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Item 1.01 |
Entry into a Material Definitive Agreement. |
Business Combination
Agreement
On August 17, 2022,
LIV Capital Acquisition Corp. II, a Cayman Islands exempted company (“LIVB”), entered into that certain Business
Combination Agreement (the “Business Combination Agreement”) with Covalto Ltd., a Cayman Islands exempted company
(“Covalto”), and Covalto Merger Sub Ltd., a Cayman Islands exempted company and direct, wholly-owned subsidiary
of Covalto (“Merger Sub”), pursuant to which, among other things, Covalto will make an election to be classified
as an association taxable as a corporation for U.S. federal income tax purposes and effect a Pre-Closing Capital Restructuring (as defined
below), and Merger Sub will subsequently be merged with and into LIVB, with LIVB being the surviving entity in the Merger (as defined
below) and continuing (immediately following the Merger) as a direct wholly-owned subsidiary of Covalto (following and after giving effect
to the proposed business combination, “New Covalto”), on the terms and subject to the conditions set forth therein
(the “Merger”, and together with the other transactions contemplated by the Business Combination Agreement,
the “proposed business combination”).
As a result of the proposed
business combination, each issued and outstanding Class A ordinary share, par value US$0.0001 per share of LIVB, and Class B ordinary
share, par value US$0.0001 per share of LIVB, will be automatically surrendered and exchanged for the right to receive one newly-issued
Class A ordinary share, par value US$0.0001 per share, of New Covalto (each a “New Covalto Class A Ordinary Share”
and collectively, the “New Covalto Class A Ordinary Shares”), and each issued and outstanding warrant to purchase
Class A ordinary shares of LIVB (a “LIVB Warrant”) will be converted into and become a warrant to purchase New
Covalto Class A Ordinary Shares (a “New Covalto Warrant”), and New Covalto shall assume each such LIVB Warrant
in accordance with its terms.
The Business Combination
Agreement and the transactions contemplated thereby were unanimously approved by the board of directors of LIVB and the board of directors
of Covalto.
Merger Consideration
Covalto Warrants
Subject
to the terms and conditions of the Business Combination Agreement, certain existing warrants to purchase ordinary shares of Covalto (each
an “Existing Covalto Warrant”) shall be converted into ordinary shares of Covalto (the “Existing
Covalto Warrant Conversion”), and any other Existing Covalto Warrants shall be exchanged for a warrant to purchase the
corresponding number of New Covalto Class A Ordinary Shares, in each case as adjusted to give effect to the proposed business combination.
Preferred Merger Consideration
Subject to the terms and
conditions of the Business Combination Agreement, effective immediately prior to the Pre-Closing Capital Restructuring, and pursuant to
a conversion direction notice to be executed by the applicable holders of preferred shares of Covalto, each preferred share of Covalto
shall convert into one ordinary share of Covalto in accordance with the terms of the Covalto Articles of Association (as defined therein)
(such conversion, the “Covalto Preferred Conversion”).
Pre-Closing Capital Restructuring
Effective immediately
following the Covalto Preferred Conversion and immediately prior to the LIVB Effective Time (as defined therein) and in accordance
with the required shareholder approval of Covalto: (i) each ordinary share of Covalto shall be re-designated as a New Covalto Class
A Ordinary Share; (ii) each authorized and unissued preferred share of Covalto shall be cancelled; (iii) Class B ordinary shares,
par value, US$0.0001 per share, of New Covalto (the “New Covalto Class B Ordinary Shares”) shall be
created and authorized; (iv) an increase to the number of New Covalto Class A Ordinary Shares shall be authorized; and (v) the closing amended
and restated Covalto Articles of Association shall be adopted (collectively, the “Pre-Closing Capital
Restructuring”).
Closing True-Up
Concurrently with the LIVB
Effective Time, New Covalto shall issue to the holders of New Covalto Class A Ordinary Shares and New Covalto Class B Ordinary Shares
(with each receiving its pro rata portion) a number of New Covalto Class A Ordinary Shares and New Covalto Class B Ordinary Shares, respectively
(the “Closing True-Up”), such that, upon giving effect to the LIVB Closing Share Consideration (as defined therein),
the Covalto Preferred Conversion, Closing True-Up, the Pre-Closing Capital Restructuring, the Existing Covalto Warrant Conversion, the
number of New Covalto Class A Ordinary Shares outstanding shall be the Pre-Closing Covalto Share Number (as defined therein).
