References to the "Company," "our," "us" or "we" refer to Leo Holdings Corp. II.
The following discussion and analysis of the Company's financial condition and
results of operations should be read in conjunction with Item 1. Business, Item
1A. Risk Factors, and Item 15. Financial Statements and the accompanying notes
and other data, all of which appear in this Annual Report on Form 10-K. Certain
information contained in the discussion and analysis set forth below includes
forward-looking statements that involve risks and uncertainties.
Cautionary Note Regarding Forward-Looking Statements
This Annual Report on Form 10-K includes forward-looking statements within the
meaning of Section 27A of the Securities Act, and Section 21E of the Exchange
Act. We have based these forward-looking statements on our current expectations
and projections about future events. These forward-looking statements are
subject to known and unknown risks, uncertainties and assumptions about us that
may cause our actual results, levels of activity, performance or achievements to
be materially different from any future results, levels of activity, performance
or achievements expressed or implied by such forward-looking statements. In some
cases, you can identify forward-looking statements by terminology such as "may,"
"should," "could," "would," "expect," "plan," "anticipate," "believe,"
"estimate," "continue," or the negative of such terms or other similar
expressions. Factors that might cause or contribute to such a discrepancy
include, but are not limited to, those described in our other U.S. Securities
and Exchange Commission ("SEC") filings.
Overview
We are a blank check company incorporated as a Cayman Islands exempted company
on September 1, 2020. We were formed for the purpose entering into a merger,
share exchange, asset acquisition, share purchase, recapitalization,
reorganization or other similar business combination with one or more target
businesses (the "Business Combination"). We are an emerging growth company and,
as such, we are subject to all of the risks associated with emerging growth
companies.
Our sponsor is Leo Investors II Limited Partnership, a Cayman Islands exempted
limited partnership (the "Sponsor"). The registration statement for the
Company's Initial Public Offering was declared effective on January 7, 2021. On
January 12, 2021, the Company consummated its Initial Public Offering of
37,500,000 units (the "Units" and, with respect to the Class A ordinary shares
included in the Units being offered, the "Public Shares"), including 2,500,000
additional Units to partially cover over-allotments (the "Over-Allotment
Units"), at $10.00 per Unit, generating gross proceeds of $375.0 million, and
incurring offering costs of approximately $21.3 million, of which approximately
$13.1 million was for deferred underwriting commissions.
Simultaneously with the closing of the Initial Public Offering, we consummated
the private placement ("Private Placement") of 6,666,667 warrants (each, a
"Private Placement Warrant" and collectively, the "Private Placement Warrants"),
at a price of $1.50 per Private Placement Warrant with the Sponsor, generating
gross proceeds of $10.0 million, and incurring offering costs of approximately
$10,000.
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Upon the closing of the Initial Public Offering and the Private Placement,
$375.0 million ($10.00 per Unit) of the net proceeds of the Initial Public
Offering and certain of the proceeds of the Private Placement were placed in a
trust account ("Trust Account"), located in the United States at J.P. Morgan
Chase Bank, N.A., with Continental Stock Transfer & Trust Company acting as
trustee, and invested only in U.S. government securities, within the meaning set
forth in Section 2(a)(16) of the Investment Company Act of 1940, as amended (the
"Investment Company Act"), with a maturity of 185 days or less or in any
open-ended investment company that holds itself out as a money market fund
meeting the conditions of paragraphs (d)(2), (d)(3) and (d)(4) of Rule 2a-7 of
the Investment Company Act, as determined by us, until the earlier of: (i) the
completion of a Business Combination and (ii) the distribution of the Trust
Account.
Our management has broad discretion with respect to the specific application of
the net proceeds of the Initial Public Offering and the sale of Private
Placement Warrants, although substantially all of the net proceeds are intended
to be applied generally toward consummating a Business Combination.
