As filed with the U.S. Securities and Exchange Commission on July 30, 2021.December 29, 2023
Registration No. 333-253867-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
10X Capital Venture Acquisition Corp. IIAFRICAN AGRICULTURE HOLDINGS INC.
(Exact name of registrant as specified in its charter)
| 98-1594494 | ||||
| (State or other jurisdiction of incorporation or organization) | (Primary Standard Industrial Classification Code Number) | (I.R.S. Employer Identification |
1 World Trade Center, 85th445 Park Avenue, Ninth Floor
New York, NY 10007
10022
(212) 257-0069745-1164
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Hans Thomas
Alan Kessler
Chief Executive Officer and Chairman
1 World Trade Center, 85th
African Agriculture Holdings Inc.
445 Park Avenue, Ninth Floor
New York, NY 10007
10022
(212) 257-0069745-1164
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
27th Floor New York 10022 |
Approximate date of commencement of proposed sale to the public: As soon as practicableFrom time to time after the effective date of this registration statement.Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. ☐box: ☒
If this Formform is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Formform is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Formform is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
| Non-accelerated filer | ☒ | Smaller reporting company | ☒ | |||
| Emerging growth company | ☒ | |||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
CALCULATION OF REGISTRATION FEE
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| Title of Each Class of Security Being Registered | Amount Being Registered | Proposed Maximum Offering Price per Security(1) | Proposed Maximum Aggregate Offering Price(1) | Amount of Registration Fee | ||||
Units, each consisting of one Class A ordinary share, $0.0001 par value, and one-third of one redeemable warrant(2) | 23,000,000 Units | $10.00 | $230,000,000 | $25,093.00 | ||||
Class A ordinary shares included as part of the units(3) | 23,000,000 Shares | — | — | —(4) | ||||
Redeemable warrants included as part of the units(3) | 7,666,667 Warrants | — | — | —(4) | ||||
Class A ordinary shares underlying the warrants included as part of the units | 7,666,667 Shares | $11.50(5) | $88,166,670.5 | $9,618.98 | ||||
Total | $318,166,670.5 | $34,711.98(6) | ||||||
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The Registrantregistrant hereby amends this Registration Statementregistration statement on such date or dates as may be necessary to delay its effective date until the Registrantregistrant shall file a further amendment which specifically states that this Registration Statementregistration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statementregistration statement shall become effective on such date as the Securities and Exchange Commission,SEC, acting pursuant to said Section 8(a), may determine.
The information in this preliminary prospectus is not complete and may be changed. WeThese securities described herein may not sell these securitiesbe sold until the registration statement filed with the U.S. Securities and Exchange Commission is declared effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED July 30, 2021DECEMBER 29, 2023
PRELIMINARY PROSPECTUS
$200,000,000
10X Capital Venture Acquisition Corp. II
20,000,000 Units
AFRICAN AGRICULTURE HOLDINGS INC.
10X Capital Venture Acquisition Corp. II is a blank check company incorporated as a Cayman Islands exempted company whose business purpose is39,557,238 Shares of Common Stock
and
26,201 Warrants to effect a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses, which we referPurchase Common Stock
The selling securityholders named in this prospectus may offer and sell from time to as our initial business combination. We have not selected any specific business combination target and we have not, nor has anyone on our behalf, engaged in any substantive discussions, directly or indirectly, with any business combination target with respecttime up to an initial business combination with us.
This is an initial public offering39,557,238 shares of our securities. Each unit has an offering price of $10.00common stock, par value $0.0001 per share, and consists of one Class A ordinary share and one-third of one redeemable warrant. Each whole warrant entitles the holder thereofup to 26,201 warrants to purchase one Class A ordinary share at a price of $11.50 per share, subject to adjustment as described herein. Only whole warrants are exercisable. No fractional warrants will be issued upon separation of the units and only whole warrants will trade. common stock, consisting of:
| ● | up to 26,201 warrants issued to the David Stadlin Trust in connection with certain loans provided to AAGR prior to the consummation of the Business Combination; |
| ● | up to 26,201 shares of common stock that are issuable upon the exercise of warrants issued to the David Stadlin Trust; |
| ● | up to 5,666,667 shares of common stock originally issued in a private placement to the Sponsor and subsequently distributed in part to certain members of the Sponsor; |
| ● | up to 33,209,370 shares of common stock held by other selling securityholders of the Company; and |
| ● | up to 655,000 shares of common stock that were a constituent part of the private placement units |
The warrants will become exercisable 30 days after the completion of our initial business combination and will expire five years after the completion of our initial business combinationselling securityholders may offer, sell or earlier upon redemption or our liquidation, as described herein. The underwriters have a 45-day option from the date of this prospectus to purchase up to 3,000,000 additional units to cover over-allotments, if any.
We will provide our public shareholders with the opportunity to redeemdistribute all or a portion of their Class A ordinary shares upon the completion of our initial business combinationsecurities hereby registered publicly or through private transactions at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the trust account described below as of two business days prior to the consummation of our initial business combination, including interest earned on the funds held in the trust account (which interest shall be net of taxes payable), divided by the number of then outstanding Class A ordinary shares that were sold as partprevailing market prices or at negotiated prices. We will not receive any of the units in this offering, which we refer to collectively as our public shares, subject to the limitations and on the conditions described herein. We have until 15 monthsproceeds from the consummation of this offering to consummate our initial business combination. If we are unable to complete our initial business combination within 15 months from the closing of this offering, we will redeem 100%such sales of 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 (which interest shall be net of taxes payable and up to $100,000 of interest to pay dissolution expenses), divided by the number of then outstanding public shares, subject to applicable law and certain conditions as further described herein.
Our sponsor, 10X Capital SPAC Sponsor II LLC, has committed to purchase an aggregate of 455,000 private placement units and the representative of the underwriters of this offering, Cantor Fitzgerald & Co., has agreed to purchase 200,000 private placement units, for a combined aggregate of 655,000 units, at a price of $10.00 per unit, for an aggregate purchase price of $6,550,000, in a private placement that will close simultaneously with the closing of this offering. The private placement units are identical to the units sold in this offering, subject to certain limited exceptions as described in this prospectus.
Our initial shareholders currently own an aggregate of 7,666,667 Class B ordinary shares (up to 1,000,000 shares of which are subject to forfeiture depending on the extent to which the underwriters’ over-allotment option is exercised), whichcommon stock. We will automatically convert into Class A ordinary shares concurrently with or immediately following the consummation of our initial business combination on a one-for-one basis, subject to the adjustments described herein. Only holders of Class B ordinary shares will have the right to appoint directors in any election held prior to orbear all costs, expenses and fees in connection with the completionregistration of our initial business combination. Onthese securities, including with regard to compliance with state securities or “blue sky” laws. The selling securityholders will bear all commissions and discounts, if any, other matters submittedattributable to their sale of shares of common stock. The inclusion of persons listed as selling securityholders does not necessarily represent a votepresent intention on the part of our shareholders, holderssuch persons to sell any or all of the Class B ordinary shares and holderssecurities hereby registered. See “Plan of the Class A ordinary shares will vote together as a single class, except that in a vote to continue the Company in a jurisdiction outside the Cayman Islands, holders of Class B ordinary shares will have ten votes per share and holders of Class A ordinary shares will have one vote per share, and except as required by law or the applicable rules of Nasdaq then in effect.
Up to seven, two and three qualified institutional buyers or institutional accredited investors which are not affiliated with us, our sponsor, our directors or any member of our management, and which we refer to as the 9.9% anchor investors, the 7.5% anchor investors and 4.9% anchor investors, respectively, and which we collectively refer to as the anchor investors throughout this prospectus, have each expressed to us an interest in purchasing up to 1,980,000 units 1,500,000 units and 980,000 units, respectively, in this offering at the offering price of $10.00, and such allocations will be determined by the underwriters. There can be no assurance that the anchor investors will acquire any units in this offering, or as to the amount of such units the anchor investors will retain, if any, prior to or upon the consummation of our initial business combination. There is also no guarantee that all 12 anchor investors will participate in the offering. Subject to each anchor investor purchasing 100% of the units allocated to it, in connection with the closingDistribution” beginning on page 122 of this offering our sponsor will sell 133,333 founder shares to each 9.9% anchor investor, 99,999 founder shares to each 7.5% anchor investor and 66,666 founder shares to each 4.9% anchor investor, or an aggregate of 1,333,327 founder shares, at their original purchase price of approximately $0.003 per share. Since our sponsor is transferring founder shares held by it to the anchor investors and we are not issuing any new Class B ordinary shares, there will be no dilutive impact on the other investors in this offering. For a discussion of certain additional arrangements with the anchor investors, see “Summary — The Offering — Expression of Interest.”prospectus.
Currently, there is no public market for our units, Class A ordinary shares or warrants. We intend to apply to have our units listed on The Nasdaq Capital Market, or Nasdaq, under the symbol “VCXAU” on or promptly after the date of this prospectus. We cannot guarantee that our securities will be approved for listing on Nasdaq. We expect the Class A ordinary shares and warrants comprising the units to begin separate trading on the 52nd day following the date of this prospectus unless Cantor Fitzgerald & Co. informs us of its decision to allow earlier separate trading, subject to our satisfaction of certain conditions. Once the securities comprising the units begin separate trading, we expect that the Class A ordinary shares and warrants will be listed on Nasdaq under the symbols “VCXA” and “VCXAW,” respectively.
We are an “emerging growth company”company,” as defined in Section 2(a) of the Securities Act of 1933, as amended (the “Securities Act”), as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a “smaller reporting company”nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. This prospectus complies with the requirements that apply to an issuer that is an emerging growth company.
Our common stock and warrants are listed on The Nasdaq Global Market under applicable federal securities lawsthe symbols “AAGR” and will be subject to reduced public company reporting requirements. “AAGRW”, respectively. On December 28, 2023, the last reported sales price of our common stock was $1.25 per share and the last reported sales price of our warrants was $0.021 per warrant.
Investing in our securities involves a high degree of risk. See “Risk Factors”You should review carefully the risks and uncertainties described under the heading “Risk Factors” beginning on page 34 for a discussion4 of information that should be consideredthis prospectus, and under similar headings in connection with an investment in our securities. Investors will not be entitledany amendment or supplements to protections normally afforded to investors in Rule 419 blank check offerings.
this prospectus. Neither the U.S. Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined ifpassed upon the adequacy or accuracy of this prospectus is truthful or complete.prospectus. Any representation to the contrary is a criminal offense.
| Per Unit | Total | |||||||
Public offering price | $ | 10.00 | $ | 200,000,000 | ||||
Underwriting discounts and commissions(1) | $ | 0.55 | $ | 11,000,000 | ||||
Proceeds, before expenses, to us | $ | 9.45 | $ | 189,000,000 | ||||
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Of the proceeds we receive from this offering and the sale of the private placement units described in this prospectus $200,000,000, or $230,000,000 if the underwriters’ over-allotment option is exercised in full ($10.00 per unit in either case), will be deposited into a trust account in the United States with Continental Stock Transfer & Trust Company acting as trustee, after deducting $4,000,000 in underwriting discounts and commissions payable upon the closing of this offering and an aggregate of $2.55 million to pay fees and expenses in connection with the closing of this offering and for working capital following the closing of this offering.2023.
The underwriters are offering the units for sale on a firm commitment basis. The underwriters expect to deliver the units to the purchasers on or about , 2021.
i
Sole Book-Running ManagerTable of Contents
Cantor
, 2021
| Page | ||
FREQUENTLY USED TERMS | ||
| SUMMARY OF THE PROSPECTUS | 1 | |
| 25 | ||
| UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIALINFORMATION | 26 | |
| NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS | 32 | |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | ||
| 100 | ||
| BENEFICIAL OWNERSHIP OF SECURITIES | 109 | |
| SELLING SECURITYHOLDERS | 111 | |
| CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS | ||
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| F-1 |
We are responsible for
You should rely only on the information contained in this prospectus. We have notNo one has been authorized anyone to provide you with information that is different information, and we take no responsibility for any other information others may give to you. We are not, andfrom that contained in this prospectus. This prospectus is dated as of the underwriters are not, making an offer to sell securities in any jurisdiction wheredate set forth on the offer or sale is not permitted.cover hereof. You should not assume that the information contained in this prospectus is accurate as of any date other than the date on the front of this prospectus.that date.
TRADEMARKS
This prospectusdocument contains references to trademarks, trade names and service marks belonging to other entities. Solely for convenience, trademarks, and trade names and service marks referred to in this prospectus may appear without the ® or TM symbols, but such references are not intended to indicate, in any way, that the applicable licensor will not assert, to the fullest extent under applicable law, its rights to these trademarks and trade names. We do not intend our use or display of other companies’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, any other companies.
This summary only highlightsFor investors outside the more detailed information appearing elsewhereUnited States: Neither we nor the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus. As this is a summary, it does not contain allprospectus must inform themselves about, and observe any restrictions relating to, the offering of the information that you should consider in making an investment decision. You should read this entire prospectus carefully, including the information under “Risk Factors” and our financial statementsshares of common stock and the related notes included elsewhere indistribution of this prospectus before investing.outside the United States.
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SELECTED DEFINITIONS
Unless otherwise stated in this prospectus or the context otherwise requires, references to:the following terms shall have the following meanings:
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| ● | “AFRAG” means African Agriculture, Inc., a Delaware corporation; |
| ● | “Common Stock” means our common stock, par value $0.0001 per share; |
| ● | “AAGR Board” means our board of |
| “Anchor Investors” means certain qualified institutional buyers who purchased 10X II units in connection with 10X II’s initial public offering. |
● | “ |
| ● | “Closing” means the closing of the Business Combination; |
| ● | “Continental” means Continental Stock Transfer & Trust Company; |
| ● | “DGCL” means the General Corporation Law of the State of Delaware; |
| ● | “GAAP” means the United States generally accepted accounting principles, consistently applied; |
| ● | “HSR Act” |
| ● | “initial public offering” means 10X II’s initial public offering that was consummated on August 13, 2021; |
| ● | “Merger” means, pursuant to the |
| ● | “Merger Agreement” means that certain Merger Agreement, dated as of November 2, 2022 (as amended, supplemented or otherwise modified from time to |
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“private placement units” |
“private placement warrants” |
| “public shareholders” means holders of public shares, whether acquired in 10X II’s initial public offering or acquired in the secondary market; |
● | “ |
| ● | “SEC” means the Securities and Exchange Commission; |
| ● | “Securities Act” means the Securities Act of 1933, as amended; |
| ● | “Sponsor” means 10X Capital SPAC Sponsor II LLC, a Cayman Islands limited liability |
Unless we tell you otherwise, the information
| ● | “transfer agent” means Continental, 10X II’s transfer agent; |
| ● | “Trust Account” means the trust account established at the consummation of 10X II’s initial public offering that held the proceeds of the initial public offering and from the sale of private placement units and was maintained by Continental, acting as trustee; |
| ● | “units” or “10X II units” means the units of 10X II, each unit representing one Class A ordinary share and one-third of one warrant, with such whole warrant representing the right to acquire one Class A ordinary share, that were offered and sold by 10X II in its initial public offering and in its concurrent private placement; |
| ● | “warrant agreement” means the warrant agreement, dated August 10, 2021, between 10X II and Continental Stock Transfer & Trust Company, as warrant agent, which sets forth the expiration and exercise price of and procedure for exercising the warrants; and |
| ● | “warrants” means the public warrants and the private placement warrants. |
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this prospectus assumesmay constitute “forward-looking statements” for purposes of the federal securities laws. Our forward-looking statements include, but are not limited to, statements regarding our or our management team’s expectations, hopes, beliefs, intentions or strategies regarding the future. The forward-looking statements include statements relating to our management team’s expectations, hopes, beliefs, intentions or strategies regarding the future. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intends,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “will,” “would” and similar expressions may identify forward-looking statements, but the underwritersabsence of these words does not mean that a statement is not forward-looking. Forward-looking statements in this prospectus may include, for example, statements about:
| ● | Our future financial and business performance, including financial projections and business metrics, which may be affected by, among other things, competition, the ability of the combined company to grow and manage growth profitably and retain its key employees; |
| ● | the ability to maintain the listing of our Common Stock and the warrants on Nasdaq, and the potential liquidity and trading of such securities; |
| ● | changes in applicable laws or regulations; |
| ● | our success in retaining or recruiting, our officers, key employees and other personnel; |
| ● | macroeconomic conditions resulting from the global COVID-19 pandemic; |
| ● | substantial regulations, which are evolving, and unfavorable changes or our failure to comply with these regulations; |
| ● | failure to maintain adequate operational and financial resources or raise additional capital or generate sufficient cash flows; |
| ● | cyber-attacks and security vulnerabilities; |
| ● | factors relating our business, operations and financial performance, including: |
| ● | our strategy, outlook and growth prospects; |
| ● | our operational and financial targets and dividend policy; and |
| ● | general economic trends and trends in the agriculture industry and markets. |
| ● | other factors detailed under the section entitled “Risk Factors.” |
The forward-looking statements contained in this prospectus are based on current expectations and beliefs concerning future developments and their potential effects on us. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not exercise their over-allotment option.limited to, those factors described under the heading “Risk Factors.” Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. Some of these risks and uncertainties may in the future be amplified by the COVID-19 outbreak, or other, similar, pandemic, and there may be additional risks that we consider immaterial or which are unknown. It is not possible to predict or identify all such risks. We do not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.
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SUMMARY OF THE PROSPECTUS
GENERALThis summary highlights selected information from this prospectus and does not contain all of the information that is important to you in making an investment decision. This summary is qualified in its entirety by the more detailed information included in this prospectus. Before making your investment decision with respect to our securities, you should carefully read this entire prospectus, including the information under “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the financial statements included elsewhere in this prospectus.
Unless otherwise indicated or the context otherwise requires, references in this prospectus to “Company”, “we,” “our,” “us” and other similar terms refer to African Agriculture Holdings Inc. and our consolidated subsidiaries. All references to “10X II” refer to the Company before the Closing.
General
We are a blank checkholding company whose business purposethat operates principally through our wholly owned subsidiary, Les Fermes de la Teranga SA (“LFT”). LFT is to effect a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses or entities, which we refer to throughout this prospectus asdeveloping our initial commercial farming business combination.based in northern Senegal focusing on the production and sale of alfalfa for cattle feed and nutrition purposes. We have not selected any specificwill sell alfalfa to owners and suppliers of cattle for feed and nutritional purposes, primarily in Senegal and the surrounding regions in Africa, the Economic Community of West African States (ECOWAS) region and other export markets including the Middle East. We also initiated commercial farming business combination targetoperations in Niger and we have not, nor has anyone on our behalf, engaged in any substantive discussions, directly or indirectly, with any business combination target with respect to an initial business combination with us. We believe that our management team’s decades of experience and relationships with leading technology companies and their founders, executives and investors, in addition to the extensive industry and geographical reach of our network, along with our prior experience with special purpose acquisition company (“SPAC”) business combinations, will give us a competitive advantage in pursuing a broad range of opportunities in many industries. Although we may pursue an business combination opportunity in any business or industry, we currently intend to focus our efforts on identifying high growth technology and tech-enabled businesses domestically and abroad in the consumer internet, ecommerce, software, healthcare, transportation / mobility and financial services industries, as well as other industries that are being disrupted by advances in technology and on technology paradigms including artificial intelligence (“AI”), automation, data science, ecommerce and Software-as-a-Service (“SaaS”).
OVERVIEW
10X Capital is a New York City-based investment firm which connects Wall Street with Silicon Valley, aligning institutional capital with high growth ventures. Founded in 2004 by serial entrepreneur Hans Thomas, 10X Capital invests alongside leading technology investors,Mauritania, with a focus on consumer-oriented softwarelocal office establishment, business incorporation and technology companies disrupting major industries, including finance, healthcare, transportation and real estate, by leveraging advances in automation, artificial intelligence and data science.
10X Capital is a founder of 10X Capital Venture Acquisition Corp. (“10X I”), a SPAC which announced its proposed business combination with REE Automotive, an electric vehicle technology company based in Israel, in February 2021.
10X Capital and its subsidiary, San Francisco-based venture capital firm Growth Technology Partners (“GTP”), are investors in over 100 high growth venture-backed companies such as Robinhood Markets, Inc. (“Robinhood”), Circle Internet Financial (“Circle”), Ripple, 23andMe, Headspace, Udemy and Pipefy. 23andMe recently announced its proposed business combination with a SPAC. 10X Capital has invested in these and other venture-backed companies alongside well-known venture capital funds such as Sequoia Capital (“Sequoia”),
New Enterprise Associates (“NEA”), Ribbit Capital (“Ribbit”), General Catalyst Partners, Google Ventures (“GV”), Founders Fund and Fidelity Investments Inc. (“Fidelity”), Andreesen Horowitz, DST Global, Kleiner Perkins, Thiel Capital, Khosla Ventures, Norwest Venture Partners, Insight Partners, Bessemer Venture Partners, Social Capital, 8VC, DCM, TCV and Wellington.
10X Capital utilizes data science to identify and evaluate investments, as well as support portfolio companies’ strategic growth, and through its network of relationships with founders, executives and venture capitalists, routinely meets with a variety of high growth technology companies seeking investment or financing.
10X Capital has been an early and active investor in companies that have recently gone public or are reported to be in the process of going public, including biotech firm Compass Therapeutics, which completed a reverse merger transaction with a public shell company in June 2020. 10X Capital was also an investor in Palantir Technologies (“Palantir”), which completed a direct listing on the New York Stock Exchange in September 2020. 10X Capital was also an early investor in DraftKings Inc. (Nasdaq: DKNG), which completed a business combination with a SPAC in April 2020. 10X Capital was also an investor in Wish, which completed an Initial Public Offering on the New York Stock Exchange in December 2020.
In February 2021, 10X Capital founded 10X Capital Venture Acquisition Corp. III (“10X III”), a special purpose acquisition company that has filed a registration statement on Form S-1 concurrently with the filing of this registration statement.
OUR MANAGEMENT TEAM
Our management team is led by Hans Thomas, our Chairman and Chief Executive Officer.
Mr. Thomas is a serial entrepreneur and technology investor with a track record of over 20 years, featured in Bloomberg News, Asset-backed Alert and The Wall Street Journal. He is 10X Capital’s founder and chief executive officer of and serves as chairman of its subsidiary, GTP. As an entrepreneur, Mr. Thomas was on the founding teams of venture-backed FinTech startup InternetCash (1999), online mortgage firm RefinanceOne (2004) and data science firm TheNumber (2015). Mr. Thomas is regarded as a top technology sector investor, financier and visionary because of his track record of identifying and investing in promising early stage opportunities and connecting them with institutional capital to help accelerate their growth. Mr. Thomas’ credibility as a founder as well as an investor has made him one of the first calls for Silicon Valley venture capitalists on topics of finance and capital markets, as well as for Wall Street firms and investors seeking access to technology investments and tech-enabled assets, as clearly seen by a portfolio that has attracted investors and financiers from both camps. Notable portfolio companies and personal investments exemplifying this strategy include Robinhood, AlphaFlow, Inc., Milo Credit, Better and Climb, whose equity investors include Sequoia, Kleiner Perkins, Point72 Ventures, Social Capital, and QED Investors, and whom have obtained significant financing from leading institutional investors and investment banks, such as The Blackstone Group, Inc. (NYSE: BX), The Goldman Sachs Group, Inc. (NYSE: GS) & Jefferies Group LLC (“Jefferies”). Mr. Thomas attended New York University.
Our team also includes: David Weisburd, our COO, Head of Origination and director; Oliver Wriedt, our President and Head of Capital Markets; and Guhan Kandasamy, our Chief Financial Officer.
Mr. Weisburd is currently a general partner and co-head of venture capital at 10X Capital, where he led 10X Capital’s investments in Robinhood, Compass Therapeutics, HeadSpace, Udemy and DraftKings. Prior to 10X Capital, Mr. Weisburd founded, in 2012, and was general partner of venture capital firm GTP, which was acquired by 10X Capital in 2019, whose portfolio companies include 23andMe, Circle, Palantir, Pipefy, Ripple, Tonal, Vicarious and Wish. Prior to joining 10X Capital, Mr. Weisburd was a partner at Flight Ventures, which has a prolific track record investing in companies including Carta, Cruise, Discord, Dollar Shave Club, Fastly, Inc. (NYSE: FSLY), LinkedIn, PayPal Holdings, Inc. (Nasdaq: PYPL), Rent the Runway, Wealthfront Inc. and
many others. Prior to his venture capital career, Mr. Weisburd was on the founding teams of two venture-backed technology startups, isocket (acquired by Rubicon Project (Nasdaq: RUBI)) and RoomHunt (acquired by RentLingo, Inc.). Mr. Weisburd received a BS in management and entrepreneurship Indiana University — Kelley School of Business in 2008 and an MBA from Dartmouth College — Tuck School of Business in 2012. Mr. Weisburd is currently pursuing a Master’s degree in Psychology from Harvard University.
Mr. Wriedt has over 25 years of experience in corporate credit and capital markets, including as chief executive officer of credit fund manager Vibrant Capital Partners (formerly DFG Investment Advisors), which currently has $7.3 billion in assets under management (“AUM”), co-chief executive officer of credit fund CIFC, which currently has $30 billion in AUM, and as a partner at Golden Tree Asset Management (from 2004 to 2008), which currently has $40 billion in AUM. He is also a member of the board of directors of Cadence Group, Inc., a digital securitization startup, and an investor in Milo, a digital banking startup backed by QED Investors, both of which are 10X Capital portfolio companies.
Mr. Kandasamy is currently the chief financial officer of 10X Capital and has over 17 years of financial services, technology, and data science experience at firms including TheNumber, CoreLogic (NYSE: CLGX), Opera Solutions, DBRS Morningstar, SecondMarket (acquired by Nasdaq) and Fannie Mae. He received an MBA in Entrepreneurial Finance from Oxford University in 2010.
Our board of directors will include Christopher Jurasek, Boris Silver, and Woodrow H. Levin, and we expect that Gil Penchina will serve as a board observer. Each of these individuals possesses significant finance, venture capital, and entrepreneurial experience and business relationship networks that we believe will be beneficial to our efforts to identify and consummate an initial business combination. Two of our board members, Messrs. Jurasek and Levin either have been or continue to be board members of companies that have gone public through SPAC business combinations in transactions in which each resulting public company had over $1.0 billion in enterprise value upon the consummation of such transaction.
Mr. Jurasek has over 25 years of experience leading global software and industrial technology companies, and is an operating executive at Clearlake Capital, LP. From August 2017 to January 2019, Mr. Jurasek was a member of the board of directors of ConvergeOne, which merged with a SPAC, Forum Merger Corporation, in 2018 in a transaction valuing the company at $1.2 billion. Mr. Jurasek currently serves as chief executive officer of EagleView, one of the leading technology providers of aerial imagery. Mr. Jurasek was also president of aviation technology firm JetSmarter (acquired by Vista Global) and chief executive officer of Calero Software from August 2018 to December 2019 and February 2013 to January 2020, respectively.
Boris Silver is a technology entrepreneur and venture capital investor. Mr. Silver is Co-Founder and President of FundersClub Inc. (together with its affiliates and advised funds, “FundersClub”), a Silicon Valley-based online venture capital platform. FundersClub has invested in companies including Instacart, GitLab, Webflow, and others. FundersClub portfolio companies that have been acquired include Screenhero (acquired by Slack prior to direct listing of Slack (NYSE: WORK)), StatusPage (acquired by Atlassian (NASDAQ: TEAM)), and Second Measure (acquired by Bloomberg). Mr. Silver graduated Summa Cum Laude with a Bachelor of Science in Economics from the Wharton School of the University of Pennsylvania, and is also an alumnus of Y Combinator.
Mr. Levin currently serves on the board of directors of DraftKings Inc. (Nasdaq: DKNG) which was acquired by a SPAC, Diamond Eagle Acquisition Corp, in a transaction valuing the company at $3.3 billion. Mr. Levin is also the founder and chief executive officer of Extend, Inc. and was previously the founder and chief executive officer of Estate Assist, which was acquired by DocuSign (Nasdaq: DOCU).
Mr. Penchina is an accomplished venture investor, whose portfolio companies include PayPal, LinkedIn, Fastly, Cruise, Rent the Runway, PagerDuty (NYSE: PD), Discord, Dollar Shave Club, Carta and Wealthfront.
Mr. Penchina was part of the pre-IPO team at eBay Inc. (Nasdaq: EBAY), where he initially oversaw mergers & acquisitions and then international expansion. Mr. Penchina began his career General Electric Company (NYSE: GE) and Bain & Company.
The past performance of our management team or their respective affiliates, including with respect to 10X I, is not a guarantee of either: (i) success with respect to any business combination we may consummate; or (ii) that we will be able to identify a suitable candidate for our initial business combination. No member of our management team has had management experience with special purpose acquisition corporations in the past. You should not rely on the historical record of our management team’s or their respective affiliates’ performance as indicative of any future performance.
For more information on the experiencesurvey work regarding land and background of our management team, see the section entitled “Management.”
BUSINESS STRATEGY
We will seek to capitalize on the significant relationships of Mr. Thomas and our management team, to identify, evaluate and acquire high growth technology and tech-enabled businesses domestically and abroad in the consumer internet, ecommerce, software, healthcare, transportation / mobility and financial services industries, as well as other industries which are being disrupted by advances in technology and on technology paradigms including AI, automation, data science, ecommerce and SaaS. If we elect to pursue an investment outside of those industries, our management’s expertise related to those industries may not be directly applicable to its evaluation or operation, and the information contained in this prospectus regarding that industry might not be relevant to an understanding of the business that we elect to acquire.
Following the Great Recession of 2008, technology companies have experienced a significant increase in private funding, with venture capital backed startups with venture capital backed startups raising $135.8 billion in 2019 up from $37 billion in 2008, or roughly a 267% increase according to the Pitchbook National Venture Capital Association venture monitor. We believe that venture capitalist Marc Andreessen’s prediction that “software will eat the world” is coming to fruition.
This increase in private funding, however, has not been evenly dispersed, as later stage venture capital firms and growth equity investors have adopted a “winner takes all” view of private markets. This view is evidenced by the concentrated allocation of a significant amount of capital to a relatively small number of companies, with the top 2% of venture and growth equity backed companies in the first two quarters of 2020 receiving 21% of all funding. This effect is even more pronounced in late stage venture rounds, where 2% of late stage venture-backed companies raised over 46.5% of all capital in the first two quarters of 2020, according to data published by the National Venture Capital Association.
We believe that the traditional IPO market is fundamentally underserving the interests of high growth, middle market technology companies. The first day IPO “pops” of Agora Inc. (Nasdaq: API) (153%), Lemonade Inc. (NYSE: LMND) (139%) and Vroom, Inc. (Nasdaq: VRM) (118%), among others, have supported the notion that despite demonstrable investor demand, the traditional IPO process underprices high growth technology companies. Data compiled by Marker indicates that the average company that went public in 2020 left $110 million on the table. Agora, ZoomInfo Technologies Inc. (Nasdaq: ZI) and Vroom each saw their share prices rise $500 million on the first day, ostensibly leaving much of that appreciation on the table.
These combined private and public market factors have led to a proliferation of private companies who face capital and valuation constraints in the private markets, for whom there may be significant investor demand in the public markets, but who may be deterred from utilizing the traditional IPO channel to access more efficient capital. These companies represent a significant and addressable target market for us. We estimate that there are
2,128 current private venture capital and private equity backed companies who would have a potential post-combination enterprise value of $500 million to $3 billion based on the valuation implied at their last round of funding, representing more than $687 billion in combined enterprise value that may be suitable targets for us, according to data from PitchBook Data as of June 30, 2020.
Our mission is to create a better solution to the conventional IPO for these high growth, disruptive technology and technology-enabled companies, which addresses their needs for capital and liquidity, while overcoming the key points of friction in the traditional IPO path.
BUSINESS COMBINATION CRITERIA
Although we may pursue an acquisition opportunity in any business or industry, we currently intend to focus our efforts on identifying high growth technology and tech-enabled businesses domestically and abroad in the consumer internet, ecommerce, software, healthcare and financial services industries, as well as other industries which are being disrupted by advances in technology and on technology paradigms including AI, automation, data science, ecommerce and SaaS.
Consistent with our business strategy, we have identified the following general criteria and guidelines that we believe are important in evaluating prospective target businesses. We will use these criteria and guidelines in evaluating initial business combination opportunities, but we may decide to enter into our initial business combination with a target business that does not meet these criteria and guidelines.soil fertility.
Public company-ready: We intend to seek out targets with established governance, financial controlsexpand our business to include aquaculture and reporting policiesthe production of carbon offset credits. Aquaculture is the breeding, rearing, and harvesting of fish, shellfish, algae and other organisms in place, ready to operatewater environments, and we anticipate growing tilapia in the public markets.
Strong Value Proposition for Public Investors:our water channels and infrastructure as part of its fertigation program. We intend to focus on companies who have a likelihood of being positively received by public company investors, and who may reasonably be expected to have good access to public capital markets.
Expansion Potential: We intend to seek out companiesanticipate that possess significant expansion opportunities, which may be facilitated by their status as a public company and access to public capital.
Differentiated product or service: We intend to seek out companies with competitive advantages that can maintain and grow market share against incumbent as well as emerging competitors.
Experienced management team: We intend to seek out companies with strong, experienced management teams, or provide a platform to assemble an effective management team with a track record of driving growth and profitability.
These criteria are not intendedour carbon offset production will generate carbon credits to be exhaustive. Any evaluation relating to the merits ofsold on a particular initial business combination may be based, to the extent relevant, on these general guidelines as well as other considerations, factors and criteria that our management team may deem relevant. In the event that we decide to enter into our initial business combination withglobal carbon emission market via a target business that does not meet the above criteria and guidelines, we will disclose that the target business does not meet the above criteriareforestation program in our shareholder communications related to our initial business combination, which, as discussedareas in this prospectus, would be in the form of proxy materials or tender offer documents, as applicable, that we would file with the SEC. In evaluating a prospective target business, we expectNiger designated for tree growth. We aspire to conduct a due diligence review which may encompass, among other things, meetings with incumbent management and employees, document reviews, interviewsfeasibility study on its environmental program to assess the viability of customers and suppliers, inspections of facilities, as well as reviewing financial and other information which will be made available to us.
The time required to select and evaluate a target business and to structure and complete our initial business combination, and the costs associated with this process, are not currently ascertainable with any degree of
certainty. Any costs incurred with respect to the identification and evaluation of, and negotiation with, a prospective target business with which our initial business combination is not ultimately completed will result in our incurring losses and will reduce the funds we can use to complete another business combination. The company will not pay any consulting fees to members of our management team, or any of their respective affiliates, for services rendered to or in connection with our initial business combination.
INITIAL BUSINESS COMBINATION
Nasdaq rules require that we must complete one or more business combinations having an aggregate fair market value of at least 80% of the value of the assets held in the trust account (excluding the deferred underwriting commissions and taxes payable on the interest earned on the trust account) at the time of our signing a definitive agreement in connection with our initial business combination. Our board of directors will make the determination as to the fair market value of our initial business combination. If our board of directors is not able to independently determine the fair market value of our initial business combination, we will obtain an opinion from an independent investment banking firm which is a member of FINRA or a valuation or appraisal firm with respect to the satisfaction of such criteria. While we consider it unlikely that our board of directors will not be able to make an independent determination of the fair market value of our initial business combination, it may be unable to do so if it is less familiar or experienced with the business of a particular target or if there is a significant amount of uncertainty as to the value of the target’s assets or prospects. In addition, pursuant to Nasdaq rules, any initial business combination must be approved by a majority of our independent directors.
We anticipate structuring our initial business combination so that the post-transaction company in which our public shareholders own shares will own or acquire 100% of the equity interests or assets of the target business or businesses. We may, however, structure our initial business combination such that the post-transaction company owns or acquires less than 100% of such interests or assets of the target business in order to meet certain objectives of the target management team or shareholders or for other reasons, but we will only complete such business combination if the post-transaction company owns or acquires 50% or more of the outstanding voting securities of the target or otherwise acquires a controlling interest in the target sufficient for it not to be required to register as an investment company under the Investment Company Act of 1940, as amended, or the Investment Company Act. Even if the post-transaction company owns or acquires 50% or more of the voting securities of the target, our shareholders prior to the business combination may collectively own a minority interest in the post-transaction company, depending on valuations ascribed to the target and us in the business combination transaction. For example, we could pursue a transaction in which we issue a substantial number of new shares in exchange for all of the outstanding capital stock of a target. In this case, we would acquire a 100% controlling interest in the target. However,carbon credits as a result of the issuance of a substantial number of new shares, our shareholders immediately prior to our initial business combination could own less than a majority of our outstanding shares subsequent to our initial business combination. If less than 100% of the equity interests or assets of a target business or businesses are owned or acquired by the post-transaction company, the portion of such business or businesses that is owned or acquired is what will be taken into account for purposes of the 80% of net assets test described above. If the business combination involves more than one target business, the 80% of net assets test will be based on the aggregate value of all of the target businesses.revenue source.
Prior to the date of this prospectus, we will file a Registration Statement on Form 8-A with the SEC to voluntarily register our securities under Section 12 of the Securities Exchange Act of 1934, as amended, or the Exchange Act. As a result, we will be subject to the rules and regulations promulgated under the Exchange Act. We have no current intention of filing a Form 15 to suspend our reporting or other obligations under the Exchange Act prior or subsequent to the consummation of our initial business combination.
SOURCING OF POTENTIAL INITIAL BUSINESS COMBINATION TARGETS
We believe our management team is well positioned to identify unique opportunities across the private company landscape in the technology sector. Our selection process will leverage our relationships with leading technology company founders, executives of private and public companies, venture capitalists, private equity and growth equity funds.
We are not prohibited from pursuing an initial business combination with a company that is affiliated with our sponsor, executive officers or directors, or completing the business combination through a joint venture or other form of shared ownership with our sponsor, executive officers or directors. In the event we seek to complete an initial business combination with a target that is affiliated with our sponsor, executive officers or directors, we, or a committee of independent directors, would obtain an opinion from an independent investment banking firm which is a member of FINRA or a valuation or appraisal firm stating that such an initial business combination is fair to our company from a financial point of view.
Members of our management team and our independent directors will directly or indirectly own founder shares and/or private placement units following this offering and, accordingly, may have a conflict of interest in determining whether a particular target business is an appropriate business with which to effectuate our initial business combination.
Further, each of our officers and directors may have a conflict of interest with respect to evaluating a particular business combination if the retention or resignation of any such officers and directors was included by a target business as a condition to any agreement with respect to our initial business combination.
Each of our officers and directors presently has, and any of them in the future may have additional, fiduciary or contractual obligations to another entity pursuant to which such officer or director is or will be required to present a business combination opportunity to such entity. Accordingly, if any of our officers or directors becomes aware of a business combination opportunity which is suitable for an entity to which he or she has then current fiduciary or contractual obligations, he or she will honor his or her fiduciary or contractual obligations to present such business combination opportunity to such other entity, subject to their fiduciary duties under Cayman Islands law. Our amended and restated memorandum and articles of association provide that to the fullest extent permitted by applicable law: (i) no individual serving as a director or an officer shall have any duty, except and to the extent expressly assumed by contract, to refrain from engaging directly or indirectly in the same or similar business activities or lines of business as us, and (ii) we renounce any interest or expectancy in, or in being offered an opportunity to participate in, any potential transaction or matter which may be a corporate opportunity for any director or officer, on the one hand, and us, on the other. We do not believe, however, that the fiduciary duties or contractual obligations of our officers or directors will materially affect our ability to complete our initial business combination.
In addition, our sponsor and our officers and directors may sponsor or form other special purpose acquisition companies similar to ours or may pursue other business or investment ventures during the period in which we are seeking an initial business combination. In particular, affiliates of our sponsor are currently sponsoring another blank check company, 10X III. 10X III may seek to complete a business combination in any location and is focusing on business combinations in the consumer internet, ecommerce, software, healthcare and financial services industries. Further, Mr. Thomas, our Chief Executive Officer and Chairman, serves as the Chief Executive Officer and Chairman of 10X III. Any such companies, businesses or investments, including 10X III, may present additional conflicts of interest in pursuing an initial business combination. However, we do not believe that any such potential conflicts would materially affect our ability to complete our initial business combination.
CORPORATE INFORMATION
Our executive offices are located at 1 World Trade Center, 85th445 Park Avenue, Ninth Floor, New York, New York 10007,NY 10022, and our telephone number is (212) 257-0069.745-1164. Our corporate website address is www.africanagriculture.com. Information contained on or accessible through our website is not a part of this prospectus, and the inclusion of our website address in this prospectus is an inactive textual reference only.
Summary Risk Factors
Investing in our securities involves risks. You should carefully consider the risks described in “Risk Factors” beginning on page 4 before making a decision to invest in our common stock. If any of these risks actually occurs, our business, financial condition and results of operations would likely be materially adversely affected. In such case, the trading price of our securities would likely decline, and you may lose all or part of your investment. Set forth below is a summary of some of the principal risks we face:
Risks Related to Our Business and Industry
| ● | We have a limited operating history on which to judge our business prospects and management, and we cannot assure you that we will achieve or sustain profitability; |
| ● | Our business is affected by fluctuations in agricultural commodity prices, transportation costs, energy prices, interest rates, and foreign currency exchange rates, and our risk management strategies may not be successful in minimizing our exposure to these fluctuations; |
| ● | Our earnings may be negatively impacted by declining demand for our product based on a variety of factors, including end-demand for crops, supply and quality issues, or any other reason; |
| ● | We may be unable to successfully negotiate binding offtake agreements, which could harm our commercial prospects; |
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| ● | Our use of the 20,000 hectares located at the LFT Farm is subject to a 50-year land use right provided pursuant to a Republic of Senegal Presidential Decree (as of December 29, 2023, approximately 38 years will remain under this decree), which subjects us to risks including early termination or modification of such decree, which may result in a loss of anticipated future revenue, which could have an adverse effect on our ability to operate our business, our financial results and customer demand for our products and services; |
| ● | We rely upon irrigation systems and public water sources, and in the event that the government or another regulatory body limits the Company’s ability to divert stream waters to its irrigation systems, the result could have a negative impact on the Company’s ability to continue with its agricultural operations and development plans; |
| ● | The presence of the novel coronavirus disease, COVID-19, or any other pandemics, public health crisis or disease, such as Ebola virus or dengue, may have an adverse impact our business, including depressing demand for our products and preventing our employees, agents and consumers from travelling and conducting business activities; |
| ● | Due to the international nature of our proposed business, we are exposed to various risks of international operations, including adverse trade policies, changes in laws, inflation, exchange controls, sovereign risk, changes in a region’s economic or political condition, and civil or political instability; |
Risks Related to our Future Growth
| ● | If we fail to manage our recent and future growth effectively, we may be unable to execute our business plan or adequately address competitive challenges. |
| ● | We will require additional financing to achieve our goals and a failure to obtain this capital on acceptable terms, or at all, may adversely impact our ability to support our business growth strategy. |
| ● | Our results of operations may fluctuate from quarter to quarter, which could make our future performance difficult to predict and could cause our results of operations for a particular period to fall below expectations, resulting in a decline in the price of our common stock. |
| ● | Forecasts of market growth in this prospectus may not be accurate. |
Risks Related to Intellectual Property
| ● | If we fail to protect, or incur significant costs in defending, our intellectual property and other proprietary rights, then our business and results of operations could be materially harmed. |
| ● | Third parties may assert that we are infringing upon their intellectual property rights, which could divert management’s attention, cause us to incur significant costs, and prevent us from selling or using the technology to which such rights relate. |
Risk Related to Our Securities
| ● | Provisions in our Charter may inhibit a takeover of us, which could limit the price investors might be willing to pay in the future for our common stock and could entrench management. |
| ● | Future resales of common stock may cause the market price of our securities to drop significantly, even if our business is doing well. |
| ● | Our stock price may be volatile and may decline regardless of our operating performance. |
| ● | There can be no assurance that our common stock will be able to comply with the continued listing standards of Nasdaq. |
| ● | We are currently an emerging growth company and a smaller reporting company within the meaning of the Securities Act, and that status could make our securities less attractive to investors. |
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THE OFFERING
| Securities offered by the selling securityholders | We are registering the resale by the selling securityholders named in this prospectus, or their permitted transferees, of an aggregate of 39,557,238 shares of common stock and warrants to purchase 26,201 shares of common stock, which includes: | ||
| ● | Up to 26,201 warrants issued to the David Stadlin Trust; | ||
| ● | up to 5,666,667 shares of common stock originally issued in a private placement to the Sponsor and subsequently distributed in part to certain members of the Sponsor; | ||
| ● | up to 33,209,370 shares of common stock held by other selling securityholders of the Company; and | ||
| ● | up to 655,000 shares of common stock that were a constituent part of the private placement units. | ||
| In addition, we are registering up to 26,201 shares of common stock issuable upon exercise of the warrant issued to the David Stadlin Trurst. | |||
Terms of the Offering | The selling securityholders will determine when and how they will dispose of the shares of common stock and warrants registered under this prospectus for resale. | |
Shares outstanding prior to the offering(1) | As of December 28, 2023, we had 57,866,830 shares of common stock issued and outstanding. | |
Shares outstanding after the offering(1) | 57,893,031 shares of common stock (assuming the exercise for cash of warrants to purchase 26,201 shares of common stock). | |
Use of proceeds | We will not receive any of the proceeds from the sale of the warrants shares of common stock by the selling securityholders except with respect to amounts received by us due to the exercise of the warrants. We expect to use the proceeds received from the exercise of the warrants, if any, for working capital and general corporate purposes. | |
Nasdaq ticker symbol | Our common stock and warrants are listed on Nasdaq under the symbols “AAGR” and “AAGRW.” |
| (1) | The number of shares of our common stock to be outstanding prior to and after this offering is based on shares of our common stock outstanding as of December 28, 2023, and excludes: |
| ● | 10,598,045 shares of our common stock issuable upon the settlement of RSUs outstanding as of December 28, 2023; and |
| ● | 5,786,685 additional shares of our common stock reserved for future issuance under our 2023 Incentive Plan, as well as any automatic increases in the number of shares of our common stock reserved for future issuance under our 2023 Incentive Plan; and |
| ● | 6,884,899 shares of our common stock issuable upon the exercise of warrants to purchase common stock outstanding as of December 28, 2023, at an exercise price of $11.50 per share. |
Unless otherwise indicated, this prospectus reflects and assumes no exercise of outstanding warrants or settlement of outstanding RSUs after December 28, 2023.
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RISK FACTORS
An investment in our securities involves a high degree of risk. You should carefully consider the risks described below before making an investment decision. Our business, prospects, financial condition, or operating results could be harmed by any of these risks, as well as other risks not known to us or that we consider immaterial as of the date of this prospectus. The trading price of our securities could decline due to any of these risks, and, as a result, you may lose all or part of your investment.
Risks Related to Our Business and Industry
We have a limited operating history on which to judge our business prospects and management.
We were incorporated in May 2021 and have only recently commenced commercial operations. An evaluation of our business and prospects can only be made through our pilot program and the operations of our wholly owned subsidiaries. Operating results for future periods are subject to numerous uncertainties and we cannot assure that we will achieve or sustain profitability. Our prospects must be considered in light of the risks encountered by companies in the early stage of development, particularly companies in new and rapidly evolving markets. Future operating results will depend upon many factors, including our success in attracting and retaining motivated and qualified personnel, our ability to establish short term credit lines or obtain financing from other sources, our ability to develop and market new products or control costs, and general economic conditions. We cannot assure that we will successfully address any of these contingencies.
Our independent auditor has expressed substantial doubt about our ability to continue as a going concern.
Our independent auditor’s report on its financial statements included an explanatory paragraph that indicates that the financial statements were prepared assuming that we would continue as a going concern. As discussed in Note 2 to the financial statements for the year ended December 31, 2022, we have a history of net losses incurred for the current and prior years as of December 31, 2022. We also do not have sufficient cash on hand or available liquidity to meet our obligations through the twelve months following December 31, 2022. These conditions raise substantial doubt about our ability to continue as a going concern. The ability to continue as a going concern is dependent upon generating profitable operations in the future and/or obtaining the necessary financing to meet our obligations and repay our liabilities arising from normal business operations when they become due. There can be no assurance that we will be successful in our plans described above or in attracting equity or alternative financing on acceptable terms, or if at all. The financial statements contained elsewhere in this proxy statement/prospectus do not include any adjustments that might result from our inability to continue as a going concern.
We have a history of net losses.
For the fiscal year ended December 31, 2022 we incurred a net loss of approximately $26.3 million. and used cash in continuing operations of $2.7 million. We also incurred a net loss of approximately $29.0 million and used cash in continuing operations of $1.1 million for the nine months ended September 30, 2023. Our operations have historically been financed principally by loans from our majority shareholder, Global Commodities and Investments Limited, and its affiliated entities. Our primary sources of liquidity to date are loans from Global Commodities, sales of unneeded fixed assets from the prior ownership, various convertible and short-term debt instruments as well as the sale of alfalfa, which began during the second quarter of 2022.
There can be no assurance that we will be able to bring the business to operating profitability in the near-term or at all. As of September 30, 2023 we did not hold cash and cash equivalents in an amount sufficient to finance our operations for the next twelve months. There can be no assurance that we will obtain sufficient liquidity to continue operations or initiatives or for our business. Our cash flows may be impacted by a number of factors, including changing market conditions, reduction in demand for our crops as well as operating losses that are being incurred. There can be no assurance that we will be successful in raising additional capital necessary to fund our operations in the near or long term. The failure to raise any necessary additional capital on acceptable terms, or at all, may have a material adverse effect on our future business and results of operations.
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The loss of any member or change in structure of our senior management team could adversely affect our business.
Our success depends in large part upon the skills, experience and performance of members of our executive management team and others in key leadership positions as we depend on key management to run our business. The efforts of these persons will be critical to us as we continues to develop and scale our business. If we were to lose one or more key executives, including Alan Kessler, our Chief Executive Officer and Chairman, Harry Green, our Chief Financial Officer, and Edward Meiring, our Chief Operating Officer, among others, we may experience difficulties in competing effectively and implementing our business strategy. Only certain of our executives have employment contracts, and the majority of our employees are at-will, which means that either we or any employee may terminate their employment at any time or in the notice period set forth in an executive’s contract. We do not carry key person insurance for any of our executives or employees. The loss of one or more of our executive officers or other key personnel or our inability to locate suitable or qualified replacements could be significantly detrimental to product development efforts and could have a material adverse effect on our business, financial condition and results of operations.
In addition, we must attract and retain highly qualified personnel, including certain foreign nationals who are not citizens or permanent residents of Senegal or Niger, many of whom are highly skilled and constitute an important part of our workforce. Our ability to hire and retain these employees and their ability to remain and work in our countries of operations. are impacted by laws and regulations, as well as by procedures and enforcement practices of various government agencies. Changes in immigration laws, regulations or procedures, including those that may be enacted by the current presidential administrations may adversely affect our ability to hire or retain such workers, increase operating expenses and negatively impact our ability to deliver products and services, any of which would adversely affect our business, financial condition and results of operations.
We may not be able to manage our future growth effectively, which could make it difficult to execute our business strategy.
Our expected future growth could create a strain on the organizational, administrative and operational infrastructure, including farming operations and logistics. We may not be able to maintain the quality of or expected delivery times for its products or satisfy customer demand as it grows. Our ability to manage our growth effectively will require us to continue to improve our operational, financial and management controls, as well as our reporting systems and procedures. As we grow, any failure of our controls or interruption of our facilities or systems could have a negative impact on our business and financial operations. We plan to expand into the fishery logistics and carbon offset production businesses, which will affect a broad range of business processes and functional areas. The time and resources required to implement these new systems is uncertain, and failure to complete these activities in a timely and efficient manner could adversely affect our operations. If we are unable to manage our growth effectively, it may be difficult for us to execute our business strategy and our business could be harmed.
Our use of the 20,000 hectares located at the LFT Farm is subject to a 50-year land use right provided pursuant to a Republic of Senegal Presidential Decree, which subjects us to risks including early termination.
Our right to utilize the 20,000 hectares of land upon which its LFT Farm is located in Les Fermes de la Teranga in Northern Senegal, is granted pursuant to a Republic of Senegal Presidential Decree controlled by our wholly owned subsidiary, Agro Industries. While we have no reason to believe that the Republic of Senegal will terminate the Senegal Presidential Decree, the Republic of Senegal has the right to modify, curtail or terminate such decrees without prior notice at its convenience. In the event of any such termination or modification, we may not be entitled to recover any of our incurred or committed costs relating to the development of the LFT Farm. The termination or any modification or curtailment of the Senegal Presidential Decree would result in a loss of anticipated future revenue attributable to the LFT Farm, which could have an adverse effect on our ability to operate our business, our financial results, and customer demand for our products and services.
Our risk management strategies may not be effective.
Our business is affected by fluctuations in agricultural commodity prices, transportation costs, energy prices, interest rates, and foreign currency exchange rates. We may engage in hedging transactions to manage these risks. However, our exposure may not always be fully hedged, and our hedging strategies may not be successful in minimizing our exposure to these fluctuations. In addition, our risk management strategies may seek to position our overall portfolio relative to expected market movements. While we have implemented a broad range of risk monitoring and control procedures and policies to mitigate potential losses, we may not in all cases be successful in anticipating a significant risk exposure and protecting us from losses that have the potential to impair our financial position.
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Our relative crop yields may not be consistent with our pilot experience.
We have undertaken a pilot programs for rice, sweet potato, and most recently alfalfa in order to understand soil quality, water and agronomy that generated substantive growth results. While our alfalfa pilot program has also generated consistent results and, along with the results of our rice and sweet potato programs, enhanced our confidence in potential alfalfa crop yields, these results may have been aberrational and there is no guarantee that they will be sustained in larger commercial practice.
Our earnings can be negatively impacted by declining demand brought on by varying factors, many of which are out of our control.
Demand for our product depends upon a variety of factors, including end-demand for the crops. For example, a severe downturn in the dairy industry could have a negative effect on sales of alfalfa hay, and as a result, the demand for our alfalfa in the markets in which we sell. In addition, demand for our products could decline because of other supply and quality issues or for any other reason, including products of competitors that might be considered superior by end users. A decline in demand for our products could have a material adverse effect on our business, results of operations and financial condition.
We rely upon irrigation systems and public water sources and a loss of access to public water sources could have detrimental effects on our ability to produce alfalfa.
We remain engaged in farming and harvesting operations relating to alfalfa to be utilized for cattle feed. We incur significant risks relating to the cost of growing and maintaining alfalfa and producing and selling the alfalfa. We rely on water sourced from our irrigation systems, which divert water from streams and development tunnels into a network of ditches, tunnels, flumes, siphons and reservoirs. In the event that the government or another regulatory body limits our ability to divert stream waters to our irrigation systems, the result could have a negative impact on our ability to continue with our agricultural operations and development plans.
We may be unable to successfully negotiate binding offtake agreements, which could harm our commercial prospects.
We cannot assure you that we will be able to negotiate one or more offtake agreements or that, if such offtake agreements are completed, the terms would enable us to market our crop at a favorable margin. Although we are engaged in discussions with respect to such offtake agreements, we may fail to successfully negotiate offtake agreements in a timely manner or on favorable terms, which may force us to dedicate additional resources to sales in spot markets. Furthermore, should we remain dependent on spot market sales, our profitability will remain vulnerable to short-term fluctuations in the price and demand for alfalfa and competing substitutes. A failure to have offtake agreements in place may affect the willingness of investors to make an investment in us, which could impair our ability to raise additional capital.
A pandemic, epidemic, outbreak of an infectious disease, including the outbreak of a novel strain of coronavirus (“COVID-19”) or other public health crisis could adversely impact our business operations and financial results.
If a pandemic, epidemic, or outbreak of an infectious disease, including the resurgence of COVID-19 or the outbreak of a novel strain of COVID-19, or other public health crisis were to affect our markets, facilities or our customers, our business could be adversely affected. The global spread of COVID-19 has disrupted certain aspects of our operations, including the ability of certain of our employees to collaborate in-person, and may adversely impact our business operations and financial results, including our ability to execute on our business strategy and goals. Specifically, the continued spread of COVID-19, the potential future spread of other infectious diseases and related precautionary measures may result in delays or disruptions in our supply chain, delays in the launch or execution of certain of our customers’ projects and a decrease of our operational efficiency in the development of our systems, products, technologies and services. We continue to take measures within our business operations to ensure the health and safety of our employees. However, there can be no assurance that these measures will prevent disruptions due to COVID-19 or other infectious diseases within our workforce.
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The COVID-19 pandemic has also resulted in, and other infectious diseases could result in, significant disruption and volatility of global financial markets. This disruption and volatility may adversely impact our ability to access capital. In the future, this could negatively affect our liquidity and capital resources. Given the rapid and evolving nature of the impact of the virus, responsive measures taken by governmental authorities and the continued uncertainty about its impact on society and the global economy, we cannot predict the extent to which it will affect our operations, particularly if these impacts persist or worsen over an extended period of time. To the extent COVID-19 adversely affects our business operations and financial results, it may also have the effect of heightening many of the other risks described in this “Risk Factors” section.
Outbreaks of other disease may adversely affect our business operations and financial condition.
Significant outbreaks of contagious diseases, and other adverse public health developments, could have a material impact on our business operations and financial condition. Many of our operations are currently, and will likely remain in the near future, in developing countries which are susceptible to outbreaks of disease and may lack the resources to effectively contain such an outbreak quickly. Such outbreaks may impact our ability to operate by limiting access to qualified personnel, increasing costs associated with ensuring the safety and health of its personnel, restricting transportation of personnel, equipment, and supplies to and from its areas of operation and diverting the time, attention and resources of government agencies which are necessary to conduct its operations. In addition, any losses we experience as a result of such outbreaks of disease which impact sales or delay production may not be covered by our insurance policies.
Epidemics of both Ebola virus and dengue have been reported in recent years in West Africa. An epidemic of the Ebola virus disease occurred in parts of West Africa in 2014 and continued through 2015. A substantial number of deaths were reported by the World Health Organization (“WHO”) in West Africa, and the WHO declared it a global health emergency. A localized outbreak of dengue was reported in 2016. It is impossible to predict the effect and potential spread of new outbreaks of the Ebola virus or dengue in West Africa and surrounding areas. Should another Ebola virus or dengue outbreak occur, including to the countries in which we operate, or not be satisfactorily contained, our operations could be delayed, or interrupted after commencement. Any changes to these operations could significantly increase costs of operations.
There is potential for competitive cattle feed or alternate protein sources.
Beef cattle can utilize roughages of both low and high quality, including pasture forage, hay, silage, corn (maize) fodder, straw, and grain by-products. Cattle also utilize nonprotein nitrogen in the form of urea and biuret feed supplements, which can supply from one-third to one-half of all the protein needs of beef animals. Nonprotein nitrogen is relatively cheap and abundant and is usually fed in a grain ration or in liquid supplements with molasses and phosphoric acid or is mixed with silage at ensiling time; it also may be used in supplement blocks for range cattle or as part of range pellets. Other additions to diet include corn (maize), sorghum, milo, wheat, barley, or oats. Whey protein and pea protein have recently emerged as competitive protein sources to alfalfa, albeit at materially lower yields.
We are subject to global and regional economic downturns and related risks.
The level of demand for our products is affected by global and regional demographic and macroeconomic conditions, including population growth rates and changes in standards of living. A significant downturn in global economic growth, or recessionary conditions in major geographic regions, may lead to reduced demand for agricultural commodities and food products, which could adversely affect our business and results of operations. Further, deteriorating economic and political conditions in our major markets affected by the COVID-19 pandemic, such as increased unemployment, decreases in disposable income, declines in consumer confidence, or economic slowdowns or recessions, could cause a decrease in demand for our products.
Additionally, weak global economic conditions and adverse conditions in global financial and capital markets, including constraints on the availability of credit, have in the past adversely affected, and may in the future adversely affect, the financial condition and creditworthiness of some of our customers, suppliers and other counterparties, which in turn may negatively impact our financial condition and results of operations.
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Adverse weather and other farming conditions, including as a result of climate change, may adversely affect the availability, quality and price of agricultural commodities and agricultural commodity products, as well as our operations and operating results.
Adverse weather conditions have historically caused volatility in the agricultural commodity industry and consequently in our operating results by causing crop failures or significantly reduced harvests, which may affect the supply and pricing of the agricultural commodities that we sell and use in our business, reduce demand for our fertilizer products and negatively affect the creditworthiness of agricultural producers who do business with us.
Severe adverse weather conditions, such as severe storms, may also result in extensive property damage, extended business interruption, personal injuries and other loss and damage to our business. Our operations also rely on dependable and efficient transportation services. A disruption in transportation services, as a result of weather conditions or otherwise, may also significantly adversely impact our operations.
Additionally, the potential physical impacts of climate change are uncertain and may vary by region. These potential effects could include changes in rainfall patterns, water shortages, changing sea levels, changing storm patterns and intensities, and changing temperature levels that could adversely impact our costs and business operations, the location, costs and competitiveness of global agricultural commodity production and related storage and processing facilities and the supply and demand for agricultural commodities. These effects could be material to our results of operations, liquidity or capital resources.
Although alfalfa is a well-adapted plant that usually gives good production for many years, it can be severely affected by weeds. Weeds compete with alfalfa plants in water and nutrient, resulting in thin and underperforming plants. We may have to consult local farmers and/or agronomists in order to understand the most recent information on the weeds most commonly found in our region. Then we will have to plan a solid (pre and after sowing) weed management policy, taking into account the local legal framework and the agronomist’s suggestion. Some chemicals widely used in some countries are strictly forbidden in other countries.
We operate in areas subject to natural disasters and which may be adversely affected by climate change.
Climate change poses a threat to Senegal’s socio-economic development. In general, climate models suggest that West African countries will likely experience increased temperatures, decreased annual rainfall, increases in the intensity and frequency of heavy rainfall events, and a rise in sea level. Climate change in Senegal will have wide reaching impacts on many aspects of life in Senegal. Climate change is expected to cause an increase in average temperatures over west Africa by between 1.5 and 4 °C (3 °F and 7 °F) by the middle of this century, relative to 1986 – 2005. Projections of rainfall indicate an overall decrease in rainfall and an increase in intense mega-storm events over the Sahel. The sea level is expected to rise faster in West Africa than the global average. Although Senegal is currently not a major contributor to global greenhouse gas emissions, it is one of the most vulnerable countries to climate change. Extreme drought is impacting agriculture, and causing food and job insecurity. More than 70% of the population is employed in the agricultural sector. Sea level rise and resulting coastal erosion is expected to cause damage to coastal infrastructure and displace a large percentage of the population living in coastal areas. Climate change also has the potential to increase land degradation that will likely increase desertification in eastern Senegal, leading to an expansion of the Sahara.
Senegal and other West African countries are also prone to floods, droughts and other natural disasters. The effects of climate change, a significant seismic event where our operations are concentrated, abundance of insects or locusts, or other natural disasters could adversely impact our ability to deliver labor to the crops, deliver crops to the marketplace, and receive water and could adversely affect our costs of operations and profitability.
We are subject to fluctuations in agricultural commodity and other raw material prices, energy prices and other factors outside of our control that could adversely affect our operating results.
Prices for agricultural commodities and their by-products, like those of other commodities, are often volatile and sensitive to local and international changes in supply and demand caused by factors outside of our control, including farmer planting and selling decisions, currency fluctuations, government agriculture programs and policies, pandemics (such as the COVID-19 pandemic), governmental restrictions or mandates, global inventory levels, demand for biofuels, weather and crop conditions, and demand for and supply of competing commodities and substitutes. These factors may cause volatility in our operating results.
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Additionally, our operating costs and the selling prices of certain of its products are sensitive to changes in energy prices. Our industrial operations utilize significant amounts of electricity, natural gas and coal, and our transportation operations are dependent upon diesel fuel and other petroleum-based products. Significant increases in the cost of these items and currency fluctuations could adversely affect our operating costs and results. The selling prices of the agricultural commodities and commodity products that we sell are also sensitive to changes in the market price for biofuels, and consequently world petroleum prices.
We are vulnerable to the effects of supply and demand imbalances in our industries.
Historically, the market for some agricultural commodities has been cyclical, with periods of high demand and capacity utilization stimulating new plant investment and the addition of incremental processing or production capacity by industry participants to meet the demand. The timing and extent of this expansion may then produce excess supply conditions in the market, which, until the supply/demand balance is again restored, negatively impacts product prices and operating results. During times of reduced market demand, we may suspend or reduce production.
Our business may require significant capital expenditures.
Our business is capital intensive, particularly in the redevelopment of the land and rehabilitation of water infrastructure. On an annual basis, we could spend significant sums of money for additions to, or replacement of, land, land improvements, irrigation and farming equipment. We must obtain funds for these capital projects from operations or new capital raises. We cannot provide assurance that available sources of funds will be adequate or that the cost of funds will be at levels permitting us to earn a reasonable rate of return.
Ruminant livestock generates Greenhouse Gas Emissions, which contribute to climate change, and any global scrutiny on alfalfa as a source of cattle nutrition could adversely affect our operating results.
Ruminant livestock generates a significant proportion of anthropogenic Greenhouse Gas Emissions, which contributes to climate change. Global scrutiny on Greenhouse Gas Emissions may serve to increase scrutiny on alfalfa as a source of cattle nutrition, which could adversely affect our costs of operations and profitability.
Ruminants such as cattle, sheep, and goats produce meat and milk through enteric fermentation, a digestive process in which microbes decompose and ferment food in the digestive tract or rumen. This process produces methane which is emitted via digestion. The amount of methane produced is directly related to the type of food consumed and the level of intake, in addition to other factors such as animal size, growth rate, production level, and environmental temperature. The loss of methane from ruminants also represents a loss of dietary energy, so initiatives to reduce emissions also represent an opportunity to improve the efficiency of livestock production. Methane is naturally occurring, and typically decomposes over a 10-year half-life, and has recently been recalibrated according to a new scoring methodology, the GWP* methodology, by the University of Oxford.
Crop insurance may not be available or not be adequate to cover losses.
We do not currently have property insurance covering our facilities and the LFT Farm. The insurance industry in Senegal is still at an early stage of development. Insurance companies in Senegal offer limited insurance products and the cost of such insurance is high. We have determined that the risks of disruption or liability from our business, the loss or damage to our property, including our facilities and equipment, the cost of insuring for these risks, and the difficulties associated with acquiring such insurance on commercially reasonable terms make it impractical for us to purchase such insurance. Any uninsured occurrence of loss or damage to property, or litigation or business disruption may result in the incurrence of substantial costs and the diversion of resources, which could have an adverse effect on our operating results.
In addition, certain crops and certain land locations are either not eligible or eligible at a reduced level for crop insurance. We intend to grow crops in areas where full insurance is available, but the consistent availability and reasonable cost of such insurance cannot be guaranteed. Further, if an insurance claim is made, the amount of funds received might not be sufficient to cover costs and provide debt service.
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Our earnings may be affected, to large extent, by volatility in the market value of our crops.
We intend to grow primarily organic alfalfa. The price of alfalfa, like other commodity crops, can vary widely, thereby directly impacting our revenue. In addition, we may not have a diverse customer base to which we are selling our product. If a single material buyer should fail to take or pay for its production, we would have to sell to other purchasers who might pay higher or lower prices than specified in our contracts.
If we are unable to plant enough alfalfa crop during the planting season that occurs in the first quarter of the year prior to the Senegal rainy season to meet our projections and fulfill anticipated demand for that year, the loss of revenue may have a material adverse effect on our results of operations and financial condition.
Should events such as adverse weather, such as drought or floods (which are difficult to anticipate and which cannot be controlled), production or transportation interruptions, delays in obtaining available inputs such as fertilizer or equipment due to supply chain or other local disruptions, or lack of seasonal labor, and contractor availability, we may be unable to plant enough crops during the first quarter of the year, which we refer to as the planting season, to meet our projections and anticipated demand. Failure to plant our targeted crops amounts for any year may result in reduced revenue without the opportunity to recover until the following planting season, which could have a material adverse effect on our results of operations and financial condition.
Our ability to cultivate, husband and harvest our crop may be compromised by availability of labor and equipment.
When the crop is ready to harvest, we are dependent on seasonal labor and contractors for harvesting. During harvest season, there is demand for such seasonal labor from other farming operations which will compete with our demand. The availability of seasonal farm labor is also affected by uncertain national immigration policies and politically volatile enforcement practices. Thus, adequate labor might not be available when our crops are ready to harvest. This could delay revenue or decrease revenue.
The inability to obtain certain materials could adversely impact our ability to deliver on our contractual commitments which could negatively impact our results of operations and cash flows.
Although most materials essential to our business are generally available from multiple sources, some key materials, while currently available to us from multiple sources, are at times subject to industry-wide availability constraints and pricing pressures. If the supply of a key or single-sourced material to us were to be delayed or curtailed or in the event of a delayed shipment of completed products to us, our ability to ship product in desired quantities, and in a timely manner, could be adversely affected. Our business and financial performance could also be adversely affected depending on the time required to obtain sufficient quantities from the original source, or to identify and obtain sufficient quantities from an alternative source. Continued availability of these components may be affected if suppliers were to decide to concentrate on the production of common components instead of components customized to meet our requirements. We attempt to mitigate these potential risks by working closely with these and other key suppliers on product introduction plans, strategic inventories, coordinated product introductions, and internal and external manufacturing schedules and levels. Consistent with industry practice, we aquire materials through a combination of formal purchase orders, supplier contracts, and open orders based on projected demand information. However, adverse changes in our vendors’ supply chain may adversely impact the supply of key materials.
Reliance on third-party manufacturers may result in increased or volatile costs.
The alfalfa products we offer require a limited number of third-party manufacturers to produce, and as a result we may be subject to price fluctuations or demand disruptions. Our operating results would be negatively impacted by increases in the costs of such suppliers, and there is no guarantee that costs will not rise. In addition, as we expand into new categories and product types we expect that we may not have strong purchasing power in these new areas, which could lead to higher costs than it has historically seen in its current categories. We may not be able to pass increased costs on to consumers, which could adversely affect its operating results. Moreover, in the event of a significant disruption in the supply of the materials used in the manufacture of the products we offer, we and our vendors might not be able to locate alternative suppliers of materials of comparable quality at an acceptable price.
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Risks Related to Operations Outside of the United States
We are subject to economic, political and other risks of doing business globally and in emerging markets.
We will be a multi-national business and our business strategies may involve expanding or developing our business in emerging market regions, including Eastern Europe, Asia-Pacific, the Middle East and Africa. Due to the international nature of our business, we are exposed to various risks of international operations, including:
| ● | adverse trade policies or trade barriers on agricultural commodities and commodity products; government regulations and mandates in response to the COVID-19 pandemic; |
| ● | inflation and hyperinflation and adverse economic effects resulting from governmental attempts to control inflation, such as the imposition of wage and price controls and higher interest rates; |
| ● | changes in laws and regulations or their interpretation or enforcement in the countries where AFRAG operate, such as tax laws; |
| ● | difficulties in enforcing agreements or judgments and collecting receivables in foreign jurisdictions; |
| ● | exchange controls or other currency restrictions and limitations on the movement of funds, such as on the remittance of dividends by subsidiaries; |
| ● | inadequate infrastructure and logistics challenges; |
| ● | sovereign risk and the risk of government intervention, including through expropriation, or regulation of the economy or natural resources, including restrictions on foreign ownership of land or other assets; while we may adopt insurance coverage to cover expropriation risk, convertibility, transfer and other risks, this may not sufficient to cover business risks; |
| ● | the requirement to comply with a wide variety of laws and regulations that apply to international operations, including, without limitation, economic sanctions regulations, labor laws, import and export regulations, anti-corruption and anti-bribery laws; |
| ● | challenges in maintaining an effective internal control environment with operations in multiple international locations, including language differences, varying levels of accounting expertise in international locations and multiple financial information systems; |
| ● | changes in a country’s or region’s economic or political condition; and |
| ● | labor disruptions, civil unrest, significant political instability, coup attempts, wars or other armed conflict or acts of terrorism. |
Emerging markets are subject to different risks as compared to more developed markets. Operating a business in an emerging market can involve a greater degree of risk than operating a business in more developed markets, including, in some cases, increased political, economic and legal risks. Emerging market governments and judiciaries often exercise broad, unchecked discretion and are susceptible to abuse and corruption. Moreover, financial turmoil in any emerging market country tends to adversely affect the value of investments in all emerging market countries as investors move their money to more stable, developed markets. As has happened in the past, financial problems or an increase in the perceived risks associated with investing in companies in emerging economies could dampen foreign investment and adversely affect the local economy. Generally, investment in emerging markets is only suitable for sophisticated investors who fully appreciate the significance of the risks involved in, and are familiar with, investing in emerging markets.
Finally, international trade disputes can adversely affect agricultural commodity trade flows by limiting or disrupting trade between countries or regions. We cannot predict the effects that future trade policy or the terms of any negotiated trade agreements and their impact on our business could have. These risks could adversely affect our operations, business strategies and operating results.
We are subject to a Cayman Islands exempted company. Exemptednumber of risks in its supply chain including failure in telecommunication systems, subcontractor and vendor failure to perform and the disruption of transportation networks. The distances between areas of operations in Niger and Senegal are vast, as are the distances between our African operations and that of our consumer markets which leaves us exposed to variability in supply chains.
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Our operations in Senegal have resulted in, and as our business expands may result in, claims that these operations have had or will have a detrimental effect on the local communities in which the operations are located.
Historically, certain areas of Africa have a limited history of formal land ownership, and as a result certain communities have made, and may in the future make additional, land claims with respect to our properties or insist on further involvement in our operations.
Claims may continue to be made that will require substantial management resources to address. There can be no assurance that any such claim will not be adjudicated to be valid, and if so determined may result in concessions of granted land or other compensation.
Our operations in Senegal have resulted in, and as its business expands may result in, claims from local communities asserting ownership of certain of our properties.
Historically, certain areas of Africa have a limited history of formal land ownership, and as a result certain communities have made, and may in the future make additional, land claims with respect to our properties or insist on further outside involvement in our operations. For example, certain organizations purporting to advance the interests of Senegalese communities recently sent a letter to one of our technical advisors highlighting such a land claim and questioning the propriety of the advisor’s relationship with us. While we believe the claims and questions set forth in the letter are without merit, there can be no assurance that such claims or any similar future claims will not be adjudicated to be valid, and if so determined may result partially or wholly in the loss of land granted to us that are subject to such claims or the payment of other compensation to claimants. Claims may continue to be made that will require substantial management resources to address.
Our ongoing operations in Niger may be affected by the geopolitical instability in the country.
The U.S. issued a travel advisory related to Niger on August 2. 2023. On July 26, 2023, President Mohamed Bazoum was placed under house arrest amidst efforts to overthrow the democratically elected government of Niger. Subsequent events have severely limited flight options to and from Niger. Given this development, on August 2, 2023, the U.S. government ordered the departure of non-emergency U.S. government employees and eligible family members from Embassy Niamey. The U.S. Embassy in Niamey has temporarily reduced its personnel, suspended routine services, and is only able to provide emergency assistance to U.S. citizens in Niger. Current, and future, instability in Niger could adversely affect our operations, business strategies and operating results.
Our operations in Africa are subject to risk associated with lack of infrastructure.
Our growth strategy depends in part on its ability to expand its operations in Africa. However, Africa may have greater political, economic and currency volatility and greater vulnerability to infrastructure and labor disruptions than more established markets. Engaging in business practices prohibited by laws and regulations with extraterritorial reach, such as the U.S. Foreign Corrupt Practices Act of 1977, as amended, or local anti-bribery laws may be more common. These laws generally prohibit companies and their employees, contractors or agents from making improper payments to government officials, including in connection with obtaining permits or engaging in other actions necessary to do business. Failure to comply with these laws could subject us to civil and criminal penalties that could materially and adversely affect our reputation, financial condition and results of operations.
Disruptions in water and power supply may adversely affect our operations.
Our operations are Cayman Islandsreliant upon stable supply of electricity, availability of water and access to transportation routes in order to optimally run its operations and/or move its products. The infrastructure in some countries in which we operate, such as rail infrastructure, inland water systems, electricity and water supply, may need to be further upgraded and expanded, and in certain instances, possibly at our own cost. Should we not have access to reliable electricity supply, or should we have limited access to water or experience infrastructure challenges in the regions in which we operate, this could have a material adverse effect on our business, operating results, cash flows, financial condition and future growth. Reliable supply of electricity is important to run our business optimally. The African power system remains very tight. Unplanned power outages may have a negative impact on our production volumes, cost and profitability.
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Water, as a resource, is becoming increasingly limited as global demand for water increases. A significant part of our operations requires the use of large volumes of water. Africa is generally an arid continent and prolonged periods of drought or significant changes to current water laws could increase the cost or availability of our water supplies or otherwise impact our operations. A deterioration in water quality may contribute to an increase in costs. Although various technological advances may improve the water efficiency of our processes, they are capital intensive. We may experience limited water availability due to periodic drought events, deterioration in water quality and other infrastructure challenges related to our African operations, which could have a material adverse effect on our business, operating results, cash flows, financial condition and future growth.
Senegal and other countries in which we may operate may experience civil or political unrest or acts of terrorism.
Outbreaks of civil and political unrest and acts of terrorism have occurred in countries in Europe, Africa, South America, and the Middle East, including countries where we currently operate or plan to operate. For example, in May 2023 Senegal experienced political unrest and rioting predicated on the incarceration of a government opposition leader for criminal activity. The Senegalese government’s response to the rioting resulted in deaths of Senegal citizens and the slowdown of commercial activity throughout the country. Continued or escalated civil and political unrest and acts of terrorism in the countries in which we operate could result in our curtailing operations or delays in project completions. In the event that countries in which we operate experience civil or political unrest or acts of terrorism, especially in events where such unrest leads to an unseating of the established government, our operations could be materially impaired. our potential international operations may also be adversely affected, directly or indirectly, by laws, policies, and regulations of the United States affecting foreign trade and taxation, including U.S. trade sanctions. Realization of any of the factors listed above could materially and adversely affect our financial condition, results of operations, or cash flows.
Risks Related to Cybersecurity, Privacy and Information Technology
Failure to comply with federal, state and foreign laws and regulations relating to privacy, data protection and consumer protection, or the expansion of current or the enactment of new laws or regulations relating to privacy, data protection and consumer protection, could adversely affect our business and our financial condition.
We collect, store, process, and use personal information and other customer data, and rely in part on third parties that are not directly under our control to manage certain of these operations and to collect, store, process and use payment information. Due to the volume and sensitivity of the personal information and data we and these third parties manage and expect to manage in the future, as well as the nature of our customer base, the security features of our information systems are critical. A variety of federal, state and foreign laws and regulations govern the collection, use, retention, sharing and security of this information. Laws and regulations relating to privacy, data protection and consumer protection are evolving and subject to potentially differing interpretations. These requirements may not be harmonized, may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another or may conflict with other rules or our practices. As a result, our practices may not have complied or may not comply in the future with all such laws, regulations, requirements and obligations.
We expect that new industry standards, laws and regulations will continue to be proposed regarding privacy, data protection and information security in many jurisdictions. We cannot yet determine the impact such future laws, regulations and standards may have on our business. Complying with these evolving obligations is costly.
As we expand our international presence, we may also become subject to additional privacy rules, many of which, such as the General Data Protection Regulation promulgated by the European Union (the “GDPR”) and international laws supplementing the GDPR, such as in the United Kingdom, are significantly more stringent than those currently enforced in the United States. The law requires companies conductingto meet stringent requirements regarding the handling of personal data of individuals located in the EEA. These more stringent requirements include expanded disclosures to inform customers about how we may use their personal data through external privacy notices, increased controls on profiling customers and increased rights for data subjects (including customers and employees) to access, control and delete their personal data. In addition, there are mandatory data breach notification requirements. The law also includes significant penalties for non-compliance, which may result in monetary penalties of up to the higher of €20.0 million or 4% of a group’s worldwide turnover for the preceding financial year for the most serious violations. The GDPR and other similar regulations require companies to give specific types of notice and informed consent is required for the placement of a cookie or similar technologies on a user’s device for online tracking for behavioral advertising and other purposes and for direct electronic marketing, and the GDPR also imposes additional conditions in order to satisfy such consent, such as a prohibition on pre-checked tick boxes and bundled consents, thereby requiring customers to affirmatively consent for a given purpose through separate tick boxes or other affirmative action.
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A significant data breach or any failure, or perceived failure, by us to comply with any federal, state or foreign privacy or consumer protection-related laws, regulations or other principles or orders to which it may be subject or other legal obligations relating to privacy or consumer protection could adversely affect our reputation, brand and business, mainly outsideand may result in claims, investigations, proceedings or actions against us by governmental entities or others or other penalties or liabilities or require us to change our operations and/or cease using certain data sets. Depending on the Cayman Islandsnature of the information compromised, we may also have obligations to notify users, law enforcement or payment companies about the incident and may need to provide some form of remedy, such as refunds, for the individuals affected by the incident.
Failures in our technology infrastructure could damage our business, reputation and brand and substantially harm our business and results of operations.
If our main data center or cloud infrastructure were to fail, or if it were to suffer an interruption or degradation of services at our main data center, we could lose important manufacturing and technical data, which could harm our business. Our facilities are vulnerable to damage or interruption from earthquakes, hurricanes, floods, fires, cyber security attacks, terrorist attacks, power losses, telecommunications failures and similar events. In the event that our or any third-party provider’s systems or service abilities are hindered by any of the events discussed above, our ability to operate may be impaired. A decision to close the facilities without adequate notice, or other unanticipated problems, could adversely impact our operations. Any of the aforementioned risks may be augmented if our or any third-party provider’s business continuity and disaster recovery plans prove to be inadequate. The facilities also could be subject to break-ins, computer viruses, sabotage, intentional acts of vandalism and other misconduct. Any security breach, including personal data breaches, or incident, including cybersecurity incidents, that we experience could result in unauthorized access to, misuse of or unauthorized acquisition of our or our customers’ data, the loss, corruption or alteration of this data, interruptions in our operations or damage to our computer hardware or systems or those of our customers. Moreover, negative publicity arising from these types of disruptions could damage our reputation. We may not carry sufficient business interruption insurance to compensate us for losses that may occur as a result of any events that cause interruptions in its service. Significant unavailability of our services and due to attacks could cause users to cease using our services and materially and adversely affect our business, prospects, financial condition and results of operations.
Risks Related to Legal, Regulatory and Compliance
Government policies and regulations affecting the agricultural sector and related industries could adversely affect our operations and profitability.
