer and an executive director. The compensation he is entitled to receive as Chief Executive Officer is ILS 960,000 per annum (approximately US$295,000 per annum), which is ILS 480,000 (approximately US$147,500) higher than his current salary, assuming that no Double Trigger Event occurs. Due to the Schemes, Capital Reduction and Business Combination, Mr Alon would have been entitled to an increase in his salary to ILS 780,000 per annum (approximately US$219,889 per annum) absent any amendment to his employment terms. Mr Alon is not entitled to receive any payment as executive director. The remaining terms of Mr Alon’s employment as Chief Executive Officer are on similar terms as his terms for his employment by SMX.

 

(g)

Following the successful implementation of the Schemes, Capital Reduction and Business Combination, the benefit (option and share scheme) received by Mr Alon will amount to US$5.196 million.

Despite the interest in the outcome of the Schemes and the Capital Reduction, the directors consider that, given the importance of the Schemes and Capital Reduction to the successful implementation of the Scheme, and their role as directors of SMX, it is important and appropriate for them to provide a recommendation to shareholders in relation to voting on the Schemes and the Capital Reduction.

The SMX Board notes that the appropriateness of New Empatan Shares for SMX Shareholders will depend on the characteristics and risk profile of individual SMX Shareholders, as well as the matters set out in the Scheme Booklet (including, without limitation, the Risk Factors set out in Section 10 of this Scheme Booklet). It is important that you carefully read the Risk Factors as there are risks involved in an investment in Empatan which differ from the risks associated with your current investment in SMX.

 

12

Scheme Meetings and General Meeting

The implementation of the Scheme, Option Scheme and Capital Reduction is conditional on approval from the SMX Shareholders and SMX Optionholders (as the case may be). SMX Shareholders’ and SMX Optionholders’ votes are important as the resolutions at the Scheme Meeting, Option Scheme Meeting and General Meeting require a certain level of SMX Shareholder and SMX Optionholder support to be approved. I encourage you to read this Scheme Booklet carefully as it contains information that will assist in both your decision for voting, but also information on how to vote.

I encourage you to vote at the Scheme Meeting, Option Scheme Meeting and General Meeting (as applicable) to be held on 1 February 2023 either by personally participating in the virtual Scheme Meeting or by appointing a proxy, an attorney or, in the case of a SMX Shareholder, SMX Optionholder or proxy who is a corporation, a corporate representative to participate in the Scheme Meeting and vote on your behalf. Sections 3.7 and 3.8 of this Scheme Booklet contain further information regarding the virtual Scheme Meeting and your vote.

Further information

If you require further information after reading this Scheme Booklet in its entirety, please call SMX on +972 8 630 6336 (ISR), send an email to info@securitymattersltd.com or visit SMX’s website at www.smx.tech.

On behalf of the SMX Board, I thank you for your ongoing support and I look forward to your participation at the relevant Scheme Meeting.

Yours faithfully,

/s/ Everardus Hofland                                    

Everardus Hofland

Chairman

 

13

Important Dates

 

Event		Date and time
Date and time for determining eligibility to vote at Scheme Meeting, Option Scheme Meeting and General Meeting (Voting Eligibility Date)		7PM on 30 January 2023
Latest date and time for lodgement of Proxy Forms or powers of attorney for (a) the Scheme Meeting, (b) Option Scheme Meeting and (c) General Meeting		9.00 AM on 30 January 2023
General Meeting to vote on the Capital Reduction to be held virtually		10.00AM on 1 February 2023
Option Scheme Meeting to vote on the Option Scheme Resolution to be held virtually		9.30AM on 1 February 2023
Scheme Meeting to vote on the Scheme Resolution to be held virtually		9.00AM on 1 February 2023
Second Court Date for approval of the Scheme and Option Scheme		To be held after the Scheme Meeting, Option Scheme Meeting and General Meeting and subject to the court’s convenience, currently aimed at 3 February 2023
Effective Date – Court Order lodged with ASIC and announced to ASX		To be determined after the court sets a Second Court Date, currently anticipated to be 6 February 2023
Option Scheme Record Date for determining participants in the Option Scheme and entitlements to Option Scheme Consideration		Means 7pm on a date 2 business days after the Effective Date, currently set for 8 February 2023
Option Scheme Implementation Date – Scheme Options exercised under Cashless Exercise and SMX Shares issued to Option Scheme Participants		Means the 5th Business Day after the Option Scheme Record Date, currently anticipated to be 15 February 2023
SMX Shares cease trading on ASX at close of trading		To occur on the Effective Date, currently set for 6 February 2023
Record Date for determining participants in the Scheme and entitlements to Scheme Consideration		Means 7pm (Melbourne Time) on the day 2 days after the Record Date, currently anticipated to be 6 February 2023
Scheme Implementation Date – Scheme Shares cancelled and Scheme Consideration provided to Scheme Participants		Means 5 Business Days after the Record Date, currently anticipated to be 15 February 2023

 

14

Dates may change

The timetable above is indicative only and certain dates and times are subject to receipt of all necessary approvals from SMX Shareholders, the Court and other regulatory authorities. SMX, in consultation with Empatan, may vary any or all of these dates and times, subject to Court approval where required.

Any changes to the above timetable will be published on SMX’s website at www.smx.tech and announced to ASX, www.asx.com.au. The actual timetable will depend on factors outside the control of SMX and implementation of each of the Scheme and Option Scheme is subject to the satisfaction or, if applicable, waiver of each of the Scheme and Option Scheme Conditions (see Section 11.10 in relation to Scheme Conditions and 12.9 in relation to Option Scheme Conditions).

All references to time are to Australian Eastern Standard Time (AEST) or Australian Eastern Daylight Time (AEDT), as the context requires, unless otherwise stated.

 

15

1.	Highlights of the Schemes and the Capital Reduction

 

1.1	Summary of reasons to vote in favour of or against the Schemes and the Capital Reduction

Reasons to vote in favour of the Schemes and the Capital Reduction

 

1

The SMX Directors unanimously recommend that the SMX Shareholders and SMX Optionholders vote in favour of the Schemes and the Capital Reduction in the absence of a Superior Proposal and subject to the same qualification intend on voting all SMX Shares or SMX Options (as the case may be) held or controlled by or for them in favour of each of the Schemes and the Capital Reduction.

Despite the interest in the outcome of the Schemes and the Capital Reduction, the directors consider that, given the importance of the Schemes and Capital Reduction to the successful implementation of the Scheme, and their role as directors of SMX, it is important and appropriate for them to provide a recommendation to shareholders in relation to voting on the Schemes and the Capital Reduction.

 

2

The Independent Expert has concluded that the Schemes are in the best interest of SMX Shareholders and SMX Optionholders, in the absence of a Superior Proposal. A copy of the Independent Expert’s Report is set out in Annexure B of this Scheme Booklet.

 

3

No Superior Proposal has been received by SMX as at the date of this Scheme Booklet.

 

4

The Schemes represent an attractive premium for SMX Shareholders or SMX Optionholders (as the case relates) on the underlying value of the business. Empatan’s offer for SMX represents a 383% premium to the 1-month VWAP and a premium of 448% to the 3-month VWAP, respectively, prior to the announcement of the Scheme,1 and a premium of 850% to the share price of $0.15 on the Last Practical Date of 3 January 2023.

 

5

A change in listing to the NASDAQ may increase the attractiveness of SMX to an equity market with a stronger interest in technology projects and SMX Shares may enjoy increased demand from US investing institutions with their deeper pools of capital, some of which do not invest in companies that are not SEC-registered.Capital markets of the US may provide SMX with an enlarged, more diverse market, the participants of which may be more inclined to invest directly in the Merged Group following implementation of the Schemes, Capital Reduction and Business Combination.

 

6

A listing on the NASDAQ may provide SMX with easier access to large US investment funds and improved liquidity for the benefit of the shareholders. Higher liquidity may enable SMX Shareholders to buy or sell holdings more readily without adversely affecting the share price and higher liquidity is generally associated with reduced volatility in share pricing, such that the movement in share pricing is more likely to reflect underlying business value.

 

7

The future growth and development of SMX may benefit from access to US capital markets which may provide funding in a more cost-effective way. The SMX Board is of the view that the Australian market does not provide access to the levels of investment capital that are available in the US. A listing on the NASDAQ exchange may potentially broaden and diversify SMX Group’s shareholder base and enhance SMX’s visibility in the US, where the SMX Board believes that there is greater interest. This may attract further investments and provide increased funding for projects on more attractive terms.

 

1	As of 26 July 2022 and based on the Empatan Share price of US$10.00.

 

16

8

The Offer, compared to other available alternatives, represents in the SMX Board’s view the most superior offer in terms of value and degree of certainty.

 

9

If the Scheme does not proceed and no Superior Proposal emerges, SMX may experience funding challenges and the SMX Shares may trade at a significantly lower price.

Reasons why you may choose to vote against the Schemes and the Capital Reduction

 

1

You may disagree with the SMX Directors’ recommendation or the conclusion of the Independent Expert.

 

2

You may consider that there is the potential for a Superior Proposal to be made in the foreseeable future.

 

3

The tax consequences of the Scheme may not be suitable for you considering your individual circumstances.

 

4

You may wish to maintain an interest in a publicly listed investment with SMX’s specific characteristics.

 

5

The Scheme may be subject to conditions that you consider unacceptable.

 

6

SMX Shareholders and SMX Optionholders located outside the US may not be as familiar with trading practices on the NASDAQ as they might be with trading practices on the ASX

See Section 4 for further details of the above summaries of the reasons to vote in favour of or against each of the Schemes and the Capital Reduction.

 

1.2	What is a De-SPAC Transaction and How Does it Relate to this Proposed Scheme of Arrangement?

 

a.

A special purpose acquisition company (“SPAC”) is a company that is formed to raise capital in an initial public offering (“IPO”) to finance a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more operating businesses, with the goal of taking the operating business public on a stock exchange. A De-SPAC transaction involves a SPAC acquiring a company to effectively list it on that exchange. The Scheme and the Option Scheme are part of the first De-SPAC transaction involving an Australian public company. The time frame to consummate a De-SPAC transaction is limited and shareholders have rights to redeem their shares rather than proceed with an investment.

 

b.

In this instance, Lionheart III is the relevant SPAC. It trades on a United States stock exchange, the NASDAQ. An IPO was held and funds raised specifically for consummating a business transaction. Those funds are held on trust and are separate to operational funds, provided by the Founders of the SPAC (“The Founders”) who support the deal in exchange for stock. The funds raised from the IPO are held in a trust account that can be accessed solely to complete the business combination. Lionheart has raised over USD$120 million. This money remains on trust for the purposes of the business combination.

 

c.

SPAC’s, as noted, have limited time periods in which they must either successfully engage in a business combination, or liquidate. The Lionheart III SPAC has 12 months from the closing of its IPO to complete the Business Combination, but may extend the period of time by up to six additional months (in six, one-month extensions), for a total of 18 months to complete the Business Combination. Lionheart originally had until November 8, 2022 to complete a Business Combination. On November 8, 2022 and December 8, 2022, respectively, Lionheart caused USD $412,500 on each such date to be deposited in the trust account to extend the date by which it

 

17

has to consummate the Business Combination to January 8, 2023 (or until May 8, 2023 if Lionheart extends the period of time to consummate the Business Combination pursuant to all further extension periods). Lionheart has obligated itself to also make a further payment in January and February if necessary to enable the consummation of this proposed transaction, but has not yet done so at the Last Practicable Date.

 

d.

At the consummation of the Business Combination, the funds in the trust account will be used to pay holders of the SPAC’s shares who have exercised redemption rights and to pay fees and expenses incurred in connection with the Business Combination, with the remaining funds flowing to the post-combination company. If the Business Combination is not completed in the allotted time, the SPAC must liquidate and return the IPO proceeds to the SPAC’s stockholders.

 

e.

This represents the first De-SPAC transaction with an Australian listed company. As such, there is an inherent uncertainty in the transaction, and increased execution risk compared to other transactions. The risks, process and procedures involved in both the Share Scheme and Optionholders Scheme are further set out in this Booklet.

 

1.3	Independent Expert’s conclusion

Nexia Australia has been appointed as the Independent Expert by the SMX Board to prepare the Independent Expert’s Report, including an opinion as to whether each of the Scheme and Option Scheme are in the best interest of SMX Shareholders and SMX Optionholders.

The Independent Expert has concluded that the each of the Scheme Consideration and Option Scheme Consideration is in the best interest of the SMX Shareholders and / or SMX Optionholders in the absence of a Superior Proposal. A copy of the Independent Expert’s Report can be found in Annexure B.

The Independent Expert’s Report was provided and is dated 8 October 2022. SMX has engaged the Independent Expert to further consider both any developments in relation to Lionheart and also SMX’s current finances and significant deals, and provide an updated report well prior to the Scheme Meeting, the Option Scheme Meeting and the General Meeting, all called for 1 February 2023. In addition, should there be developments in relation to redemption rates by Lionheart shareholders, which SMX anticipates would be known a number of days before the meetings, the Independent Expert will be asked to venture their opinion on this as well. Updates to the Expert’s position and other information will be contained in supplementary scheme booklets once approved by the court. These will also be placed on the websites for the meetings, as detailed in the Notices sent to all Shareholders and Optionholders.