If we are unable to complete a Business Combination by the Termination Date (the
"Combination Period"), we will (i) cease all operations except for the purpose
of winding up; (ii) as promptly as reasonably possible but not more than ten
business days thereafter, redeem the Public Shares, at a per-share price,
payable in cash, equal to the aggregate amount then on deposit in the Trust
Account, including interest earned on the funds held in the Trust Account and
not previously released to us to fund our regulatory compliance requirements,
and other costs related thereto and/or to pay our income taxes, if any, (less up
to $100,000 of interest to pay dissolution expenses) divided by the number of
the then outstanding Public Shares, which redemption will completely extinguish
Public Shareholders' rights as shareholders (including the right to receive
further liquidation distributions, if any); and (iii) as promptly as reasonably
possible following such redemption, subject to the approval of the remaining
shareholders and our board of directors, liquidate and dissolve, subject in the
case of clauses (ii) and (iii), to our obligations under Cayman Islands law to
provide for claims of creditors and the requirements of other applicable law.
Proposed Business Combination
On January 12, 2023, we, Glimpse Merger Sub, Inc., a Delaware corporation and a
wholly owned Subsidiary of us ("Merger Sub I"), Glimpse Merger Sub II, LLC, a
Delaware limited liability company and a wholly owned Subsidiary of us ("Merger
Sub II" and together with Merger Sub I, the "Merger Subs"), and World View
Enterprises Inc., a Delaware corporation ("World View") entered into an
Agreement and Plan of Merger (the "Agreement"). World View and we are
collectively referred to as the "Parties."
Pursuant to the Agreement, prior to the closing of the transactions contemplated
by the Agreement (the "Closing"), we shall domesticate as a Delaware corporation
(the "Domestication") in accordance with Section 388 of the Delaware General
Corporation Law and Sections 206 to 209 of the Companies Act (As Revised) of the
Cayman Islands.
In connection with the Domestication, (i) each Class A ordinary share, par value
$0.0001 per share of ours outstanding immediately prior to the effective time of
the Domestication shall be converted into one (1) share of common stock, par
value $0.0001 per share of ours (the "Company Common Stock") and (ii) each
Class B ordinary share, par value $0.0001 per share of ours outstanding
immediately prior to the effective time of the Domestication shall be converted
into one (1) share of our Common Stock.
Pursuant to the Agreement, it is anticipated that (a) Merger Sub I shall merge
with an into World View (the "First Merger"), with World View being the
surviving corporation of the First Merger; and (b) immediately following the
First Merger and as part of the same overall transaction as the First Merger,
World View will merge with and into Merger Sub II (the "Second Merger" and,
together with the First Merger, the "Mergers"), with Merger Sub II being the
surviving company of the Second Merger (Merger Sub II, in its capacity as the
surviving company of the Second Merger, the "Surviving Company"), and as a
result of which the Surviving Company will become a wholly owned Subsidiary of
us.
The Mergers and the other transactions contemplated by the Agreement are
hereinafter referred to as the "Business Combination." The Business Combination
is expected to close in the second quarter of 2023, following the receipt of the
required approval by the Company's shareholders and the fulfillment or waiver of
other customary closing conditions.
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In accordance with the terms and subject to the conditions of the Agreement, at
the effective time of the First Merger, each outstanding share of common stock,
par value $0.00001 of World View (the "World View Common Stock") (including
shares of World View Common Stock resulting from the conversion of preferred
stock, convertible notes and simple agreements for future equity of World View)
will be converted into the right to receive the number of shares of Company
Common Stock equal to Per Share Merger Consideration. The total consideration to
be paid at the closing to the selling parties in connection with the Agreement
will be approximately $350,000,000 (subject to certain adjustments as set forth
in the Agreement, including with respect to the sponsor promote value, certain
transaction expenses and the cash and debt of World View).