Agricultural commodity production and trade flows are significantly affected by government policies and regulations. Governmental policies affecting the agricultural industry, such as taxes, tariffs, duties, subsidies, import and export restrictions, price controls on agricultural commodities and energy policies (including biofuels mandates), can influence industry profitability, the planting of certain crops versus other uses of agricultural resources, the location and size of crop production, whether unprocessed or processed commodity products are traded, and the volume and types of imports and exports. Additionally, regulation of financial markets and instruments internationally may create uncertainty as these laws are adopted and implemented and may impose significant additional risks and costs that could impact our risk management practices. Future governmental policies, regulations or actions impacting our industries may adversely affect the supply of, demand for and prices of our products, restrict our ability to do business in existing and target markets, or engage in risk management activities and otherwise cause our financial results to suffer.
Expenses or liabilities resulting from litigation could materially adversely affect our results of operations and financial condition.
We have and may become party to various legal proceedings and other claims that arise in the ordinary course of business, or otherwise in the future. Such matters are subject to many uncertainties and outcomes are not predictable with assurance. In addition, any such claims or litigation may be time-consuming and costly, divert management resources, require us to change our platform or have other adverse effects on its business. While we cannot assure the ultimate outcome of any legal proceeding or contingency in which we are or may become involved, we do not believe that any pending legal claim or proceeding arising in the ordinary course will be resolved in a manner that would have a material adverse effect on its business. However, if one or more of these legal matters resulted in a substantial monetary judgment against us, such a judgment could harm its results of operations and financial condition.
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African Agriculture Holdings Inc. is a holding company with no operations of its own and, as such, it depends on its subsidiaries for cash to fund all of its operations and expenses, including future dividend payments, if any.
Our operations are exemptedconducted entirely through our subsidiaries and our ability to generate cash to meet our debt service obligations or to make future dividend payments, if any, is highly dependent on the earnings and the receipt of funds from complying with certain provisionsour subsidiaries via dividends or intercompany loans. Some of our subsidiaries may become subject to agreements that restrict the sale of assets and significantly restrict or prohibit the payment of dividends or the making of distributions, loans or other payments to stockholders, partners or members. In addition, Delaware law may impose requirements that may restrict our ability to pay dividends to holders of our common stock.
Our internal controls 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.
Following the consummation of the CompaniesBusiness Combination, we became subject to the reporting requirements of the Securities Act, the Exchange Act, the Sarbanes-Oxley Act and the rules and regulations of Nasdaq. We expect that the requirements of these rules and regulations will increase our legal, accounting and financial compliance costs, make some activities more difficult, time-consuming and costly, and place significant strain on personnel, systems and resources.
The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. We are continuing to develop and refine our disclosure controls, internal control over financial reporting and other procedures that are designed to ensure that information required to be disclosed in the reports that we will file with the SEC is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that information required to be disclosed in reports under the Exchange Act is accumulated and communicated to our principal executive and financial officers.
As part of the SEC review process in connection with our Form S-1 initially filed on March 31, 2022, AFRAG identified certain errors in its financial statements related to the acquisition of its wholly owned subsidiary, LFT, in 2018 as follows:
AFRAG determined that its acquisition LFT in 2018 should have been accounted for as an asset acquisition instead of a business combination. As a result, in 2018 AFRAG overstated its land use right intangible asset and should not have recognized a bargain purchase gain.
AFRAG determined that a related party payable owed to the prior owner of LFT was relinquished in the acquisition of LFT and, as a result, AFRAG should not have recognized this related party payable in 2018. As a result, AFRAG should not have accrued an operating expense for this related party payable in 2018.
As a direct result of the above two error corrections imputed interest on the related party payable and amortization of the land use right asset were overstated. The reduction in the related party payable also impacted the calculation of the foreign currency translation adjustment and the allocation to the non-controlling interest.
See Note 3 to the unaudited consolidated financial statements of AFRAG for the year ended December 31, 2022 and 2021 contained elsewhere in this prospectus.
While we are taking action to update our controls to identify any future errors, any new controls that we develop may become inadequate because of changes in conditions in our business. Further, weaknesses in our internal controls may be discovered in the future. Any failure to develop or maintain effective controls, or any difficulties encountered in their implementation or improvement, could adversely affect our operating results or cause us to fail to meet our reporting obligations and may result in additional restatements of our financial statements for prior periods. Any failure to implement and maintain effective internal controls also could adversely affect the results of periodic management evaluations and annual independent registered public accounting firm attestation reports regarding the effectiveness of our internal control over financial reporting that we are required to include in our periodic reports to be filed with the SEC under Section 404 of the Sarbanes-Oxley Act. Ineffective disclosure controls and procedures and internal control over financial reporting could also cause investors to lose confidence in our reported financial and other information.
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In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting, we have expended and anticipate that we will continue to expend significant resources, including accounting-related costs, and provide significant management oversight in the regular context of business operations. Any failure to maintain the adequacy of our internal controls, or our consequent inability to produce accurate financial statements on a timely basis, could increase our operating costs and could materially and adversely affect our ability to operate its business. In the event that our internal controls are perceived as inadequate or that we are unable to produce timely or accurate financial statements, investors may lose confidence in our operating results and the price of our stock could decline.
Our independent registered public accounting firm is not required to formally attest to the effectiveness of our internal control over financial reporting until after we are no longer an emerging growth company or a non-accelerated filer. At such time, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our controls are documented, designed or operating. Any failure to maintain effective disclosure controls and internal control over financial reporting could have a material and adverse effect on our business and operating results.
Risk Related to Our Securities
We may issue additional shares of Common Stock or other equity securities without your approval, which would dilute your ownership interests and may depress the market price of your shares.
We may issue additional shares of Common Stock or other equity securities of equal or senior rank in the future in connection with, among other things, future farm acreage development, future acquisitions, repayment of outstanding indebtedness or under the African Agriculture Holdings Inc. 2023 Incentive Plan, without stockholder approval, in a number of circumstances.
The issuance of additional shares of Common Stock or other equity securities of equal or senior rank could have the following effects:
| ● | your proportionate ownership interest will decrease; |
| ● | the relative voting strength of each previously outstanding share of Common Stock may be diminished; or |
| ● | the market price of your shares of Common Stock may decline. |
We will incur increased costs as a result of being a public company
As an exempteda publicly traded company, we have applied forwill incur significant legal, accounting, and received a tax exemption undertaking fromother expenses that AFRAG was not required to incur in the Cayman Islands government that, in accordance with Section 6past, particularly after we are no longer an “emerging growth company.” In addition, new and changing laws, regulations, and standards relating to corporate governance and public disclosure, including changing regulations of the Tax Concessions Act (As Revised)SEC and Nasdaq, have created uncertainty for public companies and have increased the costs and the time that our board of directors and management must devote to compliance. Furthermore, the need to establish the corporate infrastructure demanded of a public company may divert management’s attention from implementing our growth strategy, which could negatively affect our business, results of operations, and financial condition.
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We are an emerging growth company and a smaller reporting company within the meaning of the Cayman Islands, for a periodSecurities Act, and if we take advantage of 20 yearscertain exemptions from the date of the undertaking, no law which is enacted in the Cayman Islands imposing any taxdisclosure requirements available to be levied on profits, income, gains“emerging growth companies” or appreciations will apply“smaller reporting companies,” this could make our securities less attractive to us or our operationsinvestors and in addition, that no taxmay make it more difficult to be levied on profits, income gains or appreciations or which is in the nature of estate duty or inheritance tax will be payable (i) on or in respect of our shares, debentures orcompare its performance with other obligations or (ii) by way of the withholding in whole or in part of a payment of dividend or other distribution of income or capital by us to our shareholders or a payment of principal or interest or other sums due under a debenture or other obligation of us.public companies.
We are an “emerging growth company,” as defined in Section 2(a)company” within the meaning of the Securities Act, of 1933, as amended (the “Securities Act”), as modified by the Jumpstart Our Business StartupsJOBS Act, of 2012 (the “JOBS Act”). As such, we are eligible toand may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, of 2002, or the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-bindingnonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. As a result, our shareholders may not have access to certain information they may deem important. We could be an emerging growth company for up to five years, although circumstances could cause us to lose that status earlier, including if the market value of the Common Stock held by non-affiliates exceeds $700 million as of any June 30 before that time, in which case we would no longer be an emerging growth company as of the following December 31. We cannot predict whether investors will find our securities less attractive because we will rely on these exemptions. If some investors find our securities less attractive as a result of its reliance on these exemptions, the trading prices of its securities may be lower than they otherwise would be, there may be a less active trading market for our securities and the trading prices of our securities may be more volatile.
In addition,
Further, Section 107102(b)(1) of the JOBS Act alsoexempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that an “emerging growth company”a company can take advantageelect to opt out of the extended transition period provided in Section 7(a)(2)(B)and comply with the requirements that apply to non-emerging growth companies but any such an election to opt out is irrevocable. We have elected not to opt out of the Securities Act for complying with newsuch extended transition period which means that when a standard is issued or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply toand it has different application dates for public or private companies. We intend to take advantage of the benefits of this extended transition period.
We will remaincompanies, as an emerging growth company, untilwe can adopt the earliernew or revised standard at the time private companies adopt the new or revised standard. This may make comparison of (1)our financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the last dayextended transition period difficult or impossible because of the fiscal year (a) following the fifth anniversary of the completion of this offering, (b)potential differences in which we have total annual gross revenue of at least $1.07 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our Class A ordinary shares that is held by non-affiliates exceeds $700 million as of the prior June 30, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period. References herein to “emerging growth company” will have the meaning associated with it in the JOBS Act.accounting standards used.
Additionally, we are a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. We will remain a smaller reporting company until the last day of the fiscal year in which (1)(i) the market value of our ordinary sharesthe Common Stock held by non-affiliates exceeds $250 million as of the prior June 30,th, and (2) or (ii) our annual revenues exceeded $100 million during such completed fiscal year and the market value of our ordinary sharesthe Common Stock held by non-affiliates exceeds $700 million as of the prior June 30. To the extent we take advantage of such reduced disclosure obligations, we may also make comparison of our financial statements with other public companies difficult or impossible.
THE OFFERING
In making your decision on whetherA significant portion of our total outstanding shares are restricted from immediate resale but may be sold into the market in the near future. This could cause the market price of o Common Stock to investdrop significantly, even if our business is doing well.
Sales of a substantial number of shares of Common Stock in our securities, you should take into account not only the backgroundspublic market could occur at any time. These sales, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of Common Stock.
AFRAG Holders own, collectively, approximately 59.6% of the membersoutstanding Common Stock and (ii) 10X II’s initial shareholders own approximately 20.4% of the outstanding Common Stock. Although the Sponsor and certain of AFRAG’s stockholders are subject to certain restrictions regarding the transfer of Common Stock, these shares may be sold after the expiration or early termination of the respective applicable lock-ups under the Acquiror Support Agreement and the AFRAG Lock-Up Agreements, respectively. This prospectus, when effective, may also be used by the selling stockholders in connection with resales of their Common Stock. As restrictions on resale end and the registration statement is available for use, the market price of Common Stock could decline if the holders of currently restricted shares sell them or are perceived by the market as intending to sell them.
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Our directors, executive officers and principal stockholders have substantial control over the company, which could limit our ability to influence the outcome of key transactions, including a change of control.
Our executive officers, directors and principal stockholders and their affiliates own 42,741,705 shares of Common Stock, or approximately 75.9% of the outstanding shares of Common Stock. As a result, these stockholders will be able to exercise a significant level of control over all matters requiring stockholder approval, including the election of directors and the approval of mergers, acquisitions or other extraordinary transactions. They may also have interests that differ from yours and may vote in a way with which you disagree and which may be adverse to our interests. This concentration of ownership may have the effect of delaying, preventing or deterring a change of control, could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale and might ultimately affect the market price of our management team, but alsoCommon Stock.
Warrants will become exercisable for Common Stock, which, if exercised, would increase the special risks we face as a blank check companynumber of shares eligible for future resale in the public market and result in dilution to its shareholders.
Outstanding warrants to purchase an aggregate of 6,911,100 shares of Common Stock will become exercisable in accordance with the terms of the warrant agreement. These warrants will become exercisable 30 days after Closing. The exercise price of these warrants is $11.50 per share. To the extent such warrants are exercised, additional shares of Common Stock will be issued, which will result in dilution to the holders of Common Stock and increase the number of shares eligible for resale in the public market. Sales of substantial numbers of such shares in the public market or the fact that this offeringsuch warrants may be exercised could adversely affect the prevailing market prices of Common Stock. However, there is not being conductedno guarantee that the public warrants will ever be in compliancethe money prior to their expiration, and as such, the warrants may expire worthless.
The terms of the warrants may be amended in a manner adverse to a holder if holders of at least 50% of the then outstanding public warrants approve of such amendment.
The public warrants were issued in registered form under a warrant agreement between us and Continental, as warrant agent. The warrant agreement provides that the terms of the warrants may be amended without the consent of any holder to cure any ambiguity or correct any defective provision or correct any mistake, but requires the approval by the holders of at least 50% of the then-outstanding public warrants to make any change that adversely affects the interests of the registered holders of public warrants. Accordingly, we may amend the terms of the public warrants in a manner adverse to a holder if holders of at least 50% of the then-outstanding public warrants approve of such amendment. Although our ability to amend the terms of the public warrants with Rule 419 promulgated under the Securities Act. You will notconsent of at least 50% of the then-outstanding public warrants is unlimited, examples of such amendments could be entitledamendments to, protections normally affordedamong other things, increase the exercise price of the warrants, convert the warrants into cash, shorten the exercise period or decrease the number of shares of Common Stock purchasable upon exercise of a warrant.
We may redeem a warrant holder’s unexpired warrants prior to investors in Rule 419 blank check offerings. You should carefully consider thesetheir exercise at a time that may be disadvantageous to such warrant holder, thereby making its warrants worthless.
We have the ability to redeem outstanding public warrants at any time after they become exercisable and prior to their expiration, at a price of $0.01 per warrant, provided that the last reported sales price of Common Stock equals or exceeds $18.00 per share (as adjusted for stock splits, stock capitalizations, reorganizations, recapitalizations and the other risks set forthlike for certain issuances of public shares and equity-linked securities for capital raising purposes in connection with the section below entitled “Risk Factors” in this prospectus.
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RISKS
We are a blank check company that has conducted no operations and has generated no revenues to date. Until we complete our initial business combination, we will have no operations and will generate no operating revenues. In making your decision whether to invest in our securities, you should take into account not only the background of our management team, but also the special risks we face as a blank check company. This offering is not being conducted in compliance with Rule 419 promulgated under the Securities Act. Accordingly, you will not be entitled to protections normally afforded to investors in Rule 419 blank check offerings. For additional information concerning how Rule 419 blank check offerings differ from this offering, please see “Proposed Business — Comparison of This Offering to Those of Blank Check Companies Subject to Rule 419.” You should carefully consider these and the other risks set forth in the section entitled “Risk Factors” in this prospectus.
The following table summarizes the relevant financial data for our business and should be read with our financial statements, which are included in this prospectus. We have not had any significant operations to date, so only balance sheet data is presented.
| March 31, 2021 | February 19, 2021 | |||||||||||
| Actual | As Adjusted | Actual | ||||||||||
Balance Sheet Data: | ||||||||||||
Working (deficiency) capital (1) | $ | (104,854 | ) | $ | 194,213,303 | $ | (25,000 | ) | ||||
Total assets (2) | 118,157 | 201,213,303 | 38,303 | |||||||||
Total liabilities (3) | 104,854 | 7,000,000 | 25,000 | |||||||||
Value of ordinary share subject to possible redemption (4) | — | 189,213,300 | — | |||||||||
Shareholders’ equity (5) | 13,303 | 5,000,003 | 13,303 | |||||||||
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Summary of Risk Factors
An investment in our securities involves a high degree of risk. The occurrence of one or more of the events or circumstances described in the section titled “Risk Factors,” alone or in combination with other events or circumstances, may materially adversely affect our business, financial condition and operating results. In that event, the trading price of our securities could decline, and you could lose all or part of your investment. Such risks include, but are not limited to:
We are a blank check company with no operating history and no revenues, and you have no basis on which to evaluate our ability to achieve our business objective.
Our public shareholders may not be afforded an opportunity to vote on our proposed initial business combination, which means we may complete our initial business combination even though a majority of our public shareholders do not support such a combination.
Your only opportunity to effect your investment decision regarding a potential business combination may be limited to the exercise of your right to redeem your shares from us for cash.
If we seek shareholder approval of our initial business combination, our initial shareholders, our management team and our anchor investors have agreed to vote in favor of such initial business combination, regardless of how our public shareholders vote.
The ability of our public shareholders to redeem their shares for cash may make our financial condition unattractive to potential business combination targets, which may make it difficult for us to enter into a business combination with a target.
The ability of our public shareholders to exercise redemption rights with respect to a large number of our shares may not allow us to complete the most desirable business combination or optimize our capital structure.
The requirement that we complete our initial business combination within 15 months after the closing of this offering may give potential target businesses leverage over us in negotiating a business combination and may limit the time we have in which to conduct due diligence on potential business combination targets, in particular as we approach our dissolution deadline, which could undermine our ability to complete our initial business combination on terms that would produce value for our shareholders.
Our search for a business combination, and any target business with which we ultimately consummate a business combination, may be materially adversely affected by the recent coronavirus (COVID-19) outbreak and other events and the status of debt and equity markets.
If we seek shareholder approval of our initial business combination, our sponsor, directors, officers, advisors or their affiliates may elect to purchase shares or warrants from public shareholders, which may influence a vote on a proposed business combination and reduce the public “float” of our securities.
If a shareholder fails to receive notice of our offer to redeem our public shares in connection with our initial business combination, or fails to comply with the procedures for submitting or tendering its shares, such shares may not be redeemed.
You will not have any rights or interests in funds from the trust account, except under certain limited circumstances. Therefore, to liquidate your investment, you may be forced to sell your public shares or warrants, potentially at a loss.
Nasdaq may delist our securities from trading on its exchange, which could limit investors’ ability to make transactions in our securities and subject us to additional trading restrictions.
You will not be entitled to protections normally afforded to investors of many other blank check companies.
Because of our limited resources and the significant competition for business combination opportunities, it may be more difficult for us to complete our initial business combination. If we have not completed our initial business combination within the required time period, our public shareholders may receive only approximately $10.00 per share, or less in certain circumstances, on our redemption of their shares, and our warrants will expire worthless.
If the net proceeds of this offering and the sale of the private placement units not being held in the trust account are insufficient to allow us to operate for at least the 15 months following the closing of this offering, it could limit the amount of cash available to fund our search for a target business or businesses and complete our initial business combination, and we will depend on loans from our sponsor or management team to fund our search and to complete our initial business combination.
Past performance by our management team and their affiliates, including investments and transactions in which they have participated and businesses with which they have been associated, may not be indicative of future performance of an investment in the company.
Unlike some other similarly structured special purpose acquisition companies, our initial shareholders will receive additional Class A ordinary shares if we issue certain shares to consummate an initial business combination.
We may reincorporate in another jurisdiction in connection with our initial business combination and such reincorporation may result in taxes imposed on shareholders or warrant holders.
An investment in our securities involves a high degree of risk. You should consider carefully all of the risks described below, together with the other information contained in this prospectus, before making a decision to invest in our units. If any of the following events occur, our business, financial condition and operating results may be materially adversely affected. In that event, the trading price of our securities could decline, and you could lose all or part of your investment.
Risks Relating to our Search for, and Consummation of or Inability to Consummate, a Business Combination
Our shareholders may not be afforded an opportunity to vote on our proposed initial business combination, and even if we hold a vote, holders of our founder shares will participate in such vote, which means we may complete our initial business combination even though a majority of our public shareholders do not support such a combination.
We may choose not to hold a shareholder vote to approve our initial business combination if the business combination would not require shareholder approval under applicable law or stock exchange listing requirement. Except for as required by applicable law or stock exchange requirement, the decision as to whether we will seek shareholder approval of a proposed business combination or will allow shareholders to sell their shares to us in a tender offer will be made by us, solely in our discretion, and will be based on a variety of factors, such as the timing of the transaction and whether the terms of the transaction would otherwise require us to seek shareholder approval. Even if we seek shareholder approval, the holders of our founder shares will participate in the vote on such approval. Accordingly, we may complete our initial business combination even if a majority of our public shareholders do not approve of the business combination we complete. Please see the section entitled “Proposed Business — Shareholders May Not Have the Ability to Approve Our Initial Business Combination” for additional information.
If we seek shareholder approval of our initial business combination, our initial shareholders and management team have agreed to vote, and the anchor investors have agreed to vote any founder shares held by them, in favor of such initial business combination, regardless of how our public shareholders vote.
Our initial shareholders will own 25% of our outstanding ordinary shares immediately following the completion of this offering (not including the Class A ordinary shares underlying the private placement units). Our initial shareholders and management team also may from time to time purchase Class A ordinary shares prior to our initial business combination. Our amended and restated memorandum and articles of association provide that, if we seek shareholder approval of an initial business combination, such initial business combination will be approved if we receive the affirmative vote of a majority of the shares voted at such meeting, including the founder shares. As a result, in addition to our initial shareholders’ founder shares and private placement shares, we would need 6,539,168, or 32.7% of the 20,000,000 public shares sold in this offering to be voted in favor of an initial business combination in order to have our initial business combination approved (assuming all outstanding shares are voted and the over-allotment option is not exercised). Accordingly, if we seek shareholder approval of our initial business combination, the agreement by our initial shareholders and management team to vote, and the agreement by the anchor investors to vote any founder shares held by them, in favor of our initial business combination will increase the likelihood that we will receive the requisite shareholder approval for such initial business combination. In the event that the anchor investors purchase all of the units that they have expressed an interest in purchasing in this offering, hold all such units until prior to consummation of our initial business combination and vote their public shares in favor of our initial business combination, in addition to the founder shares, no affirmative votes from other public shareholders would be required to approve our initial business combination. The anchor investors are not required to vote any of their public shares in favor of our initial business combination or for or against any other matter presented for a shareholder vote.
Your only opportunity to affect the investment decision regarding a potential business combination may be limited to the exercise of your right to redeem your shares from us for cash.
At the time of your investment in us, you will not be provided with an opportunity to evaluate the specific merits or risks of our initial business combination. Since our board of directors may complete a business combination without seeking shareholder approval, public shareholders may not have the right or opportunity to vote on the business combination, unless we seek such shareholder vote. Accordingly, your only opportunity to affect the investment decision regarding our initial business combination may be limited to exercising your redemption rights within the period of time (which will be at least 20 business days) set forth in our tender offer documents mailed to our public shareholders in which we describe our initial business combination.
The ability of our public shareholders to redeem their shares for cash may make our financial condition unattractive to potential business combination targets, which may make it difficult for us to enter into a business combination with a target.
We may seek to enter into a business combination transaction agreement with minimum cash requirement for (i) cash consideration to be paid to the target or its owners, (ii) cash for working capital or other general corporate purposes or (iii) the retention of cash to satisfy other conditions. If too many public shareholders exercise their redemption rights, we would not be able to meet such closing condition and, as a result, would not be able to proceed with the business combination. Furthermore, in no event will we redeem our public shares in an amount that would cause our net tangible assets to be less than $5,000,001. Consequently, if accepting all properly submitted redemption requests would cause our net tangible assets to be less than $5,000,001 or make us unable to satisfy a minimum cash condition as described above, we would not proceed with such redemption and the related business combination and may instead search for an alternate business combination. Prospective targets will be aware of these risks and, thus, may be reluctant to enter into a business combination transaction with us.
The ability of our public shareholders to exercise redemption rights with respect to a large number of our shares may not allow us to complete the most desirable business combination or optimize our capital structure.
At the time we enter into an agreement for our initial business combination, we will not know how many shareholders may exercise their redemption rights, and therefore will need to structure the transaction based on our expectations as to the number of shares that will be submitted for redemption. If our initial business combination agreement requires us to use a portion of the cash in the trust account to pay the purchase price, or requires us to have a minimum amount of cash at closing, we will need to reserve a portion of the cash in the trust account to meet such requirements, or arrange for third party financing. In addition, if a larger number of shares is submitted for redemption than we initially expected, we may need to restructure the transaction to reserve a greater portion of the cash in the trust account or arrange for third party financing. Raising additional third party financing may involve dilutive equity issuances or the incurrence of indebtedness at higher than desirable levels. Furthermore, this dilution would increase to the extent that the anti-dilution provision of the Class B ordinary shares results in the issues of Class A ordinary shares on a greater than one-to-one basis upon conversion of the Class B ordinary shares at the time of our initial business combination. In addition, the amount of the deferred underwriting commissions payable to the underwriters will not be adjusted for any shares that are redeemed in connection with an initial business combination. The per share amount we will distribute to shareholders who properly exercise their redemption rights will not be reduced by the deferred underwriting commission and after such redemptions, the amount held in trust will continue to reflect our obligation to pay the entire deferred underwriting commissions. The above considerations may limit our ability to complete the most desirable business combination available to us or optimize our capital structure.
The ability of our public shareholders to exercise redemption rights with respect to a large number of our shares could increase the probability that our initial business combination would be unsuccessful and that you would have to wait for liquidation in order to redeem your shares.
If our initial business combination agreement requires us to use a portion of the cash in the trust account to pay the purchase price, or requires us to have a minimum amount of cash at closing, the probability that our initial business combination would be unsuccessful is increased. If our initial business combination is unsuccessful, you would not receive your pro rata portion of the trust account until we liquidate the trust account. If you are in need of immediate liquidity, you could attempt to sell your shares in the open market; however, at such time our shares may trade at a discount to the pro rata amount per share in the trust account. In either situation, you may suffer a material loss on your investment or lose the benefit of funds expected in connection with your exercise of redemption rights until we liquidate or you are able to sell your shares in the open market.
The requirement that we complete our initial business combination within 15 months after the closing of this offering may give potential target businesses leverage over us in negotiating a business combination and may limit the time we have in which to conduct due diligence on potential business combination targets, in particular as we approach our dissolution deadline, which could undermine our ability to complete our initial business combination on terms that would produce value for our shareholders.
Any potential target business with which we enter into negotiations concerning a business combination will be aware that we must complete our initial business combination within 15 months from the closing of this offering. Consequently, such target business may obtain leverage over us in negotiating a business combination, knowing that if we do not complete our initial business combination with that particular target business, we may be unable to complete our initial business combination with any target business. This risk will increase as we get closer to the timeframe described above. In addition, we may have limited time to conduct due diligence and may enter into our initial business combination on terms that we would have rejected upon a more comprehensive investigation.
Our search for a business combination, and any target business with which we ultimately consummate a business combination, may be materially adversely affected by the recent coronavirus (COVID-19) outbreak and other events and the status of debt and equity markets.
Since it was first reported to have emerged in December 2019, a novel strain of coronavirus, which causes COVID-19, has spread across the world, including the United States. On January 30, 2020, the World Health Organization declared the outbreak of the coronavirus disease (COVID-19) a “Public Health Emergency of International Concern.” On January 31, 2020, U.S. Health and Human Services Secretary Alex M. Azar II declared a public health emergency for the United States to aid the U.S. healthcare community in responding to COVID-19, and on March 11, 2020 the World Health Organization characterized the outbreak as a “pandemic.” The COVID-19 outbreak has adversely affected, and other events (such as terrorist attacks, natural disasters or a significant outbreak of other infectious diseases) could adversely affect, the economies and financial markets worldwide, potentially including the business of any potential target business with which we intend to consummate a business combination. Furthermore, we may be unable to complete a business combination at all if concerns relating to COVID-19 continue to restrict travel, limit the ability to have meetings with potential investors or make it impossible or impractical to negotiate and consummate a transaction with the target company’s personnel, vendors and services providers in a timely manner, if at all. The extent to which COVID-19 impacts our search for a business combination will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actions to contain COVID-19 or treat its impact, among others. If the disruptions posed by COVID-19 or other events (such as terrorist attacks, natural disasters or a significant outbreak of other infectious diseases) continue for an extensive period of time, our ability to consummate a business combination, or the operations of a target business with which we ultimately consummate a business combination, may be materially adversely affected.
In addition, our ability to consummate a transaction may be dependent on the ability to raise equity and debt financing which may be impacted by COVID-19 and other events (such as terrorist attacks, natural disasters or a significant outbreak of other infectious diseases), including as a result of increased market volatility, decreased market liquidity in third-party financing being unavailable on terms acceptable to us or at all.
Finally, the outbreak of COVID-19 may also have the effect of heightening many of the other risks described in this “Risk Factors” section, such as those related to the market for our securities and cross-border transactions.
We may not be able to complete our initial business combination within 15 months after the closing of this offering, in which case we would cease all operations except for the purpose of winding up and we would redeem our public shares and liquidate.
We may not be able to find a suitable target business and complete our initial business combination within 15 months after the closing of this offering. Our ability to complete our initial business combination may be negatively impacted by general market conditions, volatility in the capital and debt markets and the other risks described herein. If we have not completed our initial business combination within such time 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 (which interest shall be net of taxes payable and up to $100,000 of interest to pay dissolution expenses), divided by the number of then outstanding public shares, which redemption will completely extinguish public shareholders’ rights as shareholders (including the right to receive further liquidating distributions, if any), and (iii) as promptly as reasonably possible following such redemption, subject to the approval of our remaining shareholders and our board of directors, liquidate and dissolve, subject in each case, to our obligations under Cayman Islands law to provide for claims of creditors and the requirements of other applicable law.
If we seek shareholder approval of our initial business combination, our sponsor, initial shareholders, directors, executive officers, advisors and their affiliates may elect to purchase shares or public warrants from public shareholders, which may influence a vote on a proposed business combination and reduce the public “float” of our Class A ordinary shares.
If we seek shareholder approval of our initial business combination and we do not conduct redemptions in connection with our initial business combination pursuant to the tender offer rules, our sponsor, initial shareholders, directors, executive officers, advisors or their affiliates may purchase shares or public warrants in privately negotiated transactions or in the open market either prior to or following the completion of our initial business combination, although they are under no obligation to do so. There is no limit on the number of shares our initial shareholders, directors, officers, advisors or their affiliates may purchase in such transactions, subject to compliance with applicable law and the Nasdaq rules. However, other than as expressly stated herein, they have no current commitments, plans or intentions to engage in such transactions and have not formulated any terms or conditions for any such transactions. None of the funds in the trust account will be used to purchase shares or public warrants in such transactions. Such purchases may include a contractual acknowledgment that such shareholder, although still the record holder of our shares, is no longer the beneficial owner thereof and therefore agrees not to exercise its redemption rights.
In the event that our sponsor, initial shareholders, directors, executive officers, advisors or their affiliates purchase shares in privately negotiated transactions from public shareholders who have already elected to exercise their redemption rights, such selling shareholders would be required to revoke their prior elections to redeem their shares. The purpose of any such purchases of shares could be to vote such shares in favor of the business combination and thereby increase the likelihood of obtaining shareholder approval of the business combination or to satisfy a closing condition in an agreement with a target that requires us to have a minimum net worth or a certain amount of cash at the closing of our initial business combination, where it appears that such requirement would otherwise not be met. The purpose of any such purchases of public warrants could be to reduce the number of public warrants outstanding or to vote such warrants on any matters submitted to the warrantholders for approval in connection with our initial business combination. Any such purchases of our securities may result in the completion of our initial business combination that may not otherwise have been possible. We expect any such purchases will be reported pursuant to Section 13 and Section 16 of the Exchange Act to the extent such purchasers are subject to such reporting requirements. See “Proposed Business —
Permitted Purchases of Our Securities” for a description of how our sponsor, directors, executive officers, advisors or any of their affiliates will select which shareholders to purchase securities from in any private transaction.
In addition, if such purchases are made, the public “float” of our Class A ordinary shares or public warrants and the number of beneficial holders of our securities may be reduced, possibly making it difficult to obtain or maintain the quotation, listing or trading of our securities on a national securities exchange.
If a shareholder fails to receive notice of our offer to redeem our public shares in connection with our initial business combination, or fails to comply with the procedures for tendering its shares, such shares may not be redeemed.
We will comply with the proxy rules or tender offer rules, as applicable, when conducting redemptions in connection with our initial business combination. Despite our compliance with these rules, if a shareholder fails to receive our proxy materials or tender offer documents, as applicable, such shareholder may not become aware of the opportunity to redeem its shares. In addition, proxy materials or tender offer documents, as applicable, that we will furnish to holders of our public shares in connection with our initial business combination will describe the various procedures that must be complied with in order to validly tender or submit public shares for redemption. For example, we intend to require our public shareholders seeking to exercise their redemption rights, whether they are record holders or hold their shares in “street name,” to, at the holder’s option, either deliver their stock certificates to our transfer agent, or to deliver their shares to our transfer agent electronically prior to the date set forth in the proxy materials or tender offer documents, as applicable. In the case of proxy materials, this date may be up to two business days prior to the vote on the proposal to approve the initial business combination. In addition, if we conduct redemptions in connection with a shareholder vote, we intend to require a public shareholder seeking redemption of its public shares to also submit a written request for redemption to our transfer agent two business days prior to the vote in which the name of the beneficial owner of such shares is included. In the event that a shareholder fails to comply with these or any other procedures disclosed in the proxy or tender offer materials, as applicable, its shares may not be redeemed. See the section of this prospectus entitled “Proposed Business — Manner of Conducting Redemptions.”
You will not be entitled to protections normally afforded to investors of many other blank check companies.
Since the net proceeds of this offering and the sale of the private placement units are intended to be used to complete an initial business combination with a target business that has not been selected, we may be deemed to be a “blank check” company under the United States securities laws. However, because we will have net tangible assets in excess of $5,000,000 upon the completion of this offering and the sale of the private placement units and will file a Current Report on Form 8-K, including an audited balance sheet demonstrating this fact, we are exempt from rules promulgated by the SEC to protect investors in blank check companies, such as Rule 419. Accordingly, investors will not be afforded the benefits or protections of those rules. Among other things, this means our units will be immediately tradable and we will have a longer period of time to complete our initial business combination than do companies subject to Rule 419. Moreover, if this offering were subject to Rule 419, that rule would prohibit the release of any interest earned on funds held in the trust account to us unless and until the funds in the trust account were released to us in connection with our completion of an initial business combination. For a more detailed comparison of our offering to offerings that comply with Rule 419, please see “Proposed Business — Comparison of This Offering to Those of Blank Check Companies Subject to Rule 419.”
If we seek shareholder approval of our initial business combination and we do not conduct redemptions pursuant to the tender offer rules, and if you or a “group” of shareholders are deemed to hold in excess of 15% of our Class A ordinary shares, you will lose the ability to redeem all such shares in excess of 15% of our Class A ordinary shares.
If we seek shareholder approval of our initial business combination and we do not conduct redemptions in connection with our initial business combination pursuant to the tender offer rules, our amended and restated memorandum and articles of association provide that a public shareholder, together with any affiliate of such shareholder or any other person with whom such shareholder is acting in concert or as a “group” (as defined under Section 13 of the Exchange Act), will be restricted from seeking redemption rights with respect to more than an aggregate of 15% of the shares sold in this offering without our prior consent, which we refer to as the “Excess Shares.” However, we would not be restricting our shareholders’ ability to vote all of their shares (including Excess Shares) for or against our initial business combination. Your inability to redeem the Excess Shares will reduce your influence over our ability to complete our initial business combination and you could suffer a material loss on your investment in us if you sell Excess Shares in open market transactions. Additionally, you will not receive redemption distributions with respect to the Excess Shares if we complete our initial business combination. And as a result, you will continue to hold that number of shares exceeding 15% and, in order to dispose of such shares, would be required to sell your shares in open market transactions, potentially at a loss.
Because of our limited resources and the significant competition for business combination opportunities, it may be more difficult for us to complete our initial business combination. If we are unable to complete our initial business combination, our public shareholders may receive only their pro rata portion of the funds in the trust account that are available for distribution to public shareholders, and our warrants will expire worthless.
We expect to encounter competition from other entities having a business objective similar to ours, including private investors (which may be individuals or investment partnerships), other blank check companies and other entities, domestic and international, competing for the types of businesses we intend to acquire. Many of these individuals and entities are well-established and have extensive experience in identifying and effecting, directly or indirectly, acquisitions of companies operating in or providing services to various industries. Many of these competitors possess similar or greater technical, human and other resources to ours or more local industry knowledge than we do and our financial resources will be relatively limited when contrasted with those of many of these competitors. While we believe there are numerous target businesses we could potentially acquire with the net proceeds of this offering and the sale of the private placement units, our ability to compete with respect to the acquisition of certain target businesses that are sizable will be limited by our available financial resources. This inherent competitive limitation gives others an advantage in pursuing the acquisition of certain target businesses. Furthermore, we are obligated to offer holders of our public shares the right to redeem their shares for cash at the time of our initial business combination in conjunction with a shareholder vote or via a tender offer. Target companies will be aware that this may reduce the resources available to us for our initial business combination. Any of these obligations may place us at a competitive disadvantage in successfully negotiating a business combination. If we are unable to complete our initial business combination, our public shareholders may receive only their pro rata portion of the funds in the trust account that are available for distribution to public shareholders, and our warrants will expire worthless.
As the number of special purpose acquisition companies evaluating targets increases, attractive targets may become scarcer and there may be more competition for attractive targets. This could increase the cost of our initial business combination and could even result in our inability to find a target or to consummate an initial business combination.
In recent years, the number of special purpose acquisition companies that have been formed has increased substantially. Many potential targets for special purpose acquisition companies have already entered into an initial business combination, and there are still many special purpose acquisition companies preparing for an initial public offering, as well as many such companies currently in registration. As a result, at times, fewer attractive targets may be available to consummate an initial business combination.
In addition, because there are more special purpose acquisition companies seeking to enter into an initial business combination with available targets, the competition for available targets with attractive fundamentals or business
models may increase, which could cause targets companies to demand improved financial terms. Attractive deals could also become scarcer for other reasons, such as economic or industry sector downturns, geopolitical tensions, or increases in the cost of additional capital needed to close business combinations or operate targets post-business combination. This could increase the cost of, delay or otherwise complicate or frustrate our ability to find and consummate an initial business combination, and may result in our inability to consummate an initial business combination on terms favorable to our investors altogether.
If the net proceeds of this offering not being held in the trust account are insufficient to allow us to operate for at least the 15 months following the closing of the offering, it could limit the amount available to fund our search for a target business or businesses and complete our initial business combination, and we will depend on loans from our sponsor or management team to fund our search and to complete our initial business combination.
Of the net proceeds of this offering, only $1,200,000 will be available to us initially outside the trust account to fund our working capital requirements. We believe that, upon closing of this offering, the funds available to us outside of the trust account will be sufficient to allow us to operate for at least the 15 months following such closing; however, we cannot assure you that our estimate is accurate. Of the funds available to us, we could use a portion of the funds available to us to pay fees to consultants to assist us with our search for a target business. We could also use a portion of the funds as a down payment or to fund a “no-shop” provision (a provision in letters of intent or merger agreements designed to keep target businesses from “shopping” around for transactions with other companies or investors on terms more favorable to such target businesses) with respect to a particular proposed business combination, although we do not have any current intention to do so. If we entered into a letter of intent or merger agreement where we paid for the right to receive exclusivity from a target business and were subsequently required to forfeit such funds (whether as a result of our breach or otherwise), we might not have sufficient funds to continue searching for, or conduct due diligence with respect to, a target business.
In the event that our offering expenses exceed our estimate of $1,350,000, we may fund such excess with funds not to be held in the trust account. In such case, the amount of funds we intend to be held outside the trust account would decrease by a corresponding amount. Conversely, in the event that the offering expenses are less than our estimate of $1,350,000, the amount of funds we intend to be held outside the trust account would increase by a corresponding amount. The amount held in the trust account will not be impacted as a result of such increase or decrease. If we are required to seek additional capital, we would need to borrow funds from our sponsor, management team or other third parties to operate or may be forced to liquidate. Neither our sponsor, members of our management team nor any of their affiliates is under any obligation to advance funds to us in such circumstances. Any such advances would be repaid only from funds held outside the trust account or from funds released to us upon completion of our initial business combination. Up to $1,500,000 of such loans may be convertible into units of the post-business combination entity at a price of $10.00 per unit at the option of the lender. The units would be identical to the private placement units. Prior to the completion of our initial business combination, we do not expect to seek loans from parties other than our sponsor or an affiliate of our sponsor as we do not believe third parties will be willing to loan such funds and provide a waiver against any and all rights to seek access to funds in our trust account. If we are unable to complete our initial business combination because we do not have sufficient funds available to us, we will be forced to cease operations and liquidate the trust account. Consequently, our public shareholders may only receive an estimated $10.00 per share, or possibly less, on our redemption of our public shares, and our warrants will expire worthless.
If third parties bring claims against us, the proceeds held in the trust account could be reduced and the per-share redemption amount received by shareholders may be less than $10.00 per share.
Our placing of funds in the trust account may not protect those funds from third party claims against us. Although we will seek to have all vendors, service providers (except for our independent registered public accounting firm), prospective target businesses and other entities with which we do business execute agreements with us waiving any right, title, interest or claim of any kind in or to any monies held in the trust account for the
benefit of our public shareholders, such parties may not execute such agreements, or even if they execute such agreements they may not be prevented from bringing claims against the trust account, including, but not limited to, fraudulent inducement, breach of fiduciary responsibility or other similar claims, as well as claims challenging the enforceability of the waiver, in each case in order to gain advantage with respect to a claim against our assets, including the funds held in the trust account. If any third party refuses to execute an agreement waiving such claims to the monies held in the trust account, our management will consider whether competitive alternatives are reasonably available to us and will only enter into an agreement with such third party if management believes that such third party’s engagement would be in the best interests of the company under the circumstances. The underwriters of this offering as well as our registered independent public accounting firm will not execute agreements with us waiving such claims to the monies held in the trust account.
Examples of possible instances where we may engage a third party that refuses to execute a waiver include the engagement of a third party consultant whose particular expertise or skills are believed by management to be significantly superior to those of other consultants that would agree to execute a waiver or in cases where management is unable to find a service provider willing to execute a waiver. In addition, there is no guarantee that such entities will agree to waive any claims they may have in the future as a result of, or arising out of, any negotiations, contracts or agreements with us and will not seek recourse against the trust account for any reason. Upon redemption of our public shares, if we are unable to complete our initial business combination within the prescribed timeframe, or upon the exercise of a redemption right in connection with our initial business combination, we will be required to provide for payment of claims of creditors that were not waived that may be brought against us within the 10 years following redemption. Accordingly, the per-share redemption amount received by public shareholders could be less than the $10.00 per public share initially held in the trust account, due to claims of such creditors. Pursuant to the letter agreement the form of which is filed as an exhibit to the registration statement of which this prospectus forms a part, our sponsor has agreed that it will be liable to us if and to the extent any claims by a third party for services rendered or products sold to us, or a prospective target business with which we have entered into a written letter of intent, confidentiality or other similar agreement or business combination agreement, reduce the amount of funds in the trust account to below the lesser of (i) $10.00 per public share and (ii) the actual amount per public share held in the trust account as of the date of the liquidation of the trust account, if less than $10.00 per public share due to reductions in the value of the trust assets, less taxes payable, provided that such liability will not apply to any claims by a third party or prospective target business who executed a waiver of any and all rights to the monies held in the trust account (whether or not such waiver is enforceable) nor will it apply to any claims under our indemnity of the underwriters of this offering against certain liabilities, including liabilities under the Securities Act. However, we have not asked our sponsor to reserve for such indemnification obligations, nor have we independently verified whether our sponsor has sufficient funds to satisfy its indemnity obligations and we believe that our sponsor’s only assets are securities of our company. Therefore, we cannot assure you that our sponsor would be able to satisfy those obligations. As a result, if any such claims were successfully made against the trust account, the funds available for our initial business combination and redemptions could be reduced to less than $10.00 per public share. In such event, we may not be able to complete our initial business combination, and you would receive such lesser amount per share in connection with any redemption of your public shares. None of our officers or directors will indemnify us for claims by third parties including, without limitation, claims by vendors and prospective target businesses.
Our directors may decide not to enforce the indemnification obligations of our sponsor, resulting in a reduction in the amount of funds in the trust account available for distribution to our public shareholders.
In the event that the proceeds in the trust account are reduced below the lesser of (i) $10.00 per share and the actual amount per public share held in the trust account as of the date of the liquidation of the trust account if less than $10.00 per public share due to reductions in the value of the trust assets, in each case less taxes payable, and our sponsor asserts that it is unable to satisfy its obligations or that it has no indemnification obligations related to a particular claim, our independent directors would determine whether to take legal action against our sponsor to enforce its indemnification obligations. While we currently expect that our independent directors would take
legal action on our behalf against our sponsor to enforce its indemnification obligations to us, it is possible that our independent directors in exercising their business judgment and subject to their fiduciary duties may choose not to do so in any particular instance. If our independent directors choose not to enforce these indemnification obligations, the amount of funds in the trust account available for distribution to our public shareholders may be reduced below $10.00 per share.
If, after we distribute the proceeds in the trust account to our public shareholders, we file a bankruptcy petition or an involuntary bankruptcy petition is filed against us that is not dismissed, a bankruptcy court may seek to recover such proceeds, and the members of our board of directors may be viewed as having breached their fiduciary duties to our creditors, thereby exposing the members of our board of directors and us to claims of punitive damages.
If, after we distribute the proceeds in the trust account to our public shareholders, we file a bankruptcy petition or an involuntary bankruptcy petition is filed against us that is not dismissed, any distributions received by shareholders could be viewed under applicable debtor/creditor and/or bankruptcy laws as either a “preferential transfer” or a “fraudulent conveyance.” As a result, a bankruptcy court could seek to recover some or all amounts received by our shareholders. In addition, our board of directors may be viewed as having breached its fiduciary duty to our creditors and/or having acted in bad faith, by paying public shareholders from the trust account prior to addressing the claims of creditors, thereby exposing itself and us to claims of punitive damages.
If, before distributing the proceeds in the trust account to our public shareholders, we file a bankruptcy petition or an involuntary bankruptcy petition is filed against us that is not dismissed, the claims of creditors in such proceeding may have priority over the claims of our shareholders and the per-share amount that would otherwise be received by our shareholders in connection with our liquidation may be reduced.
If, before distributing the proceeds in the trust account to our public shareholders, we file a bankruptcy petition or an involuntary bankruptcy petition is filed against us that is not dismissed, the proceeds held in the trust account could be subject to applicable bankruptcy law, and may be included in our bankruptcy estate and subject to the claims of third parties with priority over the claims of our shareholders. To the extent any bankruptcy claims deplete the trust account, the per-share amount that would otherwise be received by our shareholders in connection with our liquidation may be reduced.
If we are deemed to be an investment company under the Investment Company Act, we may be required to institute burdensome compliance requirements and our activities may be restricted, which may make it difficult for us to complete our initial business combination.
If we are deemed to be an investment company under the Investment Company Act, our activities may be restricted, including:
restrictions on the nature of our investments; and
restrictions on the issuance of securities,
each of which may make it difficult for us to complete our initial business combination. In addition, we may have imposed upon us burdensome requirements, including:
registration as an investment company with the SEC;
adoption of a specific form of corporate structure; and
reporting, record keeping, voting, proxy and disclosure requirements and other rules and regulations that we are not subject to.
In order not to be regulated as an investment company under the Investment Company Act, unless we can qualify for an exclusion, we must ensure that we are engaged primarily in a business other than investing, reinvesting or trading of securities and that our activities do not include investing, reinvesting, owning, holding or trading “investment securities” constituting more than 40% of our assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis. Our business will be to identify and complete a business combination and thereafter to operate the post-transaction business or assets for the long term. We do not plan to buy businesses or assets with a view to resale or profit from their resale. We do not plan to buy unrelated businesses or assets or to be a passive investor.
We do not believe that our anticipated principal activities will subject us to the Investment Company Act. To this end, the proceeds held in the trust account may only be invested in United States “government securities” within the meaning of Section 2(a)(16) of the Investment Company Act having a maturity of 185 days or less or in money market funds meeting certain conditions under Rule 2a-7 promulgated under the Investment Company Act which invest only in direct U.S. government treasury obligations. Pursuant to the trust agreement, the trustee is not permitted to invest in other securities or assets. By restricting the investment of the proceeds to these instruments, and by having a business plan targeted at acquiring and growing businesses for the long term (rather than on buying and selling businesses in the manner of a merchant bank or private equity fund), we intend to avoid being deemed an “investment company” within the meaning of the Investment Company Act. This offering is not intended for persons who are seeking a return on investments in government securities or investment securities. The trust account is intended as a holding place for funds pending the earliest to occur of either: (i) the completion of our initial business combination; (ii) the redemption of any public shares properly tendered in connection with a shareholder vote to amend our amended and restated memorandum and articles of association to modify the substance or timing of our obligation to redeem 100% of our public shares if we do not complete our initial business combination within 15 months from the closing of this offering; and (iii) absent an initial business combination within 15 months from the closing of this offering or with respect to any other material provisions relating to shareholders’ rights or pre-initial business combination activity, our return of the funds held in the trust account to our public shareholders as part of our redemption of the public shares. If we do not invest the proceeds as discussed above, we may be deemed to be subject to the Investment Company Act. If we were deemed to be subject to the Investment Company Act, compliance with these additional regulatory burdens would require additional expenses for which we have not allotted funds and may hinder our ability to complete a business combination. If we are unable to complete our initial business combination, our public shareholders may only receive their pro rata portion of the funds in the trust account that are available for distribution to public shareholders, and our warrants will expire worthless.
Changes in laws or regulations, or a failure to comply with any laws and regulations, may adversely affect our business, including our ability to negotiate and complete our initial business combination, and results of operations.
We are subject to laws and regulations enacted by national, regional and local governments. In particular, we will be required to comply with certain SEC and other legal requirements. Compliance with, and monitoring of, applicable laws and regulations may be difficult, time consuming and costly. Those laws and regulations and their interpretation and application may also change from time to time and those changes could have a material adverse effect on our business, investments and results of operations. In addition, a failure to comply with applicable laws or regulations, as interpreted and applied, could have a material adverse effect on our business, including our ability to negotiate and complete our initial business combination, and results of operations.
Our shareholders may be held liable for claims by third parties against us to the extent of distributions received by them upon redemption of their shares.
If we are forced to enter into an insolvent liquidation, any distributions received by shareholders could be viewed as an unlawful payment if it was proved that immediately following the date on which the distribution was made, we were unable to pay our debts as they fall due in the ordinary course of business. As a result, a liquidator could
seek to recover some or all amounts received by our shareholders. Furthermore, our directors may be viewed as having breached their fiduciary duties to us or our creditors and/or may have acted in bad faith, thereby exposing themselves and our company to claims, by paying public shareholders from the trust account prior to addressing the claims of creditors. We cannot assure you that claims will not be brought against us for these reasons. We and our directors and officers who knowingly and willfully authorized or permitted any distribution to be paid out of our share premium account while we were unable to pay our debts as they fall due in the ordinary course of business would be guilty of an offence and may be liable to a fine of $18,292.68 and to imprisonment for five years in the Cayman Islands.
We may not hold an annual general meeting until after the consummation of our initial business combination, which could delay the opportunity for our shareholders to elect directors.
In accordance with Nasdaq corporate governance requirements, we are not required to hold an annual meeting until no later than one year after our first fiscal year end following our listing on Nasdaq. There is no requirement under the Companies Act for us to hold annual or extraordinary general meetings to elect directors. Until we hold an annual general meeting, public shareholders may not be afforded the opportunity to elect directors and to discuss company affairs with management. Our board of directors is divided into three classes with only one class of directors being elected in each year and each class (except for those directors elected prior to our first annual general meeting) serving a three-year term. In addition, as holders of our Class A ordinary shares, our public shareholders will not have the right to vote on the election of directors until after the consummation of our initial business combination.
Because we are neither limited to evaluating a target business in a particular industry sector nor have we selected any specific target businesses with which to pursue our initial business combination, you will be unable to ascertain the merits or risks of any particular target business’s operations.
Our efforts to identify a prospective initial business combination target will not be limited to a particular industry, sector or geographic region. Our amended and restated memorandum and articles of association prohibit us from effectuating a business combination with another blank check company or similar company with nominal operations. Because we have not yet selected any specific target business with respect to a business combination, there is no basis to evaluate the possible merits or risks of any particular target business’s operations, results of operations, cash flows, liquidity, financial condition or prospects. To the extent we complete our initial business combination, we may be affected by numerous risks inherent in the business operations with which we combine. For example, if we combine with a financially unstable business or an entity lacking an established record of sales or earnings, we may be affected by the risks inherent in the business and operations of a financially unstable or a development stage entity. Although our officers and directors will endeavor to evaluate the risks inherent in a particular target business, we cannot assure you that we will properly ascertain or assess all of the significant risk factors or that we will have adequate time to complete due diligence. Furthermore, some of these risks may be outside of our control and leave us with no ability to control or reduce the chances that those risks will adversely impact a target business. We also cannot assure you that an investment in our units will ultimately prove to be more favorable to investors than a direct investment, if such opportunity were available, in a business combination target. Accordingly, any shareholders or warrant holders who choose to remain shareholders or warrant holders following the business combination could suffer a reduction in the value of their securities. Such shareholders or warrant holders are unlikely to have a remedy for such reduction in value unless they are able to successfully claim that the reduction was due to the breach by our officers or directors of a duty of care or other fiduciary duty owed to them, or if they are able to successfully bring a private claim under securities laws that the proxy materials or tender offer documents, as applicable, relating to the business combination contained an actionable material misstatement or material omission.
Although we have identified general criteria and guidelines that we believe are important in evaluating prospective target businesses, we may enter into our initial business combination with a target that does not meet such criteria and guidelines, and as a result, the target business with which we enter into our initial business combination may not have attributes entirely consistent with our general criteria and guidelines.
Although we have identified general criteria and guidelines for evaluating prospective target businesses, it is possible that a target business with which we enter into our initial business combination will not have all of these positive attributes. If we complete our initial business combination with a target that does not meet some or all of these guidelines, such combination may not be as successful as a combination with a business that does meet all of our general criteria and guidelines. In addition, if we announce a prospective business combination with a target that does not meet our general criteria and guidelines, a greater number of shareholders may exercise their redemption rights, which may make it difficult for us to meet any closing condition with a target business that requires us to have a minimum net worth or a certain amount of cash. In addition, if shareholder approval of the transaction is required by law, or we decide to obtain shareholder approval for business or other legal reasons, it may be more difficult for us to attain shareholder approval of our initial business combination if the target business does not meet our general criteria and guidelines. If we are unable to complete our initial business combination, our public shareholders may only receive their pro rata portion of the funds in the trust account that are available for distribution to public shareholders, and our warrants will expire worthless.
We are not required to obtain an opinion from an independent investment banking firm or from a valuation or appraisal firm, and consequently, you may have no assurance from an independent source that the price we are paying for the business is fair to our shareholders from a financial point of view.
Unless we complete our initial business combination with an affiliated entity or our board of directors cannot independently determine the fair market value of the target business or businesses (including with the assistance of financial advisors), we are not required to obtain an opinion from an independent investment banking firm which is a member of FINRA or from a valuation or appraisal firm that the price we are paying is fair to our shareholders from a financial point of view. If no opinion is obtained, our shareholders will be relying on the judgment of our board of directors, who will determine fair market value based on standards generally accepted by the financial community. Such standards used will be disclosed in our proxy materials or tender offer documents, as applicable, related to our initial business combination.
We may issue notes or other debt securities, or otherwise incur substantial debt, to complete a business combination, which may adversely affect our leverage and financial condition and thus negatively impact the value of our shareholders’ investment in us.
Although we have no commitments as of the date of this prospectus to issue any notes or other debt securities, or to otherwise incur outstanding debt following this offering, we may choose to incur substantial debt to complete our initial business combination. We and our officers have agreed that we will not incur any indebtedness unless we have obtained from the lender a waiver of any right, title, interest or claim of any kind in or to the monies held in the trust account. As such, no issuance of debt will affect the per share amount available for redemption from the trust account. Nevertheless, the incurrence of debt could have a variety of negative effects, including:
default and foreclosure on our assets if our operating revenues after an initial business combination are insufficient to repay our debt obligations;
acceleration of our obligations to repay the indebtedness even if we make all principal and interest payments when due if we breach certain covenants that require the maintenance of certain financial ratios or reserves without a waiver or renegotiation of that covenant;
our immediate payment of all principal and accrued interest, if any, if the debt is payable on demand;
our inability to obtain necessary additional financing if the debt contains covenants restricting our ability to obtain such financing while the debt is outstanding;
our inability to pay dividends on our Class A ordinary shares;
using a substantial portion of our cash flow to pay principal and interest on our debt, which will reduce the funds available for dividends on our Class A ordinary shares if declared, expenses, capital expenditures, acquisitions and other general corporate purposes;
limitations on our flexibility in planning for and reacting to changes in our business and in the industry in which we operate;
increased vulnerability to adverse changes in general economic, industry and competitive conditions and adverse changes in government regulation; and
limitations on our ability to borrow additional amounts for expenses, capital expenditures, acquisitions, debt service requirements, execution of our strategy and other purposes and other disadvantages compared to our competitors who have less debt.
We may only be able to complete one business combination with the proceeds of this offering and the sale of the private placement units, which will cause us to be solely dependent on a single business which may have a limited number of products or services. This lack of diversification may negatively impact our operations and profitability.
The net proceeds from this offering and the private placement of warrants will provide us with $193,000,000 (or $221,350,000 if the underwriters’ over-allotment option is exercised in full) that we may use to complete our initial business combination (after taking into account the $7,000,000, or up to $8,650,000 if the over-allotment option is exercised in full, of deferred underwriting commissions being held in the trust account).
We may effectuate our initial business combination with a single target business or multiple target businesses simultaneously or within a short period of time. However, we may not be able to effectuate our initial business combination with more than one target business because of various factors, including the existence of complex accounting issues and the requirement that we prepare and file pro forma financial statements with the SEC that present operating results and the financial condition of several target businesses as if they had been operated on a combined basis. By completing our initial business combination with only a single entity, our lack of diversification may subject us to numerous economic, competitive and regulatory developments. Further, we would not be able to diversify our operations or benefit from the possible spreading of risks or offsetting of losses, unlike other entities which may have the resources to complete several business combinations in different industries or different areas of a single industry. Accordingly, the prospects for our success may be:
solely dependent upon the performance of a single business, property or asset, or
dependent upon the development or market acceptance of a single or limited number of products, processes or services.
This lack of diversification may subject us to numerous economic, competitive and regulatory risks, any or all of which may have a substantial adverse impact upon the particular industry in which we may operate subsequent to our initial business combination.
We may attempt to simultaneously complete business combinations with multiple prospective targets, which may hinder our ability to complete our initial business combination and give rise to increased costs and risks that could negatively impact our operations and profitability.
If we determine to simultaneously acquire several businesses that are owned by different sellers, we will need for each of such sellers to agree that our purchase of its business is contingent on the simultaneous closings of the other business combinations, which may make it more difficult for us, and delay our ability, to complete our initial business combination. With multiple business combinations, we could also face additional risks, including additional burdens and costs with respect to possible multiple negotiations and due diligence investigations (if
there are multiple sellers) and the additional risks associated with the subsequent assimilation of the operations and services or products of the acquired companies in a single operating business. If we are unable to adequately address these risks, it could negatively impact our profitability and results of operations.
We may attempt to complete our initial business combination with a private company about which little information is available, which may result in a business combination with a company that is not as profitable as we suspected, if at all.
In pursuing our business combination strategy, we may seek to effectuate our initial business combination with a privately held company. Very little public information generally exists about private companies, and we could be required to make our decision on whether to pursue a potential initial business combination on the basis of limited information, which may result in a business combination with a company that is not as profitable as we suspected, if at all.
We do not have a specified maximum redemption threshold. The absence of such a redemption threshold may make it possible for us to complete our initial business combination with which a substantial majority of our shareholders or warrant holders do not agree.
Our amended and restated memorandum and articles of association do not provide a specified maximum redemption threshold, except that in no event will we redeem our public shares in an amount that would cause our net tangible assets to be less than $5,000,001. In addition, our proposed initial business combination may impose a minimum cash requirement for: (i) cash consideration to be paid to the target or its owners, (ii) cash for working capital or other general corporate purposes or (iii) the retention of cash to satisfy other conditions. As a result, we may be able to complete our initial business combination even though a substantial majority of our public shareholders do not agree with the transaction and have redeemed their shares or, if we seek shareholder approval of our initial business combination and do not conduct redemptions in connection with our initial business combination pursuant to the tender offer rules, have entered into privately negotiated agreements to sell their shares to our sponsor, officers, directors, advisors or any of their affiliates. In the event the aggregate cash consideration we would be required to pay for all Class A ordinary shares that are validly submitted for redemption plus any amount required to satisfy cash conditions pursuant to the terms of the proposed business combination exceed the aggregate amount of cash available to us, we will not complete the business combination or redeem any shares in connection with such initial business combination, all Class A ordinary shares submitted for redemption will be returned to the holders thereof, and we instead may search for an alternate business combination.
In order to effectuate an initial business combination, special purpose acquisition companies have, in the recent past, amended various provisions of their charters and other governing instruments, including their warrant agreements. We cannot assure you that we will not seek to amend our amended and restated memorandum and articles of association or governing instruments in a manner that will make it easier for us to complete our initial business combination that our shareholders may not support.
In order to effectuate a business combination, special purpose acquisition companies have, in the recent past, amended various provisions of their charters and governing instruments, including their warrant agreements. For example, special purpose acquisition companies have amended the definition of business combination, increased redemption thresholds and extended the time to consummate an initial business combination and, with respect to their warrants, amended their warrant agreements to require the warrants to be exchanged for cash and/or other securities. Amending our amended and restated memorandum and articles of association will require the approval of holders of 65% of our ordinary shares, and amending our warrant agreement will require a vote of holders of at least 50% of the public warrants and, solely with respect to any amendment to the terms of the private placement warrants or any provision of the warrant agreement with respect to the private placement warrants, 50% of the number of the then outstanding private placement warrants. In addition, our amended and restated memorandum and articles of association require us to provide our public shareholders with the
opportunity to redeem their public shares for cash if we propose an amendment to our amended and restated memorandum and articles of association to modify the substance or timing of our obligation to redeem 100% of our public shares if we do not complete an initial business combination within 15 months of the closing of this offering or with respect to any other material provisions relating to shareholders’ rights or pre-initial business combination activity. To the extent any of such amendments would be deemed to fundamentally change the nature of the securities offered through this registration statement, we would register, or seek an exemption from registration for, the affected securities. We cannot assure you that we will not seek to amend our charter or governing instruments or extend the time to consummate an initial business combination in order to effectuate our initial business combination.
The provisions of our amended and restated memorandum and articles of association that relate to our pre-business combination activity (and corresponding provisions of the agreement governing the release of funds from our trust account) may be amended with the approval of holders of not less than two-thirds of our ordinary shares who attend and vote at a general meeting of the company (or 65% of our ordinary shares with respect to amendments to the trust agreement governing the release of funds from our trust account), which is a lower amendment threshold than that of some other special purpose acquisition companies. It may be easier for us, therefore, to amend our amended and restated memorandum and articles of association to facilitate the completion of an initial business combination that some of our shareholders may not support.
Our amended and restated memorandum and articles of association provide that any of its provisions related to pre-business combination activity (including the requirement to deposit proceeds of this offering and the private placement of warrants into the trust account and not release such amounts except in specified circumstances, and to provide redemption rights to public shareholders as described herein) may be amended if approved by special resolution, under Cayman Islands law which requires the affirmative vote of a majority of at least two-thirds of the shareholders who attend and vote at a general meeting of the company, and corresponding provisions of the trust agreement governing the release of funds from our trust account may be amended if approved by holders of 65% of our ordinary shares. Our initial shareholders, who will collectively beneficially own 25% of our ordinary shares upon the closing of this offering (assuming they do not purchase any units in this offering and not including the Class A ordinary shares underlying the private placement units), will participate in any vote to amend our amended and restated memorandum and articles of association and/or trust agreement and will have the discretion to vote in any manner they choose. As a result, we may be able to amend the provisions of our amended and restated memorandum and articles of association which govern our pre-business combination behavior more easily than some other special purpose acquisition companies, and this may increase our ability to complete a business combination with which you do not agree. Our shareholders may pursue remedies against us for any breach of our amended and restated memorandum and articles of association.
Our sponsor, officers, directors and director nominees have agreed, pursuant to a written agreement with us, that they will not propose any amendment to our amended and restated memorandum and articles of association (A) to modify the substance or timing of our obligation to allow redemption in connection with our initial business combination or to redeem 100% of our public shares if we do not complete our initial business combination within 15 months from the closing of this offering or (B) with respect to any other provisions relating to shareholders’ rights or pre-initial business combination activity, unless we provide our public shareholders with the opportunity to redeem their Class A ordinary shares upon approval of any such amendment at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the trust account, including interest (which interest shall be net of taxes payable), divided by the number of then issued and outstanding public shares. Our shareholders are not parties to, or third-party beneficiaries of, these agreements and, as a result, will not have the ability to pursue remedies against our sponsor, officers, directors or director nominees for any breach of these agreements. As a result, in the event of a breach, our shareholders would need to pursue a shareholder derivative action, subject to applicable law.
Certain agreements related to this offering may be amended without shareholder approval.
Each of the agreements related to this offering to which we are a party, other than the warrant agreement and the investment management trust agreement, may be amended without shareholder approval. Such agreements are: the underwriting agreement; the letter agreement among us and our initial shareholders, sponsor, officers and directors; the registration rights agreement among us and our initial shareholders; the private placement units purchase agreement between us and our sponsor; and the administrative services agreement among us, our sponsor and an affiliate of our sponsor. These agreements contain various provisions that our public shareholders might deem to be material. For example, our letter agreement and the underwriting agreement contain certain lock-up provisions with respect to the founder shares, private placement warrants and other securities held by our initial shareholders, sponsor, officers and directors. Amendments to such agreements would require the consent of the applicable parties thereto and would need to be approved by our board of directors, which may do so for a variety of reasons, including to facilitate our initial business combination. While we do not expect our board of directors to approve any amendment to any of these agreements prior to our initial business combination, it may be possible that our board of directors, in exercising its business judgment and subject to its fiduciary duties, chooses to approve one or more amendments to any such agreement. Any amendment entered into in connection with the consummation of our initial business combination will be disclosed in our proxy materials or tender offer documents, as applicable, related to such initial business combination, and any other material amendment to any of our material agreements will be disclosed in a filing with the SEC. Any such amendments would not require approval from our shareholders, may result in the completion of our initial business combination that may not otherwise have been possible, and may have an adverse effect on the value of an investment in our securities. For example, amendments to the lock-up provision discussed above may result in our initial shareholders selling their securities earlier than they would otherwise be permitted, which may have an adverse effect on the price of our securities.
We may be unable to obtain additional financing to complete our initial business combination or to fund the operations and growth of a target business, which could compel us to restructure or abandon a particular business combination.
We have not selected any specific business combination target but intend to target businesses with enterprise values that are greater than we could acquire with the net proceeds of this offering and the sale of the private placement units. As a result, if the cash portion of the purchase price exceeds the amount available from the trust account, net of amounts needed to satisfy any redemption by public shareholders, we may be required to seek additional financing to complete such proposed initial business combination. We cannot assure you that such financing will be available on acceptable terms, if at all. To the extent that additional financing proves to be unavailable when needed to complete our initial business combination, we would be compelled to either restructure the transaction or abandon that particular business combination and seek an alternative target business candidate. Further, we may be required to obtain additional financing in connection with the closing of our initial business combination for general corporate purposes, including for maintenance or expansion of operations of the post-transaction businesses, the payment of principal or interest due on indebtedness incurred in completing our initial business combination, or to fund the purchase of other companies. If we are unable to complete our initial business combination, our public shareholders may only receive their pro rata portion of the funds in the trust account that are available for distribution to public shareholders, and our warrants will expire worthless. In addition, even if we do not need additional financing to complete our initial business combination, we may require such financing to fund the operations or growth of the target business. The failure to secure additional financing could have a material adverse effect on the continued development or growth of the target business. None of our officers, directors or shareholders is required to provide any financing to us in connection with or after our initial business combination.
Our initial shareholders control a substantial interest in us and thus may exert a substantial influence on actions requiring a shareholder vote, potentially in a manner that you do not support.
Upon closing of this offering, our initial shareholders will own 25% of our issued and outstanding ordinary shares (assuming they do not purchase any units in this offering and not including the Class A ordinary shares
underlying the private placement units). Accordingly, they may exert a substantial influence on actions requiring a shareholder vote, potentially in a manner that you do not support, including amendments to our amended and restated memorandum and articles of association. If our initial shareholders purchase any units in this offering or if our initial shareholders purchase any additional Class A ordinary shares in the aftermarket or in privately negotiated transactions, this would increase their control. Neither our initial shareholders nor, to our knowledge, any of our officers or directors, have any current intention to purchase additional securities, other than as disclosed in this prospectus. Factors that would be considered in making such additional purchases would include consideration of the current trading price of our Class A ordinary share. Assuming that only one-third of our issued and outstanding ordinary shares, representing a quorum under our amended and restated memorandum and articles of association, are voted, we will not need any public shares in addition to our founder shares to be voted in favor of an initial business combination in order to have an initial business combination approved. In addition, our board of directors, whose members were elected by our sponsor, is and will be divided into three classes, each of which will generally serve for a terms for three years with only one class of directors being elected in each year. We may not hold an annual meeting of shareholders to elect new directors prior to the completion of our initial business combination, in which case all of the current directors will continue in office until at least the completion of the business combination. If there is an annual general meeting, as a consequence of our “staggered” board of directors, only a minority of the board of directors will be considered for election and our initial shareholders, because of their ownership position, will have considerable influence regarding the outcome. In addition, the founder shares, all of which are held by our initial shareholders, will, in a vote to continue the Company in a jurisdiction outside the Cayman Islands (which requires the approval of at least two thirds of the votes of all ordinary shares), entitle the holders to ten votes for every founder share. This provision of our amended and restated memorandum and articles of association may only be amended by a special resolution passed by a majority of at least two-thirds of our ordinary shares voting in a general meeting. As a result, you will not have any influence over our continuation in a jurisdiction outside the Cayman Islands prior to our initial business combination. Accordingly, our initial shareholders will continue to exert control at least until the completion of our initial business combination.
Because we must furnish our shareholders with target business financial statements, we may lose the ability to complete an otherwise advantageous initial business combination with some prospective target businesses.
The federal proxy rules require that the proxy statement with respect to the vote on an initial business combination include historical and pro forma financial statement disclosure. We will include the same financial statement disclosure in connection with our tender offer documents, whether or not they are required under the tender offer rules. These financial statements may be required to be prepared in accordance with, or be reconciled to, accounting principles generally accepted in the United States of America (“GAAP”), or international financial reporting standards as issued by the International Accounting Standards Board (“IFRS”), depending on the circumstances and the historical financial statements may be required to be audited in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”). These financial statement requirements may limit the pool of potential target businesses we may acquire because some targets may be unable to provide such financial statements in time for us to disclose such statements in accordance with federal proxy rules and complete our initial business combination within the prescribed time frame.
Compliance obligations under the Sarbanes-Oxley Act may make it more difficult for us to effectuate our initial business combination, require substantial financial and management resources, and increase the time and costs of completing an initial business combination.
Section 404 of the Sarbanes-Oxley Act requires that we evaluate and report on our system of internal controls beginning with our Annual Report on Form 10-K for the year ending December 31, 2022. Only in the event we are deemed to be a large accelerated filer or an accelerated filer, and no longer qualify as an emerging growth company, will we be required to comply with the independent registered public accounting firm attestation requirement on our internal control over financial reporting. Further, for as long as we remain an emerging growth company, we will not be required to comply with the independent registered public accounting firm
attestation requirement on our internal control over financial reporting. The fact that we are a blank check company makes compliance with the requirements of the Sarbanes-Oxley Act particularly burdensome on us as compared to other public companies because a target business with which we seek to complete our initial business combination may not be in compliance with the provisions of the Sarbanes-Oxley Act regarding adequacy of its internal controls. The development of the internal control of any such entity to achieve compliance with the Sarbanes-Oxley Act may increase the time and costs necessary to complete any such business combination.
Our initial business combination and our structure thereafter may not be tax-efficient to our shareholders and warrant holders. As a result of our business combination, our tax obligations may be more complex, burdensome and uncertain.
Although we will attempt to structure our initial business combination in a tax-efficient manner, tax structuring considerations are complex, the relevant facts and law are uncertain and may change, and we may prioritize commercial and other considerations over tax considerations. For example, in connection with our initial business combination and subject to any requisite shareholder approval, we may structure our business combination in a manner that requires shareholders and/or warrant holders to recognize gain or income for tax purposes, effect a business combination with a target company in another jurisdiction, or reincorporate in a different jurisdiction (including, but not limited to, the jurisdiction in which the target company or business is located). We do not intend to make any cash distributions to shareholders or warrant holders to pay taxes in connection with our business combination or thereafter. Accordingly, a shareholder or a warrant holder may need to satisfy any liability resulting from our initial business combination with cash from its own funds or by selling all or a portion of the shares received. In addition, shareholders and warrant holders may also be subject to additional income, withholding or other taxes with respect to their ownership of us after our initial business combination.
In addition, we may effect a business combination with a target company that has business operations outside of the United States, and possibly, business operations in multiple jurisdictions. If we effect such a business combination, we could be subject to significant income, withholding and other tax obligations in a number of jurisdictions with respect to income, operations and subsidiaries related to those jurisdictions. Due to the complexity of tax obligations and filings in other jurisdictions, we may have a heightened risk related to audits or examinations by U.S. federal, state, local and non-U.S. taxing authorities. This additional complexity and risk could have an adverse effect on our after-tax profitability and financial condition.
Risks Relating to the Post-Business Combination Company
Subsequent to our completion of our initial business combination, we may be required to take write-downs or write-offs, restructuring and impairment or other charges that could have a significant negative effect on our financial condition, results of operations and the price of our securities, which could cause you to lose some or all of your investment.
Even if we conduct extensive due diligence on a target business with which we combine, we cannot assure you that this diligence will identify all material issues that may be present with a particular target business, that it would be possible to uncover all material issues through a customary amount of due diligence, or that factors outside of the target business and outside of our control will not later arise. As a result of these factors, we may be forced to later write-down or write-off assets, restructure our operations, or incur impairment or other charges that could result in our reporting losses. Even if our due diligence successfully identifies certain risks, unexpected risks may arise and previously known risks may materialize in a manner not consistent with our preliminary risk analysis. Even though these charges may be non-cash items and not have an immediate impact on our liquidity, the fact that we report charges of this nature could contribute to negative market perceptions about us or our securities. In addition, charges of this nature may cause us to violate net worth or other covenants to which we
may be subject as a result of assuming pre-existing debt held by a target business or by virtue of our obtaining debt financing to partially finance the initial business combination or thereafter. Accordingly, any shareholders or warrant holders who choose to remain shareholders or warrant holders following the business combination could suffer a reduction in the value of their securities. Such shareholders or warrant holders are unlikely to have a remedy for such reduction in value unless they are able to successfully claim that the reduction was due to the breach by our officers or directors of a duty of care or other fiduciary duty owed to them, or if they are able to successfully bring a private claim under securities laws that the proxy materials or tender offer documents, as applicable, relating to the business combination contained an actionable material misstatement or material omission.
Resources could be wasted in researching business combinations that are not completed, which could materially adversely affect subsequent attempts to locate and acquire or merge with another business. If we are unable to complete our initial business combination, our public shareholders may only receive their pro rata portion of the funds in the trust account that are available for distribution to public shareholders, and our warrants will expire worthless.
We anticipate that the investigation of each specific target business and the negotiation, drafting and execution of relevant agreements, disclosure documents and other instruments will require substantial management time and attention and substantial costs for accountants, attorneys and others. If we decide not to complete a specific initial business combination, the costs incurred up to that point for the proposed transaction likely would not be recoverable. Furthermore, if we reach an agreement relating to a specific target business, we may fail to complete our initial business combination for any number of reasons including those beyond our control. Any such event will result in a loss to us of the related costs incurred which could materially adversely affect subsequent attempts to locate and acquire or merge with another business. If we are unable to complete our initial business combination, our public shareholders may only receive their pro rata portion of the funds in the trust account that are available for distribution to public shareholders, and our warrants will expire worthless.
Our ability to successfully effect our initial business combination and to be successful thereafter will be dependent upon the efforts of our key personnel, some of whom may join us following our initial business combination. The loss of key personnel could negatively impact the operations and profitability of our post-combination business.
Our ability to successfully effect our initial business combination is dependent upon the efforts of our key personnel. The role of our key personnel in the target business, however, cannot presently be ascertained. Although some of our key personnel may remain with the target business in senior management or advisory positions following our initial business combination, it is likely that some or all of the management of the target business will remain in place. While we intend to closely scrutinize any individuals we engage after our initial business combination, we cannot assure you that our assessment of these individuals will prove to be correct. These individuals may be unfamiliar with the requirements of operating a company regulated by the SEC, which could cause us to have to expend time and resources helping them become familiar with such requirements.
Our key personnel may negotiate employment or consulting agreements with a target business in connection with a particular business combination, and a particular business combination may be conditioned on the retention or resignation of such key personnel. These agreements may provide for them to receive compensation following our initial business combination and as a result, may cause them to have conflicts of interest in determining whether a particular business combination is the most advantageous.
Our key personnel may be able to remain with our company after the completion of our initial business combination only if they are able to negotiate employment or consulting agreements in connection with the business combination. Such negotiations would take place simultaneously with the negotiation of the business combination and could provide for such individuals to receive compensation in the form of cash payments and/or our securities for services they would render to us after the completion of the business combination. Such
negotiations also could make such key personnel’s retention or resignation a condition to any such agreement. The personal and financial interests of such individuals may influence their motivation in identifying and selecting a target business, subject to their fiduciary duties under Cayman Islands law.
We may have a limited ability to assess the management of a prospective target business and, as a result, may effect our initial business combination with a target business whose management may not have the skills, qualifications or abilities to manage a public company.
When evaluating the desirability of effecting our initial business combination with a prospective target business, our ability to assess the target business’s management may be limited due to a lack of time, resources or information. Our assessment of the capabilities of the target business’s management, therefore, may prove to be incorrect and such management may lack the skills, qualifications or abilities we suspected. Should the target business’s management not possess the skills, qualifications or abilities necessary to manage a public company, the operations and profitability of the post-combination business may be negatively impacted. Accordingly, any shareholders or warrant holders who choose to remain shareholders or warrant holders following the business combination could suffer a reduction in the value of their securities. Such shareholders or warrant holders are unlikely to have a remedy for such reduction in value unless they are able to successfully claim that the reduction was due to the breach by our officers or directors of a duty of care or other fiduciary duty owed to them, or if they are able to successfully bring a private claim under securities laws that the proxy solicitation or tender offer materials, as applicable, relating to the business combination contained an actionable material misstatement or material omission.
The officers and directors of an acquisition candidate may resign upon completion of our initial business combination. The loss of a business combination target’s key personnel could negatively impact the operations and profitability of our post-combination business.
The role of an acquisition candidate’s key personnel upon the completion of our initial business combination cannot be ascertained at this time. Although we contemplate that certain members of an acquisition candidate’s management team will remain associated with the acquisition candidate following our initial business combination, it is possible that members of the management of an acquisition candidate will not wish to remain in place.
Our management may not be able to maintain control of a target business after our initial business combination. We cannot provide assurance that, upon loss of control of a target business, new management will possess the skills, qualifications or abilities necessary to profitably operate such business.
We may structure our initial business combination so that the post-transaction company in which our public shareholders own shares will own less than 100% of the equity interests or assets of a target business, but we will only complete such business combination if the post-transaction company owns or acquires 50% or more of the outstanding voting securities of the target or otherwise acquires a controlling interest in the target sufficient for us not to be required to register as an investment company under the Investment Company Act. We will not consider any transaction that does not meet such criteria. Even if the post-transaction company owns 50% or more of the voting securities of the target, our shareholders prior to the business combination may collectively own a minority interest in the post business combination company, depending on valuations ascribed to the target and us in the business combination. For example, we could pursue a transaction in which we issue a substantial number of new Class A ordinary shares in exchange for all of the outstanding capital stock of a target. In this case, we would acquire a 100% interest in the target. However, as a result of the issuance of a substantial number of new Class A ordinary shares, our shareholders immediately prior to such transaction could own less than a majority of our outstanding Class A ordinary shares subsequent to such transaction. In addition, other minority shareholders may subsequently combine their holdings resulting in a single person or group obtaining a larger share of the company’s shares than we initially acquired. Accordingly, this may make it more likely that our management will not be able to maintain control of the target business.
Risks Relating to Acquiring and Operating a Business in Foreign Countries
If we effect our initial business combination with a company located outside of the United States, we would be subject to a variety of additional risks that may adversely affect us.
If we pursue a target company with operations or opportunities outside of the United States for our initial business combination, we may face additional burdens in connection with investigating, agreeing to and completing such initial business combination, and if we effect such initial business combination, we would be subject to a variety of additional risks that may negatively impact our operations.
If we pursue a target a company with operations or opportunities outside of the United States for our initial business combination, we would be subject to risks associated with cross-border business combinations, including in connection with investigating, agreeing to and completing our initial business combination, conducting due diligence in a foreign jurisdiction, having such transaction approved by any local governments, regulators or agencies and changes in the purchase price based on fluctuations in foreign exchange rates.
If we effect our initial business combination with such a company, we would be subject to any special considerations or risks associated with companies operating in an international setting, including any of the following:
costs and difficulties inherent in managing cross-border business operations;
rules and regulations regarding currency redemption;
complex corporate withholding taxes on individuals;
laws governing the manner in which future business combinations may be effected;
exchange listing and/or delisting requirements;
tariffs and trade barriers;
regulations related to customs and import/export matters;
local or regional economic policies and market conditions;
unexpected changes in regulatory requirements;
challenges in managing and staffing international operations;
longer payment cycles;
tax issues, such as tax law changes and variations in tax laws as compared to the United States;
currency fluctuations and exchange controls;
rates of inflation;
challenges in collecting accounts receivable;
cultural and language differences;
employment regulations;
underdeveloped or unpredictable legal or regulatory systems;
corruption;
protection of intellectual property;
social unrest, crime, strikes, riots and civil disturbances;
regime changes and political upheaval;
terrorist attacks and wars; and
deterioration of political relations with the United States.
We may not be able to adequately address these additional risks. If we were unable to do so, we may be unable to complete such initial business combination, or, if we complete such initial business combination, our operations might suffer, either of which may adversely impact our business, financial condition and results of operations.
If we effect our initial business combination with a company located outside of the United States, we would be subject to a variety of additional risks that may adversely affect us.
Following our initial business combination, our management may resign from their positions as officers or directors of the company and the management of the target business at the time of the business combination may remain in place. Management of the target business may not be familiar with United States securities laws. If new management is unfamiliar with United States securities laws, they may have to expend time and resources becoming familiar with such laws. This could be expensive and time-consuming and could lead to various regulatory issues which may adversely affect our operations.