Shareholders should be conscious that the report is from October and that time has passed in which the company has continued to trade. The major developments in relation to SMX have been set out in the Scheme Booklet. However, shareholders and optionholders should take into consideration that the Expert Report annexed to this Scheme Booklet does not reflect any such changes in circumstances.

 

1.4	Conditions for each of the Schemes

(a)

Scheme Conditions

The obligations of SMX and Empatan to complete the Scheme are subject to the Scheme Conditions which are discussed in further detail in Section 11.10. The Scheme Conditions are contained in clause 3.1 of the Scheme of Arrangement, as set out in Annexure G to this Scheme Booklet. For the Scheme to be implemented, all of the Scheme Conditions must be either satisfied or waived in accordance with the Scheme and the Scheme Implementation Deed (as applicable).

As at the date of this Scheme Booklet, SMX and Empatan are not aware of any circumstances which would cause the Scheme Conditions not to be satisfied or waived. An update as to the status of the Scheme Conditions will be provided at the Scheme Meeting.

 

18

(b)

Options Scheme Conditions

The Option Scheme will not become Effective, and the obligations of each of SMX and Empatan to complete the Option Scheme, are subject to the Option Scheme Conditions, which are discussed in further detail in Section 12.9. The Option Scheme Conditions are contained in clause 3.1 of the Option Scheme, as set out in Annexure H to this Scheme Booklet. For the Option Scheme to be implemented, all of the Option Scheme Conditions must be either satisfied or waived in accordance with the Scheme and the Scheme Implementation Deed (as applicable).

As at the date of this Scheme Booklet, SMX and Empatan are not aware of any circumstances which would cause the Option Scheme Conditions not to be satisfied or waived. An update as to the status of the Scheme Conditions will be provided at the Option Scheme Meeting.

 

1.5	Consideration for each of the Schemes

 

(a)

Scheme Consideration

As per the date of announcement of the Scheme, Scheme Participants were to be entitled to receive 1 New Empatan Share for every 10.2432 SMX Shares held on the Scheme Record Date.

As at the date of this Scheme Booklet, Scheme Participants will be entitled to receive 1 New Empatan Share for every 10.3207 SMX Shares held on the Scheme Record Date.

On account of the Standby Facility and Bridge Loan the ratio of New Empatan Shares that each Scheme Participants will be entitled to is likely to change based on the following formula:

 

where:

 

NPS

is the number of New Empatan Shares per SMX Share;

 

A

is the total number of SMX Shares on issue as at the Record Date (or which would be on issue if all securities of SMX convertible into SMX Shares had converted on that date, other than Scheme Options and Employee Share Options);

 

B

is the total number of Option Exercise Shares to be issued on exercise of all Scheme Options on a Cashless Exercise basis under this Option Scheme;

 

C

is the total number of Employee Share Options on issue as at the Record Date; and

 

N

is 20,000,000.

The Scheme Consideration represents a 383% premium to SMX’s 1-month VWAP and a premium of 448% to the 3-month VWAP prior to the announcement of the Scheme of A$0.2936 and A$0.2585, respectively². It also represents a premium of 850% on the closing price at the Last Practicable Date, at which point SMX shares were trading at $0.15 per share SMX Shareholders who are Ineligible Foreign Holders will not be issued New Empatan Shares. Instead, the New Empatan Shares to which Ineligible Foreign Holders would otherwise be entitled to under the Scheme will be issued to the Sale Agent and sold through the Share Sale Facility, with the Share Sale Facility Proceeds being remitted to those SMX Shareholders based on the following formula:

 

where

 

A

is the amount to be paid to each relevant Ineligible Foreign Holder;

 

B

is the number of New Empatan Shares that would have been issued to that Ineligible Foreign Holders had it not been an Ineligible Foreign Holder;

 

C

is the total number of New Empatan Shares; and

 

D

is the Proceeds.

 

2	As of 26 July 2022.

 

19

Fractional entitlements will be rounded up or down to the nearest whole number (rounded up if the fractional entitlement is equal to or greater than one half, and rounded down if the fractional entitlement is less than one half), but only after applying the Scheme Participant’s entitlement (prior to rounding) to its entire holding of Scheme Shares.

The total Scheme Consideration is valued at $200 million based on an issue price of US$10.00 per New Empatan Share.

 

(b)

Option Scheme Consideration

If the Option Scheme is approved and implemented, all of the SMX Options will be deemed to have been exercised as a Cashless Exercise and the SMX Optionholders will be issued with SMX Shares in accordance with a Black Scholes Model (BSM) calculation for each tranche of the relevant SMX Options, as outlined in Section 12.4.

Following the implementation of the Option Scheme, resulting in the conversion of SMX Options to SMX Shares, Option Scheme Participants will be entitled to the Cancellation Consideration, being New Empatan Shares in consideration for the cancellation of their SMX Shares by the calculation outlined in Section 1.5(a) above.

SMX Optionholders who are Ineligible Foreign Holders will not be issued New Empatan Shares. Instead, the New Empatan Shares to which Ineligible Foreign Holders would otherwise be entitled to under the Option Scheme will be issued to the Sale Agent and sold through the Share Sale Facility, with the Share Sale Facility Proceeds being remitted to those SMX Shareholders.

 

1.6	Scheme Meeting, Option Scheme Meeting and General Meeting for Capital Reduction

Each of the Scheme Meeting, Option Scheme Meeting and General Meeting will be held as a virtual meetings commencing at 9.00AM on 1 February 2023 with the Scheme Meeting, followed by the Option Scheme Meeting and 9.30AM and the General Meeting at 10.00AM. There will be no physical meeting where SMX Shareholders and SMX Optionholders (and any proxies) can attend in person. The Notice of each of the Scheme Meeting, the Option Scheme Meeting and the General Meeting convening each of the relevant meetings are included in Annexure I, Annexure J and Annexure K of this Scheme Booklet.

 

(a)

Scheme Meeting and Option Scheme Meeting

For each of the Schemes to proceed, votes in favour of each of the Schemes must be received from both:

 

(i)

a majority in number (more than 50%) of SMX Shareholders or SMX Optionholders present virtually and voting at the Scheme Meeting or Option Scheme Meeting (whether personally or by proxy, attorney, or in the case of a SMX Shareholder or proxy who is a corporation, by corporate representative) (Headcount Test); and

 

(ii)

at least 75% of the total number of SMX Shares or SMX Options (determined by reference to the value of each of the SMX Options as further described in Section 3.6(b)) voted at the relevant Scheme Meeting by SMX Shareholders or Option Scheme Meeting by SMX Optionholders (personally or by proxy, attorney, or in the case of a SMX Shareholder or proxy who is a corporation, by corporate representative).

The passing of each of:

 

(i)

the Scheme Resolution approving the Scheme; and

 

(ii)

the Option Scheme Resolution approving the Option Scheme;

is a condition of each the Schemes becoming Effective and being implemented. If the necessary majorities of SMX Shareholders or SMX Optionholders, as the context requires, vote in favour of the relevant Scheme at the Scheme Meeting or the Option Scheme Meeting and all other Scheme Conditions and/or Option Scheme Conditions have been either satisfied or waived (if applicable), the Court will be asked to approve each of the Schemes.

The Court has the power to approve each of the Schemes even if the Headcount Test for each of the Scheme Meeting and Option Scheme Meeting has not been satisfied. The Court may, for example, approve the relevant Scheme if it finds that the vote was unfairly influenced by activities such as share splitting.

 

20

(i)

Voting and attendance at the Scheme Meeting

Each person who is registered on the SMX Register as a SMX Shareholder as at 7.00PM (Sydney time) on 30 January 2023, is entitled to be present and vote at the virtual Scheme Meeting, either personally or by proxy, attorney, or in the case of a SMX Shareholder or proxy who is a corporation, by corporate representative. Registered transfers or transmission applications that are registered after this time will be disregarded in determining entitlements to vote at the Scheme Meeting.

 

(ii)

Voting and attendance at the Option Scheme Meeting

Each person who is registered on the SMX Register as a SMX Optionholder as at 7.00PM (Sydney time) on 30 January 2023, is entitled to be present and vote at the virtual Option Scheme Meeting, either personally or by proxy, attorney, or in the case of a SMX Optionholder or proxy who is a corporation, by corporate representative.

 

(b)

General Meeting—Capital Reduction

In addition to each of the Scheme Meeting and the Option Scheme Meeting, SMX proposes to undertake a General Meeting to approve the Capital Reduction.

For the Capital Reduction to proceed, it must be approved by a majority, being more than 50% of the votes cast on the resolution by eligible SMX Shareholders who are present and voting, either in person online or by proxy, by attorney or, in the case of a corporation, by its duly appointed corporate representative at the General Meeting.

Each person who is registered on the SMX Register as a SMX Shareholder as at 7.00PM (Sydney time) on 30 January 2023, is entitled to be present and vote at the virtual General Meeting, either personally or by proxy, attorney, or in the case of a SMX Shareholder or proxy who is a corporation, by corporate representative. Registered transfers or transmission applications that are registered after this time will be disregarded in determining entitlements to vote at the General Meeting.

 

1.7	Exclusivity and competing proposals

Under the terms of the Scheme Implementation Deed, SMX and Lionheart have agreed to certain exclusivity provisions which apply during the Exclusivity Period. Please refer to section Error! Reference source not found. of this Scheme Booklet for further details.

 

1.8	Break Fees

Under the terms of the Scheme Implementation Deed, SMX and Lionheart will be liable to pay a Break Fee of US$2,000,000 (plus GST if applicable) to the other party in certain circumstances. Please refer to section 11.15 of this Scheme Booklet for further details and 15.10(c) as to the other fees incurred by SMX in relation to the transaction.

 

1.9	Lionheart Shareholder redemptions

On 8 November 2021, US$126,250,000 of the gross proceeds from the Lionheart Public Offering and the sale of the Private Units was deposited in the Trust Fund with the Trustee. The trust proceeds are invested in US Treasury securities and accrue interest based upon the yield of such securities.

The Lionheart Existing Charter requires Lionheart to provide all holders of shares of its Class A Common Stock with the opportunity to redeem all or a portion of their shares of Class A Common Stock upon the consummation of an initial business combination. Accordingly, if the Business Combination is approved by Lionheart’s shareholders, the Public Shareholders may elect to redeem their shares of Class A Common Stock.

Upon redemption, each redeeming share is entitled to its pro rata portion of the proceeds of the trust. The remaining proceeds of the trust will be provided to Empatan, following the closing.

The redemption rate will only be known on the date of the vote of the Lionheart stockholders which is expected to be held in January 2023.

If sufficient Lionheart Shareholders exercise their redemption rights in connection with the Business Combination and if the sale of some or all of the PIPE fails to close (see Section 1.10 below), Lionheart may lack sufficient funds to consummate the Business Combination.

For the avoidance of doubt, notwithstanding approval of the Schemes and Capital Reduction, if there are insufficient funds to consummate the Business Combination, the Business Combination will not proceed and SMX will continue to exist on the ASX.

 

21

1.10	PIPE Financing

Lionheart is actively pursuing to enter into subscription agreements with certain institutional and accredited investors (PIPE Investors), pursuant to which Lionheart will agree to issue and sell, in private placements to close immediately prior to the closing of the Business Combination, up to US$25 million in the aggregate, in securities (PIPE Financing). The securities to be issued pursuant to the subscription agreements will not be registered under the Securities Act of 1933, as amended (the US Securities Act), in reliance upon the exemption provided in section 4(a)(2) of the Securities Act.

In the event of any such failure to fund, any termination of such funding obligations, or if any relevant condition is not satisfied and not waived, Lionheart may not be able to obtain additional funds to account for such shortfall on favourable terms or at all. If the sale of some or all of the PIPE fails to close and sufficient Lionheart Shareholders exercise their redemption rights in connection with the Business Combination, Lionheart may lack sufficient funds to consummate the Business Combination.

For the avoidance of doubt, notwithstanding approval of the Schemes and Capital Reduction, if there are insufficient funds to consummate the Business Combination, the Business Combination will not proceed and SMX will continue to exist on the ASX.

 

1.11	Cost contribution

SMX, Empatan and Lionheart agree to pay their own costs incurred in connection with preparing, negotiating and undertaking its obligations under the Scheme Implementation Deed, except that Lionheart agrees to pay or reimburse all stamp duty, registration fees and similar taxes payable or assessed as being payable in connection with the Scheme Implementation Deed and each of the Schemes (including any fees, fines, penalties and interest in connection with any of those amounts).

 

1.12	Carefully read and consider this Scheme Booklet

The Scheme Booklet is designed to provide SMX Shareholders and SMX Optionholders with information to consider before voting on whether the each of the Scheme, Option Scheme and Capital Reduction should proceed at each of the Scheme Meeting, Option Scheme Meeting and General Meeting scheduled for 1 February 2023.

This is an important document. You should read the information in this Scheme Booklet in its entirety before making a decision on how to vote at the relevant Scheme Meeting or General Meeting. If you are in doubt as to what you should do, you should consult your legal, investment or other professional adviser. There is a “Questions and Answers” summary included in Section 2, to help answer any questions you may have. If you have any other questions, please call the SMX investor information line on +972 8 630 6336 (ISR).