Concurrently with the execution of the Agreement, (i) we, (ii) the Sponsor, Lori
Bush ("Bush"), Mary E. Minnick ("Minnick"), Naveen Agarwal ("Agarwal"), Scott
Flanders ("Flanders"), Imran Khan ("Khan"), Scott McNealy ("McNealy") and Mark
Masinter ("Masinter", and together with Bush, Minnick, Agarwal, Flanders, Khan,
McNealy and the Sponsor, the "Sponsor Parties") and (iii) World View, entered
into a Sponsor Agreement (the "Sponsor Agreement"), pursuant to which, among
other things, the Sponsor Parties have agreed to (i) vote in favor of the
Transaction Proposals (as such term is defined in the Agreement) and the
transactions contemplated thereby, (ii) waive the anti-dilution or similar
protections with respect to the Class B ordinary shares, par value $0.0001 per
share of the Company held by the Sponsor Parties and (iii) not redeem any of
their shares in connection with the vote to approve the Business Combination.
Extension of Combination Period
On January 9, 2023, we held the Extension Meeting to amend our amended and
restated memorandum and articles of association (the "Articles Amendment") to
extend the date (the "Termination Date") by which we have to consummate a
business combination from January 12, 2023 (the "Original Termination Date") to
April 12, 2023 (the "Articles Extension Date") and to allow us, without another
shareholder vote, to elect to extend the Termination Date to consummate a
business combination on a monthly basis for up to six times by an additional one
month each time after the Articles Extension Date, by resolution of the
Company's board of directors if requested by the Sponsor, and upon five days'
advance notice prior to the applicable Termination Date, until October 12, 2023,
or a total of up to nine months after the Original Termination Date, unless the
closing of our initial business combination shall have occurred prior to such
date (the "Extension Amendment Proposal"). Our shareholders approved
the Extension Amendment Proposal at the Extension Meeting and on January 10,
2023, we filed the Articles Amendment with the Registrar of Companies of the
Cayman Islands.
As disclosed in the definitive proxy statement filed by us with the SEC on
December 16, 2022 (the "Proxy Statement"), relating to the extraordinary general
meeting of shareholders (the "Extension Meeting"), the Sponsor agreed that if
the Extension Amendment Proposal is approved, it or one or more of its
affiliates, members or third-party designees (the "Lender") will contribute to
us as a loan, within five (5) business days of the date of the Extension
Meeting, $720,000 to be deposited into the trust account established in
connection with our initial public offering. In addition, in the event we do not
consummate an initial business combination by the Articles Extension Date, the
Lender will contribute to us as a loan up to $1,440,000 in six equal
installments to be deposited into the Trust Account for each of
six one-month extensions following the Articles Extension Date.
Accordingly, on January 12, 2023, we issued an unsecured promissory note in the
total principal amount of up to $2,160,000 (the "Promissory Note") to the
Sponsor. The Sponsor must fund the initial principal amount of $720,000 within
two (2) business days of the date of the Promissory Note. The Promissory Note
does not bear interest and matures upon closing of our initial business
combination. In the event that we do not consummate a business combination, the
Promissory Note will be repaid only from amounts remaining outside of the Trust
Account, if any. The proceeds of the Promissory Note will be deposited in the
Trust Account. Up to $1,500,000 of the total principal amount of the Promissory
Note may be converted, in whole or in part, at the option of the Lender into
warrants of us at a price of $1.50 per warrant, which warrants will be identical
to the private placement warrants issued to the Sponsor at the time of the
initial public offering of us.
In connection with the vote to approve the Extension Amendment Proposal, the
holders of 32,924,036 Class A ordinary shares, par value $0.0001 per share, of
us properly exercised their right to redeem their shares for cash at a
redemption price of approximately $10.15 per share, for an aggregate redemption
amount of approximately $334.2 million.
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Liquidity and Going Concern
As of December 31, 2022, we had approximately $591 in our operating account and
working capital deficit of approximately $604,000.
Our liquidity needs had been satisfied through a payment of $25,000 from our
Sponsor to cover certain of our expenses in exchange for the issuance of the
Founder Shares, a loan of approximately $169,000 from our Sponsor pursuant to a
promissory note. We repaid the promissory note in full on January 19, 2021.
Subsequent from the consummation of the Initial Public Offering, our liquidity
has been satisfied through the net proceeds from the consummation of the Initial
Public Offering and the Private Placement held outside of the Trust Account. In
addition, in order to finance transaction costs in connection with a Business
Combination, our Sponsor or an affiliate of our Sponsor, or certain of our
officers and directors may, but are not obligated to, provide us Working Capital
Loan. As of December 31, 2022 and 2021, there were no amounts outstanding under
any Working Capital Loan.