Covenants of the Parties
Each party has agreed
in the Business Combination Agreement, subject to the terms and conditions therein, to use its reasonable best efforts to take, or
cause to be taken, all actions and to do, or cause to be done, all things reasonably necessary or advisable to consummate and make
effective as promptly as reasonably practicable the proposed business combination contemplated by the Business Combination
Agreement. The Business Combination Agreement also contains certain customary covenants by Covalto and LIVB during the period
between the signing of the Business Combination Agreement and the closing of the proposed business combination (the
“Closing”), including the conduct of their respective businesses, provision of information, maintenance of
books and records, notification of certain matters, obtaining governmental consents, terminating affiliate contracts, as well as
certain customary covenants, such as publicity, some of which may continue after the termination of the Business Combination
Agreement. Each of Covalto and LIVB also agreed not to solicit or enter into certain alternative competing transactions during the
period from the date of the Business Combination Agreement (the “Signing Date”) to the earlier of the
Closing and the termination of the Business Combination Agreement. LIVB also agreed that it will ensure LIVB remains listed as a
public company and that LIVB’s ordinary shares remain listed on the Nasdaq Capital Market (or any successor stock exchange or
inter dealer quotation system operated by the Nasdaq Stock Market, LLC, “Nasdaq”), and Covalto has agreed
to use its reasonable best efforts to ensure that New Covalto is listed as a public company and that New Covalto Class A Ordinary
Shares are listed on Nasdaq as of the Closing.
Directors of New Covalto
The parties have agreed
in the Business Combination Agreement that Covalto shall take all such action within its power as may be necessary or appropriate
such that the board of directors of New Covalto as of immediately following the Closing consists of five (5) directors, of whom (a)
two (2) individuals will be designated by Covalto, who shall initially be Mr. David Poritz and Mr. Allan Apoj, (b) one (1)
individual, who shall be “independent” pursuant to the Rule 10-A(3) of the Exchange Act of 1934, as amended (the
“Exchange Act”), and designated by LIV Capital Acquisition Sponsor II, L.P., a Cayman Islands exempted
company (the “Sponsor”), who shall initially be Mr. Humberto Zesati, and (c) two (2) directors who will be
“independent” pursuant to the Rule 10-A(3) of the Exchange Act, who shall be selected and elected by Covalto prior to
its Pre-Closing Capital Restructuring; provided that Covalto shall consult with LIVB prior to the selection of such
directors. The initial officers of New Covalto at this time are expected to continue to be the officers of Covalto immediately
prior to the Covalto Effective Time.
Closing Conditions
The obligations of the parties
to complete the Closing are subject to various conditions, including customary conditions of each party and the following mutual conditions
of the parties unless waived:
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the following regulatory approvals: (i) the Mexican Anti-Trust Federal Agency (Comisión Federal de Competencia Económica); and (ii) approval from the Mexican Securities and Banking Commission (“CNBV”) with respect to ultimate beneficial owners and the new indirect shareholders with an ownership interest greater than 5% after Closing and notice to CNBV with respect to new indirect shareholders with an ownership interest greater than 2%; |
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the New Covalto Class A Ordinary Shares contemplated to be listed pursuant to the Business Combination Agreement shall have been listed or been approved for listing on Nasdaq; |
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there is not in force any applicable law or governmental order by any governmental authority of competent jurisdiction and having jurisdiction over the parties with respect to the proposed business combination; |
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the approval of the shareholders of LIVB with respect to the proposed business combination shall have been obtained; |
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the approval of the shareholders of Covalto with respect to the proposed business combination shall have been obtained; |
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the registration statement on Form F-4 (as such filing is amended or supplemented, and including the proxy statement/prospectus contained therein, the “Registration Statement”) shall have become effective in accordance with the provisions of the Securities Act of 1933, as amended (the “Securities Act”), no stop order shall have been issued by the U.S. Securities and Exchange Commission (the “SEC”) with respect to the Registration Statement, and no proceeding seeking such a stop order shall have been threatened or initiated by the SEC that remains pending; and |
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the Pre-Closing Capital Restructuring shall have been completed in accordance with Section 3.1(c) of the Business Combination Agreement and the terms thereof and the Covalto Articles of Association. |
In addition, the obligation of Covalto to consummate
the Closing is subject to the funding by the Anchor Investor of an amount no less than the Anchor Investment Amount (each as defined below)
no later than thirty days following the execution of the Business Combination Agreement.