 

22

2.	Questions and answers

This Section answers some basic questions that you may have about the Scheme, Option Scheme or the Capital Reduction. The information in this Section is a summary only which you should read in conjunction with the entire Scheme Booklet (including the recommendation of the SMX Directors and the key reasons for those recommendations as set out in Section 4) before deciding how to vote on each of the Schemes and the Capital Reduction.

 

 

23

 

24

 

25

 

26

 

27

 

28

 

29

 

30

 

31

 

32

 

3	As of 26 July 2022.

 

33

 

34

 

35

 

36

 

37

 

38

 

39

3.	What to do and how to vote

 

3.1	Carefully read and consider this Scheme Booklet

This is an important document. You should read the information in this Scheme Booklet in its entirety before making a decision on how to vote at each of the Scheme Meeting, Option Scheme Meeting and General Meeting. If you are in doubt as to what you should do, you should consult your legal, investment or other professional adviser.

 

3.2	Consider the reasons to vote in favour of each of the Schemes and the Capital Reduction, the disadvantages of voting in favour of each of the Schemes and the Capital Reduction, and the risks of each of the Schemes and the Capital Reduction

Refer to Section 4.2 for a discussion of the reasons to vote in favour of the each of the Schemes and the Capital Reduction, Section 4.4 for a discussion of the disadvantages of voting in favour of each of the Schemes and the Capital Reduction, and Section 4.3 for a discussion of the consequences if each of the Schemes and the Capital Reduction do not proceed.

3.3	Consider the recommendation of the SMX Directors’ and the opinion of the Independent Expert

The SMX Board unanimously recommends that, in the absence of a Superior Proposal, you vote in favour of each of the Schemes at the Scheme Meeting and Option Scheme Meeting and the Capital Reduction at the General Meeting. Each SMX Director who holds SMX Shares, or on whose behalf SMX Shares are held, intends to vote in favour of the Scheme at the Scheme Meeting, and the Option Scheme at the Option Scheme Meeting, in the absence of a Superior Proposal.

With respect to the recommendations of Messrs Alon and Hofland, SMX Shareholders and SMX Optionholders should have regard to the fact that, if the Schemes and Capital Reduction become Effective, Messrs Alon and Hofland will receive certain benefits. With respect to Mr Alon, these benefits include incentives under his employment with Empatan, including an increase in his salary as set out in Section 8.11(b)(i) in addition to payment of the Scheme Consideration for the SMX Shares (and the Cancellation Consideration for the SMX Options which convert to SMX Shares as a result of the Option Scheme). With respect to Mr Hofland, these benefits include incentives resulting from the operation of his employment agreement with SMX, including an increase in his salary as set out in Section 15.4(c)(i) and 15.4(a).

The Independent Expert has concluded that the Scheme Consideration is in the best interest of SMX Shareholders in the absence of a Superior Proposal.

 

3.4	Scheme Meeting, Option Scheme Meeting and General Meeting

Each of the Scheme Meeting, Option Scheme Meeting and the General Meeting will be held as virtual meetings at the following times:

 

(a)

the Scheme Meeting to resolve to proceed with and implement the Scheme will be held virtually at 9.00AM on 1 February 2023

 

(b)

the Option Scheme Meeting to resolve to proceed with and implement the Option Scheme will be held virtually at 9.30AM on 1 February 2023; and

 

(c)

The General Meeting to resolve to proceed with the Capital Reduction will be held virtually at 10.00AM on 1 February 2023.

There will be no physical meeting where SMX Shareholders or SMX Optionholders, as the case may be, and proxies can attend in person. A virtual meeting for the Scheme and the Option Scheme has been authorised by the Court at the First Court Hearing. A virtual meeting for the General Meeting is authorised under rule 15.3 of the SMX Constitution.

Please refer to Sections 3.7 and 3.8 below for further details on how to participate in the Scheme Meeting, Option Scheme Meeting and the General Meeting.

The Notices convening each of the Scheme Meeting, Option Scheme Meeting and General Meeting are contained in Annexure I, Annexure J and Annexure K. A personalised Proxy Form is also enclosed with this Scheme Booklet.

 

(a)

Scheme Meeting and Option Scheme Meeting

For each of the Scheme and the Option Scheme to proceed, votes in favour of the relevant Scheme must be received from both:

 

40

(i)

a majority in number (more than 50%) of SMX Shareholders or SMX Optionholders, as the case may be, present and voting at the Scheme Meeting or Option Scheme Meeting (whether personally or by proxy, attorney, or in the case of a SMX Shareholder, SMX Optionholder or proxy who is a corporation, by corporate representative) (Headcount Test); and

 

(ii)

at least 75% of the total number of SMX Shares or SMX Options (determined by reference to the value of each of the SMX Options as further described in Section 3.6(b)), as the case may be, voted at the Scheme Meeting or Option Scheme Meeting by SMX Shareholders or SMX Optionholders (personally or by proxy, attorney, or in the case of a SMX Shareholder or SMX Optionholder, or proxy who is a corporation, by corporate representative).

The Court has a statutory discretion to disregard the Headcount Test for the purposes of the Scheme Meeting and Option Scheme Meeting.

The passing of the resolutions approving the Scheme and Option Scheme is a condition of the Scheme and Option Scheme becoming Effective and being implemented.

 

(b)

General Meeting

In addition to the Scheme Meeting and Option Scheme Meeting, SMX proposes to hold a General Meeting to approve the Capital Reduction.

For the Capital Reduction to proceed, it must be approved by a majority, being more than 50% of the votes cast on the resolution by eligible SMX Shareholders who are present and voting, either in person online or by proxy, by attorney or, in the case of a corporation, by its duly appointed corporate representative at the General Meeting.

 

3.5	Vote on the Schemes and the Capital Reduction in person online or by proxy

Your Directors urge all SMX Shareholders or SMX Optionholders to vote on the Scheme, Option Scheme or the Capital Reduction, as applicable, at each of the Scheme Meeting, Option Scheme Meeting and General Meeting. Each of the Schemes and the Capital Reduction affects your SMX Shares of SMX Options and your vote at the Scheme Meeting, Option Scheme Meeting and/or the General Meeting is important in determining whether each of the Schemes and the Capital Reduction proceed. Voting entitlements and how to vote instructions follow in Sections 3.6, 3.7 and 3.8 below.

 

3.6	Voting entitlements

 

(a)

Scheme Meeting

Each person who is registered on the SMX Register as a SMX Shareholder as at 7.00PM (Sydney time) on 30 January 2023, is entitled to attend and vote at the Scheme Meeting, either by personally participating in the virtual Scheme Meeting or by appointing a proxy, an attorney or, in the case of a SMX Shareholder or proxy who is a corporation, a corporate representative to participate in the Scheme Meeting and vote on your behalf.

Registered transfers or transmission applications that are registered after this time will be disregarded in determining entitlements to vote at the Scheme Meeting.

Voting at the Scheme Meeting will be by poll.

The Notice convening the Scheme Meeting is contained in Annexure I. A Proxy Form for the Scheme Meeting is also enclosed with this Scheme Booklet.

If more than one SMX Shareholder votes in respect of jointly held SMX Shares, only the vote of the SMX Shareholder whose name appears first in the SMX Register will be counted whether the vote is given personally, by attorney or proxy.

 

(b)

Option Scheme Meeting

Each person who is registered on the SMX Register as a SMX Optionholder as at 7.00PM (Sydney time) on 30 January 2023 , is entitled to attend and vote at the Option Scheme Meeting, either by personally participating in the virtual Option Scheme Meeting or by appointing a proxy, an attorney or, in the case of a SMX Optionholder or proxy who is a corporation, a corporate representative to participate in the Option Scheme Meeting and vote on your behalf.

As discussed above, for the Option Scheme to proceed, votes in favour of the Option Scheme must be received from both:

 

41

(i)

a majority in number (more than 50%) of SMX Optionholders present and voting at the Option Scheme Meeting (whether personally or by proxy, attorney, or in the case of a SMX Optionholder or proxy who is a corporation, by corporate representative); and

 

(ii)

at least 75% of the total number of SMX Options (determined by reference to the value of each of the SMX Options) voted at the Option Scheme Meeting by SMX Optionholders (personally or by proxy, attorney, or in the case of a SMX Optionholder, or proxy who is a corporation, by corporate representative).

As there are a number of tranches of SMX Options on issue with differing exercise prices and expiry dates (as set out in Section 5.17(c)), SMX Optionholders voting entitlements for the purposes of the Option Scheme Meeting will be determined by reference to the value of the relevant SMX Options, calculated in accordance with a Black Scholes Model.

Voting at the Option Scheme Meeting will be by poll.

The Notice convening the Option Scheme Meeting is contained in Annexure J. A Proxy Form for the Option Scheme Meeting is also enclosed with this Scheme Booklet.

If more than one SMX Optionholder votes in respect of jointly held SMX Options, only the vote of the SMX Optionholder whose name appears first in the SMX Register will be counted whether the vote is given personally, by attorney or proxy.

 

(c)

General Meeting - Capital Reduction

Each person who is registered on the SMX Register as a SMX Shareholder as at 7.00PM (Sydney time) on 30 January 2023, is entitled to attend and vote at the General Meeting for the Capital Reduction, either by personally participating in the virtual General Meeting or by appointing a proxy, an attorney or, in the case of a SMX Shareholder or proxy who is a corporation, a corporate representative to participate in the General Meeting and vote on your behalf.

Registered transfers or transmission applications that are registered after this time will be disregarded in determining entitlements to vote at the General Meeting.

Voting at the General Meeting will be by poll.

The Notice convening the General Meeting is contained in Annexure K. A Proxy Form for the General Meeting is also enclosed with this Scheme Booklet.

If more than one SMX Shareholder votes in respect of jointly held SMX Shares, only the vote of the SMX Shareholder whose name appears first in the SMX Register will be counted whether the vote is given personally, by attorney or proxy.

 

3.7	Voting at the Scheme Meeting

 

(a)

Voting in person virtually

SMX Shareholders and SMX Optionholders wishing to vote, or their attorneys or in the case of a SMX Shareholder, SMX Optionholder or proxy which is a corporation, corporate representatives, can participate in the virtual Scheme Meeting, virtual Option Scheme Meeting and virtual General Meeting by logging in online at:

 

Meeting		Accessible virtual link
Scheme Meeting		https://www.votingonline.com.au/smxsharescheme
Option Scheme Meeting		https://www.votingonline.com.au/smxoptionscheme
General Meeting		https://www.votingonline.com.au/smxgm2023

SMX Shareholders, SMX Optionholders, their attorneys or in the case of SMX Shareholders, SMX Optionholders or proxies which are corporations, corporate representatives, who plan to participate in the virtual Scheme Meeting, virtual Option Scheme Meeting or virtual General Meeting should log in online 15 minutes prior to the time designated for the commencement of each of the relevant meeting, if possible, to register and to obtain a voting card.

 

42

(b)

Voting by proxy

SMX Shareholders or SMX Optionholders wishing to appoint a proxy to vote on their behalf at the Scheme Meeting, Option Scheme Meeting or General Meeting must either complete and sign or validly authenticate the personalised Proxy Form which accompanies this Scheme Booklet or lodge their proxy online. A person appointed as a proxy may be an individual or a body corporate.

Proxies participating in the virtual Scheme Meeting, virtual Option Scheme Meeting or virtual General Meeting will receive an email from the SMX Registry prior to the relevant meeting containing details of their proxy number which they will need to use for the online registration process. Proxies are asked to log in online 15 minutes prior to the time designated for the commencement of the relevant meeting, if possible, to register and to obtain a voting card.

Completed Proxy Forms must be delivered to the SMX Registry by 9.00AM on 30 January2023 in any of the following ways:

 

(i)

By mail in the enclosed reply-paid envelope (or the self-addressed envelope, for SMX Shareholders whose registered address is outside Australia) mailed to the SMX Registry at Boardroom Pty Limited, GPO Box 3993, Sydney NSW 2000.

 

(ii)

By fax to the SMX Registry on + 61 2 9290 9655;

 

(iii)

Online if you wish to appoint your proxy online, you should do so by visiting www.votingonline.com.au/smxswharescheme and following the instructions in the enclosed Proxy Form. Online appointments of proxies must be done by 9.00AM on 30 January 2023.

 

(iv)

By hand to Boardroom Pty Limited, Level 12, 225 George Street, Sydney NSW 2000

Note that in accordance with SMX’s Constitution, If a SMX Shareholder is present either in person or by its corporate representative, and a person appointed by that SMX Shareholder as proxy is also present at that meeting, that person may not exercise the rights conferred by the instrument of proxy while the SMX Shareholder is present.

 

(c)

Undirected proxies

If a SMX Shareholder or SMX Optionholder nominates the Chair of any of the Scheme Meeting, Option Scheme Meeting or General Meeting as that SMX Shareholder’s or SMX Optionholder’s proxy, the person acting as Chair of the relevant meeting must act as proxy under the appointment in respect of any or all items of business to be considered at the relevant meeting.