After our initial business combination, substantially all of our assets may be located in a foreign country and substantially all of our revenue will be derived from our operations in such country. Accordingly, our results of operations and prospects will be subject, to a significant extent, to the economic, political and legal policies, developments and conditions in the country in which we operate.
The economic, political and social conditions, as well as government policies, of the country in which our operations are located could affect our business. Economic growth could be uneven, both geographically and among various sectors of the economy and such growth may not be sustained in the future. If in the future such country’s economy experiences a downturn or grows at a slower rate than expected, there may be less demand for spending in certain industries. A decrease in demand for spending in certain industries could materially and adversely affect our ability to find an attractive target business with which to consummate our initial business combination and if we effect our initial business combination, the ability of that target business to become profitable.
Exchange rate fluctuations and currency policies may cause a target business’ ability to succeed in the international markets to be diminished.
In the event we acquire a non-U.S. target, all revenues and income would likely be received in a foreign currency, and the dollar equivalent of our net assets and distributions, if any, could be adversely affected by reductions in the value of the local currency. The value of the currencies in our target regions fluctuate and are affected by, among other things, changes in political and economic conditions. Any change in the relative value of such currency against our reporting currency may affect the attractiveness of any target business or, following consummation of our initial business combination, our financial condition and results of operations. Additionally, if a currency appreciates in value against the dollar prior to the consummation of our initial business combination, the cost of a target business as measured in dollars will increase, which may make it less likely that we are able to consummate such transaction.
We may reincorporate in another jurisdiction in connection with our initial business combination, and the laws of such jurisdiction may govern some or all of our future material agreements and we may not be able to enforce our legal rights.
In connection with our initial business combination, we may relocate the home jurisdiction of our business from the Cayman Islands to another jurisdiction. If we determine to do this, the laws of such jurisdiction may govern some or all of our future material agreements. The system of laws and the enforcement of existing laws in such
jurisdiction may not be as certain in implementation and interpretation as in the United States. The inability to enforce or obtain a remedy under any of our future agreements could result in a significant loss of business, business opportunities or capital.
We are subject to changing law and regulations regarding regulatory matters, corporate governance and public disclosure that have increased both our costs and the risk of non-compliance.
We are subject to rules and regulations by various governing bodies, including, for example, the Securities and Exchange Commission, which are charged with the protection of investors and the oversight of companies whose securities are publicly traded, and to new and evolving regulatory measures under applicable law. Our efforts to comply with new and changing laws and regulations have resulted in and are likely to continue to result in, increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities.
Moreover, because these laws, regulations and standards are subject to varying interpretations, their application in practice may evolve over time as new guidance becomes available. This evolution may result in continuing uncertainty regarding compliance matters and additional costs necessitated by ongoing revisions to our disclosure and governance practices. If we fail to address and comply with these regulations and any subsequent changes, we may be subject to penalty and our business may be harmed.
Risks Relating to our Management Team
We may not have sufficient funds to satisfy indemnification claims of our directors and executive officers.
We have agreed to indemnify our officers and directors to the fullest extent permitted by law. However, our officers and directors have agreed to waive any right, title, interest or claim of any kind in or to any monies in the trust account and to not seek recourse against the trust account for any reason whatsoever. Accordingly, any indemnification provided will be able to be satisfied by us only if (i) we have sufficient funds outside of the trust account or (ii) we consummate an initial business combination. Our obligation to indemnify our officers and directors may discourage shareholders from bringing a lawsuit against our officers or directors for breach of their fiduciary duty. These provisions also may have the effect of reducing the likelihood of derivative litigation against our officers and directors, even though such an action, if successful, might otherwise benefit us and our shareholders. Furthermore, a shareholder’s investment may be adversely affected to the extent we pay the costs of settlement and damage awards against our officers and directors pursuant to these indemnification provisions.
Past performance by our management team and their affiliates may not be indicative of future performance of an investment in us.
Information regarding performance by, or businesses associated with, our management team or businesses associated with them is presented for informational purposes only. Past performance by our management team, including with respect to 10X I, is not a guarantee either (i) of success with respect to any business combination we may consummate or (ii) that we will be able to locate a suitable candidate for our initial business combination. You should not rely on the historical record of the performance of our management team’s or businesses associated with them as indicative of our future performance of an investment in us or the returns we will, or is likely to, generate going forward.
We may seek business combination opportunities in industries or sectors that may be outside of our management’s areas of expertise.
We will consider a business combination outside of our management’s areas of expertise if a business combination candidate is presented to us and we determine that such candidate offers an attractive business
combination opportunity for our company. Although our management will endeavor to evaluate the risks inherent in any particular business combination candidate, we cannot assure you that we will adequately ascertain or assess all of the significant risk factors. We also cannot assure you that an investment in our units will not ultimately prove to be less favorable to investors in this offering than a direct investment, if an opportunity were available, in a business combination candidate. In the event we elect to pursue a business combination outside of the areas of our management’s expertise, our management’s expertise may not be directly applicable to its evaluation or operation, and the information contained in this prospectus regarding the areas of our management’s expertise would not be relevant to an understanding of the business that we elect to acquire. As a result, our management may not be able to ascertain or assess adequately all of the relevant risk factors. Accordingly, any shareholders who choose to remain shareholders following our initial business combination could suffer a reduction in the value of their shares. Such shareholders are unlikely to have a remedy for such reduction in value.
We are dependent upon our executive officers and directors and their loss could adversely affect our ability to operate.
Our operations are dependent upon a relatively small group of individuals and, in particular, our executive officers and directors and the members of our advisory board. We believe that our success depends on the continued service of our officers, directors and members of our advisory board, at least until we have completed our initial business combination. In addition, our executive officers and directors are not required to commit any specified amount of time to our affairs and, accordingly, will have conflicts of interest in allocating their time among various business activities, including identifying potential business combinations and monitoring the related due diligence. We do not have an employment agreement with, or key-man insurance on the life of, any of our directors or executive officers. The unexpected loss of the services of one or more of our directors or executive officers could have a detrimental effect on us.
Our executive officers and directors will allocate their time to other businesses thereby causing conflicts of interest in their determination as to how much time to devote to our affairs. This conflict of interest could have a negative impact on our ability to complete our initial business combination.
Our executive officers and directors are not required to, and will not, commit their full time to our affairs, which may result in a conflict of interest in allocating their time between our operations and our search for a business combination and their other businesses. We do not intend to have any full-time employees prior to the completion of our initial business combination. Each of our executive officers is engaged in several other business endeavors, including 10X I and 10X III for which he may be entitled to substantial compensation, and our executive officers are not obligated to contribute any specific number of hours per week to our affairs. Our independent directors also serve as officers and board members for other entities, including 10X I and 10X III. If our executive officers’ and directors’ other business affairs require them to devote substantial amounts of time to such affairs in excess of their current commitment levels, it could limit their ability to devote time to our affairs which may have a negative impact on our ability to complete our initial business combination. For a complete discussion of our executive officers’ and directors’ other business affairs, please see “Management — Officers, Directors and Director Nominees.”
Our officers and directors presently have, and any of them in the future may have additional, fiduciary or contractual obligations to other entities and, accordingly, may have conflicts of interest in determining to which entity a particular business opportunity should be presented.
Following the completion of this offering and until we consummate our initial business combination, we intend to engage in the business of identifying and combining with one or more businesses. Each of our officers and directors presently has, and any of them in the future may have, additional fiduciary or contractual obligations to other entities pursuant to which such officer or director is or will be required to present a business combination opportunity to such entity. Accordingly, they may have conflicts of interest in determining to which entity a
particular business opportunity should be presented. These conflicts may not be resolved in our favor and a potential target business may be presented to another entity prior to its presentation to us. Our amended and restated memorandum and articles of association will provide that we renounce our interest in any corporate opportunity offered to any director or officer unless such opportunity is expressly offered to such person solely in his or her capacity as a director or officer of the company and such opportunity is one we are legally and contractually permitted to undertake and would otherwise be reasonable for us to pursue, and to the extent the director or officer is permitted to refer that opportunity to us without violating another legal obligation. In addition, our sponsor and our officers and directors may sponsor or form other special purpose acquisition companies similar to ours or may pursue other business or investment ventures during the period in which we are seeking an initial business combination. Any such companies, businesses or ventures may present additional conflicts of interest in pursuing an initial business combination. In particular, affiliates of our sponsor are currently sponsoring another blank check company, 10X III. 10X III may seek to complete a business combination in any location and is focusing on business combinations in the consumer internet, ecommerce, software, healthcare and financial services industries. Further, Mr. Thomas, our Chief Executive Officer and Chairman, serves as the Chief Executive Officer and Chairman of 10X III. Any such companies, including 10X III, may present additional conflicts of interest in pursuing an acquisition target. However, we do not believe that any such potential conflicts would materially affect our ability to complete our initial business combination.
For a complete discussion of our executive officers’ and directors’ business affiliations and the potential conflicts of interest that you should be aware of, please see “Management — Officers, Directors and Director Nominees,” “Management — Conflicts of Interest” and “Certain Relationships and Related Party Transactions.”
Our executive officers, directors, security holders and their respective affiliates may have competitive pecuniary interests that conflict with our interests.
We have not adopted a policy that expressly prohibits our directors, officers, security holders or affiliates from having a direct or indirect pecuniary or financial interest in any investment to be acquired or disposed of by us or in any transaction to which we are a party or have an interest. In fact, we may enter into a business combination with a target business that is affiliated with our sponsor, our directors or officers, although we do not intend to do so. Nor do we have a policy that expressly prohibits any such persons from engaging for their own account in business activities of the types conducted by us. Accordingly, such persons or entities may have a conflict between their interests and ours.
The personal and financial interests of our directors and officers may influence their motivation in timely identifying and selecting a target business and completing a business combination. Consequently, our directors’ and officers’ discretion in identifying and selecting a suitable target business may result in a conflict of interest when determining whether the terms, conditions and timing of a particular business combination are appropriate and in our shareholders’ best interest. If this were the case, it would be a breach of their fiduciary duties to us as a matter of Cayman Islands law and we or our shareholders might have a claim against such individuals for infringing on our shareholders’ rights. See the section titled “Description of Securities-Certain Differences in Corporate Law-Shareholder Suits” for further information on the ability to bring such claims. However, we might not ultimately be successful in any claim we may make against them for such reason.
We may engage in a business combination with one or more target businesses that have relationships with entities that may be affiliated with our sponsor, executive officers, directors or existing holders which may raise potential conflicts of interest.
In light of the involvement of our sponsor, executive officers and directors with other entities, we may decide to acquire one or more businesses affiliated with our sponsor, executive officers, directors or existing holders. Our directors also serve as officers and board members for other entities, including, without limitation, those described under “Management — Conflicts of Interest.” Such entities may compete with us for business combination opportunities. Our sponsor, officers and directors are not currently aware of any specific
opportunities for us to complete our initial business combination with any entities with which they are affiliated, and there have been no substantive discussions concerning a business combination with any such entity or entities. Although we will not be specifically focusing on, or targeting, any transaction with any affiliated entities, we would pursue such a transaction if we determined that such affiliated entity met our criteria for a business combination as set forth in “Proposed Business — Business Combination Criteria” and such transaction was approved by a majority of our independent and disinterested directors. Despite our agreement to obtain an opinion from an independent investment banking firm which is a member of FINRA or a valuation or appraisal firm regarding the fairness to our company from a financial point of view of a business combination with one or more domestic or international businesses affiliated with our sponsor, executive officers, directors or existing holders, potential conflicts of interest still may exist and, as a result, the terms of the business combination may not be as advantageous to our public shareholders as they would be absent any conflicts of interest.
We may engage one or more of our underwriters or one of their respective affiliates to provide additional services to us after this offering, which may include acting as financial advisor in connection with an initial business combination or as placement agent in connection with a related financing transaction. Our underwriters are entitled to receive deferred commissions that will released from the trust only on a completion of an initial business combination. These financial incentives may cause them to have potential conflicts of interest in rendering any such additional services to us after this offering, including, for example, in connection with the sourcing and consummation of an initial business combination.
We may engage one or more of our underwriters or one of their respective affiliates to provide additional services to us after this offering, including, for example, identifying potential targets, providing financial advisory services, acting as a placement agent in a private offering or arranging debt financing. We may pay such underwriter or its affiliate fair and reasonable fees or other compensation that would be determined at that time in an arm’s length negotiation; provided that no agreement will be entered into with any of the underwriters or their respective affiliates and no fees or other compensation for such services will be paid to any of the underwriters or their respective affiliates prior to the date that is 60 days from the date of this prospectus, unless such payment would not be deemed underwriters’ compensation in connection with this offering. The underwriters are also entitled to receive deferred commissions that are conditioned on the completion of an initial business combination. The underwriters’ or their respective affiliates’ financial interests tied to the consummation of a business combination transaction may give rise to potential conflicts of interest in providing any such additional services to us, including potential conflicts of interest in connection with the sourcing and consummation of an initial business combination.
Since our sponsor, executive officers and directors will lose their entire investment in us if our initial business combination is not completed (other than with respect to public shares they may acquire during or after this offering), a conflict of interest may arise in determining whether a particular business combination target is appropriate for our initial business combination.
On February 18, 2021, our sponsor paid $25,000, or approximately $0.003 per share, to cover certain expenses on our behalf in consideration of 7,666,667 founder shares. Prior to the initial investment in the company of $25,000 by the sponsor, the company had no assets, tangible or intangible. The purchase price of the founder shares was determined by dividing the amount of cash contributed to the company by the number of founder shares issued.
The number of founder shares outstanding was determined based on the expectation that the total size of this offering would be a maximum of 23,000,000 units if the underwriters’ over-allotment option is exercised in full, and therefore that such founder shares would represent 25% of the outstanding shares after this offering (not including the Class A ordinary shares underlying the private placement units). Up to 1,000,000 of the founder shares will be forfeited depending on the extent to which the underwriters’ over-allotment is exercised. The founder shares will be worthless if we do not complete an initial business combination. In addition, Our sponsor and Cantor have committed to purchase an aggregate of 655,000 private placement units for an aggregate
purchase price of $6,550,000, or $10.00 per unit, that will also be worthless if we do not complete our initial business combination. The personal and financial interests of our executive officers and directors may influence their motivation in identifying and selecting a target business combination, completing an initial business combination and influencing the operation of the business following the initial business combination. This risk may become more acute as the 24-month anniversary of the closing of this offering nears, which is the deadline for our completion of an initial business combination.
Risks Relating to our Securities
Concentration of ownership among our sponsor and the anchor investors may prevent other investors frominfluencing significant corporate decisions or adversely affect the trading price of our ordinary shares.
There can be no assurance that any of the anchor investors will acquire any units in this offering, or as to the amount of such units the anchor investors will retain, if any, prior to or upon the consummation of our initial business combination. If the anchor investors each elect to purchase the full amounts described in “Principal Shareholders,” our sponsor and the anchor investors will own collectively substantially all of our outstanding ordinary shares. As a result, these shareholders could have substantial control over us and be able to exercise significant influence over all matters requiring shareholder approval (although we have no knowledge of any affiliation or other agreement or arrangement, as to voting of our securities or otherwise, among any such persons). For example, in the event that the anchor investors purchase the full amount of units described in their respective expressions of interest, continue to hold such shares included in the units and vote such shares in favor of our initial business combination (although they are not contractually obligated to, their interest in our founder shares directly or in the sponsor may provide an incentive for them to do so), we would not need any additional public shares sold in this offering to be voted in favor of our initial business combination to have our initial business combination approved. This potential concentration of influence could be disadvantageous to other shareholders with interests different from those of our sponsor and the anchor investors. In addition, this potential significant concentration of share ownership may adversely affect the trading price of our ordinary shares because investors often perceive disadvantages in owning shares in companies with principal shareholders and might make it more difficult to complete a business combination with targets that would prefer to enter into a transaction with a SPAC with less concentrated ownership.
Potential participation in this offering by the anchor investors could reduce the public float for our shares.
The anchor investors have expressed to us an interest to purchase substantially all (excluding any exercise of the underwriters’ overallotment option) of the units in this offering at the offering price and we have agreed to direct the underwriters to sell to the anchor investors such amount of units. Because these expressions of interest are not binding agreements or commitments to purchase, the anchor investors may determine to purchase fewer or no units in this offering or the underwriters may determine to sell fewer or no units to the anchor investors. If the anchor investors purchase all of the units for which they have expressed an interest, such purchases would reduce the available public float for our securities. Any such reduction in our available public float may consequently reduce the trading volume, volatility and liquidity of our securities relative to what they would have been had such units been purchased by other public investors.
Since the anchor investors will have an indirect beneficial interest in founder shares held by the sponsor, a conflict of interest may arise in determining whether a particular target business is appropriate for our initial business combination.
The anchor investors also are (or will be) members of our sponsor with an indirect beneficial interest in the founder shares held by our sponsor, and will pay only a nominal amount for that indirect beneficial interest. The anchor investors, through their interests in the sponsor, will share in any appreciation in the value of the founder shares above that nominal amount, provided that we successfully complete a business combination. Moreover,
assuming that the anchor investors acquire all of the units in this offering for which they have expressed an interest for a purchase price of $10.00 per unit and acquire an interest in all of the up to [ ] founder shares that they are expected to agree to purchase for a price of $0.003 per share, and assuming each warrant has no value and without taking into account any liquidity discount on the founder shares, the anchor investors will be paying an effective price of $[ ] per ordinary share acquired, as compared to the $10.00 per share to be paid by the other public shareholders in this offering. As a result of their indirect beneficial interest in the founder shares, the anchor investors may have an incentive to vote any public shares they own in favor of a business combination, and, if a business combination is approved, they may make a substantial profit on such interest, even if the business combination is with a target that ultimately declines in value and is not profitable for other public shareholders. Moreover, if the anchor investors retain all of their interests in our public shares and vote those public shares in favor of a business combination, we will receive sufficient votes to approve the business combination, regardless of how any other shareholder votes their shares. You should consider the anchor investors’ financial incentive to complete an initial business combination when evaluating whether to invest in this offering and/or redeem your shares prior to or in connection with an initial business combination.
You will not have any rights or interests in funds from the trust account, except under certain limited circumstances. Therefore, to liquidate your investment, you may be forced to sell your public shares or warrants, potentially at a loss.
Our public shareholders will be entitled to receive funds from the trust account only upon the earlier to occur of: (i) our completion of an initial business combination, and then only in connection with those Class A ordinary shares that such shareholder properly elected to redeem, subject to the limitations described herein, (ii) the redemption of any public shares properly tendered in connection with a shareholder vote to amend our amended and restated memorandum and articles of association to modify the substance or timing of our obligation to redeem 100% of our public shares if we do not complete our initial business combination within 15 months from the closing of this offering or with respect to any other material provisions relating to shareholders’ rights or pre-initial business combination activity, and the redemption of our public shares if we are unable to complete an initial business combination within 15 months from the closing of this offering, subject to applicable law and as further described herein. In addition, if our plan to redeem our public shares if we are unable to complete an initial business combination within 15 months from the closing of this offering is not completed for any reason, compliance with Cayman Islands law may require that we submit a plan of dissolution to our then-existing shareholders for approval prior to the distribution of the proceeds held in our trust account. In that case, public shareholders may be forced to wait beyond 15 months from the closing of this offering before they receive funds from our trust account. In no other circumstances will a public shareholder have any right or interest of any kind in the trust account. Holders of warrants will not have any right to the proceeds held in the trust account with respect to the warrants. Accordingly, to liquidate your investment, you may be forced to sell your public shares or warrants, potentially at a loss.
Nasdaq may delist our securities from trading on its exchange, which could limit investors’ ability to make transactions in our securities and subject us to additional trading restrictions.
We have applied to have our units listed on Nasdaq on or promptly after the date of this prospectus and our Class A ordinary shares and warrants on or promptly after their date of separation. We cannot guarantee that our securities will be approved for listing on Nasdaq. Although after giving effect to this offering we expect to meet, on a pro forma basis, the minimum initial listing standards set forth in the Nasdaq listing standards, we cannot assure you that our securities will be, or will continue to be, listed on Nasdaq in the future or prior to our initial business combination. In order to continue listing our securities on Nasdaq prior to our initial business combination, we must maintain certain financial, distribution and share price levels. Generally, we must maintain a minimum amount in shareholders’ equity (generally $2,500,000) and a minimum number of holders of our securities (generally 300 public holders). Additionally, in connection with our initial business combination, we will be required to demonstrate compliance with Nasdaq’s initial listing requirements, which are more rigorous than Nasdaq’s continued listing requirements, in order to continue to maintain the listing of our securities on Nasdaq. For instance, our share price would generally be required to be at least $4.00 per share, our shareholders’
equity would generally be required to be at least $5.0 million and we would be required to have a minimum of 300 round lot holders (with at least 50% of such round lot holders holding securities with a market value of at least $2,500) of our securities. We cannot assure you that we will be able to meet those initial listing requirements at that time.
If Nasdaq delists our securities from trading on its exchange and we are not able to list our securities on another national securities exchange, we expect our securities could be quoted on an over-the-counter market. If this were to occur, we could face significant material adverse consequences, including:
a limited availability of market quotations for our securities;
reduced liquidity for our securities;
a determination that our Class A ordinary shares are a “penny stock” which will require brokers trading in our Class A ordinary shares to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our securities;
a limited amount of news and analyst coverage; and
a decreased ability to issue additional securities or obtain additional financing in the future.
The National Securities Markets Improvement Act of 1996, which is a federal statute, prevents or preempts the states from regulating the sale of certain securities, which are referred to as “covered securities.” Because we expect that our units and eventually our Class A ordinary shares and warrants will be listed on Nasdaq, our units, Class A ordinary shares and warrants will qualify as covered securities under the statute. Although the states are preempted from regulating the sale of our securities, the federal statute does allow the states to investigate companies if there is a suspicion of fraud, and, if there is a finding of fraudulent activity, then the states can regulate or bar the sale of covered securities in a particular case. While we are not aware of a state having used these powers to prohibit or restrict the sale of securities issued by blank check companies, other than the State of Idaho, certain state securities regulators view blank check companies unfavorably and might use these powers, or threaten to use these powers, to hinder the sale of securities of blank check companies in their states. Further, if we were no longer listed on Nasdaq, our securities would not qualify as covered securities under the statute and we would be subject to regulation in each state in which we offer our securities.
You will not be permitted to exercise your warrants unless we register and qualify the underlying Class A ordinary shares or certain exemptions are available.
If the issuance of the Class A ordinary shares upon exercise of the warrants is not registered, qualified or exempt from registration or qualification under the Securities Act and applicable state securities laws, holders of warrants will not be entitled to exercise such warrants and such warrants may have no value and expire worthless. In such event, holders who acquired their warrants as part of a purchase of units will have paid the full unit purchase price solely for the Class A ordinary shares included in the units.
We are registering the Class A ordinary shares issuable upon exercise of the warrants in the registration statement of which this prospectus forms a part because the warrants will become exercisable 30 days after the completion of our initial business combination, which may be within one year of this offering. However, because the warrants will be exercisable until their expiration date of up to five years after the completion of our initial business combination, in order to comply with the requirements of Section 10(a)(3) of the Securities Act following the consummation of our initial business combination under the terms of the warrant agreement, we have agreed that, as soon as practicable, but in no event later than 15 business days, after the closing of our initial business combination, we will use our best efforts to file with the SEC a post-effective amendment to the registration statement of which this prospectus forms a part or a new registration statement covering the registration under the Securities Act of the Class A ordinary shares issuable upon exercise of the warrants and thereafter will use our best efforts to cause the same to become effective within 60 business days following our initial business combination and to maintain a current prospectus relating to the Class A ordinary shares issuable
upon exercise of the warrants until the expiration of the warrants in accordance with the provisions of the warrant agreement. We cannot assure you that we will be able to do so if, for example, any facts or events arise which represent a fundamental change in the information set forth in the registration statement or prospectus, the financial statements contained or incorporated by reference therein are not current or correct or the SEC issues a stop order.
If the Class A ordinary shares issuable upon exercise of the warrants are not registered under the Securities Act, under the terms of the warrant agreement, holders of warrants who seek to exercise their warrants will not be permitted to do so for cash and, instead, will be required to do so on a cashless basis in accordance with Section 3(a)(9) of the Securities Act or another exemption.
In no event will warrants be exercisable for cash or on a cashless basis, and we will not be obligated to issue any shares to holders seeking to exercise their warrants, unless the issuance of the shares upon such exercise is registered or qualified under the securities laws of the state of the exercising holder, or an exemption from registration or qualification is available.
If our Class A ordinary shares are at the time of any exercise of a warrant not listed on a national securities exchange such that they satisfy the definition of “covered securities” under Section 18(b)(1) of the Securities Act, we may, at our option, not permit holders of warrants who seek to exercise their warrants to do so for cash and, instead, require them to do so on a cashless basis in accordance with Section 3(a)(9) of the Securities Act; in the event we so elect, we will not be required to file or maintain in effect a registration statement or register or qualify the shares underlying the warrants under applicable state securities laws, and in the event we do not so elect, we will use our best efforts to register or qualify the shares underlying the warrants under applicable state securities laws to the extent an exemption is not available.
In no event will we be required to net cash settle any warrant, or issue securities (other than upon a cashless exercise as described above) or other compensation in exchange for the warrants in the event that we are unable to register or qualify the shares underlying the warrantssecurities for sale under the Securities Act orall applicable state securities laws. Redemption of the outstanding warrants could force a warrant holder to: (i) exercise its warrants and pay the exercise price at a time when it may be disadvantageous for such warrant holder to do so; (ii) sell its warrants at the then-current market price when a warrant holder might otherwise wish to hold its warrants; or (iii) accept the nominal redemption price which, at the time the outstanding warrants are called for redemption, is likely to be substantially less than the market value of a warrant holder’s warrants.
You
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The value received upon exercise of the warrants (1) may be less than the value the holders would have received if they had exercised their warrants at a later time where the underlying share price is higher and (2) may not compensate the holders for the value of the warrants. None of the private placement warrants will be redeemable, subject to certain circumstances, so long as they are held by their initial purchasers or their permitted transferees.
A warrant holder may only be able to exercise yourits public warrants on a “cashless basis” under certain circumstances, and if you doa warrant holder does so, yousuch warrant holder will receive fewer Class A ordinary shares of Common Stock from such exercise than if youa warrant holder were to exercise such warrants for cash.
The warrant agreement provides that in the following circumstances holders of warrants who seek to exercise their warrants will not be permitted to do for cash and will, instead, be required to do so on a cashless basis in accordance with Section 3(a)(9) of the Securities Act: (i) if the Class A ordinary sharesCommon Stock issuable upon exercise of the warrants are not registered under the Securities Act in accordance with the terms of the warrant agreement; (ii) if we have so elected and the Class A ordinary sharesCommon Stock are at the time of any exercise of a warrant not listed on a national securities exchange such that they satisfy the definition of “covered securities” under Section 18(b)(1) of the Securities Act; and (iii) if we have so elected and we call the public warrants for redemption. If you exercise your public warrants on a cashless basis, you would pay the warrant exercise price by surrendering all of the warrants for that number of Class A ordinary shares of Common Stock equal to the quotient obtained by dividing (x) the product of the number Class A ordinaryof shares of Common Stock underlying the warrants, multiplied by the excess of the “fair market value” of our Class A ordinary sharesthe Common Stock (as defined in the next sentence) over the exercise price of the warrants by (y) the fair market value. The “fair market value” is the average reported closing price of the Class A ordinary sharesCommon Stock for the 10 trading days ending on the third trading day prior to the date on which the notice of exercise is received by the warrant agent or on which the notice of redemption is sent to the holders of warrants, as applicable.the warrants. As a result, you would receive fewer Class A ordinary shares of Common Stock from such exercise than if you were to exercise such warrants for cash.
The grant of registration rights toThere can be no assurance that our initial shareholders, holders of our private placement units, private placement shares and private placementpublic warrants and the anchor investors may make it more difficult to complete our initial business combination, and the future exercise of such rights may adversely affect the market price of our Class A ordinary shares.
Pursuant to an agreement to be entered into concurrently with the issuance and sale of the securities in this offering, our initial shareholders and their permitted transferees, and anchor investors can demand that we register the Class A ordinary shares into which founder shares are convertible, holders of our private placement warrants and their permitted transferees can demand that we register the private placement warrants and the Class A ordinary shares issuable upon exercise of the private placement warrants and holders of warrants that may be issued upon conversion of working capital loans may demand that we register such warrants or the Class A ordinary shares issuable upon conversion of such warrants. The registration rights will be exercisable with respect to the founder shares and the private placement units, private placement shares and private placement warrants and the Class A ordinary shares issuable upon exercise of such private placement warrants. We will bear the cost of registering these securities. The registration and availability of such a significant number of securities for trading in the public market may have an adverse effect on the market price of our Class A ordinary shares. In addition, the existence of the registration rights may make our initial business combination more costly or difficult to conclude. This is because the shareholders of the target business may increase the equity stake they seek in the combined entity or ask for more cash consideration to offset the negative impact on the market price of our Class A ordinary shares that is expected when the ordinary shares owned by our initial shareholders and the anchor investors, holders of our private placement warrants or holders of our working capital loans or their respective permitted transferees are registered.
We may issue additional Class A ordinary shares or preference shares to complete our initial business combination or under an employee incentive plan after completion of our initial business combination. We may also issue Class A ordinary shares upon the conversion of the founder shares at a ratio greater than one-to-onemoney at the time of our initial business combination as a result of the anti-dilution provisions contained in our amendedthey become exercisable, and restated memorandum and articles of association. Any such issuances would dilute the interest of our shareholders and likely present other risks.they may expire worthless.
Our amended and restated memorandum and articles of association authorize the issuance of up to 500,000,000 Class A ordinary shares, par value $0.0001 per share, 50,000,000 Class B ordinary shares, par value $0.0001 per share, and 1,000,000 preference shares, par value $0.0001 per share. Immediately after this offering, there will be 479,345,000 and 43,333,333 (assuming in each case that the underwriters have not exercised their over-allotment option and the forfeiture of 1,000,000 Class B ordinary shares) authorized but unissued Class A ordinary shares and Class B ordinary shares, respectively, available for issuance which amount does not take into account shares reserved for issuance upon exercise of outstanding warrants or shares issuable upon conversion of the Class B ordinary shares. The Class B ordinary shares are automatically convertible into Class A ordinary shares concurrently with or immediately following the consummation of our initial business combination, initially at a one-for-one ratio but subject to adjustment as set forth herein and in our amended and restated memorandum and articles of association. Immediately after this offering, there will be no preference shares issued and outstanding.
We may issue a substantial number of additional Class A ordinary shares or preference shares to complete our initial business combination or under an employee incentive plan after completion of our initial business combination. We may also issue Class A ordinary shares upon conversion of the Class B ordinary shares at a ratio greater than one-to-one at the time of our initial business combination as a result of the anti-dilution provisions as set forth therein. However, our amended and restated memorandum and articles of association provide, among other things, that prior to our initial business combination, we may not issue additional shares that would entitle the holders thereof to (i) receive funds from the trust account or (ii) vote as a class with our public shares on any initial business combination. These provisions of our amended and restated memorandum and articles of association, like all provisions of our amended and restated memorandum and articles of
association, may be amended with a shareholder vote. The issuance of additional ordinary shares or preference shares:
may significantly dilute the equity interest of investors in this offering;
may subordinate the rights of holders of Class A ordinary shares if preference shares are issued with rights senior to those afforded our Class A ordinary shares;
could cause a change in control if a substantial number of Class A ordinary shares are issued, which may affect, among other things, our ability to use our net operating loss carry forwards, if any, and could result in the resignation or removal of our present officers and directors; and
may adversely affect prevailing market prices for our units, Class A ordinary shares and/or warrants.
Unlike some other similarly structured special purpose acquisition companies, our initial shareholders will receive additional Class A ordinary shares if we issue certain shares to consummate an initial business combination.
The founder shares will automatically convert into Class A ordinary shares concurrently with or immediately following the consummation of our initial business combination on a one-for-one basis, subject to adjustment for stock splits, stock dividends, reorganizations, recapitalizations and the like, and subject to further adjustment as provided herein. In the case that additional Class A ordinary shares or equity-linked securities are issued or deemed issued in connection with our initial business combination, the number of Class A ordinary shares issuable upon conversion of all founder shares will equal, in the aggregate, on an as-converted basis, 25% of the total number of Class A ordinary shares outstanding after such conversion (after giving effect to any redemptions of Class A ordinary shares by public shareholders and not including the Class A ordinary shares underlying the private placement units), including the total number of Class A ordinary shares issued, or deemed issued or issuable upon conversion or exercise of any equity-linked securities or rights issued or deemed issued, by the Company in connection with or in relation to the consummation of the initial business combination, excluding any Class A ordinary shares or equity-linked securities or rights exercisable for or convertible into Class A ordinary shares issued, or to be issued, to any seller in the initial business combination and any private placement units issued to our sponsor, officers or directors upon conversion of working capital loans, provided that such conversion of founder shares will never occur on a less than one-for-one basis. This is different than some other similarly structured special purpose acquisition companies in which the initial shareholders will only be issued an aggregate of 25% of the total number of shares to be outstanding prior to our initial business combination.
Our initial shareholders paid an aggregate of $25,000 to cover certain of our offering costs in exchange for 7,666,667 founder shares, or approximately $0.003 per founder share and, accordingly, you will experience immediate and substantial dilution from the purchase of our Class A ordinary shares.
The difference between the public offering price per share (allocating all of the unit purchase price to the Class A ordinary share and none to the warrant included in the unit) and the pro forma net tangible book value per share of our Class A ordinary shares after this offering constitutes the dilution to you and the other investors in this offering. Our initial shareholders acquired the founder shares at a nominal price, significantly contributing to this dilution. Upon closing of this offering, and assuming no value is ascribed to the warrants included in the units, you and the other public shareholders will incur an immediate and substantial dilution of approximately 94.5% or $9.45 per share, assuming no exercise of the underwriters’ over-allotment option), the difference between the pro forma net tangible book value per share after this offering of $0.55 and the initial offering price of $10.00 per unit. This dilution would increase to the extent that the anti-dilution provisions of the founder shares result in the issuance of Class A ordinary shares on a greater than one-to-one basis upon conversion of the founder shares at the time of our initial business combination and would become exacerbated to the extent that public shareholders seek redemptions from the trust for their public shares. In addition, because of the anti-dilution protection in the founder shares, any equity or equity-linked securities issued in connection with our initial business combination would be disproportionately dilutive to our Class A ordinary shares.
We may amend the terms of the warrants in a manner that may be adverse to holders of public warrants with the approval by the holders of at least 50% of the then outstanding public warrants. As a result, the exercise price of your warrants could be increased,for the exercise period could be shortened and the number of Class A ordinary shares purchasable upon exercise of a warrant could be decreased, all without your approval.
Our warrants will be issued in registered form under a warrant agreement between Continental Stock Transfer & Trust Company, as warrant agent, and us. The warrant agreement provides that the terms of the warrants may be amended without the consent of any holder to cure any ambiguity or correct any defective provision, but requires the approval by the holders of at least 50% of the then outstanding public warrants to make any change that adversely affects the interests of the registered holders of public warrants. Accordingly, we may amend the terms of the public warrants in a manner adverse to a holder if holders of at least 50% of the then outstanding public warrants approve of such amendment. Although our ability to amend the terms of the public warrants with the consent of at least 50% of the then outstanding public warrants is unlimited, examples of$11.50 per share. There can be no assurance that such amendments couldwarrants will be amendments to, among other things, increasein the exercise price ofmoney following the warrants, convert the warrants into cash or stock (at a ratio different than initially provided), shorten the exercise period or decrease the number of Class A ordinary shares purchasable upon exercise of a warrant.
We may redeem your unexpired warrants prior to their exercise at a time that is disadvantageous to you, thereby making your warrants worthless.
We have the ability to redeem all of the outstanding warrants at any time after they become exercisable and prior to their expiration, at a price of $0.01 per warrant, provided that the closing price of our Class A ordinary shares equals or exceeds $18.00 per share (as adjusted for stock splits, stock capitalizations, reorganizations, recapitalizations and the like and for certain issuances of Class A ordinary shares and equity-linked securities for capital raising purposes in connection with the closing of our initial business combination as described elsewhere in this prospectus) for any 20 trading days within a 30 trading-day period ending on the third trading day prior to proper notice of such, redemption provided that on the date we give notice of redemption. We will not redeem the warrants unless an effective registration statement under the Securities Act covering the Class A ordinary shares issuable upon exercise of the warrants is effective and a current prospectus relating to those Class A ordinary shares is available throughout the 30-day redemption period, except if the warrants may be exercised on a cashless basis and such cashless exercise is exempt from registration under the Securities Act. If and when the warrants become redeemable by us, we may exercise our redemption right even if we are unable to register or qualify the underlying securities for sale under all applicable state securities laws. Redemption of the outstanding warrants could force you to (i) exercise your warrants and pay the exercise price therefor at a time when it may be disadvantageous for you to do so, (ii) sell your warrants at the then-current market price when you might otherwise wish to hold your warrants or (iii) accept the nominal redemption price which, at the time the outstanding warrants are called for redemption, is likely to be substantially less than the market value of your warrants.expire worthless.
Our warrants may have an adverse effect on the market price of our Class A ordinary shares and make it more difficult to effectuate our initial business combination.
We will be issuing warrants to purchase 6,666,667 Class A ordinary shares (or up to 7,666,667 Class A ordinary shares if the underwriters’ over-allotment option is exercised in full) as part of the units offered by this prospectus and, simultaneously with the closing of this offering, we will be issuing in a private placement an aggregate of 655,000 private placement units, which include private placement warrants to purchase an aggregate of 218,333 Class A ordinary shares at $11.50 per share. In addition, if our sponsor or an affiliate of our sponsor or certain of our officers and directors makes any working capital loans, such lender may convert those loans into up to an additional 1,500,000 private placement units, at the price of $10.00 per unit. To the extent we issue ordinary shares to effectuate a business transaction, the potential for the issuance of a substantial number of additional Class A ordinary shares upon exercise of these warrants could make us a less attractive acquisition vehicle to a target business. Such warrants, when exercised, will increase the number of issued and outstanding
Class A ordinary shares and reduce the value of the Class A ordinary shares issued to complete the business transaction. Therefore, our warrants may make it more difficult to effectuate a business transaction or increase the cost of acquiring the target business.
Because each unit contains one-third of one warrant and only a whole warrant may be exercised, the units may be worth less than units of other special purpose acquisition companies.
Each unit contains one-third of one warrant. Pursuant to theThe warrant agreement no fractional warrants will be issued upon separation of the units, and only whole units will trade. If, upon exercise of the warrants, a holder would be entitled to receive a fractional interest in a share, we will, upon exercise, round down to the nearest whole number the number of Class A ordinary shares to be issued to the warrant holder. This is different from other offerings similar to ours whose units include one ordinary share and one warrant to purchase one whole share. We have established the components of the units in this way in order to reduce the dilutive effect of the warrants upon completion of a business combination since the warrants will be exercisable in the aggregate for one-third of the number of shares compared to units that each contain a whole warrant to purchase one share, thus making us, we believe, a more attractive merger partner for target businesses. Nevertheless, this unit structure may cause our units to be worth less than if it included a warrant to purchase one whole share.
Our warrant agreement will designatedesignates the courts of the State of New York or the United States District Court for the Southern District of New York as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by holders of ourthe warrants, which could limit the ability of warrant holders to obtain a favorable judicial forum for disputes with our company.disputes.
Our
The warrant agreement will provideprovides that, subject to applicable law, (i) any action, proceeding or claim against us arising out of or relating in any way to the warrant agreement, including under the Securities Act, will be brought and enforced in the courts of the State of New York or the United States District Court for the Southern District of New York, and (ii) that we irrevocably submit to such jurisdiction, which jurisdiction shall be the exclusive forum for any such action, proceeding or claim. We will waive any objection to such exclusive jurisdiction and that such courts represent an inconvenient forum.
Notwithstanding the foregoing, these provisions of the warrant agreement will not apply to suits brought to enforce any liability or duty created by the Exchange Act or any other claim for which the federal district courts of the United States of America are the sole and exclusive forum. Any person or entity purchasing or otherwise acquiring any interest in any of ourthe warrants shall be deemed to have notice of and to have consented to the forum provisions in ourthe warrant agreement. If any action, the subject matter of which is within the scope of the forum provisions of the warrant agreement, is filed in a court other than a court of the State of New York or the United States District Court for the Southern District of New York (a “foreign action”) in the name of any holder of our warrants, such holder shall be deemed to have consented to: (x) the personal jurisdiction of the state and federal courts located in the State of New York in connection with any action brought in any such court to enforce the forum provisions (an “enforcement action”), and (y) having service of process made upon such warrant holder in any such enforcement action by service upon such warrant holder’s counsel in the foreign action as agent for such warrant holder.
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This choice-of-forum provision may limit a warrant holder’s ability to bring a claim in a judicial forum that it finds favorable for disputes, with our company, which may discourage such lawsuits. Alternatively, if a court were to find this provision of ourthe warrant agreement inapplicable or unenforceable with respect to one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could materially and adversely affect our business, financial condition and results of operations and result in a diversion of the time and resources of our management and board of directors.
The determination of the offering price of our units, the size of this offering and terms of the units is more arbitrary than the pricing of securities and size of an offering of an operating company in a particular
industry. You may have less assurance, therefore, that the offering price of our units properly reflects the value of such units than you would have in a typical offering of an operating company.
Prior to this offering there has been no public market for any of our securities. The public offering price of the units and the terms of the warrants were negotiated between us and the underwriters. In determining the size of this offering, management held customary organizational meetings with representatives of the underwriters, both prior to our inception and thereafter, with respect to the state of capital markets, generally, and the amount the underwriters believed they reasonably could raise on our behalf. Factors considered in determining the size of this offering, prices and terms of the units, including the Class A ordinary shares and warrants underlying the units, include:
the history and prospects of companies whose principal business is the acquisition of other companies;
prior offerings of those companies;
our prospects for acquiring an operating business at attractive values;
a review of debt to equity ratios in leveraged transactions;
our capital structure;
an assessment of our management and their experience in identifying operating companies;
general conditions of the securities markets at the time of this offering; and
other factors as were deemed relevant.
Although these factors were considered, the determination of our offering size, price and terms of the units is more arbitrary than the pricing of securities of an operating company in a particular industry since we have no historical operations or financial results.
There is currently no market for our securities and aAn active, liquid trading market for our securities may not develop, which may limit your ability to sell such securities.
Although our Common Stock and public warrants are listed on Nasdaq under the ticker symbols “AAGR” and “AAGRW”, respectively, an active trading market for such securities may never develop or be sustained. A public trading market having the desirable characteristics of depth, liquidity and orderliness depends upon the existence of willing buyers and sellers at any given time, such existence being dependent upon the individual decisions of buyers and sellers over which neither we nor any market maker has control. The failure of an active and liquid trading market to develop and continue would likely have a material adverse effect on the value of Common Stock and warrants. An inactive market may also impair our ability to raise capital to continue to fund operations.
Reports published by analysts, including projections in those reports that differ from our actual results, could adversely affect the liquidityprice and trading volume of its common shares.
Securities research analysts may establish and publish their own periodic projections for us. These projections may vary widely and may not accurately predict the results we actually achieve. Our share price may decline if our actual results do not match the projections of these securities research analysts. Similarly, if one or more of the analysts who write reports on us downgrades our securities.
There is currently no market forstock or publishes inaccurate or unfavorable research about our securities. Shareholders therefore have no accessbusiness, our share price could decline. If one or more of these analysts ceases coverage of us or fails to information about prior market historypublish reports on which to base their investment decision. Following this offering,us regularly, our share price or trading volume could decline.
In addition, fluctuations in the price of our securities may vary significantly duecould contribute to onethe loss of all or more potential business combinationspart of your investment. The trading price of our securities could be volatile and general market or economic conditions. Furthermore, an active trading market forsubject to wide fluctuations in response to various factors, some of which are beyond our control. Any of the factors listed below could have a material adverse effect on our securities and our securities may never developtrade at prices significantly below the price you paid for them. In such circumstances, the trading price of our securities may not recover and may experience a further decline.
Factors affecting the trading price of our securities may include:
| ● | actual or anticipated fluctuations in our financial results or the financial results of companies perceived to be similar to us; |
| ● | changes in the market’s expectations about our operating results; |
| ● | success of our competitors; |
| ● | operating results failing to meet the expectations of securities analysts or investors in a particular period; |
| ● | changes in financial estimates and recommendations by securities analysts concerning us or the industry in which we operate in general; |
| ● | operating and stock price performance of other companies that investors deem comparable to ours; |
| ● | ability to grow and sell certain crops; |
| ● | changes in laws and regulations affecting our business; |
| ● | commencement of, or involvement in, litigation; |
| ● | changes in our capital structure, such as future issuances of securities or the incurrence of debt; |
| ● | the volume of shares Common Stock available for public sale; |
| ● | any major change in our board or management; |
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| ● | sales of substantial amounts of our Common Stock by our directors, executive officers or significant stockholders or the perception that such sales could occur; and |
| ● | general economic and political conditions such as recessions, interest rates, fuel prices, international currency fluctuations and acts of war or terrorism. |
Broad market and industry factors may materially harm the market price of our securities irrespective of our operating performance. The stock market in general has experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a result of this volatility, you may not be able to sell your securities at or above the price at which it was acquired. A loss of investor confidence in the market for the stocks of other companies which investors perceive to be similar to us could depress our stock price regardless of our business, prospects, financial conditions or results of operations. A decline in the market price of our securities also could adversely affect our ability to issue additional securities and our ability to obtain additional financing in the future.
We may fail to meet our publicly announced guidance or other expectations about our business, which would cause our stock price to decline.
We expect to provide guidance regarding our expected financial and business performance, such as projections regarding sales and product development, as well as anticipated future revenues, gross margins, profitability and cash flows. Correctly identifying key factors affecting business conditions and predicting future events is inherently an uncertain process and our guidance may not be accurate. If our guidance is not accurate or varies from actual results due to our inability to meet our assumptions or the impact on our financial performance that could occur as a result of various risks and uncertainties, the market value of our Common Stock could decline significantly.
We do not intend to pay cash dividends for the foreseeable future.
We currently intend to retain our future earnings, if developed,any, to finance the further development and expansion of our business and do not intend to pay cash dividends for the foreseeable future. Any future determination to pay dividends will be at the discretion of our Board and will depend on our financial condition, results of operations, capital requirements, restrictions contained in future agreements and financing instruments, business prospects and such other factors as our board of directors deems relevant. As a result, capital appreciation, if any, of Common Stock will be your sole source of gain for the foreseeable future.
We are subject to changing law and regulations regarding regulatory matters, corporate governance and public disclosure that have increased both our costs and the risk of non-compliance.
We are subject to rules and regulations by various governing bodies, including, for example, the SEC, which are charged with the protection of investors and the oversight of companies whose securities are publicly traded, and to new and evolving regulatory measures under applicable law. Our efforts to comply with new and changing laws and regulations have resulted in increased general and administrative expenses and a diversion of management time and attention.
Moreover, because these laws, regulations and standards are subject to varying interpretations, their application in practice may evolve over time as new guidance becomes available. This evolution may result in continuing uncertainty regarding compliance matters and additional costs necessitated by ongoing revisions to our disclosure and governance practices. If we fail to address and comply with these regulations and any subsequent changes, we may be subject to penalty and our business may be harmed.
Investors may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing actions against us our our management based on foreign laws.
Although we are a Delaware corporation, we anticipates conducting a substantial part of our business in certain foreign jurisdictions such as the Middle East and Africa, and a significant portion of our assets are located in Africa. In addition, our officers may reside within Africa for a significant portion of the time. Countries where we operate may not have treaties providing for the reciprocal recognition and enforcement of judgments of courts with the United States. As a result, it may not be sustained. You may be unablepossible for investors to sell your securities unless a market can be established and sustained.
Because we are incorporated under the laws of the Cayman Islands, you may face difficulties in protecting your interests, and your abilityserve process upon those persons, or to protect your rights through theenforce against them, any judgments obtained from U.S. Federal courts may be limited.
We are an exempted company incorporated under the laws of the Cayman Islands.courts. As a result, it may be difficult for investorsyou to effect service of process within the United States upon our directorsus or officers, orthose persons. It may also be difficult for you to enforce judgments obtained in U.S. courts based on the civil liability provisions of the U.S. federal securities laws against our officers and directors who do not reside in the United States courts against our directors or officers.
Our corporate affairs will be governed by our amended and restated memorandum and articles of association, the Companies Act (as the same may be supplemented or amended from time to time) and the common law of the Cayman Islands. We will also be subject to the federal securities laws of the United States. The rights of shareholders to take action against the directors, actions by minority shareholders and the fiduciary responsibilities of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from English common law, the decisions of whose courts are of persuasive authority, but are not binding on a court in the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are different from what
they would be under statutes or judicial precedent in some jurisdictionshave substantial assets located in the United States. In particular, the Cayman Islands has a different body of securities lawsaddition, there is uncertainty as compared to the United States, and certain states, such as Delaware, may have more fully developed and judicially interpreted bodies of corporate law. In addition, Cayman Islands companies may not have standing to initiate a shareholders derivative action in a Federal court of the United States.
We have been advised by Maples and Calder (Cayman) LLP, Cayman Islands legal counsel, thatwhether the courts of the Cayman Islands are unlikely (i) toin Senegal or other non-U.S. jurisdictions would recognize or enforce judgments of U.S. courts against us judgments of courts of the United Statesor such persons predicated upon the civil liability provisions of the U.S. federal securities lawslaws.
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Our business and operations could be negatively affected if we become subject to any securities litigation or stockholder activism, which could cause us to incur significant expense, hinder execution of business and growth strategy and impact our stock price.
In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been brought against that company. Shareholder activism, which could take many forms or arise in a variety of situations, has been increasing recently. Volatility in the stock price of the United StatesCommon Stock or any state; and (ii) in original actions broughtother reasons may in the Cayman Islands,future cause us to become the target of securities litigation or stockholder activism. Securities litigation and stockholder activism, including potential proxy contests, could result in substantial costs and divert management’s and our board of directors’ attention and resources from our business. Additionally, such securities litigation and stockholder activism could give rise to perceived uncertainties as to our future, adversely affect our relationships with suppliers, service providers and customers and make it more difficult to attract and retain qualified personnel. Also, we may be required to incur significant legal fees and other expenses related to any securities litigation and activist stockholder matters.
Further, our stock price could be subject to significant fluctuation or otherwise be adversely affected by the events, risks and uncertainties of any securities litigation and stockholder activism.
We will need, but may be unable to obtain, funding on satisfactory terms, which could dilute our stockholders and investors, or impose liabilities against us predicatedburdensome financial restrictions on our business.
We have relied upon cash from financing activities and in the civil liability provisionsfuture, we intend to rely on revenues generated from operations to fund all of the federalcash requirements of our activities. Future financings may not be available on a timely basis, in sufficient amounts or on terms acceptable to us, if at all. Any debt financing or other financing of securities lawssenior to the Common Stock will likely include financial and other covenants that will restrict our flexibility. Any failure to comply with these covenants may cause an event of the United States or any state, so far as the liabilities imposed by those provisions are penal in nature. In those circumstances, although there is no statutory enforcement in the Cayman Islandsdefault and acceleration of judgments obtained in the United States, the courts of the Cayman Islands will recognize and enforce a foreign money judgment of a foreign court of competent jurisdiction without retrial on the merits based on the principle that a judgment of a competent foreign court imposes upon the judgment debtor an obligation to pay the sum fordebt, which judgment has been given provided certain conditions are met. Forwould have a foreign judgment to be enforced in the Cayman Islands, such judgment must be finalmaterial adverse effect on our business, prospects, financial condition and conclusiveresults of operations and for a liquidated sum,we could lose existing sources of funding and must not be in respect of taxes or a fine or penalty, inconsistent with a Cayman Islands judgment in respect of the same matter, impeachable on the grounds of fraud or obtained in a manner, or be of a kind the enforcement of which is, contrary to natural justice or the public policy of the Cayman Islands (awards of punitive or multiple damages may well be held to be contrary to public policy). A Cayman Islands Court may stay enforcement proceedings if concurrent proceedings are being brought elsewhere.
As a result of all of the above, public shareholders may have more difficulty in protecting their interests in the face of actions taken by management, members of the board of directors or controlling shareholders than they would as public shareholders of a United States company.
General Risk Factors
We are a blank check company with no operating history and no revenues, and you have no basis on which to evaluateimpair our ability to achieve our business objective.
We are a blank check company incorporated under the lawssecure new sources of the Cayman Islands with no operating results, and we will not commence operations until obtaining funding through this offering. Because we lack an operating history, you have no basis upon which to evaluate our ability to achieve our business objective of completing our initial business combination. We have no plans, arrangements or understandings with any prospective target business concerning a business combination and may be unable to complete our initial business combination. If we fail to complete our initial business combination, we will never generate any operating revenues.
We may be a passive foreign investment company, or “PFIC,” which could result in adverse United States federal income tax consequences to U.S. investors.
If we are a PFIC for any taxable year (or portion thereof) that is included in the holding period of a U.S. Holder (as defined in the section of this prospectus captioned “Taxation-United States Federal Income Tax Considerations-U.S. Holders”) of our Class A ordinary shares or warrants, the U.S. Holder may be subject to adverse U.S. federal income tax consequences and may be subject to additional reporting requirements. Our PFIC status for our current and subsequent taxable years may depend on whether we qualify for the PFIC start-up exception (see the section of this prospectus captioned “Taxation-United States Federal Income Tax Considerations-U.S. Holders-Passive Foreign Investment Company Rules”). Depending on the particular circumstances the application of the start-up exception may be subject to uncertainty, and there cannot be any assurance that we will qualify for the start-up exception. Accordingly, there can be no assurances with respect to
our status as a PFIC for our current taxable year or any subsequent taxable year. Our actual PFIC status for any taxable year, however, will not be determinable until after the end of such taxable year. Moreover, if we determine we are a PFIC for any taxable year, upon written request, we will endeavor to provide to a U.S. Holder such information as the Internal Revenue Service (“IRS”) may require, including a PFIC annual information statement, in order to enable the U.S. Holder to make and maintain a “qualified electing fund” election, but therefunding. There can be no assurance that we will timely provide such required information, and such election would be unavailable with respectable to our warrants in all cases. We urge U.S. investors to consult their own tax advisors regarding the possible application of the PFIC rules. For a more detailed explanation of the tax consequences of PFIC classification to U.S. Holders, see the section of this prospectus captioned “Taxation—United States Federal Income Tax Considerations—U.S. Holders-Passive Foreign Investment Company Rules.”
An investment in this offering may result in uncertain U.S. federal income tax consequences.
An investment in this offering may result in uncertain U.S. federal income tax consequences. For instance, because there are no authorities that directly address instruments similar to the units we are issuing in this offering, the allocation angenerate any further investor makes with respect to the purchase price of a unit between the Class A ordinary shares and the one-third of a warrant included in each unit could be challenged by the IRS or courts. In addition, the U.S. federal income tax consequences of a cashless exercise of warrants included in the units we are issuing in this offering is unclear under current law. Finally, it is unclear whether the redemption rights with respect to our Class A ordinary shares suspend the running of a U.S. Holder’s (as defined in section titled “Taxation—United States Federal Income Tax Consideration-U.S. Holders”) holding period for purposes of determining whether any gain or loss realized by such holder on the sale or exchange of Class A ordinary shares is long-term capital gain or loss and for determining whether any dividend we pay would be considered “qualified dividend income” for U.S. federal income tax purposes. See the section titled “Taxation-United States Federal Income Tax Considerations” for a summary of the U.S. federal income tax considerations of an investmentinterest in our securities. Prospective investors are urged to consult their tax advisors with respect to these andsecurities or other tax consequences when acquiring, owning or disposingtypes of our securities.
We may reincorporate in another jurisdiction in connection with our initial business combination and such reincorporation may result in taxes imposed on shareholders or warrant holders.
We may, in connection with our initial business combination and subject to requisite shareholder approval by special resolution under the Companies Act, reincorporate in the jurisdictionfunding, in which case investors would likely lose the target company or business is located or in another jurisdiction. The transaction may require a shareholder or warrant holder to recognize taxable income in the jurisdiction in which the shareholder or warrant holder is a tax resident or in which its members are resident if it is a tax transparent entity. entirety of their investment.
We do not intend to make any cash distributions to shareholders or warrant holders to pay such taxes. Shareholders or warrant holders maycould be subject to withholding taxeschanges in tax rates or the adoption of new tax legislation, whether in or out of the United States, or could otherwise have exposure to additional tax liabilities, which could harm our business.
As a multinational business, we will be subject to income and other taxes with respect to their ownership of us after the reincorporation.
After our initial business combination, it is possible that a majority of our directors and officers will live outsidein both the United States and all of our assets will be located outside the United States; therefore, investors may not be ablevarious foreign jurisdictions. Changes to enforce federal securitiestax laws or their other legal rights.
It is possible that after our initial business combination, a majority of our directors and officersregulations in the jurisdictions in which we will reside outside of the United States and all of our assets will be located outside of the United States. As a result, it may be difficult,operate, or in some cases not possible, for investorsthe interpretation of such laws or regulations, could significantly increase our effective tax rate and reduce our cash flow from operating activities, and otherwise have a material adverse effect on our financial condition. For example, the Inflation Reduction Act of 2022 signed into law in the United States to enforce their legal rights, to effect serviceon August 16, 2022 introduced a 15% corporate minimum tax on certain corporations and a 1% excise tax on certain stock repurchases by certain corporations, among other changes. There can be no assurance regarding whether other such changes will occur and, if so, the ultimate impact on our business or results of process upon allits operation.
In addition, other factors or events, including business combinations and investment transactions, changes in the valuation of our directorsdeferred tax assets and liabilities, adjustments to taxes upon finalization of various tax returns or officers or to enforce judgments of United States courts predicated upon civil liabilities and criminal penalties on our directors and officers under United States laws.
We are an emerging growth company and a smaller reporting company within the meaning of the Securities Act, and if we take advantage of certain exemptions from disclosure requirements available to emerging growth companies or smaller reporting companies, this could make our securities less attractive to investors and may make it more difficult to compare our performance with other public companies.
We are an “emerging growth company” within the meaning of the Securities Act, as modified by the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor internal controls attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. As a result, our shareholders may not have access to certain information they may deem important. We could be an emerging growth company for up to five years, although circumstances could cause us to lose that status earlier, including if the market value of our Class A ordinary shares held by non-affiliates exceeds $700 million as of any June 30 before that time, in which case we would no longer be an emerging growth company as of the following December 31. We cannot predict whether investors will find our securities less attractive because we will rely on these exemptions. If some investors find our securities less attractive as a result of our reliance on these exemptions,deficiencies asserted by taxing authorities, increases in expenses not deductible for tax purposes, changes in available tax credits, changes in transfer pricing methodologies, other changes in the trading pricesapportionment of our securitiesincome and other activities among tax jurisdictions, and changes in tax rates, could also increase our effective tax rate.
Our tax filings will be subject to review or audit by the U.S. Internal Revenue Service (the “IRS”) and state, local and foreign taxing authorities. We may also be liable for taxes in connection with businesses we acquire. Our determinations will not be binding on the IRS or any other taxing authorities, and accordingly the final determination in an audit or other proceeding may be lowermaterially different than they otherwise would be, therethe treatment reflected in our tax provisions, accruals and returns. An assessment of additional taxes because of an audit could harm our business.
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Further changes in the tax laws of foreign jurisdictions could arise, in particular, as a result of the base erosion and profit shifting project that was undertaken by the Organization for Economic Co-operation and Development (the “OECD”). The OECD, which represents a coalition of member countries, recommended changes to numerous longstanding tax principles. As of November 4, 2021, 137 member jurisdictions of the G20/OECD Inclusive Framework on BEPS have joined the “Statement on a Two-Pillar Solution to Address the Tax Challenges Arising from the Digitalisation of the Economy” which sets forth the key terms of such two-pillar solution, including a reallocation of taxing rights among market jurisdictions under Pillar One and a global minimum tax rate of 15% under Pillar Two. These changes, if adopted, could increase tax uncertainty and may be a less active trading marketadversely affect our provision for income taxes and increase its tax liabilities.
Delaware law and our securitiesGoverning Documents contain certain provisions, including anti-takeover provisions, that limit the ability of stockholders to take certain actions and could delay or discourage takeover attempts that stockholders may consider favorable.
Our Governing Documents, and the trading prices of our securities may be more volatile.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such an election to opt out is irrevocable. We have elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of our financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
Additionally, we are a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. We will remain a smaller reporting company until the last day of the fiscal year in which (1) the market value of our ordinary shares held by non-affiliates equals or exceeds $250 million as of the prior June 30th, and (2) our annual revenues equaled or exceeded $100 million during such completed fiscal year and the market value of our ordinary shares held by non-affiliates equals to or exceeds $700 million as of the prior June 30th. To the extent we take advantage of such reduced disclosure obligations, it may also make comparison of our financial statements with other public companies difficult or impossible.
Provisions in our amended and restated memorandum and articles of association may inhibit a takeover of us, which could limit the price investors might be willing to pay in the future for our Class A ordinary shares and could entrench management.
Our amended and restated memorandum and articles of associationDGCL, contain provisions that may discourage unsolicited takeover proposals that shareholders may consider to be in their best interests.could have the effect of rendering more difficult, delaying, or preventing an acquisition deemed undesirable by the AAGR Board and therefore depress the trading price of the Common Stock. These provisions include a staggered board ofcould also make it difficult for stockholders to take certain actions, including electing directors andwho are not nominated by the abilitycurrent members of the AAGR Board or taking other corporate actions, including effecting changes in our management. Among other things, the Governing Documents include provisions regarding:
| ● | providing for a classified board of directors with staggered, three-year terms; |
| ● | the ability of the AAGR Board to issue shares of preferred stock, including “blank check” preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer; |
| ● | our Charter prohibits cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates; |
| ● | the limitation of the liability of, and the indemnification of, our directors and officers; |
| ● | removal of the ability of our stockholders to take action by written consent in lieu of a meeting; |
| ● | the requirement that a special meeting of stockholders may be called only by or at the direction of the AAGR Board, the chairperson of the AAGR Board or our chief executive officer, which could delay the ability of stockholders to force consideration of a proposal or to take action, including the removal of directors; |
| ● | controlling the procedures for the conduct and scheduling of board of directors and stockholder meetings; |
| ● | the ability of the AAGR Board to amend the bylaws, which may allow the AAGR Board to take additional actions to prevent an unsolicited takeover and inhibit the ability of an acquirer to amend the bylaws to facilitate an unsolicited takeover attempt; and |
| ● | advance notice procedures with which stockholders must comply to nominate candidates to the AAGR Board or to propose matters to be acted upon at a stockholders’ meeting, which could preclude stockholders from bringing matters before annual or special meetings of stockholders and delay changes in the AAGR Board, and also may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of AFRAG PubCo. |
These provisions, alone or together, could delay or prevent hostile takeovers and changes in control or changes in the AAGR Board or management.
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Our Charter designates the Delaware Court of directors to designateChancery or the terms ofUnited States federal district courts as the sole and issue new series of preference shares, which may make the removal of management more difficult and may discourage transactions that otherwise could involve payment of a premium over prevailing market pricesexclusive forum for our securities.
Our amended and restated memorandum and articles of association provide that the courts of the Cayman Islands will be the exclusive forums for certainsubstantially all disputes between us and our shareholders,stockholders, which could limit our shareholders’stockholders’ ability to obtain a favorable judicial forum for complaints againstdisputes with us or our directors, officers, stockholders, employees or employees.agents.
Our amended and restated memorandum and articles of association provideCharter provides that, unless we consent in writing to the selection of an alternative forum, the courtsCourt of Chancery of the Cayman IslandsState of Delaware shall havebe the sole and exclusive jurisdiction over any claim or dispute arising out of or in connection with our amended and restated memorandum and articles of association or otherwise related in any way to each shareholder’s shareholding in us, including but not limited toforum for state law claims for (i) any derivative action or proceeding brought on our behalf,behalf; (ii) any action, suit or proceeding asserting a claim of breach of anya fiduciary or other duty owed by any of our current or former director, officerdirectors, officers or other employeeemployees, agents or stockholders to to us or to our shareholders,stockholders, (iii) any action, suit or proceeding asserting a claim against us, our current or former directors, officers, employees, agents or stockholders arising pursuant to any provision of the Companies ActDGCL or our amended and restated memorandum and articles of association,Charter or Bylaws, or (iv) any action, suit or proceeding asserting a claim against us, our current or former directors, officers, employees, agents or stockholders governed by the internal affairs doctrine (asdoctrine. The foregoing provisions will not apply to any claims as to which the Delaware Court of Chancery determines that there is an indispensable party not subject to the jurisdiction of such conceptcourt, which is recognized under the laws of the United States of America) and that each shareholder irrevocably submits torested in the exclusive jurisdiction of a court or forum other than such court (including claims arising under the courts of the Cayman Islands over allExchange Act), or for which such court does not have subject matter jurisdiction, or to any claims or disputes. The forum selection provision in our amended and restated memorandum and articles of association will not apply to actions or suits brought to enforce any liability or duty created byarising under the Securities Act Exchange Act or any claim for whichand, unless we consent in writing to the federal district courtsselection of an alternative forum, the United States District Court for the District of America are, as a matter of the laws of the United States of America,Delaware will be the sole and exclusive forum for determinationresolving any action asserting a claim arising under the Securities Act.
Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules or regulations thereunder. Accordingly, both state and federal courts have jurisdiction to entertain such a claim.
Our amendedSecurities Act claims. To prevent having to litigate claims in multiple jurisdictions and restated memorandum and articlesthe threat of association also provideinconsistent or contrary rulings by different courts, among other considerations, our Charter provides that, without prejudiceunless we consent in writing to any other rights or remedies that we may have, each of our shareholders acknowledges that damages alone would not be an adequate remedy for any breach of the selection of an alternative forum, United States District Court for the courtsDistrict of Delaware shall be the Cayman Islands as exclusive forum and that accordingly we shall be entitled, without prooffor the resolution of special damages,any complaint asserting a cause of action arising under the Securities Act. There is uncertainty as to whether a court would enforce the remedies of injunction, specific performance or other equitable relief for any threatened or actual breach offorum provision with respect to claims under the selection of the courts of the Cayman Islands as exclusive forum.federal securities laws.
This choice of forum provision in the Charter may increaselimit a shareholder’s cost and limit the shareholder’sstockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or any of our directors, officers, or other employees, which may discourage lawsuits against us and our directors, officers and other employees. Any person or entity purchasing or otherwise acquiring any of our shares or other securities, whether by transfer, sale, operation of law or otherwise, shall be deemedwith respect to have notice of and have irrevocably agreed and consented to these provisions.such claims. There is uncertainty as to whether a court would enforce such provisions, and the enforceability of similar choice of forum provisions in other companies’ charter documents has been challenged in legal proceedings. It is possible that a court could find this typethese types of provisions to be inapplicable or unenforceable, and if a court were to find thisthe choice of forum provision contained in our amended and restated memorandum and articles of associationthe Charter to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving the disputesuch action in other jurisdictions, which could have adverse effect onharm our business, results of operations and financial performance.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements contained in this prospectus may constitute “forward-looking statements” for purposes ofcondition. Furthermore, investors cannot waive compliance with the federal securities laws. Our forward-looking statements include, but are not limited to, statements regarding our or our management team’s expectations, hopes, beliefs, intentions or strategies regarding the future. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intends,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “would”laws and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. Forward-looking statements in this prospectus may include, for example, statements about:
rules and regulations thereunder.
our ability to select an appropriate target business or businesses;
our ability to complete our initial business combination;
our expectations around the performance of the prospective target business or businesses;
our success in retaining or recruiting, or changes required in, our officers, key employees or directors following our initial business combination;
our officers and directors allocating their time to other businesses and potentially having conflicts of interest with our business or in approving our initial business combination;
our potential ability to obtain additional financing to complete our initial business combination;
our pool of prospective target businesses;
the abilityOur Charter provides for indemnification of our officers and directors to generateat our expense, which may result in a numbersignificant cost and hurt the interests of potential business combination opportunities;our stockholders because corporate resources may be expended for the benefit of officers and/or directors.
Our Charter and applicable Delaware law provide for the indemnification of our public securities’ potential liquiditydirectors and trading;officers, under certain circumstances, against any liability, action, proceeding, claim, demand, costs, damages or expenses, including legal expenses, whatsoever which they or any of them may incur as a result of any act or failure to act in carrying out their functions, other than such liability (if any) that they may incur by reason of their own actual fraud, dishonesty, willful neglect or willful default. We will also bear the expenses of such litigation for any of our directors or officers, upon such person’s undertaking to repay any amounts paid, advanced, or reimbursed by us if it is ultimately determined that any such person shall not have been entitled to indemnification. This indemnification policy could result in substantial expenditures by us that we will be unable to recoup.
the lack of a market for our securities;
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USE OF PROCEEDS
All of the shares of common stock offered by the selling securityholders pursuant to this prospectus will be sold by the selling securityholders for their respective amounts. We will not receive any of the proceeds from these sales.
We will receive up to an aggregate of approximately $301,312 from the exercise of the warrants, assuming the exercise in full of all such warrants for cash. We expect to use the net proceeds from the exercise of the warrants for general corporate purposes, which may include acquisitions and other business opportunities and the repayment of indebtedness. Our management will have broad discretion over the use of proceeds not heldfrom the exercise of the warrants.
There is no assurance that the holders of the warrants will elect to exercise any or all of the warrants. To the extent that the warrants are exercised on a “cashless basis,” the amount of cash we would receive from the exercise of the warrants will decrease.
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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial information presents the financial information of 10X II and AFRAG adjusted to give effect to the Business Combination and other transactions. The following unaudited pro forma condensed combined financial information has been prepared in accordance with Article 11 of Regulation S-X as amended by the final rule, Release No. 33-10786 “Amendments to Financial Disclosures about Acquired and Disposed Businesses.”
The historical financial information of 10X II was derived from the unaudited financial statements of 10X II as of and for the nine months ended September 30, 2023 included in 10X II’s Form 10-Q filed on November 27, 2023 and the audited financial statements of 10X II as of and for the year ended December 31, 2022 included in the trust accountProxy Statement/Prospectus. The historical financial information of AFRAG was derived from the unaudited financial statements of AFRAG as of and for the nine months ended September 30, 2023 included elsewhere in this 8-K and the audited consolidated financial statements of AFRAG as of and for the year ended December 31, 2022 included in the Proxy Statement/Prospectus. This information should be read together with 10X II’s and AFRAG’s audited financial statements and related notes
The Business Combination was accounted for as a reverse recapitalization in accordance with U.S. GAAP. Under this method of accounting, 10X II, who is the legal acquirer, is being treated as the “acquired” company for accounting purposes and AFRAG is being treated as the accounting acquirer. AFRAG was determined to be the accounting acquirer based on evaluation of the following facts and circumstances under the redemption scenarios:
| ● | AFRAG’s existing stockholders have 59.6% of the voting interest of the Company; |
| ● | AFRAG’s senior management comprise the senior management of the Company; |
| ● | the directors nominated by AFRAG represent the majority of the board of directors of the Company; |
| ● | AFRAG is the larger entity, in terms of substantive operations and employee base; |
| ● | the executive officers of AFRAG became the initial executive officers of the Company; and |
| ● | AFRAG’s operations comprise the ongoing operations of the Company. |
Accordingly, for accounting purposes, the Business Combination was treated as the equivalent of a capital transaction in which AFRAG issued stock for the net assets of 10X II. The net assets of 10X II were stated at historical cost, with no goodwill or availableother intangible assets recorded. Operations prior to us from interest incomethe Business Combination were those of AFRAG.
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The unaudited pro forma condensed combined balance sheet as of September 30, 2023 assumes that the Business Combination occurred on September 30, 2023. The unaudited pro forma condensed combined statements of operations for the nine months ended September 30, 2023 and for the year ended December 31, 2022 give pro forma effect to the Business Combination as if it had occurred on January 1, 2022, the earliest date presented.
These unaudited pro forma condensed combined financial statements are for informational purposes only. They do not purport to indicate the results that would have been obtained had the Business Combination actually been completed on the trust account balance;
assumed dates or for the trust account not being subject to claims of third parties;periods presented, or
our financial performance following this offering.
which may be realized in the future. The forward-looking statements contained in this prospectuspro forma adjustments are based on our current expectationsthe information currently available and beliefs concerning future developmentsthe assumptions and their potential effects on us. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements involveestimates underlying the pro forma adjustments are described in the accompanying notes. Actual results may differ materially from the assumptions within the accompanying unaudited pro forma condensed combined financial information.
General Description of the Business Combination Agreement
On November 2, 2022, 10X II entered into an Agreement and Plan of Merger (the “AA Merger Agreement”) with 10X AA Merger Sub, Inc., a Delaware corporation and the wholly-owned subsidiary of 10X II (the “AA Merger Sub”) and AFRAG. Pursuant to the AA Merger Agreement, 10X II changed its jurisdiction of incorporation by deregistering as a Cayman Islands exempted company and continuing and domesticating as a corporation incorporated under the laws of the State of Delaware (the “Domestication”). Following the Domestication, AA Merger Sub merged with and into AFRAG (the “Merger”), with AFRAG surviving the Merger as 10X II’s wholly-owned subsidiary. In connection with the Domestication, changed its name to “African Agriculture Holdings Inc.”. The Domestication, the Merger and the other transactions contemplated by the AA Merger Agreement are hereinafter referred to as the “Business Combination.” The Business Combination was accounted for as a reverse recapitalization.
Merger Consideration
In accordance with the terms and subject to the conditions of the AA Merger Agreement, at the effective time of the Merger (the “Effective Time”), each share of common stock of AFRAG issued and outstanding immediately prior to the Effective Time, was converted into the right to receive the number of risks, uncertainties (someshares of which are beyond our control) or other assumptions that may cause actual results or performanceduly authorized, validly issued, fully paid and nonassessable common stock of African Agriculture Holdings Inc. (“Common Stock”) equal to be materially different from those expressed or impliedthe quotient of (i) the sum of (1) $450,000,000 and (2) the aggregate amount of any Company Pre-Closing Financing (as defined in the Merger Agreement), divided by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described under(ii) ten dollars ($10.00), divided by (iii) the heading “Risk Factors”. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.
We are offering 20,000,000 units at an offering price of $10.00 per unit. We estimate that the net proceeds of this offering together with the funds we will receive from the salesum, without duplication, of the private placementaggregate number of shares of AFRAG common stock that are (A) issued and outstanding immediately prior to the Effective Time, (B) issuable upon the exercise or settlement of options or restricted stock units will be used asof AFRAG (whether or not then vested or exercisable) that are outstanding immediately prior to the Effective Time, or (C) issuable upon conversion of any AFRAG convertible note issued prior to the date of the AA Merger Agreement and outstanding at the Effective Time.
In addition, in consideration of the Company waiving certain closing conditions set forth in the following table.
| Without Over-allotment Option | Over-allotment Option Exercised | |||||||
Gross proceeds | ||||||||
Gross proceeds from units offered to public(1) | $ | 200,000,000 | $ | 230,000,000 | ||||
Gross proceeds from private placement units offered in the private placement | 6,550,000 | 6,550,000 | ||||||
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Total gross proceeds | $ | 206,550,000 | $ | 236,550,000 | ||||
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Estimated offering expenses(2) | ||||||||
Underwriting commissions (2.0% of gross proceeds from units offered to public, excluding deferred portion)(3) | $ | 4,000,000 | $ | 4,000,000 | ||||
Legal fees and expenses | 360,000 | 360,000 | ||||||
Printing and engraving expenses | 40,000 | 40,000 | ||||||
Accounting fees and expenses | 60,000 | 60,000 | ||||||
SEC/FINRA Expenses | 60,000 | 60,000 | ||||||
Travel and road show | | 5,000 | | | 5,000 | | ||
Nasdaq listing and filing fees | 75,000 | 75,000 | ||||||
Directors and officers insurance | 700,000 | 700,000 | ||||||
Trustee and transfer agent fees | 40,000 | 40,000 | ||||||
Miscellaneous | 10,000 | 10,000 | ||||||
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Total offering expenses (other than underwriting commissions) | $ | 1,350,000 | $ | 1,350,000 | ||||
Proceeds after estimated offering expenses | $ | 201,200,000 | $ | 231,200,000 | ||||
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Held in trust account(3) | $ | 200,000,000 | $ | 231,200,000 | ||||
% of public offering size | 100 | % | 100 | % | ||||
Not held in trust account | $ | 1,200,000 | $ | 1,200,000 | ||||
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The following table shows the useMerger Agreement, at Closing each share of the approximately $1,200,000Common Stock for which redemption was not requested (a “Former SPAC Share”) was granted a pro rata right to receive a portion of net proceeds not held3,000,000 additional shares of Common Stock, with (i) holders of Former SPAC Shares that were public holders receiving shares in the trust account(4)
| Amount | % of Total | |||||||
Legal, accounting, due diligence, travel, and other expenses in connection with any business combination(5) | 340,000 | 28.33 | % | |||||
Legal and accounting fees related to regulatory reporting obligations | 37,500 | 3.125 | % | |||||
Nasdaq and other regulatory fees | 75,000 | 6.25 | % | |||||
Payment for office space, secretarial and administrative services | 480,000 | 40.0 | % | |||||
Consulting, travel and miscellaneous expenses incurred during search for initial business combination target | 37,500 | 3.125 | % | |||||
Working capital to cover miscellaneous expenses | 230,000 | 19.17 | % | |||||
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Total | $ | 1,200,000 | 100.0 | % | ||||
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Nasdaq rules provide that at least 90% of the gross proceeds from this offering and the sale of the private placement unitsbasis.
Pursuant to the AFRAG Sponsor Promissory Note (as defined in the Merger Agreement), AFRAG agreed, among other things, to reimburse Sponsor on a one for one basis for the Class B ordinary shares to be deposited in a trust account. Of the $206,550,000 in gross proceeds we receive from this offering and the sale of the private placement units described in this prospectus, or $236,550,000 if the underwriters’ over-allotment option is exercised in full, $200,000,000 ($10.00 per unit), or $230,000,000 if the underwriters’ over-allotment option is exercised in full ($10.00 per unit), will be deposited into a trust account with Continental Stock Transfer & Trust Company acting as trustee, after deducting $4,000,000 in underwriting discounts and commissions payable upon the closing of this offering and an aggregate of $2.55 million to pay fees and expensestransferred by Sponsor in connection with the closingthe 10X II special meetings of shareholders to approve the extension of its redemption deadline in the form of newly-issued shares of Common Stock in connection with the Closing. In accordance with this agreement 1,233,167 shares of Common Stock were issued to Sponsor.
Entry into Cash-Settled Equity Derivative Transaction
On November 29, 2023, 10X II and AFRAG entered into an agreement (the “CSED”) with Vellar Opportunities Fund Master, Ltd. (“Vellar” or “Seller”) for a Cash-Settled Equity Derivative Transaction. Capitalized terms that are not defined in this section (Entry into a Cash-Settled Equity Derivative Transaction) have the meaning given to those terms in the CSED.
27
Pursuant to the terms of the CSED, the Seller received shares of common stock of AFRAG from a former holder of AFRAG common stock (the “Share Transfer”). Upon the occurrence of the Business Combination, shares of common stock of AFRAG that were held by the Seller converted into 11,500,000 shares of common stock of the post-Business Combination Company (the “Pubco Shares”) in the aggregate (the “Recycled Shares”). Subject to certain conditions contained in the CSED, the Seller shall provide up to $11,500,000 (the “Additional Funds”) in funds in the aggregate to the Company in five tranches: (i) the first tranche of $5,750,000 will be funded two trading days following the transfer to the Seller’s brokerage account of the Pubco Shares issued as consideration pursuant to the terms of the Merger Agreement, (ii) the second tranche of $1,437,500 will be funded 30 days after the first tranche, (iii) the third tranche of $1,437,500 will be funded 30 days after the second tranche, (iv) the fourth tranche of $1,437,500 will be funded 30 days after the third tranche, and (v) the fifth tranche of $1,437,500 will be funded 30 days after the fourth tranche (collectively, the “Funding Election”). Pursuant to the terms of the CSED, the agreed on the Cash Settlement Payment Date that, except in certain specified situations, provided that the Pubco Shares received by the Seller have been registered under the registration statement on Form S-4 filed by 10X II or are freely tradable by the Seller without restriction, they will each pay to the Company a cash amount equal to (1) the sum of (x) the number of Recycled Shares less (y) the number of Pubco Shares with actual aggregate proceeds equal to the Additional Funds Seller provided pursuant to a Funding Election, and less (z) the number of Terminated Shares (as defined below) (the sum of (x), (y) and (z), the “Number of Shares”) as of the Valuation Date (as defined below), multiplied by the VWAP Price over the Valuation Period less (2) a cash amount equal to the product of (x)(a) 11,500,000 PubCo Shares (the “Maximum Number of Shares”) less (b) any Terminated Shares as of the Valuation Date, multiplied by (y) $2.00.
The “Valuation Date” for the Seller will occur upon the earliest of (a) the date that is 24 months after the Closing, (b) the date specified by the Seller upon the occurrence of (i) the volume-weighted average price of Pubco Shares trading below $2.00 per share for any 20 trading days during a 30 consecutive trading day period or (ii) the Pubco Shares ceasing to be traded on a national exchange, (c) any date specified by the Seller at its sole discretion, and (d) the date specified by the Company in a written notice to be delivered to the Seller at the Company’s sole discretion (which Valuation Date shall not be earlier than the date of an occurrence of an Event of Default by Seller as provided for under the ISDA Form and that is the subject of the notice) for an Event of Default by the Seller (and such specification of a Valuation Date shall be the sole right of the Company upon the occurrence of an Event of Default by Seller in lieu of Section 6(a) of the ISDA Form); provided that, so long as the transfer to the Seller’s brokerage account of the Pubco Shares issued as consideration pursuant to the terms of the Merger Agreement has occurred, the Seller will not issue any notice contemplated in clauses (b) or (c) of this offeringsentence until the earlier of (x) the delivery to the Company by the Seller of the first tranche of the Funding Election (as described above) and for working capital(y) in the event the transfer to the Seller’s brokerage account of the Pubco Shares issued as consideration pursuant to the terms of the Merger Agreement has not occurred, 10 calendar days following the closing of this offering. The proceeds heldthe Business Combination.
From time to time following the date of the Closing (any such date, an “OET Date”), the Seller may, in its sole discretion, terminate the trust account will be invested onlyCSED in U.S. government treasury bills with a maturity of 185 days or lesswhole or in money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act which invest only in direct U.S. government treasury obligations. We estimate the interest earned on the trust account will be approximately $200,000 per year, assuming an interest rate of 0.1% per year; however, we can provide no assurances regarding this amount.