Termination
The Business Combination
Agreement may be terminated under certain circumstances, including:
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by the written consent of Covalto and LIVB; |
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by either party if: (i) the representations, warranties or covenants of the other party are
materially breached such that there is a failure of the related closing condition (subject to a 30-day cure period); (ii) the
Closing has not occurred by 11:59 P.M. ET on May 10, 2023, (iii) the consummation of the proposed business combination is
permanently restrained, enjoined, prohibited, deemed illegal or prevented by the terms of a final, non-appealable governmental
order; or (iv) if the approval of LIVB’s shareholders with respect to the proposed business combination is not obtained
upon a vote duly taken thereon at the LIVB special meeting called for such purpose (subject to any permitted adjournment or
postponement of such general meeting); or |
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by Covalto, if the Anchor Investment (as defined below) has not been duly funded to Covalto, in an amount no less than the Anchor Investment Amount, no later than thirty (30) days following the Signing Date. |
Termination Fee
If the Business Combination Agreement
is terminated by LIVB pursuant to Section 10.1(f)(ii) therein as a result of Covalto’s failure to perform its obligations and
covenants under the agreement, Covalto shall, promptly (but, in any event, within ten (10) Business Days) upon LIVB’s request, pay
to LIVB, at Covalto’s option, either (1) $5,500,000 by wire transfer (in accordance with wire instructions specified by LIVB to
Covalto) in immediately available funds or (2) 1,125,251 Covalto shares, of the most senior class of preference shares of Covalto then
outstanding, or if no preference shares are then outstanding, ordinary shares of Covalto (the “Termination Fee”).
The receipt of the Termination Fee, if and when payable, shall be the sole and exclusive remedy of, and no specific performance or equitable
remedies shall be available to, LIVB, the Sponsor or any of their respective affiliates and representatives under the Business Combination
Agreement and each other transaction document (other than the confidentiality agreement).
Other General
The Business Combination
Agreement contains representations, warranties and covenants that the respective parties made to each other as of the date of such agreement
or other specific dates. The assertions embodied in those representations, warranties and covenants were made for purposes of the contract
among the respective parties and are subject to important qualifications and limitations agreed to by the parties in connection with negotiating
such agreement. The Business Combination Agreement has been filed to provide investors with information regarding its terms. It is not
intended to provide any other factual information about LIVB or Covalto. In particular, the representations, warranties, covenants and
agreements contained in the Business Combination Agreement, which were made only for purposes of such agreement and as of specific dates,
were solely for the benefit of the parties to the Business Combination Agreement, may be subject to limitations agreed upon by the contracting
parties (including being qualified by confidential disclosures made for the purposes of allocating contractual risk between the parties
to the Business Combination Agreement instead of establishing these matters as facts) and may be subject to standards of materiality applicable
to the contracting parties that differ from those applicable to investors and reports and documents filed with the SEC. Investors should
not rely on the representations, warranties, covenants and agreements, or any descriptions thereof, as characterizations of the actual
state of facts or condition of any party to the Business Combination Agreement. In addition, the representations, warranties, covenants
and agreements and other terms of the Business Combination Agreement may be subject to subsequent waiver or modification. Moreover, information
concerning the subject matter of the representations and warranties and other terms may change after the date of the Business Combination
Agreement, which subsequent information may or may not be fully reflected in LIVB’s public disclosures.