If a proxy appointment is signed or validly authenticated by that SMX Shareholder or SMX Optionholder but does not name the proxy or proxies in whose favour it is given, the Chair of the relevant meeting will act as proxy in respect of any or all items of business to be considered at the relevant meeting.

Proxy appointments in favour of the Chair of the relevant meeting, the company secretary or any SMX Director which do not contain a direction as to how to vote will be voted in favour of the relevant resolution(s) at the each of the Scheme Meeting, Option Scheme Meeting and General Meeting, as the case may be (in the absence of a SMX Superior Proposal from another party prior to the date of the relevant meeting).

The Chair intends to vote undirected proxies of which he is appointed as proxy in favour of the resolutions to approve each of the Scheme, Option Scheme and Capital Reduction, as the case may be (in the absence of a SMX Superior Proposal from another party prior to the date of the relevant meeting).

 

(d)

Voting by attorney

If a SMX Shareholder executes, or proposes to execute any document, or do any act, by or through an attorney which is relevant to that SMX Shareholder’s shareholding or SMX Optionholder’s options in SMX, that SMX Shareholder or SMX Optionholder, as the case relates, must deliver the instrument appointing the attorney to the SMX Registry for notation.

 

43

SMX Shareholders or SMX Optionholders wishing to vote by attorney at any of the Scheme Meeting, Option Scheme Meeting and/or the General Meeting must, if they have not already presented an appropriate power of attorney to SMX for notation, deliver to the SMX Registry (at the address, email or facsimile number provided in Section 3.7(b) of this Scheme Booklet) the original instrument appointing the attorney or a certified copy of it by 9.00AM on 30 January 2023.

Any power of attorney granted by a SMX Shareholder or SMX Optionholder will, as between SMX and that SMX Shareholder or SMX Optionholder, continue in force and may be acted on, unless express notice in writing of its revocation or the death of the relevant SMX Shareholder or SMX Optionholder is lodged with SMX.

 

(e)

Voting by corporate representative

To vote at the Scheme Meeting, Option Scheme Meeting and/or the General Meeting, a SMX Shareholder, SMX Optionholder or proxy which is a corporation may appoint an individual to act as its representative.

To vote by corporate representative at the Scheme Meeting, Option Scheme Meeting and/or the General Meeting, a SMX Shareholder, SMX Optionholder or proxy which is a corporation should obtain a Certificate of Appointment of Corporate Representative from the SMX Registry, complete and sign the form in accordance with the instructions on it. The completed appointment form should be lodged with the SMX Registry (at the address, email or facsimile number provided in Section 3.7(b) of this Scheme Booklet) by 9.00AM on 30 January 2023.

The appointment of a representative may set out restrictions on the representative’s powers.

The original form of appointment of a representative, a certified copy of the appointment, or a certificate of the body corporate evidencing the appointment of a representative is prima facie evidence of a representative having been appointed.

The Chair of the relevant meeting may permit a person claiming to be a representative to exercise the body’s powers even if they have not produced a certificate or other satisfactory evidence of their appointment.

 

3.8	Guide to participating in the virtual Scheme Meeting, Option Scheme Meeting and General Meeting

In order to watch and participate in the virtual Scheme Meeting, Option Scheme Meeting and/or the General Meeting, please follow the steps outlined in the Virtual Meeting Online Guide contained in Annexure L of this Scheme Booklet.

 

3.9	If you have any further queries

If you require further information on the voting procedures and details of the relevant resolutions to be voted on at each of the Scheme Meeting, Option Scheme Meeting and General Meeting, please refer to:

 

Meeting		Annexure
Scheme Meeting		Annexure I
Option Scheme Meeting		Annexure J
General Meeting		Annexure K

The results of each of the Scheme Meeting, Option Scheme Meeting and General Meeting will be available online during the relevant meeting and will be announced to ASX shortly after the conclusion of the relevant meeting.

If you have any questions in relation to the Scheme, Option Scheme or Capital Reduction the Scheme Booklet, any of the Scheme Meeting or Option Scheme Meeting or the General Meeting after reading this Scheme Booklet, please contact your legal, investment or other professional adviser or contact SMX on +972 8 630 6336 (ISR)

If you would like more information about SMX, you can visit the SMX website at www.smx.tech.

 

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If you would like more information about Empatan, you can visit the Empatan website at https://smx.tech/.

If you would like more information about Lionheart, you can visit the Lionheart website at https://lheartcapital.com/our-companies/lionheart-iii/.

 

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4.	Assessment of the Scheme, Option Scheme and Capital Reduction and the reasons it is being proposed

 

4.1	SMX Board’s recommendation4

The SMX Board unanimously recommends that, in the absence of an SMX Superior Proposal, you vote in favour of each of the Scheme, Option Scheme and Capital Reduction at the Scheme Meeting, Option Scheme Meeting and General Meeting (as applicable).

Each SMX Director who holds SMX Shares or SMX Options, or on whose behalf SMX Shares or SMX Options are held, intends to vote in favour of the Scheme, Option Scheme and Capital Reduction at each of the Scheme Meeting, Option Scheme Meeting and General Meeting, in the absence of a Superior Proposal.

In making this recommendation, the SMX Board have, among other things, considered:

 

(a)

the reasons SMX Shareholders and SMX Optionholders should vote in favour of the Scheme, Option Scheme and Capital Reduction as set out in Section 4.2;

 

(b)

the consequences if the each of the Scheme, Option Scheme and Capital Reduction do not proceed as set out in Section 4.3; and

 

(c)

the disadvantages of voting for each of the Scheme, Option Scheme and Capital Reduction as set out in Section 4.4;

The SMX Board may change its recommendation if a Superior Proposal is made. In certain circumstances, a change in recommendation will trigger a Break Fee – see Section 4.4(n) below.

 

4.2	Why SMX Shareholders and SMX Optionholders should vote in favour of each of the Schemes and the Capital Reduction

The SMX Board believes SMX Shareholders and SMX Optionholders should vote in favour of each of the Schemes and the Capital Reduction at the Scheme Meeting, Option Scheme Meeting and General Meeting, for the following reasons:

 

(a)

Attractive premium for SMX Shareholders: The Scheme Consideration represents a significant premium to SMX’s recent share trading history up until the announcement of the Scheme and the share issue price for its recent capital raising. The Scheme Consideration represents a:

 

(i)

383% premium to SMX’s 1-month VWAP prior to the announcement of the Scheme of A$0.29365.

 

(ii)

448% premium to SMX’s 3-month VWAP prior to the announcement of the Scheme of A$0.2585.

 

(iii)

850% premium to the trading price as at the Last Practicable Date, of $0.15

 

(b)

Greater scale and financial strength: On implementation of each of the Schemes and the Capital Reduction, SMX Shareholders and SMX Optionholders will receive shares in a larger company with a stronger balance sheet and enhanced share trading liquidity. Additionally, with increased scale, resources and market capitalisation, the Merged Group is expected to have a greater ability to pursue strategic growth opportunities.

 

(c)

Best interest of SMX Shareholders: The Independent Expert regards each of the Schemes to be fair to SMX Shareholders and SMX Optionholders. The Independent Expert has assessed the fair value of the equity of SMX to lie in the range of A$24.377 million to A$36.928 million on a minority basis, which equates to an assessed value per SMX Share of between A$0.15 and A$0.22 on a minority basis. The Independent Expert implies a value of the New

 

4

With respect to the recommendations of Messrs Alon and Hofland, SMX Shareholders and SMX Optionholders should have regard to the fact that, if the Schemes and Capital Reduction become Effective, Messrs Alon and Hofland will receive certain benefits. With respect to Mr Alon, these benefits include incentives under his employment with Empatan, including an increase in his salary as set out in Section 8.11(b)(i) in addition to payment of the Scheme Consideration for the SMX Shares (and the Cancellation Consideration for the SMX Options which convert to SMX Shares as a result of the Option Scheme). With respect to Mr Hofland, these benefits include incentives resulting from the operation of his employment agreement with SMX, including an increase in his salary as set out in Section 15.4(c)(i) and 15.4(a).

5	As of 26 July 2022 and based on the New Empatan Share price of US$10.00.

 

46

Empatan Shares to be received by SMX Shareholders as part of the Scheme Consideration, to be in the range of A$3.12 to A$6.72 per share on a minority basis. Please refer to Annexure B of this Scheme Booklet which contains the Independent Expert Report and further details of the Independent Expert’s assessment.

 

(d)

Improved valuation of securities: Capital markets of the US may provide SMX with an enlarged, more diverse market, the participants of which may be more inclined to invest directly in the Merged Group following implementation of the Schemes, Capital Reduction and Business Combination. A change in listing to the NASDAQ may increase the attractiveness of SMX to an equity market with a stronger interest in technology projects and SMX Shares may enjoy increased demand from US investing institutions with their deeper pools of capital, some of which do not invest in companies that are not SEC-registered. Companies with similar assets to SMX that are SEC-registered may trade on higher valuations than SMX currently commands, however no assurance is made that the same valuations will apply to SMX.

 

(e)

Improved liquidity and reduced volatility: As a condition to implementation of the Schemes, Capital Reduction and Business Combination, Empatan will apply for listing on the NASDAQ. NASDAQ offers a liquid market within which shares may be traded and the SMX Board considers it would be beneficial to have NASDAQ as SMX’s home exchange. The NASDAQ exchange provides technology and IP companies access to institutional investors comfortable with high-growth, innovative companies. A listing on the NASDAQ may provide SMX with easier access to large US investment funds and improved liquidity for the benefit of the shareholders. Higher liquidity may enable SMX Shareholders to buy or sell holdings more readily without adversely affecting the share price and higher liquidity is generally associated with reduced volatility in share pricing, such that the movement in share pricing is more likely to reflect underlying business value.

 

(f)

Accessing greater capital: The future growth and development of SMX may benefit from access to US capital markets which may provide funding in a more cost-effective way. The SMX Board is of the view that the Australian market does not provide access to the levels of investment capital that are available in the US. A listing on the NASDAQ exchange may potentially broaden and diversify SMX Group’s shareholder base and enhance SMX’s visibility in the US, where the SMX Board believes that there is greater interest. This may attract further investments and provide increased funding for our projects on more attractive terms.

 

4.3	If the Schemes and the Capital Reduction do not proceed

If each of the Schemes and the Capital Reduction are not implemented:

 

(a)

while the SMX Directors are unable to predict the price at which SMX Shares will trade in the future, the price of SMX Shares may fall in the absence of a SMX Superior Proposal;

 

(b)

material transaction costs and expenses relating to each of the Schemes and the Capital Reduction will be incurred by SMX for no purpose (estimated at US$ 2,500,000);

 

(c)

the potential benefits of the Scheme will not be realised;

 

(d)

SMX Shareholders will retain their interests in SMX Shares and continue to collectively control SMX;

 

(e)

SMX Optionholders will retain their interests in SMX Options;

 

(f)

SMX will remain an independent company listed on the ASX;

 

(g)

SMX will continue to operate under the existing corporate structure including ongoing costs involved in operating a listed public company;

 

(h)

the rights of SMX Shareholders and SMX Optionholders will remain unchanged;

 

(i)

trading in SMX Shares could remain relatively illiquid;

 

(j)

to enable growth, additional funding via debt and a discounted equity raising will likely be required which is unlikely to be achieved without the risk of dilution or impact to current SMX Shareholders;

 

(k)

depending on the reasons each of the Schemes and the Capital Reduction do not proceed, SMX or Lionheart may also be liable to pay a Break Fee to the other. Details of the Break Fee and the circumstances in which it may become payable are set out in Section 4.4(n); and

 

47

(l)

SMX Shareholders and SMX Optionholders may not, in the near term, realise a price for their SMX Shares which is equivalent to or greater than the implied value of the Scheme Consideration.

 

4.4	Disadvantages of voting in favour of each of the Schemes and the Capital Reduction

Disadvantages each of the Schemes and the Capital Reduction to SMX Shareholders and SMX Optionholders include:

 

(a)

You may believe that each of the Schemes and the Capital Reduction are not in the best interests of SMX Shareholders and/or SMX Optionholders.

 

(b)

You may wish to maintain a direct interest in SMX as an ASX listed company. If each of the Schemes and the Capital Reduction are implemented you will no longer be able to participate in any value offered by a direct investment in SMX.

 

(c)

You may consider that there is the potential for a SMX Superior Proposal to be made to SMX. No proposal superior to each of the Schemes and the Capital Reduction, when considered as occurring together, has emerged as at the date of this Scheme Booklet.

 

(d)

The tax consequences or implications (if any) of transferring your SMX Shares may not be suitable to your financial position. The general tax implications for SMX Shareholders and SMX Optionholders are described in Annexure A to this Scheme Booklet but you should obtain advice about your personal circumstances.

 

(e)

There is a risk that the New Empatan Shares may trade at a price which is lower than the Scheme Consideration after the Scheme Implementation Date.