We expect that the interest earned on the trust account will be sufficient to pay income taxes. We will not be permitted to withdraw any of the principal or interest held in the trust account, except for the withdrawal of interest to pay our taxes, until the earliest of (i) the completion of our initial business combination, (ii) the redemption of our public shares if we are unable to complete our initial business combination within 15 months from the closing of this offering, subject to applicable law, and (iii) the redemption of our public shares properly submitted in connection with a shareholder vote to approve an amendment to our amended and restated memorandum and articles of association to modify the substance or timing of our obligation to redeem 100% of our public shares if we have not consummated our initial business combination within 15 months from the closing of this offering orpart with respect to any other material provisions relating to shareholders’ rights or pre-initial business combination activity.
The net proceeds held in the trust account may be used as consideration to pay the sellersnumber of a target business with which we ultimately complete our initial business combination. If our initial business combination is paid for using equity or debt securities, or not all of the funds released from the trust account are used for payment of the consideration in connection with our initial business combination, we may apply the balance of the cash released from the trust account for general corporate purposes, including for maintenance or expansion of operations of the post-transaction company, the payment of principal or interest due on indebtedness incurred in completing our initial business combination, to fund the purchase of other companies or for working capital. There is no limitation on our ability to raise funds through the issuance of equity-linked securities or through loans, advances or other indebtedness in connection with our initial business combination, including pursuant to forward purchase agreements or backstop arrangements we may enter into following consummation of this offering. However, our amended and restated memorandum and articles of association provide that, following this offering and prior to the consummation of our initial business combination, we will be prohibited from issuing additional securities that would entitle the holders thereof to (i) receive funds from the trust account or (ii) vote as a class with our public shares (a) on any initial business combination or (b) to approvePubco Shares by giving notice (such notice, an amendment to our amended and restated memorandum and articles of association to (x) extend the time we have to consummate a business combination beyond 15 months from the closing of this offering or (y) amend the foregoing provisions.
We believe that amounts not held in trust will be sufficient to pay the costs and expenses to which such proceeds are allocated. This belief is based on the fact that while we may begin preliminary due diligence of a target business in connection with an indication of interest, we intend to undertake in-depth due diligence, depending on the circumstances of the relevant prospective business combination, only after we have negotiated and signed a letter of intent or other preliminary agreement that addresses the terms of a business combination. However, if our estimate of the costs of undertaking in-depth due diligence and negotiating a business combination is less than the actual amount necessary to do so, we may be required to raise additional capital, the amount, availability and cost of which is currently unascertainable. If we are required to seek additional capital, we could seek such additional capital through loans or additional investments from our sponsor, members of our management team or any of their affiliates, but such persons are not under any obligation to advance funds to, or invest in, us.
Subsequent to the closing of this offering, we will pay our sponsor $20,000 per month for office space, secretarial and administrative services provided to members of our management team. Upon completion of our initial business combination or our liquidation, we will cease paying these monthly fees.
Prior to the closing of this offering, our sponsor has agreed to loan us up to $300,000 to be used for a portion of the expenses of this offering. These loans are non-interest bearing, unsecured and are due at the earlier of December 31, 2021 or the closing of this offering. The loan will be repaid upon the closing of this offering out of the $1,350,000 of offering proceeds that has been allocated to the payment of offering expenses.
In addition, in order to finance transaction costs in connection with an intended initial business combination, our sponsor or an affiliate of our sponsor or certain of our officers and directors may, but are not obligated to, loan us funds as may be required. If we complete our initial business combination, we would repay such loaned amounts.
In the event that our initial business combination does not close, we may use a portion of the working capital held outside the trust account to repay such loaned amounts but no proceeds from our trust account would be used to repay such loaned amounts. Up to $1,500,000“OET Notice”) of such loans may be convertible into units of the post business combination entity at a price of $10.00 per unit at the option of the lender. The units would be identical to the private placement units. Except as set forth above, the terms of such loans, if any, have not been determined and no written agreements exist with respect to such loans. Prior to the completion of our initial business combination, we do not expect to seek loans from parties other than our sponsor or an affiliate of our sponsor as we do not believe third parties will be willing to loan such funds and provide a waiver against any and all rights to seek access to funds in our trust account.
Up to seven 9.9% anchor investors, two 7.5% anchor investors and three 4.9% anchor investors have each expressed to us an interest in purchasing up to 1,980,000 units, 1,500,000 units and 980,000 units, respectively, in this offering as the offering price of $10.00 per unit, and such allocations will be determined by the underwriters.
Pursuant to such units, the anchor investors have not been granted any shareholder or other rights in addition to those afforded to our other public shareholders. Further, the anchor investors are not required to (i) hold any units, Class A ordinary shares or warrants they may purchase in this offering or thereafter for any amount of time, (ii) vote any Class A ordinary shares they may own at the applicable time in favor of our initial business combination or (iii) refrain from exercising their right to redeem their public shares at the time of our initial business combination. The anchor investors will have the same rights to the funds held in the trust accounttermination with respect to the Class A ordinary shares underlyingspecified number of Recycled Shares included in an OET Notice (such quantity, the units they“Terminated Shares”). An amount equal to the product of (a) the number of Terminated Shares and (b) the Reset Price, which shall initially be $10, but may purchasebe reduced by a Dilutive Offering Reset (as defined below), in respect of such OET Date will be paid by Seller to the Company or its designee.
In the event the Valuation Date for the Seller is determined by clause (c) in the definition of “Valuation Date” above, at the Cash Settlement Date, the Seller will pay an amount in cash to the Company equal to the closing price of the PubCo Shares on the business day immediately preceding the Valuation Date, multiplied by the Number of Shares as of the Valuation Date. In the event the Valuation Date for a Seller is determined by clause (d) in the definition of “Valuation Date” above, at the Cash Settlement Date, provided that the Pubco Shares received have been registered under the registration statement on Form S-4 filed by 10X II or are freely tradable by the Seller without restriction, the Seller will pay an amount in cash to the Company equal to the Number of Shares as of the Valuation Date, multiplied by the VWAP Price over the Valuation Period.
To the extent the Company, following the closing of the Business Combination, sells, enters into any agreement to sell or grants any right to reprice, or otherwise dispose of or issues any common stock or any securities of it or any of its subsidiaries which would entitle the holder thereof to acquire at any time Pubco Shares at an effective price per Share less than the then existing Reset Price, then, subject to certain exceptions, the Reset Price shall be modified to equal such reduced price (a “Dilutive Offering Reset”).
28
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 2023
(in thousands, except share and per share data)
| Pro Forma | ||||||||||||||||||
| AFRAG (Historical) | 10X II (Historical) | Adjustments | Balance Sheet | |||||||||||||||
| Current assets: | ||||||||||||||||||
| Cash and cash equivalents | $ | 34 | 17 | $ | 22,442 | A | $ | 5,282 | ||||||||||
| (500 | ) | B | ||||||||||||||||
| (1,986 | ) | C | ||||||||||||||||
| (19,575 | ) | H | ||||||||||||||||
| 4,850 | I | |||||||||||||||||
| Accounts receivable | 37 | 37 | ||||||||||||||||
| Other receivables | 11 | 11 | ||||||||||||||||
| Inventory | 260 | 260 | ||||||||||||||||
| Prepaid expenses and other current assets | 964 | 93 | (795 | ) | E | 262 | ||||||||||||
| Total current assets | 1,306 | 110 | 4,436 | 5,852 | ||||||||||||||
| Non-current assets: | ||||||||||||||||||
| Cash settled equity derivative | 51,350 | I | 51,350 | |||||||||||||||
| Long term inventory | 110 | 110 | ||||||||||||||||
| Cash and marketable securities held in Trust Account | 22,442 | (22,442 | ) | A | - | |||||||||||||
| Intangibles, net | 4,457 | 4,457 | ||||||||||||||||
| Operating lease right-of-use asset | 6,642 | 6,642 | ||||||||||||||||
| Deposits | 12 | 12 | ||||||||||||||||
| Property and equipment, net | 2,043 | 2,043 | ||||||||||||||||
| Total non-current assets | 13,264 | 22,442 | 28,908 | 64,614 | ||||||||||||||
| TOTAL ASSETS | 14,570 | 22,552 | 33,344 | 70,466 | ||||||||||||||
| LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||||||||||||
| Accounts payable and accrued expenses | 8,083 | 11,990 | (1,237 | ) | C | 18,538 | ||||||||||||
| (298 | ) | J | ||||||||||||||||
| Operating lease - liabilities | 16 | 16 | ||||||||||||||||
| Other payables | 176 | 176 | ||||||||||||||||
| Short term convertible notes | 1,969 | (1,587 | ) | J | 382 | |||||||||||||
| Short term debt | 989 | (500 | ) | B | 489 | |||||||||||||
| Seller note payable | 1,958 | 1,958 | ||||||||||||||||
| Related party payables | 626 | 1,625 | (800 | ) | I | 2,026 | ||||||||||||
| 575 | C | |||||||||||||||||
| Non redemptions agreements liabilities | 401 | (401 | ) | K | - | |||||||||||||
| Total current liabilities | 13,817 | 14,016 | (4,248 | ) | 23,585 | |||||||||||||
| Non-current liabilities: | ||||||||||||||||||
| Contingent liabilities | 2,237 | 2,237 | ||||||||||||||||
| Operating lease -liabilities | 6,796 | 6,796 | ||||||||||||||||
| Related party payables | 211 | 211 | ||||||||||||||||
| Forward purchase agreement liability | - | - | ||||||||||||||||
| Deferred underwriting fee payable | 7,000 | 7,000 | ||||||||||||||||
| Total non-current liabilities | 9,244 | 7,000 | - | 16,244 | ||||||||||||||
| TOTAL LLIABILITIES | 23,061 | 21,016 | (4,248 | ) | 39,829 | |||||||||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||||||||||||
| Temporary equity: | ||||||||||||||||||
| Common stock subject to possible redemption | 22,342 | (22,342 | ) | D | - | |||||||||||||
| Stockholders’ equity (deficit): | ||||||||||||||||||
| Class A common stock | 4 | - | 1 | F | 6 | |||||||||||||
| 1 | I | |||||||||||||||||
| Class B common stock | 1 | (1 | ) | F | - | |||||||||||||
| Additional paid-in capital | 61,116 | 22,342 | D | 101,265 | ||||||||||||||
| (20,807 | ) | G | ||||||||||||||||
| 1,885 | J | |||||||||||||||||
| (19,575 | ) | H | ||||||||||||||||
| (795 | ) | E | ||||||||||||||||
| 57,099 | I | |||||||||||||||||
| Accumulated deficit | (69,575 | ) | (20,807 | ) | 20,807 | G | (70,598 | ) | ||||||||||
| (100 | ) | I | ||||||||||||||||
| (1,324 | ) | C | ||||||||||||||||
| 401 | K | |||||||||||||||||
| Accumulated other comprehensive loss | (36 | ) | (36 | ) | ||||||||||||||
| TOTAL STOCKHOLDERS’ EQUITY (DEFICIT) | (8,491 | ) | (20,806 | ) | 59,934 | 30,637 | ||||||||||||
| TOTAL LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS’ DEFICIT | 14,570 | 22,552 | 33,344 | 70,466 | ||||||||||||||
29
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR NINE MONTHS ENDED SEPTEMBER 30, 2023
(in thousands, except share and per share data)
| Pro Forma | |||||||||||||||||
| AFRAG (Historical) | 10X II (Historical) | Adjustments | Statement of Operations | ||||||||||||||
| Revenues | $ | 1,451 | $ | - | $ | - | $ | 1,451 | |||||||||
| Cost of revenue | 1,031 | - | - | 1,031 | |||||||||||||
| Gross profit | 420 | - | 420 | ||||||||||||||
| Operating costs and expenses: | |||||||||||||||||
| Selling, general and administrative expenses | 28,110 | 3,161 | 31,271 | ||||||||||||||
| Administrative expenses - related party | - | 180 | (180 | ) | bb | ||||||||||||
| Operating lease expense | 165 | 165 | |||||||||||||||
| Depreciation and amortization | 264 | 264 | |||||||||||||||
| Other operating expenses | 272 | 272 | |||||||||||||||
| Total operating costs and expenses | 28,811 | 3,341 | (180 | ) | 31,972 | ||||||||||||
| Income (Loss) from operations | (28,391 | ) | (3,341 | ) | 180 | (31,552 | ) | ||||||||||
| Other income (expense): | |||||||||||||||||
| Income from investments held in Trust Account | 1,201 | (1,201 | ) | aa | - | ||||||||||||
| Change in fair value of forward purchase agreement | 331 | (331 | ) | cc | - | ||||||||||||
| Change in fair value of non redemption agreements liabilities | (478 | ) | |||||||||||||||
| Loss in connection with non redemption agreements | (130 | ) | |||||||||||||||
| Foreign currency exchange gain | 18 | 18 | |||||||||||||||
| Gain on sale of assets | - | - | |||||||||||||||
| Interest expense - related party | (33 | ) | 22 | dd | (11 | ) | |||||||||||
| Interest expense - other | (619 | ) | 239 | ee | (380 | ) | |||||||||||
| Other income (expense) | 8 | 8 | |||||||||||||||
| Total other income (expense) | (626 | ) | 924 | (1,271 | ) | (365 | ) | ||||||||||
| Net income (loss) before income tax provision | (29,017 | ) | (2,417 | ) | (1,091 | ) | (31,917 | ) | |||||||||
| Income tax provision | - | - | - | ||||||||||||||
| Net income (loss) | (29,017 | ) | (2,417 | ) | (1,091 | ) | (31,917 | ) | |||||||||
| AFRAG | 10X II | Pro forma | ||||||||||
| (Historical) | (Historical) | Combined | ||||||||||
| Weighted average shares outstanding - Common stock | 39,141,705 | - | 57,966,829 | |||||||||
| Basic and diluted net income per share - Common stock | (0.75 | ) | - | (0.55 | ) | |||||||
| Weighted average shares outstanding - Class A and Class B common stock subject to redemption | - | 4,481,227 | ||||||||||
| Basic and diluted net income per share - Class A and Class B common stock subject to redemption | - | (0.23 | ) | |||||||||
| Weighted average shares outstanding - Class A and Class B non-redeemable common stock | - | 6,161,172 | - | |||||||||
| Basic and diluted net income per share - Class A and Class B non-redeemable common stock | - | (0.23 | ) | - | ||||||||
30
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR YEAR ENDED DECEMBER 31, 2022
(in thousands, except share and per share data)
| Pro Forma | ||||||||||||||||||
| AFRAG (Historical) | 10X II (Historical) | Adjustments | Statement of Operations | |||||||||||||||
| Revenues | $ | 679 | $ | - | $ | - | $ | 679 | ||||||||||
| Cost of revenue | 784 | - | - | 784 | ||||||||||||||
| Gross profit | (105 | ) | - | (105 | ) | |||||||||||||
| Operating costs and expenses: | ||||||||||||||||||
| Selling, general and administrative expenses | 24,427 | 10,273 | 5,485 | cc | 40,185 | |||||||||||||
| Administrative expenses - related party | - | 240 | (240 | ) | bb | |||||||||||||
| Operating lease expense | 346 | 346 | ||||||||||||||||
| Depreciation and amortization | 369 | 369 | ||||||||||||||||
| Other operating expenses | 419 | 419 | ||||||||||||||||
| Total operating costs and expenses | 25,561 | 10,513 | 5,245 | 41,319 | ||||||||||||||
| Income (Loss) from operations | (25,666 | ) | (10,513 | ) | (5,245 | ) | (41,424 | ) | ||||||||||
| Other income (expense): | ||||||||||||||||||
| Change in fair value of derivative liability | (36 | ) | - | (36 | ) | |||||||||||||
| Income from investments held in Trust Account | 2,165 | (2,165 | ) | aa | - | |||||||||||||
| Loss on Forward Purchase Agreement | (295 | ) | 295 | dd | - | |||||||||||||
| Foreign currency exchange gain | 171 | 171 | ||||||||||||||||
| Gain on sale of assets | 154 | 154 | ||||||||||||||||
| Interest expense - related party | (519 | ) | 519 | ee | - | |||||||||||||
| Interest expense - other | (436 | ) | 217 | ff | (219 | ) | ||||||||||||
| Other income (expense) | 43 | 43 | ||||||||||||||||
| Total other income (expense) | (587 | ) | 1,834 | (1,134 | ) | 113 | ||||||||||||
| Net income (loss) before income tax provision | (26,253 | ) | (8,679 | ) | (6,379 | ) | (41,311 | ) | ||||||||||
| Income tax provision | - | - | - | |||||||||||||||
| Net income (loss) | (26,253 | ) | (8,679 | ) | (6,379 | ) | (41,311 | ) | ||||||||||
| AFRAG | 10X II | Pro forma | ||||||||||
| (Historical) | (Historical) | Combined | ||||||||||
| Weighted average shares outstanding - Common stock | 39,141,705 | - | 57,966,830 | |||||||||
| Basic and diluted net income per share - Common stock | (0.72 | ) | - | (0.71 | ) | |||||||
| Weighted average shares outstanding - Class A and Class B common stock subject to redemption | - | 18,677,398 | ||||||||||
| Basic and diluted net income per share - Class A and Class B common stock subject to redemption | - | (0.34 | ) | |||||||||
| Weighted average shares outstanding - Class A and Class B non-redeemable common stock | - | 6,666,667 | - | |||||||||
| Basic and diluted net income per share - Class A and Class B non-redeemable common stock | - | (0.34 | ) | - | ||||||||
31
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
Note 1 — Basis of Presentation
The Business Combination is being accounted for as a reverse recapitalization in accordance with U.S. GAAP. Under this offeringmethod of accounting, 10X II, who is the legal acquirer, is being treated as the rights afforded to our“acquired” company for financial reporting purposes and AFRAG is being treated as the accounting acquirer. This determination was primarily based on the following facts and circumstances:
| ● | AFRAG’s stockholders have 59.6% of the voting interest of the Company; |
| ● | AFRAG’s senior management comprise the senior management of the Company; |
| ● | the directors nominated by AFRAG represent the majority of the board of directors of the Company; |
| ● | AFRAG is the larger entity, in terms of substantive operations and employee base; |
| ● | the executive officers of AFRAG became the initial executive officers of the Company; and |
| ● | AFRAG’s operations comprise the ongoing operations of the Company. |
Accordingly, for accounting purposes, the Business Combination is being treated as the equivalent of a reverse recapitalization transaction in which AFRAG issued stock for the net assets of 10X II. The net assets of 10X II are being stated at historical cost, with no goodwill or other public shareholders.
There can be no assurance that the anchor investors will acquire any units in this offering, or asintangible assets recorded. Operations prior to the amountBusiness Combination are those of such unitsAFRAG. The unaudited pro forma condensed combined balance sheet as of September 30, 2023, assumes the anchor investors will retain,Business Combination occurred on September 30, 2023. The unaudited pro forma condensed combined statements of operations for the nine months ended September 30, 2023 and for the year ended December 31, 2022, present the pro forma effect of the Business Combination as if it had been completed on January 1, 2022, the beginning of the earliest period presented. These periods are presented on the basis of AFRAG as the accounting acquirer.
The unaudited pro forma condensed combined balance sheet as of September 30, 2023 has been prepared using, and should be read in conjunction with, the following:
| ● | 10X II’s unaudited balance sheet as of September 30, 2023, and the related notes thereto; and |
| ● | AFRAG’s unaudited balance sheet as of September 30, 2023, and the related notes thereto. |
The unaudited pro forma condensed combined statement of operations for the nine months ended September 30, 2023 has been prepared using, and should be read in conjunction with, the following:
| ● | 10X II’s unaudited statement of operations for the nine months ended September 30, 2023, and the related notes thereto; and |
| ● | AFRAG’s unaudited statement of operations for the nine months ended September 30, 2023, and the related notes thereto. |
Management has made significant estimates and assumptions in its determination of the pro forma adjustments. As the unaudited pro forma condensed combined financial information has been prepared based on these preliminary estimates, the final amounts recorded may differ materially from the information presented.
The unaudited pro forma condensed combined financial information does not give effect to any prior toanticipated synergies, operating efficiencies, tax savings or uponcost savings that may be associated with the Business Combination. The pro forma adjustments reflecting the consummation of our initial business combination. There is also no guarantee that all anchor investors will participate in the offering. In the event that the anchor investors purchase all of the units that they have expressed an interest in purchasing in this offering, hold all such units until prior to consummation of our initial business combination and vote their public shares in favor of our initial business combination, in addition to the founder shares, no affirmative votes from other public shareholders would be required to approve our initial business combination. The anchor investorsBusiness Combination are not required to vote any of their public shares in favor of our initial business combination or for or against any other matter presented for a shareholder vote.
We have not paid any cash dividendsbased on our ordinary shares to date and do not intend to pay cash dividends prior to the completion of our initial business combination. The payment of cash dividends in the future will be dependent upon our revenues and earnings, if any, capital requirements and general financial condition subsequent to completion of our initial business combination. The payment of any cash dividends subsequent to our initial business combination will be within the discretion of our board of directors at such time. If we increase or decrease the size of this offering pursuant to Rule 462(b) under the Securities Act, we will effect a stock dividend or share contribution back to capital or other appropriate mechanism immediately prior to the consummation of this offering in such amount as to maintain the number of founder shares at 25.0% of our issued and outstanding ordinary shares upon the consummation of this offering (not including the Class A ordinary shares underlying the private placement units). Further, if we incur any indebtedness in connection with our initial business combination, our ability to declare dividends may be limited by restrictive covenants we may agree to in connection therewith.
The difference between the public offering price per Class A ordinary share, assuming no value is attributed to the warrants included in the units we are offering pursuant to this prospectus or the private placement warrants, and the pro forma net tangible book value per share of our Class A ordinary shares after this offering constitutes the dilution to investors in this offering. Such calculation does not reflect any dilution associated with the sale and exercise of warrants, including the private placement warrants, which would cause the actual dilution to the public shareholders to be higher, particularly where a cashless exercise is utilized. Net tangible book value per share is determined by dividing our net tangible book value, which is our total tangible assets less total liabilities (including the value of Class A ordinary shares which may be redeemed for cash), by the number of outstanding Class A ordinary shares.
At March 31, 2021, our net tangible book deficit was $(104,854), or approximately $(0.02) per ordinary share (or $(0.01) per ordinary share if the underwriters’ over-allotment option is exercised in full). After giving effect to the sale of 20,000,000 Class A ordinary shares included in the units we are offering by this prospectus (or 23,000,000 Class A ordinary shares if the underwriters’ over-allotment option is exercised in full), the sale of the private placement units and the deduction of underwriting commissions and estimated expenses of this offering, our pro forma net tangible book value at March 31, 2021 would have been $5,000,003 or $0.60 per share (or $0.52 per share if the underwriters’ over-allotment option is exercised in full), representing an immediate increase in net tangible book value (as decreased by the value of 18,921,330 Class A ordinary shares that may be redeemed for cash, or 21,756,330 Class A ordinary shares if the underwriters’ over-allotment option is exercised in full) of $0.62 per share (or $0.53 if the underwriters’ over-allotment option is exercised in full) to our initial shareholderscertain available information as of the date of this prospectus. Total dilutionthese unaudited pro forma combined financial statements and certain assumptions and methodologies that 10X II and AFRAG believed were reasonable under the circumstances. The unaudited condensed pro forma adjustments, which are described in Note 2, may be revised as additional information becomes available and is evaluated. Therefore, it is likely that the actual adjustments will differ from the pro forma adjustments and it is possible the difference may be material. 10X II and AFRAG believed that their assumptions and methodologies provided a reasonable basis for presenting all of the significant effects of the Business Combination based on information available to public shareholders from this offering willmanagement at the time and that the pro forma adjustments give appropriate effect to those assumptions and are properly applied in the unaudited pro forma condensed combined financial information.
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The unaudited pro forma condensed combined financial information is not necessarily indicative of the actual results of operations and financial position as of the Closing of the Business Combination, nor are they indicative of the future consolidated results of operations or financial position of the Company. They should be $9.40 per share (or $9.48 ifread in conjunction with the underwriters’ over-allotment option is exercisedhistorical financial statements and notes thereto of each of 10X II and AFRAG.
Note 2 — Adjustments to Unaudited Pro Forma Combined Financial Information
The unaudited pro forma condensed combined financial information has been prepared to illustrate the effect of the Business Combination and has been prepared for informational purposes only.
The historical financial statements have been adjusted in full).
The following table illustrates the dilutionunaudited pro forma condensed combined financial information to give pro forma effect to events that are directly attributable to the public shareholders on a per-share basis, assuming no value is attributed to the warrants included in the units or the private placement warrants:
| Without Over-allotment | With Over-allotment | |||||||
Public offering price | $ | 10.00 | $ | 10.00 | ||||
Net tangible book deficit before this offering | (0.02 | ) | (0.01 | ) | ||||
Increase attributable to public shareholders | 0.62 | 0.53 | ||||||
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Pro forma net tangible book value after this offering and the sale of the private placement units | 0.60 | 0.52 | ||||||
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Dilution to public shareholders | $ | 9.40 | $ | 9.48 | ||||
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Percentage of dilution to public shareholders | 94.0 | % | 94.8 | % | ||||
For purposes of presentation, weBusiness Combination. AFRAG and 10X II have reduced our pro forma net tangible book value after this offering (assuming no exercise of the underwriters’ over-allotment option) by $189,213,300 because holders of up to approximately 94.6% of our public shares may redeem their shares for a pro rata share of the aggregate amount then on deposit in the trust account at a per share redemption price equal to the amount in the trust account as set forth in our tender offer or proxy materials (initially anticipated to be the aggregate amount held in trust two business daysnot had any historical relationship prior to the commencement of our tender offer or shareholders meeting, including interest earned onAA Merger Agreement. Accordingly, no pro forma adjustments were required to eliminate activities between the funds heldcompanies.
The pro forma combined provision for income taxes does not necessarily reflect the amounts that would have resulted had AFRAG PubCo filed consolidated income tax returns during the periods presented.
The pro forma basic and diluted earnings per share amounts presented in the trust account (which interest shall be netunaudited pro forma condensed combined statements of taxes payable)), divided byoperations are based upon the number of Class A ordinaryAFRAG PubCo’s shares sold in this offering.outstanding, assuming the Business Combination had been completed on January 1, 2022, the beginning of the earliest period presented.
The following table sets forth information with respectAdjustments to our initial shareholders and the public shareholders:Unaudited Pro Forma Condensed Combined Balance Sheet as of September 30, 2023
| Shares Purchased | Total Consideration | Average Price per Share | ||||||||||||||||||
| Number | Percentage | Amount | Percentage | |||||||||||||||||
Initial Shareholders(1) | 6,666,667 | 24.40 | % | $ | 25,000 | 0.01 | % | $ | 0.004 | |||||||||||
Public Shareholders | 20,000,000 | 73.20 | % | $ | 200,000,000 | 96.82 | % | $ | 10.000 | |||||||||||
Private Placement Shareholders | 655,000 | 2.40 | % | $ | 6,550,000 | 3.17 | % | $ | 10.000 | |||||||||||
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| 27,321,667 | 100.00 | % | $ | 206,575,000 | 100.00 | % | ||||||||||||||
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| (A) | Reflects the release of $22.4 million of cash currently held in the Trust Account. |
|
| (C) | Represents estimated direct and incremental transaction costs incurred by 10X II after the |
The pro forma net tangible book value per share after the offering is calculated as follows:
| Without Over-allotment | With Over-allotment | |||||||
Numerator: | ||||||||
Net tangible book deficit before this offering | $ | (104,854 | ) | $ | (104,854 | ) | ||
Net proceeds from this offering and sale of the private placement units(1) | 201,200,000 | 231,200,000 | ||||||
Plus: Offering costs paid in advance, excluded from tangible book value before this offering | 118,157 | 118,157 | ||||||
Less: Deferred underwriting commissions | (7,000,000 | ) | (8,650,000 | ) | ||||
Less: Proceeds held in trust subject to redemption(2) | (189,213,300 | ) | (217,563,300 | ) | ||||
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| $ | 5,000,003 | $ | 5,000,003 | |||||
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Denominator: | ||||||||
Class B ordinary shares outstanding prior to this offering | 7,666,667 | 7,666,667 | ||||||
Class B ordinary shares forfeited if over-allotment is not exercised | (1,000,000 | ) | — | |||||
Class A ordinary shares included in the units offered | 20,000,000 | 23,000,000 | ||||||
Class A ordinary shares included in the private placement | 655,000 | 655,000 | ||||||
Less: Shares subject to redemption | (18,921,330 | ) | (21,756,330 | ) | ||||
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| 8,400,337 | 9,565,337 | |||||||
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| (E) | Reflects the closing of deferred offering costs to equity. |
| (F) | Represents the conversion of Class B shares to Class A shares. |
| (G) | Reflects the elimination of the historical accumulated deficit of 10X II. |
| (H) | Reflects the redemption of 1.9 million shares ($19.6 million) prior to closing. |
| (I) | Represents the recognition of the cash payment from the Cash-Settled Equity Derivative Transaction of $5.75 million, before reduction for up to $0.1 million of CSED counterparty legal fees and $0.8 million utilized to repay Sponsor loans, and the CSED Transaction asset, measured at fair value, with regard to 11.5 million shares. The CSED asset will be |
| (J) | Partial settlement of |
| (K) | Reflects the |
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The following table sets forth our capitalization at March 31, 2021, and as adjusted to give effectAdjustments to the filingUnaudited Pro Forma Condensed Combined Statement of our amendedOperations For the Nine Months Ended September 30, 2023 (in thousands, except share and restated memorandum and articles of association, the sale of our units in this offering and the sale of the private placement units and the application of the estimated net proceeds derived from the sale of such securities, assuming no exercise by the underwriters of their over-allotment option:per share data)
| March 31, 2021 | ||||||||
| Actual | As Adjusted | |||||||
Note payable to related party(1) | $ | 29,854 | $ | — | ||||
Deferred underwriting commissions | — | 7,000,000 | ||||||
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Class A ordinary shares subject to possible redemption; -0- and 18,229,387 shares, actual and as adjusted, respectively(2) | — | 189,213,300 | ||||||
Preference shares, $0.0001 par value, 1,000,000 shares authorized; none issued and outstanding, actual and as adjusted | — | — | ||||||
Class A ordinary shares, $0.0001 par value, 500,000,000 shares authorized; -0- and 2,425,613 shares issued and outstanding (excluding -0- and 18,229,387 shares subject to possible redemption), actual and as adjusted, respectively | — | 174 | ||||||
Class B ordinary shares, $0.0001 par value, 50,000,000 shares authorized; 7,666,667 and 6,666,667 shares issued and outstanding, actual and as adjusted, respectively(3) | 767 | 667 | ||||||
Additional paid-in capital | 24,233 | 5,010,859 | ||||||
Accumulated deficit | (11,697 | ) | (11,697 | ) | ||||
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Total shareholders’ equity | $ | 13,303 | $ | 5,000,003 | ||||
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Total capitalization | $ | 43,157 | $ | 201,213,303 | ||||
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| (aa) | Represents the elimination of historical interest income earned on the Trust Account. |
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| (cc) | Represents the elimination of the FPA liability. |
| (dd) | Reflects the elimination of interest expense for |
| (ee) | Reflects the |
Adjustments to the Unaudited Pro Forma Condensed Combined Statement of Operations For the Year Ended December 31, 2022 (in thousands, except share and per share data)
| (aa) | Represents the elimination of |
| (bb) | Represents the |
|
| (cc) | Represents the following post December 31, 2022 transaction costs: |
| 10X transaction costs (legal, accounting and | 4,485 | |||
| Fair value of | 1,000 | |||
| Total post December 31, 2022 transaction costs | 5,485 |
| (dd) | Represents the elimination of |
| (ee) | Reflects the elimination of interest expense for related party loans repaid at Closing of the Business Combination. |
| (ff) | Reflects the elimination of interest expense for converted loans and other short-term debt repaid at Closing of the Business Combination. |
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the audited consolidated financial statements and related notes thereto included elsewhere in this prospectus. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause actual results to differ materially from management’s expectations. Factors that could cause such differences are discussed in “Forward-Looking Statements” and “Risk Factors.”
Overview
Our wholly owned subsidiary, LFT, is developing a commercial farming business based in Northern Senegal initially focusing on the production and sale of alfalfa for cattle feed and nutrition purposes. We will sell alfalfa to owners and suppliers of cattle for feed and nutritional purposes. Over the next 2-3 years we expect to raise sufficient capital to enable the development of 25,000 hectares, or 62,000 acres, of land located at LFT. We further aim to expand the growing footprint within Senegal, Niger and potentially to other West African countries.
Our predecessor company acquired LFT during the first quarter of 2018. Since that time considerable effort has been expended on preparing the farm for commercial operations, including ensuring the integrity of the water channels and other water assets, conducting soil analysis and feasibility studies, and beginning to clear and prepare the farm pivots for commercial operations. As such, prior to 2022, there has been no commercial revenue and related contribution. The growing activity to that point has been on a small pilot scale with the resultant produce of rice and sweet potato largely being donated to the local communities. In addition, the intended strategy of the prior owners was to focus on farming a crop significantly different than alfalfa and as such various assets that had been acquired by the prior owners and taken over by our company were not suitable for farming of alfalfa.
During the third quarter of 2021, we began preparing the soil, land, pivots, irrigation and infrastructure to begin planting our pilot program. We began planting alfalfa in January 2022 across 305 hectares. Since our initial harvest in April 2022, we have experienced harvests on average of approximately two tons of alfalfa per hectare, including the initial cuts, and a 15% to 24% protein yield. Initial cuts are typically lower yield in an alfalfa system due to the establishment of the root systems, and therefore the result of our initial planting is in line with global averages and our expectations. After the initial period of root establishment, it is our expectation, based on global historical experience and published scientific data, that the crop rotation cycle will occur approximately every four to six weeks, allowing up to ten turns during an annual period. From a seasonality perspective, it is our expectation that after the initial crops have been planted, other than potentially during a short rainy season, little seasonality should impact the rotation. Based on the yield and protein outcome results of the pilot, we expect to expand the pilot program to further test input and conditions to maximize yield before we begin the program of incremental planting expansion that we anticipate will grow to 10,000 hectares within 12-18 months and ultimately to occupy as much of the 25,000 hectares as is practical. At 10,000 hectares, we would expect our annualized run-rate yield to be approximately 250,000 tons. Our initial expectations are that we will yield approximately 25 tons of alfalfa per hectare per year, based on 10 cuts per year and 2.5 tons per cut. Warmer climate experiences in geographies such as California, and colder climates such as Romania and Canada, give credence to these historical yield expectations. While the results of our pilot program enhanced our confidence in our potential alfalfa crop yields, there is no guarantee that our production estimates will be sustained in a larger commercial practice. Further, any expansion of our operations beyond our 305 hectare pilot program will be dependent on the amount of proceeds received by AFRAG in the Business Combination, our ability to generate future revenue from operations and sourcing additional outside investment into AFRAG, none of which are guaranteed.
For our initial production, we took the added step of complementing our deeply experienced team with the services of FGM International, a leader in agricultural project implementation, particularly in Africa. In addition, we engaged ICS, a leading agronomist specialist in crops, soil, water, agricultural machinery and more. ICS has been a successful supplier of efficient machines and high-quality seeds to farms in the Middle East and Africa for approximately 30 years. We have an invoiced relationship with ICS for equipment provided and services rendered. Through September 30, 2023, we have paid ICS $834,934. We also have an invoiced relationship with Valley Irrigation, a worldwide leader in precision irrigation for the development of our pivots. Through September 30, 2023, we have paid Valley Irrigation $674,000 for equipment. We also have an agreement with Dr. Daniel Putnam, a global expert on forage quality and water use efficiency under irrigation and on mitigation strategies for sub-optimal conditions, who has significant expertise in alfalfa production, to consult to the Company and bring worldwide best practices to Senegal.
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We targeted alfalfa as a strategic crop. Alfalfa delivers high protein content as a cattle feed, which can deliver meaningful weight gain for cattle. The demand for global consumption of protein is expected to grow at 6.8% per year over the next 10 years and the United Nations projected that global agricultural output will need to grow by 70% to meet the growing population by 2050. West Africa is home to as many as 100 million head of cattle offering a vibrant domestic market for our product. In addition, the Gulf region is currently hamstrung by legislation preventing the growth of forage crops, its scarce water and limited arable land, and hence the region imports approximately 85 percent of total food consumed, according to the 2022 GCC Food Report.
The strength of the demand for our products is evidenced by the increasing spot prices in various domestic and international markets based on the weekly Hoyt report and the USDA Kansas City alfalfa weekly pricing reports, as well as considerable interest from a number of strong credit worthy potential customers seeking to enter into long-term offtake/supply agreements. While the prices for the offtake are attractive, they are often at a discount to the spot markets. We are contemplating if this is a blank check company incorporated on February 10, 2021 asfavorable risk mitigation strategy to begin our entry into the market to the extent we are able to agree to a Cayman Islands exempted company and formed for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combinationdedicated offtake with one or more businesses. of these potential counterparties. The production volume dedicated to these offtake agreements only represents a small portion of our potential capacity hence does not prohibit our ability to benefit from stronger local prices once we establish production and begin to ramp up capacity.
We have not selected any specific business combination targetare also committed to advancing the interests of the communities where we operate by providing long-term career opportunities to the local workforce, partnering with educational institutions, such as Louisiana State University (LSU) and Michigan State University (MSU), to create programs that mutually benefit students, researchers and our own operations and to lay the foundation for our ambition for our LFT operations to become the agricultural technology capital of West Africa. Our partnership with LSU will also be focused on studying and benefiting from research comparing U.S. and world leading crop yields, fertigation processes and other leading edge industry leading practices and research. We recently signed a letter of intent with the College of Agriculture and Natural Resources at MSU College of Agriculture and Natural Resources (CANR), to further develop the fields of soil science, agronomy, cattle nutrition, emissions, and animal genetics in Mauritania.
The Business Combination
On November 2, 2022, we have not, nor has anyone on our behalf, engaged in any substantive discussions directly or indirectly, with any business combination target with respectentered into the Merger Agreement by and among the Company, Merger Sub and AFRAG.
Prior to an initial business combination with us. We may pursue an initial business combination target in any industry or geographic region. We intendthe Closing of the Business Combination, the Company carried out the Domestication pursuant to focus our search for an initial business combination with high growth technology and tech-enabled businesses. We intend to effectuate our initial business combination using cashwhich (i) the Company’s jurisdiction of incorporation was changed from the proceedsCayman Islands to the State of this offeringDelaware, (ii) the Company changed its name to “African Agriculture Holdings Inc”, (iii) each issued and the private placementoutstanding Class A ordinary share of the private placement units, the proceedsCompany was converted, on a one-for-one basis, into a share of the sale of our shares in connection with our initial business combination (pursuant to forward purchase agreements or backstop agreements we may enter into following the consummation of this offering or otherwise), sharesClass A Common Stock, (iv) each issued to the owners of the target, debt issued to bank or other lenders or the owners of the target, or a combination of the foregoing.
The issuance of additional shares in connection with a business combination to the owners of the target or other investors:
may significantly dilute the equity interest of investors in this offering, which dilution would increase if the anti-dilution provisions in theand outstanding Class B ordinary shares resulted inshare of the issuanceCompany was converted, on a one-for-one basis, into a share of Class B Common Stock, and (v) each issued and outstanding whole warrant to purchase Class A ordinary shares on a greater than one-to-one basis upon conversion of the Company became exercisable for Class B ordinary shares;A Common Stock beginning 30 days after the Closing at an exercise price of $11.50 per share.
may subordinateUpon Closing of the rightsBusiness Combination on December 6, 2023, Merger Sub merged with and into AFRAG, with AFRAG being the surviving company. On December 7, 2023, the shares of Common Stock began trading on Nasdaq under the symbol “AAGR”.
In accordance with the terms and subject to the conditions set forth in the Merger Agreement, the Company agreed to pay to equity holders of Class A ordinaryAFRAG, as merger consideration, a number of shares if preferenceof newly issued Common Stock, valued at $10.00 per share, equal to the product of the number of outstanding shares are issued with rights senior to those afforded our Class A ordinary shares;of common stock of AFRAG at the Closing, multiplied by the Exchange Ratio.
could cause a change in control if a substantial numberThe “Exchange Ratio” was equal to the quotient of Class A ordinary shares are issued, which may affect, among other things, our ability to use our net operating loss carry forwards, if any,(A) the sum of (i) $450.0 million and could result in(ii) the resignation or removalaggregate amount of our present officers and directors;
may have the effect of delaying or preventing a change of control of us by diluting the share ownership or voting rights of a person seeking to obtain control of us; and
may adversely affect prevailing market prices for our Class A ordinary shares and/or warrants.
Similarly, if we issue debt securities or otherwise incur significant debt to bank or other lenders or the owners of a target, it could result in:
default and foreclosure on our assets if our operating revenues after an initial business combination are insufficient to repay our debt obligations;
acceleration of our obligations to repay the indebtedness even if we make all principal and interest payments when due if we breach certain covenants that require the maintenance of certain financial ratios or reserves without a waiver or renegotiation of that covenant;
our immediate payment of all principal and accrued interest if any, ifunderlying certain convertible promissory notes of AFRAG issued by AFRAG after the debt is payable on demand;signing of the Merger Agreement that were converted into shares of Common Stock at the Closing, divided by (B) ten dollars ($10.00), divided by (C) the fully diluted common stock of AFRAG immediately prior to Closing.
our inability to obtain necessary additional financing if the debt contains covenants restricting our ability to obtain such financing while the debt is outstanding;
36
our inabilityIn addition, in consideration of the Company waiving certain closing conditions set forth in the Merger Agreement, at Closing each share of Common Stock for which redemption was not requested (a “Former SPAC Share”) was granted a pro rata right to pay dividends on our Class A ordinary shares;
usingreceive a substantial portion of our cash flow to pay principal and interest on our debt, which will reduce the funds available for dividends on our Class A ordinary3,000,000 additional shares if declared, expenses, capital expenditures, acquisitions and other general corporate purposes;
limitations on our flexibility in planning for and reacting to changes in our business and in the industry in which we operate;
increased vulnerability to adverse changes in general economic, industry and competitive conditions and adverse changes in government regulation; and
limitations on our ability to borrow additional amounts for expenses, capital expenditures, acquisitions, debt service requirements, execution of our strategy and other purposes and other disadvantages compared to our competitors who have less debt.
As indicated in the accompanying financial statements, at March 31, 2021, we had no cash and deferred offering costsCommon Stock, with (i) holders of $118,157. Further, we expect to incur significant costs in the pursuit of our initial business combination. We cannot assure youFormer SPAC Shares that our plans to raise capital or to complete our initial business combination will be successful.
Results of Operations and Known Trends or Future Events
We have neither engaged in any operations nor generated any revenues to date. Our only activities since inception have been organizational activities and those necessary to prepare for this offering. Following this offering, we will not generate any operating revenues until after completion of our initial business combination. We will generate non-operating incomewere public holders receiving shares in the form of interest incomeCommon Stock that were assigned to a pool for the benefit of such holders by a former stockholder of AFRAG and (ii) holders of Former SPAC Shares that were not public holders receiving Common Stock in the form of newly issued shares on casha private placement basis.
Factors Affecting Our Financial Condition and cash equivalents after this offering. There has been no significant changeResults of Operations
We expect to expend substantial resources as we:
| ● | complete the development of LFT to full capacity production covering the majority of the 62,000 acres available; |
| ● | implement a world class technology driven scalable operation that will result in high yields, and low costs driven by scale, technology, unique access to water and AI driven processes that can be expanded to other locations; |
| ● | enhance all aspects of our supply chain, distribution systems and logistics; |
| ● | develop and operate an owned renewable power supply program with adequate generation capability to, at a minimum, provide LFT with a reliable continuous and cheap source of power to operate; |
| ● | conduct further feasibility programs and develop the aquaculture program locally with a view for expansion across other coastal areas on the continent; |
| ● | conduct feasibility programs and develop the reforestation carbon credit program locally with a view for expansion across suitable areas on the continent; and |
| ● | incur additional general administration expenses, including increased finance, legal and accounting expenses, associated with being a public company and growing operations. |
Business Combination and Public Company Costs
On June 24, 2021, the Company entered into a Contribution Agreement with Global Commodities & Investments, Ltd, (“Global Commodities”), the shareholders of Agro Industries Corp., a limited company organized under the law of the Cayman Islands as an exempted company (“Agro Industries”), pursuant to which all the shareholders of Agro Industries agreed to contribute their shares of Agro Industries to the Company in exchange for shares of the Company. Following the closing of the transactions contemplated in the Contribution Agreement, the shareholders of Agro Industries became the 100% shareholders of the Company and Agro Industries became a wholly owned subsidiary of the Company. LFT, remains a 100% owned subsidiary of Agro Industries. The Company was deemed the accounting predecessor and will be the successor registrant for SEC reporting purposes, meaning that Agro Industries’ financial statements for previous periods will be disclosed in our future periodic reports filed with the SEC.
While the legal acquirer in the Contribution Agreement is the Company, for financial or trading positionaccounting and no material adverse change has occurred sincereporting purposes the consolidated financial statements of the combined entity represent the consolidated financial statements of Agro Industries prior to the formation of the Company in May 2021 and the Contribution Agreement. For all results post the effectiveness of the Contribution Agreement the consolidated financial statements of the Company will reflect the consolidation of the Company and its subsidiaries in accordance with US GAAP. Accordingly, the consolidated assets, liabilities and results of operations of Agro Industries became the historical consolidated financial statements of the combined company, and the Company’s assets, liabilities and results of operations were consolidated with Agro Industries beginning on the effective date of our audited financial statements. After this offering,the Contribution Agreement. Operations prior to the Contribution Agreement are presented as those of the Company and Agro Industries in future reports. There were negligible net assets of the Company prior to the Contribution Agreement, with no goodwill or other intangible assets recorded as part of the Contribution Agreement.
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As the Business Combination has now closed, we are an SEC-registered and Nasdaq-listed company, which will require us to hire additional personnel and implement procedures and processes to address public company regulatory requirements and customary practices. We expect to incur additional annual expenses as a public company for, among other things, directors’ and officers’ liability insurance, director fees and additional internal and external accounting, legal and administrative resources, including increased expensesaudit and legal fees, media, market data, public and investor relations.
Our future results of consolidated operations and financial position may not be comparable to historical results as a result of beingthe expanded business operations of the Company.
Critical Accounting Policies and Use of Estimates
Accounting policies are an integral part of our financial statements. A thorough understanding of these accounting policies is essential when reviewing our reported results of operations and our financial position. Management believes that the critical accounting policies and estimates discussed below involve the most difficult management judgments, due to the sensitivity of the methods and assumptions used. Our significant accounting policies are described in Note 2 to our consolidated financial statements included elsewhere in this report.
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board or other accounting standards setting bodies that we adopt as of the specified effective date. Unless otherwise discussed, we believe that the impact of recently issued accounting standards that are not yet effective will not have a public company (formaterial impact on our consolidated financial position or consolidated results of operations under adoption.
Use of Estimates
The preparation of consolidated financial statements in conformity with generally accepted accounting principles in the United States, or GAAP, requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amount of assets, liabilities and provisions, income and expenses and the disclosure of contingent assets and liabilities at the date of these financial statements. Estimates are used for, but not limited to, the selection of the useful lives of fixed assets, allowance for doubtful debt associated with accounts receivable, fair values, revenue recognition, and taxes. Management believes that the most material areas involving the use of estimates are the determination of the intangible asset relating to the land use right provided by the Senegal Presidential Decree, the most likely outcome of the claims incorporated in the contingent liability, the imputed interest rate related to the related party payable and the discount rates used for leases.
Intangible Asset — The intangible asset consists of a land use right of 20,000 hectares provided by way of a Senegal Presidential decree. The value of the intangible was established based on the allocation of the purchase price for LFT to the fair value of the assets, including this intangible asset, at the time of the acquisition of LFT by Agro Industries in 2018. Amortization of the intangible asset is calculated on a straight-line basis over the remaining term of the decree, which at the time of the acquisition had 44 years of a 50-year term remaining. Refer to Note 6 and Note 7 of the consolidated audited financial statements for further discussion.
Contingent Liability — The Company has created a contingent liability representing, in the Company’s opinion, based on our outside counsel’s review, probable loss outcome for legal claims. As of September 30, 2023, and December 31, 2022, the contingent liability provision is approximately $2.3 million. Refer to Note 14 in the audited consolidated financial statements of AFRAG for December 31, 2022 included in the Proxy Statement/Prospectus (the “Audited AFRAG Statements”) for further discussion.
Imputed interest in related party payable — As the related party payables have no stated interest rate, an imputed interest rate has been applied against such loan to represent an arms-length arrangement between the Company and the related party. Refer to Note 9 of the Audited AFRAG Statements and Note 7 in the unaudited financial statements of AFRAG for the nine months ended September 30, 2023 included elsewhere in this Form 8-K (the “3Q AFRAG Statements”) for further discussion.
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Interest rate in right-of-use lease assets and the associated lease liabilities — The present value of our lease liability and the right-of-use lease asset is determined using an incremental borrowing rate, which we estimate to be the rate of interest that we would have to pay to borrow on a collateralized basis over a similar lease term an amount equal to the lease payments in a similar economic environment.
Management believes that the estimates utilized in preparing its consolidated financial statements are reasonable and prudent. Although these estimates are based on our knowledge of current events and actions we may undertake in the future, actual results could differ from those estimates and assumptions.
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board or other accounting standards setting bodies that we adopt as of the specified effective date. Unless otherwise discussed, we believe that the impact of recently issued accounting standards that are not yet effective will not have a material impact on our consolidated financial position or consolidated results of operations under adoption.
Foreign Currency Translation
The accompanying consolidated financial statements are presented in United States dollars (“$”), which is the reporting currency of the Company. The functional currency of the Company is the United States dollar. The functional currency of the Company’s subsidiaries located in Senegal and Niger is the West African Franc (“CFA”). CFA is the official currency of eight countries in West Africa and is issued by the Central Bank of West African States. The CFA is pegged to the euro. For the entities whose functional currencies are the CFA, results of operations and cash flows are translated at average exchange rates during the period, per the table below. Assets and liabilities are translated at the current exchange rate at the end of the period as per the table below, and equity is translated at historical exchange rates. The resulting translation adjustments are included in determining other comprehensive loss. Transaction gains and losses are reflected in the consolidated statements of operations.
| 1 CFA:$ | Period Average | Period End | ||||||
| December 31, 2022 | $ | 0.001604 | $ | 0.001628 | ||||
| December 31, 2021 | $ | 0.001795 | $ | 0.001720 | ||||
| Nine months ended September 30, 2023 | $ | 0.001651 | $ | 0.001614 | ||||
| Nine months ended September 30, 2022 | $ | 0.001614 | $ | 0.001484 | ||||
Key Components of Statement of Operations
Basis of Presentation
Currently, we conduct business through one operating segment. Our activities to date were conducted in the United States and locally in Senegal at LFT. For more information about our basis of presentation, refer to Note 2 in the Audited AFRAG Statements.
The consolidated financial statements have been prepared assuming the Company will continue to operate as a going concern, which contemplates the realization of assets and settlement of liabilities in the normal course of business, and does not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from uncertainty related to its ability to continue as a going concern within one year from the date of issuance of these consolidated financial statements.
The Audited AFRAG Statements include a summary of our significant accounting policies and auditing compliance)should be read in conjunction with the discussion below.
Revenue
The Company began generating sales from its pilot program during the second quarter of 2022. The Company recognizes revenue for its products based upon purchase orders, contracts or other persuasive evidence of an arrangement with the customer that include fixed or determinable prices and that do not include right of return or other similar provisions or other post-delivery obligations. Revenue for products is recognized upon delivery, customer acceptance and when collectability is reasonably assured.
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Cost of Sales
The costs for establishing the pivots including seeds, land preparation and various phytosanitary products that are applied prior to and in conjunction with the initial seeding, but which will not be reapplied during the growing and harvesting stages are allocated quarterly to the cost of production over the seed cycle, which we estimate will be three years. The remaining direct costs related to the growth and harvesting of alfalfa, including additional fertilizer and phytosanitary products, direct labor, power, water, crop maintenance costs, depreciation of machinery cost, among others are included in the cost of sales based on the number of bales harvested and sold in that period calculated using a first in first out methodology.
Results of Operations
Our operating results for the nine months ended September 30, 2023 and 2022 are compared below:
| For the Nine Months Ended September 30, | Increase/ | |||||||||||
| 2023 | 2022 | (Decrease) | ||||||||||
| Revenue | $ | 1,451,236 | $ | 330,291 | 1,120,945 | |||||||
| Cost of goods sold | 1,031,135 | 319,711 | 711,424 | |||||||||
| Gross profit | 420,101 | 10,580 | 409,521 | |||||||||
| General and administrative expenses: | ||||||||||||
| Employee compensation | 24,163,737 | 561,492 | 23,602,245 | |||||||||
| Professional fees | 3,760,393 | 2,896,365 | 864,028 | |||||||||
| Equipment rental | 19,329 | 77,826 | (58,497 | ) | ||||||||
| Operating lease expense | 165,079 | 302,027 | (136,948 | ) | ||||||||
| Amortization | 87,009 | 87,009 | - | |||||||||
| Depreciation | 177,194 | 196,349 | (19,155 | ) | ||||||||
| Utilities and fuel | 61,410 | 67,578 | (6,168 | ) | ||||||||
| Travel and Entertainment | 104,920 | 117,697 | (12,777 | ) | ||||||||
| Program development and design | - | 101,893 | (101,893 | ) | ||||||||
| Other operating expenses | 272,234 | 308,032 | (35,798 | ) | ||||||||
| Total G&A expense | 28,811,305 | 4,716,268 | 24,095,037 | |||||||||
| Loss from operations | (28,391,204 | ) | (4,705,688 | ) | (23,685,516 | ) | ||||||
| Other expenses/(Income): | ||||||||||||
| Foreign currency exchange gain | (17,563 | ) | (297,886 | ) | 280,323 | |||||||
| Loss on sale of assets | - | 21,281 | (21,281 | ) | ||||||||
| Interest expense – related party | 33,078 | 517,085 | (484,007 | ) | ||||||||
| Interest expense – other | 618,588 | 276,642 | 341,946 | |||||||||
| Other income | (8,443 | ) | - | (8,443 | ) | |||||||
| Total other expense (income) | 625,660 | 517,122 | 108,538 | |||||||||
| Loss before provision for income tax | (29,016,864 | ) | (5,222,810 | ) | (23,794,054 | ) | ||||||
| Provision for income tax | - | - | - | |||||||||
| Net loss | $ | (29,016,864 | ) | $ | (5,222,810 | ) | $ | (23,794,054 | ) | |||
General and administrative expenses
Total general and administrative expenses for the nine months ended September 30, 2023 increased by $24.1 million or 510.9%, over the nine months ended September 30, 2022. The primary reason for the increase were higher employee compensation, and professional fees incurred in connection with the pilot program and expanding commercial operations in earnest. These higher costs reflect approximately $24 million of share-based compensation relating to the amortization of the RSU awards made by the Company in November 2022, as welldescribed in detail in Note 12 of the 3Q AFRAG Statements.
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Other Income/Expense
Other expense increased by $108,538 in the nine months ended September 30, 2023 compared to the prior year period due to higher interest accrued on the short term debt issued during 2022, offset by a lower foreign exchange gain and significantly reduced related party interest compared to the prior period as a result of the conversion of the related party loan to equity that took place in November 2022.
Net Loss
Net loss for due diligence expenses. We expect our expensesthe nine months ended September 30, 2023 increased by $23.8 million, or 455.6%, compared to increase substantially after the closingprior year period. The principal reasons, as described above, relate to the recognition of this offering.the share-based compensation expense compared to the prior period that had no impact of these charges.
There was no income tax expense from continuing operations for the nine months ended September 30, 2023 or 2022.
Liquidity and Capital Resources
Our
Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. Significant factors in the management of liquidity needs have been satisfied prior toinclude funds generated by operations, the completionavailability of this offeringcredit facilities, levels of accounts receivable and accounts payable, and capital expenditures.
Since the acquisition by Agro Industries of LFT during the first quarter of 2018, we financed our operations primarily from loans from shareholders, sales of alfalfa production, and through the contribution from our sponsor of $25,000 to purchase the founder shares and up to $300,000 in loans available from our sponsor.
We estimate that the net proceeds from the sale of non-usable equipment and inventory. During 2022 and 2023 the unitsCompany also raised capital from the issuance of short-term convertible debt and non-convertible debt.
During the second quarter of 2022 we began generating revenue from sales of alfalfa from our initial pilot program, which we commenced late in this offering2021.
We are seeking to implement our expansion plans, and the salefor these we will require additional capital to expand production, over time, to as much of the private placement unitsfull available capacity of LFT’s 25,000 hectares as is practical, to implement all the systems and processes for an aggregate purchase priceproduction, recording and reporting and to initiate wider scale marketing efforts.
Over time, it is our intention to acquire control of $6,550,000, after deducting offeringadditional farmland in Senegal and elsewhere in Africa, as well as implement two additional growth programs, aquaculture and creating carbon offset credits. We believe that we will require significant additional capital to achieve these short and medium-term objectives. We have developed a detailed business plan for covering the period 2024 through 2025 that sets forth expected costs, expenses of approximately $1,350,000 and underwriting commissions of $4,000,000 (excluding deferred underwriting commissions of $7,000,000, or $8,650,000 if the underwriters’ over-allotment option is exercised in full), will be $201,200,000 (or $231,200,000 if the underwriters’ over-allotment option is exercised in full). $200,000,000 (or $230,000,000 if the underwriters’ over-allotment option is exercised in full) will be heldsales under normal growing conditions and in the trust account, which includescurrent business and regulatory climate and our assumptions regarding our broader strategic initiatives. We began commercial farming operations at LFT during 2022. While LFT was not cash flow positive for the deferred underwriting commissions described above.nine months ended September 30, 2023, for the nine months ended September 30, 2022 or for the year ended December 31, 2022, we have made considerable progress in developing the local market for selling alfalfa, generating considerable interest in our product locally, regionally and in various international markets, and we have gained considerable knowledge and confidence with respect to the farming yields and potential for expansion by being able to replicate and expand our existing footprint. The proceeds held in the trust account will be invested only in U.S. government treasury obligations with a maturityspeed and scale of 185 days or less or in money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act which invest only in direct U.S. government treasury obligations. The remaining approximately $1,200,000 will not be held in the trust account. In the event that our offering expenses exceed our estimate of $1,350,000, we may fund such excess with funds not to be held in the trust account. In such case, the amount of funds we intend to be held outside the trust account would decrease by a corresponding amount. Conversely, in the event that the offering expenses are less than our estimate of $1,350,000, the amount of funds we intend to be held outside the trust account would increase by a corresponding amount.
We intend to use substantially all of the funds held in the trust account, including any amounts representing interest earned on the trust account (excluding deferred underwriting commissions) to complete our initial business combination. We may withdraw interest to pay our taxes, if any. Our annual income tax obligationsexpansion will depend on the amount of interestcapital available following Closing of the Business Combination. We intend to allocate the net proceeds following the Business Combination to the development of the alfalfa growth at LFT and to fund various corporate expenses. In addition, the Company is entitled to receive up to $11,500,000 pursuant to that certain agreement for a Cash-Settled Equity Derivative Transaction (the “CSED”) entered into on November 29, 2023 with Vellar Opportunities Fund Master, Ltd. Any proceeds received from the CSED will also be used to fund the development of the alfalfa growth at LFT and various corporate expenses. We also intend to continue to raise both debt and equity capital to continue the build out of our operations as our business plan had anticipated. Any debt financing secured by us in the future could involve restrictive covenants relating to our capital-raising activities and other income earnedfinancial and operational matters, which might make it more difficult for us to obtain additional capital and to pursue business opportunities. We might not be able to obtain additional financing on terms favorable to us, if at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to develop our farm as quickly as anticipated, or at all, and to respond to business challenges could be significantly limited. To date, our majority stockholder funded the amounts heldbusiness through loans and may continue to loan money to us in the trust account. We expectfuture, though the interest earnedmajority shareholder is under no obligation to do so. Our future capital requirements and the adequacy of available funds will depend on the amountmany factors, including those set forth in the trust account will be sufficient to paysection titled “Risk Factors.”
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During our income taxes. To the extent
first five years of operation we expect that our equity or debt is used, in whole or in part, as consideration to complete our initial business combination, the remaining proceeds held in the trust accountprincipal costs and expenses will be used as working capital to finance the operationsinclude labor for agricultural processes, agricultural supplies (seeds, fertilizer and pesticides), farming and laboratory equipment, facilities construction, utilities and fuel costs, fees for technical consulting services and general administrative expenses, including rent, management salaries, implementation and maintenance of the target business or businesses, make other acquisitionsagricultural infrastructure and pursue our growth strategies.
Prior to the completion of our initial business combination, we will have available to us the approximately $1,200,000 of proceeds held outside the trust account. We will use these funds to primarily identifyattestation, marketing and evaluate target businesses, perform business due diligence on prospective target businesses, travel to and from the offices, plants or similar locations of prospective target businesses or their representatives or owners, review corporate documents and material agreements of prospective target businesses, and structure, negotiate and complete a business combination.
We do not believe we will need to raise additional funds following this offering in order to meet the expenditures required for operating our business prior to our initial business combination. However, if our estimates of the costs of identifying a target business, undertaking in-depth due diligence and negotiating an initial business combination are less than the actual amount necessary to do so,internal controls monitoring. In addition, we may have insufficient funds available to operate our business prior to our initial business combination. In order to fund working capital deficiencies or finance transactionincur rent, costs in connection with the acquisition of new leasehold interests in land. We expect that all net revenue generated from the sale of alfalfa will be reinvested into business for the foreseeable future.
At September 30, 2023 we had a working capital deficit of $7.0 million compared with a deficit of $4.2 million at December 31, 2022. Our working capital has decreased primarily due to an intended initial business combination, our sponsor or an affiliate of our sponsor or certain of our officersincrease in payables and directors may, but are not obligated to, loan us funds as may be required. Ifaccrued expenses, offset by a small decrease in prepaid expenses and receivables. At September 30, 2023, we complete our initial business combination, we would repay such loaned amounts. In the event that our initial business combination does not close, we may use a portionhad $34,497 in cash. The net cash losses and expenses of the business during the nine months of 2023 have largely been funded by short term debt issued, short term payables and accruals and from related parties.
Cash Flows
The following table presents summary cash flow information for the periods indicated.
| For the Nine Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Net Cash Produced From/(Used) | ||||||||
| Operating Activities | $ | (1,096,794 | ) | $ | (2,767,309 | ) | ||
| Investing Activities | (13,563 | ) | (159,244 | ) | ||||
| Financing Activities | 1,131,500 | 2,986,076 | ||||||
| Effects of Exchange Rate Changes | 3,296 | (73,195 | ) | |||||
| Net Increase/(Decrease) in Cash | $ | 24,439 | $ | (13,672 | ) | |||
Cash Flows Used in Operating Activities
Cash flows used in operating activities for the nine months ended September 30, 2023, totaled approximately $1.1 million during which we incurred a net loss of $29.0 million. The net loss included the non-cash impacts of share-based compensation, depreciation, amortization, non-cash interest, and non-cash lease expenses. The cash flows for operating activities also reflected the decrease in working capital held outsidecompared to the trust account to repay such loaned amounts but noprior year period.
Cash Flows from Investing Activities
For the nine months ended September 30, 2023, total cash used in investing activities was $13,563 used for the acquisition of small equipment at the farm. For the nine months ended September 30, 2022, cash used in investing activities was $159,244 for equipment acquired for use in the pilot program.
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Cash Flow from Financing Activities
For the nine months ended September 30, 2023, the cash from financing activities reflects the proceeds from our trust account would be used for such repayment. Up to $1,500,000short debt that the Company raised during the that period and principal loan amounts received from various related parties. The related party payable with the majority shareholder is non-interest bearing and has no fixed repayment terms. The short-term debt includes debt with an 18-month duration and a 2.5% monthly coupon. Additional short-term debt issued bears a simple interest rate of such loans may be convertible into units of the post business combination entity at16% per annum and has a price of $10.00 per unit at thefour-month maturity, with an option of the lender. The units wouldCompany to extend the maturity an additional four months. In addition, the Company issued to a related party a Promissory Note bearing no interest. This Note was due to be identicalrepaid at Closing of the Business Combination and the Company intends to repay this Note using proceeds from the private placement units. The terms of such loans, if any, have not been determined and no written agreements exist with respect to such loans. Prior toCSED. For the completion of our initial business combination, we do not expect to seek loansnine months ended September 30, 2022, the cash generated from parties other than our sponsor or an affiliate of our sponsor as we do not believe third parties will be willing to loan such funds and provide a waiver against any and all rights to seek access to funds in our trust account.
We expect our primary liquidity requirementsfinancing activities reflected Convertible Promissory Notes issued during that period to includeand loans from the majority shareholder. The convertible notes bear a simple interest rate of twelve percent (12%) per annum based on a 365-day year, and have a one-year maturity. Convertible notes with an aggregate principal amount and accrued but unpaid interest of approximately $340,000 for legal, accounting, due diligence, travel and other expenses associated with structuring, negotiating and documenting successful business combinations; $37,500 for legal and accounting fees related to regulatory reporting requirements; $75,000 for the Nasdaq and other regulatory fees; $37,500 for consulting, travel and miscellaneous expenses incurred during the search for a business combination target; and approximately $230,000 for general working capital that will be used for miscellaneous expenses and reserves. We will also pay our sponsor $20,000 per month for office space, secretarial and administrative services provided to members$1.92 million automatically converted into common stock of our management team subsequentAFRAG immediately prior to the closing of the Business Combination Agreement at a 20% discount to the transaction price per share. Approximately $459 thousand in principal amount plus accrued but unpaid interest of the convertible notes remain outstanding and the Company intends to repay this offering.outstanding amount using proceeds from the CSED.
These amounts
Off Balance Sheet Arrangements
As of September 30, 2023 and December 31, 2022, we had no off-balance sheet financing arrangements.
Our operating results for the years ended December 31, 2022 and 2021 are estimatescompared below:
| For the Year Ended December 31, | Increase/ | |||||||||||
| 2022 | 2021 | (Decrease) | ||||||||||
| Revenue | $ | 679,196 | $ | — | $ | 679,196 | ||||||
| Gross profit | (105,155 | ) | — | (105,155 | ) | |||||||
| General and administrative expenses: | ||||||||||||
| Employee compensation | 5,933,664 | 344,943 | 5,588,721 | |||||||||
| Professional fees | 18,059,427 | 2,146,057 | 15,913,370 | |||||||||
| Equipment rental | 89,875 | 95,207 | (5,332 | ) | ||||||||
| Operating lease expense | 346,436 | — | 346,436 | |||||||||
| Amortization | 116,012 | 116,012 | — | |||||||||
| Depreciation | 252,603 | 187,711 | 64,892 | |||||||||
| Utilities and fuel | 107,024 | 112,092 | (5,068 | ) | ||||||||
| Travel and Entertainment | 134,364 | 20,551 | 113,813 | |||||||||
| Program development and design | 101,893 | — | 101,893 | |||||||||
| Other operating expenses | 419,134 | 490,450 | (71,316 | ) | ||||||||
| Total G&A expense | 25,560,432 | 3,513,023 | 22,047,409 | |||||||||
| Loss from operations | (25,665,587 | ) | (3,513,023 | ) | (22,152,564 | ) | ||||||
| Other expenses/(Income): | ||||||||||||
| Foreign currency exchange gain | (170,530 | ) | (397,895 | ) | 227,365 | |||||||
| Gain on sale of assets | (153,978 | ) | (79,517 | ) | (74,461 | ) | ||||||
| Interest expense – related party | 518,582 | 310,522 | 208,060 | |||||||||
| Interest expense – other | 436,186 | 183,360 | 252,826 | |||||||||
| Other income | (42,350 | ) | (45,351 | ) | 3,001 | |||||||
| Total other expense (income) | 587,910 | (28,881 | ) | 616,791 | ||||||||
| Loss before provision for income tax | (26,253,497 | ) | (3,484,142 | ) | (22,769,355 | ) | ||||||
| Taxation | — | — | — | |||||||||
| Net loss | (26,253,497 | ) | (3,484,142 | ) | (22,769,355 | ) | ||||||
| Less: Net loss attributable to non-controlling interests | — | 75,750 | (75,750 | ) | ||||||||
| Net loss attributable to controlling interests | $ | (26,253,497 | ) | $ | (3,408,392 | ) | $ | (22,845,105 | ) | |||
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Revenue and may differ materiallygross margin
We began harvesting our initial crop in the second quarter of 2022. The majority of the production was sold to local buyers but we also sent various samples and promotions to prospect regional and international customers. We experienced a gross loss on our revenue for 2022 due to various factors including: sales of the first cut, which is typically low quality alfalfa at highly discounted prices, lower selling prices initially as we introduced the local market to the product, which proved to be a successful strategy to engage the local market; sales at low prices of rain damaged product, as well as the cost of promotional, sample and community provided product all of which had no associated revenue. Notwithstanding the negative gross margin during this initial year, we are encouraged by our results from this initial period with respect to yield, quality and the unit economics of our actual expenses.alfalfa and expect to achieve positive margins as we reach steady state with our initial pilot program.
General and administrative expenses
Total general and administrative expenses for the year ended December 31, 2022 increased by $22.0 million over the year ended December 31, 2021 total of $3.5 million. Of this increase $19.1 million was share compensation expense. In 2022, the Company’s Board of Directors approved the adoption of the African Agriculture, Inc. 2022 Incentive Plan (the “Plan”). The Plan, as amended by the Board of Directors, permits the Company to grant up to 2,885,640 shares (at December 31, 2022) of the Company’s common stock as well as a separate award to African Discovery Group, Inc. of 2,700,000 RSUs. The Plan provides for the granting of incentive and nonqualified stock options, share appreciation rights (SARs), restricted stock, and restricted stock units to employees, non-employee directors, and consultants of the Company. Instruments granted under the Plan generally become exercisable ratably over the stated vesting terms in each award agreement following the date of grant and expire ten years from the date of grant. All stock awards are exercisable only to the extent vested. Approximately $5.3 million was the cost related to recognizing the fair value of restricted stock awards granted by the Company on a straight-line basis over the requisite service period. In addition, we couldrecognized an expense of approximately $13.7 million with respect to an additional grant of shares to Global Commodities & Investments Ltd, the Company’s majority shareholder, which was made during the year as a reward for services provided to the Company since its formation. In addition to these share compensation expenses, professional fees increased over 2021 as a result of expanding commercial operations in earnest, increased legal and audit expenses incurred preparing the Company for an initial public offering which has now transitioned to completing the Combination, expenditure on various program development and design primarily related to aquaculture programs and increased costs relating to operating lease expense increased in connection with expenses relating to the land use agreements in Niger and the impact of the adoption of ASC 842.
Other Income/Expense
Other expense increased by $616,791 in the year ended December 31, 2022 compared to the prior year due to higher related party interest resulting from higher average related party loan balances, interest accrued on the convertible short term debt issued during 2022, lower exchange rate gains offset by higher gains on sale of non-usable equipment compared to the prior year.
Net Loss
Net loss for the year ended December 31, 2022 increased by $22.8 million, or 670.3%, compared to the prior year. The principal reasons, as described in above relate to the share compensation expense, and the commencement of our commercial alfalfa business in 2022, including supplementing the management team and the preparation for the public existence of the Company and the allocation of resources to these various initiatives.
There was no income tax expense from continuing operations for the year ended December 31, 2022 or 2021.
Liquidity and Capital Resources
At December 31, 2022 we had a working capital deficit of $4.2 million compared with $0.45 million at December 31, 2021. Our working capital has decreased primarily due to an increase in payables and accrued expenses and a small decrease in inventory, offset by an increase in prepaid expenses, reflecting the increase in expanding commercial farming operations and preparing for the Business Combination. At December 31, 2022, we had $10,058 in cash. The net cash losses and expenses of the business have largely been funded by shareholder loans from the majority shareholder and short term debt issued during 2022.
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During the year ended December 31, 2022, the Company issued Convertible Promissory Notes (“Notes”) the proceeds of which would be used to fund general corporate purposes. The Notes bear a simple interest rate of twelve percent (12%) per annum based on a 365-day year. Notes representing approximately $1.92 million in principal amount plus accrued interest automatically converted immediately prior to the Business Combination at a 20% discount to the transaction price. In addition, the Company issued Promissory Notes (“Short Term Notes”) the proceeds of which would be used to fund general corporate purposes. The Notes bear a simple interest rate of sixteen percent (16%) per annum based on a 365-day year. There were no Short-Term Notes outstanding as of December 31, 2021.
The Company entered into a Payoff, Waiver and Release Agreement in October 2022 with Global Commodities & Investments Ltd, the Company’s majority shareholder, whereby $16,130,522 of the related party payable was converted into equity.
Cash Flows
The following table presents summary cash flow information for the periods indicated.
| For the Year Ended December 31, | ||||||||
| 2022 | 2021 | |||||||
| Net Cash Produced From/(Used) | ||||||||
| Operating Activities | $ | (2,700,347 | ) | $ | (3,539,647 | ) | ||
| Investing Activities | (163,912 | ) | (874,986 | ) | ||||
| Financing Activities | 2,948,779 | 4,145,634 | ||||||
| Effects of Exchange Rate Changes | (93,555 | ) | 199,605 | |||||
| Net Increase/(Decrease) in Cash | $ | (9,035 | ) | $ | (69,394 | ) | ||
Cash Flows Used in Operating Activities
Cash flows used in operating activities for the year ended December 31, 2022, totaled approximately $2.7 million during which we incurred a net loss of $26.3 million. The net loss included the non-cash impacts of the share compensation expenses, depreciation, amortization, non-cash interest, and non-cash lease expenses. The cash flows for operating activities also reflected the decrease in working capital compared to the prior year period.
Cash Flows from Investing Activities
For the year ended December 31, 2022, total cash used in investing activities was $163,912. For the year ended December 31, 2021, cash used in investing activities was $874,986. The cash used in investing activities during the year ended December 31, 2022 and 2021 reflected equipment acquired for use in the pilot program offset by the proceeds of sales of older equipment not useful in alfalfa production.
Cash Flow from Financing Activities
For the year ended December 31, 2022, the cash from financing activities of approximately $3.0 million reflects the principal loan amounts received from our majority shareholder as well as the proceeds from the short debt that the Company raised during 2022 offset by payments made for the repayment of the seller note. The related party payable is non-interest bearing and has no fixed repayment terms. The short term debt includes convertible debt with a 12% coupon. Approximately $1.92 million in principal amount plus accrued but unpaid interest converted into common stock of AFRAG immediately prior to the Business Combination, with Approximately $459 thousand of such debt remaining outstanding. The short-term debt bears a simple interest rate of 16% per annum and has a four-month maturity, with an option of the Company to extend the maturity an additional four months. For the year ended December 31, 2021, the cash generated from financing activities reflected loans from the majority shareholder offset by the amount paid on the seller note payable relating to the original LFT acquisition.
Off Balance Sheet Arrangements
As of December 31, 2022 and December 31, 2021, we had no off balance sheet financing arrangements.
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Contractual Commitments
Our contractual obligations as of September 30, 2023, consist primarily of the seller note payable relating to the original LFT acquisition, the agreement with the Fass Ngom community in Senegal that provides for the right to use 5,000 hectares, and an obligation to begin supporting the local municipalities with whom we have partnered for significant land in Niger in accordance with agreements signed in December 2021, and the agreement signed between the Company, the community of Gie Dynn and the Government of Mauritania that provides for the right to develop 2,033 hectares of land in Mauritania together with the obligation to invest up to $30 million into this project over the next 20 years. These contractual obligations impact our short-term and long-term liquidity and capital needs.
The balance of the seller note payable was $1,958,486 as of September 30, 2023 and $1,976,050 as of December 31, 2022. In November 2022, Tampieri Financial Group agreed to a delayed payment of the balance of the seller note payable. The resultant amendment fee is being amortized monthly over the remaining period of the seller note payable. A portion of the fundspayment was due on March 31, 2023. The parties subsequently agreed to delay this payment to be made concurrently with the balance of the amount due on October 31, 2023. Interest of 6.3% will be payable on the delayed portion only. Other than the interest related to the delayed payment on March 31, 2023, the seller note payable does not bear an interest rate. As a result, the fair value of the seller note payable was less than face value when issued in the LFT asset acquisition. The seller note payable is presented net of unamortized discount and the unamortized amendment fee as reflected in the table below.
| September 30, 2023 | December 31, 2022 | |||||||
| Seller note payable | $ | 1,958,486 | $ | 1,976,050 | ||||
| Less: unamortized discount | — | — | ||||||
| Less: unamortized amendment fee | 31,141 | 311,419 | ||||||
| Add: interest on delayed instalment | 30,988 | — | ||||||
| Total | $ | 1,958,333 | $ | 1,664,631 | ||||
The remaining balance was due on October 31, 2023. The Company is in negotiation regarding the settlement or extension of this seller note payable.
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Land use agreement, Niger and Mauritania land use agreements
As of September 30, 2023, future minimum rental payments under the operating leases are approximately as follows:
| 2023 (remaining) | $ | 324,436 | ||
| 2024 | 825,657 | |||
| 2025 | 826,533 | |||
| 2026 | 827,426 | |||
| 2027 | 828,338 | |||
| Thereafter | 17,490,989 | |||
| $ | 21,123,379 |
The table above does not include any obligations related to the 20,000 hectares land use right obtained by way of a Senegal Presidential Decree. The Senegal Presidential Decree provides for the use by LFT of the land until 2062. There are no annual payments required in accordance with the Senegal Presidential Decree. This land use right was recognized as an intangible asset in connection with the asset purchase of LFT and is being placedamortized over the remaining term of the decree.
The table does however include obligations relating to the recent agreements signed with the mayor and local governments of Aderbissinat and Ingall, respectively, in trustNiger each under a 49-year term for the right to use and development 2.2 million hectares of their land. While there is no binding obligation under these agreements to plant a minimum number of hectares of trees, we agreed to pay commitment feesapproximately $86,000 per year under each agreement during the construction of the greenhouses and plantation. Once the sale of carbon credits commences the annual payment amount will increase to approximately $1.1 million. In addition, during the first year of the sale of carbon credits we are required to pay an additional $129,000 for each agreement for budgetary support to each region. As the timing of the sale of carbon credits is uncertain, we have reflected only the known and required, as of today, payments for the duration of these agreements.
The table also includes obligation reacting to the agreement signed between the Company, the community of Gie Dynn and the Government of Mauritania. This lease is for 20 years and covers 2,033 hectares of land. Of this land, 80%, or 1,626 hectares will be used by the Company for farming alfalfa with the balance being farmed, at the Company’s cost, at the direction of the community. The Company has agreed to invest up to $30 million into this project over the next 20 years. The annual cost of the 1,626 hectares will be $300 per hectare per annum, subject to an annual increase consistent with the household consumption index (a proxy for local inflation). In addition, the Company will pay 5% of annual net profits earned on the 1,626 hectares to the community subject to an annual minimum payment of approximately $122,000.
The Company maintains cash in banks in the United States as well as in Senegal. The aggregate cash balances shown on the consolidated balance sheets as of September 30, 2023 and December 31, 2022 were held at JPMorgan Chase Bank, N.A. as well as in various banks in Senegal and Niger. There is no insurance securing these deposits, other than FDIC insurance that governs all commercial banks in the United States. The Company has not experienced any losses in such deposits. There are no excess cash balances, beyond those required for short term operations, held in Senegal or Niger bank accounts.
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BUSINESS
Company Overview
We are a holding company that operates principally through our wholly owned subsidiary, Les Fermes de la Teranga SA (“LFT”). LFT is developing our initial commercial farming business based in northern Senegal focusing on the production and sale of alfalfa for cattle feed and nutrition purposes. Alfalfa is a vegetation based protein primarily used in dairy cattle for milk and beef production.
We will sell alfalfa to owners and suppliers of cattle for feed and nutritional purposes, locally, regionally and for export. Over the next 2-3 years we expect to largely develop 25,000 hectares, or 62,000 acres, of land located at LFT. We further aim to expand the growing footprint within Senegal, Niger and potentially to other African countries.
Predecessor Company
Our predecessor company acquired LFT during the first quarter of 2018. Since that time considerable effort has been expended on preparing the farm for commercial operations, including ensuring the integrity of the water channels and other water assets, conducting soil analysis and feasibility studies, and beginning to clear and prepare the farm pivots for commercial operations. As such, prior to 2022, there has been no commercial revenue and related contribution. The growing activity to that point has been on a small pilot scale with the resultant produce of rice and sweet potato largely being donated to the local communities. In addition, the intended strategy of the prior owners was to focus on farming a crop significantly different than alfalfa and as such various assets that had been acquired by the prior owners and taken over by our company were not suitable for farming of alfalfa.
Current Company
During the third quarter of 2021, we began preparing the soil, land, pivots, irrigation and infrastructure to begin planting our pilot program. We began planting alfalfa in January 2022 across 305 hectares. We began our initial harvest in April 2022, and we have continued harvesting the crop to date which resulted in an average of approximately 2.4 tons of alfalfa per hectare, excluding the initial cuts, and a 15% to 24% protein yield. Initial cuts are typically lower yield in an alfalfa system due to the establishment of the root systems, and therefore the result of our initial planting is in line with global averages and our expectations. After the initial period of root establishment, it is our expectation, based on global historical experience and published scientific data, that the crop rotation cycle will occur every four-six weeks, allowing up to ten harvests during an annual period. From a seasonality perspective, it is our expectation that after the initial crops have been planted, other than potentially during a short rainy season, little seasonality should impact the rotation. Based on the yield and protein outcome results of the pilot, we expect to expand the pilot program to further test input and conditions to maximize yield before we begin the program of incremental planting expansion that we anticipate will grow to 10,000 hectares within 18-24 months and ultimately to occupy as much of the 25,000 hectares as is practical. At 10,000 hectares, we would expect our annualized run-rate yield to be approximately 250,000 tons. Our initial expectations are that we will yield approximately 25 tons of alfalfa per hectare per year, based on 10 cuts per year and 2.5 tons per cut. Warmer climate experiences in geographies such as California, and colder climates such as Romania and Canada, give credence to these historical yield expectations. While the results of our pilot program enhanced our confidence in our potential alfalfa crop yields, we are a relatively new company with a history of losses and there is no guarantee that our production estimates will be sustained in a larger commercial practice. Our independent auditors have expressed substantial doubt about our ability to continue as a going concern. For the fiscal year ended December 31, 2022 AFRAG incurred a net loss of approximately $26.3 million. and used cash in continuing operations of $2.7 million. AFRAG also incurred a net loss of approximately $29.0 million and used cash in continuing operations of $1.1 million for the nine months ended September 30, 2023. Our operations have historically been financed principally by our majority shareholder, Global Commodities and Investments Limited and its affiliated entities, and there is no guarantee that we will generate enough sales or obtain additional financing feesnecessary to consultantssupport our continuation as a going concern. Further, any expansion of our operations beyond our 305 hectare pilot program will be dependent on our ability to assistgenerate future revenue from operations and sourcing additional outside investment, none of which are guaranteed.