The foregoing description
of the Business Combination Agreement does not purport to be complete and is qualified in its entirety by the terms and conditions of
the Business Combination Agreement, the form of which is attached as Exhibit 2.1 to this Current Report and incorporated herein by reference.
Mandatorily Convertible Notes
Prior to the date hereof,
Covalto obtained investments from certain investors in a private placement of mandatorily convertible notes, issued by Covalto to the
investors party thereto, and immediately following, and after giving effect to, the consummation of the Merger, such securities shall
convert into New Covalto Class A Ordinary Shares in accordance with their terms.
In addition, Covalto has
obtained commitments from an anchor investor (the “Anchor Investor”) pursuant to a mandatorily convertible note
of the same series (the “Mandatorily Convertible Anchor Note” and, together with the existing notes, the “Mandatorily
Convertible Notes”) in the form set forth on Exhibit 10.1 hereto (the “Anchor Investment”), for
an amount in United States dollars that is equivalent to 600,000,000 Mexican pesos calculated using the Mexican pesos to United States
dollars exchange rate reported by Banco de México and published in the Federal Official Gazette (Diario Oficial de la
Federación) as of the business day immediately preceding the funding date of the Mandatorily Convertible Anchor Note (the “Anchor
Investment Amount”).
The Mandatorily Convertible
Notes accrue interest at a rate equal to seven percent (7.0%) per annum, compounding annually, subject to the terms therein. The Mandatorily
Convertible Notes shall be payable in cash or, at Covalto’s option, in kind by way of addition to the outstanding principal, semi-annually.
Interest shall commence on the respective closing date of any note and shall continue on the outstanding principal of such Mandatorily
Convertible Note until paid or converted in accordance with the provisions thereof. Any payment made by Covalto with regard to any outstanding
Mandatorily Convertible Note will be made simultaneously with regard to each of the other Mandatorily Convertible Notes then outstanding
on a pro rata basis in the same proportion of the outstanding principal balance then due under the applicable Mandatorily Convertible
Note to be so paid bears to the outstanding aggregate principal balance then due under all of the Mandatorily Convertible Notes.
Each of the Mandatorily Convertible
Notes, including the Anchor Investment and the prior outstanding notes, is subject to conversion at the Closing of the proposed business
combination into ordinary shares of Covalto, at a conversion price equal to eighty percent (80%) of the lowest price per share paid by
investors in the proposed business combination or, if earlier: (i) upon another Qualified Financing (as defined therein); (ii) upon a
Liquidity Event (as defined therein); or (iii) on July 7, 2023, in each case subject to the conversion pricing and other terms set forth
therein.
The Mandatorily Convertible Notes also contain certain anti-dilution provisions in the event of a down-round financing prior to conversion.
In addition, the Mandatorily Convertible Notes
contain a provision for additional consideration in the event that the Termination Fee (as defined in the Business Combination Agreement)
becomes payable by Covalto to LIVB, then upon the subsequent Conversion of the Mandatorily Convertible Note in accordance with their terms,
Covalto shall issue an additional 1,025,000 shares, of the most senior class of preference shares then outstanding, or if no preference
shares are then outstanding, into ordinary shares, into which the Mandatorily Convertible Note is converted (the “Additional
Consideration”), which Additional Consideration shall be distributed pro rata among the holders of the Mandatorily Convertible
Note, in proportion to the outstanding principal balance of the Mandatorily Convertible Note held by each holder to the outstanding aggregate
principal balance then due under the Mandatorily Convertible Note; provided that no holder shall receive less than its pro rata
share of such amount based on its share of the aggregate principal amount outstanding as of the date hereof, subject to certain additional
conditions and restrictions described in Section 8(b) thereof.
The foregoing description
of the Mandatorily Convertible Notes do not purport to be complete and are qualified in their entirety by the terms and conditions of
the Mandatorily Convertible Anchor Note the form of which is attached as Exhibit 10.1 to this Current Report and is incorporated herein
by reference.