 

(f)

SMX Shareholders located outside the US may not be as familiar with trading practices on NASDAQ as they might be with trading practices on the ASX. Some SMX Shareholders, particularly those resident in Australia, may not be familiar with trading and settlement practices on NASDAQ, which may influence them to divest their holdings in SMX. Following the implementation of the Schemes, Capital Reduction and Business Combination, and the successful listing of Empatan on the NASDAQ, Empatan Shares will be quoted on a US exchange and US$ and foreign exchange implications will become an additional variable for Australian-resident SMX Shareholders and SMX Optionholders to consider. Australian-resident SMX Shareholders may seek to sell their Empatan Shares on NASDAQ as soon as Empatan is listed which may incur higher dealing costs and foreign exchange losses for those shareholders and adversely impact the share price of Empatan.

 

(g)

Following the implementation of the Scheme, SMX shareholders’ interest in the underlying operations will reduce. The level of ongoing ownership that SMX shareholders will have will be dependent on the level of Lionheart shareholders that exercise their redemption rights. Based on the redemption assumptions applied in the Independent Expert’s determination of the fair value of Empatan after the implementation of the Scheme of 85% to 23%, SMX Shareholders will retain an interest of 67% to 48%, respectively.

 

(h)

SMX Shareholders and Optionholders would become exposed to risks arising from, or common to, De-SPAC transactions. These include:

 

(i)

The exercise of discretion by directors and officers of SMX in agreeing to changes to the terms of or waivers of closing conditions in the Business Combination Agreement and the Scheme Implementation Deed may result in a conflict of interest when determining whether such changes to the terms or waivers of conditions are appropriate and in the best interests of SMX stockholders;

 

(ii)

Exposure to Lionheart, and the potential that, as a result or following the Business Combination, Lionheart may be required to take write-downs or write-offs, restructuring and impairment or other charges that could have a significant negative effect on Lionheart’s financial position; depending on the nature and level of redemptions, the exposure to Lionheart’s obligations to pay costs on closing could have an impact on the value and premium.

 

(i)

General risks may also include:

 

(i)

The trading price of the shares in Lionhert may be volatile, and shareholders may sustain losses.

 

48

(ii)

Lionheart and Empatan could be targets of securities class action and derivative lawsuits which could result in substantial costs and may delay or prevent the transaction from being completed.

 

(iii)

Empatan’s management has limited experience in operating a public company in the United States.

 

(iv)

There can be no assurance that we will be able to comply with the continued listing standards of Nasdaq.

 

(v)

The Company has identified material weaknesses in its internal control over financial reporting. These material weaknesses could continue to adversely affect its ability to report its results of operations and financial condition accurately and in a timely manner. We may identify additional material weaknesses in the future that may cause us to fail to meet our reporting obligations or result in material misstatements in our financial statements. If we fail to remediate our material weaknesses, we may not be able to report our financial results accurately or to prevent fraud.

 

(vi)

Internal control over financial reporting may not be effective and our independent registered public accounting firm may not be able to certify as to their effectiveness, which could have a significant and adverse effect on our business and reputation.

 

(vii)

The Company’s stockholders may be held liable for claims by third parties against the Company to the extent of distributions received by them.

 

(j)

Exclusivity and competing proposals

Under the Scheme Implementation Deed, each of Lionheart and SMX represent and warranted and represented to each other that:

 

(i)

at the date of Scheme Implementation Deed, they are not a party to any agreement or arrangement with any person entered into in relation to, or for the purposes of facilitating a Competing Transaction;

 

(ii)

at the date of the Scheme Implementation Deed, neither party is directly or indirectly participating in any discussions or negotiations with a person in relation to, or with a view to, or that might reasonably be expected to encourage or lead to, a Competing Transaction; and

 

(iii)

both parties will terminate any due diligence access granted to a person for the purpose of the person making, formulating, developing or finalising a Competing Transaction and each party will promptly request the return of all confidential information of SMX or Lionheart, as the case relates, from any such party and terminate its access to any such confidential information on an ongoing basis. Each of SMX and Lionheart agreed not waive, and to enforce, any standstill obligations owed to either SMX or Lionheart, as the case relates.

 

(k)

No-shop

During the Exclusivity Period, SMX and Lionheart must ensure that neither it nor any of their Representatives and SMX must ensure that neither Empatan nor any of its Representatives, directly or indirectly:

 

(i)

solicits, invites, facilitates, encourages or initiates any enquiries, negotiations or discussions; or

 

(ii)

communicates any intention to do any of these things,

with a view to obtaining any offer, proposal or expression of interest from any person in the case of SMX or Empatan, in relation to a Competing Transaction.

 

(l)

No-talk

During the Exclusivity Period, SMX and Lionheart must ensure that neither they nor any of its Representatives, and SMX must ensure that neither Empatan nor any of its Representatives:

 

(i)

negotiate or enter into negotiations or discussions regarding; or

 

49

(ii)

participates in negotiations or discussions with any other person regarding, a Competing Transaction or any agreement, understanding or arrangement that could be reasonably expected to lead to a Competing Transaction even if the Competing Transaction was not directly or indirectly solicited, invited, encouraged or initiated by any of SMX, Empatan or Lionheart (as the case may be) any of their Representatives or the person has publicly announced the Competing Transaction.

 

(m)

Lionheart matching right

 

(i)

SMX must promptly notify Lionheart of any approach or request for information in connection with a current or future SMX Competing Transaction and must provide to Lionheart the identity of the person who made the approach or request and the material terms of the SMX Competing Transaction.

 

(ii)

The exclusivity provisions do not apply to the extent that they restrict SMX and the SMX Board from taking or refusing to take any action with respect to a genuine SMX Competing Transaction (which was not solicited or invited by SMX or its Representatives and was not otherwise brought about as a result of any breach of the exclusivity provisions) provided that the SMX Board, acting in good faith (after consulting with their legal and financial advisers), have determined, that:

 

(A)

the SMX Competing Transaction is a SMX Superior Proposal, or has reasonable prospects of becoming a Superior Proposal; and

 

(B)

failing to respond or taking or refusing to take that action in respect of that Competing Proposal would be reasonably likely to involve a breach of the fiduciary or statutory duties or obligations owed by any of the SMX Board.

 

(iii)

If a SMX Competing Transaction is a SMX Superior Proposal, Lionheart will be given 5 Business Days to make a matching offer by proposing revisions to the Scheme Implementation Deed. If following receipt of proposed revisions to the Scheme Implementation Deed, the SMX Board that the SMX Competing Transaction would continue to constitute an SMX Superior Proposal if such revisions proposed by Lionheart were to be given effect, then SMX and Lionheart must use commercially reasonable endeavours to enter into an amended agreement giving effect to the proposed revisions within 10 Business Days.

 

(n)

Break Fee

Under the terms of the Scheme Implementation Deed, SMX and Lionheart will be liable to pay a Break Fee of US$2,000,000 (plus GST if applicable) to the other party in certain circumstances. Please refer to section 11.15 of this Scheme Booklet for further details.

 

(o)

Lionheart Shareholder Redemptions

Lionheart closed its IPO offering on 8 November 2021, whereby 12,500,000 Lionheart Public Units were issued in a fully subscribed IPO. Each Public Unit consists of one share of class A Common Stock and one-half of one redeemable Public Warrant, each whole Public Warrant entitling the holder thereof to purchase one share of Class A Common Stock at an exercise price of US$11.50 per share. The Lionheart Public Units were sold at a price of US$10.00 per Public Unit, generating gross proceeds to Lionheart of US$125,000,000. Lionheart incurred US$2,500,000 of underwriting fees and US$4,375,000 of deferred underwriting fees in connection with the IPO.

Lionheart, simultaneously to its IPO, also completed the private sale (Private Placement) of 2,000,000 Private Warrants at a price of US$1.00 per Private Warrant and the sale of 400,000 Lionheart Private Units in a private placement, generating gross proceeds of $6,000,000. The Lionheart Private Units are identical to the Lionheart Public Units sold in the Public Offering, and the Private Warrants are largely identical to the Public Warrants.

On 8 November 2021, US$126,250,000 of the gross proceeds from the Public Offering and the sale of the Private Units was deposited in the Trust Fund with the Trustee. The trust proceeds are invested in US Treasury securities and accrue interest based upon the yield of such securities.

The Lionheart Existing Charter requires Lionheart to provide all holders of shares of its Class A Common Stock with the opportunity to redeem all or a portion of their shares of Class A Common Stock upon the consummation of an initial business combination. Accordingly, if the Business Combination is approved by Lionheart’s shareholders, the Public Shareholders may elect to redeem their shares of Class A Common Stock.

 

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Upon redemption, each redeeming share is entitled to its pro rata portion of the proceeds of the trust. The remaining proceeds of the trust will be provided to Empatan, following the closing.

The redemption rate will only be known on the date of the vote of the Lionheart stockholders which is expected to be held in January 2023.

If sufficient Lionheart Shareholders exercise their redemption rights in connection with the Business Combination and if the sale of some or all of the PIPE fails to close (see Section 4.4(p) below), Lionheart may lack sufficient funds to consummate the Business Combination.

 

(p)

PIPE Financing

Lionheart is actively pursuing to enter into subscription agreements with certain institutional and accredited investors (PIPE Investors), pursuant to which Lionheart will agree to issue and sell, in private placements to close immediately prior to the closing of the Business Combination, up to US$25 million in the aggregate, in securities (PIPE Financing). The securities to be issued pursuant to the subscription agreements will not be registered under the Securities Act of 1933, as amended (the US Securities Act), in reliance upon the exemption provided in section 4(a)(2) of the Securities Act.

The closing of any PIPE Financing would be subject to customary conditions for a financing of this nature, including the completion of the Business Combination (Closing). The subscription agreements are expected to provide that Lionheart will provide the PIPE Investors customer registration rights with respect to any securities issed to such investors in connection with any PIPE Financing following the Closing.

The PIPE Investor’s obligations to purchase the PIPE securities are subject to termination if the Business Combination is not consummated on or before 8 January 2023 as such date may be further extended in one-month increments until May 8, 2023, as permitted under Lionheart’s governing documents. Lionheart has provided an assurance that it will exercise a further extension for the 8 January period and to facilitate the holding of the Scheme Meeting, Optionolders Meeting and General Meeting Additionally, the PIPE Investor’s obligations to purchase the PIPE Securities are subject to fulfillment of customary closing conditions, including that the Business Combination must be consummated substantially concurrently with, and immediately following, the purchase of the PIPE Securities.

In the event of any such failure to fund, any termination of such obligation, or if any such condition is not satisfied and not waived, Lionheart may not be able to obtain additional funds to account for such shortfall on favourable terms or at all. If the sale of some or all of the PIPE fails to close and sufficient Lionheart Shareholders exercise their redemption rights in connection with the Business Combination, Lionheart may lack sufficient funds to consummate the Business Combination.

 

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5.	Overview of SMX

 

5.1	Business overview and history

 

(a)

Overview

SMX provides one solution to solve both authentication and track and trace challenges to producers of goods in order to uphold supply chain integrity and provide quality assurance and brand accountability. Its technology works as a track and trace system using a marker, a reader and an algorithm to identify embedded sub-molecular particles in order to track and trace different components along a production process (or any other marked good along a supply chain) to the end producer.

Its proprietary marker system embeds a permanent or removable (depending on the needs of the customer) mark on solid, liquid or gaseous objects or materials. Each marker is comprised of a combination of marker codes such that each marker is designed to be unique and unable to be duplicated. The marker system is coupled with an innovative patented reader that responds to signals from the marker and, together with a patented algorithm, captures the details of the product retrieved and stored on a blockchain digital ledger. Each marker can be stored, either locally on the reader and on private servers, cloud servers or on a blockchain ledger, to protect data integrity and custody.

 

(b)

History

SMX Israel was incorporated in 2014 to provide brand protection and supply chain integrity solutions to businesses. It provides these solutions through the commercialization of the initial technology of tracking and tracing materials by observing and identifying markers (the Source IP). SMX’s Source IP was initiated from the Soreq Nuclear Research Center, an Israeli government research and development institute for nuclear and photonic technologies under the Israeli Atomic Energy Commission (Soreq).

In January 2015, SMX Israel entered into the Isorad License Agreement with Isorad Ltd. (an IP holding company of Soreq) to license the Source IP and develop and commercialize the technology (the Isorad License Agreement). Under the Isorad License Agreement, as amended, the Source IP can be utilized in almost any industry and with any product.

In 2018, SMX Israel was acquired by SMX, a company incorporated in Australia, becoming a wholly owned subsidiary of SMX, which subsequently listed on the Australian Stock Exchange under the symbol “ASX: SMX.”

 

5.2	Corporate structure

SMX is a public limited liability company, domiciled in Australia and listed on the Australian Securities Exchange (ASX: SMX) on 15 October 2018.

At the date of this Scheme Booklet, SMX had 167,854,581 shares on issue, 32,422,957, SMX options, 13,410,782 SMX ESOP Options and 828,240 SMX Convertible Notes. See Section 5.17 for a detailed breakdown of the securities on issue in SMX.