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For our initial production, we took the added step of complementing our deeply experienced team with the services of FGM International, a leader in agricultural project implementation, particularly in Africa. In addition, we engaged ICS, a leading agronomist specialist in crops, soil, water, agricultural machinery and more. ICS has been a successful supplier of efficient machines and high-quality seeds to farms in the Middle East and Africa for approximately 30 years.
Our Business Strategy
We have three primary business strategies: Agriculture, Aquaculture and Environmental Carbon Offsets.
In agriculture, our primary asset is the 25,000-hectares in Senegal. After its 305-hectare pilot, our focus will be on the development of the additional acreage in a methodical fashion at the LFT Farm, optimized on a non-dormant alfalfa variety. While the market for cattle feed is expected to develop locally and regionally, the immediate customer base will likely be Asia and the middle East, including Saudi Arabia and the United Arab Emirates. In certain of these markets, the production of forage crops is banned and a large quantity of the 14 million tons per year necessary is imported from the United States. This supply conduit’s sustainability is challenged for water supply related reasons. We anticipate growing identical crops in a similar fashion outside of Senegal, in the Niger River Valley and Mauritania. We expect to ultimately supply approximately a third of the current market with these three locations. The advantage of alfalfa, which we expect to produce ten cuts per year, is that it is a profitable and relatively fast production crop that can be produced efficiently in the environment where we will operate.
In aquaculture, we anticipate growing tilapia in its water channels as part of its fertigation program in conjunction with Willing Hands. It generally takes between seven and nine months for a tilapia to grow to maturity and we anticipate harvesting them then at approximately 1.25 pounds, which yields two four-ounce fillets. The fish achieve optimal growth potential at 73°F regardless of environment, which make our channels at the LFT Farm an optimal environment. The system will contribute to the sustainable fertilizer nature of our approach, by using the fish’s waste as a natural fertilizer saving 95% of the water used in traditional agriculture. Leaf surface fertilization with liquid fertilizer produced from amino acids constitutes a potentially important source of nitrogen and is important for plant production. Fish emulsion is a fertilizer that is a half-decomposed mixture of finely ground up fish. It is then dried to kill micro-organisms. Fish emulsion contains up to 5% nitrogen with several trace elements that help improve soil microbes, resulting in more plant building blocks. We intend to participate in both marine and freshwater aquaculture when refrigeration facilities are established. We also intend to manage the wholesale purchase of fish from local fisherman, initially in Senegal and secondarily in East Africa, and in conjunction with processing, refrigeration, financing and logistics locally, ultimately adding sales and distribution to wholesalers in consumption markets in Europe and the Middle East.
We intend to deploy certain of its cash flow from operations into the creation of a carbon sequestration and reforestation program. We anticipate that its carbon offset production will generate carbon credits to be sold on a global carbon emission market via a reforestation program in areas adjacent to the LFT Farm initially, specifically from the Aleppo pine species, typically indigenous to semi-arid conditions. The markets for these credits increased substantially due to both corporate and government awareness and acceleration in terms of timing and magnitude. Typically, each metric ton of reduced emissions is represented by a financial instrument known as a carbon offset. In Niger, we have entered into agreements with the mayor and local governments of Ingall and Aderbissinatt under a 49-year lease term for the development of agricultural and carbon credit projects on the periphery of the Sahara desert. The project will involve the planting of a minimum of one million (1,000,000) hectares of trees in each area, for an aggregate of 2 million hectares to optimize the production of carbon credits in an area to be mutually agreed upon by the Parties with access to an underground aquifer for irrigation purposes for the sale of carbon footprints as well as water and usage rights. Each Municipality has also allocated an additional one hundred thousand (100,000) hectares of land in favorable areas for commercial production for local and industrial consumption of alfalfa (or other biomass products) on a large scale following hydrogeological and soil studies.
On May 14, 2022, we signed an agreement with the Directorate General of Water and Forests (“DGEF”) of Niger who manages forest reserves for a total area of 624,568 hectare to be reforested and developed by us for the identification and development of carbon credit projects in Niger. The agreement tenure is for 25 years duration, renewable after project assessment. After the start of the project, its duration may be extended for 20 years upon agreement between the parties. Pursuant to the DGEF agreement, we will provide logistical support and up to approximately $80,000 in funding to identify and develop carbon-absorbing activities. Following the first sale of carbon credits pursuant to the terms of the agreement, we will work with DGEF to support the project through training and provision of scholarships to Nigerian executives.
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On July 25, 2023 we formed African Agriculture Mauritania LLC SARL as a wholly owned subsidiary. Following the formation of the Mauritanian subsidiary, we entered into a Partnership Contract the community of Gie Dynn and the Government of Mauritania effective as of September 27, 2023. The Partnership Contract provides us with a lease covering approximately 2,033 hectares of land in Mauritania. Approximately 80%, or 1,626 hectares, of land subject to the lease will be used by us for farming alfalfa with the balance being farmed, at our searchcost, at the direction of the Gie Dynn community. The Partnership Contract provides that we will invest $30 million into this project during the 20-year term of the lease. The timing and use of such $30 million investment will be at our sole discretion. The Partnership Contract stipulates that we will pay an annual royalty of $300 per hectare for the 1,626 hectares managed by us, subject to an annual increase consistent with the household consumption index (a proxy for local inflation). In addition, we will pay 5% of annual net profits earned on the 1,626 hectares to the Gie Dynn community, with a minimum annual payment of $122,000. Gie Dynn will also receive representation on the Mauritanian subsidiary’s board of directors. The Partnership Contract also stipulates that we will provide training in agricultural techniques to the local community, development of local technical vocational schools, with no cost to the local communities. Pursuant to the terms of the Partnership Contract, we intend to begin work on the Gie Dynn project and make a $975,600 cash deposit guaranteeing the lease’s annual rent payments within three months of the Partnership Contract’s effective date.
Given its access to large customers with a variety of nutritional needs, the potential for by-products, logistics and technology applications, scalable land and water assets, we anticipates additional business lines and revenue opportunities may emerge over time. This may include the production of additional breadth of crops, the management of cattle, opportunities in dairy, more expansive fish breeding, and ammonia and fertilizer production.
Current operations
We sell alfalfa to owners and suppliers of cattle for feed and nutritional purposes, primarily in Senegal and the surrounding regions in Africa (including the Economic Community of West African States (ECOWAS) region) and are targeting expansion for sale into Asia and the Middle East. Forage crops, such as Alfalfa have been banned from production in Saudi Arabia and the United Arab Emirates. In August 2021, we began preparing the pivots, irrigation and infrastructure to begin planting its pilot program. Center-pivot irrigation, also called water-wheel and circle irrigation, is a method of crop irrigation in which equipment rotates around a pivot and crops are watered with sprinklers, resulting in a circular area centered on each pivot that is irrigated. We began our pilot alfalfa program late in the fourth quarter of 2021 across 305 hectares. The initial harvesting of the pilot program crop began in the second quarter of 2022. To date, certain of the individual center pivot farm sections have been harvested between fifteen to seventeen times with yields to date averaging approximately 2.4 tons per hectare, excluding the first cut. Studies have suggested that it takes three to four harvests of the alfalfa crop before consistent yields are achieved. with yields increasing from the first harvest as the alfalfa root system is established. Therefore, certain of the results to date are in line with our expectations of being able to achieve 2.5 tons per hectare in later harvests.
Pursuant to a Presidential Decree in Senegal, dated March 20, 2012, we can utilize 20,000 hectares, of land in conjunction with an additional 5,000 hectares of land leased from the local community in Fass Ngom. As of December 31, 2022, more than $30 million had been invested by previous owners of the LFT Farm, including our majority shareholder, Global Commodities & Investments Ltd., which is controlled by Mr. Frank Timis. Beginning in March 2022, we initiated its business operations in Niger, with business incorporation and performing initial survey work regarding land and soil fertility. Water evaluation and hydrogeological studies are ongoing, along with preliminary recruiting of farming operators and development.
As part of its initial strategy, we have initiated commercial shipments of alfalfa to Arab States of the Gulf (Cooperation Council for the Arab States of the Gulf) customers and anticipates potential expansion to Europe and Asia as the market for exports grows in conjunction with global population growth. Beyond that we are actively selling to Senegalese owners and suppliers of cattle.
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Because of the fragmented nature of the agriculture industry, we must make a commercial decision between selling our product to larger volume purchasers at lower price points with higher consistency and certainty of longer-term contracts versus the local less-developed market for alfalfa in the ECOWAS region, where a large amount of cattle exist and are malnourished. According to our estimates, based on a world average for meat pricing of $10 per kg, cattle bred for meat purposes will imply a potential five times return on an alfalfa nutrition regimen and potentially up to seven times for dairy purposes, given enhanced productivity driven by alfalfa. Additionally, the measured dairy productivity in Sahelian regions of 8 liters per day, compares to European and North American averages in excess of 30 liters per cow per day.
The local customer base is expected to develop rapidly. Based on an increasing cohesion as a community, farmers in the region are progressively replacing their indigenous cattle that produce only 1 – 2 liters of milk a day with exotic cattle that can produce between 20 and 40 liters a day, substantially increasing both productivity and income. Over 1,200 milking cows including Holstein variety have recently been imported under government initiatives to begin expanding the dairy production in an effort to begin addressing food security concerns. Various cooperatives partnered with the USAID’s West Africa Trade and Investment Hub, including the Association for the Promotion of the Livestock in the Sahel and the Savanna that cover 12 African countries involving about 15,000 members, and the West Africa’s regional livestock association, which works with national federations across the region. Additionally, in 2020 the World Bank approved a US$150 million credit from the International Development Association (IDA) to support Senegal in strengthening agricultural productivity and helping build resilient, climate-smart and competitive food systems. We believe vertical integration into livestock management may be justified given the material revenue potential.
Livestock production involves at least 20 million people across West Africa, where vertically integrated distributor chains connect producers in the Sahel with consumption basins in urban areas and the coast. Estimated heads of cattle in ECOWAS alone is 100 million according to the World Bank, which given archaic measurement techniques may be conservative. Livestock production, marketing, and processing generate income for participants along the value chain and provide food and nutrition security in the region. Intraregional livestock trade is highly informal, and it appears revenue derived from such commerce is not measured officially. Livestock, consisting mostly of cattle and small ruminants, are traded live and lead the intraregional food trade. The African feed industry is predominantly driven by the poultry market. In most countries, poultry is the main source of animal protein, accounting for 80% of the commercial feed locally produced. With a current population of 1.2 billion inhabitants, a level expected to reach 2 billion by 2050 according to the Economist, Africa faces a major challenge to supply animal protein to its people, with a consumption of two to five kilograms of animal protein consumption anticipated per year.
Projected Business Operations
We expect to expand alfalfa sales into the cattle market in the ECOWAS region that incorporates Senegal, recently tabulated by the Organisation for Economic Co-operation and Development estimating that there are 60 million head of cattle, 160 million small ruminants and 400 million poultry in West Africa and the Sahel, translating to about 44% of the agricultural GDP in the region. Given a large number of artisanal cattle rearing, and minimal auditing and measurement, We believe this estimate may be conservative. According to the African Union, about 40% of the African landmass is used for pastoralism, though this differs between countries, with a pastoralist population estimated at 268 million. The market for alfalfa is expected to expand substantially in Africa as protein incorporated in diets grows to mirror the estimate of 25% of that of western consumption. While the cattle market reflects an evident need for alfalfa, due to the relatively small amount of heads of cattle per owner in Senegal, and a minimal amount of dairy or milking herds, and our limited experience in the Senegalese market thus far, we anticipate that the local Senegalese market will take some time to develop.
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Over the next three to four planting seasons, we plan to develop 25,000 hectares, or 62,000 acres, of land in the Saint Louis region of northern Senegal (the “LFT Farm”) that will be capable of producing up to 625,000 tons of alfalfa per year in conjunction with a crop yield of approximately 25 tons per hectare per year. We expect that the crop harvest cycle will occur every four to six weeks, allowing up to approximately ten turns during an annual period. From a seasonality perspective, it is our expectation that after the initial crops have been planted before the rainy season little seasonality should impact the rotation. We expect that this will begin the program of incremental planting expansion that it anticipates will grow to 10,000 hectares within 18-24 months and ultimately to the predominance of the 25,000 hectares. The fulfilment of these growth goals is largely dependent on access to capital necessary for growth. Based on the foregoing, and by way of example, at 10,000 hectares we expect our annualized yield to be approximately 250,000 metric tons, and at 25,000 hectares, we expect our annualized yield to be approximately 625,000 tons. Our initial expectations are that it will yield approximately 25 tons of alfalfa per hectare per year. Such expectations are based on global averages that vary in regions which have lower yielding crops per year given winter or dormancy environments to those in more optimal growth conditions such as those in Senegal and Niger that have both sun, year-round conditions and water prevalence. This assumption is predicated on 10 cuts per year and two and a half tons per cut. Colder climates such as Romania and Canada give credence to these lower yield expectations by virtue of their temperatures. On expansion in Niger, using the same metrics, we expects our production to be approximately 5,000,000 tons per year. If a commercial strategy of solely forage crop development is pursued, our farming operations in Niger are expected to develop in sequence with its further commercialization of its Senegalese properties. However, there are risks and uncertainties associated with completing our developments on schedule, which include access to capital, global supply chain issues and issues related to shipping logistics. While the results of our pilot program enhanced our confidence in our potential alfalfa crop yields, we are a relatively new company with a history of losses and there is no guarantee that our production estimates will be sustained in a larger commercial practice or result in enough sales to support our continuation as a going concern. Any expansion of our operations beyond our 305 hectare pilot program will be dependent on our ability to generate future revenue from operations and sourcing additional outside investment, none of which are guaranteed. In addition, while our pilot program enhanced its confidence in its potential alfalfa crop yields, there is no guarantee that our production estimates will be sustained in a larger commercial practice.
Relative Crop Yields
Our pilot yields in both sweet potato and rice point towards crop yields approximately 67% and 30% higher, respectively than other global environments due to soil quality, sun index and water abundance. Our alfalfa pilot study produced plant growth and yield characteristics that exceed global averages, similar to its rice program. While we cannot guarantee that our future alfalfa yields will continue to exceed global averages, the results of the initial pilot program for alfalfa that began to be harvested in the second quarter of 2022 depicted a similar result of exceeding global averages and we believe is predictive of the yield and resultant of future operations.
Alfalfa
Alfalfa plays a significant role as a type of livestock forage for animal feed, due to its high protein and digestible fiber content. The crop is mainly used for feeding dairy cows, cattle, horses, sheep, and goats. The crop is highly adapted to hot and arid conditions, typical of the Sahara desert in which we operate, which allows for particular sun-cured alfalfa hay (dehydrated) to grow in a favorable environment. Abundant and regular irrigation by pivots allows high yields and, under optimum conditions, approximately a harvest every 28-30 days, when not impacted by the wet, rainy season, which based on the last 30 year history typically occurs 45-50 days per year. An alfalfa crop is usually planted for four or five years, with on average a cut each month in a country with the same heat and humidity as Senegal, such as the Imperial Valley of California where data is available. In North America, despite its seasons, the average total yield is 20 to 35 tons per hectare (or 8 to 14 tons per acre) per year (distributed in five or six cuts). Top yields (intensive farming) can exceed 40 tons per hectare or 16 tons per acre per year, and have been recorded in the Imperial Valley in California and Minais Gerias in Brazil. The alfalfa plant is highly adaptable to varying cultivation and weather conditions, showing great tolerance to drought. This can be achieved due to its root system, that can penetrate up to 15 to 30 feet. (4.5 to 9 meters), searching for water and nutrients. The average length of the root is four to five feet (1.2 – 1.5 m). The upper part of the plant is shorter compared to the root system. The plant’s height ranges from two to four feet (60 to 120 cm). The alfalfa plant thrives in well drained soils, as moist water laden soils promote the development of various diseases.
Furthermore, alfalfa has a high impact on carbon sequestration, and we believe alfalfa can generate over 4 tons per hectare per year of carbon credits, an additional commercial strategy to which we aspire. Alfalfa is effective at sequestering carbon for a target business ornumber of reasons, including its status as a perennial and a deeply rooting plant. While crops like corn and soy often have a net neutral or negative impact on carbon sequestration, carbon levels in the soil are elevated when alfalfa is included as part of the rotation. The root system of the alfalfa plant also lends itself to decreased amount of erosion potential with minimal amounts of soil leaving a field under alfalfa cultivation providing an additional key positive. Alfalfa is a nitrogen fixer that invests resources into its roots, keeping the soil dry thereby reducing decomposition, even in degraded soils.
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Alfalfa is a high-protein roughage which is usually about 15 – 25% crude protein, over 50% total organic nitrogen and high in fiber and calcium. Alfalfa and corn generally complement each other, and in concert can form the basis for cattle diets. Grass hays are frequently low in protein and some alfalfa can raise the protein level for beef cattle or dairy purposes at the time of feeding. Low quality grass hay also spends more time in the rumen during digestion than alfalfa hay (70 compared to 36 hours). Therefore, animals fed some alfalfa hay can generally eat more, gain weight faster, produce more milk and maintain themselves in better condition. Alfalfa has an initial rate of ruminal digestion that is five to ten times greater than that of most grasses. The rapid microbial colonization and digestion of alfalfa reduces particle size and increases the passage of digesta from the rumen, enabling the animal to consume greater quantities of forage. Alfalfa is an excellent forage for high-producing cows. Cows efficiently use the high levels of protein, calcium and high-quality fiber in alfalfa for producing milk. Alfalfa has the potential to double the weight of livestock in as few as seven weeks, based on the U.S. experience.
According to the USDA, livestock requires the following amounts of protein per day:
| Crude Protein (lbs per day) | ||||
| Required | 1.80 | |||
| Supplied by Forage | 0.88 | |||
| Supplemental Need | 0.92 | |||
In general, consumption of the original forage resource declines when cattle are fed concentrate feeds at the rate of 0.5 percent of body weight (six pounds for 1,200 — pound cows) or more. Substitute feeding is more frequently used for growing cattle than it is for mature beef cows. A lactating dairy cow can consume 14 to 16 lbs/day of alfalfa hay as a part of a mixed ration, or higher amounts on a more forage-intensive diet.
There are over 200 known varieties of alfalfa, but only six to eight are used commercially in scale. We chose three varieties to refine our strategy in Saint Louis, Senegal derived from semi-arid conditions in Australia in our pilot studies, and anticipate purchases for its expansion to be derived from TopNotch Seeds, Inc., a seed producer in California. Further study and dynamic refinement of optimal culture will be conducted simultaneously with additional harvests of the pilot, and during additional phases of the commercialization. Generally, different alfalfa varieties perform differently in various growing regions. The preparation for the cultivation of alfalfa starts during the summer of the previous year. Most farmers initiate preparation by fixing soil pH and gypsum levels. Many farmers add lime, through deep tillage, at a quantity of three to four tons per hectare. Lime is believed to increase the activity of nitrogen-fixing Rhizobium bacteria, while functioning as a soil conditioner. It is typical to add two to three tons of fertilizer per hectare before applying any nutrition or tillage method. Specific soil bacteria, called rhizobia, can infect the roots of legumes, like alfalfa. Unlike the response to pathogenic bacteria, legumes produce specialized root structures called nodules, into which the rhizobia grow. There they are fed and protected by the plant, they multiply, and they capture Nitrogen gas from the air and convert it to amino acids that the plant uses for growth.
Harvest of alfalfa normally takes place just before the flowering season in North America, in contrast to Africa and Senegal where seasons are less distinct. The machines used to harvest alfalfa typically cut the alfalfa as low as possible, without damaging the crown of the plant. The most common alfalfa harvesting technique is to use a harvest machine to chop the plants, arrange them in rows and allowing them to dry in the field. In this case, an unexpected rain will make the plants incur mold and may result in the decrease of the production’s quality. Following this step, a machine passes and turns two rows of harvested plants into one. After ensuring that the plants have dried, a tractor pulling a baler arranges the hay into bales that weigh from 100 to 2800 lbs. (50 to 1300 kg). The typical customer purchase for destination Saudi Arabia is 500-1,000kg bales, while Korea and certain markets in Asia prefer smaller bale sizes (below 100kg). While some of the global industry utilizes dehydration units to reduce water content for export, which facilitates an ability to transport large quantities, our customer base reflected a large intent to purchase a sun-dried variety which commands a price premium.
Due to its climate, and year-round heat, we will be using a non-dormant variety of seed for our pilot and our additional follow-up commercial program. Due to the nature of the shipping distances, and supply chain delays, the distance from Australia and California, we will investigate and compare yields in the initial stages of its planning, and may experience small variability in outcome.
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Alfalfa in the United States and Global Markets
The alfalfa market in the United States is expected to grow at a compound annual growth rate of 5.89% over the forecast period to reach a market size of $20.5 billion in 2025 from $14.6 billion in 2019, according to industry analysis Marketwatch. Marketwatch also indicated that the global alfalfa hay market size was valued at USD $30 billion in 2022 and is forecast to a readjusted size of USD $36.4 billion by 2029 with a compound annual growth rate of 2.6% during the review period. As a component of the projected global growth, overall meat consumption is expected to account for 82% of the needs of the growth of alfalfa supply. The Asia-Pacific region led by China and the Latin American countries, with Brazil leading the region, are estimated to contribute to most of the global supply expansion of alfalfa. Growth in demand will be led by Organization for Economic Cooperation and Development (OECD) countries in the next decade. Capacity building, improved agriculture, increasing integration of modernized, and intensive production technologies are expected to increase the growth in supply in these countries.
The United States production of alfalfa accounts for 51.7% globally. In addition, the United States is also the world’s largest exporter of alfalfa. Over the past 10 years, as water shortages have become more common, the shrinkage in alfalfa acreage has become a driver to increased pricing. According to the National Agricultural Statistics Service, of the United States Department of Agriculture (USDA), California farmers in 2020 harvested just 515,000 acres of alfalfa, down paymentfrom more than 1 million acres in 2010. Alfalfa plays a central role in the United States as a feed crop that complements high energy feed sources and substitutes, to some extent, for other sources of protein and roughage. For these reasons, the market for alfalfa is closely linked with markets for other feeds and grain and oilseed markets more broadly. Alfalfa is used in livestock rations, and especially dairy rations in the west. For this reason, alfalfa markets are closely linked to the commercial market for milk. The market for grains and oilseeds is global, as are the markets for meat, processed dairy products and, to an increasing extent, alfalfa hay. Fluid milk and high moisture content roughages have relatively low prices per unit of weight and are expensive to ship long distances. The USDA’s Foreign Agricultural Service (FAS) estimated 2020 total alfalfa and other hay (mostly grass) exports from the United States at almost 4.1 million MT, from non-existent production in 1980.
The USDA National Agricultural Statistics Service (NASS) estimates the value of alfalfa hay and hay products produced in the United States at $8.8 billion per year. Alfalfa is the fourth most widely grown crop in the country behind only corn, soybeans, and wheat Approximately 40% of the alfalfa produced in the United States is located in 11 western states. This region also supplies the vast majority of the seed for the nation’s alfalfa plantings, and it contributes significantly to exports of alfalfa hay and seed to Asia and the Middle East. Western states played a crucial historical role during the development of alfalfa in the United States, with production developing nationally the latter half of the 19th Century. A recent survey of western states showed a wide variety of production practices, ranging from 2 to 10 cuts per year, from very dormant to non-dormant varieties grown on soils from heavy clays to beach sands. While alfalfa is a relatively non-complex crop to grow, water, relative logistics and irrigation management are considered key limiting factors to large scale development.
All global agriculture markets have been impacted by supply chain disruptions directly attributed to the COVID-19 pandemic. The agricultural supply chain connects livestock and crop producers to processing and packing firms who in turn supply wholesalers, who then supply commercial, institutional, and retail customers who ultimately deliver agriculture products directly to individuals and households. Traditionally, disruptions to the supply chain resulted from regional disasters like fire, seasonal impacts like drought, or industry-specific disturbances such as labor disputes or regulatory challenges. However, disruptions stemming from COVID-19 have been global rather than regional, occurring with uncertainty of resolution rather than seasonal, and impact all sectors along the supply chain including producers, transportation, processors, points-of-purchase, and consumers. The health and economic fallout felt globally from this pandemic is impacting world trade. Global markets have been reduced since the outset of the pandemic, including those for agricultural products. Beef trade was hit by both a reluctance to allow shipments into some countries and the economic impacts of the pandemic. The same general health and economic forces that impacted the meat sector also disrupted the dairy sector. Processing was curtailed by workers contracting the virus in milk processing plants. Demand has been hampered by constraints to consumption, particularly from closures at restaurants and institutions such as schools, but also by loss of income. With reduced bottling and processing, prices fell sharply to historically recorded levels. There has been recent recovery in processing and prices. Additionally, by virtue of U.S.-China trade tensions, shipments to China have fallen appreciably during the same period.
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Saudi Arabia is unable to grow alfalfa because previous cultivation of these crops drained the country’s ancient aquifer. In 2015, the Saudi Arabian government banned the local production of green forage for animals, for which groundwater would be used, on farms over 120 acres. Saudi Arabia, with 10 million tons per year of imports of forage crops, and the United Arab Emirates (UAE) with 2.5 million tons per year of imports, and large growing populations and regional distribution systems are globally reliant on consistent foreign alfalfa supply chains. For that reason Almarai, Saudi Arabia’s largest dairy, and the UAE’s Al Dahra started a trend of acquiring farmland in the southwest of the United States. Over the past 20 years, foreign companies have purchased more than 250,000 acres in six southwestern states for agricultural use. In addition to the Gulf countries, China, South Korea and Japan are substantial importers of alfalfa hay from the United States. Due to banning on local production of forage crops in many high demand countries, We believe that the demand dynamic for alfalfa will be impervious related to dynamics concerning the COVID-19 pandemic and future similar occurrences. Furthermore, the scrutiny on water administration in the Western United States is further expected to reduce supply and subsequently increase pricing for the commodity.
Additional applications of Alfalfa
Furthermore, alfalfa has considerable potential as a feedstock for production of biofuels and other industrial materials because of its high biomass production, perennial nature, ability to provide its own nitrogen fertilizer, and valuable co-products. Utilization of alfalfa as a biomass crop has numerous environmental advantages. There is an urgent need to increase the use of perennials in agricultural systems to decrease erosion and water contamination. Annual row crop production is a major source of sediment, nutrient (nitrogen and phosphorus), and pesticide contamination of surface and ground water. Perennial crops such as alfalfa can reduce nitrate concentrations in soil and drainage water and prevent soil erosion. Alfalfa cultivation also increases soil fertility through nitrogen fixation, improves soil quality, increases soil organic matter and promotes water penetration into soil. Alfalfa leaves and stems can be easily separated. The stem fraction is high in cellulose, the substrate needed for ethanol production. The leaves of alfalfa constitute approximately 45% of the total harvested crop and can be used as a valuable co-product. The leaf fraction contains 26 to 30% protein. Cutting frequency and pasture age are strategic variables in defining alfalfa crop management aimed at increasing biomass yield.
The concept of value-added agriculture is a portfolio of agricultural practices that enable farmers to align with consumer preferences for agricultural or food products with form, space, time, identity, and quality characteristics that are not present in conventionally-produced raw agricultural commodities. As defined by the U.S. Department of Agriculture, value-added products are (i) a change in the physical state or form of the product, (ii) the production of a product in a manner that enhances its value, as demonstrated through a business plan (such as organically produced products), and (iii) the physical segregation of an agricultural commodity or product in a manner that results in the enhancement of the value of that commodity or product (such as an identity preserved marketing system). As a result of the change in physical state or the manner in which the agricultural commodity or product is produced and segregated, the customer base for the commodity or product is expanded and a greater portion of revenue derived from the marketing, processing or physical segregation is made available to the producer of the commodity or product. We believe that this approach has not been magnified on the African continent, and is integral to our long term strategy.
Alfalfa undergoes various stages of processing to attain final customized product form such as pellets and cubes. The chain of processes includes harvesting, drying and densification of alfalfa. The goals of harvesting or to fundcut alfalfa at the growth stage provides the optimum combination of yield and quality and to maintain quality and minimize losses through proper preservation. The main difference between the alfalfa products is moisture content. Pelletizing may have a “no-shop” provision (a provision designedprecipitous impact on the selling price of a ton of Alfalfa. However, only some markets have a preference for this form of feed and due to keep target businessesthe generation of bicarbonates during the chewing and rumination process by cattle enabling digestion, not all markets and customers are focused on pellet form delivery. We intend to commercialize cubing units for up to 50 percent of our production capacity in Senegal for markets such as the United Arab Emirates and China that prefer delivery in this form. This will require additional capital expenditure and management focus.
Alfalfa grown at our LFT facility in Senegal is expected to have a competitive advantage versus that of United States origin. For decades, a significant portion of alfalfa grown in the western United States, as much as 17 percent in 2017, has been loaded onto trucks, driven substantial distances to ports on the west coast, and shipped to global destinations, primarily to China, Japan, Korea, Taiwan, the United Arab Emirates, and Saudi Arabia. The nautical distance from “shopping”Dakar to the Persian Gulf is exactly half versus to the western United States, or 7,346 nautical miles vs 14,602 nautical miles. While port congestion and supply chain disruptions are temporary based on pandemic related aberrations, transportation distance and logistics are anticipated to be a major differentiator of our business operations. Additionally, because of the relative one-sided nature of cargo towards destinations in West Africa, with relative trade imbalance and lower export at present, there are vast resources, including empty containers available.
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Corporate farms, researchers and policymakers warn drained aquifers threaten access to water for drinking and future crop production. The export of crops and the water used to grow them, known as virtual water, has been accelerating despite concerns that in drought-stricken areas such as the southwest of the United States, this system is unsustainable in the long term. Although virtual water itself is not inherently problematic — and can even reduce water usage in some cases — its extraction from water-stressed communities is sounding the alarm as water crises become more acute. Even as the Colorado River Basin enters its 21st year of sustained drought and climate change threatens to further exacerbate water scarcity, virtual water trading is expected to triple globally by 2100, with a large share moving from the United States to other countries. With scant rainfall, the southwestern aquifers, as well as the Colorado River, provide the main sources of irrigation water in the region, and both are threatened by drought and over drafting. Agriculture uses about 80 percent of the water in the Colorado River basin. In August 2021, the Federal government officially declared the first-ever water shortage in the Colorado River basin, which are expected to lead to mandatory water cuts in some states and Mexico in 2022. The shortage was triggered because water levels in Lake Mead on the Nevada-Arizona border, the largest reservoir in the United States, are projected to drop to a level where it can’t meet the water and energy demands of communities in the western United States.
Water policy advocates have long criticized the practice of growing water-intensive crops for export in water-scarce areas, focusing mainly on American companies and farmers. Now, though, foreign companies buying land to export those same crops are starting to receive more scrutiny under recent drought initiative acts of Congress. According to the USDA, as of 2019, 35 million acres of land are held directly by foreign investors, a number that doubled between 2004 and 2014. In January 2023, the states belonging to the Colorado River Compact of 1922 missed a federal deadline to resolve an agreement to make water use meet the Colorado River’s declining capacity, leaving the decision in the hands of the federal Bureau of Reclamation. On May 23, 2023 representatives from the seven Colorado River Basin states agreed to the submission of a Lower Basin, consensus-based system conservation proposal. The three Lower Basin states of California, Arizona and Nevada committed to measures to conserve at least 3 million-acre-feet (maf) of system water through the end of 2026, when the current operating guidelines under the compact are set to expire. Of those system conservation savings, 2.3 maf will be compensated through funding from the Inflation Reduction Act. Once officially approved by the Bureau of Reclamation, which operates the dams on Lake Mead and Lake Powell, the new agreement would be in place through 2026. We are aware of numerous federal, state and municipal considerations in the Western United States that will affect water usage for purposes of Alfalfa for export that are currently under revision given the water crisis.
Of vital concern to Chinese national interests, the Ministry of Agriculture, Government of China reportedly issued the “National Alfalfa Industry Development Plan (2016 – 2020)” with the aim to boost the production of alfalfa. The objective was to achieve production capacity of 5.4 million tons by 2020. The plan is reportedly a part of the recent changes in agricultural policies of China which is to promote planting of fodder among others, given the population growth. The growth of the organic segment of the alfalfa market is also expected during the next few years. This is particularly due to the cognizance of high-quality feed that results in the production of quality and safe products of animal origin. Further, in the European Union, Regulation (EU) No 2018/848 came into force on January 1, 2021 with the rationale of ensuring the integrity of organic production at all stages of the production and processing and distribution processes of animal feed, among others.
The United States, at 61% of global value, is the world’s leading hay exporting country, followed by Australia, Spain, Canada and Italy. While some forage is exported from other countries such as Argentina, Sudan, Morocco, France, Germany, Mongolia and Romania, these countries make up less than 11% of the world trade according to the International Trade Center. An important development in the past decade has been the emergence of China and Middle Eastern markets. These markets rose from negligible amounts in 2007 to millions of MT per year in 2017 for alfalfa. This increase was driven primarily by rapid expansion of modern dairy farms in China and Korea, and limitations of water resources in Saudi Arabia and the UAE. Water limitations and distance to markets are also major limitations in China. In 2007, about 85% of United States exports went to Japan and Korea. Over the past decade, China has become the largest importer of alfalfa from the United States, accounting for over 40 percent of total U.S. alfalfa exports. Shipments to Japan and Korea have grown as well, but Korea has been surpassed by Saudi Arabia and the UAE. The Middle East is second to Asia as the most important market for exported United States alfalfa. Water resource availability in many parts of the world plays a key part in the demand, as well as the supply, for international trade in forage crops. UAE and Saudi Arabia, both water-poor countries, have made domestic policy decisions which aim to stop the utilization of groundwater for forages.
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With an effective rooting zone of four to six feet and the potential to reach 20 feet, alfalfa is capable of extracting nearly 70% of the available water in the soil. Growing demand for water-intensive products like meat and dairy are expected to spur even more virtual water exports. In a 2020 study in the journal Nature Communications, researchers estimated that virtual water exports around the world could triple by the end of the century, from 961 billion cubic meters in 2010 to 3,370 billion in 2100. The trade in non-renewable groundwater is expected to form a significant share of that increase, growing fivefold by 2050 and doubling its 2010 value by 2100. The United States is expected to be the biggest exporter of non-renewable groundwater according to the study, with exports going to the Middle East, South Asia, and Africa.
Because to this date, the Western United States commands such a material part of the world’s Alfalfa exports, we are watching the development of land use and expense in the Colorado River Basin which is a primary source for transactionsfarm and rangeland irrigation across 5.5 million acres of land and is also used for municipal and industrial purposes by the region’s 40 million-plus residents. The region’s hydroelectric infrastructure provides up to 42 gigawatts of electrical power annually to area customers. As a result of the Colorado River Compact of 1922, the basin was split into two separate water apportionment regions, the Upper Basin, which covers Colorado, New Mexico, Utah, Wyoming and a small section of Arizona, and the Lower Basin, which covers the majority of Arizona and provides water to populated sections of Southern California and Nevada. Under the compact, each basin is allocated 7.5 million acre-feet (maf) yearly, with an additional 1.5 maf dedicated to Mexico. As the 100-year anniversary of the Compact lapses, 29 Native American tribes are renegotiating water allocations, along with other companiesenvironmental issues. The tribes hold as much as 20% of the Basin’s water rights, equating to 2.9 million acre feet.
The State of California historically profited from other states not using their full water allocations. California has traditionally been diverting unused water apportioned to other states. Although allocated 4.4 maf of Colorado River water, California was using about 5.2 maf approximately 75 years after the compact was signed, 25% more than its allocation. In response to a directive from the Secretary of the Interior, California is working on a plan to limit its use of Colorado River water to 4. 4 maf per year, its legally apportioned amount. Nevada is seeking to obtain additional Colorado River water for the rapidly growing Las Vegas area, and Arizona is devising plans to use its entire entitlement, by banking or investorsrecharging water not presently needed. Further state-wide disputes are expected to contribute further to the water use efficiency, and to help our competitive positioning.
The Department of the Interior declared the first-ever Colorado River Basin water shortage on termsAugust 16, 2021. Arizona and Nevada, which combined generate nearly $6 billion in agricultural receipts, are expected to be directly impacted by additional cuts to water allocation. Continued drought conditions risk additional cuts across the Colorado River Basin, jeopardizing thousands more favorablefarm and ranch operations’ access to vital water resources. Agriculture is not expected to eliminated, just materially curtailed and more expensive, experiencing a jump thus far of over 40% in the cost of water per acre foot in 2021. It is expected that unavoidable reductions in farm water supplies and hydropower generation, ecosystem degradation, and urban areas will be needed to conserve water. In October 2022, U.S. Rep. Ruben Gallego (Phoenix, Democrat) filed the Domestic Water Protection Act of 2022, attempting to impose an excise tax of up to 300% on foreign entities exporting crops from dry parts of the country, an issue faced by Arizona, but certainly encompassed by other states that are governed by the Colorado River Compact.
Agriculture is a major component of the Colorado River Basin’s economy. This acreage provides economic inputs to both the U.S. and Mexico. As an example, in 2012, the seven U.S. states located in the Colorado River Basin produced roughly $37 billion in crops and $24 billion in livestock (USDA 2014). In Colorado, 85% of the water goes toward agriculture. A substantial portion of this is alfalfa. It is largely expected that these highly sensitive federal water issues will continue to undermine the cost structure of our competitors, and act as a major competitive edge for our operations and expansion.
We believe that access to an abundant and inexpensive water will remain an uncompromising barrier to entry for its competitors. The LFT Farm is surrounded by the Senegal River and the Lac du Guiers, and is 60km from the Atlantic Ocean, providing surface water access. Such access provides our water at approximately 1/100th of the cost of its foreign competitors, which also dramatically decreases our logistical challenges. Furthermore, the Senegal river is emptying to the Atlantic Ocean at the point where water is being extracted for irrigation, thereby not impacting other areas of commerce or environment.
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We believe that alfalfa farming represents a sustainable agriculture product that can reconcile high productivity with preservation of the environment, and at the same time allow us to compete in a global market. Alfalfa can help to meet the challenges of climate change and pollution reduction, by favoring crop rotations capable of better preserving the soil and controlling weeds. The utilization of alfalfa through grazing may also reduce risks of pollution and production costs. Alfalfa will keep an important place in European agriculture, because it sustainably supports high quality dairy productions. These unique features can be further improved through technical and varietal innovation.
In addition, approximately half of the world’s farmers utilize livestock as a source of organic fertilizer enabling them to respond to the growing demand for organically produced food products. Alfalfa is a three-to-five-year cycle crop, and every year 20% of the alfalfa is pulled out and replanted as a part of the crop’s normal cycle. Additionally, Alfalfa is used to make biochar, a super charcoal made by heating any biomass oxygen. All of the cellulose, lignin and other, non-carbon materials gasify and are burned away. What remains is pure carbon — 40% of the carbon originally contained in the biomass, with an ability to create organic content in the soil.
We anticipates that our LFT Farm will deploy recent scientific and technical advances available throughout our development, and the processing and distribution processes to maximize its alfalfa output. We will incorporate U.S.-style good agricultural practices, or GAP, into our operations and will seek to integrate our customer’s agricultural and other practices into its processes and procedures so that buyers will have confidence that the product they purchase from us satisfies their standards. We believe that we will be among the only independent alfalfa manufacturers in Africa to employ these practices in its operations as we seek the highest quality products to sell in their home countries.
Biofuels Market
Because of alfalfa’s protein as well as its energy content, the relevance of alfalfa as a biofuel promises another area of our evaluation. Alfalfa leaves constitute approximately 45% of the total harvested alfalfa crop and can be used as a valuable co-product. The leaf fraction contains 26% to 30% protein. Cutting frequency and pasture age are strategic variables in defining alfalfa crop management aimed at increasing biomass yield. Alfalfa is a high-protein roughage which is usually about 15% to 25% crude protein, over 50% total organic nitrogen and high in calcium. By virtue of our access to by-products, its sun exposure and water access, We believe we will be able to participate in the global biofuels market. Replacing fossil fuels with biofuels has the potential to generate a number of benefits. In contrast to fossil fuels, which are exhaustible resources, biofuels are produced from renewable feedstocks, with substantially lower emissions. Thus, their production and use could, in theory, be sustained indefinitely. Bioenergy, derived from plants that use sunlight and CO2 to assimilate carbon into biomass, has emerged as a potentially sustainable energy source with low climate impact. Biomass quality depends on the plant composition, as cellulosic biomass is primarily comprised of cellulose, hemicellulose, lignin, and lesser amounts of other extractable components such target businesses)as pectins and proteins that make up the plant cell wall. As the world transitions to sustainable energy systems, we are confident that we can agronomically select alfalfa for increased biomass should the needs of our customer base transition over time to simple supply of cattle feed, by selecting alfalfa that is left for longer duration with longer growth, which is typically deemed more appropriate for biofuel.
Livestock, which consume alfalfa, produce significant amounts of methane as part of their normal digestive processes. Direct livestock emissions account for about 70% of greenhouse gas emissions by the agricultural sector and approximately 10% of total greenhouse gas emissions, the third largest source of greenhouse gas emissions after the energy and transport sectors, according to the Environmental and Protection Agency (EPA). We are evaluating technology that will integrate additives for digestion with its alfalfa product and reduce methane emissions, that is derived from the use of algae as a probiotic.
Research suggests that reduced lignin alfalfa genotypes, currently in early commercial development for improved forage quality for dairy cows, will also have a higher ethanol yield compared to standard alfalfa types given experiences in recent studies that showed a more than 50% increase in sugar yield. (Current Opinion in Biotechnology; Volume 56, April 2019, Pages 49 – 55; Development and commercialization of reduced lignin alfalfa; Jaime Barros; Stephen Temple; Richard Dixon.) New transgenes conferring increased drought tolerance, increased biomass and improved protein quality are also being evaluated and will also likely have applications for both dairy and biofuels uses. Recent technological breakthroughs in harvesting technology and lignin modification further enhance the potential of alfalfa as a key biofuel feedstock. While we believe it will be able to compete in the biofuels market, and that its participation in such market can be a key part of its growth strategy, we have not incorporated any anticipated biofuel revenues into its forecasts and does not intend to do so until its specific strains and varieties have been identified.
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Road transportation, flights, and shipping are heavily dependent on fossil fuels, generating 29% of greenhouse gas emissions during 2019 and approximately 7.3 billion metric tons of carbon dioxide annually, the last year of relevance prior to the outset of the pandemic. Biofuel replaces traditional fuels with those made from plant material or other renewable feedstocks. The two most common types of biofuels in use today are ethanol and biodiesel, both of which represent the first generation of biofuel technology. The International Energy Agency’s in a report from November 2021 on transport biofuels stated biofuel demand needs to increase form the 5% growth per year on average from 2010 – 2019 to average growth of 14% per year to 2030 to reach net-zero emissions by 2050, hence boosting targets for sustainable growth. The biofuel market has been hampered by lack of commercial scale, as well as the need for conversion technologies. The integration of our downstream ability to feeds animals, and derive animal fats as byproducts, coupled with optimal conditions for vegetable oils give us confidence in our aspiration to participate in the biodiesel space.
As our ability to work with dairy customers is established, a relatively nascent industry in Senegal, we anticipate the ability to capture naturally produced methane gas, which capture methane gases from cow waste, are the most efficient way to mitigate dairy emissions. The state of California has thus far spent over $300mm developing this technology. Typically, manure is flushed from cow stalls into an anaerobic digester, a sealed dam-like structure. Microbes that develop without oxygen break down the manure, thus releasing biogas, that is trapped under the cover, ultimately transported via pipeline to a facility that converts it into electricity or renewable natural gas for transportation fuel. This is an aspirational example of a new industry that could be derived from our alfalfa production.
Alternatives to diesel fuel include biodiesel and renewable diesel. Biodiesel, derived from fats such as vegetable oil, animal fat, and recycled cooking grease, can be blended with petroleum-based diesel. Some buses, trucks, and military vehicles in the U.S. run on fuel blends with up to 20% biodiesel, but pure biodiesel can be compromised by cold weather and may cause problems in older vehicles. Renewable diesel, a chemically different product that can be derived from fats or plant-based waste, is considered a “drop-in” fuel that does not need to be blended with conventional diesel. Other types of plant-based fuel have been created for aviation and shipping. More than 150,000 flights have used biofuel, but the amount of aviation biofuel produced in 2018 accounted for less than 0.1% of total consumption. An industry clearly in transition, in March 2022, Airbus conducted the first ever flight of its giant A380 jumbo jet using 100 percent biofuel, aspiring to bring the world’s first zero-emission aircraft to market by 2035. Adoption of biofuel by the shipping industry is also at levels far below the 2030 targets set by the International Energy Agency.
Renewable natural gas, or biomethane, is another fuel that could be used for transportation as well as heat and electricity generation. Gas can be captured from dairy operations, landfills, livestock operations, wastewater, or other sources. This captured biogas is then refined further to remove water, carbon dioxide, and other elements so that it meets the standard needed to fuel natural-gas-powered vehicles. A variety of feedstocks are currently under investigation for use as a source of biogas, all of which we believe we are well positioned to commercialize. Transitioning to biofuel only requires a modest reconfiguration, and not a full replacement, of existing infrastructure such as buses, gas stations, airplanes, refineries, automobiles and trucking fleets. For that reason, we believe the utilization of carbon mitigation strategies such as those provided by biofuel will act as an additional tool for climate change strategies.
Vegetable oils and animal fats are converted into biodiesel via a chemical process called transesterification, after which they are blended with diesel and used in trucks. Today, biodiesel accounts for about 3% of the diesel fuel sold globally. For comparison, 10% ethanol is blended into most of the gasoline sold today. Today, more than 78% of diesel vehicles coming off production lines are approved for up to B20 (a blend of 6% to 20% biodiesel) use. Biodiesel has several environmental benefits when compared to petroleum-based diesel fuel: it reduces lifecycle greenhouse gases by 86%; lowers particulate matter by 47%, reduces smog and makes air healthier to breathe; and reduces hydrocarbon emissions by 67%. Because of a livestock population in abundance in the ECOWAS region, we believe we are well positioned to participate in the growth of the commercial scale of this industry, via growth and production of the most cost effective and efficacious product varieties. While we have access in both geographic environments of Senegal and Niger ample scale to generate all of these products, and despite alfalfa being the foundation of its approach, we recognize there are significant challenges to enter this aspirational business, including barriers to entry, heightened competition, and significant time lags from return on investment.
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In conjunction with our academic partners, we intend to conduct a feasibility study in 2024 on the growth of algae and its viability of use both as a pro-biotic to reduce emissions from cattle, as a biofuel with absorptive carbon properties, and additionally as a protein source for cattle feed and human nutrition purposes. Algae, being the fastest growing plant in the world, have potential of producing 23,000 liters of biofuel per acre which is an improvement compared to crop-based feedstocks, according to EIA International energy: outlook. Energy Information Administration, Office of Integrated Analysis and Forecasting US Department of Energy, Washington, DOE/EIA- 0484, 2006) Algae-based biofuels are also known as “third-generation biofuel” which do not compete for agricultural land, water and food. Although algae-based biofuels have a better potential than crop-based biofuels, algae do not accumulate significant quantities of storage lipids or triacylglycerols unless they are subjected to stress conditions. Thermal degradation of algae biomass produces hydrocarbon gas and oil. The bio-oil may not only be used as a fuel but also for the production of useful chemicals such as resins, fertilizers, solvents, and alcohols. A feasibility would entail an analysis to (I) extract the lipids of the selected algae variety for biodiesel production through transesterification and analyze the FAME (Fatty Acid Methyl Ester) necessary for biodiesel production, (II) conduct degradation of the remaining algae biomass for fuel production and test its quality, (III) assess the energy efficiency of such approach, and (IV) assess the integration of algae as a probiotic for methane degradation in conjunction with our alfalfa production and its impact on protein content. However, this study is aspirational in nature and will require further clarification of our current protein and fiber content.
Relative Logistics
We believe that the infrastructure at its LFT facility will be a driving factor behind our quality and consistency in reliably providing products for export. The LFT Farm currently approximately 235 km on paved roads from the Dakar port where freight passage to Dammam port in Saudi Arabia or Dubai in the United Arab Emirates is easily managed. The Blaise Diagne International Airport, 43 km east of the capital city of Dakar and 275km from the LFT Farm, commenced operations in December 2017. Furthermore, the current port cargo traffic supports an abundance of empty containers, that will be necessary to forward cargo onwards to its customers in the Gulf region.
We anticipate building a 20MW solar power plant on the facility of the farm, with expansion potential for up to an additional 40MW should it be necessary and grid derived power prove inadequate. The absence of consistent and inexpensive power is a large reason for large scale commercial farming not having been pursued on the African continent with successful results thus far, and we expect having our independent power plant to be a major competitive advantage when it is commissioned, due to consistency and long term economic benefit. The solar photovoltaic power plant developer is MPS Infrastructure Inc, (“MPS”) which will commission the design and will finance, build and operate the solar plant. The design for the plant has been provided by ABB (Switzerland) which concluded analysis of power needs with respect to 53% of power to be provided directly by the solar power generation and 42% of power to be provided by battery storage. An analysis by ABB has shown that no more than 5% of total power annually would be drawn from the national grid. We entered into a Framework Agreement with MPS on July 16, 2021 related to such power plant, and which we anticipate will be superseded by a 25 year Power Purchase Agreement which we believe will be executed prior to the commissioning of the project. We intend to advance the project when we have obtained commitments for sufficient capital to fund this initiative. There is no current commitment by any third party to fund such capital, and there is no guarantee that we will be able to obtain such capital in the future. Until and if we are able to commission such a power plant, we will continue to rely on Senegal’s national power grid and the use of diesel generators. We believe that such existing power sources do and will provide sufficient electricity to support our business and contemplated expansion for the next eighteen months. Should our planned expansion beyond eighteen months take place, and sufficient capital is raised to finance such further expansion, it is management’s expectation that the solar plant development will be viable. While there is sufficient grid power available, the solar plant provides the potential for lower power costs that are not grid dependent. ABB, which is part of our proposed development team, has extensive experience developing solar power programs in Africa in considerably less time than eighteen months. Furthermore, the current telecommunications provider to the farm has developed a solar installation with grid connectivity adjacent to the Senegal farm. This provides advantages for the feasibility of our intended solar development.
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We provided MPS with substantive information required to complete the engineering and design for the power plant. We are in the process of working with MPS to determine the final location for the power plant and the future placement of the photovoltaic solar panels for expansion to 40MW. It is MPS’s obligation to design, finance, build and operate the power plant and determine the cost of building the plant. To expand the plant, MPS must verify that the location for the expansion is suitable both for providing power for irrigation and other needs and determining whether any outbuildings or service/administrative buildings are required or whether the Phase 1 administrative structure is sufficient.
Upon execution of the definitive agreements relating to the power plant, we expect MPS will have the following responsibilities: to contract, finance, build, commission and deliver a Solar PV Plant with a minimum power output of 40MW during peak hours with battery storage capacity to provide determined capacity at during non-peak hours; provide appropriate transformers in order to deliver power based on requirements and technical specifications; provide metering at the power generation source; provide management for the Solar PV Plant operations, as well as personnel to conduct maintenance and repairs; conduct operations in an environmentally friendly fashion. Upon execution of such definitive agreements, we expect to have the following responsibilities: negotiate and enter into a concession agreement with MPS and arrange for all agreements, consents and approvals by the local or federal government needed to operate the Solar PV Plant and to generate and deliver power; negotiate and enter into a 25-year power purchase agreement incorporating a take or pay provision with MPS; provide an interconnection point to receive the power generated; provide a workforce comprised of local residents to be available for all site preparation and for training and operation of the Solar PV Plant under supervision by MPS personnel; prepare the site for the Solar PV panels and other equipment to be delivered and installed per specifications provided by MPS; arrange for ground transport of the Solar PV Plant elements from the port of delivery to the site and for security during transport; assist MPS with local requirements and information regarding environmental; impact study (EIS), health and safety and other local requirements; and arrange for security at the site.
The terms of the power purchase agreement will specify delivery dates and penalties for delays. The power purchase agreement will include a tariff to be paid by us per kwhr and will stipulate that we must satisfy MPS as to our ability to pay the tariff during the term of the power purchase agreement. The tariff will be calculated once the pre-engineering and engineering are completed and the costs of the equipment plus the cost of operations will be agreed and determined in final definitive agreements.
The main challenges to the delivery of power per the schedule agreed by us and MPS are the delivery of long lead time items, including solar panels and battery storage units. These are not unique to this project but are global related to supply chain and logistics. ABB will secure commitments for delivery of these items within the time frame that will enable MPS to deliver power to the LFT farm within the contracted time frame, and will include non-performance penalties. ABB is a contractor working under and for MPS with regard to the technical design of the power plant. We have no direct contractual relationship with ABB.
The power plant is privately owned, located on the LFT premises, and there will be no sale of power to third parties. Therefore, no licenses, certifications or permissions are required.
The road system, access to an in-country oil refinery and pending further infrastructure development such as roads, port access and telecommunications systems will all contribute to our elevated logistics capability.
Further Expansion
In 2007, the African Union and the UN Convention to Combat Desertification mutually launched the Great Green Wall initiative (the “Great Green Wall of Africa”), spanning 11 countries west to east from Senegal to Djibouti, across the expanse of the Sahara desert. The initiative aims to restore degraded soil by creating a mosaic of different land uses, including sustainable farming, biodiversity, and restored patches of natural habitat. We intend to expand throughout the ECOWAS region and Africa, commensurate with the sustainability of its corporate margins and the ability of local agricultural conditions to facilitate its growth in a sustainable and economically meaningful fashion. This pertains to all aspects of its business including Agriculture, Aquaculture and Environmental offsets. As of June 2023, approximately 20 million hectares of land have been restored, of the 100 million hectares targeted.
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Our expansion plans include a multiplication of its agricultural farmland in Niger and Mauritania. We have entered into definitive agreements with the mayor and local governments of Ingall and Aderbissinat under a 49-year lease term for the development of agricultural and carbon credit projects. The project will involve the planting of a minimum of one million (1,000,000) hectares of trees in each area, for an aggregate of 2 million hectares to optimize the production of carbon credits in an area to be mutually agreed upon by the parties with access to an underground aquifer for irrigation purposes for the sale of carbon footprints as well as water and usage rights. Each Municipality will also allocate an additional one hundred thousand (100,000) hectares of land in favorable areas for commercial production for local and industrial consumption of alfalfa (or other biomass products) on a large scale following hydrological and soil studies. The program would be a component of the Great Green Wall. We have also been granted exclusive rights over the land for agricultural projects involving alfalfa (or any other biomass products) and environmental projects involving the sale of carbon credits, as well as rights to use the subsurface water for forty-nine (49) years over and under the areas of land allocated as to be confirmed post geological surveillance. This positions us, by virtue of its land and water footprint, to have substantial market share in global Alfalfa production as a single producer. The project in Niger brings fertility characteristics very similar to the soil, sun and water access of its property in Saint Louis, Senegal. To its detriment, Niger’s logistics are still under development but are expected to improve imminently with the completion of the Niger-Nigeria railroad system and other infrastructure initiatives of the current Presidential administration. It is expected that the majority of the production that will be derived from Niger will be made available to local and regional demand in Northern Nigeria and the ECOWAS region.
A large part of our Niger production is anticipated to be used for local and regional consumption. Livestock meat and products are jointly the largest source of animal protein in the Nigerien diet. Niger is a landlocked, import-dependent, Sahelian country with very strong commercial ties to neighboring Nigeria, Benin, and Burkina Faso, among others. Niger relies on the port of Cotonou (Benin) for the majority of international imports. Livestock rearing of cattle, sheep, and goats is practiced by over 80% of the population. Livestock export earnings are also essential for the national economy, contributing to 21% of total export earnings. Over 95% of livestock exports are destined for Nigeria at this time. Approximately three-quarters of the national territory is desert with minimal and erratic rainfall. In the more humid areas located in the southern part of the country, average annual rainfall ranges between 300 – 850 mm. Approximately 98% of the arable land is located in this southern area.
As noted above, effective September 27, 2023 we entered into a Partnership Contract with the Government of Mauritania, which has oversight of a land bank, and the local community of Gie Dynn, a contributor of the land to the land bank. We feel that this tripartite agreement is an attractive model for future growth as it emphasizes the importance of government support together with an active partnership with the local communities to drive food security, employment and socio-economic improvement for such communities. The contracted land in Mauritania is across the river from our Senegal operations and therefore shares the same favorable growing conditions as our Senegal farm and also benefits from favorable logistics considering its relatively easy access to the ports in Mauritania.
We are exploring the potential for additional crop work in conjunction with some of its potential offtake customers. This may include crops that have utility in the field of livestock and cattle feed such as cottonseed, as well as additional forage crops such as Sudan grass or Rhodes grass, that may be used to prepare for and alternate with alfalfa crops, and to promote fertility in cycles where the biological activity of the alfalfa crop may be paused. Additionally, we are also investigating the configuration of a tract of land for fish feed, to further feed the fish varieties that are growing in our water channels, as well as for algae-based biofuel. We are evaluating, via feasibility studies in Niger, the optimal crops and revenue maximization potential relative to the environment, as well as evaluation of water quality and quantity relative to our business strategy.
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Fishery Business
Aquaculture is the breeding, rearing, and harvesting of fish, shellfish, algae, and other organisms in all types of water environments. There are two main types of aquaculture, marine and freshwater. Most of the growth in global fish production comes from aquaculture, as global wild catches have levelled off since 1990. Although production from African fisheries mirrors the global trend, growth of aquaculture in Africa has not significantly contributed to the global share. Aquaculture production in Africa only accounted for 2.5% of the production share in 2016, of which Egypt accounted for about two-thirds and Nigeria for one-sixth. That number grew to a 2.7% share by 2019. Compared to Asia, which represented 89% of global aquaculture share, aquaculture development in Africa has lagged far behind. Nevertheless, African aquaculture output has doubled in the past seven years and experienced accelerated growth at 10.1% annually for the last decade. By contrast, the U.S. National Oceanic and Atmospheric Administration (NOAA) efforts primarily focus on marine aquaculture, which refers to farming species that live in the ocean and estuaries. We intend to participate in both marine and freshwater aquaculture when its refrigeration facilities are established. We also intend to manage the wholesale purchase of fish from local fisherman, initially in Senegal and secondarily in East Africa, which we deem as another substantive growth region beyond ECOWAS in conjunction with processing, refrigeration, financing and logistics locally, ultimately adding sales and distribution to wholesalers in consumption markets in Europe and the Middle East. We expect the market for responsibly sourced fish for export to grow substantially in conjunction with global population growth and increase focus on sustainability by virtue of its increase in dietary protein.
We also conducted an aquaculture feasibility study, which concluded in January 2022, covering several issues, including evaluation of the biophysical attributes and topography of the proposed site, bathymetry of the water body, water quantity and water quality (temperature, alkalinity, dissolved oxygen, hardness, salinity, ammonia, PH, turbidity and water current/flow). Based on the findings of the study, we produced a design of the hatchery, the fish farm and the processing plant with bills of quantities, and a range of financial sensitivities. The study evaluated the site and the surrounding areas with regards to the needed infrastructure such as access to electricity, roads, fish landing, shipping, processing facilities, and accommodation for training. Additionally, the study evaluated buyers, comprised of both industries and individuals who purchase fish farm products and suppliers whose product and inputs are needed by the fish farm, such as hatcheries with ready-to-purchase fingerlings. The study compared proposed site attributes with the needs of cultured organisms and proper functioning of an aquaculture farm, considered biosecurity upon which allowable fish and farm density will be based, identified the required distance between farm sites, the distance between farm sites and other activities, the presence of critical infrastructure (i.e., roads, power facilities, feed mills, processing facilities, fish landing, shipping, input and output markets), issues and risks associated with the proposed site (such as those related to climate, water contamination, waste management, electricity supply, personal and physical security), the existence of any indigenous/artisanal fishing community rights, adjacent industries and housing, and other logistics. species based on the site analysis. Additionally, the study evaluated supporting industries for the aquaculture production process and choice of species based on the site analysis.
Commercial aspects of the aquaculture study included a review of potential buyers of the product(s), which included an analysis of the local market, regional market and international market, a review of capacity of the buyers to inform the production-capacity, review of the market requirements (i.e., live, iced, frozen, whole, headed and gutted or fillet), review of seasonal prices and seasonal demand for each product form, review of market options for excess and undersized production and review of the possibility of using any of the waste products resulting from the entire production cycle. Finally, there was an evaluation of the value-chain, which involved engaging quantity surveyors, civil engineers, architects, and land surveyors, to evaluate the viability of installing the hatcheries, fish farm, fish processing factory, and production facilities for fish oils and/or fish meal and other processed fish products. The conceptual planning determined what kind of buildings to include and where they should be located on the land we provided. Additionally, there was a structural planning analysis of the proposed facilities, planning of the design and layout of the hatchery, fish farm, and processing factory, and evaluation of altitude and the land elevation of the water bodies and surrounding areas. Lastly, there was a water quality assessment of neighboring water to determine its suitability for fish farming, including confirming that all of the requisite parameters are within acceptable and recommended ranges. This same assessment will also determine the type and quantity of phytoplankton and zooplankton species that are good natural food prey items for the tilapia in our water channels. It is expected that capital expenditure will enable this program, with the byproducts of the fish ecosystem, as well as the commercial opportunity attached to the fish itself to drive the value creation from this program.
With a 530 km coastline, fishing is the principal livelihood for the population of Senegal. Primary challenges for the industry include the low value creation of the fish at local wholesale versus the end user retail, and the need to modernize processes through investment. The sector contributes only 4% to gross domestic product but employs 17% of the working population. Directly and indirectly, it creates about 600,000 jobs in a country where full-time employment remains scarce. Fish also accounts for half of Senegalese people’s animal protein intake according to the World Bank. The country’s national dish, “ceebu jen” in the Wolof language or “thieboudienne” in French, has marinated fish as a main ingredient and is served with flavored rice and vegetables.
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The dominance of artisanal fishermen who work in teams in canoes or as individuals using net or line to catch sardine or grouper creates several problems. Such fishing has expanded six-fold in 30 years, according to the World Wide Fund for Nature, and accounts for 80%, or 400,000 tons, of total local annual catch, most of it for Senegalese consumption. However, that practice is hard to monitor and regulate. Licenses are required by the Senegalese government, but this requirement is rarely enforced. The situation contributes to the depletion of fish stocks caused mainly by high volume trawlers operating, legally and illegally, in Senegal’s waters. Illegal fishing is a problem all along the west African coast. The most damage is caused by large trawlers, mostly foreign, operating under flags of convenience or acting in violation of national maritime sovereignty. Such trawlers scoop up huge catches in poorly monitored coastal waters. To date, Senegal is one of only a few African countries to have adopted a national strategy to combat illegal fishing, but national efforts are curbed due to the issue transcending national and regional borders.
Little processing, packaging or cold storage takes place in Senegal, at extreme heat, so the country is deprived of the revenues such activities could provide. Investments in infrastructure and storage facilities for the fishing industry are part of the government’s Plan for an Emerging Senegal (Plan du Sénégal Emergent, or PSE). According to “Western Africa’s missing fish: the impacts of illegal, unreported and unregulated fishing and under-reporting catches by foreign fleets”, a study published by the Overseas Development Institute in June 2016, Senegal loses over $300 million in revenue per year, or 2% of GDP, to illegal fishing. West Africa as a whole is estimated to lose $2.3 billion in revenues to illegal and illicit fisheries every year. Most of the large fishing vessels operating illegally are from the EU, China and Russia, according to researchers at Greenpeace and Oceana, the environmental campaign groups. Additionally, erosion as part of rising sea levels due to global warming has destroyed part of the sea wall and fishing infrastructure.
We anticipate growing tilapia in its water channels and infrastructure as part of our fertigation program. It generally takes between seven and nine months for a tilapia to grow to maturity and we anticipate harvesting them then at approximately 1.25 pounds, which yields two four-ounce fillets. Tilapia are considered a fresh water, warm water fish. The plants grown in aquaponics systems grow faster in a warm environment, which requires warm water flowing through the systems. Plants achieve optimal growth potential at 73°F regardless of environment, which make the channels at our LFT Farm an optimal environment. The system is a closed circle, by using the fish’s waste as a natural fertilizer saving 95% of the water used in traditional agriculture. Leaf surface fertilization with liquid fertilizer produced from amino acids constitutes a potentially important source of nitrogen and is important for plant production. Fish emulsion is a fertilizer that is a half-decomposed mixture of finely ground up fish. It is then dried to kill micro-organisms. Fish emulsion contains up to 5% nitrogen with several trace elements that help improve soil microbes, resulting in more plant building blocks. We intend to participate in both of marine and freshwater aquaculture when its refrigeration facilities are established.
Key challenges observed in Africa’s fish sector include fish supply deficit, low per capita fish consumption, and low contribution of aquaculture to total fish output produced in Sub-Saharan Africa. With a potential for similar consumptions characteristics driving demand for Alfalfa, in local, regional and export markets, demand for seafood products in the Middle East and Africa has been rising steadily, a trend that is likely to persist through the next decade. The value of the seafood market in the Middle East and Africa regions is projected to grow from $9.3 billion in 2019 to $10.7 billion in the next six years. Rising seafood per capita consumption, increasing demand for imported seafood products, and the emergence of specialty seafood restaurants are some of the factors anticipated to drive market growth in the region. An anticipated continued growth of seafood consumption will be the primary expansion driver. Africa’s economic growth is estimated at 3.4% for 2019 and 2020, according to the African Development Bank, with growth increasing to 3.6% in 2022, according to the World Bank. The growth is expected to expand the continent’s middle class, giving them more disposable income, which may accelerate that income group’s increasing preference for premium seafood products.
Growing urbanization is an additional factor of growth of the seafood market in both the Middle East and Africa, with demand surpassing supply, requiring a surge in imported products to plug the deficit, according to the Food and Agriculture Organization (FAO) and the OECD, which point to urbanization as a key driver shaping consumption trends, especially in Africa. The OECD estimates Africa’s urban population rose to 567 million in 2015 from 27 million in 1950, giving the continent one of the fastest urban growth rates in the world. The OECD further predicts Africa’s population will double by 2050, with 75 percent of the growth absorbed by urban areas. Growth in urbanization has shaped the nature and extent of fish consumption in many countries, according to the FAO in the 2020 edition of The State of World Fisheries and Aquaculture.
Urban inhabitants typically have more disposable income to spend in animal protein such as fish, and they eat away from home more often, according to FAO. Furthermore, infrastructure in urban areas allow for more efficient storage, distribution, and marketing of fish and fish products. The rising number of households with discretionary spending in Africa could underpin faster growth of the region’s consumer market according to Deloitte. The business advisory firm estimated the number of Africans with a capacity for discretionary spending on seafood at 375 million, or 34% of the continent’s population.
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The African population is increasingly looking toward imported product to meet its demand. Africa imports up to 35% of the fish consumed in the continent, which we deem as a substantial opportunity given the abundance of coastline and ocean access. African fish imports, mainly affordable small pelagic varieties and tilapia, present an important source of protein and nutrition, especially for populations that are otherwise dependent on a narrow range of staple foods. The WHO (World Health Organization) Technical Report on protein and amino acid requirements in human nutrition states that the best estimate for a population average requirement is 105 mg nitrogen/kg body weight per day, or 0·66 g protein/kg body weight per day. More than two thirds of low-income countries’ burden of disease is related to communicable diseases, maternal and perinatal conditions and nutritional deficiencies, in contrast to developed countries where non-communicable diseases, such as cardiovascular disease, diabetes and hypertension, often related to over nutrition, contribute to nearly 80% of the burden of disease. Based on these reports, we believe there is a need to increase animal production and consumption in Africa to increase the intake of good quality protein along with other essential nutrients. Animal foods, as sources of protein, are likely to play a continued role in human diets. The global consumption of total protein in 2005/7, based on disappearance values of food, was estimated to be 85g protein per person, per day. This is more than the WHO recommendation of 75 g protein required by a 90 kg adult male per day. Africa has a daily per capita value of 62g per person per day.
Our commercial strategy in the management of fish involves a multi-pronged approach to corporate, community and customer priorities. Access to a consistent power supply acts as a unique competitive advantage as we intend to have an ability to refrigerate and manage logistics and storage in tandem with global competitors, with an ability to optimize yields. We aspire to work with local fisherman to optimize the selling point of their daily catch, and with Willing Hands to grow and manage tilapia in its irrigation channels, which will enhance our ability to combine irrigation with fertilizer, or fertigate. We will work with local communities to provide fish for local consumption and with foreign off takers for export and global nutrition. Additionally, a byproduct of the tilapia growth, the bones, scales and oils will be processed for creation of additional fertilizer additives. We engaged Willing Hands AS to pursue a feasibility study on our water quality, our ability to develop a commercial strategy around tilapia growth, our ability to generate revenue from the sale of fish, and the generation of excreta for enhanced crop fertility in our water channels, and intend to develop our relationship into commercial operations.
Carbon Credit Business
We anticipate that our carbon offset production will generate carbon credits to be sold on a global carbon emission market via a reforestation program in areas in Niger designated for tree growth, specifically from the Aleppo pine species, typically indigenous to semi-arid conditions. We aspire to conduct a feasibility study on our environmental program to assess the viability of carbon credits as a revenue source, relative to the tree species that are indigenous to the Sahara. Third party verification of such credits is essential to the commercial aspects of this business, and the ability to meet the legal and performance standards established in such a protocol is mandatory to its success.
The market for these credits has increased substantially due to both corporate and government awareness, and acceleration in terms of timing and magnitude. Typically, each metric ton of reduced emissions is represented by an instrument known as a carbon offset. Businesses buy the offsets, with proceeds from the sale of credits accruing to the landowners and The Nature Conservancy. Buyers then use those credits to subtract an equivalent amount of emissions from their own ledgers. The urgency of the planet’s climate crisis is scientifically well appreciated, leading scientific bodies to warn that global emissions must be cut by half by 2030. Private sector participation has dramatically increased, but much of that corporate emissions-cutting is accomplished through buying offsets. There are four major online registries where companies buy offsets. These registries create methodologies outlining rules that offset projects have to follow. Once a project is set up, a third-party verifier must confirm that it follows these rules. Offsets can be sold only when the verifier has signed off.
There are numerous examples supporting this. A number of recent examples of recent corporate activity reducing their carbon footprints include:
| ● | J.P. Morgan Chase & Co., Inc. which paid almost $1 million to preserve forestland in eastern Pennsylvania. |
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| ● | The Walt Disney Company spent hundreds of thousands of dollars to keep the city of Bethlehem, Pennsylvania from aggressively harvesting a forest that surrounds its reservoirs. |
| ● | BlackRock Inc. paid the city of Albany, New York to refrain from cutting trees around its reservoirs; |
| ● | In 2020, Delta Air Lines Inc. vowed to allocate $1 billion over the next decade, much of it on carbon offsets, aiming to become the first carton neutral airline globally. |
| ● | In 2019, Royal Dutch Shell plc announced plans to spend $300 million over three years on reforestation projects that will eventually generate offsets by increasing the amount of carbon trees and soil absorb. |
| ● | Microsoft Corp. announced a goal to be carbon negative by 2030 and to remove its historical carbon emission by 2050. |
| ● | Google LLC has announced it has eliminated its legacy carbon emissions since 1998 and will become carbon free by 2030, which will require them to buy millions of offsets. |
In October 2022, Business-software provider Salesforce Inc. launched a marketplace for carbon credits that will tackle transparency and quality issues called Net Zero Marketplace, with close to 90 projects selling carbon credits that support programs such as forestry, soil health and renewable-energy in the developing world.
We believe that the future of the world’s energy supply will include a substantive mix of low emission energy supply, as well as offsets to existing carbon utilization. For decades scientists, companies, and lawmakers searching for inexpensive ways to ratchet down emissions have viewed carbon offsets with great promise. By allowing companies or governments to pay, and take credit for, cheaper emissions reductions beyond their fence lines, the cost of addressing climate change becomes less formidable. It also allows industries with little flexibility, such as airlines, where cleaner biofuels are not yet widely available to power fleets, to start taking action to reduce their net emissions. Offsets will need to grow by at least fifteen times current production amount if the world is to eliminate carbon emissions by 2050, as estimated by Mark Carney, special envoy on climate action and finance to the United Nations and former governor of the Bank of Canada and the Bank of England, who started a task force, Taskforce on Scaling Voluntary Carbon Markets (TSVCM), to help boost the credibility and supply of offsets. The carbon offset market, originally introduced after the Kyoto Protocol took effect in 2005, required wealthy countries via the international climate treaty to reduce their greenhouse gas emissions and created a market for buying and selling carbon offsets to lower the cost of hitting these targets. However, about two-thirds of offset projects allowed into this market did not represent true emissions reductions, per analysis.
The trading of carbon credits can help companies, and the world, meet ambitious goals for reducing greenhouse-gas emissions. The TSVCM, sponsored by the Institute of International Finance (IIF) with knowledge support from McKinsey, estimates that demand for carbon credits could increase by a factor of 15 or more by 2030 and by a factor of up to 100 by 2050. Overall, the market for carbon credits could be worth upward of $50 billion in 2030. The market for carbon credits purchased voluntarily, rather than for compliance purposes, is important for other reasons. Voluntary carbon credits direct private financing to climate-action projects that would not otherwise get off the ground. These projects can have additional benefits such as biodiversity protection, pollution prevention, public-health improvements, and job creation. Carbon credits also support investment into the innovation required to lower the cost of emerging climate technologies. Scaled-up voluntary carbon markets would facilitate the mobilization of capital to the “Global South”, where there is the most potential for economical nature-based emissions-reduction projects. Given the demand for carbon credits that could ensue from global efforts to reduce greenhouse-gas emissions, it’s apparent that the world will need a voluntary carbon market that is large, transparent, verifiable, and environmentally robust.
Today’s market, though, is fragmented and complex. Some credits have turned out to represent emissions reductions with questionable origin. Limited pricing data make it challenging for buyers to know whether they are paying a fair price, and for suppliers to manage the risk they take on by financing and working on carbon-reduction projects without knowing how much buyers will ultimately pay for carbon credits. The evolution of EU Emissions Trading System (EU ETS) acts as a cornerstone of the EU’s policy to combat climate change and its key tool for reducing greenhouse gas emissions cost-effectively. It is the world’s first major carbon market and has served to streamline the consistency of supply and payment, and the creation of a commercial market. Because our program is not expected to generate credits prior to 2024, the commercialization risk and capital expenditure to finance the project is largely expected to be funded by ongoing business operations.
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Carbon credits can help companies to meet their climate-change goals. Under the 2015 Paris Agreement, nearly 200 countries have endorsed the global goal of limiting the rise in average temperatures to 2.0 degrees Celsius above preindustrial levels, and ideally to no more than 1.5 degrees. Reaching the 1.5-degree target would require that reduction of global greenhouse gas emissions by 50% from current levels by 2030 and reduced to net zero by 2050. Carbon credits are anticipated to be integral to meet these goals, especially in hard-to-abate sectors such as oil, aviation, steel and cement. At the COP26 conference in Glasgow in November 2021, adding to the momentum, financial services firms with around $130 trillion in assets pledged to align their business with the net-zero goal. Specifically, The Net Zero Asset Managers initiative, which includes BlackRock, Vanguard and 126 others managing US$43 trillion of assets, are targeting net-zero emissions by 2050 across all their holdings. According to BlackRock, climate change is the #1 ESG issue for asset managers in the United States. We believe climate-related disclosures will encourage the purchase of carbon credits for those emissions that cannot yet be eliminated so companies can avoid reputational risk. The number of S&P 500 companies publishing sustainability reports in 2011 were 20%, by 2019 that number had grown to 90%. In 2019, 500 companies held net-zero targets; and by 2020 that number had grown to 1,565 companies. The number of companies with net-zero targets in May 2023 was over 1,800 according to the Net Zero Stocktake report.
To meet the worldwide net-zero target, companies will need to reduce their own emissions as much as possible while also measuring and reporting on their progress, to achieve the transparency and accountability that investors and other stakeholders increasingly want. For some companies, however, it is prohibitively expensive to reduce emissions using today’s technologies, though the costs of those technologies might go down in time. Moreover, at some businesses, certain sources of emissions cannot be eliminated. For example, making cement at industrial scale typically involves a chemical reaction, calcination, which accounts for a large share of the cement sector’s carbon emissions. Because of these limitations, the emissions-reduction pathway to a 1.5-degree warming target effectively requires negative emissions, which are achieved by removing greenhouse gases from the atmosphere.
Purchasing carbon credits is a mechanism for a company to address emissions it is unable to eliminate. Carbon credits are certificates representing quantities of greenhouse gases that have been kept out of the air or removed from it. While carbon credits have been in use for decades, the voluntary market for carbon credits has grown significantly in recent years. McKinsey estimates that in 2020, buyers retired carbon credits for some 95 million tons of carbon-dioxide equivalent (MtCO2e), which would be more than twice as much as in 2017. We believe that the future of the world’s energy supply will include a substantive mix of low emission energy supply, as well as offsets to existing carbon utilization. Under the 2015 Paris Agreement, nearly 200 countries have endorsed the global goal of limiting the rise in average temperatures to 2.0 degrees Celsius above preindustrial levels, and ideally to no more than 1.5 degrees. Reaching the 1.5-degree target would require that reduction of global greenhouse gas emissions by 50% from current levels by 2030 and reduced to net zero by 2050. Carbon credits are anticipated to be integral to meet these goals, especially in hard-to-abate sectors such as oil, aviation, steel and cement. At the COP26 conference in Glasgow in November 2021, adding to the momentum, financial services firms with around $130 trillion in assets pledged to align their business with the net-zero goal.
As efforts to decarbonize the global economy increase, demand for voluntary carbon credits could continue to rise. Based on stated demand for carbon credits, demand projections from experts surveyed by the TSVCM, and the volume of negative emissions needed to reduce emissions in line with the 1.5-degree warming goal, McKinsey estimates that annual global demand for carbon credits could reach up to 1.5 to 2.0 gigatons of carbon dioxide (GtCO2) by 2030 and up to 7 to 13 GtCO2 by 2050. Depending on different price scenarios and their underlying drivers, the market size in 2030 could be between $5 billion and $30 billion at the low end and more than $50 billion at the high end. While the increase in demand for carbon credits is significant, analysis by McKinsey indicates that demand in 2030 could be matched by the potential annual supply of carbon credits of 8 to 12 GtCO2 per year. These carbon credits would come from four categories, avoided nature loss including deforestation, nature-based sequestration such as reforestation, avoidance or reduction of emissions such as methane from landfills, and technology-based removal of carbon dioxide from the atmosphere.
However, several factors could make it challenging to mobilize the entire potential supply and bring it to market. The development of projects would have to ramp up at an unprecedented rate. Most of the potential supply of avoided nature loss and of nature-based sequestration is concentrated in a small number of countries. All projects come with risks, and many types could struggle to attract financing because of the long lag times between the initial investment and the eventual sale of credits. Once these challenges are accounted for, the estimated supply of carbon credits drops to 1 to 5 GtCO2 per year by 2030.
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On 18 January 2023, the British newspaper the Guardian published an article that included claims about the value of carbon credits issued by Verra, Verra registers REDD projects that meet its Verified Carbon Standard and issues carbon credits for projects that have successfully implemented and achieved emission reductions by reducing deforestation or forest degradation The premise of the claims challenged emission reductions that are typically calculated by comparing the difference between: (a) baseline emissions (i.e., the emissions that would have occurred without the REDD project); and (b) actual emissions (i.e., the emissions that occurred with the REDD project).The claims refuted the measurement from baseline, used insufficient data sampling, and cited peer reviewed literature, one of the three scientific studies never having been published. While the technical review published by Verra refuted these claims, it is conceded and anticipated that as the industry matures, the validity of standards, techniques will be challenged, measured and subsequently upgraded.
High-quality carbon credits are scarce because accounting and verification methodologies vary and because credits’ co-benefits such as community economic development and biodiversity protection are seldom well defined. When verifying the quality of new credits, an important step in maintaining the market’s integrity, suppliers tend to endure long lead times. When selling those credits, suppliers face unpredictable demand and can seldom fetch economical prices. Overall, the market is characterized by low liquidity, scarce financing, inadequate risk-management services, and limited data availability. These challenges will require verification methodologies to be strengthened, and verification processes streamlined. Clearer demand signals would help give suppliers more confidence in their project plans and encourage investors and lenders to provide with financing. All these requirements could be met through the careful development of an effective, large-scale voluntary carbon market. Because of the disjointed nature of the market we believe a significant opportunity exists for us on the African continent. Today’s voluntary carbon market lacks the liquidity necessary for efficient trading, in part because carbon credits are highly heterogeneous. Overall, the inconsistency among credits, from aspect such as derivation, quality, or from volumes too small to generate reliable daily price signals means that matching an individual buyer with a corresponding supplier is a time-consuming, inefficient process transacted over the counter.
To streamline efficiency, a typical strategy would be for a company to establish its need for carbon credits by disclosing its greenhouse-gas emissions from all operations, along with its targets and plans for reducing emissions over time. To compensate for emissions from sources that it can eventually eliminate, we might purchase and “retire” carbon credits, claiming the reductions as our own and taking the credits off the market, so that another organization is not able to claim the same reductions. We could also use carbon credits to neutralize the so-called residual emissions that it would not be able to eliminate in the future. The establishment of a digital and efficient reporting process would enable the transparency for the development of the market.
Limiting the rise of global temperatures to 1.5 degrees Celsius will require a rapid, drastic reduction in net greenhouse-gas emissions. While companies and other organizations can achieve much of the necessary reduction by adopting new technologies, energy sources, and operating practices, many will need to use carbon credits to supplement their own abatement efforts to achieve net-zero emissions. A robust, effective voluntary market for carbon credits would make it easier for companies to locate trustworthy sources of carbon credits and complete the transactions for them. Just as important, such a market would be able to transmit signals of buyers’ demand, which would in turn encourage sellers to increase supplies of credits. By enabling more carbon offsetting to take place, a voluntary carbon market would support progress toward a low-carbon future.
Limiting global warming to 1.5 degrees Celsius requires that global annual greenhouse-gas emissions be cut by 50% of current levels by 2030 and reduced to net zero by 2050. To achieve these goals, deep, broad-ranging, and rapid action to lower emissions must begin immediately across all sectors of the economy. As more companies commit to reaching net-zero emissions, they will be expected to show how they plan to meet these targets with an appropriate mix of direct emissions reductions and emissions offsets using carbon credits.