Voting Agreements
Company Voting Agreement
Concurrently with the execution
of the Business Combination Agreement, LIVB, Covalto and certain holders of the equity securities of Covalto
(each, individually, a “Supporting Holder” and, collectively, the “Supporting Holders”)
entered into an agreement (the “Company Voting Agreement”) to vote, at a duly called meeting of the shareholders
of Covalto, all of such Supporting Holder’s equity securities (1) in favor of the adoption of the Business Combination Agreement,
(2) in favor of the approval of the proposed business combination and (3) to take certain other actions in support of the foregoing. The
Company Voting Agreement also prevents the Supporting Holders from transferring their voting rights with respect to their equity interests
or otherwise transferring their equity interests prior to the Closing, except for certain customary permitted transfers.
Concurrently with the execution
of the Business Combination Agreement, Sponsor, certain permitted transferees of Sponsor, LIVB, and Covalto entered into an agreement
(the “Sponsor Voting Agreement”), pursuant to which the Sponsor agreed to vote, at a duly called meeting of
the shareholders of LIVB, all of such Sponsor’s equity securities of LIVB (1) in favor of the adoption of the Business Combination
Agreement, (2) in favor of the approval of the proposed business combination and (3) to take certain other actions in support of the foregoing.
The Sponsor Voting Agreement also prevents the Sponsor from transferring their voting rights with respect to their equity interests or
otherwise transferring their equity interests prior to the Closing, except for certain customary permitted transfers.
The Sponsor also agreed,
subject to certain exceptions, to a lock-up for a period ending on the earlier of (a) the date one (1) year after the Closing or (b)
the date that is one hundred and eighty (180) days after the Closing if, prior to such date, the VWAP (as defined therein) has equaled
or exceeded $12.50 for any twenty (20) trading days within any thirty (30) consecutive trading day period.
The foregoing description
of the Company Voting Agreement and the Sponsor Voting Agreement do not purport to be complete and are qualified in their entirety by
the terms and conditions of the Company Voting Agreement and Sponsor Voting Agreement, as applicable, the form of which are attached as
Exhibit 10.2 and Exhibit 10.3, respectively, to this Current Report and is incorporated herein by reference.
Contribution Agreement
Concurrently with the execution
of the Business Combination Agreement, the Sponsor, LIV Sponsor II GP, LLC (“GP”), certain limited partners
of the Sponsor, LIVB and Covalto entered into a contribution agreement (the “Contribution Agreement”), pursuant
to which, certain limited partners of the Sponsor and GP have agreed to contribute promissory notes to Covalto in exchange
for certain securities of Covalto, subject to the terms and conditions therein.
The foregoing description
of the Contribution Agreement do not purport to be complete and is qualified in its entirety by the terms and conditions of the Contribution
Agreement, the form of which is attached as Exhibit 10.5 to this Current Report and is incorporated herein by reference.
Registration Rights Agreement
At the Closing, Covalto,
LIVB, Sponsor, EarlyBirdCapital, Inc., certain other securityholders of Covalto party thereto, will enter into a registration rights agreement
(the “Registration Rights Agreement”) pursuant to which, among other matters, Covalto agrees to file a shelf
registration statement within forty-five days following the Closing, and certain existing shareholders of LIVB and Covalto will be granted
certain customary demand and “piggy-back” registration rights with respect to their respective shares of New Covalto. Pursuant
to the Registration Rights Agreement (i) LIVB, Sponsor, EarlyBirdCapital, Inc. and certain other securityholders party to that certain
registration rights agreement, dated as of February 7, 2022 (the “Original SPAC Agreement”) and (ii) Covalto,
the Covalto Co-Founders (as defined therein) and certain other investors, including investors party to that certain registration rights
agreement, dated as of October 16, 2020 (the “Investors’ Rights Agreement”), acknowledge and agree that
the entry into Registration Rights Agreement shall render the Original SPAC Agreement and the Investors’ Rights Agreement, respectively,
to be of no further force and effect, and such agreements shall be deemed to be superseded and replaced in their entirety therewith.
The foregoing description
of the Registration Rights Agreement does not purport to be complete and is qualified in its entirety by the terms and conditions of the
Registration Rights Agreement, the form of which is attached as Exhibit 10.4 to this Current Report and is incorporated herein by reference.