SMX has the following related entities:

 

Entity		% of shares held by SMX Group
Security Matters France Ltd (French business number 900404104) (SMX France)			100	%
Security Matters Canada Ltd (BC1294203) (SMX Canada)			100	%
Security Matters Ltd. (Israeli company 51-512577-1) (SMX Israel)			100	%
SMX Beverages Pty Ltd (ACN 637 440 272) (SMX Beverages)			100	%
Yahaloma Technologies Inc. (British Columbia Canada number BC1219747) (Yahaloma)			50	%
True Gold Consortium Pty Ltd (ACN 641 483 374) (trueGold)			44.8	%

 

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(a)

Security Matters France

Security Matters France was founded in June 2021 for commercializing the group’s activity in Europe. During the period SMX France has not yet started its operations.

 

(b)

Security Matters Canada Ltd (SMX Canada)

SMX Canada was incorporated in British Columbia, Canada, on 12 March 2021.

 

(c)

Security Matters Ltd (SMX Israel)

SMX Israel was incorporated in 2014 in Israel. In 2018, SMX Israel was acquired by SMX, a company incorporated in Australia, becoming a wholly owned subsidiary of SMX, which subsequently listed on the Australian Stock Exchange under the symbol “ASX: SMX.”

 

(d)

SMX Beverages

On 10 February 2020 SMX signed an agreement with Global BevCo Pty Ltd, an Australian company, for the commercialization of Security Matters trace technology in the alcoholic beverages industry. Under the terms of the agreement, SMX and Global BevCo established a new private entity (SMX Beverages or “SMX-B”), which was equally held by the above two mentioned groups. As a result of the transaction, SMX had the exclusive rights and responsibility to commercialize intellectual property assets in the area of alcoholic beverages.

SMX has since acquired all of the shares in SMX Beverages, making SMX Beverages a wholly owned subsidiary of SMX.

 

(e)

Yahaloma Technologies Inc. (Yahaloma)

On April 30, 2019, SMX signed an agreement with Trifecta Industries Inc. (“Trifecta”), a Canadian company (and affiliate of Crossworks) for the commercialization of SMX’s trace technology in the diamonds and precious stone industry.

Under the terms of the agreement, Security Matters Ltd and Trifecta established a new entity—Yahaloma Technologies Inc. (Yahaloma), which is equally held by SMX and Trifecta.

Yahaloma has the exclusive rights and responsibility to commercialize SMX’s intellectual property in the area of diamonds or precious stones. As initial working capital for Yahaloma, Trifecta committed to invest US$500,000 for the completion of development milestones, out of which US$250,000 is equity and US$250,000 is a shareholder loan. SMX transferred its relevant IP to Yahaloma, at cost of US$250,000. Both parties committed to additional working capital if required.

The transfer of the relevant Security Matters IP from SMX to Yahaloma resulted in a gain on sale of IP of US$36,043 in 2019.

At the time of purchase, management of SMX assessed the transaction and reached the conclusion that the new entity is jointly controlled by Security Matters Ltd and Trifecta and further determined that the contractual arrangement provides the parties to the joint arrangement with rights to the net assets of the arrangement. The contractual arrangement establishes each party’s share in the profit or loss relating to the activities of the arrangement. The arrangement is a joint venture and the Company’s interests in this joint venture is accounted for using the equity method of accounting.

During the period ended 31 December 2021, Yahaloma continued the development of the SMX technology for the diamonds and precious stones sector. In 2021 the Company recognized equity loss from Yahaloma’s activity at the amount of USD$101,660. As at 31 December 2021, the carrying amount of the JV in Security Matters’ accounts is A$112,297. As at 30 June 2022, the net P&L activity for Yahaloma was zero, with the costs incurred in the previous year and research ongoing.

 

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(f)

True Gold Consortium Pty Ltd (trueGold)

On July 29, 2020, SMX signed a shareholders’ agreement with W.A. Mint Pty Ltd and True Gold Consortium Pty Ltd (trueGold).

The purpose of the agreement is to set the framework for trueGold’s activity. trueGold’s goal is to establish an industry standard with the development of an innovative system that can mark (at a molecular level), track and trace gold bars and gold through every stage of the supply chain with blockchain technology.

Under the terms of the agreement, trueGold will be equally held by the above two mentioned groups, with the goal of adding other shareholders.

Management has assessed the transaction and reached the conclusion that the new entity is jointly controlled by SMX and W.A. Mint Pty Ltd. Management has further determined that the contractual arrangement provides the parties to the joint arrangement with rights to the net assets of the arrangement. The contractual arrangement establishes each party’s share in the profit or loss relating to the activities of the arrangement. The arrangement is a joint venture and the Company’s interests in this joint venture is account for using the equity method of accounting.

 

5.3	Business model

SMX’s business model targets leading brands and manufacturers (as opposed to directly targeting consumers) in order to create a new market standard for circular economy solutions, brand authentication and supply chain integrity. SMX offers both business-to-business sales and “white label” solutions, depending on the needs of customers and the ultimate end use based on either a fixed fee or volume based revenue model (or both).

SMX may work directly with the manufacturer of the products or through the manufacturer’s raw material supplier so that the manufacturer is not required to change (or is required to make no more than minimal changes to) its manufacturing process in order to implement SMX technology in the production process. Gaining the trust of raw material producers is the first stage, which in turn allows for credibility and trust when supplying solutions to brand owners, manufacturers and suppliers, which is a key step for its success.

 

5.4	Products and applications

 

(a)

Products

SMX provides a solution comprised of three components: (1) a physical or chemical marker system coupled with (2) a reader and connected to (3) a blockchain digital platform.

 

(i)

Markers

Markers are embedded sub-molecular particles applied to a solid, liquid or gas. SMX uses various building blocks, comprised of a variety of molecules, to serve as markers for materials and products. For each project, its team selects a combination of molecules based on the specification of the customer and marked material (for example, the marked medium, the production process, the end use of the product and regulatory requirements, among others). The SMX innovative reader can identify the marker and identify a response at a sub molecular building block level, designed to make the marker identification more accurate.

The ability to more accurately identify the concentration level of a marker allows SMX to use numerous markings from a variety of different molecules. This enables it to not only identify the marker, but also identify the concentration within a product within a pre-defined range and “read” whether the marked material was diluted (authenticating not only the marked goods but also identifying the quantity).

Based on the specifications of the marked product, SMX can mark materials based on several techniques, allowing its solution to be implemented across materials and processes. Markers can carry information denoting the origins of manufacture, product provenance, date of production and many other types of data, depending on customer needs.

 

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SMX can produce either permanent or removable markers that can be applied either topically or internally to material in any state of matter (solid, liquid or gas) to form an “Intelligence on Things,” or “IOT2” marking system. The IOT2 concept involves marking products during or after the manufacturing process by inserting or applying materials to the products and encoding information through this process, namely by the treatment of materials or affixing and embedding product authentication security devices. The IOT2 concept allows for materials in a wide variety of products to be protected against counterfeiting, tampering, and diversion, and to help ensure the integrity of genuine products and manage the supply chain and logistics processes.

The marker supports invisible, indelible, and non-damaging tracking of distinctive molecules designed to ensure uniqueness and prevent duplication or counterfeiting. The marker is designed to not in any way affect the properties of the material it is applied to – it simply becomes a part of that material. The molecules are designed to be inert, inactive, and invisible to the human eye.

 

(ii)

Readers

Markers are embedded in the material and can only be detected or “read” by designated readers. A reader scans for the existence of markers. If the reading satisfies a pre-determined condition set by SMX (which can be programmed), the reader identifies the marked product and conveys information about such product to the customer.

SMX currently utilizes an x-ray wave reader that is modified according to its specifications to allow it to scan its proprietary markers. The reader and SMX’s algorithm are designed to make its detection method unique and prevent duplication or interference with its markers. The reader is available as a hand-held device or industrial apparatus for large-scale applications, with the ability to read the embedded material data from a physical or chemical marker without requiring lengthy and expensive laboratory testing for confirmation.

 

(iii)

Platform

Blockchain technology is a ledger of records, which are linked and designed to be secured using cryptography from third party infrastructure and SMX’s architecture. SMX can record a marker manifestation on the blockchain and store this information in cloud computing data storage. It has developed an algorithm designed to securely connect its reader to an existing platform (licensed from a SaaS provider) and record changing ownership and other information to the blockchain. Once SMX’s blockchain solution is implemented, a marked good or material is scanned in order to identify the marker, the results can be verified on the blockchain in order to confirm the data embedded in it, such as the identity of the producer, date of production, supplier and past owners. During the same scan, the reader can record to the blockchain a change of location or ownership of the marked product or material.

The IOT² concept mentioned above also refers to the retrieving, analyzing and processing of encoded information embedded on products and product components and uploading such information to a cloud computing system or to a distributed blockchain system, creating a digital twin to a physical product for the purpose of product authentication, brand protection, tracking and tracing products and product components, supply chain management, and logistical processes.

 

(b)

Applications

SMX’s solution offers the following applications across industries:

 

(i)

Process tracing

Process tracing involves the upstream marking of raw material and blockchain-backed scanning throughout processing stages to allow for full traceability of raw material across its life cycle. Manufacturers are under increasing consumer and regulatory pressure to prove material provenance in order to be able to certify compliance with environmental, social and governance, or ESG, sourcing practices and carbon content of finished goods. Through upstream marking of raw material and blockchain-backed scanning throughout the processing stages, SMX’s technology enables real tracking and tracing of materials, including the source of those materials. Additionally, SMX’s technology enables manufacturers to know whether any used items are theirs and enables them to pay third parties to collect their used products, creating a market for collecting used products and selling them to other manufacturers.

 

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(ii)

Authentication

Manufacturers can validate product authenticity to their customers by marking final products or prime components and scanning the marker at a retail location or as part of the process of recycling their products. Growing concerns about component tampering along high security or critical infrastructure product supply chains and increasing counterfeit issues for high value density products are also issues that SMX’s marking and authenticating process is designed to address.

 

(iii)

Sustainability and circular economics

The end-to-end technology solution covers three product lifecycles to enhance the circular economy from raw material to manufacturing/production, packaging, and end-of-life, enabling it to re-enter the economy for recycling or reuse. By marking upstream raw material and later scanning recycled content at waste collection points, an advanced sorting of materials is enabled which can increase the value of recycled content and in turn help to increase global recycling rates and recycled content certification.

 

5.5	Business strategy

SMX’s roadmap for entry into markets it identifies is as follows:

 

(a)

Market leader adoption - adoption of the solution by a market leader that provides a “seal of approval” that the technology is valid for the industry and generates added value.

 

(b)

Becoming an industry standard - leveraging the market leader’s position in the market to increase adoption by other companies along the value chain.

 

(c)

Regulator adoption - In the future, SMX aims to become the preferred solution by regulators and professional associations in each industry.

 

5.6	Research and development

Given the varied needs of different industries, SMX’s research and development processes are divided according to industry.

 

(a)

Plastics, rubber and other materials

Earlier this year, SMX completed a successful trial of marking recycled plastics by studying the impact of gravimetric and volumetric feeding methods on final Post Consumer Recycled, or PCR, readings. The compounding master batch and extrusion processes of these trials were performed on a pilot scale in a fully commercial and industrial facility. SMX’s team demonstrated its ability to manage the process remotely, indicating the viability of industrial scale adoption.

The successful trial provides plastic manufacturer and importing companies with a proof of concept, enabling them to more accurately identify and audit, via an automated transparent reporting system, the polymer type, number of loops and the amount of recycled content despite the size and color of the plastic. As a result, SMX is positioning itself to be able to offer plastic manufacturing and importing companies the ability to promote their operations as being sustainable and environmentally friendly. Combined with its ability to digitally certify the materials, SMX is also positioning itself to offer these companies the ability to avoid human/manual-paper auditing and use technology/automated auditing, which helps to reduce the potential for human errors and can provide for cost savings.

 

(b)

Gold and other metals

Gold

SMX formed a joint initiative with Perth Mint to develop a mine-to-marketplace ethical gold supply chain technology solution. Since the incorporation of True Gold Consortium Pty Ltd (trueGold) in June 2020, this research and development project aims to promote a ‘mine to product’ transparency solution dedicated to responsible mining of materials. SMX’s track & trace technology provides information on the origin of the materials and how they move across production and distribution chains towards recycling and back to refining.

 

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SMX has a license agreement in place with trueGold, under which trueGold, subject to the terms of the license agreement, was granted an exclusive, worldwide, perpetual license to use Security Matters’ technology for the purpose of commercializing it within the industry comprising gold as a precious metal. SMX owns any development of its intellectual property and, while True Gold owns all generated data it creates, trueGold granted SMX a free non-exclusive, irrevocable, perpetual, royalty free license to use the generated data, subject to regulatory requirements and to the extent that it relates to the Isorad License Agreement technology or SMX’s technology. SMX’s CEO, Mr. Haggai Alon, provides CEO services to trueGold and is a board member of trueGold.

Non-Ferrous Metals

On 29 November 2022, SMX signed a products distribution and SAAS reseller agreement with Sumitomo Corporation, a Japanese corporation. Under such agreement, SMX appointed Sumitomo to act as SMX’s exclusive, worldwide distributor to market and sell markers, readers and SMX services to customers for application in the Non-Ferrous Metals Market (as defined below) only subject to the customer entering into with SMX its standard product license agreement. The “Non-Ferrous Metals Market” is defined as all supply chain market segments of the industry for aluminum; copper; lead; nickel; zinc; molybdenum; cobalt; lithium; and tin.