The world’s largest recorded reforestation project to date, the “Great Green Wall of Africa”, has covered only 4% of its target area but is more than halfway towards its 2030 completion date. The Great Green Wall was conceived in 2007 by the African Union as a 7,000km, or 4,350-mile, cross-continental barrier stretching from Senegal to Djibouti that would hold back the deserts of the Sahara and Sahel. Its supporters said it would improve livelihoods in one of the world’s poorest regions, capture carbon dioxide and reduce conflict, terrorism and migration.
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To achieve the 2030 target for the Great Green Wall, it is estimated more than twice that area will need to be restored every year at an annual cost of $4.3 billion. By 2030, the initiative intends to restore 100 million hectares of currently degraded land, sequester 250 million tons of carbon and create 10 million green jobs. The results varied enormously from country to country. Ethiopia, which started reforesting earlier than other nations in the region, is a frontrunner, having reportedly planted 5.5 billion seedlings on 151,000 hectares of new forest and 792,000 of new terraces. Once complete, the Ethiopian initiative, which they named the “Great Green Wall,” will be the largest living structure on the planet, an 8,000 km natural wonder of the world stretching across the entire width of the continent. The initiative brings together African countries and international partners, under the leadership of the African Union Commission and Pan-African Agency of the Great Green Wall. The 11 countries selected as intervention zones for the Great Green Wall are Burkina Faso, Chad, Djibouti, Eritrea, Ethiopia, Mali, Mauritania, Niger, Nigeria, Senegal, and Sudan.
Other countries have lagged due to different geographies, levels of governance and economic development. Burkina Faso planted 16.6 million plants and seedlings and Chad 1.1 million, though both nations received more financial support for the project. A major problem is monitoring. Individual nations provide their own estimates, but there are doubts as to how many of the 12 million trees planted in Senegal, for example, have survived. Some scientists have expressed skepticism about creating walls of trees when grasslands can be more effective in certain regions. Shifting climate patterns have also slowed or reversed the expansion of some deserts. There is also greater political support for investing in soil restoration and water management of productive areas rather than planting trees in remote, sparsely inhabited areas. This has affected the objectives, if not the enthusiasm and effectiveness, of the project. Monitoring and evaluation are arguably the greatest of the obstacles.
Our reforestation commercialization program is expected to take longer than the balance of the agriculture and aquaculture programs to mature in terms of revenue generation. The initial phases will involve the initiation of a feasibility study on the Aleppo Pine species, a review of the applicability Conditions of Verified Carbon Standard (VCS), CCBS, and Relevant Methodologies, examination of risks including policy risks, market risks and project-level risks, and identification of Local Biologists and Local Community Specialists outline of approved VCS Auditors. Further steps to commercialization will include the project potential, Including co-Benefits and registration of project with VCS-Approved Registry. A First Verification Event is expected within approximately the next 24 months, which will initiate our ability to make commercial sales.
Expansion in Niger
Our expansion plans include a multiplication of its agricultural farmland in Niger. Our definitive agreements with the mayor and local governments of Ingall and Aderbissinat — for the development of agricultural and carbon credit projects will involve the planting of a minimum of one million (1,000,000) hectares of trees in each area, for an aggregate of 2 million hectares to optimize the production of carbon credits in an area to be mutually agreed upon by the parties with access to an underground aquifer for irrigation purposes for the sale of carbon footprints as well as water and usage rights. Each municipality will also allocate an additional one hundred thousand (100,000) hectares of land in favorable areas for commercial production for local and industrial consumption of alfalfa (or other biomass products) on a large scale following hydrological and soil studies. The program would be a component of the Great Green Wall. We will be granted exclusive rights over the land for agricultural projects involving alfalfa (or any other biomass products) and environmental projects involving the sale of carbon credits, as well as rights to use the subsurface water for forty-nine (49) years over and under the areas of land allocated as to be confirmed post geological surveillance. In addition, in May 2022, we signed an agreement with the Directorate General of Water and Forests of Niger who manages forest reserves for a total area of 624,568 hectare to be reforested and developed by us. The agreement tenure is for 25 years duration, renewable after project assessment. After the start of the project, its duration may be extended for 20 years upon agreement between the parties.
Niger, which is located in the heart of the Sahel, has a concentrated economy with agriculture accounting for approximately 40% of its GDP. Foreign direct investment in Niger reached US$8.2 billion in 2020. The mining sector, in particular uranium, has traditionally constituted the largest share of foreign direct investment in Niger. Niger is ranked 132 (out of 190 countries) in the 2020 Doing Business report published by the World Bank. This represents an increase of 11 positions compared to the previous ranking. Niger improved access to credit information by expanding the activities of the credit bureau and starting to provide data on utility companies. The government of Niger adopted various measures to attract more investment. These include revising the process of obtaining building permits, strengthening the system for settling disputes relating to the execution of contracts, improving the performance of the electricity sector and improving the registration and transfer of title deeds. Adopting a new investment code, reducing the minimum capital required to start a business and improving access to water are all efforts to encourage investment, mainly in the resource sector the main asset of the country. The government also improved its anti-corruption system and has asked to reinstate the Extractive Industries Transparency Initiative.
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Mohamed Bazoum was elected president in elections held in December 2020 and February 2021, marking the first democratic transfer of power in the country’s history. It is largely expected that agriculture will benefit from the reopening of the border with Nigeria while the industrial sector will benefit from the increase in the global demand for, and boom in, oil production. Real GDP is projected to reach 6.2% in 2022 and approximately 10% as of 2023 with the initiation of oil exports post construction of an export crude pipeline.
In September 2017, Niger adopted a new Economic and Social Development Plan (PDES), which the World Bank used to prepare its Country Partnership Framework (CPF) with Niger for the 2018 to 2022 period. The World Bank’s strategy in Niger is based on three basic pillars that include boosting productivity and income in rural areas, developing human capital and social protection and strengthening governance. The goal is to accelerate economic and social development in Niger by tackling the obstacles that impede growth and poverty reduction efforts. On September 20, 2021, the World Bank was financing 19 national projects and 13 regional projects valued at $3.19 billion, including grants and loans. These projects support the development of several sectors including energy and extractive industries (15.1%), water and sanitation (13.5%), agriculture (10.2%), transport and infrastructure (9.9%), social protection and employment (9.1%), assistance with reforms (7.8%), health and nutrition (7.5%), education (7.4%), urban development, disaster management and resilience (6.4%), social sustainability and inclusion (5%), governance (4.4%), digital development (3.1%) and poverty and equitable growth (0.6%).
While fertility levels have declined rapidly in most parts of the world, many countries in the sub-Saharan African region of the Sahel have seen acceleration, leading to rapid population growth. The average woman in Niger, for example, has 7.2 children according to the Population Reference Bureau 2018 World Population Data Sheet. The average in developing countries is 2.6 children per woman.
With an annual growth rate of 3.8%, the world’s highest, Niger could see its population of 22.2 million nearly triple to 63.1 million by 2050. Half of the population of Niger is under the age of 15, representing a higher proportion than any other country.
Niger has one of the lowest electrification rates in the world at 10% of the population, or less than 1% in rural areas, according to the state-controlled electric power generator and transmission company, Société Nigérienne d’Electricité (Nigelec). The country is also ranked 189 out of 189 on UNDP’s Human Development Index and 3rd to last on the World Bank Human Capital index. Extreme poverty is an estimated 41.5% in 2019, affecting more than nine million people. It also faces many challenges to increase access to sanitation and potable water, particularly in rural areas where access to water is 44.2% and 7% for sanitation. 42% of children are stunted in Niger, and at risk of cognitive and physical limitations that can endure a lifetime. According to the Food and Agriculture Organization, 51.7% of the population, or 11.1 million people, suffered from severe food insecurity during the period from 2016 to 2018, whereas the average for Sub-Saharan Africa is 25.1%.
The agricultural resources in Niger offer significant potential. Freshwater rivers and lakes are subject to seasonal floods and droughts that can limit their availability for people and for agriculture. At present only 5% of arable land is irrigated. A study, the results of which were published by the International Atomic Agency, has quantified the water that is hidden under the surface in aquifers. Due to changes in climate that turned the Sahara into a desert over centuries, many of the aquifers underneath were last filled with water over 5,000 years ago. The scientists conducting the study collated their information from existing hydro-geological maps from national governments as well as 283 aquifer studies. The studies depict the total volume of water in aquifers underground, at 100 to 250 meters below ground level, is 100 times the amount found on the surface and the continent of Africa is sitting on a vast reservoir of groundwater. This correlates to the footprint of our land grant at Ingall and Aderbissinat. The team produced the most detailed map yet of the scale and potential of this hidden resource. Demand for water is set to grow markedly in coming decades due to population growth and the need for irrigation to grow crops. A study by the United Nations Environment Program (UNEP) and the World Agroforestry Centre found there is enough water falling as rain over Africa to supply the needs of approximately nine billion people.
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We intend to explore numerous crops in its commercialization efforts in Niger, including the continuation of its alfalfa program, in the identical fashion, both duration, crop variety and sale process as we are pursuing in Senegal. Due to the inland nature of the operations in Niger, we anticipate the timing of the regional market development for alfalfa will coincide with commercial activities, and will mitigate the need for export and sea borne trade. Additionally, we intend to explore an additional variety of alfalfa configured for biomass, and its potential for use as a power source.
The Niger River, with a total length of about 4100 km, is the third-longest river in Africa after the Nile, Congo and Zaire Rivers, and the longest and largest river in West Africa. The irrigation potential has been estimated at 556,000 hectares, of which about 200,000 hectares fully controlled and the rest for partially controlled schemes. At present about 187,000 hectares are equipped in the Niger basin, but of this 57,000 hectares are already abandoned and of the remaining 130,000 hectares irrigated more than 60% need to be rehabilitated.
Through a technical cooperation (TC) regional project carried out from 2012 to 2017, the International Atomic Energy Agency (IAEA) initiated a study of confirmation of the British Geologic Survey of 2012. These studies had confirmed African subterranean water resources, identifying a substantial water reserve of up to 300 billion liters underneath Niger. The water is estimated to measure at two thirds of a million cubic kilometers. The water that’s available for human extraction measures at 100 times the total surface water on the entire continent, at a water of depth of 20m – 600m.
The Lullemeden sedimentary basin is located in Mali, Niger and Nigeria, with minor areas in Algeria and Benin. The study included location, overall topography, climatology, land use and vegetation types, exploitation and water supply, geology and hydrogeology of the Lullemeden Aquifer System. The Lullemeden Aquifer System provided water balance equipment and trained local scientists from 13 Member States — Algeria, Benin, Burkina Faso, Cameroon, Central African Republic, Chad, Ghana, Mali, Mauritania, Niger, Nigeria, Senegal, and Togo — to help manage joint water resources in support of sustainable socioeconomic development. Five main cross-border aquifer systems were studied and mapped during the initial phase: the Lullemeden aquifer system, the Liptako-Gourma-Upper Volta system, and the Senegal-Mauritania, Chad and Taoudeni basins.
The Lullemeden sedimentary basin covers a region of approximately 525,000 square kilometers with about 31,000 square kilometers in Mali, 434,000 square kilometers in Niger and 60,000 square kilometers in Nigeria. The current population in this area is approximately 15 million, with 65% in Niger and 34% in Nigeria. The Lullemeden basin is being utilized by wells from 40m to 100m deep, with a few deeper exploratory and production boreholes up to 600m depth, with flow rates generally between 20 and 100 cubic meters per hour (m3/hr). Our area of land allocated covers the basin.
The Kandadji Dam, is a large multipurpose dam under construction on the Niger River, and is a site of potential further expansion. The site is situated near the small town of Kandadji, Tillabéri Department, Tillabéri Region, Niger, 180 km northwest of the capital Niamey. It is being built by the Haut Commissariat à l’Aménagement de la Vallée du Niger (High Commission for Niger Valley), a public body under the Prime Minister’s Office. The dam will generate hydropower and is control the flow of the Niger River, holding water during the dry season to maintain a minimum flow and making downstream irrigation possible. It is this historically fertile area where our land and business operations are located.
According to the World Bank, the Kandadji Program will be implemented in three phases: Phase I, which started in 2009, comprises the Kandadji dam and its reservoir, the hydro-mechanical equipment for the 18 gates, economic and local community development, and implementation of environmental and social mitigation measures for resettled people; Phase II comprises construction of the hydropower plant, transmission lines, road, irrigated agricultural development, and expanded local and community development in the reservoir area and downstream, and Phase III focuses on the development of irrigated agriculture and the scaling-up of the economy and local community development of the region (including fisheries, livestock, agribusiness and trade).
In April 2021, the members of the National Assembly of Niger approved a bill authorizing the ratification of a financing agreement for the Kandadji dam. Other than the construction of the dam, the Kandadji dam project also includes building new access roads, the rebuilding of the town of Ayorou, and construction of a dozen new resettlement villages along the shores of the future reservoir.
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Upon completion, the project especially the dam and reservoir will support irrigation of up to 45,000 hectares of land, which will increase agricultural production, boost food security, and improve living conditions downstream. It will also strengthen the country’s energy security through the production of electricity from the hydropower plant, supply clean and safe drinking water to those living nearby, and create jobs by providing opportunities for people to learn and develop new skills and supporting livelihoods.
Our reforestation program would be a component of The Great Green Wall project. We intend to explore the growth of both species such as the Aleppo Pine or Acacia Gum for their sequestration potential, as well as other species native to semi-arid conditions that have the potential to generate VCUs, as well as to generate concurrent revenue via our existing product. As a business model, we intend over time to replicate and build upon successes in Senegal and Niger in order to scale our impact and profitability. We expect to use a plant species named Portulacaria afra that will enhance our ability to enhance carbon sequestration. This succulent shrub, more commonly known as “Spekboom”, has small, round leaves and is indigenous to the desert areas of Southern Africa. Spekboom, also called the dwarf jade plant or porkbush, doesn’t need to be cultivated in a nursery before planting, which requires capital and time resources. The intentional result is that one ton of CO2 can be captured for approximately less than a tenth of the cost of sinking the equivalent carbon by planting trees in temperate or tropical forests. Spekboom’s resilience is also driven by its ability to switch between daytime and night-time photosynthesis for the additional resilience it affords. The maximum recorded rate of carbon sequestration in a spekboom thicket is 15.4 tons of CO2 per hectare per year.
Expansion in Mauritania
Mauritania spreads across 1,030,700 km2 of West Africa, more than two thirds of which is desert. Its 4 million people are rapidly urbanizing, but half of the population derive their livelihoods from raising crops and livestock and fishing, according to World Bank 2013 data. However, domestic cereal production in this arid country only meets about one-third of the national food needs, forcing reliance on imports, especially for sorghum, millet, and wheat. Although it is a large country, most of Mauritania is desert. Arable land in a traditional context is scarce, with crop production is limited to a narrow band along the southern borders with Senegal and Mali on the Senegal river. Because of our agronomy and soil understanding of our Senegal project, we anticipate expansion into Mauritania to expand our footprint. On December 19, 2022 African Agriculture agreed to a public-private partnership with the Government of Mauritania and the communities of Boghé, (18 agricultural cooperative societies incorporating approximately 6,000 farmers, organized under GIE DYNN), on the Senegal River Valley for a phased commercial farming buildout. The initial program will launch with approximately 2,000 hectares to further the farming of Alfalfa for the purpose of providing superior quality feed for dairy cattle and providing increased agricultural production for the community, in parallel to the Senegal project located on the opposite side of the River valley.
The agreement was signed in conjunction with the visit of His Excellency President Mohamed Cheikh Ghazouani’s visit to Washington, DC as part of the US — Africa Leaders’ Summit hosted by the United States Government and President Biden, and became effective in July following the establishment of a Mauritanian entity. After full development, the program is expected to have substantial impact on the Gross Domestic Product (GDP) of Mauritania and permanent job creation. The private sector investment is anticipated to contribute to employment and economic development directly, and will include a Corporate Social Responsibility (CSR) program that will enhance the agricultural and agronomy tertiary education at ENFVA (Ecole Nationale de Formation et de Vulgarisation Agricole), an established agricultural education center in the city of Kaédi, and a women’s reinsertion program in Mauritania. On February 13, 2023 Michigan State University (MSU) College of Agriculture and Natural Resources (CANR) signed a letter of intent to explore collaboration opportunities with us, whereby MSU will explore training, research and technology transfer opportunities with farmers and students in Mauritania, West Africa. Michigan State University was recognized as the first land-grant college in the United States and the model for the nation’s land-grant system, leading advancements in agricultural and natural resources research, education and outreach. In 1855, the Agricultural College of the State of Michigan, was founded to provide a practical education to all citizens regardless of social class. It was the first institution of higher learning in the United States to teach scientific agriculture and has educated students to become farmers, engineers, educators, scientists, entrepreneurs and agricultural leaders.
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Market Overview
Commercial Farming
Senegal is one of the most stable countries in Africa, with S&P Global Ratings maintaining a B+ with a stable outlook for the country. Senegal is a strong regional performer with respect to measures of perceptions of corruption. This positive result is the result of long-term development processes by the local government, principally traditions of respect for the rule of law and competitive democratic government. Senegal’s positive ranking relative to neighboring countries in West Africa on international corruption indices owes much to its history of respect for the rule of law, democratic government, and openness to civil society and a free press. Senegal’s score is 57.7 on a scale of 0 to 100 and ranks 103th out of 180 countries measured on Transparency International’s Corruption Perceptions Index for 2023. For comparison, the top index score is Singapore and Switzerland, with 84 points. North Korea comes last, with 3 points. Senegal’s favorable geographic position, strong and sustained growth, and generally open economy offer attractive opportunities for foreign investment. Additionally, the Government of Senegal welcomes foreign investment. According to UNCTAD’s 2022 World Investment Report, in 2021 Senegal foreign direct investment (FDI) inflows increased to $2.23 billion, from $1.85 billion in 2020, an increase of 21%. The country registered a 27% rise in announced greenfield projects. The total stock of FDI stood at $10.5 billion at the end of 2021.
On June 7, 2021, the International Monetary Fund (IMF) approved a US$650 million Stand-By Arrangement (SBA) for Senegal. Fitch Ratings Inc. predicts Senegal’s gross domestic product (GDP) will grow by 5.2 percent in 2021, which surpasses estimates for the broader Sub-Saharan African region. The President of Senegal, Macky Sall, estimates the growth in GDP to reach 7.2% in 2022 and 13.7% in 2023. President Sall said that this double-digit GDP growth expected in 2023 will be the result of the first year of exploitation of oil and gas resources. On May 12, 2020, the World Bank approved a US$150 million loan from the International Development Association, a member of the World Bank Group that makes loans to eligible countries on a concessional basis, to support Senegal in strengthening agricultural productivity and helping build resilient, climate-smart and competitive food systems. On December 10, 2018, the U.S. Government’s Millennium Challenge Corporation (MCC) and the government of Senegal signed the new five-year $550 million MCC Senegal Power Compact. On April 23, 2021, during the government meeting, President Sall reinforced his support for agriculture with the objective of developing the country’s food security and to produce and consume locally. President Sall decided to renew the financial subsidies support of 60 billion CFA francs ($110.8 million) for the 2021/2022 agricultural campaign. Senegal also holds a bilateral trade agreement with the United States, that has been in place since 1990.
The cattle market in the ECOWAS region, that incorporates Senegal and Niger, was tabulated at 100 million heads of cattle by the World Bank in 2020, but for various reasons these estimates are deemed conservative by our management. The market in Senegal for alfalfa and cattle feed related products significantly exceeds the global price point, a number that correlates with the price point for fertilizers and other agricultural equipment such as tractors. This is partly due to logistical challenges and the high prices of imports that may incorporate items that attract duties and taxes as high as 200%. The market is expected to expand substantially in Africa as protein incorporated in diets grows from an estimate of 25% of that of western consumption. While the necessity for alfalfa is transparently evident, due to the relatively small amount of heads of cattle per owner, the market will take some time to develop. We expect access to animal fats by-products, as we expand commercially into biofuels, to be an additional major competitive advantage for that sphere of market participation.
United States Interests in Africa
In November 2021, Secretary of State Antony Blinken affirmed that “Africa will shape the future — and not just the future of the African people but of the world.” Economic development initiatives in Africa are beneficial to the United States for numerous reasons, according to the George W. Bush Institute at Southern Methodist University. They include, amongst others:
| ● | The United States’ interests are served when it gains access to consumers of goods and services in hypergrowth economies. For example, the African Growth and Opportunity Act (AGOA), which Congress passed in 2000, targeted Sub-Saharan Africa. The program fosters market-based economic growth and develops trade relationships by providing eligible nations duty-free access to the U.S. for certain products. AGOA ensures African entrepreneurs can take advantage of access to the U.S. market at no cost to U.S. taxpayers. |
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| ● | Strong economic growth in Sub-Saharan Africa, where average GDP growth in the region was two points higher than the world average from 2001 – 2013, has the potential to consume large amounts of goods and services. The first phase of agricultural development at our LFT Farm contemplates the use of U.S. irrigation, channeling, research, feasibility studies, tractors, machinery and agronomy material, all derived from U.S. sources. |
| ● | The opportunity in Africa is substantial. With 200 million people between the ages of 15 and 24, a figure anticipated to double by 2045, Africa has the youngest population in the world, with the continent standing at the early stages of a demographic explosion. |
| ● | There are more women entrepreneurs across the continent of Africa than anywhere else in the world. In places like Ghana, Nigeria, and Zambia, women business owners outnumber their male counterparts. When women have equal access to the economy, their children are healthier and more educated, their communities more prosperous, and their countries more stable. Global economic integration in Africa, especially for women, creates a ripple effect, breaking poverty cycles and ensuring stability at local, national, and global levels. |
| ● | In 2019, prior to the COVID-19 crisis, there were 64 countries globally with public debt over a threshold of 60% of GDP. Only a third of these were African. However, 100% of the 12 countries from the 64-country grouping that were classified by the IMF and World Bank as high-risk or in debt distress were African. |
An August 2022 White House white paper outlined four initiatives, all of which we deem our operations to be compatible with:
| 1. | Foster Openness and Open Societies |
| 2. | Deliver Democratic and Security Dividends |
| 3. | Advance Pandemic Recovery and Economic Opportunity |
| 4. | Support Conservation, Climate Adaptation, and a Just Energy Transition |
In December 2022, President Biden also hosted leaders from across the African continent for the U.S.-Africa Leaders Summit, and numerous U.S. state department representatives have visited the African continent over the course of 2023.
Fishery and Aquaculture
Aquaculture, the breeding, rearing, and harvesting of fish, shellfish, algae, and other organisms in all types of water environments, was introduced in the early 1980s but grew slowly until 2010. Following the establishment of the National Aquaculture Agency, Global production increased significantly. The fisheries sector represents 3.2% of Senegal’s gross domestic product (GDP), accounts for 10.2% of Senegal’s exports, and generated $400 million in value in 2022. There is a growing demand for high quality fish and seafood products because overfishing and illegal, unreported, and unregulated (IUU) fishing have led to depleted fish stocks.
Aquaculture involves interventions in aquatic rearing process to enhance production, such as regular stocking, feeding, and protection from predators. Aquaculture farming involves 580 species that are currently farmed all over the world, representing a wealth of genetic diversity both within and among species. The growth of the aquaculture market can be attributed to changes in the food consumption pattern of people all around the world. The expansion of retail market and easy availability of the product through various sales channels make it convenient for consumers to purchase packaged aquaculture, which drive the sales figures. The aquaculture industry provides high-quality and disease-free fish by rearing fish in an environment that meets hygiene standards. Aquaculture activity is also utilized by industries to conserve species that are on the verge of extinction.
Senegal has good potential for rice-fish culture development in irrigated areas. Fish and seafood contributed to about 43 percent of the intake of animal proteins in 2013, with a yearly consumption of 23.9 kg per person. Many production farms have closed, with the most common reasons being the lack of access to fry and quality fish feed. Such access is hampered by costs and obstacles to financing. The Senegalese aquaculture sector to this point has lacked organized professionals capable of improving the sector’s access to resources and of defending its stakeholders’ interests.
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Roughly 90 percent of Senegal could be considered appropriate for commercial production of Nile tilapia and African catfish. The majority of the country sits on sedimentary-unconsolidated and consolidated-intergranular/fracture flow aquifers with high to very high productivity. Annual precipitation totals range from in excess of 140 cm in the southernmost region to less than 40 cm in the north. At the present time there are several programs in Senegal involved with aquaculture and training. These include:
| ● | PRIAS: Projet de Résilience au Changement Climatique (Project for Climate Change Resilience); |
| ● | PROVAL: Programme de Valorisation des Eaux et Chaînes de Valeurs (Waters and value Chains Promotion Program); |
| ● | AGRI JEUNE: Agricultural Project for Youth; |
| ● | PPDC: Projet de Pôle de Développement de la Casamance (Casamance Development Pole Project); |
| ● | PUMA: Programme d’Urgence pour la Modernisation des Axes Frontaliers (Urgency Project for Border Sites Modernization); |
| ● | FAO programs in country; and |
| ● | ANA Agence Nationale de l’Aquaculture (Aquaculture National Agency) programs. |
The dairy protein market in Africa attained a value of US$0.7 billion in the year 2020 and is expected to reach US$1 billion by 2026, growing at a CAGR of 6.2% in the forecast period 2021 to 2026. The dairy protein market in Africa is driven by the rapidly rising adoption of a healthy lifestyle by the consumers, coupled with growing awareness about the dairy protein benefits. The protein supply is dominated by the vegetal sources of protein, followed by meat, dairy, fish, and shellfish, and other products.
Global Average Protein Consumption (grams per person per day)
| Year | ||||||||||||||||
| 1990 – 92 | 1995 – 97 | 2000 – 02 | 2005 – 07 | |||||||||||||
| World | 76 | 80 | 82 | 85 | ||||||||||||
| Developing countries | 69 | 74 | 76 | 80 | ||||||||||||
| Africa | 57 | 58 | 59 | 62 | ||||||||||||
| United States of America | 109 | 111 | 113 | 114 | ||||||||||||
Source: Dietary protein requirements, British Nutrition Journal, Cambridge University Press: August 1, 2012
Carbon Offset
A carbon offset broadly refers to a reduction in greenhouse gas emissions or an increase in carbon storage, for example through land restoration or the planting of trees, that is utilized to compensate for emissions that occur elsewhere. A carbon offset credit is a transferrable instrument certified by governments or independent certification bodies to represent an emission reduction of one metric ton of carbon dioxide, or an equivalent amount of other greenhouse gasses. The purchaser of an offset credit can retire it to claim the underlying reduction towards their own greenhouse gas reduction goals. Offset credits are used to convey a net climate benefit from one entity to another. The rationalization behind the carbon offset program is that because greenhouse gasses mix globally in the atmosphere, it does not matter where exactly they are reduced. From a climate change perspective, the effects are the same if an organization ceases an emission-causing activity or enables an equivalent emission-reducing activity somewhere else in the world. Carbon offsets are intended to make it easier and more cost-effective for organizations to pursue the second option.
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The original credits were traded on the Clean Development Mechanism established via the Kyoto Protocol in 1997, but shortly thereafter the carbon markets experienced a large correction in carbon prices due to the unreliability and non-standardization of projects. With improvement in baseline and monitoring methodologies, the market has dramatically expanded. Over eight billion carbon allowances changed hands in the EU ETS in 2020, almost 20% more than in 2019, according to a report by Refinitiv, with the value of the global carbon market increasing by 20% in 2020 to $272 billion. Global growth factors include a 2030 climate target for Europe, the Western Climate Initiative and the Regional Greenhouse Gas Initiative. CORSIA, or the United Nation’s effort to mandate carbon offsetting by airlines for their emissions growth, and well as new IMO standards in shipping are additionally expected to substantially boost demand. On December. 8, 2020, seven U.S. senators introduced the 45Q Carbon Capture, Utilization, and Storage Tax Credit Amendments Act of 2020 to optimize the 45Q tax credit that supports carbon capture and storage deployment as a critical means for achieving a net-zero emissions in the U.S. economy by mid-century. On December 11, 2020, exactly one year after the European Commission proposed to strengthen the bloc’s climate ambition as part of its Green Deal, European leaders solidified a target to bring emissions down by at least 55% compared with 1990 levels from a previous 40% reduction target. On February 1, 2021, the China national carbon market rules were adopted. The value of traded global markets for carbon dioxide (CO2) permits reached a record $909 billion in 2023, according to analysts at Refinitiv.
Carbon markets exist under both mandatory (compliance) schemes and voluntary programs. Compliance markets are created and regulated by mandatory national, regional, or international carbon reduction regimes. Voluntary markets function outside of compliance markets and enable companies and individuals to purchase carbon offsets on a voluntary basis with no intended use for compliance purposes. Compliance offset market credits may in some instances be purchased by voluntary, non-regulated entities, but voluntary offset market credits, unless explicitly accepted into the compliance regime, are not allowed to fulfil compliance market demand. The Taskforce on Scaling Voluntary Carbon Markets, sponsored by the Institute of International Finance, estimates that demand for carbon credits could increase by a factor of 15 or more by 2030 and by a factor of up to 100 by 2050.
The worldwide power related biomass market is projected to be worth US$108.64 billion by 2027, registering a CAGR of 10.5% during the forecast period of 2021 to 2027, The biomass market was valued at US$54.1 billion in 2020. Technologies such as green ammonia, where hydrogen derived from water electrolysis powered by alternative energy replaces hydrocarbon-based hydrogen, making ammonia production virtually carbon dioxide — free, biodiesel as a renewable, biodegradable fuel manufactured from vegetable oils, animal fats renewable diesel fuel or R50 made from used cooking oil, non-consumable food waste and 50% diesel fuel, and bio-aviation fuel will have its future in lignocellulosic biomass, of which alfalfa holds the largest caloric content, in the most available commercial quantities (Cheng and Brewer, 2017), all form the major constituents of this market growth and substantiation. These products are chemically identical to petroleum gasoline, diesel, or jet fuel. Since they meet the same ASTM fuel quality standards as the petroleum fuels they replace, these biofuels can be used in existing engines and infrastructure. The opportunities associated with the use of renewable biomass, plants that take in sunlight and carbon dioxide and make solid materials, will be represented by our operations. Biomass has many benefits, primarily that it cannot be depleted like fossil fuels. With an abundance of plants in Africa, biomass could be a primary source of renewable energy that’s used as a sustainable alternative to fossil fuels.
Our Competitive Advantages
We believe that we have a number of competitive advantages in the management of our operations in Senegal that should be applicable to our enduring growth strategy elsewhere in the continent. These competitive advantages include the following:
Scalable Business Strategy
According to current World Bank data, approximately 60% of the world’s arable land is in Africa, with approximately 30,500 km (18,950 miles) of coastline, creating a scalable business combination, althoughstrategy. Africa is composed of 54 sovereign countries, and three autonomous territories, with the world’s youngest and fastest growing population of any continent. The Sahara desert covers 3.6 million square miles (9.4 million square kilometers), nearly a third of the African continent, which is approximately the size of the United States (including Alaska and Hawaii). We believe that after a successful commercialization strategy in Senegal we dowill be in a position to replicate our desert agriculture model in numerous territories.
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Potential For Significant Economies of Scale of Farming Operations
The Senegal operations are located on 25,000 hectares, or approximately 62,000 acres of land. Due to economies of scale efficiencies, larger farming properties are believed to be of higher value than smaller properties, given the ability to improve yields, maximize revenue, and minimize costs. As a reference point, the average farm size in the United States is approximately 435 acres. While there is no guarantee that we will expand our operations to the extent necessary to take advantage of large scale farming operations, and any such expansion would be dependent on our ability to generate future revenue from operations and sourcing additional outside. If we are able to expand our farm operations to the available 25,000 hectares of land we believe it has the potential to leverage such scale in order to lower our cost structure to be cost advantageous as opposed to smaller scale operators. The advantages of potential large-scale operations may be evidenced in bulk purchasing and scale efficiencies in numerous categories including water irrigation and channels, farming equipment, labor resources, power access and corporate overhead. Our land arrangement in Niger, 200,000 hectares for agricultural purposes and approximately 2,700,000 hectares for trees for purposes of carbon credits, and its recent expansion opportunity in Mauritania further contribute to this potential scale efficiency.
Water Operations
The LFT Farm has sufficient water for irrigation. It is located between the Atlantic Ocean, the Lac de Guiers and the Senegal River. The Lac de Guiers, adjacent to LFT, is approximately 43,000 acres and is directly connected to the Senegal River through a channel. The price of water in Senegal is substantially lower than the cost of water on an acre-foot basis compared to Europe or the United States. The LFT Farm has over 110 km of water channels that have been developed and integrated with pivot systems. Because of the heightened drought and water shortfall in the western United States, which account for approximately 53% of the world’s exports of alfalfa, the cost and supply dynamics globally are expected to be sustainably disrupted, increasing the competitive profile of the LFT operations. In Niger, access to the underground water aquifer is a unique aspect of our operations, given the historically arid environment.
Natural Resources
Africa holds superior sun exposure, soil fertility, air quality, lower density of population, and the potential for higher cuts per crop versus other continents, yet due to inaccessibility to fertilizer and tractor technology and deprivation of modern farming techniques, reports one-seventh of the farming productivity yields of North America and Europe. The LFT Farm engaged AGQ Labs, a leading agronomy company, specializing in agricultural chemistry, to perform an extensive and comprehensive soil and water analysis. AGQ Labs combines its focus in agricultural chemistry and specialized chemical engineering to monitoring plant-soil-water systems.
Operations and Experience
Our management and Board of Directors collectively have over 200 years of experience on the African continent, in all spheres of agronomy, financing, management, auditing and systems management, farming management, farming operations, agriculture, aquaculture, commercial operations, export and diplomacy, making the team well suited to execute on our corporate strategy. We believe that in-country experience, local knowledge and operational reputation has a dramatic impact relative to hiring and retention of employees and government relations. Technical knowledge and skills transfer can further drive its competitive advantage.
Logistics
Expanded port access within reach of the farm greatly expands our ability to export product, and converges the pricing of its alfalfa products to global pricing, especially in the area of the Arab States of the Gulf (Cooperation Council for the Arab States of the Gulf) where the price of alfalfa is at a considerable premium. The LFT Farm is located less than 85 km from the city of Saint Louis in Senegal, which is situated on the Atlantic coast of the country and includes port facilities, and approximately 300 km from the Port of Dakar and the new Blaise Diagne International Airport serving the country’s capital, Dakar. The new port in Saint Louis is anticipated to be completed later in 2023, and is located approximately 60km from our farming operations. The new infrastructure will include a fishing port, a marina and a trade port. On December 2, 2020, local and state officials of Senegal held the inauguration ceremony for the Port of Saint Louis dredging and beacon project, with construction by China Harbour Engineering Company. Nouakchott, the capital of Mauritania and a regional transportation hub, is only 230 kilometers from the LFT Farm and is accessible through well-maintained road infrastructure. Dakar Port is managed by Dubai Ports World. The Blaise Diagne International Airport, completed in 2017, is operated by an international consortium formed to operate the airport for a 25-year period. We have business relationships in place with Maersk, which, as the world’s largest shipping container company, provides shipping services from 300 ports globally, delivering over 12 million containers globally per year. This will cover both the current port of Dakar, the newly constructed port of Dakar at Port du Futur, and Saint Louis which is in the late stages of construction.
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Access to Power and Electricity
We anticipate building a 20MW solar power plant on the facility of the farm, with expansion potential for up to an additional 40MW, with expansion potential pending its power necessity and corporate growth trajectory. Access to our own independent consistent power source, given the dearth of consistent power generation in West Africa, is seen as a differentiating feature of our energy intensive corporate strategy.
Cost of Financing
Central bank policy rates in most countries in Africa are in excess of 10 percent per year and, in some extreme circumstances, around 30 percent. This makes access to financing for basic farming equipment such as tractors and farmers, and yield enhancing supplies such as fertilizer difficult to the average farmer in the United States. Additionally foreign exchange is typically inaccessible, and expensive to access should this be available. When coupled with long lead times to rotate crops, high financing costs negatively impact a farmer’s ability to optimize crops relative to sale price or end user demand. Additionally, short-term credit and borrowing facilities are relatively scarce compared with the abundance of financing sources available in the United States. This offers us a distinct competitive advantage in its ability to access liquidity in both equity and debt capital markets.
Material Contracts
We have collaborations and contracts in place with various suppliers, customers, academic, third-party management and government institutions. These relationships vary from exclusive to semi-exclusive to preferred based on the contract, and create the efficiency of our business operations, access to training, and access to capital resources. Below is a summary of the material terms of the material contracts we have in place.
FGM International. In July 2021, we entered into a service contract with FGM International, a leader in agricultural project implementation, to provide independent advice to secure the first year of alfalfa production for the 25,000 hectare project we are developing in the St. Louis region of Senegal. Pursuant to the service contract, FGM International began providing consulting services, agricultural advice, agronomy optimization, pre-feasibility and farm planning based on their similar template experiences to LFT, from July 2021 and we will continue to use their services for the foreseeable future. Both we and FGM International have the right to terminate the agreement upon 30 days’ prior written notice if, as a result of force majeure, either party was unable to perform a substantial part of the services for a period of at least 30 days or if either party did not have any current intentionfulfil its obligations pursuant to do so. Ifthe agreement. The total price for the services paid to FGM International was €14,500.
Willing Hands AS. In December 2021, we entered into an agreement wherewith Willing Hands AS, a non-profit organization seeking to reduce food waste to develop a commercial fish farming and capture fisheries project in Senegal. Pursuant to the agreement, we paid forWilling Hands AS a total of $100,000. The agreement will remain in effect until the completion of the services or the earlier termination of the agreement by either party. Either party has the right to receive exclusivity fromterminate the agreement if the other party is in material breach of the agreement and has not remedied the situation within 60 days after written notification despite being requested to do so by the other party.
Dr. Putnam. In September 2021, we entered into an Engagement and Advisory Agreement with Dr. Daniel H. Putnam, a target business,global expert on forage quality and water use efficiency under irrigation and on mitigation strategies for sub-optimal conditions who has significant expertise in alfalfa production and comparative alfalfa yields to consult to us and bring worldwide best practices to Senegal. The initial term of the amount that would be used asagreement commenced on September 13, 2021 and is subject to mutual renewal or non-renewal on 30 days’ prior written notice. As compensation for Dr. Putnam’s services performed pursuant to the agreement, we agreed to pay Dr. Putnam a down payment ormonthly retainer of $7,000/month and on-site visit consulting fees to fund a “no-shop” provision would be determined basedat a later date. Dr. Putnam’s scope of responsibilities entail agronomy advice, commercial advice, comparative yield assessment, and general technical and research support.
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Relationship with U.S. Government and Academic Institutions
We have been approved to be a member of the U.S. Agency for International Development’s Finance and Investment Network, an international development agency. USAID is an independent agency of the United States federal government that is primarily responsible for administering civilian foreign aid and development assistance. This will enable us to apply for United States grants, as well as give it access to United States government resources on a selective basis. We signed a non-binding collaborative agreement with The Louisiana State University AgCenter to train, develop and transfer educational skills to local Senegal communities and technically enhance knowledge in the fields of cattle nutrition, carbon absorption and offsets, and management of fish resources and sustainability. We are working with LSU to finalize the terms of the specific business combinationtraining and developmental project under the collaborative agreement.
First mover advantage
While the crop itself has two millennia history, and even in the United States traces its history to George Washington and Thomas Jefferson, we are to our knowledge, the only producer of scale of cattle feed in West Africa. While the time and start-up cost to develop, and certainly the scale to do so will act as a deterrent, we would not expect to be the only market participant over time. We would certainly consider the potential market growth and pricing improvements to offset potential competition.
Environmental, Sustainable and Governance (ESG) aspects of Corporate Behavior
We are committed to promote all aspects of environmental, social and governance issues in our conduct and business. Doing Business 2020 Senegal of World Bank Group has measured the strength of minority shareholder protections against misuse of corporate assets by directors for their personal gain as well as shareholders rights, governance safeguards and corporate transparency requirements that reduce the risk of abuse. The Doing Business project’s 2020 Protecting Minority Investors Score for Senegal is 44.0, which is above the 38.5 regional average for Sub-Saharan Africa.
Carbon offset production will generate verifiable carbon units (VCUs) via a reforestation program in areas adjacent to our commercial farming properties, specifically from the Aleppo pine species for sale to the growing global carbon emission market. Furthermore, the program will further act to prevent desertification of the Sahara desert, and the amountencroaching elimination of arable land, fertile topsoil and water reservoirs. Global adherence to Kyoto Protocol and COP26 strategies for global emission offsets is expected to grow substantially at both at private sector and government level globally as both public and private sector companies adopt and accelerate environmentally aware corporate strategies.
The Sustainable Development Goals (“SDGs”), also known as the Global Goals, were adopted by the United Nations in 2015 as a universal approach to end poverty, protect the planet, and ensure that by 2030 all people enjoy peace and prosperity. The seventeen SDGs are integrated, and recognize that action in one area will affect outcomes in others, and that development must balance social, economic and environmental sustainability. We believe that the intent and goals of our available fundscurrent and potential future operations are aligned with the SDGs. These goals include elimination of poverty, zero hunger, health and well-being, quality education, gender equality, clean water and sanitation, affordable and clean energy, economic growth, industry, innovation and infrastructure, reduced inequalities, sustainable cities and communities, responsible consumption and production, climate action, life below water, life on land, peace, justice and strong institutions. We hope our business will address the 17 SDGs as follows:
| 1. | Elimination of Poverty. We are creating employment in a region with 22.6% unemployment as of the first quarter of 2021. |
| 2. | Zero Hunger. We will create protein for animals, thereby feeding dairy cattle for milk production and cattle for beef production on the African continent. The global consumption of total protein in 2005 through 2007, based on disappearance values of food, was estimated to be 85g protein per person, per day. Africa has a daily per capita value of 62g per person per day, per the WHO. Alfalfa is a high-protein roughage which is usually about 15% to 25% crude protein, over 50% total organic nitrogen and high in calcium. Alfalfa and corn generally complement each other and can form the basis for cattle diets. |
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| 3. | Health and Well-Being. By providing economic development and job creation, we aspire to enhance lives, as the injection of spending may increase the average income in local communities and regions in which we will operate. Directly, we also provide a maternal health program for a regular sonograms, as well as a dental health program. |
| 4. | Quality Education. We are working with leading academic institutions such as the non-binding Master Research and Training Agreement we entered into with LSU in Senegal to transfer skills and broaden education access through training and educational curriculum. In the case of Michigan State University, genetic understanding of cattle types and skills transfer will further be enhanced in Mauritania. |
| 5. | Gender Equality. We compensate all our employees and consultants predicated on skill and meritocracy, agnostic to gender, and is committed to equality and promotion. |
| 6. | Clean Water and Sanitation. We are utilizing water filtration and pumping technology to enhance the cleanliness and availability of the water supply for the local populations in the regions where we operate. |
| 7. | Affordable and Clean Energy. We are working to commission an 100% fully solar renewable power plant on our LFT Farm. |
| 8. | Decent Work and Economic Growth. We hope to create employment in each environment where we operate, having already created direct employment for over 80 individuals. |
| 9. | Industry, Innovation and Infrastructure. As the cost of alfalfa production continues to rise in the United States, which accounted for 53% of the world’s alfalfa exports in 2019 (Source NAFA National Alfalfa and Forage Association), we are creating a large scale alfalfa farm increasing alfalfa production in an emerging market country. In addition, we are applying recent scientific and technical practices available to enhance productivity, mitigate emissions and open up a new industry in the Senegalese region. |
| 10. | Reduced Inequalities. We are deeply committed not only to philanthropy, but to employment and promotional practices related to gender equality. |
| 11. | Sustainable Cities and Communities. From energy to water to food production and consumption, to its fertilizer use to promote growth, to its byproduct management of nitrogen and animal fats, we aspire to have a closed-loop sustainable system and community. |
| 12. | Responsible Consumption and Production. We allocated part of our land to the community as part of our philanthropy and community service and has no by-products or emissions, while striving to absorb carbon. Alfalfa plays a significant role as a type of livestock forage for animal feed, due to its high protein and digestible fiber content. |
| 13. | Climate Action. To build its reforestation program, we have binding agreements with local governments in the Ingall and Aderbissinat to plant a minimum of one million hectares of trees in each area, for an aggregate of 2 million hectares. This also allows us to create a carbon sequestration program destined to lower carbon emissions and encourage Western companies to do the same. Additional Alfalfa’s root system creates anchorage to prevent desert encroachment. |
| 14. | Life Below Water. We anticipate our aquaculture program will manage the wholesale purchase of fish from local fisherman, initially in Senegal and secondarily in East Africa and in conjunction with processing, much needed refrigeration, financing and logistics locally helping them to open up new markets in Europe and the Middle East. The commercial strategy for our aquaculture initiatives will be created in a sustainable manner by not overfishing in regions where bycatch is of great concern. In fact, we aspire to be challenging the trawler business in those environments. |
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| 15. | Life on Land. We expect our ability to grow alfalfa, which has the highest source of vegetation-based protein, will drive nutrition, local job creation and community development. In Niger, 60% of the entire economy involves cattle and livestock. |
| 16. | Peace, Justice and Strong Institutions. We are working with communities, philanthropy, and academia, such as Louisiana State University (LSU), Michigan State University (MSU), UNICEF and the U.S. Agency for International Development (USAID). We are committed to sustainability, economic growth, education, and increasing jobs locally. We are working with local municipalities such as Fass Nagom in Senegal, and Aderbissinat and Ingall in Niger. In Senegal, we have a commercial dialogue with ANPIL, the local livestock association for local needs, specifications and requirements. |
| 17. | Partnerships to Achieve the Goal. We ues local partners, municipalities and communities to further our development aspirations. |
Government Regulation
The United States is responsible for 53% of the world’s alfalfa exports, the majority of which is located in the western states. 80% of the Colorado river usage is for agriculture, half of which is for alfalfa. While the primary demand drivers of global nutrition had created investor optimism, the supply side contracting is anticipated to create upward price pressure for the commodity pricing and demand. On August 16, 2021 the United States federal government declared the first-ever shortage of water on the Colorado River, triggering cutbacks in several states. The large-scale production of alfalfa during a megadrought is, in a large part, possible because the Imperial Valley is the single biggest controller of rights to Colorado River water. Given the two biggest reservoirs along the river, Lake Mead and Lake Powell, that work to provide power and water to over 40 million Americans in 7 states, are each close to hitting inoperable levels such that the Colorado River could stop flowing entirely, it is highly anticipated that the expiration of the river compact governing usage which lapsed at the time. Our forfeitureend of 2022, will precipitate government scrutiny, heightened taxation and eventually in a curb in United States exports. In January 2023, the states belonging to the compact missed a federal deadline to resolve an agreement to make water use meet the river’s declining capacity, leaving the decision in the hands of the federal Bureau of Reclamation. On May 23, 2023 representatives from the seven Colorado River Basin states agreed to the submission of a Lower Basin, consensus-based system conservation proposal. The three Lower Basin states of California, Arizona and Nevada committed to measures to conserve at least 3 million-acre-feet (maf) of system water through the end of 2026, when the current operating guidelines are set to expire. Of those system conservation savings, 2.3 maf will be compensated through funding from the Inflation Reduction Act. Once officially approved by the Bureau of Reclamation, which operates the dams on Lake Mead and Lake Powell, the new agreement would be in place through 2026.
In terms of customs regulations, Senegal is a member of the West African Economic and Monetary Union (WAEMU) as well as the Economic Community of West African States (ECOWAS). Through these organizations, Senegal has adopted broad economic, import, customs, tariffs, and export regulations. Senegal abides by the ECOWAS Common External Tariff (CET) with a special import tax (TCI) on selected food products. The following documents are typically required for importing goods into Senegal: the supplier’s commercial invoice and the freight bill; the certificate of origin issued by the Chamber of Commerce of the country of origin; the packing list (document listing all parcels and their characteristics); authorization to import goods subject to quota (if applicable); the insurance certificate; the preliminary declaration of import (DPI) on values higher than or equal to CFA 1 000 000 (USD 2000). This declaration must be domiciled in a local bank. Agricultural related machinery and phytosanitary products generally operate without tax or duties. Senegalese Customs, “les douanes Sénégalaises”, clears all traded goods at the Port of Dakar, the Blaise Diagne International Airport, and road borders, and uses an online system called Gaïndé that covers all customs operations. According to the Investment Climate Facility for Africa, customs clearance in Senegal generally takes one day. At the Port of Dakar, imports are generally transported from the port facility in two days; the average truck turnaround time is about 23 minutes according to the United States Department of Agriculture.
In 2006, the Government of Abu Dhabi decided to gradually ban growing alfalfa and other animal feed grass to conserve the underground water reserves. To augment the shortfall in local production, the government entered the global hay importers market, awarding 600 thousand metric tons of hay to importers to be sourced globally. Over the years, the scheme has been extended to benefit farmers across the UAE, and importation of hay reached 2.5 million metric tons per year in 2016. On November 5, 2018, the Saudi government’s ban on cultivating green fodder became effective. The ban aims to reduce the pressure on the country’s already exhausted renewable water resources. According to an estimate by United National Development Programme (UNDP), 89% of freshwater in Saudi Arabia is spent in agriculture sector, and 57% of it is from non-renewable aquifers. The plan to phase out the local cultivation of green fodder by 2019 was issued by the Saudi Ministry of Water, Energy and Agriculture (MEWA) in December 2015.
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Competition
The agriculture industry is highly competitive and subject to rapid and significant technological change. While AFRAG has agricultural and farming experience and related scientific knowledge, we will face competition from both large and small agricultural companies in multiple countries, including Senegal and the United States.
The alfalfa market in which we operate is competitive and rapidly evolving. The market is largely dependent on cattle for dairy cattle nutrition and meat production, with many new brands and product offerings emerging in the marketplace. In the field of agriculture, we face competition from both established, well-known legacy alfalfa suppliers and emerging competitors in areas such funds (whetheras eastern Europe and central Asia and competes with both alfalfa producers and producers of alternate sources of cattle feed and protein. We compete based on various product attributes including protein content, fiber content, moisture, logistics, long term availability and price. We believe that we competes favorably across these factors taken as a resultwhole. Select competitors include Anderson Hay, ACX Global, Bailey Farms, Aldahra, Grupo Oses, Gruppo Carli, Border valley Trading, Barr-Ag, Alfa tec, Standlee Hay, Sacate Pellet Mills, Oxbow Animal Health, M&C Hay, Accomazzo, Hiushan Dairy, Qiushi Grass Industry, Beijing HDR trading, Modern Grasslands and Inner Mongolia Dachen Agriculture, and numerous other small scale and local producers.
In the fisheries and aquaculture business, we will have numerous, local, regional, national and global competitors, both at the wholesale purchase level in Senegal, and African east coast and at the wholesale sale level in Europe, the Middle East and the United States.
In the carbon offset and reforestation business, there are numerous groups operating under the Verified Carbon Standard (VCS), the Climate, Community & Biodiversity Standards (CCBS), and the American Carbon Registry (ACR). Numerous global companies are self-generating offsets, and carbon trading markets have been established in the European Union, Norway and the United States.
Partnerships
We are a partner and member of the USAID Finance and Investment Network. The United States Agency for International Development (USAID) is an independent agency of the United States federal government that is primarily responsible for administering civilian foreign aid and development assistance. USAID’s programs are authorized by Congress in the Foreign Assistance Act, which Congress supplements through directions in annual funding appropriation acts and other legislation. As an official component of U.S. foreign policy, USAID operates subject to the guidance of the President, Secretary of State, and the National Security Council. Congress passed the Foreign Assistance Act on September 4, 1961, which reorganized U.S. foreign assistance programs and mandated the creation of an agency to administer economic aid. USAID was subsequently established by the executive order of President John F. Kennedy, who sought to unite several existing foreign assistance organizations and programs under one agency. USAID became the first U.S. foreign assistance organization whose primary focus was long-term socioeconomic development.
In June 2021, we entered into a non-binding understanding with LSU to provide for a mutually beneficial research project. The final terms of the project and total amount to be paid to LSU have not yet been determined, but the intent of the partnership will be to train, develop and transfer educational skills to local Senegal communities and technically enhance knowledge in the fields of cattle nutrition, carbon absorption and offsets, and management of fish resources and sustainability. We are working to finalize the terms of the training and development project under the collaborative agreement.
We are working with A.P. Moller-Maersk, a large Danish multinational on the transportation, logistics and cold-chain implementation on an invoice basis, and a formal agreement is in process.
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For its aquaculture development, we have an agreement in place with Willing Hands AS, a Norwegian company. The focus of Willing Hands AS is on the scoping, design, financing, building, operating and transferring of complete value chains, especially in industries where Norway is globally competitive. They enable industrial and sustainable development that catalyzes the creation of a competitive labor force, especially targeting emerging African markets. Willing Hands has active programs in Nigeria, Kenya and Uganda, amongst others. Willing Hands intends to build in collaboration with us, first in Senegal and then in Niger, a dedicated aquaculture facility for the breeding, nurture, commercialization and production of Tilapia for human consumption. In December 2021 we entered into an agreement with Willing Hands AS. Pursuant to the agreement, we paid Willing Hands AS a total of $100,000. The agreement will remain in effect until the completion of the services or the earlier termination of the agreement by either party. Either party has the right to terminate the agreement if the other party is in material breach of the agreement and has not remedied the situation within 60 days after written notification despite being requested to do so by the other party. Under the terms of the agreement, Willing Hands will provide technology and knowledge transfer and provision of training. We will provide land and water resources.
The economics of the agreement are expected to be included in a detailed matrix of responsibilities and profit and cost allocations in a definitive agreement, be executed by all parties, at or around the time of conclusion of the feasibility study.
Employees
As of December 2023, we had 86 full-time employees. We also utilize independent contractors for various agricultural related services. Sixteen of our breach or otherwise) could result inemployees belong to a labor union. We have never experienced a labor-related work stoppage. We treat our not having sufficient funds to continue searching for, or conducting due diligenceemployees with respect and dignity and consider our relations with our employees to prospective target businesses.be very good.
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Community Relations
We have numerous community and social development initiatives in place and intends to grow these with the progression of large-scale commercial activities. We hope to become a source of over 1,000 created jobs for the community. Additionally, we already utilized over 1,000 hectares over local land for rice and sweet potato from those pilots for the local community. Additionally, alfalfa for the benefit of local livestock and dairy cattle will be donated as part of a community program to the local community, and we further allocated irrigated land to the local community. We also funded a local school for elementary education and a clinic which provides healthcare services free of charge to the local community. We also intend to directly support numerous local and international charities in Senegal and the ECOWAS region, including those causes focused on historical preservation. We funded and created a dental health program, a sports program and a maternal health program.
In Senegal, we are building a museum dedicated to African Art and History. We are supporting a non-governmental organization (NGO) dedicated to abused women and children, and are supporting protein nutrition in diets. We will also host a bi-annual farm day in conjunction with harvests for the benefit of local communities. Additionally, we are funding and developing women dedicated schooling regionally. We are evaluating additional community service-related programs including soccer stadiums, Malaria vaccines and environmental protection for the bird community in Saint Louis. Additionally, we initiated maternal health programs for the community.
Legal Proceedings
We may needbe subject to obtain additional financing to complete our initial business combination, either becausevarious legal proceedings and claims that arise in the transaction requires more cash than is available from the proceeds held in our trust account or because we become obligated to redeem a significant numberordinary course of our public shares upon completionbusiness. Although the outcome of these and other claims cannot be predicted with certainty, we do not believe the
ultimate resolution of the current matters will have a material adverse effect on our business, combination,financial condition, results of operations or cash flows.
Frank Timis is the majority shareholder of Global Commodities, our largest shareholder as well as the majority owner of Timiscorp. On June 13, 2019, an investigation was launched by the Dean of the Investigating Judges of the General High Court of Dakar in which case we may issue additional securities or incur debt in connection with such business combination. In addition, we intend to target businesses with enterprise values that are greater than we could acquire with the net proceeds of this offering andSenegal over the sale of gas contracts to British energy multinational BP. The contracts had been acquired by Timiscorp, a company of which Mr. Timis is the private placement units, and, as a result, if the cash portion of the purchase price exceeds the amount available from the trust account, net of amounts needed to satisfy any redemptions by public shareholders, we may be required to seek additional financing to complete such proposed initial business combination. We may also obtain financing prior to the closing of our initial business combination to fund our working capital needs and transaction costs in connection with our search for and completion of our initial business combination. There is no limitation on our ability to raise funds through the issuance of equity or equity-linked securities or through loans, advances orcontrolling shareholder. The 19-month investigation involved two other indebtedness in connection with our initial business combination, including pursuant to forward purchase agreements or backstop agreements we may enter into following consummation of this offering. Subject to compliance with applicable securities laws, we would only complete such financing simultaneously with the completion of our initial business combination. If we are unable to complete our initial business combination because we do not have sufficient funds available to us, we will be forced to cease operations and liquidate the trust account. In addition, following our initial business combination, if cash on hand is insufficient, we may need to obtain additional financing in order to meet our obligations.
Controls and Procedures
We are not currently required to maintain an effective system of internal controls as defined by Section 404 of the Sarbanes-Oxley Act. We will be required to comply with the internal control requirements of the Sarbanes-Oxley Act for the fiscal year ending December 31, 2022. Onlypublicly traded companies in the event that we are deemed to be a large accelerated filer or an accelerated filerUnited States, BP and no longer an emerging growth company would we be required to comply withKosmos. The BBC reported BP bought the independent registered public accounting firm attestation requirement. Further, for as long as we remain an emerging growth company as definedTimiscorp stake in the JOBS Act, we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the independent registered public accounting firm attestation requirement.
Prior to the closing of this offering, we have not completed an assessment, nor has our independent registered public accounting firm tested our systems, of internal controls. We expect to assess the internal controls of our target business or businesses prior to the completion of our initial business combination and, if necessary, to implement and test additional controls as we may determine are necessary in order to state that we maintain an effective system of internal controls. A target business may not be in compliance with the provisions of the Sarbanes-Oxley Act regarding the adequacy of internal controls. Many small and mid-sized target businesses we may consider for our initial business combination may have internal controls that need improvement in areas such as:
staffing for financial, accounting and external reporting areas, including segregation of duties;
reconciliation of accounts;
proper recording of expenses and liabilities in the period to which they relate;
evidence of internal review and approval of accounting transactions;
documentation of processes, assumptions and conclusions underlying significant estimates; and
documentation of accounting policies and procedures.
Because it will take time, management involvement and perhaps outside resources to determine what internal control improvements are necessary for us to meet regulatory requirements and market expectations for our operation of a target business, we may incur significant expenses in meeting our public reporting responsibilities, particularly in the areas of designing, enhancing, or remediating internal and disclosure controls. Doing so effectively may also take longer than we expect, thus increasing our exposure to financial fraud or erroneous financing reporting.
Once our management’s report on internal controls is complete, we will retain our independent registered public accounting firm to audit and render an opinion on such report when required by Section 404 of the Sarbanes-Oxley Act. The independent registered public accounting firm may identify additional issues concerning a target business’s internal controls while performing their audit of internal control over financial reporting.
Quantitative and Qualitative Disclosures about Market Risk
The net proceeds of this offering and the sale of the private placement units held in the trust account will be invested in U.S. government treasury obligations with a maturity of 185 days or less or in money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act which invest only in direct U.S. government treasury obligations. Due to the short-term nature of these investments, we believe there will be no associated material exposure to interest rate risk.
Off-Balance Sheet Arrangements; Commitments and Contractual Obligations; Quarterly Results
As of March 31, 2021, 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. No unaudited quarterly operating data is included in this prospectus as we have not conducted any operations to date.
JOBS Act
The JOBS Act contains provisions that, among other things, relax certain reporting requirements for qualifying public companies. We will qualify as an “emerging growth company” and under the JOBS Act will be 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, our 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 independent registered public accounting firm’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 independent registered public accounting firm’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 applySenegalese gas fields for a period of five years following the completion of this offering or until we are no longer an “emerging growth company,” whichever is earlier.
General
We are a blank check company whose business purpose is to effect a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses or entities, which we refer to throughout this prospectus as our initial business combination. We have not selected any specific business combination target and we have not, nor has anyone on our behalf, engagedcash consideration in any substantive discussions, directly or indirectly, with any business combination target with respect to an initial business combination with us. We believe that our management team’s decades of experience and relationships with leading technology companies and their founders, executives and investors,2017, in addition to a royalty payout. The examining magistrate heard evidence regarding allegations from numerous sources per court transcripts over 18 months and found all allegations unproven. On December 29, 2020, the extensive industryHigh Court’s conclusion was that there were no grounds to pursue any persons for any offenses related to the allegations contained in the BBC report. The judge dismissed the case in its entirety, citing lack of evidence, on all counts.
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MANAGEMENT
Board of Directors and geographical reachManagement
The following is a list of our network, alongdirectors and executive officers following and their ages and positions.
| Name | Age | Position | ||
| Executive Officers: | ||||
| Alan Kessler | 48 | Chief Executive Officer and Chairman | ||
| Harry Green | 55 | Chief Financial Officer | ||
| Non-Employee Directors: | ||||
| Orim Graves | 64 | Director | ||
| Ambassador Modest Jonathan Mero | 64 | Director | ||
| Russell Read | 60 | Director | ||
| Daphne Michelle Titus | 66 | Director | ||
| Ambassador Bisa Williams | 70 | Director | ||
| Osman Ahmed | 37 | Director |
Board of Directors
Alan Kessler, Chairman and Chief Executive Officer. For the past decade, Mr. Kessler has been focused solely on the development of the African continent, integrating growth businesses in Africa with our prioraccess to US based capital. Mr. Kessler has over 20 years of experience with special purpose acquisition company (“SPAC”) business combinations, will give us a competitive advantage in pursuing a broad range of opportunities in many industries. Although we may pursue an business combination opportunity in any business or industry, we currently intend to focus our efforts on identifying high growth technology and tech-enabled businesses domestically and abroad in the consumer internet, ecommerce, software, healthcare, transportation / mobility and financial services industries, as well as other industries that are being disrupted by advances in technology and on technology paradigms including artificial intelligence (“AI”), automation, data science, ecommerce and Software-as-a-Service (“SaaS”).
Overview
10X Capital is a New York City-based investment firm which connects Wall Street, with Silicon Valley, aligning institutionalstarting his career in investment banking at Morgan Stanley, and subsequently investment research at Goldman Sachs. On the principal side, he has worked for various firms, including Oracle Partners and Frontpoint Partners, an investment vehicle owned by Morgan Stanley focused on emerging markets. Mr. Kessler has served as the Founder, Director and Chief Executive Officer of African Discovery Group, Inc. (“AFDG”), a publicly held, dedicated African business development company since its founding in 2017, and Mr. Kessler had been responsible for numerous advisory and capital with high growth ventures. Founded in 2004 by serial entrepreneur Hans Thomas, 10X Capital invests alongside leading technology investors, with a focus on consumer-oriented software and technology companies disrupting major industries, including finance, healthcare, transportation and real estate, by leveraging advances in automation, artificial intelligence and data science.
10X Capital is a founderraise for the benefit of 10X Capital Venture Acquisition Corp., or 10X I, a SPAC which announced its proposed business combination with REE Automotive,Africa. Prior to founding AFDG, he served from 2014-17 as Managing Director at Ladenburg Thalmann, an electric vehicle technology company based in Israel, in February 2021.
10X Capital and its subsidiary, San Francisco-based venture capital firm Growth Technology Partners (“GTP”) are investors in over 100 high growth venture-backed companies such as Robinhood Markets, Inc. (“Robinhood”), Circle Internet Financial (“Circle”), Ripple, 23andMe, Headspace, Udemy and Pipefy. 23andMe recently announced its proposed business combination with a SPAC. 10X Capital has invested in these and other venture-backed companies alongside well-known venture capital funds such as Sequoia Capital (“Sequoia”), New Enterprise Associates (“NEA”), Ribbit Capital (“Ribbit”), General Catalyst Partners, Google Ventures (“GV”), Founders Fund and Fidelity Investments Inc. (“Fidelity”), Andreesen Horowitz, DST Global, Kleiner Perkins, Thiel Capital, Khosla Ventures, Norwest Venture Partners, Insight Partners, Bessemer Venture Partners, Social Capital, 8VC, DCM, TCV and Wellington.
10X Capital utilizes data science to identify and evaluate investments, as well as support portfolio companies’ strategic growth, and through its networkinvestment bank that was one of relationships withthe original founders executives and venture capitalists, routinely meets with a variety of high growth technology companies seeking investment or financing.
10X Capital has been an early and active investor in companies that have recently gone public or are reported to be in the process of going public, including biotech firm Compass Therapeutics, which completed a reverse merger transaction with a public shell company in June 2020. 10X Capital was also an investor in Palantir Technologies (“Palantir”), which completed a direct listing on the New York Stock Exchange in September 2020. 10X Capital was also an early investor1876. Mr. Kessler serves as a board member of Ogelle, a Nigerian-based social media company. Mr. Kessler is the Founder of African Discovery Foundation, a philanthropic organization focused on charitable contributions for education and health care resources in DraftKings Inc. (Nasdaq: DKNG), which completedAfrica. Mr. Kessler holds a business combination withBachelor of Arts degree in Economics from the University of Pennsylvania (cum laude) and a SPAC in April 2020. 10X Capital was also an investor in Wish, which completed an Initial Public OfferingMaster of Business Administration (MBA) degree from Columbia Business School. Mr. Kessler’s global financial and operational experience, and value creation history on the New York Stock Exchange in December 2020.
Our Management Team
OurAfrican continent, coupled with his management team is led by Hans Thomas, our Chairman androle as Chief Executive Officer.Officer, acted as testimony to his value to serve as a non-independent director of AFRAG PubCo.
Harry Green, Chief Financial Officer. Mr. Thomas is a serial entrepreneur and technology investor with a track recordGreen has decades of over 20 years, featured in Bloomberg News, Asset-backed Alert and The Wall Street Journal. He is 10X Capital’s founder and chief executive officer of and serves as chairman of its subsidiary, GTP. As an entrepreneur, Mr. Thomas wasexperience on the founding teamsbuy-side on both private equity and hedge fund platforms, where he has focused primarily on control investments across multiple industries. He previously served as the Chief Financial Officer of venture-backed FinTech startup InternetCash (1999), online mortgage firm RefinanceOne (2004) and data science firm TheNumber (2015)African Discovery Group, Inc. (“OTC: AFDG”). Mr. Thomas is regardedGreen also acts as a top technology sector investor, financierconsultant to a fund which was raised to invest in minority depository institutions that primarily lend or facilitate lending to small businesses in low-and moderate-income areas or to low-and moderate-income individuals in order to promote community development, generate job growth and visionary becauseeconomic development. He assists the fund in establishing its back office operational and financial controls. Beginning in March of his track record of identifying2018, Mr. Green worked with Onset Capital Partners, an opportunistic merchant bank platform focused on advising and investing in promising early stage opportunities and connecting them with institutional capitalcompanies, from startups to help accelerate their growth. Mr. Thomas’ credibilityestablished companies, within various industries. From 2012 until February 2018, he served as a founderSenior Member of Houlihan Lokey’s Illiquid Financial Assets practice, where he focused on providing strategic advice for Fund Mergers and Acquisitions, non-core asset disposition and strategic fund raising. Prior to that, Mr. Green worked on various hedge fund and private equity platforms including Plainfield Asset Management (a $5.5 billion hedge fund platform), ArcherPoint Capital Management (a partnership-based private equity platform he co-founded) and Doughty Hanson & Co. (a multi-billion international private equity sponsor). He has previously served on the boards of Choice Payment Solutions, a privately owned fintech SAAS business focused on providing point of service financing solutions, Skylink Aviation Limited, a privately-held air logistics business; MTI Holdings, Inc., a high mix, low volume contract manufacturer; North American Membership Group, the world’s largest lifestyle affinity membership organization; Dunlop Standard Aerospace Group, an integrated supplier of aftermarket parts and services to the aerospace and defense industry; PQS Acquisition Corp, North American business of FL Group, the largest independent blender and distributor of automotive lubricants; Knowles Electronics Holdings, Inc., a leading international manufacturer of technologically advanced products in micro-acoustics; and Tumi Inc., a leading, high-end luggage and business accessory brand amongst others. Mr. Green holds a Bachelor of Commerce and a postgraduate honors degree in Financial Accounting from the University of Witwatersrand in Johannesburg, South Africa, and an MBA from The Wharton School at the University of Pennsylvania.
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Orim Graves. Prior to joining the Board of AFRAG in August 2021, Mr. Graves served as the Executive Director of the National Association of Securities Professionals (“NASP”) for more than ten years ending in 2020. NASP, founded in 1987, remains a trade organization advocating for diverse professionals and women within the financial services industry with more than 150 firms represented as members across the globe. Currently, Mr. Graves operates an independent consultancy to provide strategic and tactical investment advisory services, ESG integration, market strategy, and diversity equity and inclusion consulting to diverse clients across the global investment sector.
Mr. Graves previously served as a senior partner in a leading investment firm, as a senior consultant with a global investment consulting firm and as Chief Investment Officer for the City of Philadelphia Board of Pensions and Retirement where he provided expertise in investment performance attribution and evaluation, as well as asset allocation strategies specializing in non-traditional asset categories. Mr. Graves serves on numerous boards, including as investment committee chair of Dillard University, a historically black university in New Orleans, Louisiana. Mr. Graves earned his Bachelor of Science in Finance from Hampton University and an MBA in Finance from the University of Wisconsin. He is a CFA charter holder. Mr. Grave’s breadth of corporate finance experience and deep knowledge of managing institutional US investment assets into the African continent, as well as operational experiences in growth businesses, acted as testimony to his value to serve as an independent director of AFRAG PubCo.
Ambassador Modest Jonathan Mero. Mr. Mero has been a member of AFRAG’s Board since August, 2021. From 2016 to 2019, Mr. Mero served as Ambassador of the United Republic of Tanzania to the United Nations. Following his resignation from the United Nations in 2019, he co-founded and acted as Director of Independent Planners Ltd., focused on land use planning, land surveys, real estate, consulting and advisory services in Tanzania. Mr. Mero also consults on business strategies, international trade and risk management. Until his appointment on December 3, 2016, Mr. Mero was his country’s Permanent Representative to the United Nations, World Trade Organization and all international organizations in Geneva. Holding that position until May 2013, he was accredited simultaneously to the International Atomic Energy Agency, United Nations Industrial Organization, Comprehensive Nuclear-Test-Ban Treaty Organization and the United Nations system in Austria. Between 2007 and 2013 Mr. Mero was stationed at his country’s Permanent Mission to the United Nations in New York, where he served as Minster Plenipotentiary, Economic Adviser and Head of Chancery. From 2005 to 2006, he served as Head of Policy in the Ministry of Foreign Affairs and International Cooperation. Previously, Mr. Mero was a senior economist at the Ministry of Industry and Trade, from 1987 to 2004, and a trade policy adviser to the Executive Secretary of the Southern African Development Community from 2004 to 2005. Mr. Mero holds a Bachelor of Science degree from the University of Dar es Salaam in the United Republic of Tanzania, as well as a master’s degree in finance from the University of Strathclyde in the United Kingdom. Ambassador Mero’s breadth of political experience on the African continent, and established knowledge of East Africa, a vital part of our corporate expansion strategy, acted as testimony to his value to serve as an independent director of AFRAG PubCo.
Russell Read. Russell Read, CFA, Ph.D. has been a member of AFRAG’s Board since August, 2021. In November 2022, Dr. Read joined 10X Capital as its Chief Investment Officer. Since January 2020, Dr. Read founded and led as Manager Partner, the C Change Group LLC (a Delaware Statutory Public Benefit Limited Liability Company), dedicated to developing transformative and sustainable infrastructure and related private equity, capable of materially improving the world’s utilization of natural resources, with a geographic focus on the Arctic/near-Arctic and the MEASA Region (Middle East, Africa, Southern Asia). From September 2018 through 2019, he served as Senior Advisor and Member of the Executive Committee for MSCI, engaging major international institutional investors for MSCI’s analytics and index product solutions. From May 2016 through August 2018, heserved as Chief Investment Officer of the Alaska Permanent Fund Corporation, responsible for asset allocation and the investment class programs for America’s largest state sovereign fund. Previously, Dr. Read served the Chief Investment Officer for the California Public Employees’ Retirement System (CalPERS, America’s largest pension system) and Chief Investment Officer and Deputy Chief Executive Officer for the Gulf Investment Corporation (“GIC-Kuwait”, the development investor for the six GCC countries of the Arabian Peninsula). At CalPERS he launched its infrastructure program along with new initiatives in timberland, commodities, infrastructure, and environmentally-sensitive investing. He developed the first commodities-based mutual fund and related institutional products while at Oppenheimer Funds during the 1990’s. Dr. Read received his undergraduate degree in Statistics and graduate degree in Finance (MBA) from the University of Chicago and his master’s degree in Economics and doctorate in Political Economy from Stanford University (MA, PhD). He is a member of the Investment Funds Committee (IFC) for the US State of Wyoming and its sovereign wealth funds, and he formerly served as Chairman of the Investor’s Committee for the President’s Working Group on Financial Markets under Treasury Secretary Paulson. Dr. Read’s breadth of global financial and operational experience, coupled with his fiduciary background, and investment management history on behalf of Sovereign and government entities acted as testimony to his value to serve as an independent director of AFRAG PubCo.
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Daphne Michelle Titus. Ms. Titus has made himbeen a member of AFRAG’s Board since August 2021. Ms. Titus is an alumna of the United States Department of State (DOS) Senior Foreign Service and a member of the United Nations Senior Women’s Talent Pipeline. Ms. Titus founded Mapasa Strategies, a renowned international consultant that assists both domestic and international clients in the realm of foreign affairs, with a special focus on Africa, Asia and the Americas, where she has worked since 2017. Prior to that, as one of the first callsDepartment of State’s premier Africanists, senior consular officers and public diplomacy professionals, she was most recently detailed to the United States Agency for Silicon Valley venture capitalists on topicsInternational Development (USAID) to serve as its Senior Advisor for the Addis Ababa Peace, Security and Cooperation Framework for the Great Lakes Region, based at USAID in Kinshasa, DRC. Ms. Titus’ most recent assignments before her detail were as the Counselor for Consular Affairs for U.S. Mission Nigeria, as the Senior Director/Diplomat in Residence for the National Capitol Region (DC, MD, DE, WV, NOVA, based at Howard University) and as the Foreign Policy Advisor (POLAD) for the Combined Joint Task Force — Horn of financeAfrica in Djibouti. Diplomats in Residence are detailed from the Department of State to universities throughout the country to assist the Department with recruitment, build awareness of Foreign Affairs as a career path for candidates from all realms of endeavor and capital markets,to assist universities and other entities in their assigned region with creating/enhancing Foreign Affairs-related programming and curricula. Foreign Policy Advisors are detailed from the Department of State to the Department of Defense (DOD) to assistselected commanders and their staff with identifying and addressing the foreign policy aspects of their military duties. Her previous positions include service as Embassy Nairobi’s Somalia Political Advisor in Djibouti, Regional Affairs Director/Senior Public Diplomacy Advisor/Policy and Coordination Officer in the Department’s Bureau of African Affairs Office of Public Diplomacy and Public Affairs, Deputy Chief of Mission/Charge d’Affaires in Banjul, The Gambia and at the U.S. Mission to the African Union, Addis Ababa, Ethiopia and as Senior Advisor/Domestic Operations Supervisor in the Bureau of Consular Affairs Office of Visa Services. Ms. Titus has also served overseas in Haiti, Cameroon, Kenya and Congo-Kinshasa (twice, both times as the Regional Consular Officer that provided daily support/personal service to consular offices throughout sub-Saharan Africa) as well as in Washington as a member of the Department’s Foreign Service Board of Examiners, its tenure/promotion/selection-out boards and as its Bilateral Western Hemisphere Affairs Officer in the Bureau of Democracy, Human Rights and Labor. She has traveled throughout Africa (including many visits to Sierra Leone) and Europe as well as to Saudi Arabia, Canada, Russia, Mexico, the Canary Islands, Guatemala, Turkey, Nicaragua, Honduras, Costa Rica, Martinique, Jamaica, the United Arab Emirates, Qatar, India, Burma, Cambodia, Japan, Korea, Hong Kong, the Dominican Republic and China. The recipient of numerous DOS, USAID and DOD performance awards, she is most notably an alumna of the London School of Economics and Political Science, the original International Career Advancement Program Fellowship cohort, The New College of California and the Industrial College of the Armed Forces (ICAF, now the Eisenhower School) at the National Defense University.
A member of the ICAF Class of 2005, she also received a diploma in Strategic Communications as well as ICAF’s Antonelli Award. Ms. Titus’s strong understanding of public and private sector interaction of the African continent, and breadth of political experience on the African continent, acted as testimony to her value to serve as an independent director of AFRAG PubCo.
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Ambassador (ret) Bisa Williams. Ms. Williams has been a member of AFRAG’s Board since August, 2021. Ambassador (ret) Bisa Williamsco-founded Williams Strategy Advisors, LLC (WSA) with her brother, Paul T. Williams, Jr., in 2016. As managing director, she led WSA’s efforts to identify international and domestic clients seeking problem-solving advisory services. She also began providing pro-bono advisory services to the University of Chicago-affiliated NigerHeritage project to build a state-of-the-art dinosaur museum and cultural resource center in Niger. In 2017, Amb. Williams was contracted as Special Advisor on Mali by The Carter Center and charged with leading The Carter Center’s efforts as Independent Observer of Implementation of the Peace Agreement in Mali. She continues in that capacity to this day. She joined Yale University’s Jackson Institute for Wall Street firmsGlobal Affairs as Senior Fellow and investors seeking accessLecturer in 2020 teaching a graduate course on peacebuilding and continues in that capacity, as well. In addition, in 2021, the U.S. Department of State contracted Amb. Williams to technology investmentsserve as Senior Advisor on Africa for the U.S. Mission to the United Nations. She chairs the Board of Directors of Health & Development International (HDI), a not-for-profit development NGO which works in Africa, and tech-enabled assets,is a Trustee on the Board of World Learning, a not-for-profit NGO focused on education, development, and international exchange. For most of her career, Ambassador Williams was a career member of the Foreign Service of the U.S. Department of State, serving tours in Guinea, Panama, Mauritius, Niger, France, the US Mission to the UN (NY), and Washington, DC, including two years at the National Security Council of The White House. As Acting Deputy Assistant Secretary of State for Western Hemisphere Affairs, she led the U.S. delegation to talks in Havana, Cuba, ending a seven-year hiatus of high level direct discussions. Her accomplishments were recognized in LeoGrande/Kornbluh book “Back Channel to Cuba.” Appointed by President Barack Obama in 2010 as clearly seen byAmbassador to Niger, Ambassador Williams holds the distinction of being the first Department of State officer to be awarded the “Agency Seal Medal” from the Director of the Central Intelligence Agency for exceptional contributions to U.S. national security while serving as Ambassador. Immediately after her tour in Niger, she served as Deputy Assistant Secretary in the Bureau of African Affairs. Ambassador Williams retired from the Foreign Service in 2015, having received numerous Superior and Meritorious Honor Awards from the Department of State. Ambassador Williams has authored or co-authored articles for Foreign Affairs Magazine, Al Jazeera, and Air Mauritius Magazine and appeared on various TV, radio, podcast, and webinar programs. She holds a portfolio that has attracted investorsMaster of Science degree in National Security Strategy from the National War College of the National Defense University in Washington, DC and financiersa Master of Arts degree in Comparative Literature from both camps. Notable portfolio companiesthe University of California, Los Angeles. She received her Bachelor of Arts degree cum laude from Yale University. Ambassador William’s deep political experience on the African continent, and personal investments exemplifying this strategy include Robinhood, AlphaFlow, Inc., Milo Credit, Betterlife-time history of foreign service, philanthropy and Climb, whose equity investors include Sequoia, Kleiner Perkins, Point72 Ventures, Social Capital, and QED Investors, and whom have obtained significant financing from leading institutional investors and investment banks, suchcommitment to social responsibility acted as The Blackstone Group, Inc. (NYSE: BX), The Goldman Sachs Group, Inc. (NYSE: GS) & Jefferies Group LLC (“Jefferies”)testimony to her value to serve as an independent director of AFRAG PubCo.
Osman Ahmed.Mr. Thomas attended New York University.
Our team also includes: David Weisburd, our COO, Head of Origination and director; Oliver Wriedt, our PresidentAhmed is a Managing Director and Head of Capital Markets; and Guhan Kandasamy, our Chief Financial Officer.
Mr. Weisburd is currently a general partner and co-head of venture capitalPrivate Equity at 10X Capital, where he led 10X Capital’s investments in Robinhood, Compass Therapeutics, HeadSpace, UdemyCapital. He has over 12 years of principal investment, advisory, and DraftKings. Prior to 10X Capital, Mr. Weisburd founded, in 2012, and was general partner of venture capital firm GTP, which was acquired by 10X Capital in 2019, whose portfolio companies include 23andMe, Circle, Palantir, Pipefy, Ripple, Tonal, Vicarious and Wish.operating experience. Prior to joining 10X Capital, Mr. WeisburdAhmed was the CEO of Founder SPAC, a partner$321M special purpose acquisition company focused on digital transformation. Founder SPAC successfully completed its merger with Rubicon Technologies (NYSE: RBT) in August 2022. Previously, Mr. Ahmed was an investor at Flight Ventures, whichKCK Group, a private markets investor. He also served as CFO of Beehive Industries, a KCK Group Portfolio company. Mr. Ahmed previously has a prolific track record investing in companies including Carta, Cruise, Discord, Dollar Shave Club, Fastly, Inc.held roles at Volition Capital, Scale Venture Partners, and Stifel Financial (NYSE: FSLY), LinkedIn, PayPal Holdings, Inc. (Nasdaq: PYPL), Rent the Runway, Wealthfront Inc. and many others. Prior toSF). Throughout his venture capital career, Mr. Weisburd was on the founding teams of two venture-backedAhmed has executed leveraged buyout, special situations, and growth equity investments in technology, startups, isocketbusiness services, industrials, and healthcare. Prior closed deals include: Harvest Food Distributors, Sherwood Food Distributors, Hibernia Networks (acquired by Rubicon Project (Nasdaq: RUBI)) and RoomHunt (acquired by RentLingo, Inc.). Mr. Weisburd received a BS in management and entrepreneurship Indiana University — Kelley School of Business in 2008 and an MBA from Dartmouth College — Tuck School of Business in 2012. Mr. Weisburd is currently pursuing a Master’s degree in Psychology from Harvard University.
Mr. Wriedt has over 25 years of experience in corporate credit and capital markets, including as chief executive officer of credit fund manager Vibrant Capital Partners (formerly DFG Investment Advisors)GTT), which currently has $7.3 billion in assets under management (“AUM”)RingCentral (NYSE: RNG), co-chief executive officer of credit fund CIFC, which currently has $30 billion in AUM, and as a partner at Golden Tree Asset Management (from 2004 to 2008)TraceLink, Al Fakher Tobacco, Better.com (NASDAQ: BETR), which currently has $40 billion in AUM. He is also a member of the board of directors of Cadence Group, Inc., a digital securitization startup, and an investor in Milo, a digital banking startup backed by QED Investors, both of which are 10X Capital portfolio companies.