We may need to raise additional capital through loans or additional investments
from our Sponsor, an affiliate of our Sponsor, or our officers or directors. Our
officers, directors and Sponsor, or their affiliates, may, but are not obligated
to, loan us funds, from time to time or at any time, in whatever amount they
deem reasonable in their sole discretion, to meet our working capital needs.
Accordingly, we may not be able to obtain additional financing. If we are unable
to raise additional capital, we may be required to take additional measures to
conserve liquidity, which could include, but not necessarily be limited to,
curtailing operations, suspending the pursuit of a potential transaction,
reducing overhead expenses, and extending the terms and due dates of certain
accrued expenses and other liabilities. We cannot provide any assurance that new
financing will be available to it on commercially acceptable terms, if at all.
Based upon the analysis above, management has determined that the above
conditions indicate that it may be probable that we would not be able to meet
its obligations within one year after the date that the financial statements are
available to be issued. In connection with our assessment of going concern
considerations in accordance with FASB Accounting Standards Update ("ASU")
2014-15, "Disclosures of Uncertainties about an Entity's Ability to Continue as
a Going Concern," we have determined that the liquidity condition and mandatory
liquidation and subsequent dissolution raises substantial doubt about our
ability to continue as a going concern. No adjustments have been made to the
carrying amounts of assets or liabilities should we be required to liquidate
after April 12, 2023. The financial statements do not include any adjustment
that might be necessary if we are unable to continue as a going concern.
Management continues to evaluate the impact of the COVID-19 pandemic and has
concluded that while it is reasonably possible that the virus could have a
negative effect on the Company's financial position, results of our operations
and/or search for a target company, the specific impact is not readily
determinable as of the date of the balance sheet. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
Results of Operations
Our entire activity from September 1, 2020 (inception) through December 31, 2022
was for our formation, and preparation for our Initial Public Offering. And
since the closing of our Initial Public Offering on January 12, 2021, we began
our search for business combination candidates. We will not be generating any
operating revenues until the closing and completion of our initial Business
Combination, at the earliest.
For the year ended December 31, 2022, we had a net income of approximately
$13.2 million, which consisted of a gain of approximately $9.0 million in change
in the fair value of the warrant liabilities and approximately $5.3 million of
net gain on the investments held in the Trust Account, partially offset by
approximately $1.0 million general and administrative expenses and $120,000 in
related party general and administrative expenses.
For the year ended December 31, 2021, we had a net income of approximately
$1.6 million, which consisted of a gain of approximately $3.3 million in change
in the fair value of the warrant liabilities and approximately $33,000 of net
gain on the investments held in the Trust Account, partially offset by
approximately $1.1 million general and administrative expenses, approximately
$116,000 in related party general and administrative expenses and approximately
$426,000 of offering costs associated with issuance of warrants.
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Related Party Transactions
Founder Shares
On September 9, 2020, our Sponsor paid $25,000 to cover certain of our expenses
in consideration of 10,062,500 Class B ordinary shares, par value $0.0001 (the
"Founder Shares"). In December 2020, our Sponsor transferred 30,000 founder
shares to each of our directors and 90,000 shares in the aggregate to our
strategic advisors. Our Sponsor agreed to forfeit up to 1,312,500 Founder Shares
to the extent that the over-allotment option is not exercised in full by the
underwriters, so that the Founder Shares will represent 20.0% of our issued and
outstanding shares after the Initial Public Offering. The underwriters partially
exercised their over-allotment option on January 12, 2021 to purchase an
addition of 2,500,000 Units, with the remaining portion of the over-allotment
option expiring at the conclusion of the 45-day option period. As a result of
the expiration of the over-allotment option, 687,500 Founder Shares were
forfeited.