The price at which SMX will sell products to Sumitomo and the license fee at which SMX shall license SMX products and SMX service to Sumitomo will be at a discount to the invoices issued to the customers.

The agreement shall remain in effect for an initial term of five years from the effective date of first commercial sale by SMX to Sumitomo of any products. The companies have agreed that over the coming years there is a target to reach US$35 million in sales.

Silver

On 27 November 2022, SMX signed a termsheet for distribution and SAAS reseller agreement, which is still subject to negotiation of the definitive documentation and final internal corporate and regulatory approvals. Under such termsheet, SMX appointed an exclusive, worldwide distributor to market and sell markers, readers and SMX services to customers for application in the silver market only, subject to the customer entering into with SMX its standard product license agreement.

The price at which SMX shall sell products to the distributor and the license fee at which SMX shall license SMX products and SMX service shall in be a discount of the invoices issued to the customers.

The agreement shall remain in effect for an initial term of ten years subject to the achievement by the distributor of reasonable metrics and/or conditions which shall be included in the definitive agreements.

 

(c)

Diamonds and precious stones

SMX entered into an agreement with Trifecta Industries Inc., a Canadian corporation, in which the parties incorporated Yahaloma Technologies Inc., a Canada corporation (Yahaloma), with the goal of commercializing SMX’s intellectual property portfolio through various applications in the diamond and precious stones industry. The parties seek to create a solution for the track and trace of diamonds and precious stones from the mine to the end consumer or user. Both parties covenanted not to pursue the use of SMX’s technology for diamonds and precious stones, or any other venture related to the testing of the origin of diamonds or precious stone, other than through Yahaloma. Additionally, in agreement with Isorad, all rights in and to any intellectual property related to the diamonds and precious stones industry that is developed by or for Yahaloma is jointly owned in equal parts by the SMX, Yahaloma and Soreq.

 

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(d)

Electronics

SMX has joined an alliance formed by six founding partners, among them the World Business Council for Sustainable Development, to set a shared vision for a circular economy for electronics, called the Circular Electronics Partnership. This group of global companies has been brought together to reduce e-waste and to commit to a roadmap for a circular economy for electronics by 2030.

 

(e)

Fashion

In December 2020, SMX announced that it had launched a Fashion Sustainability Competence Centre to enable fashion brands globally, to transition successfully to a sustainable circular economy by being able to identify the origination of their raw materials and hence, recycle their own unsold and/or end-of-life merchandise (garments, footwear and accessories including sunglasses) back into new high-quality materials and new fashion merchandise. SMX’s technology is applicable across a range of materials including leather, silk, cotton, wool, coated canvas, vegan leather, polyesters, cashmere, metals (e.g., gold & metallic parts) and plastics; and its applications encompass finished leather goods, shoes, garments, and accessories. SMX is also collaborating with several luxury fashion conglomerates on R&D projects to trace the origin of raw materials used in their supply chain and is in commercial negotiations regarding the implementation of its solution with partners in the industry.

 

5.7	Intellectual Property

The ability of SMX to develop and maintain proprietary IP is crucial to our success. Since 2015, SMX technology has been protected by more than 20 patent families and more than 100 patents filed around the world in various stages with respect to our marking and reading technologies.

 

5.8	Marketing and sales

 

(a)

Overview

SMX intends to concentrate its market penetration efforts into the U.S. market, including recruitment of sales and marketing personnel, either located in the U.S. or with U.S. orientation, participation in various professional expos, conventions and exhibitions and entering into agreements or arrangements with distributors in the U.S. markets and commencing collaborative relationships with commercial entities for the development of new customized products. Moreover, SMX intends to continue to invest significant resources in research and development in order to improve and build on its array of existing solutions and strive to develop new innovative products in sync with new market technological developments. SMX plans to further advance its innovative technology and commercialization efforts by:

 

(i)

engaging with additional suppliers and service providers in order to improve and streamline its product development process and supply chain;

 

(ii)

increasing marketing and sales activities, concentrating on specific target markets;

 

(iii)

increasing participation in professional expos, conventions and exhibitions; and

 

(iv)

establishing partnerships and collaborations with strategic customers and entities in the segments relevant to its technology.

SMX’s pricing is based on the perceived value proposition of its solution for its customers. The pricing model is expected to be comprised of three components:

 

(i)

set-up fee (for initial consultations);

 

(ii)

marker implementation fee (typically on a per item or per kg basis) and sale or lease of readers; and

 

(iii)

service fee (for reading, blockchain services and other support services).

Pricing may also include an annual license fee, payment of royalties, pay-per-read, or other models.

 

(b)

Target Industries

 

(i)

Fashion

 

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For the fashion industry, SMX’s technology enables authentication from raw materials to retail stores and beyond:

 

Its technology targets the luxury fashion industry by enabling high-end brands to:

 

(A)

verify the origin of raw materials to prevent fraud;

 

(B)

control material usage during the manufacturing process;

 

(C)

track a product’s journey from the first point of manufacturing to delivery to customers.

 

(D)

share information on product traceability with customers to prevent fraud in returned products;

 

(E)

generate secondary and reseller demand by demonstrating product authenticity; and

 

(F)

improve upcycling and recycling processes through material recognition, grading, and recycled content certification.

 

(ii)

Electronics

For the electronics industry, SMX’s technology enables end-to-end traceability and authentication from raw material to point of use.

 

Its technology targets semiconductor manufacturers enabling a manufacturer to:

 

(A)

verify the origin of raw material;

 

(B)

control material usage;

 

(C)

demonstrate product authenticity along its supply chain;

 

(D)

detect tampering during use (e.g., when giving products off-premises for maintenance or other reasons); and

 

(E)

implement upcycling and/or recycling programs through material recognition, grading, and recycled content certification.

 

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(iii)

Gold and other metals

SMX’s technology allows for the tracing of gold or other metals from mine to consumer.

 

Its technology enables gold refineries, mining companies, and bullion banks to:

 

(A)

prove the origin and mine location of the gold;

 

(B)

facilitate the sale or trading of gold from ESG-compliant mines; and

(C) demonstrate that their products are ESG-compliant to customers and end-users.

 

(iv)

Plastics, rubber and other materials

Given the challenges around mechanical recycling, chemical recycling is emerging as a promising solution to help tackle the global challenge associated with single use plastic waste. An embedded chemical marker allows for better tracking, monitoring and sorting of post-consumer plastic with the circular value chain approach. SMX’s technology is applicable throughout the life cycle of the material or product, from raw material to production to recycling. Its technology enables plastic footprint transparency and traceability along the supply chain.

 

Its digital twin technology can address a key challenge of the first step to identify, track and trace commodities produced in emerging countries for use in the developed countries, such as rubber or food commodities (e.g., cocoa, soy, and palm oil). The creation of a digital twin for each physical good enables participants in the value chain to come together and form the global ledger for the goods. As a number of industries and sectors are increasing their commitments to recycling, many companies are realizing the need for sustainability and circular economies.

 

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5.9	Competitive advantage

Armed with its various products and designs, SMX believes it possesses a unique combination of knowledge and features. It has established an innovative, cross- segment technology, developed over several years by an experienced and dedicated team of scientists, which it believes creates a barrier to entry to its competitors.

SMX’s product is currently undergoing pilot projects with customers with strong international presence. The customizable nature of its technology allows SMX to embed the technology in multiple products, from silk to rubber to diamonds to gold to plastics, across multiple segments.

SMX is constantly striving to improve its competitive status in the market by:

 

(a)

entering into agreements or arrangements with large and high-profile customers in the industry, which it believes enhances its status and reputation in multiple markets and provides opportunities to enter into new agreements or arrangements with new customers;

 

(b)

entering into agreements or arrangements with strategic partners in order to strengthen its position to become the new industry standard; and

 

(c)

Providing high level development and support services to customers, to promote customer retention, and encourage its customers to rely on SMX to use its technologies for future projects.

 

5.10	Property and real estate

SMX’s main operational activities are conducted at its headquarters in central Israel. It leases 363 square meters of office space at this location under a lease until 31 May 2027, with an option to SMX to extend the lease for an additional rental fee of 10% for an additional 5 years.

SMX also leases an additional adjacent building of 146 square meters where it conducts research and development activities. SMX has the option to exit the lease in March 2023. The lessor (who represented that it is not aware of any such impending circumstances) has a right to shorten the lease with 90 days notice if it is demanded by a government entity to evacuate the premises, to change the agreement or to pay fined due to the agreement.

SMX believes that its current facilities are suitable and sufficient to meet its anticipated needs for the foreseeable future.

 

5.11	Government royalty obligations and regulations

 

(a)

Israeli R&D Law

The Government of Israel encourages research and development projects oriented towards products for export or projects which will otherwise benefit the Israeli economy. This is conducted by the Israel Innovation Authority (IIA), which replaced the former Office of the Chief Scientist (OCS).

Under Israeli laws with respect to research and development, which is referred to as R&D Law, a royalty of between 3% to 5% applies to the net sales of products developed from a project funded by the IIA, beginning at the commencement of sales of products developed with grant funds and ending when a dollar-linked amount equal to 100% of the grant plus interest at LIBOR has been repaid. The terms of the R&D Law also place restrictions on the location of the manufacturing of products developed with government grants, which, in general, must be performed in Israel, and on the transfer to third parties of technologies developed through projects in which the government participates. SMX’s research and development team will remain in Israel and all funds previously received by way of a grant from IIA have been invested in Israel.

The IIA has published a directive incorporating most of the former provisions, including those with respect to transfer of manufacturing rights, transfer of know-how and others. These provisions include limitations and requirements for payment with respect to outsourcing or transferring development or manufacturing activities with respect to any product or technology outside of Israel, and change in control in companies which received government funding from the OCS or IIA, which may impair ability to sell technology assets outside of Israel or to outsource, transfer develop or manufacture with respect to any product or technology that received government funding under the R&D Law outside of Israel, or consummate a change in control in the Company, all without prior approval of the IIA.

 

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In May 2017, the IIA published the Rules for Granting Authorization for Use of Know-How Outside of Israel, or the Licensing Rules. The Licensing Rules enable the approval of licensing arrangements and other arrangements for granting of an authorization to an entity outside of Israel to use know-how developed under research and development programs funded by the IIA. Subject to payment of a license fee to the IIA, at a rate that will be determined by the IIA in accordance with the Licensing Rules, the IIA may now approve arrangements for the license of know-how outside of Israel. This allows companies that have received IIA support to commercialize know-how in a manner which was not previously available. In addition, the IIA has recently published a directive incorporating most of the former provisions, including those with respect to transfer of manufacturing rights, transfer of know-how and others.

SMX had one approved project with the IIA (project number 55715, approved on November 23, 2015) of a 40% grant out of a project of up to approximately US$400,000 under which it received US$196,000 in prior years. SMX passed a final review by the IIA and no additional funding is expected to be received under the project.

SMX is obligated to pay 3% of its relevant revenues for the first three years, and 4% of the relevant revenues for further years, until repayment of the entire grant, being ILS 609,865 (equivalent to approximately US$196,000). To date SMX paid about US$1,000 out of such amount.

 

(b)

Approved enterprise

The Israeli Encouragement of Capital Investments Law, 1959, is intended to encourage investment in industry in Israel in national priority areas, to promote economic initiatives while giving preference to advanced and innovative industries, and to strengthen development areas. Based on the Investment Law, the Investment Center may, on application, grant the status of “Approved Enterprise” for Capital Investments in industry and tourism. Certificates of approval are issued and such approval entitles the project to receive substantial support from the State. The support may be in the form of reduced taxation, investment grants or other benefits specifically designed to encourage capital investment in Israel. Such State support is conditional on certain restrictions on the activities of a supported company, which restrictions may not easily be alleviated.

In December 2016, SMX received approval as an Approved Enterprise (File 24638, Plan 429, Motion 120941) for the building of a factory for the marking of materials with an investment of ILS 3,700,000, provided that at least 24% of the investment will be financed by the issuance of new shares. Due to changes in our activity plans, we did not pursue such project and did not take any funds under such Approved Enterprise.

 

(c)

Isorad licence agreement

Under the Isorad License Agreement (as amended), SMX received from Isorad an exclusive, worldwide, royalty-bearing license, to make use of (including, without limitation, to develop, manufacture, use, market, offer for sale, sell, export and import in the field of marking methods) US patent number 8158432 B2 and the technology derived from it can be utilised in almost any industry and with any product. Additionally, any uses for the Israeli security forces and/or its purposes will be conducted via SMX at a “cost plus” price to be agreed. While Isorad and Soreq reserve the right to freely continue to research and develop the technology, SMX has a right of first offer to any newly developed technology. If the Source IP is developed further by Soreq and Soreq wishes to commercialize the new technology, then Soreq must offer the right to commercialize the new technology to SMX in the first instance.

SMX and its affiliate are to pay Isorad royalties for 25 years as of 1 January 2020 in the amount of 2.2% of all gross sales by the Company, our affiliates or sublicensees and after 25 years the license becomes royalty-free. Gross sales are defined under the Isorad License Agreement to include the total amount invoiced or received by SMX and/or its affiliates, including, without limitation, for sale of products and provision of services. If SMX charges a fee for sublicensing or an option for a sublicense, for which it does not pay the 2.2% royalty described above, such income will be subject to royalty payment of 15% of the amounts received. The royalties for revenues from sub-licensing the technology are payable as of 1 January 2020.