Mr. Kandasamy is currently the chief financial officer of 10X Capital and has over 17 years of financial services, technology, and data science experience at firms including TheNumber, CoreLogic (NYSE: CLGX), Opera Solutions, DBRS Morningstar, SecondMarket (acquired by Nasdaq) and Fannie Mae. He received an MBA in Entrepreneurial Finance from Oxford University in 2010.
Our board of directors will include Christopher Jurasek, Boris Silver, and Woodrow H. Levin, and we expect that Gil Penchina will serve as a board observer. Each of these individuals possesses significant finance, venture
capital, and entrepreneurial experience and business relationship networks that we believe will be beneficial to our efforts to identify and consummate an initial business combination. Two of our board members, Messrs. Jurasek and Levin either have been or continue to be board members of companies that have gone public through SPAC business combinations in transactions in which each resulting public company had over $1.0 billion in enterprise value upon the consummation of such transaction.
Mr. Jurasek has over 25 years of experience leading global software and industrial technology companies, and is an operating executive at Clearlake Capital, LP. From August 2017 to January 2019, Mr. Jurasek was a member of the board of directors of ConvergeOne, which merged with a SPAC, Forum Merger Corporation, in 2018 in a transaction valuing the company at $1.2 billion. Mr. Jurasek currently serves as chief executive officer of EagleView, one of the leading technology providers of aerial imagery. Mr. Jurasek was also president of aviation technology firm JetSmarter (acquired by Vista Global) and chief executive officer of Calero Software from August 2018 to December 2019 and February 2013 to January 2020, respectively.
Boris Silver is a technology entrepreneur and venture capital investor. Mr. Silver is Co-Founder and President of FundersClub Inc. (together with its affiliates and advised funds, “FundersClub”), a Silicon Valley-based online venture capital platform. FundersClub has invested in companies including Instacart, GitLab, Webflow, and others. FundersClub portfolio companies that have been acquired include Screenhero (acquired by Slack prior to direct listing of Slack (NYSE: WORK)), StatusPage (acquired by Atlassian (NASDAQ: TEAM)), and Second Measure (acquired by Bloomberg). Mr. Silver graduated Summa Cum Laude withAhmed holds a Bachelor ofB.S. in Computer Science in Economics from the Wharton School of the University of Pennsylvania,Southern California and is also an alumnusM.B.A. from the University of Y Combinator.
Mr. LevinChicago Booth School of Business. He currently servessits on the board of directors of DraftKings Inc. (Nasdaq: DKNG) which was acquired by a SPAC, Diamond Eagle Acquisition Corp, in a transaction valuingRubicon Technologies (NYSE: RBT) and serves as the company at $3.3 billion. Mr. Levin is also the founder and chief executive officer of Extend, Inc. and was previously the founder and chief executive officer of Estate Assist which was acquired by DocuSign (Nasdaq: DOCU).
Mr. Penchina is an accomplished venture investor, whose portfolio companies include PayPal, LinkedIn, Fastly, Cruise, Rent the Runway, PagerDuty (NYSE: PD), Discord, Dollar Shave Club, Carta and Wealthfront. Mr. Penchina was part of the pre-IPO team at eBay Inc. (Nasdaq: EBAY), where he initially oversaw mergers & acquisitions and then international expansion. Mr. Penchina began his career General Electric Company (NYSE: GE) and Bain & Company.
The past performance of our management team or their respective affiliates, including with respect to each of 10X I and 10X III, is not a guarantee of either: (i) success with respect to any business combination we may consummate; or (ii) that we will be able to identify a suitable candidate for our initial business combination. No member of our management team has had management experience with special purpose acquisition corporations in the past. You should not rely on the historical record of our management team’s or their respective affiliates’ performance as indicative of any future performance.
For more information on the experience and background of our management team, see the section entitled “Management.”
Business Strategy
We will seek to capitalize on the significant relationships of Mr. Thomas and our management team, to identify, evaluate and acquire high growth technology and tech-enabled businesses domestically and abroad in the consumer internet, ecommerce, software, healthcare, transportation / mobility and financial services industries, as well as other industries which are being disrupted by advances in technology and on technology paradigms including AI, automation, data science, ecommerce and SaaS. If we elect to pursue an investment outside of those industries, our management’s expertise related to those industries may not be directly applicable to its evaluation or operation, and the information contained in this prospectus regarding that industry might not be relevant to an understanding of the business that we elect to acquire.
Following the Great Recession of 2008, technology companies have experienced a significant increase in private funding, with venture capital backed startups with venture capital backed startups raising $135.8 billion in 2019 up from $37 billion in 2008, or roughly a 267% increase according to the Pitchbook National Venture Capital Association venture monitor. We believe that venture capitalist Marc Andreessen’s prediction that “software will eat the world” is coming to fruition.
This increase in private funding, however, has not been evenly dispersed, as later stage venture capital firms and growth equity investors have adopted a “winner takes all” view of private markets. This view is evidenced by the concentrated allocation of a significant amount of capital to a relatively small number of companies, with the top 2% of venture and growth equity backed companies in the first two quarters of 2020 receiving 21% of all funding. This effect is even more pronounced in late stage venture rounds, where 2% of late stage venture-backed companies raised over 46.5% of all capital in the first two quarters of 2020, according to data published by the National Venture Capital Association.
We believe that the traditional IPO market is fundamentally underserving the interests of high growth, middle market technology companies. The first day IPO “pops” of Agora Inc. (Nasdaq: API) (153%), Lemonade Inc.
(NYSE: LMND) (139%) and Vroom, Inc. (Nasdaq: VRM) (118%), among others, have supported the notion that despite demonstrable investor demand, the traditional IPO process underprices high growth technology companies. Data compiled by Marker indicates that the average company that went public in 2020 left $110 million on the table. Agora, ZoomInfo Technologies Inc. (Nasdaq: ZI) and Vroom each saw their share prices rise $500 million on the first day, ostensibly leaving much of that appreciation on the table.
These combined private and public market factors have led to a proliferation of private companies who face capital and valuation constraints in the private markets, for whom there may be significant investor demand in the public markets, but who may be deterred from utilizing the traditional IPO channel to access more efficient capital. These companies represent a significant and addressable target market for us. We estimate that there are 2,128 current private venture capital and private equity backed companies who would have a potential post-combination enterprise value of $500 million to $3 billion based on the valuation implied at their last round of funding, representing more than $687 billion in combined enterprise value that may be suitable targets for us, according to data from PitchBook Data as of June 30, 2020.
Our mission is to create a better solution to the conventional IPO for these high growth, disruptive technology and technology-enabled companies, which addresses their needs for capital and liquidity, while overcoming the key points of friction in the traditional IPO path.
Business Combination Criteria
Although we may pursue an acquisition opportunity in any business or industry, we currently intend to focus our efforts on identifying high growth technology and tech-enabled businesses domestically and abroad in the consumer internet, ecommerce, software, healthcare and financial services industries, as well as other industries which are being disrupted by advances in technology and on technology paradigms including AI, automation, data science, ecommerce and SaaS.
Consistent with our business strategy, we have identified the following general criteria and guidelines that we believe are important in evaluating prospective target businesses. We will use these criteria and guidelines in evaluating initial business combination opportunities, but we may decide to enter into our initial business combination with a target business that does not meet these criteria and guidelines.
company’s lead independent director.
Public company-ready: We intend to seek out targets with established governance, financial controls and reporting policies in place, ready to operate in the public markets.
Strong Value Proposition for Public Investors: We intend to focus on companies who have a likelihood of being positively received by public company investors, and who may reasonably be expected to have good access to public capital markets.
Expansion Potential: We intend to seek out companies that possess significant expansion opportunities, which may be facilitated by their status as a public company and access to public capital.
Executive Officers
Differentiated product or service: We intend to seek out companies with competitive advantages that can maintain and grow market share against incumbent as well as emerging competitors.
Experienced management team: We intend to seek out companies with strong, experienced management teams, or provide a platform to assemble an effective management team with a track record of driving growth and profitability.
These criteria are not intended to be exhaustive. Any evaluation relating to the merits of a particular initial business combination may be based, to the extent relevant, on these general guidelines as well as other considerations, factors and criteria that our management team may deem relevant. In the event that we decide to enter into our initial business combination with a target business that does not meet the above criteria and guidelines, we will disclose that the target business does not meet the above criteria in our shareholder communications related to our initial business combination, which, as discussed in this prospectus, would be in the form of proxy materials or tender offer documents, as applicable, that we would file with the SEC. In evaluating a prospective target business, we expect to conduct a due diligence review which may encompass, among other things, meetings with incumbent management and employees, document reviews, interviews of customers and suppliers, inspections of facilities, as well as reviewing financial and other information which will be made available to us.
The time required to select and evaluate a target business and to structure and complete our initial business combination, and the costs associated with this process, are not currently ascertainable with any degree of certainty. Any costs incurred with respect to the identification and evaluation of, and negotiation with, a prospective target business with which our initial business combination is not ultimately completed will result in our incurring losses and will reduce the funds we can use to complete another business combination. The company will not pay any consulting fees to members of our management team, or any of their respective affiliates, for services rendered to or in connection with our initial business combination.
Initial Business Combination
Nasdaq rules require that we must complete one or more business combinations having an aggregate fair market value of at least 80% of the value of the assets held in the trust account (excluding the deferred underwriting commissions and taxes payable on the interest earned on the trust account) at the time of our signing a definitive agreement in connection with our initial business combination. Our board of directors will make the determination as to the fair market value of our initial business combination. If our board of directors is not able to independently determine the fair market value of our initial business combination, we will obtain an opinion from an independent investment banking firm which is a member of FINRA or a valuation or appraisal firm with respect to the satisfaction of such criteria. While we consider it unlikely that our board of directors will not be able to make an independent determination of the fair market value of our initial business combination, it may be unable to do so if it is less familiar or experienced with the business of a particular target or if there is a significant amount of uncertainty as to the value of the target’s assets or prospects. In addition, pursuant to Nasdaq rules, any initial business combination must be approved by a majority of our independent directors.
We anticipate structuring our initial business combination so that the post-transaction company in which our public shareholders own shares will own or acquire 100% of the equity interests or assets of the target business or businesses. We may, however, structure our initial business combination such that the post-transaction company owns or acquires less than 100% of such interests or assets of the target business in order to meet
certain objectives of the target management team or shareholders or for other reasons, but we will only complete such business combination if the post-transaction company owns or acquires 50% or more of the outstanding voting securities of the target or otherwise acquires a controlling interest in the target sufficient for it not to be required to register as an investment company under the Investment Company Act of 1940, as amended, or the Investment Company Act. Even if the post-transaction company owns or acquires 50% or more of the voting securities of the target, our shareholders prior to the business combination may collectively own a minority interest in the post-transaction company, depending on valuations ascribed to the target and us in the business combination transaction. For example, we could pursue a transaction in which we issue a substantial number of new shares in exchange for all of the outstanding capital stock of a target. In this case, we would acquire a 100% controlling interest in the target. However, as a result of the issuance of a substantial number of new shares, our shareholders immediately prior to our initial business combination could own less than a majority of our outstanding shares subsequent to our initial business combination. If less than 100% of the equity interests or assets of a target business or businesses are owned or acquired by the post-transaction company, the portion of such business or businesses that is owned or acquired is what will be taken into account for purposes of the 80% of net assets test described above. If the business combination involves more than one target business, the 80% of net assets test will be based on the aggregate value of all of the target businesses.
We are not presently engaged in, and we will not engage in, any operations for an indefinite period of time following this offering. We intend to effectuate our initial business combination using cash from the proceeds of this offering and the private placement of the private placement units, the proceeds of the sale of our shares in connection with our initial business combination (pursuant to forward purchase agreements or backstop agreements we may enter into following the consummation of this offering or otherwise), shares issued to the owners of the target, debt issued to bank or other lenders or the owners of the target, or a combination of the foregoing. We may seek to complete our initial business combination with a company or business that may be financially unstable or in its early stages of development or growth, which would subject us to the numerous risks inherent in such companies and businesses.
If our initial business combination is paid for using equity or debt securities, or not all of the funds released from the trust account are used for payment of the consideration in connection with our initial business combination or used for redemptions of our Class A ordinary shares, we may apply the balance of the cash released to us from the trust account for general corporate purposes, including for maintenance or expansion of operations of the post-transaction company, the payment of principal or interest due on indebtedness incurred in completing our initial business combination, to fund the purchase of other companies or for working capital.
We have not selected any specific business combination target and we have not, nor has anyone on our behalf, engaged in any substantive discussions, directly or indirectly, with any business combination target with respect to an initial business combination with us. Accordingly, there is no current basis for investors in this offering to evaluate the possible merits or risks of the target business with which we may ultimately complete our initial business combination. Although our management will assess the risks inherent in a particular target business with which we may combine, we cannot assure you that this assessment will result in our identifying all risks that a target business may encounter. Furthermore, some of those risks may be outside of our control, meaning that we can do nothing to control or reduce the chances that those risks will adversely affect a target business.
We may need to obtain additional financing to complete our initial business combination, either because the transaction requires more cash than is available from the proceeds held in our trust account or because we become obligated to redeem a significant number of our public shares upon completion of the business combination, in which case we may issue additional securities or incur debt in connection with such business combination. There are no prohibitions on our ability to issue securities or incur debt in connection with our initial business combination. We are not currently a party to any arrangement or understanding with any third party with respect to raising any additional funds through the sale of securities, the incurrence of debt or otherwise.
Prior to the date of this prospectus, we will file a Registration Statement on Form 8-A with the SEC to voluntarily register our securities under Section 12 of the Securities Exchange Act of 1934, as amended, or the Exchange Act. As a result, we will be subject to the rules and regulations promulgated under the Exchange Act. We have no current intention of filing a Form 15 to suspend our reporting or other obligations under the Exchange Act prior or subsequent to the consummation of our initial business combination.
Sourcing of Potential Initial Business Combination Targets
We believe our management team is well positioned to identify unique opportunities across the private company landscape in the technology sector. Our selection process will leverage our relationships with leading technology company founders, executives of private and public companies, venture capitalists, private equity and growth equity funds.
While we do not presently anticipate engaging the services of professional firms or other individuals that specialize in business acquisitions on any formal basis, we may engage these firms or other individuals in the future, in which event we may pay a finder’s fee, consulting fee or other compensation to be determined in an arm’s length negotiation based on the terms of the transaction. We will engage a finder only to the extent our management determines that the use of a finder may bring opportunities to us that may not otherwise be available to us or if finders approach us on an unsolicited basis with a potential transaction that our management determines is in our best interest to pursue. Payment of a finder’s fee is customarily tied to completion of a transaction, in which case any such fee will be paid out of the funds held in the trust account. In no event, however, will our sponsor or any of our existing officers or directors, or any entity with which they are affiliated, be paid any finder’s fee, consulting fee or other compensation by the company prior to, or for any services they render in order to effectuate, the completion of our initial business combination (regardless of the type of transaction that it is). In addition, commencing on the date of this prospectus, we will pay our sponsor $20,000 per month for office space, secretarial and administrative services provided to members of our management team. Any such payments prior to our initial business combination will be made from funds held outside the trust account. Other than the foregoing, there will be no finder’s fees, reimbursement, consulting fee, monies in respect of any payment of a loan or other compensation paid by us to our sponsor, officers or directors, or any affiliate of our sponsor or officers prior to, or in connection with any services rendered in order to effectuate, the consummation of our initial business combination (regardless of the type of transaction that it is).
We are not prohibited from pursuing an initial business combination with a company that is affiliated with our sponsor, executive officers or directors, or completing the business combination through a joint venture or other form of shared ownership with our sponsor, executive officers or directors. In the event we seek to complete an initial business combination with a target that is affiliated with our sponsor, executive officers or directors, we, or a committee of independent directors, would obtain an opinion from an independent investment banking firm which is a member of FINRA or a valuation or appraisal firm stating that such an initial business combination is fair to our company from a financial point of view.
Members of our management team and our independent directors will directly or indirectly own founder shares and/or private placement units following this offering and, accordingly, may have a conflict of interest in determining whether a particular target business is an appropriate business with which to effectuate our initial business combination. Further, each of our officers and directors may have a conflict of interest with respect to evaluating a particular business combination if the retention or resignation of any such officers and directors was included by a target business as a condition to any agreement with respect to our initial business combination.
Each of our officers and directors presently has, and any of them in the future may have additional, fiduciary or contractual obligations to another entity pursuant to which such officer or director is or will be required to present a business combination opportunity to such entity. Accordingly, if any of our officers or directors becomes aware of a business combination opportunity which is suitable for an entity to which he or she has then current fiduciary or contractual obligations, he or she will honor his or her fiduciary or contractual obligations to
present such business combination opportunity to such other entity, subject to their fiduciary duties under Cayman Islands law. Our amended and restated memorandum and articles of association provide that to the fullest extent permitted by applicable law: (i) no individual serving as a director or an officer shall have any duty, except and to the extent expressly assumed by contract, to refrain from engaging directly or indirectly in the same or similar business activities or lines of business as us, and (ii) we renounce any interest or expectancy in, or in being offered an opportunity to participate in, any potential transaction or matter which may be a corporate opportunity for any director or officer, on the one hand, and us, on the other. We do not believe, however, that the fiduciary duties or contractual obligations of our officers or directors will materially affect our ability to complete our initial business combination.
In addition, our sponsor and our officers and directors may sponsor or form other special purpose acquisition companies similar to ours or may pursue other business or investment ventures during the period in which we are seeking an initial business combination. Any such companies, businesses or investments may present additional conflicts of interest in pursuing an initial business combination. However, we do not believe that any such potential conflicts would materially affect our ability to complete our initial business combination.
Financial Position
With funds available for a business combination initially in the amount of $193,000,000 (assuming no redemptions), after payment of $7,000,000 of deferred underwriting fees (or $221,350,000 (assuming no redemptions) after payment of $8,650,000 of deferred underwriting fees if the underwriters’ over-allotment option is exercised in full), we offer a target business a variety of options such as creating a liquidity event for its owners, providing capital for the potential growth and expansion of its operations or strengthening its balance sheet by reducing its debt ratio. Because we are able to complete our initial business combination using our cash, debt or equity securities, or a combination of the foregoing, we have the flexibility to use the most efficient combination that will allow us to tailor the consideration to be paid to the target business to fit its needs and desires. However, we have not taken any steps to secure third party financing and there can be no assurance it will be available to us.
Lack of Business Diversification
For an indefinite period of time after the completion of our initial business combination, the prospects for our success may depend entirely on the future performance of a single business. Unlike other entities that have the resources to complete business combinations with multiple entities in one or several industries, it is probable that we will not have the resources to diversify our operations and mitigate the risks of being in a single line of business. By completing our initial business combination with only a single entity, our lack of diversification may:
subject us to negative economic, competitive and regulatory developments, any or all of which may have a substantial adverse impact on the particular industry in which we operate after our initial business combination, and
cause us to depend on the marketing and sale of a single product or limited number of products or services.
Limited Ability to Evaluate the Target’s Management Team
Although we intend to closely scrutinize the management of a prospective target business when evaluating the desirability of effecting our initial business combination with that business, our assessment of the target business’s management may not prove to be correct. In addition, the future management may not have the necessary skills, qualifications or abilities to manage a public company. Furthermore, the future role of members of our management team, if any, in the target business cannot presently be stated with any certainty. The determination as to whether any of the members of our management team will remain with the combined
company will be made at the time of our initial business combination. While it is possible that one or more of our directors will remain associated in some capacity with us following our initial business combination, it is unlikely that any of them will devote their full efforts to our affairs subsequent to our initial business combination. Moreover, we cannot assure you that members of our management team will have significant experience or knowledge relating to the operations of the particular target business.
We cannot assure you that any of our key personnel will remain in senior management or advisory positions with the combined company. The determination as to whether any of our key personnel will remain with the combined company will be made at the time of our initial business combination.
Following a business combination, we may seek to recruit additional managers to supplement the incumbent management of the target business. We cannot assure you that we will have the ability to recruit additional managers, or that additional managers will have the requisite skills, knowledge or experience necessary to enhance the incumbent management.
Shareholders May Not Have the Ability to Approve Our Initial Business Combination
We may conduct redemptions without a shareholder vote pursuant to the tender offer rules of the SEC subject to the provisions of our amended and restated memorandum and articles of association. However, we will seek shareholder approval if it is required by law or applicable stock exchange rule, or we may decide to seek shareholder approval for business or other legal reasons.
Under Nasdaq’s listing rules, shareholder approval would be required for our initial business combination if, for example:
We issue ordinary shares that will be equal to or in excess of 20% of the number of our ordinary shares then outstanding (other than in a public offering);
Any of our directors, officers or substantial shareholders (as defined by Nasdaq rules) has a 5% or greater interest earned on the trust account (or such persons collectively have a 10% or greater interest), directly or indirectly, in the target business or assets to be acquired or otherwise and the present or potential issuance of ordinary shares could result in an increase in outstanding ordinary shares or voting power of 5% or more; or
The issuance or potential issuance of ordinary shares will result in our undergoing a change of control.
Permitted Purchases of Our Securities
If we seek shareholder approval of our initial business combination and we do not conduct redemptions in connection with our initial business combination pursuant to the tender offer rules, our sponsor, initial shareholders, directors, executive officers, advisors or their affiliates may purchase shares or public warrants in privately negotiated transactions or in the open market either prior to or following the completion of our initial business combination. There is no limit on the number of shares our initial shareholders, directors, officers, advisors or their affiliates may purchase in such transactions, subject to compliance with applicable law and Nasdaq rules. However, they have no current commitments, plans or intentions to engage in such transactions and have not formulated any terms or conditions for any such transactions. None of the funds in the trust account will be used to purchase shares or public warrants in such transactions. If they engage in such transactions, they will be restricted from making any such purchases when they are in possession of any material non-public information not disclosed to the seller or if such purchases are prohibited by Regulation M under the Exchange Act.
In the event that our sponsor, initial shareholders, directors, officers, advisors or their affiliates purchase shares in privately negotiated transactions from public shareholders who have already elected to exercise their redemption
rights, such selling shareholders would be required to revoke their prior elections to redeem their shares. We do not currently anticipate that such purchases, if any, would constitute a tender offer subject to the tender offer rules under the Exchange Act or a going-private transaction subject to the going-private rules under the Exchange Act; however, if the purchasers determine at the time of any such purchases that the purchases are subject to such rules, the purchasers will comply with such rules.
The purpose of any such purchases of shares could be to (i) vote such shares in favor of the business combination and thereby increase the likelihood of obtaining shareholder approval of the business combination or (ii) to satisfy a closing condition in an agreement with a target that requires us to have a minimum net worth or a certain amount of cash at the closing of our initial business combination, where it appears that such requirement would otherwise not be met. The purpose of any such purchases of public warrants could be to reduce the number of public warrants outstanding or to vote such warrants on any matters submitted to the warrantholders for approval in connection with our initial business combination. Any such purchases of our securities may result in the completion of our initial business combination that may not otherwise have been possible.
In addition, if such purchases are made, the public “float” of our Class A ordinary shares or public warrants may be reduced and the number of beneficial holders of our securities may be reduced, which may make it difficult to maintain or obtain the quotation, listing or trading of our securities on a national securities exchange.
Our sponsor, initial shareholders, officers, directors and/or their affiliates anticipate that they may identify the shareholders with whom our initial shareholders, officers, directors or their affiliates may pursue privately negotiated purchases by either the shareholders contacting us directly or by our receipt of redemption requests submitted by shareholders (in the case of Class A ordinary shares) following our mailing of proxy materials in connection with our initial business combination. To the extent that our sponsor, officers, directors, advisors or their affiliates enter into a private purchase, they would identify and contact only potential selling shareholders who have expressed their election to redeem their shares for a pro rata share of the trust account or vote against our initial business combination, whether or not such shareholder has already submitted a proxy with respect to our initial business combination but only if such shares have not already been voted at the shareholder meeting related to our initial business combination. Our sponsor, executive officers, directors, advisors or any of their affiliates will select which shareholders to purchase shares from based on a negotiated price and number of shares and any other factors that they may deem relevant, and will only purchase shares if such purchases comply with Regulation M under the Exchange Act and the other federal securities laws. Our sponsor, officers, directors and/or their affiliates will be restricted from making purchases of shares if the purchases would violate Section 9(a)(2) or Rule 10b-5 of the Exchange Act. We expect any such purchases will be reported pursuant to Section 13 and Section 16 of the Exchange Act to the extent such purchases are subject to such reporting requirements.
Redemption Rights for Public Shareholders upon Completion of Our Initial Business Combination
We will provide our public shareholders with the opportunity to redeem all or a portion of their Class A ordinary shares upon the completion of our initial business combination at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the trust account calculated as of two business days prior to the consummation of the initial business combination, including interest earned on the funds held in the trust account (which interest shall be net of taxes payable), divided by the number of then outstanding public shares, subject to the limitations and on the conditions described herein. The amount in the trust account is initially anticipated to be $10.00 per public share. The per share amount we will distribute to investors who properly redeem their shares will not be reduced by the deferred underwriting commissions we will pay to the underwriters. Our initial shareholders, sponsor, officers and directors have entered into a letter agreement with us, pursuant to which they have agreed to waive their redemption rights with respect to any founder shares and public shares they may hold in connection with the completion of our initial business combination. The anchor investors will not be entitled to redemption rights with respect to any founder shares held by them in connection with the completion of our business combination.
Limitations on Redemptions
Our amended and restated memorandum and articles of association will provide that in no event will we redeem our public shares in an amount that would cause our net tangible assets to be less than $5,000,001. In addition, our proposed initial business combination may impose a minimum cash requirement for: (i) cash consideration to be paid to the target or its owners, (ii) cash for working capital or other general corporate purposes or (iii) the retention of cash to satisfy other conditions. In the event the aggregate cash consideration we would be required to pay for all Class A ordinary shares that are validly submitted for redemption plus any amount required to satisfy cash conditions pursuant to the terms of the proposed initial business combination exceed the aggregate amount of cash available to us, we will not complete the initial business combination or redeem any shares in connection with such initial business combination, and all Class A ordinary shares submitted for redemption will be returned to the holders thereof. We may, however, raise funds through the issuance of equity-linked securities or through loans, advances or other indebtedness in connection with our initial business combination, including pursuant to forward purchase agreements or backstop arrangements we may enter into following consummation of this offering, in order to, among other reasons, satisfy such net tangible assets or minimum cash requirements.
Manner of Conducting Redemptions
We will provide our public shareholders with the opportunity to redeem all or a portion of their public shares upon the completion of our initial business combination either (i) in connection with a shareholder meeting called to approve the initial business combination or (ii) without a shareholder vote by means of a tender offer. The decision as to whether we will seek shareholder approval of a proposed initial business combination or conduct a tender offer will be made by us, solely in our discretion, and will be based on a variety of factors such as the timing of the transaction and whether the terms of the transaction would require us to seek shareholder approval under applicable law or stock exchange listing requirements. Asset acquisitions and stock purchases would not typically require shareholder approval while direct mergers with our company where we do not survive and any transactions where we issue more than 20% of our outstanding ordinary shares or seek to amend our amended and restated memorandum and articles of association would require shareholder approval. So long as we obtain and maintain a listing for our securities on Nasdaq, we will be required to comply with Nasdaq’s shareholder approval rules.
The requirement that we provide our public shareholders with the opportunity to redeem their public shares by one of the two methods listed above will be contained in provisions of our amended and restated memorandum and articles of association and will apply whether or not we maintain our registration under the Exchange Act or our listing on Nasdaq. Such provisions may be amended if approved by holders of 65% of our ordinary shares entitled to vote thereon.
If we provide our public shareholders with the opportunity to redeem their public shares in connection with a shareholder meeting, we will:
conduct the redemptions in conjunction with a proxy solicitation pursuant to Regulation 14A of the Exchange Act, which regulates the solicitation of proxies, and not pursuant to the tender offer rules, and
file proxy materials with the SEC.
If we seek shareholder approval, we will complete our initial business combination only if we receive the approval of an ordinary resolution under Cayman Islands law, which requires the affirmative vote of a majority of the shareholders who attend and vote at a general meeting of the company.. In accordance with our amended and restated memorandum and articles of association, a quorum for such meeting will consist of the holders present in person or by proxy of ordinary shares of the Company representing at least one-third of the voting power of all outstanding ordinary shares of the Company entitled to vote at such meeting. Our initial shareholders will count towards this quorum and, pursuant to the letter agreement, our sponsor, officers and
directors have agreed to vote any founder shares they hold and any public shares purchased during or after this offering (including in open market and privately-negotiated transactions), and the anchor investors have agreed to vote any founder shares held by them, in favor of our initial business combination. For purposes of seeking approval of an ordinary resolution, non-votes will have no effect on the approval of our initial business combination once a quorum is obtained. As a result, in addition to our initial shareholders’ founder shares and private placement shares, we would need only 6,539,168, or 32.7% of the 20,000,000 public shares sold in this offering to be voted in favor of an initial business combination in order to have our initial business combination approved (assuming all outstanding shares are voted and the over-allotment option is not exercised). Assuming that only one-third of our issued and outstanding ordinary shares, representing a quorum under our amended and restated memorandum and articles of association, are voted, we will not need any public shares in addition to our founder shares to be voted in favor of an initial business combination in order to have an initial business combination approved. In the event that the anchor investors purchase all of the units that they have expressed an interest in purchasing in this offering, hold all such units until prior to consummation of our initial business combination and vote their public shares in favor of our initial business combination, in addition to the founder shares, no affirmative votes from other public shareholders would be required to approve our initial business combination. The anchor investors are not required to vote any of their public shares in favor of our initial business combination or for or against any other matter presented for a shareholder vote. These quorum and voting thresholds, and the voting agreements of our initial shareholders and the anchor investors, may make it more likely that we will consummate our initial business combination. Each public shareholder may elect to redeem its public shares irrespective of whether they vote for or against the proposed transaction or whether they were a shareholder on the record date for the shareholder meeting held to approve the proposed transaction. The anchor investors will not be entitled to redemption rights with respect to any founder shares held by them in connection with the completion of a business combination.
If a shareholder vote is not required and we do not decide to hold a shareholder vote for business or other legal reasons, we will:
conduct the redemptions pursuant to Rule 13e-4 and Regulation 14E of the Exchange Act, which regulate issuer tender offers, and
file tender offer documents with the SEC prior to completing our initial business combination, which contain substantially the same financial and other information about the initial business combination and the redemption rights as is required under Regulation 14A of the Exchange Act, which regulates the solicitation of proxies.
In the event we conduct redemptions pursuant to the tender offer rules, our offer to redeem will remain open for at least 20 business days, in accordance with Rule 14e-1(a) under the Exchange Act, and we will not be permitted to complete our initial business combination until the expiration of the tender offer period. In addition, the tender offer will be conditioned on public shareholders not tendering more than a specified number of public shares, which number will be based on the requirement that we may not redeem public shares in an amount that would cause our net tangible assets to be less than $5,000,001. If public shareholders tender more shares than we have offered to purchase, we will withdraw the tender offer and not complete the initial business combination.
Upon the public announcement of our initial business combination, if we elect to conduct redemptions pursuant to the tender offer rules, we or our sponsor will terminate any plan established in accordance with Rule 10b5-1 to purchase our Class A ordinary shares in the open market, in order to comply with Rule 14e-5 under the Exchange Act.
We intend to require our public shareholders seeking to exercise their redemption rights, whether they are record holders or hold their shares in “street name,” to, at the holder’s option, either deliver their stock certificates to our transfer agent or deliver their shares to our transfer agent electronically using The Depository Trust Company’s DWAC (Deposit/Withdrawal At Custodian) system, prior to the date set forth in the proxy materials or tender offer documents, as applicable. In the case of proxy materials, this date may be up to two business days prior to
the vote on the proposal to approve the initial business combination. In addition, if we conduct redemptions in connection with a shareholder vote, we intend to require a public shareholder seeking redemption of its public shares to also submit a written request for redemption to our transfer agent two business days prior to the vote in which the name of the beneficial owner of such shares is included. The proxy materials or tender offer documents, as applicable, that we will furnish to holders of our public shares in connection with our initial business combination will indicate whether we are requiring public shareholders to satisfy such delivery requirements. We believe that this will allow our transfer agent to efficiently process any redemptions without the need for further communication or action from the redeeming public shareholders, which could delay redemptions and result in additional administrative cost. If the proposed initial business combination is not approved and we continue to search for a target company, we will promptly return any certificates or shares delivered by public shareholders who elected to redeem their shares.
Our amended and restated memorandum and articles of association will provide that in no event will we redeem our public shares in an amount that would cause our net tangible assets to be less than $5,000,001. In addition, our proposed initial business combination may impose a minimum cash requirement for: (i) cash consideration to be paid to the target or its owners, (ii) cash for working capital or other general corporate purposes or (iii) the retention of cash to satisfy other conditions. In the event the aggregate cash consideration we would be required to pay for all Class A ordinary shares that are validly submitted for redemption plus any amount required to satisfy cash conditions pursuant to the terms of the proposed initial business combination exceed the aggregate amount of cash available to us, we will not complete the initial business combination or redeem any shares in connection with such initial business combination, and all Class A ordinary shares submitted for redemption will be returned to the holders thereof. We may, however, raise funds through the issuance of equity-linked securities or through loans, advances or other indebtedness in connection with our initial business combination, including pursuant to forward purchase agreements or backstop arrangements we may enter into following consummation of this offering, in order to, among other reasons, satisfy such net tangible assets or minimum cash requirements.
Limitation on Redemption Upon Completion of Our Initial Business Combination If We Seek Shareholder Approval
If we seek shareholder approval of our initial business combination and we do not conduct redemptions in connection with our initial business combination pursuant to the tender offer rules, our amended and restated memorandum and articles of association provide that a public shareholder, together with any affiliate of such shareholder or any other person with whom such shareholder is acting in concert or as a “group” (as defined under Section 13 of the Exchange Act), will be restricted from seeking redemption rights with respect to Excess Shares, without our prior consent. We believe this restriction will discourage shareholders from accumulating large blocks of shares, and subsequent attempts by such holders to use their ability to exercise their redemption rights against a proposed business combination as a means to force us or our management to purchase their shares at a significant premium to the then-current market price or on other undesirable terms. Absent this provision, a public shareholder holding more than an aggregate of 15% of the shares sold in this offering could threaten to exercise its redemption rights if such holder’s shares are not purchased by us, our sponsor or our management at a premium to the then-current market price or on other undesirable terms. By limiting our shareholders’ ability to redeem no more than 15% of the shares sold in this offering without our prior consent, we believe we will limit the ability of a small group of shareholders to unreasonably attempt to block our ability to complete our initial business combination, particularly in connection with a business combination with a target that requires as a closing condition that we have a minimum net worth or a certain amount of cash.
However, we would not be restricting our shareholders’ ability to vote all of their shares (including Excess Shares) for or against our initial business combination.
Delivering Stock Certificates in Connection with the Exercise of Redemption Rights
As described above, we intend to require our public shareholders seeking to exercise their redemption rights, whether they are record holders or hold their shares in “street name,” to, at the holder’s option, either deliver
their stock certificates to our transfer agent or deliver their shares to our transfer agent electronically using The Depository Trust Company’s DWAC (Deposit/Withdrawal At Custodian) system, prior to the date set forth in the proxy materials or tender offer documents, as applicable. In the case of proxy materials, this date may be up to two business days prior to the vote on the proposal to approve the initial business combination. In addition, if we conduct redemptions in connection with a shareholder vote, we intend to require a public shareholder seeking redemption of its public shares to also submit a written request for redemption to our transfer agent two business days prior to the vote in which the name of the beneficial owner of such shares is included. The proxy materials or tender offer documents, as applicable, that we will furnish to holders of our public shares in connection with our initial business combination will indicate whether we are requiring public shareholders to satisfy such delivery requirements. Accordingly, a public shareholder would have up to two business days prior to the vote on the initial business combination if we distribute proxy materials, or from the time we send out our tender offer materials until the close of the tender offer period, as applicable, to submit or tender its shares if it wishes to seek to exercise its redemption rights. In the event that a shareholder fails to comply with these or any other procedures disclosed in the proxy or tender offer materials, as applicable, its shares may not be redeemed. Given the relatively short exercise period, it is advisable for shareholders to use electronic delivery of their public shares.
There is a nominal cost associated with the above-referenced process and the act of certificating the shares or delivering them through the DWAC system. The transfer agent will typically charge the broker submitting or tendering shares a fee of approximately $80.00 and it would be up to the broker whether or not to pass this cost on to the redeeming holder. However, this fee would be incurred regardless of whether or not we require holders seeking to exercise redemption rights to submit or tender their shares. The need to deliver shares is a requirement of exercising redemption rights regardless of the timing of when such delivery must be effectuated.
Any request to redeem such shares, once made, may be withdrawn at any time up to the date set forth in the proxy materials or tender offer documents, as applicable. Furthermore, if a holder of a public share delivered its certificate in connection with an election of redemption rights and subsequently decides prior to the applicable date not to elect to exercise such rights, such holder may simply request that the transfer agent return the certificate (physically or electronically). It is anticipated that the funds to be distributed to holders of our public shares electing to redeem their shares will be distributed promptly after the completion of our initial business combination.
If our initial business combination is not approved or completed for any reason, then our public shareholders who elected to exercise their redemption rights would not be entitled to redeem their shares for the applicable pro rata share of the trust account. In such case, we will promptly return any certificates delivered by public holders who elected to redeem their shares.
If our initial proposed initial business combination is not completed, we may continue to try to complete an initial business combination with a different target until 15 months from the closing of this offering.
Redemption of Public Shares and Liquidation if No Initial Business Combination
Our amended and restated memorandum and articles of association provide that we will have only 15 months from the closing of this offering to complete our initial business combination. If we are unable to complete our initial business combination within such 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 (which interest shall be net of taxes payable and up to $100,000 of interest to pay dissolution expenses), divided by the number of then outstanding public shares, which redemption will completely extinguish public shareholders’ rights as shareholders (including the right to receive further liquidating distributions, if any), and (iii) as promptly as reasonably possible following such redemption, subject to the approval of our remaining shareholders and our board of
directors, liquidate and dissolve, subject in each case to our obligations under Cayman Islands law to provide for claims of creditors and in all cases subject to the other requirements of applicable law. There will be no redemption rights or liquidating distributions with respect to our warrants, which will expire worthless if we fail to complete our initial business combination within the allotted time period.
Our initial shareholders, sponsor, officers and directors have entered into a letter agreement with us, and the anchor investors have entered into an agreement with us, pursuant to which they have waived their rights to liquidating distributions from the trust account with respect to any founder shares they hold if we fail to complete our initial business combination within 15 months from the closing of this offering or any extended period of time that we may have to consummate an initial business combination as a result of an amendment to our amended and restated memorandum and articles of association. However, if our initial shareholders, sponsor, our management team or the anchor investors acquire public shares in or after this offering, they will be entitled to liquidating distributions from the trust account with respect to such public shares if we fail to complete our initial business combination within the allotted 24-month time period.
Our initial shareholders, sponsor, officers and directors have agreed, pursuant to a letter agreement with us, that they will not propose any amendment to our amended and restated memorandum and articles of association to modify the substance or timing of our obligation to redeem 100% of our public shares if we do not complete our initial business combination within 15 months from the closing of this offering or with respect to any other material provisions relating to shareholders’ rights or pre-initial business combination activity, unless we provide our public shareholders with the opportunity to redeem their public shares upon approval of any such amendment 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 (which interest shall be net of taxes payable), divided by the number of then outstanding public shares. However, we may not redeem our public shares in an amount that would cause our net tangible assets to be less than $5,000,001. If this optional redemption right is exercised with respect to an excessive number of public shares such that we cannot satisfy the net tangible asset requirement, we would not proceed with the amendment or the related redemption of our public shares at such time.
We expect that all costs and expenses associated with implementing our plan of dissolution, as well as payments to any creditors, will be funded from amounts remaining out of the approximately $1,200,000 of proceeds held outside the trust account, although we cannot assure you that there will be sufficient funds for such purpose. However, if those funds are not sufficient to cover the costs and expenses associated with implementing our plan of dissolution, to the extent that there is any interest accrued in the trust account not required to pay taxes, we may request the trustee to release to us an additional amount of up to $100,000 of such accrued interest to pay those costs and expenses.
If we were to expend all of the net proceeds of this offering and the sale of the private placement units, other than the proceeds deposited in the trust account, and without taking into account interest, if any, earned on the trust account and any tax payments or expenses for the dissolution of the trust, the per-share redemption amount received by shareholders upon our dissolution would be approximately $10.00. The proceeds deposited in the trust account could, however, become subject to the claims of our creditors which would have higher priority than the claims of our public shareholders. We cannot assure you that the actual per-share redemption amount received by shareholders will not be substantially less than $10.00. While we intend to pay such amounts, if any, we cannot assure you that we will have funds sufficient to pay or provide for all creditors’ claims.
Although we will seek to have all vendors, service providers (other than our independent registered public accounting firm), prospective target businesses and other entities with which we do business execute agreements with us waiving any right, title, interest or claim of any kind in or to any monies held in the trust account for the benefit of our public shareholders, there is no guarantee that they will execute such agreements or even if they execute such agreements that they would be prevented from bringing claims against the trust account including but not limited to fraudulent inducement, breach of fiduciary responsibility or other similar claims, as well as claims challenging the enforceability of the waiver, in each case in order to gain an advantage with respect to a
claim against our assets, including the funds held in the trust account. If any third party refuses to execute an agreement waiving such claims to the monies held in the trust account, our management will consider whether competitive alternatives are reasonably available to us and will only enter into an agreement with such third party if management believes that such third party’s engagement would be in the best interests of the company under the circumstances. Examples of possible instances where we may engage a third party that refuses to execute a waiver include the engagement of a third party consultant whose particular expertise or skills are believed by management to be significantly superior to those of other consultants that would agree to execute a waiver or in cases where management is unable to find a service provider willing to execute a waiver. The underwriters of this offering and our independent registered public accounting firm will not execute agreements with us waiving such claims to the monies held in the trust account. In addition, there is no guarantee that such entities will agree to waive any claims they may have in the future as a result of, or arising out of, any negotiations, contracts or agreements with us and will not seek recourse against the trust account for any reason. In order to protect the amounts held in the trust account, our sponsor has agreed that it will be liable to us if and to the extent any claims by a third party for services rendered or products sold to us, or a prospective target business with which we have entered into a written letter of intent, confidentiality or other similar agreement or business combination agreement, reduce the amount of funds in the trust account to below the lesser of (i) $10.00 per public share and (ii) the actual amount per public share held in the trust account as of the date of the liquidation of the trust account, if less than $10.00 per public share due to reductions in the value of the trust assets, less taxes payable, provided that such liability will not apply to any claims by a third party or prospective target business who executed a waiver of any and all rights to the monies held in the trust account (whether or not such waiver is enforceable) nor will it apply to any claims under our indemnity of the underwriters of this offering against certain liabilities, including liabilities under the Securities Act. However, we have not asked our sponsor to reserve for such indemnification obligations, nor have we independently verified whether our sponsor has sufficient funds to satisfy its indemnity obligations and we believe that our sponsor’s only assets are securities of our company. Therefore, we cannot assure you that our sponsor would be able to satisfy those obligations. As a result, if any such claims were successfully made against the trust account, the funds available for our initial business combination and redemptions could be reduced to less than $10.00 per public share. In such event, we may not be able to complete our initial business combination, and you would receive such lesser amount per share in connection with any redemption of your public shares. None of our officers or directors will indemnify us for claims by third parties including, without limitation, claims by vendors and prospective target businesses.
In the event that the proceeds in the trust account are reduced below the lesser of (i) $10.00 per public share and (ii) the actual amount per public share held in the trust account as of the date of the liquidation of the trust account if less than $10.00 per share due to reductions in the value of the trust assets, in each case less taxes payable, and our sponsor asserts that it is unable to satisfy its indemnification obligations or that it has no indemnification obligations related to a particular claim, our independent directors would determine whether to take legal action against our sponsor to enforce its indemnification obligations. While we currently expect that our independent directors would take legal action on our behalf against our sponsor to enforce its indemnification obligations to us, it is possible that our independent directors in exercising their business judgment may choose not to do so in any particular instance. Accordingly, we cannot assure you that due to claims of creditors the actual value of the per-share redemption price will not be less than $10.00 per share.
We will seek to reduce the possibility that our sponsor will have to indemnify the trust account due to claims of creditors by endeavoring to have all vendors, service providers, prospective target businesses or other entities with which we do business execute agreements with us waiving any right, title, interest or claim of any kind in or to monies held in the trust account. Our sponsor will also not be liable as to any claims under our indemnity of the underwriters of this offering against certain liabilities, including liabilities under the Securities Act. We will have access to up to approximately $1,200,000 from the proceeds of this offering with which to pay any such potential claims (including costs and expenses incurred in connection with our liquidation, currently estimated to be no more than approximately $100,000). In the event that we liquidate and it is subsequently determined that the reserve for claims and liabilities is insufficient, shareholders who received funds from our trust account could be liable for claims made by creditors. In the event that our offering expenses exceed our estimate of $1,350,000,
we may fund such excess with funds from the funds not to be held in the trust account. In such case, the amount of funds we intend to be held outside the trust account would decrease by a corresponding amount. Conversely, in the event that the offering expenses are less than our estimate of $1,350,000, the amount of funds we intend to be held outside the trust account would increase by a corresponding amount.
If we file a bankruptcy petition or an involuntary bankruptcy petition is filed against us that is not dismissed, the proceeds held in the trust account could be subject to applicable bankruptcy law, and may be included in our bankruptcy estate and subject to the claims of third parties with priority over the claims of our shareholders. To the extent any bankruptcy claims deplete the trust account, we cannot assure you we will be able to return $10.00 per share to our public shareholders. Additionally, if we file a bankruptcy petition or an involuntary bankruptcy petition is filed against us that is not dismissed, any distributions received by shareholders could be viewed under applicable debtor/creditor and/or bankruptcy laws as either a “preferential transfer” or a “fraudulent conveyance.” As a result, a bankruptcy court could seek to recover some or all amounts received by our shareholders. Furthermore, our board of directors may be viewed as having breached its fiduciary duty to our creditors and/or may have acted in bad faith, and thereby exposing itself and our company to claims of punitive damages, by paying public shareholders from the trust account prior to addressing the claims of creditors. We cannot assure you that claims will not be brought against us for these reasons.
Our public shareholders will be entitled to receive funds from the trust account only (i) in the event of the redemption of our public shares if we do not complete our initial business combination within 15 months from the closing of this offering, (ii) in connection with a shareholder vote to amend our amended and restated memorandum and articles of association to modify the substance or timing of our obligation to redeem 100% of our public shares if we do not complete our initial business combination within 15 months from the closing of this offering or with respect to any other provisions relating to shareholders’ rights or pre-initial business combination activity or (iii) if they redeem their respective shares for cash upon the completion of our initial business combination. In no other circumstances will a shareholder have any right or interest of any kind to or in the trust account. In the event we seek shareholder approval in connection with our initial business combination, a shareholder’s voting in connection with the business combination alone will not result in a shareholder’s redeeming its shares to us for an applicable pro rata share of the trust account. Such shareholder must have also exercised its redemption rights described above. These provisions of our amended and restated memorandum and articles of association, like all provisions of our amended and restated memorandum and articles of association, may be amended with a shareholder vote.
Comparison of Redemption or Purchase Prices in Connection with Our Initial Business Combination and if We Fail to Complete Our Initial Business Combination.
The following table compares the redemptions and other permitted purchases of public shares that may take place in connection with the completion of our initial business combination and if we are unable to complete our initial business combination within 15 months from the closing of this offering.
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Comparison of This Offering to Those of Blank Check Companies Subject to Rule 419
The following table compares the terms of this offering to the terms of an offering by a blank check company subject to the provisions of Rule 419. This comparison assumes that the gross proceeds, underwriting commissions and underwriting expenses of our offering would be identical to those of an offering undertaken by a company subject to Rule 419, and that the underwriters will not exercise their over-allotment option. None of the provisions of Rule 419 apply to our offering.
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Competition
In identifying, evaluating and selecting a target business for our initial business combination, we may encounter competition from other entities having a business objective similar to ours, including other special purpose acquisition companies, private equity groups and leveraged buyout funds, public companies and operating businesses seeking strategic acquisitions. Many of these entities are well established and have extensive experience identifying and effecting business combinations directly or through affiliates. Moreover, many of these competitors possess greater financial, technical, human and other resources than us. Our ability to acquire larger target businesses will be limited by our available financial resources. This inherent limitation gives others an advantage in pursuing the acquisition of a target business. Furthermore, our obligation to pay cash in connection with our public shareholders who exercise their redemption rights may reduce the resources available to us for our initial business combination and our outstanding warrants, and the future dilution they potentially represent, may not be viewed favorably by certain target businesses. Either of these factors may place us at a competitive disadvantage in successfully negotiating an initial business combination.
Facilities
We currently utilize office space at 1 World Trade Center, 85th Floor, New York, New York 10007 from our sponsor and the members of our management team. We consider our current office space adequate for our current operations.
Employees
We currently have four executive officers: Hans Thomas, David Weisburd, Guhan Kandasamy and Oliver Wriedt. These individuals are not obligated to devote any specific number of hours to our matters but they intend to devote as much of their time as they deem necessary to our affairs until we have completed our initial business combination. The amount of time they will devote in any time period will vary based on whether a target business has been selected for our initial business combination and the stage of the business combination process we are in. We do not intend to have any full time employees prior to the completion of our initial business combination.
Periodic Reporting and Financial Information
We will register our units, Class A ordinary shares and warrants under the Exchange Act and have reporting obligations, including the requirement that we file annual, quarterly and current reports with the SEC. In accordance with the requirements of the Exchange Act, our annual reports will contain financial statements audited and reported on by our independent registered public accountants.
We will provide shareholders with audited financial statements of the prospective target business as part of the proxy solicitation materials or tender offer documents sent to shareholders to assist them in assessing the target business. In all likelihood, these financial statements will need to be prepared in accordance with, or reconciled to, GAAP, or IFRS, depending on the circumstances, and the historical financial statements may be required to be audited in accordance with the standards of the PCAOB. These financial statement requirements may limit the pool of potential target businesses we may conduct an initial business combination with because some targets may be unable to provide such statements in time for us to disclose such statements in accordance with federal proxy rules and complete our initial business combination within the prescribed time frame. We cannot assure you that any particular target business identified by us as a potential business combination candidate will have financial statements prepared in accordance with the requirements outlined above, or that the potential target business will be able to prepare its financial statements in accordance with the requirements outlined above. To the extent that these requirements cannot be met, we may not be able to acquire the proposed target business. While this may limit the pool of potential business combination candidates, we do not believe that this limitation will be material.
We will be required to evaluate our internal control procedures for the fiscal year ending December 31, 2022 as required by the Sarbanes-Oxley Act. Only in the event we are deemed to be a large accelerated filer or an accelerated filer, and no longer qualify as an emerging growth company, will we be required to have our internal control procedures audited. A target business may not be in compliance with the provisions of the Sarbanes-Oxley Act regarding adequacy of their internal controls. The development of the internal controls of any such entity to achieve compliance with the Sarbanes-Oxley Act may increase the time and costs necessary to complete any such business combination.
Prior to the date of this prospectus, we will file a Registration Statement on Form 8-A with the SEC to voluntarily register our securities under Section 12 of the Exchange Act. As a result, we will be subject to the rules and regulations promulgated under the Exchange Act. We have no current intention of filing a Form 15 to suspend our reporting or other obligations under the Exchange Act prior or subsequent to the consummation of our initial business combination.
We are a Cayman Islands exempted company. Exempted companies are Cayman Islands companies conducting business mainly outside the Cayman Islands and, as such, are exempted
from complying with certain provisions of the Companies Act. As an exempted company, we have applied for and received a tax exemption undertaking from the Cayman Islands government that, in accordance with Section 6 of the Tax Concessions Act (As Revised) of the Cayman Islands, for a period of 20 years from the date
of the undertaking, no law which is enacted in the Cayman Islands imposing any tax to be levied on profits, income, gains or appreciations will apply to us or our operations and, in addition, that no tax to be levied on profits, income, gains or appreciations or which is in the nature of estate duty or inheritance tax will be payable (i) on or in respect of our shares, debentures or other obligations or (ii) by way of the withholding in whole or in part of a payment of dividend or other distribution of income or capital by us to our shareholders or a payment of principal or interest or other sums due under a debenture or other obligation of us.
We are an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the JOBS Act. As such, we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. If some investors find our securities less attractive as a result, there may be a less active trading market for our securities and the prices of our securities may be more volatile.
In addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We intend to take advantage of the benefits of this extended transition period.
We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of this offering, (b) in which we have total annual gross revenue of at least $1.07 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our Class A ordinary shares that are held by non-affiliates exceeds $700 million as of the prior June 30th, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.
Legal Proceedings
There is no material litigation, arbitration or governmental proceeding currently pending against us or any members of our management team in their capacity as such.
Officers, Directors and Director Nominees
Our officers, directors and director nominees are as follows:
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Hans Thomas, 43, has served as ourAlan Kessler, Chief Executive Officer since February 2021. Mr. Thomas founded 10X Capital in January 2004, and since its founding, he has served as chief executive officerOfficer. Please see “Board of 10X Capital. Since July 2019, he has served chairman of 10X Capital subsidiary Growth Technology Partners. As an entrepreneur, Mr. Thomas was on the founding teams of venture-backed FinTech startup InternetCash (1999), online mortgage firm RefinanceOne (2004) and data science firm TheNumber (2015). Mr. Thomas is regarded as a top technology sector investor, financier and visionary because of his track record of identifying and investing in promising early stage opportunities and connecting them with institutional capital to help accelerate their growth. Notable portfolio companies and personal investments include Robinhood, AlphaFlow, Inc., Milo Credit, Better and Climb, whose equity investors include Sequoia, Kleiner Perkins, Point72 Ventures, Social Capital, and QED Investors, and whom have obtained significant financing from leading institutional investors and investment banks, such as The Blackstone Group, Inc. (NYSE: BX), The Goldman Sachs Group, Inc. (NYSE: GS) and Jefferies Group LLC. Mr. Thomas was also involved with 10X Capital’s role as an early investor in DraftKings Inc. (Nasdaq: DKNG), which completed a business combination with Diamond Eagle Acquisition Corp., a SPAC, in April 2020. Mr. Thomas also currently serves asDirectors — Alan Kessler, Chairman and Chief Executive Officer” in this proxy statement/prospectus.
Harry Green, Chief Financial Officer. Please see “Board of 10X I and 10X III. Directors — Harry Green, Chief Financial Officer” in this proxy statement/prospectus.
Other Officers
The following are brief biographies describing the backgrounds of certain non-executive officers that we believe provide key services to our business.
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Kiran Peethambaran Shylaja, Chief Technical Officer,Mr. Thomas attended New York University. We believe Mr. Thomas is qualified to serve on our boardShylaja has over 15 years of directors because of his experience in providing financing solutions for businesses, includingthe field of plant tissue culture, specializing in horticulture and floriculture crops. Most recently, he has built and managed commercial high-tech tissue culture labs with respectthe capacity to business combinationsproduce 7 to 10 million plants seedlings annually with 150 to 200 professional staff and SPACs.
David Weisburd, 35, has been our Chief Operating Officer, Headexperience in large-scale farming, greenhouse production, and research and development. He has worked extensively in India and Africa serving as the former technical advisor at the Mekkele Institute of OriginationTechnology, Ethiopia in the plant tissue culture and a Director since February 2021. Mr. Weisburd founded the venture capital firm Growth Technology Partners in May, 2015 and served as general partner until December 2019, when the firm was acquired by 10X Capital. The portfolio companies of Growth Technology Partners include 23andMe, CaaStle, Circle, Palantir, Pipefy, Punchh, Ripple, Tonal, Vicarious and Wish. Mr. Weisburd now serves as General Partner and co-head of venture capital at 10X Capital,greenhouse division, where he has ledplayed a vital role in producing 22 million sugar cane tissue culture plantlets to the firm’s investments into Robinhood, Compass Therapeutics, HeadSpace and DraftKings Inc. (Nasdaq: DKNG). Mr. Weisburd also serves as a partner of Flight VC, an investment syndicate with over 2700 members across Silicon Valley and other tech hubs including Boston, Los Angeles, and New York, and whose members range from angel investors to entrepreneurs and venture capitalists. Flight VC has a prolific track record investingEthiopian sugar corporation in companies including Betterment, Carta, Cruise Automotive, Discord, Dollar Shave Club, Fastly, Inc. (NYSE: FSLY), LinkedIn, Paypal, Inc. (Nasdaq: PYPL), Rent the Runway, and many others. In addition to his direct investment activity, Mr. WeisburdAddis Ababa. He has also conducted a substantial amountheld leading positions with well-known agriculture biotech companies in India and the Netherlands. His last 5-year tenure was with the subsidiary company of secondary market investment into companies such as Lyft, Inc. (Nasdaq: LYFT), One MedicalC Change Group (Nasdaq: ONEM), Space X, and Spotify (NYSE: SPOT). Prior to his venture capital career, Mr. Weisburd was on the founding teams of two venture-backed technology startups, isocket (acquired by Magnite (Nasdaq: MGNI)) and RoomHunt (acquired by RentLingo). Mr. Weisburd also currently serves as Chief Operating Officer and a
member of the board of directors of 10X I and 10X III. Mr. Weisburd received a BS in management and entrepreneurship from Indiana University — Kelley School of Business, an MBA from Dartmouth — Tuck School of Business, and is currently pursuing a masters in psychology from Harvard University. We believe Mr. Weisburd is qualified to serve on our board of directors because of his track record of founding and investing in technology companies and his network of venture-backed founders, companies and venture capitalist co-investors throughout Silicon Valley.
Guhan Kandasamy, 39, has been our Chief Financial Officer since February 2021. Since April, 2018, Mr. Kandasamy has served as the chief credit and data officer and a member of the board of directors of 10X Capital,LLC, USA where he also served as a member of the investment committee and oversaw the firm’s credit policy. In 2015, Mr. Kandasamy co-founded TheNumber, which provides credit market analytics and intelligence to leading credit hedge funds, Bulge Bracket Banks and Retail Banks. At TheNumber, he first served as the founding product manager, and as chief executive officer from January 2016 to March 2018. From October, 2010 to January 2015, Mr. Kandasamy served as global head of product and data analytics at Opera Solutions, LLC (now ElectrifAi), where he co-founded the company’s financial services vertical while helping the founders raise its first private capital from Silver Lake Partners, KKR & Co. Inc. and Wipro Limited (NYSE: WIT). Mr. Kandasamy has also previously served as Vice President of US Structured Finance for the global credit ratings agency DBRS, Inc. and as analyst for the private secondary market firm SecondMarket, Inc., which was later acquired by Nasdaq. Prior to that, as its first product employee, he served as the founding product manager at CoreLogic, Inc. (NYSE: CLGX)Chief Operating Officer of FAIM Africa LTD, Rwanda starting from January 2004 to June 2007,2016 and therethen he led development of CoreLogic’s product suite including Loansafe,served as the credit risk product used by a large portion of the mortgage market, as well as CoreLogic’s initial Automated Value Models (“AVMs”) and AVM cascade models for real estate assets, which remain the industry standard. During his tenure, he provided key evaluation and assistance to CoreLogic through several major corporate acquisitions, including First American Corporation. The company now produces over $1.7B in annual revenue and has an enterprise value of $5.3B. Mr. Kandasamy began his career in 2003 at the Federal National Mortgage Association (“Fannie Mae”) as a credit risk policy analyst, where he developed the agency’s still-operational and patented Consumer Credit Risk Assessment Model (FMCA), along with several capital allocation, collateral risk and property valuation models. Mr. Kandasamy also currently serves as Chief FinancialExecutive Officer of 10X IC Change Africa, Mauritius (a subsidiary company of C Change Group LLC) with agriculture operations in Rwanda, DR Congo, Burundi, etc. starting from May 2018 until February 2021. He earned a Master of Science (MSc) degree in Biotechnology from Bharathidasan University, India, and 10X III. Mr. Kandasamy received anhis MBA with a concentrationis in Financeinternational business from OxfordAnnamalai University in 2010 and a received a double BA from Johns Hopkins University in 2003.India.
Oliver Wriedt, 48, has served as our President and Head of Capital Markets since February 2021.
Edward Meiring, Chief Operating Officer. Mr. Wriedt has twenty-sevenMeiring holds over 30 years of experience in lending, structuring, portfolio managementthe farming sector and businessas an Agricultural Specialist. He has produced numerous crops including tobacco, wheat and maize, serving previously as chairperson of a tobacco farmers study group of South Africa. For 14 years, he ran farming operations for Woolworths South Africa, supplying multinational conglomerates, including Woolworths South Africa, Marks and Spencer and Sainsbury’s with fresh produce. In 1996, Mr. Meiring introduced iceberg lettuce into the South African market. His agricultural projects on the African continent include the South African Government Department Rural Development and Land Reform; planning phase for sugarcane production in the Lavumisa area, Swaziland; feasibility studies in conjunction with the Dutch government on the agricultural opportunity in 4 countries (Botswana, Zambia, Kenya and Angola); in the Solwezi area in Zambia to production of bamboo sugarcane and pongamia (diesel tree); in Congo-Brazzaville, the identification of 50,000 hectares of arable land in the Niara valley close to Dolisi; in Sierra Leone the identification and mapping of 70,000 hectares over several kingdoms in the Mayomba district earmarked for agriculture development. He also acted as Project Director for the development of 124,000 hectare in Nigeria exclusively for agricultural use. In cattle farming and game breeding, he has been an investorinvolved in early stage FinTech companiesthe farming of cattle (beef) and game breeding since 2014.1998 consulting South African farmers. Mr. Wriedt most recently served as chief executive officer of Vibrant Capital Partners (formerly DFG Investment Advisers) (“Vibrant”) from April 2019 to July 2020. Vibrant is a structured credit asset manager focused on collateralized loan obligations (“CLOs”) and leveraged loans, with $8 billion of assets under management (“AUM”). Prior to Vibrant, Mr. Wriedt spent six years at CIFC Asset Management from March 2012 to May 2018, where he most recently served as co-chief executive officer. During his tenure at CIFC, Mr. Wriedt took the company private in a $333 million strategic sale. CIFC’s AUM have grown to $26 billion. Mr. Wriedt was responsible for business development at the credit arm of Providence Equity Partners from 2010 to 2012. Later renamed Benefit Street, the asset manager grew to $26 billion and was acquired by Franklin Templeton (NYSE: BEN). Mr. Wriedt was previously a partner at Sciens Capital Management from 2008-2009 and was a partner at Golden Tree Asset Management from 2004 to 2008. Mr. Wriedt was originally trained as a banker at Deutsche Bank (NYSE: DB) and NORD/LB in Hannover, Singapore, London and New York. Since February 2020, Mr. Wriedt has served on the board of directors of Cadence Group, Inc., a New York-based digital securitization and investment platform for private credit. He is a seed investor in FinTech lenders Milo Credit and Pollen VC and payment platforms EMQ and QRails. In addition, he serves on the Board of Directors of The River Fund, a non-profit organization dedicated to eradicating hunger, homelessness and poverty in New York City. Mr. Wriedt also currently serves as President and Head of Capital Markets of 10X I and 10X III. Mr. Wriedt graduated from Duke University in 1993 with an AB in History and Economics.
Christopher Jurasek, 55, will serve on our board of directors following the completion of this offering. Mr. Jurasek has been an operating executive for Clearlake Capital Group, L.P. (“Clearlake”) since 2014. Clearlake is a Los Angeles-based private equity investor with $24 billion of AUM. Clearlake’s core target sectors include software and technology-enabled services, industrials and consumer. Since June 2020, Mr. Jurasek has also served as the chief executive officer of EagleView, a leading technology provider of aerial imagery, data analytics and GIS solutions with more than 200 patents, backed by Clearlake and Vista Equity Partners. Prior to EagleView, Mr. Jurasek served as president of JetSmarter, a private aviation software company acquired by Vista Global, from August 2018 to December 2019. Between February 2013 and January 2020, Mr. Jurasek also held the roles of president, chief executive officer and vice chairman of Calero Software, LLC, which merged with technology expense management software firm MDSL in a 2019 deal backed by Oak Hill Capital and Riverside Partners. From August 2017 to January 2019, he served as a member of the board of directors of ConvergeOne Holdings, Inc., a leading IT services provider of collaboration and technology solutions for large and medium enterprises, which went public through a business combination with a SPAC, Forum Merger Corp., in February 2018 at an enterprise value of $1.2 billion, and was subsequently acquired by CVC for $1.8 billion ($12.50 per common share). Mr. Jurasek also currently serves as a member of the board of directors of 10X I and 10X III. Christopher earned his MBA from the Kellogg School of Management at Northwestern University andMeiring holds a bachelor’s degree from Bowling Green State University. We believe Mr. Jurasek is qualified to serve on our board of directors because of his decades of experience leading global software and industrial technology companies and a track record of driving innovation to generate long-term value, customer engagement and sustainable growth.
Boris Silver, 32, will serve on our board of directors following the completion of this offering. Boris Silver is a technology entrepreneur and venture capital investor. Boris Silver is a technology entrepreneur and venture capital investor. Mr. Silver is Co-Founder and President of FundersClub Inc. (together with its affiliates and advised funds, “FundersClub”), a Silicon Valley-based online venture capital platform. FundersClub has invested in companies including Instacart, GitLab, Webflow, and others. FundersClub portfolio companies that have been acquired include Screenhero (acquired by Slack prior to direct listing of Slack (NYSE: WORK)), StatusPage (acquired by Atlassian (NASDAQ: TEAM)), and Second Measure (acquired by Bloomberg). Mr. Silver graduated Summa Cum Laude with a Bachelor of Science (BSc) degree in Economics from the Wharton School of the University of Pennsylvania,Agriculture and is also an alumnus of Y Combinator.
Woodrow H. Levin, 42, will serve on our board of directors following the completion of this offering. Mr. Levin has served on the board of directors of DraftKings Inc. (Nasdaq: DKNG) since December 2013 and has helped the company navigate numerous regulatory and strategic challenges throughout his tenure, culminating in the recent merger with a SPAC, Diamond Eagle Acquisition Corp., in April 2020. Since February 2019, Woody has been the founder and chief executive officer of Extend, Inc., a venture-backed technology company offering an application programming interface-first solution for merchants to offer extended warranties and protection plans. From February 2018 to February 2019, Mr. Levin was the founder and chief executive officer of 3.0 Capital, a multi-strategy crypto asset hedge fund. From August 2015 to February 2018, Mr. Levin was vice president of growth at DocuSign, Inc. (Nasdaq: DOCU) (“DocuSign”), which allows organizations to digitally prepare, sign and manage agreements. Mr. Levin founded Estate Assist, Inc. in February 2014, and has served as its chief executive officer until September 2015, when it was acquired by DocuSign. Mr. Levin also currently serves as a member of the board of directors of 10X I and 10X III. Mr. Levin received a BA in businessPlant Production degree from the University of WisconsinPretoria, having studied courses on Sustainable and Biological Farming under Doctor Graham Said (Australia). He holds numerous international accreditations (Hazard Analysis and Critical Control Point, EurepGAP and GLOBALG.A.P.) on sustainable farming and manufacturing of high-quality compost from University of Stellenbosch.
Elad Harzahav, Head of Logistics, and Technology Integration. Mr. Har-Zahav has more than 20 years of military experience and expertise, in the last 20 year holding service at the highest levels of Israel’s security and intelligence and responsible for safeguarding both internal and external state security. In the last 10 years he served in key roles in the Israeli Government at the Prime Minister Office, In operational and staff positions, as the Head Of Projects at the forefront of Israel’s security and intelligence, and was responsible for driving complex technological projects integrating, innovating, developing, implementing and managing comprehensive technological and operational solutions, systems, platforms, and capabilities.
Technical Advisor
Dr. Daniel Putnam,Forage extension specialist, Department of Plant Sciences, College of Agricultural and Environmental Sciences, UC Davis. In his 27 years at the university, he has developed an outstanding applied research and outreach program in alfalfa — the largest acreage crop in California — and in other forage crops. He is a JDglobal expert on forage quality and water use efficiency under irrigation and on mitigation strategies for sub-optimal conditions, with a focus on the critical issue of salinity. He has developed a network of collaborators across the University of California and in industry, and he helped found the California Alfalfa and Forage Association, National Alfalfa Alliance, and the Western Alfalfa and Forage Symposium. He serves as the Chair, UC California Alfalfa Workgroup, Chair, California Hay Testing Consortium, Chair, California Alfalfa Symposium and the President, National Forage Testing Association.
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Role of Board in Risk Oversight
The AAGR Board has extensive involvement in the oversight of our risk management process and accomplishes this oversight through the regular reporting to the AAGR Board by the audit committee. The audit committee represents the AAGR Board by periodically reviewing our accounting, reporting and financial practices, including the integrity of our financial statements, the surveillance of administrative and financial controls and our compliance with legal and regulatory requirements. Through its regular meetings with management, including the finance, legal, internal audit and information technology functions, the audit committee will review and discuss all significant areas of our business and summarize for the AAGR Board all areas of risk and the appropriate mitigating factors. In addition, the AAGR Board will receive periodic detailed operating performance reviews from management.
Board Composition
Our business and affairs are managed under the Chicago-Kent Schooldirection of Law, Illinois Institutethe AAGR Board. Upon closing of Technology. We believe that Mr. Levin is qualifiedthe Business Combination, each of Alan Kessler, Orim Graves, Ambassador Modest Jonathan Mero, Russell Read, Daphne Michelle Titus, Ambassador Bisa Williams and Osman Ahmed were elected to serve as directors on the AAGR Board. The AAGR Board appointed Mr. Kessler as the Chairman of the AAGR Board. The primary responsibilities of the AAGR Board is to provide oversight, strategic guidance, counseling and direction to our boardmanagement. The AAGR Board will meet on a regular basis and additionally as required.
In accordance with the terms of directors because of his experience with special purpose acquisition companies.
Number and Terms of Office of Officers and Directors
Our board of directors consists of 5 members andour Charter, the AAGR Board is divided into three classes, Class I, Class II and Class III, with, only one class of directors being elected in each year and with each class (except for those directors appointed prior to our first annual meeting) serving a three-year term. In accordanceThere is no cumulative voting with Nasdaq corporate governance requirements, we are not
requiredrespect to hold an annual meeting until one year after our first fiscal year end following our listing on Nasdaq. The termthe election of officedirectors, with the result that the holders of more than 50% of the first classshares voted for the election of directors consistingcan elect all of Mr. Jurasek, will expirethe directors. Ambassador Modest Jonathan Mero and Daphne Michelle Titus were appointed to serve as Class I directors, with a term expiring at ourthe Company’s first annual meeting of shareholders. The term of office ofstockholders following the second class ofClosing; Russell Read and Orim Graves were appointed to serve as Class II directors, consisting of Messrs. Silver and Levin, will expirewith terms expiring at the Company’s second annual meeting of shareholders. The termstockholders following the Closing; and Ambassador Bisa Williams, Osman Ahmed and Alan Kessler were appointed to serve as Class III directors, with terms expiring at the Company’s third annual meeting of officestockholders following the Closing.
At each annual meeting of stockholders to be held after the third classinitial classification, the successors to directors whose terms then expire will be elected to serve from the time of directors, consisting of Messrs. Thomaselection and Weisburd, will expire atqualification until the third annual meeting following their election and until their successors are duly elected and qualified, or their earlier resignation, removal, retirement or death. This classification of shareholders.
Only holders of Class B ordinary shares willthe AAGR Board may have the right to vote on the electioneffect of directors prior todelaying or in connection with the completion of our initial business combination. Holders of our public shares will not be entitled to vote on the election of directors during such time. These provisions of our amended and restated memorandum and articles of association relating to the rights of holders of Class B ordinary shares to elect directors may be amended by a special resolution passed by a majority of at least 90% of our ordinary shares voting in a general meeting.
Our officers are appointed by the board of directors and serve at the discretion of the board of directors, rather than for specific terms of office. Our board of directors is authorized to appoint officers as it deems appropriate pursuant to our amended and restated memorandum and articles of association.
Director Independence
The Nasdaq listing standards require that a majority of our board of directors be independent within one year of our initial public offering. Our board of directors has determined that each of Messrs. Silver, Jurasek and Levin are “independent directors” as defined in the Nasdaq listing standards and applicable SEC rules. Our independent directors will have regularly scheduled meetings at which only independent directors are present.
Executive Officer and Director Compensation
None of our executive officers or directors have received any cash compensation for services rendered to us. Commencing on the date that our securities are first listed on Nasdaq through the earlier of consummation of our initial business combination and our liquidation, we will pay our sponsor $20,000 per month for office space, secretarial and administrative services provided to members of our management team. In addition, our sponsor, executive officers and directors, or any of their respective affiliates will be reimbursed for any out-of-pocket expenses incurred in connection with activities on our behalf such as identifying potential target businesses and performing due diligence on suitable business combinations. Our audit committee will review on a quarterly basis all payments that were made to our sponsor, executive officers or directors, or our or their affiliates. Any such payments prior to an initial business combination will be made from funds held outside the trust account. Other than quarterly audit committee review of such reimbursements, we do not expect to have any additional controls in place governing our reimbursement payments to our directors and executive officers for their out-of-pocket expenses incurred in connection with our activities on our behalf in connection with identifying and consummating an initial business combination. Other than these payments and reimbursements, no compensation of any kind, including finder’s and consulting fees, will be paid by the company to our sponsor, executive officers and directors, or any of their respective affiliates, prior to completion of our initial business combination.
After the completion of our initial business combination, directors or members of our management team who remain with us may be paid consulting or management fees from the combined company. All of these fees will be fully disclosed to shareholders, to the extent then known, in the proxy solicitation materials or tender offer materials furnished to our shareholders in connection with a proposed business combination. We have not established any limit on the amount of such fees that may be paid by the combined company to our directors or members of management. It is unlikely the amount of such compensation will be known at the time of the proposed business combination, because the directors of the post-combination business will be responsible for determining executive officer and director compensation. Any compensation to be paid to our executive officers will be determined, or recommended to the board of directors for determination, either by a compensation
committee constituted solely by independent directors or by a majority of the independent directors on our board of directors.
We do not intend to take any action to ensure that members of our management team maintain their positions with us after the consummation of our initial business combination, although it is possible that some or all of our executive officers and directors may negotiate employment or consulting arrangements to remain with us after our initial business combination. The existence or terms of any such employment or consulting arrangements to retain their positions with us may influence our management’s motivation in identifying or selecting a target business but we do not believe that the ability of our management to remain with us after the consummation of our initial business combination will be a determining factorpreventing changes in our decision to proceed with any potential business combination. We are not party to any agreements with our executive officers and directors that provide for benefits upon termination of employment.control or management.
Committees
Independence of the Board of Directors
Upon the effectiveness of the registration statement of which this prospectus forms a part, our board of directors will have two standing committees: an audit committee and a compensation committee. Subject to phase-in rules and a limited exception,
Under the rules of Nasdaq, independent directors must comprise a majority of a listed company’s board of directors. In addition, the rules of Nasdaq require that, subject to specified exceptions, each member of a listed company’s audit, compensation and nominating and corporate governance committees be independent. Under the rules of Nasdaq, a director will only qualify as an “independent director” if in the opinion of that company’s board of directors, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. Audit committee members must also satisfy the additional independence criteria set forth in Rule 10A-3 of under the Exchange Act require thatand the rules of Nasdaq. Compensation committee members must also satisfy the additional independence criteria set forth in Rule 10C-1 under the Exchange Act and the rules of Nasdaq.
In order to be considered independent for purposes of Rule 10A-3 under the Exchange Act and under the rules of Nasdaq, a member of an audit committee of a listed company may not, other than in his or her capacity as a member of the committee, the board of directors, or any other board committee: (a) accept, directly or indirectly, any consulting, advisory, or other compensatory fee from the listed company or any of its subsidiaries; or (b) be comprised solelyan affiliated person of the listed company or any of its subsidiaries.
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To be considered independent directors. Subject to phase-in rulesfor purposes of Rule 10C-1 under the Exchange Act and a limited exception,under the rules of Nasdaq requirethe board of directors must affirmatively determine that the member of the compensation committee is independent, including a consideration of all factors specifically relevant to determining whether the director has a relationship to the company which is material to that director’s ability to be independent from management in connection with the duties of a listed company be comprised solelycompensation committee member, including, but not limited to:
| (i) | the source of compensation of such director, including any consulting, advisory or other compensatory fee paid by the company to such director; and |
| (ii) | whether such director is affiliated with the company, a subsidiary of the company or an affiliate of a subsidiary of the company. |
The AAGR Board has undertaken a review of the independence of each director and considered whether each director has a material relationship with us that could compromise his or her ability to exercise independent directors.judgment in carrying out his or her responsibilities. As a result of this review, the AAGR Board determined that Orim Graves, Modest Mero, Russell Read, Ambassador Bisa Williams, Osman Ahmed and Daphne Titus are considered “independent directors” as defined under the listing requirements and rules of Nasdaq and the applicable rules of the Exchange Act.
Board Committees
The standing committees of the AAGR Board consist of an audit committee, a compensation committee and a nominating and corporate governance committee. The AAGR Board may, from time to time, establish other committees.
Our president and chief executive officer and other executive officers regularly report to the non-executive directors and the audit, the compensation and the nominating and corporate governance committees to ensure effective and efficient oversight of our activities and to assist in proper risk management and the ongoing evaluation of management controls. We believe that the leadership structure of the AAGR Board provides appropriate risk oversight. Copies of the charters for each committee are available on the investor relations portion of our website.
Audit Committee
Upon
Our audit committee consists of Orim Graves, who serves as the effectivenesschairperson, Russell Read and Daphne Titus. Each of the registration statementmembers of which this prospectus forms a part, we will establishAFRAG PubCo’s audit committee satisfies the requirements for independence and financial literacy under the applicable rules and regulations of the SEC and rules of Nasdaq.
The AAGR Board determined that Orim Graves qualifies as an audit committee financial expert within the meaning of SEC regulations and meets the boardfinancial sophistication requirements of directors. Messrs. Silver, Jurasek and Levin will serve as members of our audit committee. Under the Nasdaq listing standardsrules. In making this determination, the AAGR Board considered Mr. Graves’s formal education and applicable SEC rules, we are required to have three members of the audit committee, all of whom must be independent, subject to the exception described below. Each of Messrs. Silver, Jurasek and Levin are independent.
will serve as the chairman of the audit committee. Each member of the audit committee is financially literate and our board of directors has determined that qualifies as an “audit committeeprevious experience in financial expert” as defined in applicable SEC rules.
The audit committee is responsible for:
meeting withroles. Both our independent registered public accounting firm regarding, among other issues,and management periodically will meet privately with our audit committee.
The purpose of the audit committee is to prepare the audit committee report required by the SEC to be included in our proxy statement and to assist the AAGR Board to (A) oversee: (i) audits and adequacyof the financial statements; (ii) the integrity of our accounting and control systems;
monitoring the independence of the independent registered public accounting firm;
verifying the rotation of the lead (or coordinating) audit partner having primary responsibility for the audit and the audit partner responsible for reviewing the audit as required by law;
inquiring and discussing with management our compliance with applicable laws and regulations;
pre-approving all audit services and permitted non-audit servicesfinancial statements; (iii) processes relating to be performed by our independent registered public accounting firm, including the fees and terms of the services to be performed;
appointing or replacing the independent registered public accounting firm;
determining the compensation and oversight of the work of the independent registered public accounting firm (including resolution of disagreements betweenrisk management and the conduct and systems of internal control over financial reporting and disclosure controls and procedures; (iv) the qualifications, engagement, compensation, independence and performance of our independent registered public accounting firm regarding financial reporting) forauditor, and the purposeauditor’s conduct of preparing or issuing anthe annual audit report or related work;
establishing procedures for the receipt, retention and treatment of complaints received by us regarding accounting, internal accounting controls or reports which raise material issues regarding our financial statements or accounting policies;and any other services provided to us; (v) the performance of our internal audit function, if any; and (B) produce the annual report of the committee required by the rules of the SEC.
monitoring compliance on a quarterly basis with the terms of this offering and, if any noncompliance is identified, immediately taking all action necessary to rectify such noncompliance or otherwise causing compliance with the terms of this offering; and
reviewing and approving all payments made to our existing shareholders, executive officers or directors and their respective affiliates. Any payments made to members of our audit committee will be reviewed and approved by our board of directors, with the interested director or directors abstaining from such review and approval.
Compensation Committee
Upon
Our compensation committee consists of Osman Ahmed, who serves as the effectivenesschairperson, Modest Mero and Daphne Titus. Each of the registration statement of which this prospectus forms a part, we will establish a compensation committee of our board of directors. The members of our compensation committee will be Messrs. Silver, Jurasek and Levin, and will serve as chairman of the compensation committee. We will adopt a compensation committee charter, which will detail the principal functions of the compensation committee including:
We will adopt a compensation committee charter, which will detailmeet the principal functionsrequirements for independence under the under the applicable rules and regulations of the SEC and rules of Nasdaq.
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The purpose of the compensation committee including:
reviewingis to assist the AAGR Board to (A) carry out the AAGR Board’s overall responsibility relating to organizational strength and approving on an annual basisexecutive compensation; (B) assist the corporate goalsAAGR Board in overseeing our employee compensation policies and objectives relevant to our Chief Executive Officer’s compensation evaluating our Chief Executive Officer’s performance in light of such goals and objectives andpractices, including (i) determining and approving the remuneration (if any)compensation of our Chief Executive Officer based on such evaluation;
and other executive officers, and (ii) reviewing and approving incentive compensation and equity compensation policies and programs, and exercising discretion in the administration of such programs; and (C) produce the annual report of the committee required by the rules of the SEC.
Nominating and Corporate Governance Committee
Our nominating and corporate governance committee consists of Russell Read, who serves as the chairperson, Bisa Williams and Orim Graves. Each of the members of the nominating and corporate governance committee meet the requirements for independence under the applicable rules and regulations of the SEC and rules of Nasdaq.
The purpose of the nominating and corporate governance committee is to assist the AAGR Board to (i) identify and screen individuals qualified to serve as directors and recommend to the AAGR Board candidates for nomination for election at the annual meeting of stockholders or to fill AAGR Board vacancies; (ii) develop, recommend to the AAGR Board and review our Corporate Governance Guidelines; (iii) coordinate and oversee self-evaluations of the AAGR Board, its committees, individual directors and management in our governance; (iv) review and approve, if appropriate, any related person transactions and other potential significant conflicts of interest; and (v) review on a regular basis our overall corporate governance and recommend improvements for approval by the AAGR Board where appropriate.