The initial shareholders agreed, subject to limited exceptions, not to transfer,
assign or sell any of their Founder Shares until the earlier to occur of:
(A) one year after the completion of the initial Business Combination or
(B) subsequent to the initial Business Combination, (x) if the last sale price
of the Class A ordinary shares equals or exceeds $12.00 per share (as adjusted
for share sub-divisions, share dividends, reorganizations, recapitalizations and
the like) for any 20 trading days within any 30-trading day period commencing at
least 150 days after the initial Business Combination, or (y) the date on which
the Company completes a liquidation, merger, share exchange or other similar
transaction that results in all of the Company's shareholders having the right
to exchange their Class A ordinary shares for cash, securities or other
property.
Private Placement Warrants
Simultaneously with the closing of the Initial Public Offering, we consummated
the Private Placement of 6,666,667 Private Placement Warrants, at a price of
$1.50 per Private Placement Warrant with our Sponsor, generating gross proceeds
of $10.0 million.
Each whole Private Placement Warrant is exercisable to purchase one whole
Class A ordinary share at a price of $11.50 per share. A portion of the proceeds
from the Private Placement Warrants was added to the proceeds from the Initial
Public Offering held in the Trust Account. If we do not complete a Business
Combination within the Combination Period, the Private Placement Warrants will
expire worthless. The Private Placement Warrants will be non-redeemable and
exercisable on a cashless basis so long as they are held by our Sponsor or its
permitted transferees.
Our Sponsor and our officers and directors agreed, subject to limited
exceptions, not to transfer, assign or sell any of their Private Placement
Warrants until 30 days after the completion of the initial Business Combination.
Related Party Loans
On September 8, 2020, our Sponsor agreed to loan us an aggregate of up to
$300,000 to cover expenses related to the Initial Public Offering pursuant to a
promissory note (the "Note"). This Note was non-interest bearing and payable
upon the completion of the Initial Public Offering. As of January 12, 2021, We
borrowed approximately $169,000 under the Note. We repaid the Note in full on
January 19, 2021. Subsequent to the repayment, the facility was no longer
available to us.
In addition, in order to finance transaction costs in connection with a Business
Combination, the Sponsor or an affiliate of the Sponsor, or certain of our
officers and directors may, but are not obligated to, loan us funds as may be
required ("Working Capital Loans"). If we complete a Business Combination, we
would repay the Working Capital Loans out of the proceeds of the Trust Account
released us. Otherwise, the Working Capital Loans would be repaid only out of
funds held outside the Trust Account. In the event that a Business Combination
does not close, we may use a portion of the proceeds held outside the Trust
Account to repay the Working Capital Loans but no proceeds held in the Trust
Account would be used to repay the Working Capital Loans. The Working Capital
Loans would either be repaid upon consummation of a Business Combination,
without interest, or, at the lenders' discretion, up to $1.5 million of such
Working Capital Loans may be convertible into warrants of the post Business
Combination entity at a price of $1.50 per warrant. The warrants would be
identical to the Private Placement Warrants. Except for the foregoing, the terms
of such Working Capital Loans, if any, have not been determined and no written
agreements exist with respect to such loans. As of December 31, 2022 and 2021,
We had no borrowings under the Working Capital Loans.
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Administrative Services Agreement
Commencing on the date that our securities were first listed on the New York
Stock Exchange, we agreed to pay the Sponsor a total of $10,000 per month for
office space, secretarial and administrative services provided to us commencing
with the closing of the Initial Public Offering. Upon completion of the initial
Business Combination or our liquidation, we will cease paying these monthly
fees. We incurred approximately $120,000 and $116,000 in expenses in connection
with such services for the years ended December 31, 2022 and 2021, respectively,
as reflected in the accompanying statements of operations. As of December 31,
2022 and December 31, 2021, there were $80,000 and $0 outstanding, respectively,
and included in the payable to related party in the accompanying balance sheets.
Contractual Obligations
We do not have any long-term debt obligations, capital lease obligations,
operating lease obligations, purchase obligations or long-term liabilities.