 

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Upon the occurrence of the first M&A event (as such event is defined in such agreement to include mergers, sale of all or substantially all the assets of ours and similar event) after the closing of the event described in thie Scheme Booklet Combination, SMX is to pay a cash amount equal to 1.5% of the amount received or transferred. Additionally, Isorad was issued 864,000 options to purchase shares of SMX and 1% of any amount actually received against equity or other funding convertible into equity at the closing of the transction and any amount actually received against equity or other funding during a period of 13 months thereafter (to be paid after reaching an aggregated received amount of USD 27 million, or at the end of such 13 months, the earlier thereof). This will not apply to any future offer of shares, merger or sale of assets thereafter.

Under the Isorad License Agreement, Isorad can only refuse to approve a sublicense based on governmental defense, security, governmental policy, political and other official State of Israel policy considerations. A sublicensee cannot further grant, directly or indirectly, to any third party any sublicense or rights to the technology and cannot further assign the sublicense agreement.

Specifically as to Yahaloma, the royalty rate on gross sales of Yahaloma, to be paid by Yahaloma, is 4.2% (and not 2.2% that applies solely to SMX and its other affiliates). Upon the occurrence of an M&A event (as such event is defined in such agreement to include mergers, sale of all or substantially all the assets of Yahaloma and similar event), Isorad is entitled to a fee equal to 1% of the total consideration paid to, received by, or distributed to, Yahaloma and/or its shareholders and/or its affiliates in connection with the event, including, without limitation, all cash, securities or other property which is received by Yahaloma and/or its shareholders in connection with such event or two such events (i.e. twice) at its choice.

The Isorad License Agreement will continue in full force and effect until terminated pursuant to its terms. If either party does not remedy a material breach of its obligations within 180 days of notice of the material breach, the non-defaulting party may terminate the Isorad License Agreement immediately. Isorad may terminate the agreement by providing 30 days prior written notice if the royalties payable to Isorad are $nil in any semi-annual report and we have breached other certain obligations (such as a failure to maintain a patent or patent application in the previous semi-annual review period).

SMX has provided broad indemnities to Isorad and Soreq and their related parties under the terms of the Isorad License Agreement. The Isorad License Agreement is governed by the laws of Israel.

 

(d)

Safety certifications and permits

SMX is accredited under ISO 9001:2015 standard for quality management and quality assurance. The ISO organization promotes worldwide proprietary, industrial and commercial standards. SMX is audited annually to verify that it complies with the ISO standards of excellence, safety, quality, process management and risks management.

Under the provisions of the Israeli Non Ionizing Radiation Law, and the work safety regulations (regarding employment safety and health of those working with non-ionizing radiation), the Company is required to hold a valid license for operations involving non ionizing radiation as well as employ a safety expert with qualifications as defined by the law. As of 8 May 2022, SMX has a valid license for operations involving non ionizing radiation and employs a safety expert as required by law. Additionally, the import and use of its readers may be subject to egulatory and other licensing requirements in certain jurisdictions, which requirements may differ from one jurisdiction to another.

 

5.12	SMX’s directors and executive team

 

(a)

Directors

 

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As at the date of this Scheme Booklet, the SMX Board is comprised of the following directors:

 

 

(i)

Haggai Alon - Executive director / Chief Executive Officer

Haggai Alon is the founder of Security Matters (SMX) and has over 18 years of experience in commercializing technology. Mr Alon also serves as CEO and a board member of trueGold.

He has commercialized technology out of the Ministry of Defense in Israel as well as in the private sector. Haggai Alon held several roles during his time at the Ministry of Defense and was the CEO of an economic consulting firm focusing on M&A. He has a masters degree out of Tel Aviv and Haifa Universities in international relations and political science and will soon complete his Ph.D.

Out of a total of 27 patent families filed in the name of SMX, Haggai Alon is a named inventor on 26 of them. Most of the applications that are part of these patent families are under examination, many are still unpublished. In 7 families of the 26 families Haggai Alon is a named inventor, the patents have been issued in a variety of jurisdictions. Presently, Haggai Alon is a named inventor on 19 patents, all of which are in the public domain.

He has also published a white paper - New Plastic Economic Order: To regulate the entire value chain, not just the product, which calls for a transition to a new regulatory approach by the EU over plastics.

 

(ii)

Everardus (Ed) Hofland - Executive Chairman

Ed Hofland is a business leader that has brought in multi-million dollar investments to the Arava Desert region of Israel. He serves on the board of ASX: SMX since going public in 2018 as a non-executive chairman of the board.

Ed Hofland is the chairman of leading industry, technology and agriculture companies in Israel, such as:

 

(A)

Chairman of Arava Power Company, Israel’s leading solar power company;

 

(B)

Chairman of Algatech, micro-algae producer that markets its products worldwide, including Japan, India, New Zealand and Europe; and

 

(C)

Chairman and CEO of Ardag Fish Farm that produces fish and caviar.

 

(iii)

Jovanka Naumoska - Non-executive director

Jovanka Naumoska is a corporate lawyer with ASX board-level experience.

Jovanka Naumoska has served as senior corporate lawyer specialising in intellectual property for 20 years, and currently works as a corporate counsel for an Australian government research agency, holding the position of Senior Commercial & Strategic Projects Counsel at such agency.

Jovanka Naumoska holds Bachelor of Science (Hons) and Bachelor of Law (Hons) degrees and a Graduate Diploma of Legal Practice from the University of Wollongong. Jovanka Naumoska also holds a Graduate Diploma in Applied Corporate Governance from the Governance Institute of Australia.

 

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Ms Naumoska is currently a non-executive director of ASX-listed Imagion Biosystems Ltd, as well as non-executive director of the National Accreditation Authority for Translators and Interpreters.

 

(iv)

Amir Bader - Non-executive director

Amir Bader brings to the Company extensive experience in the management of agricultural businesses.

Amir Bader is currently the manager of one of Israel’s largest dairy farms, and has more than 24 years of experience at managerial positions in dairy farms and other agricultural projects in Israel and Europe.

Amir Bader also served as Kibbutz Degania A’s business manager for five years, during that period he served as the board member of several subsidiaries and companies related to the Kibbutz.

 

(v)

Kathryn Davies - Non-executive director

Ms Davies is an experienced executive across technology, mining, oil and gas and healthcare groups. She has significant international commercial and corporate experience having worked as a Director, Chief Financial Officer and/or Company Secretary for a number of ASX200 and dual-listed companies. Her experience includes negotiating and delivering on multi-jurisdiction transactions, international stakeholder management and cross-border long term contracts. She holds a Bachelor of Business, is a CPA and a graduate of the Australian Institute of Company Directors.

Ms Davies is currently an Executive Director of ASX listed Golden Rim Resources Ltd.

 

(b)

Executive Team

As at the date of this Scheme Booklet, SMX’s executive team is comprised of the following members:

 

 

(i)

Haggai Alon - Chief Executive Officer

Please see section 5.12(a)(i) above.

 

(ii)

Limor Moshe Lotker, CPA - Chief Financial Officer

Limor Moshe Lotker, CPA, was appointed as Chief Financial Officer of SMX in 2021.

Ms. Lotker is a qualified Israel chartered public accountant with over 20 years’ experience. She has previously held a financial leadership role in a company with global operations in the electronic industry.

Ms. Lotker is highly experienced in financial and operational aspects of the business controllership and leading finance and investing processes. She has vast experience with publicly traded companies.

 

(c)

Employees

As at 10 August 2022, SMX has 28 employees, of which 26 full time employees and 2 part time employees located in Israel. SMX also has two employees in Australia and one in France.

None of SMX’s employees are members of a union or subject to the terms of a collective bargaining agreement. In Israel, SMX is subject to certain Israeli labor laws, regulations and Labor Court precedent rulings, as well as certain provisions of collective bargaining agreements applicable to SMX by virtue of extension orders issued in accordance with relevant labor laws by the Israeli Ministry of Economy and Industry, and which apply such agreement provisions to SMX employees even though they are not part of a union that has signed a collective bargaining agreement.

 

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All of SMX’s employment and consulting agreements include standard non-compete and intellectual property assignment provisions, as well as strict confidentiality obligations. The enforceability of non-compete provisions may be limited by Israeli law.

SMX has a diversity policy in effect, last updated and approved by the board on 7 February 2021, according to which the Company is committed to gender diversity across its Board of Directors, senior management team and across its entire workforce.

 

5.13	Relevant Interests in SMX held by SMX Directors

As at the Last Practicable Date, the SMX Directors held the following Relevant Interests in SMX securities.

 

Notes:

¹Held by a related party of Haggai Alon, being Benguy Escrow Company Ltd.

²Legacy Performance Options were issued indirectly to Haggai Alon (through Benguy Escrow Company Ltd) and Everardus (Ed) Hofland at the time of the IPO of Security Matters Limited. The Legacy Performance Options held by or on behalf of Haggai Alon and Everardus (Ed) Hofland were cancelled on or around 15 August 2022. The cancellation of the Legacy Performance Options is conditional on the Schemes, Capital Reduction and Business Combination being implemented.

 

5.14	Legal proceedings

From time to time, SMX may become involved in legal proceedings or may be subject to claims arising in the ordinary course of our business. As at the date of this Scheme Booklet, so far as the Directors of SMX are aware, there is no current or threatened civil litigation, arbitration proceedings or administrative appeals, or criminal or governmental prosecutions of a material nature in which the Company is directly or indirectly concerned which is likely to have a material adverse impact on the business or financial position of the Company.

 

5.15	SMX historical financial information

 

(a)

Introduction

This Section contains the historical financial information for SMX (SMX Historical Financial Information) comprising:

 

(i)

the historical consolidated statements of profit or loss and other comprehensive income for the years ended 31 December 2020 and 31 December 2021 and for the half year ended 30 June 2022;

 

(ii)

the historical consolidated statements of financial position as at 31 December 2020 and 31 December 2021 and as at 30 June 2022; and

 

(iii)

the historical consolidated statements of cash flows for the years ended 31 December 2020 and 31 December 2021 and for the half year ended 30 June 2022.

 

(b)

Basis of Preparation

 

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The SMX Historical Financial Information set out in this Section is prepared for the purposes of this Scheme Booklet and its preparation and presentation is the responsibility of the SMX Board.

The SMX Historical Financial Information as at and for the years ended 31 December 2020, 31 December 2021 and for the half year ended 30 June 2022 and has been derived from SMX’s financial statements for the respective periods which were audited or reviewed by BDO Audit Pty Ltd in accordance with Australian Auditing Standards. BDO Audit Pty Ltd issued unqualified audit opinions on the 31 December 2020 and 31 December 2021 financial statements and an unqualified review opinion on the 30 June 2022 half year financial accounts.

The SMX Historical Financial Information is presented in an abbreviated form and does not contain all the disclosure, presentation, statement or comparatives that are usually provided in an annual financial report prepared in accordance with the Corporations Act and IFRS. The SMX Historical Financial Information should be read in conjunction with the full financial statements of SMX, for the respective periods, including a description of the accounting policies contained in the financial statements and notes to those financial statements.

Full financial statements for SMX for the years ended 31 December 2020, 31 December 2021 and for the half year ended 30 June 2022, were lodged with ASX and are available free of charge at http://www.asx.com.au/ under ASX code ‘SMX’ or from SMX’s website (www.smx.tech).

The SMX Historical Financial Information has been prepared in accordance with the recognition and measurement principles contained in AAS, issued by the Australian Accounting Standards Board (AASB) which are consistent with International Financial Reporting Standards (IFRS).

The significant accounting policies adopted by SMX in the preparation of the SMX Historical Financial Information are consistent with those disclosed in SMX’s financial statements for the respective periods.

 

(c)

SMX Historical Consolidated Profit or Loss and Other Comprehensive Income Statement

Set out below are the audited consolidated financial results of SMX for the years ended 31 December 2020 and 2021.

 

		US$ 31 Dec 2021				US$ 31 Dec 2020
Revenue			—				13,447
Cost of sales			—				(10,324	)
Gross profit			—				3,123
Research and development expenses			(2,038,916	)			(1,689,266	)
Selling and marketing expenses			(453,330	)			(427,530	)
General and administrative expenses			(2,481,740	)			(3,894,142	)
Operating Loss			(4,973,986	)			(6,007,815	)
Finance expenses			(101,082	)			(79,132	)
Finance income			237,842				66,276
Share of net loss of Joint Ventures			(101,660	)			(344	)
Loss before income tax			(4,938,886	)			(6,021,015	)
Income tax			—				—
Loss after income tax for the year attributable to the owners of Security Matters Limited			(4,938,886	)			(6,021,015	)
Other comprehensive income, net of tax
Items that may be reclassified subsequently to profit or loss
Foreign currency translation			(51,561	)			388,330
Total comprehensive income for the year attributable to the owners of Security Matters Limited			(4,990,447	)			(5,632,685	)

 

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