Registration Rights
The holders of Founder Shares and Private Placement Warrants (and any Class A
ordinary shares issuable upon the exercise of the Private Placement Warrants and
warrants that may be issued upon conversion of Working Capital Loans) were
entitled to registration rights pursuant to a registration and shareholder
rights agreement signed upon consummation of the Initial Public Offering. These
holders were entitled to certain demand and "piggyback" registration rights.
However, the registration and shareholder rights agreement provided that we
would not permit any registration statement filed under the Securities Act to
become effective until the termination of the applicable lock-up period for the
securities to be registered. We will bear the expenses incurred in connection
with the filing of any such registration statements.
Underwriting Agreement
We granted the underwriters a 45-day option from the final prospectus relating
to the Initial Public Offering to purchase up to 5,250,000 additional Units to
cover over-allotments, if any, at the Initial Public Offering price less the
underwriting discounts and commissions. The underwriters partially exercised
their over-allotment option on January 12, 2021 to purchase an additional
2,500,000 Over-Allotment Units. The remaining unexercised over-allotment option
expired at the conclusion of the 45-day option period.
The underwriters were entitled to an underwriting discount of $0.20 per unit, or
$7.5 million in the aggregate, paid upon the closing of the Initial Public
Offering. In addition, $0.35 per unit, or approximately $13.1 million in the
aggregate will be payable to the underwriters for deferred underwriting
commissions. The deferred fee will become payable to the underwriters from the
amounts held in the Trust Account solely in the event that we complete a
Business Combination, subject to the terms of the underwriting agreement.
On January 9, 2023, we and Deutsche Bank Securities Inc., one of the
underwriters in the Initial Public Offering, entered into an agreement pursuant
to which Deutsche Bank Securities Inc. waived all rights to its pro rata share
of the Deferred Discount (as defined in the Underwriting Agreement, dated
January 7, 2021, among us, Credit Suisse Securities (USA) LLC and Deutsche Bank
Securities Inc.). On January 23, 2023, Credit Suisse Securities (USA) LLC also
waived its rights to receive such Deferred Discount.
Critical Accounting Estimates
The preparation of financial statements and related disclosures in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements, and income and expenses
during the periods reported. Actual results could materially differ from those
estimates. We have not identified any critical accounting estimates.
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Off-Balance Sheet Arrangements and Contractual Obligations
As of December 31, 2022, we did not have any off-balance sheet arrangements as
defined in Item 303(a)(4)(ii) of Regulation S-K and did not have any commitments
or contractual obligations.
JOBS Act
The Jumpstart Our Business Startups Act of 2012 (the "JOBS Act") contains
provisions that, among other things, relax certain reporting requirements for
qualifying public companies. We qualify as an "emerging growth company" and
under the JOBS Act are allowed to comply with new or revised accounting
pronouncements based on the effective date for private (not publicly traded)
companies. We are electing to delay the adoption of new or revised accounting
standards, and as a result, we may not comply with new or revised accounting
standards on the relevant dates on which adoption of such standards is required
for non-emerging growth companies. As a result, the financial statements may not
be comparable to companies that comply with new or revised accounting
pronouncements as of public company effective dates.
Additionally, we are in the process of evaluating the benefits of relying on the
other reduced reporting requirements provided by the JOBS Act. Subject to
certain conditions set forth in the JOBS Act, if, as an "emerging growth
company," we choose to rely on such exemptions we may not be required to, among
other things, (i) provide an auditor's attestation report on our system of
internal controls over financial reporting pursuant to Section 404, (ii) provide
all of the compensation disclosure that may be required of non-emerging growth
public companies under the Dodd-Frank Wall Street Reform and Consumer Protection
Act, (iii) comply with any requirement that may be adopted by the PCAOB
regarding mandatory audit firm rotation or a supplement to the auditor's report
providing additional information about the audit and the financial statements
(auditor discussion and analysis) and (iv) disclose certain executive
compensation related items such as the correlation between executive
compensation and performance and comparisons of the CEO's compensation to median
employee compensation. These exemptions will apply for a period of five years
following the completion of our Initial Public Offering or until we are no
longer an "emerging growth company," whichever is earlier.
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