Code of Business Conduct
Our code of business conduct that applies to all of its directors, officers and employees, including our principal executive officer, principal financial officer and principal accounting officer, which is available on the investors relations portion of our website. Our code of business conduct is a “code of ethics”, as defined in Item 406(b) of Regulation S-K. We will make any legally required disclosures regarding amendments to, or waivers of, provisions of our code of ethics on our website.
Compensation Committee Interlocks and Insider Participation
No member of the compensation committee was at any time during fiscal year 2022, or at any other time, one of our officers or employees. None of our executive officers has served as a director or member of a compensation committee (or other committee serving an equivalent function) of any entity, one of whose executive officers served as a director of the AAGR Board or member of our compensation committee.
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AFRAG EXECUTIVE OFFICER AND DIRECTOR COMPENSATION
Throughout this sub-section, unless otherwise noted, “we”, “us”, “our”, “the Company” and similar terms refer to AFRAG prior to the Closing, and to African Agriculture Holdings Inc. and its subsidiaries after the business combination.
In 2022, our “named executive officers” and their positions were as follows:
| ● | Alan Kessler, Chief Executive Officer; and |
| ● | Harry Green, Chief Financial Officer. |
Summary Compensation Table
The following table sets forth the information concerning the compensation of our named executive officers for our fiscal year ended December 31, 2022.
| Name and Principal Position | Year | Salary ($) | Stock Awards ($)(1) | Other Compensation ($) | Total ($) | |||||||||||||
| Alan Kessler – Chief Executive Officer | 2022 | — | (2) | 27,000,000 | (3) | 27,500 | (4) | $ | 27,027,500 | |||||||||
| Harry Green – Chief Financial Officer | 2022 | — | 9,000,000 | 20,000 | (5) | $ | 9,020,000 | |||||||||||
| (1) | The amounts reported in this column represent the aggregate grant date fair value of RSUs awarded to the named executive officers in 2022, calculated in accordance with FASB ASC Topic 718. Such aggregate grant date fair values do not take into account any estimated forfeitures related to service-vesting conditions. These amounts do not reflect the actual economic value that may be realized from such awards. |
| (2) | Mr. Kessler serves as the Company’s Chief Executive Officer and Executive Chairman pursuant to the terms of that certain Amended and Restated Advisor Agreement, dated May 21, 2022 (the “Advisor Agreement”), by and between AFRAG and African Discovery Group, Inc. (“AFDG”). Mr. Kessler is not an employee of AFRAG and does not receive any direct compensatory payments or equity issuances from AFRAG. Mr. Kessler is the Chief Executive Officer and majority stockholder of AFDG and, as such, has an indirect interest in any payments or equity issuances made by AFRAG to AFDG. Pursuant to that certain Transaction Bonus and Release Agreement, dated November 1, 2022, by and between AFDG and AFRAG, AFDG agreed to permanently waive all claims to any unpaid wages, bonuses, commissions or other compensation arising prior to the consummation of the Business Transaction in consideration for the right to receive a one-time transaction bonus of $300,000 upon consummation of the Business Transaction, subject to AFDG’s continued services with AFRAG through such date. |
| (3) | Represents RSUs awarded to AFDG pursuant to the terms of the Advisor Agreement. |
| (4) | In 2022, AFDG received aggregate fees of $27,500 pursuant to the terms of the Advisor Agreement, and prior to the parties’ mutual agreement to waive unpaid fees. |
| (5) | In 2022, AFRAG determined to compensate Mr. Green as a contractor as he was not expected to devote his full working time to AFRAG. Mr. Green agreed to permanently waive all claims to any unpaid wages, bonuses, commissions or other compensation arising prior to the consummation of the Business Transaction in consideration for the right to receive a one-time transaction bonus of $400,000 upon consummation of the Business Transaction, subject to Mr. Green’s continued employment with AFRAG. As a contractor, Mr. Green received $20,000 in cash compensation during 2022 prior to his release of claims. |
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Narrative Disclosure to the Summary Compensation Table
2022 Base Salary
Mr. Kessler serves as the Company’s Chief Executive Officer and Executive Chairman pursuant to the terms of the Advisor Agreement. Mr. Kessler is not an employee of AFRAG and does not receive any direct compensatory payments or equity issuances from AFRAG. Mr. Kessler is the Chief Executive Officer and majority stockholder of AFDG and, as such, has an indirect interest in any payments or equity issuances made by AFRAG to AFDG. Pursuant to that certain Transaction Bonus and Release Agreement, dated November 1, 2022, by and between AFDG and AFRAG (the “Kessler Release Agreement”), AFDG agreed to permanently waive all claims to any unpaid wages, bonuses, commissions or other compensation arising prior to the consummation of the Business Transaction, subject to the consummation of the Business Transaction, in consideration for the right to receive a one-time transaction bonus of $300,000 upon consummation of the Business Transaction, subject to AFDG’s continued services with AFRAG through such date. On November 27, 2023, we amended the Kessler Release Agreement to provide that the bonus contemplated by such Kessler Release Agreement will be recharacterized as a retention bonus payable no later than August 21, 2024, subject to AFDG’s continued service as of the payment date. In 2022, AFDG received $27,500 in fees related to the provision of Mr. Kessler’s services pursuant to the terms of the Advisor Agreement and prior to the signing of the Kessler Release Agreement.
We entered into an Amended and Restated Employment Agreement with Mr. Green, effective as of May 21, 2022 (the “Employment Agreement”). Pursuant to terms of the Employment Agreement, Mr. Green is entitled to a base salary of $240,000. However, we subsequently determined that Mr. Green would be more appropriately classified as an independent contractor based on the nature of his services and the fact that he was not expected to devote his full working time to AFRAG for the remainder of 2022. Pursuant to that certain Transaction Bonus and Release Agreement, dated November 1, 2022, by and between Mr. Green and AFRAG (the “Green Release Agreement”), Mr. Green agreed to permanently waive all claims to any unpaid wages, bonuses, commissions or other compensation arising prior to the consummation of the Business Transaction, subject to the consummation of the Business Transaction, in consideration for the right to receive a one-time transaction bonus of $400,000 upon consummation of the Business Transaction, subject to Mr. Green’s continued employment with AFRAG through such date. On November 27, 2023, we amended the Green Release Agreement to provide that the bonus contemplated by such Green Release Agreement will be recharacterized as a retention bonus payable no later than August 21, 2024, subject to Mr. Green’s continued service as of the payment date. In 2022, Mr. Green received $20,000 in fees for his services as an independent contractor.
2022 Bonuses
We entered into the Kessler Release Agreement, as amended, with AFDG pursuant to which AFDG is entitled to receive a $300,000 retention bonus, payable no later than August 21, 2024, subject to its continued provision of services through the payment date. Mr. Kessler is the majority shareholder of AFDG, and will therefore benefit indirectly from any bonus paid to AFDG.
We also entered into the Green Release Agreement, as amended, pursuant to which Mr. Green is entitled to receive a $400,000 retention bonus, payable no later than August 21, 2024 subject to his continued employment through the payment date.
No bonuses were otherwise paid to our named executive officers in 2022.
2022 Plan
The African Agriculture, Inc. 2022 Incentive Plan (the “2022 Plan”) became effective on November 1, 2022 and will expire upon termination by the AAGR Board or after ten years from the effective date. Following the effective date of the African Agriculture Holdings Inc. 2023 Incentive Plan (the “2023 Plan”), we will not grant any additional awards under the 2022 Plan.
The 2022 Plan permits the grant of non-qualified stock options, stock appreciation rights (“SARs”), restricted stock, restricted stock units (“RSUs”), other stock-based awards, other cash-based awards and dividend equivalents to eligible participants. The maximum number of shares of common stock available for issuance under the 2022 Plan is 2,881,727 shares. Shares of common stock underlying an award that is (i) withheld in connection with the exercise of such award, (ii) withheld to satisfy tax or deduction liabilities arising from the award or (iii) forfeited, cancelled, expire unexercised or settled in cash will again become available for issuance under the 2022 Plan. Our board of directors has the authority to amend, alter, suspend, discontinue or terminate the 2022 Plan or any portion thereof, provided that no such action may be taken without stockholder approval if the approval is necessary to comply with a tax or regulatory requirement or other applicable law for which the administrator of the 2022 Plan deems it necessary or desirable to comply. Any amendment that would adversely and materially affect a participant’s rights under any award shall not be effective without such participant’s consent.
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2023 Plan
The 2023 Plan became effective as of December 6, 2023 and has a term of not more than ten years, and no further awards may be granted under the 2023 Plan after that date. Under the 2023 Plan, we are authorized to grant cash and equity incentive awards to certain eligible service providers in order to attract, motivate and retain the talent for which we compete.
Purpose of the 2023 Plan
The purpose of the 2023 Plan is to provide a means through which we and our affiliates may attract and retain key personnel and to provide a means whereby certain directors, officers, employees, consultants and advisors (and certain prospective directors, officers, employees, consultants, and advisors) can acquire and maintain an equity interest, or be paid incentive compensation, which may be measured by reference to the value of the Common Stock, thereby strengthening their commitment to our and our affiliates’ welfare and aligning their interests with those of our stockholders.
Material Terms of the 2023 Plan
Administration. The Compensation Committee will administer the 2023 Plan. To the extent required to comply with the provisions of Rule 16b-3 promulgated under the Exchange Act, it is intended that each member of the Compensation Committee will, at the time it takes any action with respect to an award under the 2023 Plan, be an “eligible director” within the meaning of Rule 16b-3 of the Exchange Act. The Compensation Committee generally has the authority to designate participants, determine the type or types of awards to be granted to a participant, determine the terms and conditions of any agreements evidencing any awards granted under the 2023 Plan, accelerate the vesting or exercisability of, payment for or lapse of restrictions on, awards, modify any performance criteria and/or periods and to adopt, alter and repeal rules, guidelines and practices relating to the 2023 Plan. The Compensation Committee has full discretion to administer and interpret the 2023 Plan and to make any other determinations and/or take any other action that it deems necessary or desirable for the administration of the 2023 Plan, and any such determinations or actions taken by the Compensation Committee shall be final, conclusive and binding upon all persons and entities. The Compensation Committee may delegate to one or more or any affiliate the authority to act on behalf of the Compensation Committee with respect to any matter, right, obligation or election that is the responsibility of or that is allocated to the Compensation Committee in the 2023 Plan and that may be so delegated as a matter of law, except for grants of awards to persons subject to Section 16 of the Exchange Act. Notwithstanding any other provision of the 2023 Plan to the contrary, awards granted to non-employee directors shall be administered by the full AAGR Board, and any authority reserved under the 2023 Plan for the Compensation Committee with regard to awards granted to non-employee directors shall be exercised by the full AAGR Board.
Eligibility. Certain employees, directors, advisors or consultants, or prospective employees, directors, or consultants who have accepted offers of employment or consultancy, of us or our affiliates are eligible to participate in the 2023 Plan.
Number of Shares Authorized. The 2023 makes available a maximum number of 5,786,685 shares of Common Stock; provided that the total number of shares that will be reserved, and that may be issued, under the 2023 Plan will automatically increase on the first trading day of each calendar year, beginning with calendar year 2025 and ending with calendar year 2029, by a number of shares equal to 1% of the total outstanding shares of Common Stock on the last day of the prior calendar year. Notwithstanding the foregoing, the AAGR Board may act prior to January 1st of a given year to provide that there will be no such increase in the share reserve for such year or that the increase in the share reserve for such year will be a lesser number of shares than would otherwise occur pursuant to the preceding sentence. The maximum number of shares that may be issued pursuant to the exercise of incentive stock options (“ISOs”) granted under the 2023 Plan, will be limited in an amount as yet to be determined. The maximum aggregate value on the date of grant for awards (in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, or any successor thereto) paid to any non-employee director pursuant to the 2023 Plan, when taken together with any cash fees paid to such non-employee director in respect of his service as a non-employee director, during any fiscal year may not exceed a total value of $500,000, provided that the non-employee directors who are considered independent (under the rules of the Nasdaq Stock Market or other securities exchange on which the shares of Common Stock are traded) may make exceptions to this limit for a non-executive chair of the AAGR Board, if any, in which case the non-employee director receiving such additional compensation may not participate in the decision to award such compensation. Shares of Common Stock underlying awards under the 2023 Plan that are tendered or withheld to exercise awards or to satisfy tax liabilities arising from awards or that are forfeited, canceled, expire unexercised or are settled in cash will be available again for issuance as new awards under the 2023 Plan but will count against the maximum number of shares that may be issued upon the exercise of ISOs. If there is any change in our corporate capitalization, the Compensation Committee in its sole discretion may make substitutions or adjustments to the number of shares of Common Stock reserved for issuance under the 2023 Plan, the number of shares of Common Stock covered by awards then outstanding under the 2023 Plan, the limitations on awards under the 2023 Plan, the exercise price of outstanding options and such other equitable substitutions or adjustments as it may determine appropriate.
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Awards Available for Grant. The Compensation Committee may grant awards of nonqualified stock options, ISOs, stock appreciation rights (“SARs”), restricted stock, restricted stock units, other stock-based awards, other cash-based awards, and dividend equivalents, or any combination of the foregoing.
Options. The Compensation Committee are authorized to grant options to purchase shares of Common Stock that are either “qualified,” meaning they are intended to satisfy the requirements of Section 422 of the Code for ISOs, or “nonqualified,” meaning they are not intended to satisfy the requirements of Section 422 of the Code. Options granted under the 2023 Plan will be subject to such terms, including the exercise price and the conditions and timing of exercise, as may be determined by the Compensation Committee and specified in the applicable award agreement. In general, the exercise price per share of Common Stock for each option granted under the 2023 Plan will not be less than the fair market value of such share at the time of grant or, for purposes of ISOs, if granted to an employee who owns or is deemed to own more than 10% of the combined voting power of all of our other Section 16 executive officers;
reviewing our executive compensation policies and plans;
implementing and administering our incentive compensation equity-based remuneration plans;
assisting managementclasses of stock, or of any parent or subsidiary (a “10% Stockholder”), less than 110% of the fair market value of such share at the time of grant. The maximum term of an option granted under the 2023 Plan will be ten years from the date of grant (or five years in complying with our proxy statement and annual report disclosure requirements;
approving all special perquisites, special cash payments and other special compensation and benefit arrangementsthe case of ISOs granted to a 10% Stockholder). However, if the option would expire at a time when the exercise of the option by means of a cashless exercise or net exercise method (to the extent such method is otherwise then permitted by the Compensation Committee for our executive officers and employees;
producing a report on executive compensation to be included in our annual proxy statement; and
reviewing, evaluating and recommending changes, if appropriate,purposes of payment of the exercise price and/or applicable withholding taxes) would violate applicable securities laws or any securities trading policy adopted by us, the expiration date applicable to the remunerationoption will be automatically extended to a date that is thirty (30) calendar days following the date such cashless exercise or net exercise would no longer violate applicable securities laws or applicable securities trading policy (so long as such extension does not violate Section 409A of the Code), but not later than the expiration of the original exercise period. Payment in respect of the exercise of an option may be made in cash, by check or other cash equivalent, by surrender of unrestricted shares (at their fair market value on the date of exercise) that have been held by the participant for directors.
The charter will also provide thatany period deemed necessary by our accountants to avoid an additional compensation charge or have been purchased on the compensation committeeopen market, or the Compensation Committee may, in its discretion and to the extent permitted by law, allow such payment to be made through a broker-assisted cashless exercise mechanism, a net exercise method, the surrender of other property having a fair market value on the date of exercise equal to the exercise price or by such other method as the Compensation Committee may determine to be appropriate and in accordance with applicable law.
Stock Appreciation Rights. The Compensation Committee will be authorized to award SARs under the 2023 Plan. SARs will be subject to the terms and conditions established by the Compensation Committee and to such other conditions not inconsistent with the 2023 Plan as may be reflected in the applicable award agreement. A SAR is a contractual right that allows a participant to receive, either in the form of cash, shares of Common Stock or any combination of cash and shares of Common Stock, the appreciation, if any, in the value of a common share over a certain period of time. An option granted under the 2023 Plan may include SARs, and SARs may also be awarded to a participant independent of the grant of an option. SARs granted in connection with an option will be subject to terms similar to the option corresponding to such SARs. The exercise price of SARs cannot be less than 100% of the fair market value of a share of Common Stock at the time of grant.
Restricted Stock. The Compensation Committee will be authorized to award restricted stock under the 2023 Plan. Each award of restricted stock will be subject to the terms and conditions established by the Compensation Committee, including any dividend or voting rights. Restricted stock awards are shares of Common Stock that generally are non-transferable and subject to other restrictions determined by the Compensation Committee for a specified period. Unless the Compensation Committee determines otherwise or specifies otherwise in an award agreement, if the participant terminates employment or services during the restricted period, then any unvested restricted stock will be forfeited. Dividends, if any, that may have been withheld by the Compensation Committee will be distributed to the participant in cash or, at the sole discretion retainof the Compensation Committee, in shares of Common Stock having a fair market value equal to the amount of such dividends, upon the release of any applicable restrictions, and if the applicable share is forfeited, the participant will have no right to such dividends (except as otherwise provided in the applicable award agreement).
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Restricted Stock Unit Awards. The Compensation Committee will be authorized to award restricted stock unit awards under the 2023 Plan. The Compensation Committee will determine the terms of such restricted stock unit awards, including any dividend rights. Restricted stock units are an unfunded and unsecured promise to deliver shares of Common Stock, cash, other securities or obtainother property, subject to certain performance or time-based restrictions for a specified restricted period. Unless the adviceCompensation Committee determines otherwise or specifies otherwise in an award agreement, if the participant terminates employment or services during the period of time over which all or a portion of the units are to vest, then any unvested units will be forfeited.
Other Stock-Based Awards. The Compensation Committee may grant to participants other stock-based awards under the 2023 Plan, which are valued in whole or in part by reference to, or otherwise based on, shares of Common Stock. The form of any other stock-based awards will be determined by the Compensation Committee and may include a grant or sale of unrestricted shares of Common Stock. The number of shares of Common Stock related to other stock-based awards and the terms and conditions, including vesting conditions, of such other stock-based awards will be determined by the Compensation Committee when the award is made. Other stock-based awards will be paid in cash, shares of Common Stock, or a combination of cash and shares, as determined by the Compensation Committee, and the Compensation Committee will determine the effect of a compensation consultant, legal counseltermination of employment or service on a participant’s other adviserstock-based awards.
Other Cash-Based Awards. The Compensation Committee may grant to participants a cash award that is not otherwise described by the terms of the 2023 Plan, including cash awarded as a bonus or upon the attainment of performance goals or otherwise as permitted under the 2023 Plan. The form, terms, and conditions, including vesting conditions, of any other cash-based awards will be established by the Compensation Committee when the award is made, and any other cash-based awards will be paid to participants in cash. The Compensation Committee will determine the effect of a termination of employment or service on a participant’s other cash-based awards.
Dividend Equivalents. The Compensation Committee may provide for the payment of dividend equivalents with respect to shares of Common Stock subject to an award, such as restricted stock units, but not on awards of stock options or SARs. However, no dividend equivalents will be paid prior to the issuance of stock. Dividend equivalents may be credited as of the dividend payment dates, during the period between the grant date and the date the award becomes payable or terminates or expires, as determined by the Compensation Committee; however, dividend equivalents will not be payable unless and until the issuance of shares underlying the award and will be directly responsiblesubject to forfeiture to the same extent as the underlying award. Dividend equivalents may be paid in cash, shares of Common Stock, or converted to full-value awards, calculated and subject to such limitations and restrictions as the Compensation Committee may determine.
Transferability. Each award may be exercised during the participant’s lifetime only by the participant or, if permissible under applicable law, by the participant’s guardian or legal representative and may not be otherwise assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by a participant other than by will or by the laws of descent and distribution. The Compensation Committee, however, may permit awards (other than ISOs) to be transferred to family members, a trust for the appointment, compensationbenefit of such family members, a partnership or limited liability company whose partners or stockholders are the participant and oversighthis or her family members or anyone else approved by it.
Amendment and Termination. In general, the AAGR Board may amend, alter, suspend, discontinue, or terminate the 2023 Plan or any portion thereof at any time. However, stockholder approval may be required to be obtained for any amendment to the extent necessary to comply with applicable laws or other tax or regulatory requirements. No amendment, alteration, suspension, discontinuance or termination may materially and adversely affect the rights of any participant or any holder or beneficiary of any award without the consent of such participant, holder or beneficiary.
Change in Control. In the event of a “Change in Control” (as defined in the 2023 Plan), the Compensation Committee may adjust the number of shares of Common Stock or our other securities (or number and kind of other securities or other property) subject to an award, the exercise or strike price of an award, or any applicable performance measure, and may provide for the substitution or assumption of outstanding awards in a manner that substantially preserves the terms of such awards, the acceleration of the workexercisability or lapse of restrictions applicable to outstanding awards and the cancellation of outstanding awards in exchange for the consideration received by our stockholders in connection with such Change in Control transaction.
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Repricings. The Compensation Committee may, without approval of the stockholders, reduce the exercise price per share of outstanding stock options or SARs, or cancel outstanding stock options or SARs in exchange for cash, other awards or stock options or SARs with an exercise price per share that is less than the exercise price per share of the original stock options or SARs.
2022 Equity Grants
On November 1, 2022, we awarded AFDG 2,356,496 RSUs outside of the 2022 Incentive Plan, which will fully vest on March 1, 2024. The award was in full satisfaction and in lieu of the equity compensation terms in the Advisor Agreement. AFRAG obtained a release of claims in connection with the granting of RSUs instead of restricted stock. Pursuant to the terms of the restricted stock unit agreement, if AFDG is terminated without “cause” or resigns for “good reason” (each as defined in the restricted stock unit agreement) prior to March 1, 2024, the RSUs will immediately vest upon termination. In addition, if AFDG’s service is terminated due to Mr. Kessler’s death or “disability” (as defined in the restricted stock unit agreement), the RSUs will immediately vest upon termination. If AFDG is terminated prior to March 1, 2024 for any other reason, the RSUs will be immediately forfeited and cancelled upon such termination. Mr. Kessler is the majority shareholder of AFDG, and will therefore benefit indirectly from the grant of RSUs to AFDG and any proceeds realised from the sale of shares received upon vesting thereof.
On November 1, 2022, we also awarded Harry Green 785,499 RSUs under the 2022 Plan, which will vest as to 25% on January 2, 2024 and 75% on May 16, 2024. The award was in full satisfaction and in lieu of the equity compensation terms in Mr. Green’s amended and restated employment agreement. AFRAG obtained a release of claims in connection with the granting of RSUs instead of restricted stock. Pursuant to the terms of the restricted stock unit agreement, if Mr. Green is terminated by reason of death or “disability” or without “cause” or resigns for “good reason” (each as defined in the restricted stock unit agreement), any unvested RSUs will immediately vest upon termination. If Mr. Green is terminated for any other reason, the unvested RSUs will be immediately forfeited and cancelled upon such termination.
2022 Other Compensation
Alan Kessler serves as our Chief Executive Officer and Executive Chairman pursuant to the terms of the Advisor Agreement. Mr. Kessler is not an employee and does not receive any direct compensatory payments or equity issuances from us. Mr. Kessler is the Chief Executive Officer and majority stockholder of AFDG and, as such, has an indirect interest in any payments or equity issuances made by us to AFDG. In 2022, AFDG received aggregate fees of $27,500 pursuant to the terms of the Advisor Agreement, and prior to its waiver of any unpaid fees under the Kessler Release Agreement.
AFRAG determined that Mr. Green would be more appropriately classified as an independent contractor based on the nature of his services and the fact that he was not expected to devote his full working time to AFRAG during 2022. In 2022, Mr. Green received $20,000 in fees for his services as an independent contractor prior to his execution of the Green Release Agreement.
Outstanding Equity Awards at Fiscal Year End
| Stock Awards | ||||||||
| Name | Number of Shares or Units of Stock That Have not Vested | Market Value of Shares or Units of Stock that Have Not Vested(3) | ||||||
| Alan Kessler | 2,356,496 | (1) | $ | 27,000,000 | ||||
| Harry Green | 785,499 | (2) | $ | 900,000 | ||||
| (1) | The RSUs fully vest on March 1, 2024, subject to AFDG’s continued services to AFRAG. |
| (2) | The RSUs vest as to 25% on January 2, 2024 and 75% on May 16, 2024, subject to Mr. Green’s continued employment. |
| (3) | Based on $10.00 per share, which is the value assigned to AFRAG’s common stock as of March 31, 2023 based upon a good faith valuation as determined by our Board of Directors. |
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Employment and Advisor Agreements with Named Executive Officers
Alan Kessler
We are party to the Advisor Agreement with AFDG pursuant to which Alan Kessler serves as our Chief Executive Officer and chairman of the Board of Directors. The Advisor Agreement contains a five-year term and automatically extends for consecutive one-year periods, subject to a 60-day notice of non-renewal by either party. Pursuant to the terms of the Advisor Agreement, AFDG has an annual base salary of $300,000 and is eligible to receive an annual discretionary cash bonus.
AFDG is also eligible to participate in two bonus programs, whereby we will fund a (i) $25 million bonus pool in the event that we achieve a $2.5 billion average market capitalization during any 30-day period following the Advisor Agreement effective date and (ii) $50 million bonus pool in the event that we achieve a $5.0 billion average market capitalization during any 60-day period following the Advisor Agreement effective date. Any bonuses payable under the bonus pools will be paid within 30 days of each bonus pool being achieved, subject to AFDG’s continuous engagement on the applicable bonus payment dates.
AFDG was granted 2,356,496 restricted stock units (“RSUs”) on November 1, 2022, in full satisfaction and in lieu of the equity compensation terms in the Advisor Agreement. In turn, the terms of the equity compensation in the Advisor Agreement are no longer in effect. In addition, the Advisor Agreement provides that we will grant restricted stock to AFDG. We obtained a release of claims in connection with the granting of RSUs instead of restricted stock.
Upon a termination of employment for any reason, AFDG is entitled to receive (i) any base salary earned but unpaid prior to the termination date, (ii) any earned but unpaid prior year annual bonus, and (iii) any authorized but unreimbursed business expenses. In addition, is AFDG is terminated other than for “cause” or by AFDG for “good reason” (as defined in the Advisor Agreement), AFDG will also be entitled to (x) the remaining balance of the advisor fee for the current term of the agreement, and, if (y) termination occurs before the additional one-percent (1%) equity grant (described above) has been made, AFDG will be entitled to receive such additional equity grant if the requisite market capitalization occurs within three years of AFDG’s termination; however, as noted above, ADFG has already received an RSU grant in satisfaction of the additional one-percent (1%) equity grant, and so would not receive any additional equity grant under clause (y).
As the majority shareholder of AFDG, Mr. Kessler will benefit indirectly in connection with any salary, bonus or severance payments AFDG receives pursuant to the Advisor Agreement.
Mr. Kessler and AFDG are subject to a perpetual confidentiality and non-disparagement provisions.
Harry Green
We entered into the Employment Agreement, pursuant to which Mr. Green serves as our Chief Financial Officer. The employment agreement contains a two-year term that automatically extends for up to two consecutive two-year periods (with the last automatic renewal expiring immediately prior to the sixth anniversary of the effective date), subject to a 60-day notice of non-renewal by either party. Mr. Green has an annual base salary of $240,000 and is eligible to receive an annual discretionary cash bonus.
Mr. Green is also eligible to participate in two bonus programs, whereby we will fund a (i) $25 million bonus pool in the event that we achieve a $2.5 billion average market capitalization during any 30-day period following the employment agreement effective date and (ii) $50 million bonus pool in the event that we achieve a $5.0 billion average market capitalization during any 60-day period following the employment agreement effective date. The Chief Executive Officer and majority shareholder will determine Mr. Green’s portion of such bonus pools, with payment of any such adviser. However, before engagingbonus subject to Mr. Green’s continuous employment on the bonus payment date.
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Mr. Green was granted 785,499 RSUs on November 1, 2022, under the 2022 Plan, in full satisfaction and in lieu of the equity compensation terms in his Employment Agreement. In turn, the terms of the equity compensation in the Employment Agreement are no longer applicable. In addition, the Employment Agreement provides that the Company will grant restricted stock to Mr. Green. We obtained a release of claims in connection with the granting of RSUs instead of restricted stock.
Upon a termination of employment for any reason, Mr. Green is entitled to receive (i) any base salary earned but unpaid prior to the termination date, (ii) any earned but unpaid prior year annual bonus, and (iii) any authorized but unreimbursed business expenses; provided, that if he is terminated for “cause” (as defined in his Employment Agreement), he will not be eligible to receive the bonus payment in (ii). If Mr. Green resigns for “good reason” (as defined in his Employment Agreement) or receiving advice fromis terminated without “cause”, he is also eligible to receive severance equal to twelve months of base salary continuation and COBRA continuation payments.
Mr. Green is subject to a compensation consultant, external legal counselperpetual confidentiality provision, and one-year post-termination of employment restrictions against competing and soliciting customers and employees.
Director Compensation Table
| Name | Fees earned or paid in cash ($) | Stock awards ($)(1) | Total ($) | |||||||||
| Russell Read | 60,000 | 1,155,380 | 1,215,380 | |||||||||
| Orim Graves | 60,000 | 1,155,380 | 1,215,380 | |||||||||
| Daphne Michelle Titus | 60,000 | 1,155,380 | 1,215,380 | |||||||||
| Ambassador Modest Jonathan Mero | 60,000 | 1,155,380 | 1,215,380 | |||||||||
| Ambassador Bisa Williams | 60,000 | 1,155,380 | 1,215,380 | |||||||||
| (1) | Stock awards consist solely of RSUs. All such awards vest as to 25% on January 2, 2024, 25% on May 16, 2024, 25% on May 16, 2025 and 25% on May 16, 2026. The amounts reported in this column represent the aggregate grant date fair value of the RSUs awarded to the non-employee directors in 2022, calculated in accordance with FASB ASC Topic 718. |
Fee Arrangements
Each non-executive director is entitled to receive a monthly fee of $5,000 in consideration for their service on our Board of Directors. There is no written agreement with respect to such fees, and each director elected to defer payment of such fees.
Equity Grants
AFRAG awarded each of Orim Graves, Ambassador Jonathan Modest Mero, Russell Read, Ambassador Bisa Williams, and Daphne Michelle Titus (“RSU Grantees”) 100,839 RSUs under the 2022 Plan. Pursuant to the RSU Grantees’ respective restrictive stock unit agreements, the RSUs vest as to 25% on January 2, 2024, 25% on May 16, 2024, 25% on May 16, 2025 and 25% on May 16, 2026. If an RSU Grantee is terminated by reason of death or “disability” or without “cause” or resigns for “good reason” (each as defined in the respective restricted stock unit agreement), any unvested RSUs of such RSU Grantee will immediately vest upon such termination. If an RSU Grantee is terminated for any other adviser,reason, such RSU Grantee’s respective unvested RSUs will be immediately forfeited and cancelled upon such termination.
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DESCRIPTION OF SECURITIES
Authorized and Outstanding Capital Stock
The Charter authorizes the compensation committee will considerissuance 350,000,000 shares of capital stock, consisting of (i) 300,000,000 shares of Common Stock and (ii) 50,000,000 shares of Preferred Stock. Immediately after giving effect to the independenceBusiness Combination (including as a result of the Domestication and the redemptions described above), there were approximately 57,866,830 shares of Common Stock issued and outstanding and warrants to purchase approximately 6,884,899 shares of Common Stock issued and outstanding.
Common Stock
Voting Rights
Holders of Common Stock are entitled to cast one vote per share of Common Stock. Generally, holders of all classes of Common Stock vote together as a single class, and an action is approved by stockholders if the number of votes cast in favor of the action exceeds the number of votes cast in opposition to the action, while directors are elected by a plurality of the votes cast. Holders of Common Stock are not entitled to cumulate their votes in the election of directors.
Dividend rights
Subject to the rights of the holders of Preferred Stock and any other provisions of the Charter, as it may be amended from time to time, holders of Common Stock are entitled to receive such dividends and other distributions in cash, stock or property when, as and if declared thereon by the AAGR Board, in its discretion, from time to time out of assets or funds legally available therefor. See “— Preferred Stock,” below for more information regarding the dividend rights of the holders of Preferred Stock.
Preferred Stock
The Charter provides that the AAGR Board has the authority, without action by the stockholders, to designate and issue shares of preferred stock in one or more classes or series, and the number of shares constituting any such class or series, and to fix the voting powers, designations, preferences, limitations, restrictions and relative rights of each such adviser,class or series of preferred stock, including, without limitation, dividend rights, dividend rates, conversion rights, exchange rights, voting rights, rights and terms of redemption, dissolution preferences, and treatment in the case of a merger, business combination transaction, or sale of assets, which rights may be greater than the rights of the holders of the common stock.
The purpose of authorizing the AAGR Board to issue preferred stock and determine the rights and preferences of any classes or series of preferred stock is to eliminate delays associated with a stockholder vote on specific issuances. The simplified issuance of preferred stock, while providing flexibility in connection with possible acquisitions, future financings and other corporate purposes, could have the effect of making it more difficult for a third party to acquire, or could discourage a third party from seeking to acquire, a majority of outstanding voting stock. Additionally, the issuance of preferred stock may adversely affect the holders of Common Stock by restricting dividends on the Common Stock, diluting the voting power of the Common Stock or subordinating the dividend or liquidation rights of the Common Stock. As a result of these or other factors, required by Nasdaq and the SEC.issuance of preferred stock could have an adverse impact on the market price of Common Stock.
Warrants
Director NominationsPublic Shareholders’ Warrants
There are currently outstanding an aggregate of 6,666,575 public warrants, which, following the consummation of the Business Combination, will entitle the holder to acquire 6,666,575 shares of Common Stock.
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Each whole public warrant entitles the registered holder to purchase one share of Common Stock at a price of $11.50 per share, subject to adjustment as discussed below, at any time commencing 30 days after the Closing, provided that we have an effective registration statement under the Securities Act covering the Common Stock issuable upon exercise of the public warrants and a current prospectus relating to them is available (or we permit holders to exercise their public warrants on a cashless basis under the circumstances specified in the warrant agreement) and such shares are registered, qualified or exempt from registration under the securities, or blue sky, laws of the state of residence of the holder. Pursuant to the warrant agreement, a public warrant holder may exercise its public warrants only for a whole number of shares of Common Stock. This means only a whole public warrant may be exercised at a given time by a public warrant holder. The public warrants will expire five years after the Closing Date, at 5:00 p.m., New York City time, or earlier upon redemption or liquidation.
We doare not obligated to deliver any shares pursuant to the exercise of a public warrant and will have no obligation to settle such warrant exercise unless a standing nominating committee thoughregistration statement under the Securities Act with respect to the shares underlying the public warrants is then effective and a prospectus relating thereto is current, subject to satisfying our obligations described below with respect to registration. No public warrant will be exercisable and we intendwill not be obligated to formissue a corporate governanceshare upon exercise of a public warrant unless the share issuable upon such warrant exercise has been registered, qualified or deemed to be exempt under the securities laws of the state of residence of the registered holder of the public warrants. In the event that the conditions in the two immediately preceding sentences are not satisfied with respect to a public warrant, the holder of such public warrant will not be entitled to exercise such public warrant and nominating committeesuch public warrant may have no value and expire worthless. In no event will we be required to net cash settle any public warrant.
The shares of Common Stock issuable upon the exercise of the public warrants were registered pursuant to that certain registration statement on Form S-4, originally filed by 10X II on January 20, 2023 and declared effective by the SEC on November 7, 2023. Pursuant to the warrant agreement, we are required to maintain a current prospectus relating to the shares issuable upon exercise of the public warrants until the expiration of the public warrants in accordance with the provisions of the warrant agreement. If a registration statement covering the shares of Common Stock issuable upon exercise of the public warrants is not effective or the prospectus therein is not current by the sixtieth (60th) business day after the Closing, public warrant holders may, until such time as there is an effective registration statement and during any period when requiredwe have failed to maintain an effective registration statement, exercise public warrants on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act or another exemption. Notwithstanding the above, if the shares of Common Stock are at the time of any exercise of a public warrant not listed on a national securities exchange such that they satisfy the definition of a “covered security” under Section 18(b)(1) of the Securities Act, we may, at our option, require holders of public warrants who exercise their public warrants to do so by law or Nasdaq rules. Inon a “cashless basis” in accordance with Rule 5605(e)(2)Section 3(a)(9) of the Nasdaq rules, a majority of the independent directors may recommend a director nominee for selection by
our board of directors. Our board of directors believes that the independent directors can satisfactorily carry out the responsibility of properly selecting or approving director nominees without the formation of a standing nominating committee. The directors who will participateSecurities Act and, in the considerationevent we so elect, we will not be required to file or maintain in effect a registration statement, and recommendation of director nominees are Messrs. Silver, Jurasek and Levin. In accordance with Rule 5605(e)(1)(A) ofin the Nasdaq rules, all such directors are independent. As there is no standing nominating committee,event we do not so elect, we will use its commercially reasonable efforts to register or qualify the shares under applicable blue sky laws to the extent an exemption is not available.
Redemption of warrants for cash
Once the public warrants become exercisable, we may call the public warrants for redemption for cash:
| ● | in whole and not in part; |
| ● | at a price of $0.01 per public warrant; |
| ● | upon not less than 30 days’ prior written notice of redemption to each public warrant holder; and |
| ● | if, and only if, the closing price of the Common Stock equals or exceeds $18.00 per share (as adjusted for share splits, share capitalizations, reorganizations, recapitalizations and the like) for any 20 trading days within a 30-trading day period ending three business days before we send to the notice of redemption to the public warrant holders. |
If and when the public warrants become redeemable by us for cash, we may exercise our redemption right even if we are unable to register or qualify the underlying securities for sale under all applicable state securities laws.
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We have established the last of the redemption criterion discussed above to prevent a nominating committee charter in place.
The boardredemption call unless there is at the time of directorsthe call a significant premium to the public warrant exercise price. If the foregoing conditions are satisfied and we issue a notice of redemption of the public warrants, each public warrant holder will alsobe entitled to exercise his, her or its public warrant prior to the scheduled redemption date. However, the price of the Common Stock may fall below the $18.00 redemption trigger price (as adjusted for stock splits, stock capitalizations, reorganizations, recapitalizations and the like) as well as the $11.50 public warrant exercise price after the redemption notice is issued.
Redemption procedures and cashless exercise
If we call the public warrants for redemption as described above, we will have the option to require any holder that wishes to exercise his, her or its public warrant to do so on a “cashless basis.” In determining whether to require all holders to exercise their public warrants on a “cashless basis,” we will consider, director candidates recommended for nomination byamong other factors, our cash position, the number of public warrants that are outstanding and the dilutive effect on our shareholders during such times as they are seeking proposed nominees to stand for election atof issuing the next annual meetingmaximum number of shareholders (or, if applicable, a special meetingshares of shareholders). Our shareholders that wish to nominate a director for election to our boardCommon Stock issuable upon the exercise of directors should follow the procedures set forth in our amended and restated memorandum and articlespublic warrants. If we take advantage of association.
We have not formally established any specific, minimum qualifications that must be met or skills that are necessary for directors to possess. In general, in identifying and evaluating nominees for director, our board of directors considers educational background, diversity of professional experience, knowledge of our business, integrity, professional reputation, independence, wisdom, and the ability to represent the best interests of our shareholders. Prior to our initial business combination,this option, all holders of our public warrants would pay the exercise price by surrendering their public warrants for that number of shares of Common Stock equal to the quotient obtained by dividing (x) the product of the number of shares of Common Stock underlying the public warrants, multiplied by the excess of the “fair market value” of the Common Stock over the exercise price of the public warrants by (y) the fair market value. The “fair market value” will mean the average closing price of a share of the Common Stock for the 10 trading days ending on the third trading day prior to the date on which the notice of redemption is sent to the holders of public warrants. If we take advantage of this option, the notice of redemption will contain the information necessary to calculate the number of shares of Common Stock to be received upon exercise of the public warrants, including the “fair market value” in such case. Requiring a cashless exercise in this manner will reduce the number of shares to be issued and thereby lessen the dilutive effect of a warrant redemption. We believe this feature is an attractive option if we do not need the cash from the exercise of the public warrants. If we call the public warrants for redemption and we do not take advantage of this option, the holders of the private placement warrants and their permitted transferees would still be entitled to exercise their private placement warrants for cash or on a cashless basis using the same formula described above that other public warrant holders would have been required to use had all warrant holders been required to exercise their warrants on a cashless basis, as described in more detail below.
A holder of a public warrant may notify us in writing in the event it elects to be subject to a requirement that such holder will not have the right to recommend director candidatesexercise such public warrant, to the extent that after giving effect to such exercise, such person (together with such person’s affiliates), to the warrant agent’s actual knowledge, would beneficially own in excess of 4.9% or 9.8% (as specified by the holder) of the shares of Common Stock outstanding immediately after giving effect to such exercise.
If the number of outstanding shares of Common Stock is increased by a share capitalization payable in Common Stock, or by a split-up of Common Stock or other similar event, then, on the effective date of such share capitalization, split-up or similar event, the number of shares of Common Stock issuable on exercise of each public warrant will be increased in proportion to such increase in the outstanding Common Stock. A rights offering to holders of Common Stock entitling holders to purchase Common Stock at a price less than the fair market value will be deemed a share capitalization of a number of shares of Common Stock equal to the product of (i) the number of shares of Common Stock actually sold in such rights offering (or issuable under any other equity securities sold in such rights offering that are convertible into or exercisable for nominationCommon Stock) and (ii) the quotient of (x) the price per share of Common Stock paid in such rights offering and (y) the fair market value. For these purposes (i) if the rights offering is for securities convertible into or exercisable for shares of Common Stock, in determining the price payable for common stock, there will be taken into account any consideration received for such rights, as well as any additional amount payable upon exercise or conversion and (ii) fair market value means the volume weighted average price of shares of Common Stock as reported during the ten (10) trading day period ending on the trading day prior to our boardthe first date on which the common stock trade on the applicable exchange or in the applicable market, regular way, without the right to receive such rights.
In addition, if we, at any time while the public warrants are outstanding and unexpired, pay a dividend or make a distribution in cash, securities or other assets to the holders of directors.Common Stock on account of such common stock (or other securities into which the public warrants are convertible), other than (a) as described above or (b) certain ordinary cash dividends, then the warrant exercise price will be decreased, effective immediately after the effective date of such event, by the amount of cash and/or the fair market value of any securities or other assets paid on each share of Common Stock in respect of such event.
Compensation Committee Interlocks
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If the number of outstanding shares of Common Stock is decreased by a consolidation, combination, reverse share split or reclassification of common stock or other similar event, then, on the effective date of such consolidation, combination, reverse share split, reclassification or similar event, the number of shares of common stock issuable on exercise of each public warrant will be decreased in proportion to such decrease in outstanding share of Common Stock.
Whenever the number of shares of Common Stock purchasable upon the exercise of the public warrants is adjusted, as described above, the warrant exercise price will be adjusted by multiplying the warrant exercise price immediately prior to such adjustment by a fraction (x) the numerator of which will be the number of shares of Common Stock purchasable upon the exercise of the public warrants immediately prior to such adjustment, and Insider Participation(y) the denominator of which will be the number of shares of Common Stock so purchasable immediately thereafter.
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In case of any reclassification or reorganization of the outstanding Common Stock (other than those described above or that solely affects the par value of such Common Stock), or in the case of any merger or consolidation with or into another corporation (other than a consolidation or merger in which we are the continuing corporation and that does not result in any reclassification or reorganization of the outstanding Common Stock), or in the case of any sale or conveyance to another corporation or entity of our executive officers currently serves, and in the past year has not served, as a member of the compensation committee of any entity that has oneassets or more executive officers serving on our board of directors.
Observers to the Board of Directors
We intend to appoint Gil Penchinaother property as an observer of our board of directors, which appointment shall take effect upon the closing of the offering. Mr. Penchina will assist our management team with sourcing and evaluating business opportunities and devising plans and strategies to optimize any business that we acquire following the consummation of this offering. Board observers are neither paid nor reimbursed for any out-of-pocket expensesentirety or substantially as an entirety in connection with which we are dissolved, the searchholders of acquisition targets beforethe public warrants will thereafter have the right to purchase and receive, upon the basis and upon the terms and conditions specified in the public warrants and in lieu of Common Stock immediately theretofore purchasable and receivable upon the exercise of the rights represented thereby, the kind and amount of common stock or other securities or property (including cash) receivable upon such reclassification, reorganization, merger or consolidation, or upon a dissolution following any such sale or transfer, that the holder of the public warrants would have received if such holder had exercised their public warrants immediately prior to such event. If less than 70% of the consideration receivable by the holders of common stock in such a transaction is payable in the form of common stock in the successor entity that is listed for trading on a national securities exchange or is quoted in an established over-the-counter market, or is to be so listed for trading or quoted immediately following such event, and if the registered holder of the public warrant properly exercises the public warrant within thirty days following public disclosure of such transaction, the warrant exercise price will be reduced as specified in the warrant agreement based on the Black-Scholes Warrant Value (as defined in the warrant agreement) of the public warrant. The purpose of such exercise price reduction is to provide additional value to holders of the public warrants when an extraordinary transaction occurs during the exercise period of the public warrants pursuant to which the holders of the public warrants otherwise do not receive the full potential value of the public warrants.
The public warrants were issued in registered form under a warrant agreement between Continental Stock Transfer & Trust Company, as warrant agent, and 10X II. The warrant agreement provides that the terms of the public warrants may be amended without the consent of any holder to cure any ambiguity or correct any defective provision, and that all other modifications or amendments will require the vote or written consent of the holders of at least 50% of the then outstanding public warrants, and, solely with respect to any amendment to the terms of warrants we may issue in connection with a business combination, or Post-IPO warrants (as defined in the warrant agreement), at least 50% of the then outstanding Post-IPO Warrants.
The public warrants may be exercised upon surrender of the warrant certificate on or prior to the expiration date at the offices of the warrant agent, with the exercise form on the reverse side of the warrant certificate completed and executed as indicated, accompanied by full payment of the exercise price (or on a cashless basis, if applicable), by certified or official bank check payable to us, for the number of public warrants being exercised. The public warrant holders do not have the rights or privileges of holders of Common Stock and any voting rights until they exercise their public warrants and receive common stock. After the issuance of Common Stock upon exercise of the public warrants, each holder will be entitled to one vote for each share held of record on all matters to be voted on by shareholders.
No fractional shares will be issued upon exercise of the public warrants. If, upon exercise of the public warrants, a holder would be entitled to receive a fractional interest in a share, we will, upon exercise, round down to the nearest whole number the number of shares of Common Stock to be issued to the public warrant holder.
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We have agreed that, subject to applicable law, any action, proceeding or claim against us arising out of or relating in any way to the warrant agreement will be brought and enforced in the courts of the State of New York or the United States District Court for the Southern District of New York, and we irrevocably submit to such jurisdiction, which jurisdiction will be the exclusive forum for any such action, proceeding or claim. This provision applies to claims under the Securities Act but does not apply to claims under the Exchange Act or any claim for which the federal district courts of the United States of America are the sole and exclusive forum.
Private Placement Warrants
The private placement warrants (including the Common Stock issuable upon exercise of the private placement warrants) will not be transferable, assignable or salable until 30 days after the consummation of our initial business combination. We have not currently entered into any formal arrangements or agreements with board advisorsClosing (except, among other limited exceptions, to provide services to us and they will have no fiduciary obligations to present business opportunities to us.
Gil Penchina is a serial entrepreneur and accomplished venture investor, whose portfolio companies include PayPal, LinkedIn, Fastly, Cruise, Rent the Runway, PagerDuty (NYSE: PD), Discord, Dollar Shave Club, Carta and Wealthfront. Mr. Penchina is a co-founder of Fastly (NYSE: FSLY), an edge cloud computing services provider. Previously, he was the chief executive officer of Wikia (now re-branded Fandom.com), whose investors include TPG, Amazon.com, Inc. (Nasdaq: AMZN), Bessemer Venture Partners and Institutional Venture Partners. Mr. Penchina was a member of the pre-IPO team at eBay (Nasdaq: EBAY) beginning in 1998, where he held various senior management positions including director, mergers & acquisitions from 1999-2000 and vice president and general manager of eBay International 2002-2006. Before eBay, Gil worked at General Electric (NYSE: GE) and Bain & Company. Mr. Penchina received a Bachelors in Engineering from the University of Massachusetts, Amherst in 1991 and an MBA from the Kellogg School of Management at Northwestern University in 1997.
Code of Business Conduct and Ethics
Prior to the consummation of this offering, we will adopt a code of ethics applicable to our directors, officers and employees (“Code of Ethics”). We have filed a copy of our form Code of Ethics and our audit committee and compensation committee charters as exhibits to the registration statement of which this prospectus is a part. You
will be able to review these documents by accessing our public filings at the SEC’s web site at www.sec.gov. In addition, a copy of the Code of Ethics will be provided without charge upon request from us. We intend to disclose any amendments to or waivers of certain provisions of our Code of Ethics in a Current Report on Form 8-K.
Conflicts of Interest
Under Cayman Islands law, directors and officers owe the following fiduciary duties::
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In addition to the above, directors also owe a duty of care which is not fiduciary in nature. This duty has been defined as a requirement to act as a reasonably diligent person having both the general knowledge, skill and experience that may reasonably be expected of a person carrying out the same functions as are carried out by that director in relation to the company and the general knowledge skill and experience of that director.
As set out above, directors have a duty not to put themselves in a position of conflict and this includes a duty not to engage in self-dealing, or to otherwise benefit as a result of their position. However, in some instances what would otherwise be a breach of this duty can be forgiven and/or authorized in advance by the shareholders provided that there is full disclosure by the directors. This can be done by way of permission granted in the memorandum and articles of association or alternatively by shareholder approval at general meetings.
Each of our10X II officers and directors presentlyand other persons or entities affiliated with the Sponsor and Cantor) The private placement warrants have terms and provisions that are identical to those of the public warrants, as described above.
Quorum; Voting
The holders of a majority of the voting power of the capital stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, constitutes a quorum at all meetings of the stockholders for the transaction of business except as otherwise required by law or provided by the Charter. If, however, such quorum will not be present or represented at any meeting of the stockholders, the chairperson or holders of a majority of the voting power present in person or represented by proxy, has the power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum will be present or represented. At such adjourned meeting at which a quorum will be present or represented, any business may be transacted which might have been transacted at the meeting as originally noticed. If the adjournment is for more than thirty (30) days, a notice of the adjourned meeting will be given to each stockholder entitled to vote at such adjourned meeting. If after the adjournment a new record date for determination of stockholders entitled to vote is fixed for the adjourned meeting, the AAGR Board shall fix as the record date for determining stockholders entitled to notice of such adjourned meeting the same or an earlier date as that fixed for determination of stockholders entitled to vote at the adjourned meeting, and anyshall give notice of themthe adjourned meeting to each stockholder of record as of the record date so fixed for notice of such adjourned meeting. The stockholders present at a duly called or convened meeting, at which a quorum is present, may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum.
Except as otherwise provided by statute or by applicable stock exchange rules, or by the Charter or the Bylaws, in all matters other than the future may have additional, fiduciaryelection of directors, the affirmative vote of the majority of the voting power of the shares present in person, by remote communication, if applicable, or contractual obligationsrepresented by proxy at the meeting and entitled to another entityvote generally on the subject matter will be the act of the stockholders. Except as otherwise provided by statute, the Charter or the Bylaws, directors will be elected by a plurality of the votes cast by shareholders present in person, by remote communication, if applicable, or represented by proxy at the meeting.
Registration Rights
On December 6, 2023, we entered into that certain Amended and restated Registration Rights Agreement with the Sponsor and certain stockholders (the “Registration Rights Agreement”), pursuant to which, among other things, the Sponsor, such officer or director is or will be required to present a business combination opportunity to such entity. Accordingly, if any of our officers or directors becomes aware of a business combination opportunity which is suitable for an entity to which he or she has then-current fiduciary or contractual obligations, he or she will honor his or her fiduciary or contractual obligations to present such business combination opportunity to such entity,stockholders and the other parties thereto were granted certain registration rights, on the terms and subject to their fiduciary duties under Cayman Islands law. Our amended and restated memorandum and articles of association providethe conditions therein.
Exclusive Forum
The Charter provides that, to the fullest extent permitted by applicable law: (i) no individual serving aslaw, unless we otherwise consent in writing, the Court of Chancery shall be the sole and exclusive forum for (a) any derivative action or proceeding brought on our behalf, (b) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee to us or our stockholders, (c) any action asserting a claim against us, our directors, officers or employees arising pursuant to any provision of the DGCL, the Charter or the Bylaws, (d) any action to interpret, apply, enforce or determine the validity of any provisions of the Charter or the Bylaws or (e) any action asserting a claim against us, our directors, officers or employees governed by the internal affairs doctrine. Notwithstanding the foregoing, the federal district courts of the United States shall be the exclusive forum for the resolution of any action, suit or proceeding asserting a cause of action arising under the Securities Act.
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Anti-Takeover Effects of Provisions of the Charter, the Bylaws and Applicable Law
Certain provisions of the Charter, the Bylaws, and laws of the State of Delaware may discourage or make more difficult a takeover attempt that a stockholder might consider in his or her best interest. These provisions may also adversely affect prevailing market prices for the Common Stock. We believe that the benefits of increased protection give us the potential ability to negotiate with the proponent of an officer shall haveunsolicited proposal to acquire or restructure us and outweigh the disadvantage of discouraging those proposals because negotiation of the proposals could result in an improvement of their terms.
Authorized but Unissued Shares
Delaware law does not require stockholder approval for any duty, except andissuance of authorized shares. However, the listing requirements of Nasdaq require stockholder approval of certain issuances equal to exceeding 20% of the extent expressly assumed by contract, to refrain from engaging directlythen outstanding voting power or indirectlythen outstanding number of shares of Common Stock. Additional shares that may be used in the same or similar business activities or lines of business as us; and (ii) we renounce any interest or expectancy in, or in being offered an opportunity to participate in, any potential transaction or matter whichfuture may be issued for a variety of corporate opportunity for any directorpurposes, including future public offerings, to raise additional capital, or officer, on the one hand,to facilitate acquisitions. The existence of authorized but unissued and unreserved common stock and preferred stock could make more difficult or discourage an attempt to obtain control of us on the other. We do not believe, however, that the fiduciary dutiesby means of a proxy contest, tender offer, merger, or contractual obligations of our officers or directors will materially affect our ability to complete our initial business combination.otherwise.
Below is a table summarizing the entities to which our executive officers and directors currently have fiduciary duties or contractual obligations:
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Number of Directors
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Potential investors should alsoThe Charter and the Bylaws provide that, subject to any rights of holders of preferred stock to elect additional directors under specified circumstances, directors shall be awaredivided into three classes, designated Class I, Class II and Class III, as nearly equal in number as possible. Class I directors shall initially serve until the first annual meeting of stockholders following the initial effectiveness of the Charter (the “Classification Effective Time”); Class II directors shall initially serve until the second annual meeting of stockholders following other potential conflictsthe Classification Effective Time; and Class III directors shall initially serve until the third annual meeting of interest:
Our executive officers andstockholders following the Classification Effective Time. Commencing with the first annual meeting of stockholders following the Classification Effective Time, directors are not requiredof each class the term of which shall then expire shall be elected to and will not, commit their full time to our affairs, which may result in a conflict of interest in allocating their time between our operations and our searchhold office for a business combinationthree-year term and until the election and qualification of their other businesses. We do not intend to have any full-time employees prior torespective successors in office. Any such director shall hold office until the completion of our initial business combination. Each of our executive officers is engaged in several other business endeavors forannual meeting at which he mayhis or her term expires and until his or her successor shall be entitled to substantial compensation,elected and our executive officers are not obligated to contribute any specific number of hours per week to our affairs.qualified, or until his or her earlier death, resignation, retirement, disqualification or removal from office.
Our initial shareholders purchased founder shares prior to the dateRequirements for Advance Notification of this prospectusStockholder Meetings, Nominations and will purchase private placement units in a transaction that will close simultaneously with the closing of this offering. Our initial shareholders have entered into agreements with us, pursuant to which they have agreed to waive their redemption rightsProposals
The Bylaws establish advance notice procedures with respect to their founder sharesstockholder proposals and any public shares they hold in connection withnomination of candidates for election as directors, other than nominations made by or at the completiondirection of our initial business combination. The other members of our management team have entered into agreements similar to the one entered into by our initial shareholders with respect to any public shares acquired by them in or after this offering. Additionally, our initial shareholders have agreed to waive their rights to liquidating distributions from the trust account with respect to their founder shares if we fail to complete our initial business combination within the prescribed time frame or any extended period of time that we may have to consummate an initial business combination as a result of an amendment to our amended and restated memorandum and articles of association. If we do not complete our initial business combination within the prescribed time frame, the private placement units will expire worthless. Furthermore, our initial shareholders and the anchor investors have agreed not to transfer, assign or sell any of their founder shares until consummation of our initial business combination. Subject to certain limited exceptions, the private placement units, private placement shares and private placement warrants, and the Class A ordinary shares underlying such warrants, will not be transferable until 30 days following the completion of our initial business combination. Because each of our executive officers and director nominees will own ordinary shares or warrants directly or indirectly, they may have a conflict of interest in determining whether a particular target business is an appropriate business with which to effectuate our initial business combination.
Our officers and directors may have a conflict of interest with respect to evaluating a particular business combination if the retention or resignation of any such officers and directors was included by a target business as a condition to any agreement with respect to our initial business combination.
We are not prohibited from pursuing an initial business combination with a business combination target that is affiliated with our sponsor, officers or directors or completing the business combination through a joint venture or other form of shared ownership with our sponsor, officers or directors. In the event we seek to complete our initial business combination with an business combination target that is affiliated with our sponsor, executive officers or directors, we,AAGR Board or a committee of independentthe AAGR Board. In order to be “properly brought” before a meeting, a stockholder must comply with advance notice requirements and provide us with certain information. Generally, to be timely, a stockholder’s notice must be received at our principal executive offices not less than 90 days nor more than 120 days prior to the first anniversary of the immediately preceding annual meeting of stockholders. The Bylaws also specify requirements as to the form and content of a stockholder’s notice. These provisions may also defer, delay, or discourage a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors wouldor otherwise attempting to influence or obtain control of us.
Limitations on Stockholder Action by Written Consent
The Charter provides that, subject to the terms of any series of Preferred Stock, any action required or permitted to be taken by our stockholders must be effected at an opinion fromannual or special meeting of the stockholders and may not be effected by written consent in lieu of a meeting.
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Amendment of the Charter and Bylaws
The DGCL provides generally that the affirmative vote of a majority of the outstanding shares entitled to vote thereon, voting together a single class, is required to amend a corporation’s charter, unless the charter requires a greater percentage. The d Charter provides that it may be amended in the manners provided therein or prescribed by statute. Generally, under the DGCL, the affirmative vote of the holders of a majority of the voting power of the then-outstanding shares of capital stock entitled to vote generally in the election of directors, voting together as a single class, will be required to amend or repeal, or adopt any provision of the Charter; provided that certain provisions that require a supermajority vote under the Charter. The Charter provides that that the affirmative vote of the holders of at least two-thirds (66⅔%) of the voting power of all of the then outstanding shares of voting stock is required for amendments of certain provisions of the Charter relating to: (i) actions taken by our stockholders, (ii) exculpation of personal liability of a director and indemnification of persons serving as directors or officers, (iii) forum for certain legal actions, (iv) renunciation of certain corporate opportunities, and (v) amendments to the Charter and the Bylaws.
The Charter also provides that the AAGR Board has the power to make, repeal, alter, amend and rescind, in whole or in part, the Bylaws without the assent or vote of the stockholders in any manner not inconsistent with the laws of the State of Delaware or the Charter. The holders of at least 66⅔% of the voting power of the outstanding shares of Common Stock entitled to vote at an independentelection of directors, voting together as a single class also have the power to alter, amend or repeal, in whole or in part, any provision of the Bylaws or to adopt any provision inconsistent therewith.
investment banking
Under Section 203 of the DGCL, a corporation will not be permitted to engage in a business combination with any interested stockholder for a period of three years following the time that such interested stockholder became an interested stockholder, unless:
| (1) | prior to such time the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; |
| (2) | upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the voting stock outstanding (but not the outstanding voting stock owned by the interested stockholder) those shares owned (i) by persons who are directors and also officers and (ii) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or |
| (3) | at or subsequent to such time the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66⅔% of the outstanding voting stock which is not owned by the interested stockholder. |
Generally, a “business combination” includes a merger, asset or stock sale or other transaction resulting in a financial benefit to the interested stockholder. Subject to certain exceptions, an “interested stockholder” is a member of FINRAperson who, together with that person’s affiliates and associates, owns, or a valuationwithin the previous three years owned, 15% or appraisal firm, that such initial business combination is fair to our company from a financial point of view. We are not required to obtain such an opinion in any other context. Furthermore, in no event will our sponsor or anymore of our existing officers or directors, or anyoutstanding voting stock. For purposes of their respective affiliates, be paid bythis section only, “voting stock” has the company any finder’s fee, consulting fee or other compensation priormeaning given to or for any services they renderit in order to effectuate, the completion of our initial business combination. Further, commencing on the date our securities are first listed on Nasdaq, we will also pay our sponsor $20,000 per month for office space, secretarial and administrative services provided to members of our management team.
We cannot assure you that anySection 203 of the above mentioned conflicts willDGCL.
A Delaware corporation may elect in its certificate of incorporation or bylaws not to be resolved in our favor.
Ingoverned by this particular Delaware law. Under the event thatCharter, we submit our initial business combination to our public shareholders for a vote, our initial shareholders have agreedopted out of Section 203 of the DGCL, but provide other similar restrictions regarding takeovers by interested stockholders.
Cumulative Voting
Under Delaware law, the right to vote their founder shares, and they andcumulatively does not exist unless the other members of our management team have agreed to vote any founder shares they hold and any shares purchased during or after the offering in favor of our initial business combination.charter specifically authorizes cumulative voting. The Charter does not authorize cumulative voting.
Limitation
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Limitations on Liability and Indemnification of Officers and Directors
Cayman Islands law does
The DGCL authorizes corporations to limit or eliminate the personal liability of directors of corporations and their stockholders for monetary damages for breaches of directors’ fiduciary duties, subject to certain exceptions. The Charter includes a provision that eliminates the personal liability of directors for damages for any breach of fiduciary duty as a director where, in civil proceedings, the person acted in good faith and in a manner that person reasonably believed to be in or not limitopposed to our best interests or, in criminal proceedings, where the extentperson had no reasonable cause to which a company’s memorandumbelieve that his or her conduct was unlawful.
The Bylaws provide that we must indemnify and articles of association may provide for indemnification ofadvance expenses to our directors and officers and directors, except to the fullest extent any such provision may be heldauthorized by the Cayman Islands courtsDGCL. We are also expressly authorized to be contrary to public policy, such as to provide indemnification against willful default, fraud or the consequences of committing a crime. Our amended and restated memorandum and articles of association will provide for indemnification of our officers and directors to the maximum extent permitted by law, including for any liability incurred in their capacities as such, except through their own actual fraud, willful default or willful neglect. We expect to purchase a policy ofcarry directors’ and officers’ liability insurance that insuresproviding indemnification for our directors, officers, and certain employees for some liabilities. We believe that these indemnification and advancement provisions and insurance are useful to attract and retain qualified directors against the costand executive officers.
The limitation of defense, settlement or payment of a judgment in some circumstancesliability, advancement and insures us against our obligations to indemnify our officers and directors.
Our officers and directors have agreed to waive any right, title, interest or claim of any kind in or to any moniesindemnification provisions in the trust account,Charter and have agreed to waive any right, title, interest or claim of any kind they may have in the future as a result of, or arising out of, any services provided to us and will not seek recourse against the trust account for any reason whatsoever. Accordingly, any indemnification provided will only be able to be satisfied by us if (i) we have sufficient funds outside of the trust account or (ii) we consummate an initial business combination.
Our indemnification obligationsBylaws may discourage shareholdersstockholders from bringing a lawsuit against our officers or directors for breach of their fiduciary duty. These provisions also may have the effect of reducing the likelihood of derivative litigation against ourdirectors and officers, and directors, even though such an action, if successful, might otherwise benefit us and our shareholders. Furthermore, a shareholder’sstockholders. In addition, your investment may be adversely affected to the extent we pay the costs of settlement and damage awards against our officersdirectors and directorsofficer pursuant to these indemnification provisions.
We believe
There is currently no pending material litigation or proceeding involving any of our directors, officers, or employees for which indemnification is sought.
Dissenters’ Rights of Appraisal and Payment
Under the DGCL, with certain exceptions, our stockholders will have appraisal rights in connection with a merger or consolidation. Pursuant to the DGCL, stockholders who properly request and perfect appraisal rights in connection with such merger or consolidation will have the right to receive payment of the fair value of their shares as determined by the Court of Chancery.
Stockholders’ Derivative Actions
Under the DGCL, any of our stockholders may bring an action in our name to procure a judgment in our favor, also known as a derivative action, provided that these provisions, the insurancestockholder bringing the action is a holder of our shares at the time of the transaction to which the action relates or such stockholder’s stock thereafter devolved by operation of law.
Transfer Agent and Registrar; Warrant Agent
The transfer agent and registrar for our capital stock, and the indemnity agreementswarrant agent for our warrants, is Continental Stock Transfer & Trust Company.
Listing of common stock
Our shares of Common Stock and public warrants are necessarylisted on Nasdaq under the symbols “AAGR” and “AAGRW,” respectively.
Rule 144
Pursuant to attractRule 144, a person who has beneficially owned restricted shares of our common stock or warrants for at least six months would be entitled to sell their securities provided that (i) such person is not deemed to have been one of our affiliates at the time of, or at any time during the three months preceding, a sale and retain talented(ii) we are subject to the Exchange Act periodic reporting requirements for at least three months before the sale and experienced officershave filed all required reports under Section 13 or 15(d) of the Exchange Act during the 12 months (or such shorter period as we were required to file reports) preceding the sale.
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Persons who have beneficially owned restricted shares of our common stock or warrants for at least six months but who are our affiliates at the time of, or at any time during the three months preceding, a sale, would be subject to additional restrictions, by which such person would be entitled to sell within any three-month period only a number of securities that does not exceed the greater of:
| ● | 1% of the total number of shares of common stock then outstanding (as of December 6, 2023, there were 57,866,830 shares of our common stock outstanding); or |
| ● | the average weekly reported trading volume of the common stock during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale. |
Sales by our affiliates under Rule 144 are also limited by manner of sale provisions and directors.notice requirements and to the availability of current public information about us.
Restrictions on the Use of Rule 144 by Shell Companies or Former Shell Companies
Rule 144 is not available for the resale of securities initially issued by shell companies (other than business combination related shell companies) or issuers that have been at any time previously a shell company. However, Rule 144 also includes an important exception to this prohibition if the following conditions are met:
| ● | the issuer of the securities that was formerly a shell company has ceased to be a shell company; |
| ● | the issuer of the securities is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act; |
| ● | the issuer of the securities has filed all Exchange Act reports and materials required to be filed, as applicable, during the preceding 12 months (or such shorter period that the issuer was required to file such reports and materials), other than Current Reports on Form 8-K; and |
| ● | at least one year has elapsed from the time that the issuer filed current Form 10 type information with the SEC reflecting its status as an entity that is not a shell company. |
As a result, our stockholders are able to sell their shares pursuant to Rule 144 without registration one year after we completed our initial business combination.
We are no longer a shell company following the Closing, and so, once the conditions set forth in the exceptions listed above are satisfied, Rule 144 will become available for the resale of the above noted restricted securities.
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BENEFICIAL OWNERSHIP OF SECURITIES
The following table sets forth information regarding the beneficial ownership of shares of our ordinarycommon stock by:
| ● | each person who is, or is expected to be, the beneficial owner of more than 5% of the outstanding shares of any series of our voting common stock; | |
| ● | each of our current executive officers and directors; | |
| ● | all executive officers and directors of the Company, as a group, upon the closing of the Business Combination. |
The beneficial ownership of common stock of the Company is based on 57,866,830 shares of common stock issued and outstanding as of the date of this prospectus, and as adjusted to reflect the sale of our Class A ordinary shares included in the units offered by this prospectus, and assuming no purchase of units in this offering, by:
December 28, 2023.
each person known by us to be the beneficial owner of more than 5% of our outstanding ordinary shares;
eachBeneficial ownership is determined according to the rules of our executive officers, directorsthe SEC, which generally provide that a person has beneficial ownership of a security if he, she or it possesses sole or shared voting or investment power over that security, including options and director nominees; andwarrants that are currently exercisable or exercisable within sixty (60) days.
all our executive officers and directors as a group.
Unless otherwise indicated, we believe that all persons named in the table have sole voting and investment power with respect to all shares of our ordinary sharescommon stock beneficially owned by them. The following table does not reflect record or beneficial ownership of the private placement warrants as these warrants are not exercisable within 60 days of the date of this prospectus.
On February 18, 2021, our sponsor paid $25,000, or approximately $0.003 per share, to cover certain expenses on our behalf in consideration of 7,666,667 founder shares. Prior to the initial investment in the company of $25,000 by the sponsor, the company had no assets, tangible or intangible. The purchase price of the founder shares was determined by dividing the amount of cash contributed to the company by the number of founder shares issued. The number of founder shares outstanding was determined based on the expectation that the total size of this offering would be a maximum of 23,000,000 units if the underwriters’ over-allotment option is exercised in full, and therefore that such founder shares would represent 25% of the outstanding shares after this offering (not including the Class A ordinary shares underlying the private placement units). Up to 1,000,000 of the founder shares will be forfeited depending on the extent to which the underwriters’ over-allotment is exercised. The post-offering percentages in the following table assume that the underwriters do not exercise their over-allotment option, that our initial shareholders have forfeited 1,000,000 founder shares, that there are 27,321,667 ordinary shares, consisting of (i) 20,655,000 Class A ordinary shares (including 20,000,000 public shares and 655,000 private placement shares) and (ii) 6,666,667 Class B ordinary shares, issued and outstanding after this offering and that none of the anchor investors purchase 100% of the units that may be allocated to them. For a detailed discussion of the arrangements with the anchor investors, please see “— Expression of Interest” below.
| Before Offering | After Offering | |||||||||||||||
Name and Address of Beneficial Owner (1) | Number of Shares Beneficially Owned (2)(4) | Approximate Percentage of Outstanding Ordinary Shares | Number of Shares Beneficially Owned (2) | Approximate Percentage of Outstanding Ordinary Shares | ||||||||||||
10X Capital SPAC Sponsor II LLC (our sponsor)(3) | 7,666,667 | 100 | % | 7,121,667 | 26.1 | % | ||||||||||
Hans Thomas(3) | 7,666,667 | 100 | % | 7,121,667 | 26.1 | % | ||||||||||
David Weisburd | — | — | — | — | ||||||||||||
Guhan Kandasamy | — | — | — | — | ||||||||||||
Oliver Wriedt | — | — | — | — | ||||||||||||
Christopher Jurasek | — | — | — | — | ||||||||||||
Boris Silver | — | — | — | — | ||||||||||||
Woodrow H. Levin | — | — | — | — | ||||||||||||
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All executive officers, directors and director nominees as a group (7 individuals) | 7,666,667 | 100 | % | 7,121,667 | 26.1 | % | ||||||||||
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| Name of Beneficial Owner(1) | Number of Shares of Common Stock Beneficially Owned | Percentage of Outstanding Common Stock | ||||||
| Directors and Executive Officers | ||||||||
| Alan Kessler(2) | 13,678 | * | ||||||
| Harry Green(3) | 198,297 | * | ||||||
| Russell Read(4) | 25,209 | * | ||||||
| Orim Graves(4) | 25,209 | * | ||||||
| Daphne Michelle Titus(4) | 25,209 | * | ||||||
| Ambassador Bisa Williams(4) | 25,209 | * | ||||||
| Osman Ahmed | - | - | ||||||
| Modest Jonathan Mero(4) | 25,209 | * | ||||||
| All directors and executive officers as a group (8 individuals)(5) | 331,265 | * | ||||||
| Five Percent Holders | ||||||||
| Global Commodities & Investments Ltd.(6) | 28,080,047 | 48.5 | % | |||||
| 10X Capital SPAC Sponsor II LLC(7) | 8,347,329 | 14.4 | % | |||||
| Vellar Opportunities Master Fund, Ltd. (8) | 5,750,000 | 9.94 | % | |||||
| ACM ARRT L LLC(9) | 5,607,212 | 9.69 | % | |||||
| Gora Seck(10) | 2,787,725 | 4.8 | % | |||||
| * | Less than |
| (1) | Unless otherwise noted, the business address of each of the |
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| (2) | Consists of (i) 6,160 shares of Common Stock held of record by Mr. Kessler, (ii) 763 shares of Common Stock held of record by Gillian Kessler, and (iii) 6,755 shares of Common Stock held by African Discovery Group, Inc. (“ADG”). Mr. Kessler is the Chief Executive Officer and majority stock holder of ADG and has voting and dispositive power with respect to the shares owned by ADG. Gillian Kessler is Mr. Kessler’s wife. Mr. Kessler disclaims ownership of the shares held by ADG and his wife, except to the extent of his pecuniary interest therein. |
| (3) | Consists of 1,923 shares of Common Stock held of record by Mr. Green and 196,374 shares of Common Stock issuable upon the settlement of RSUs vesting within 60 days of December 6, 2023. |
| (4) | Consists of shares of Common Stock issuable upon the settlement of RSUs vesting within 60 days of December 6, 2023. |
| (5) | Consists of (i) 8,846 shares of Common Stock and (ii) 322,419 shares of Common Stock issuable upon the settlement of RSUs vesting within 60 days of December 6, 2023. |
| (6) | Vasile Frank Timis is the majority owner of Global Commodities & Investments Ltd., and has voting and dispositive power with respect to the shares held by Global Commodities & Investments Ltd. The address of Mr. Timis and Global Commodities & Investments Ltd. is Second floor, Strathvale House, 90 North Church Street, George Town, Grand Cayman. Mr. Timis disclaims beneficial ownership of these shares, except to the extent of his pecuniary interest therein. |
| (7) | Consists of (i) 8,195,663 shares of Common Stock and (ii) 151,666 shares of Common Stock underlying Warrants that are exercisable within 60 days of December 6, 2023 directly held by 10X Capital SPAC Sponsor II LLC (the “Sponsor”). The Sponsor is controlled by its manager, 10X Capital Advisors, LLC (the “Manager”). The Manager has the sole voting and dispositive power of the securities held by the Sponsor. Hans Thomas and David Weisburd are the managing members of the Manager and accordingly may be deemed to have beneficial ownership of securities reported herein. Each of Mr. Thomas and Mr. Weisburd disclaims any ownership of securities reported herein other than to the extent of any pecuniary interest they may have therein, directly or indirectly. The Sponsor’s address is 1 World Trade Center, 85th Floor, New York, NY 10007. |
| (8) | The address of the reporting person is 3 Columbus Circle, Suite 2400 New York, |
| (9) | Atalaya Capital Management LP has the power to vote and direct the disposition of all shares owned by ACM ARRT L LLC. The stockholder’s principal business address is One Rockefeller Plaza, 32nd Floor, New York, NY 10020. |
| (9) | Mr. Seck’s address is Liberty 6 Extension, Cité des Jeunes Cadres Lébou, Villa N*25, Dakar, Senegal. |
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SELLING SECURITYHOLDERS
This prospectus covers the offer and resale, from time to time, of (i) up to 26,201 warrants issued to the David Stadlin Trust; (ii) up to 5,666,667 shares of common stock originally issued in a private placement to the Sponsor and subsequently distributed in part to certain members of the Sponsor, (iii) up to 33,209,370 shares of common stock held by other selling securityholders of the Company; and (iv) up to 655,000 shares of common stock that were a constituent part of the private placement units.
In addition, this prospectus relates to the offer and sale of up to 26,201 shares of common stock underlying warrants issued in a private placement to the David Stadlin Trust.
The term “selling securityholders” includes the securityholders listed in the table below and their permitted transferees.
The table below provides, as of the date of this prospectus, information regarding the beneficial ownership of our common stock of each selling securityholder, the number of shares of common stock that may be sold by each selling securityholder under this prospectus and that each selling securityholder will beneficially own after this offering. We have based percentage ownership on 57,866,830 shares of common stock outstanding as of December 28, 2023.
Because each selling securityholder may dispose of all, none or some portion of their securities, no estimate can be given as to the number of securities that will be beneficially owned by a selling securityholder upon termination of this offering. For purposes of the table below, however, we have assumed that after termination of this offering none of the securities covered by this prospectus will be beneficially owned by the selling securityholder and further assumed that the selling securityholders will not acquire beneficial ownership of any additional securities during the offering. In addition, the selling securityholders may have sold, transferred or otherwise disposed of, or may sell, transfer or otherwise dispose of, at any time and from time to time, our securities in transactions exempt from the registration requirements of the Securities Act after the date on which the information in the table is presented.
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| Shares of Common Stock | Warrants to Purchase Common Stock | ||||||||||||||||||||||||||||||
| Name | Number Beneficially Owned Prior to Offering | Number Registered for Sale Hereby | Number Beneficially Owned After Offering | Percent Owned After Offering | Number Beneficially Owned Prior to Offering | Number Registered for Sale Hereby | Number Beneficially Owned After Offering | Percent Owned After Offering | |||||||||||||||||||||||
| 10X Capital SPAC Sponsor II LLC(1) | 8,195,663 | 8,195,663 | - | * | 151,666 | - | 151,666 | * | |||||||||||||||||||||||
| Cantor Fitzgerald & Co.(2) | 279,112 | 279,112 | - | * | 66,666 | - | 66,666 | * | |||||||||||||||||||||||
| Polar Multi-Strategy Master Fund(3) | 346,824 | 346,824 | - | * | 659,763 | - | 659,763 | * | |||||||||||||||||||||||
| PSAM WorldArb Master Fund Ltd(4) | 203,638 | 203,638 | - | * | 493,145 | - | 493,145 | * | |||||||||||||||||||||||
| Lumyna Specialist Fund(5) | 57,436 | 57,436 | - | * | 121,263 | - | 121,263 | * | |||||||||||||||||||||||
| Alberta Investment Management Corporation(6) | 93,036 | 93,063 | - | * | 251,133 | - | 251,133 | * | |||||||||||||||||||||||
| Brian Feldman(7) | 115,086 | 115,086 | - | * | - | - | - | * | |||||||||||||||||||||||
| Utah State Retirement Investment Fund(8) | 70,988 | 70,988 | - | * | - | - | - | * | |||||||||||||||||||||||
| Gundy Co ITF The HGC Fund LP(9) | 168,036 | 168,036 | - | * | 10,000 | - | 10,000 | * | |||||||||||||||||||||||
| Kepos Alpha Master Fund L.P.(10) | 198,416 | 198,416 | - | * | - | - | - | * | |||||||||||||||||||||||
| Kepos Special Opportunities Master Fund L.P.(10) | 62,658 | 62,658 | - | * | - | - | - | * | |||||||||||||||||||||||
| Meteora Capital Partners, LP(11) | 185,054 | 185,054 | - | * | - | - | - | * | |||||||||||||||||||||||
| MMCAP International Inc. SPC(12) | 121,520 | 121,520 | - | * | 166,666 | - | 166,666 | * | |||||||||||||||||||||||
| Owl Creek Credit Opportunities Master Fund, L.P.(13) | 168,036 | 168,036 | - | * | 326,666 | - | 326,666 | * | |||||||||||||||||||||||
| Sculptor SC II, LP(14) | 78,322 | 78,322 | - | * | 25,569 | - | 25,569 | * | |||||||||||||||||||||||
| Sculptor Special Funding, LP(15) | 143,591 | 143,591 | - | * | 46,877 | - | 46,877 | * | |||||||||||||||||||||||
| Sculptor Credit Opportunities Master Fund, Ltd.(16) | 39,161 | 39,161 | - | * | 12,784 | - | 12,784 | * | |||||||||||||||||||||||
| Radcliffe SPAC Master Fund, LP(17) | 344,903 | 344,903 | - | * | - | - | - | * | |||||||||||||||||||||||
| The K2 Principal Fund L.P.(18) | 186,074 | 186,074 | - | * | 94,169 | - | 94,169 | * | |||||||||||||||||||||||
| Spring Creek Capital, LLC(19) | 253,786 | 253,786 | - | * | - | - | - | * | |||||||||||||||||||||||
| Walleye Investments Fund LLC(20) | 19,404 | 19,404 | - | * | 6,000 | - | 6,000 | * | |||||||||||||||||||||||
| Walleye Opportunities Master Fund Ltd.(21) | 29,106 | 29,106 | - | * | - | - | - | * | |||||||||||||||||||||||
| Sea Hawk Multi-Strategy Master Fund Ltd.(22) | 5,390 | 5,390 | - | * | - | - | - | * | |||||||||||||||||||||||
| Fifth Lane Partners Fund LP(23) | 85,750 | 85,750 | - | * | - | - | - | * | |||||||||||||||||||||||
| Global Commodities & Investments Ltd.(24) | 28,080,047 | 28,080,047 | - | * | - | - | - | * | |||||||||||||||||||||||
| David Stadlin Trust(25) | 26,201 | 26,201 | - | * | 26,201 | 26,201 | - | * | |||||||||||||||||||||||
| * | Less than 1% |
| (1) | The stockholder is controlled by its manager, 10X Capital Advisors, LLC (the “Manager”). The Manager has the sole voting and dispositive power of the securities held by the stockholder. Hans Thomas and David Weisburd are the managing members of the Manager and accordingly may be deemed to have beneficial ownership of securities reported herein. Each of Mr. Thomas and Mr. Weisburd disclaims any ownership of securities reported herein other than to the extent of any pecuniary interest they may have therein, directly or indirectly. The Stockholder’s address is 1 World Trade Center, 85th Floor, New York, NY 10007. |
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| (2) |
|
| (3) | Polar Multi-Strategy Master Fund (“Polar Fund”) is under management by Polar Asset Management Partners Inc. (“PAMPI”). PAMPI serves as investment advisor of the Polar fund and has control and discretion over the shares held by the Polar Fund. PAMPI disclaims any beneficial ownership of the reported shares other than to the extent of any pecuniary interest therein. The ultimate natural person who has voting and dispositive power over the shares held by the Polar Fund is Paul Sabourin as Chief Investment Officer of PAMPI. The business address of the Polar Fund is c/o Polar Asset Management Partners Inc., 16 York Street, Suite 2900, Toronto, ON M5J 0E6. |
| (4) | P. Schoenfeld Asset Management LP, or PSAM, is the investment manager of PSAM WorldArb Master Fund Ltd and Peter Schoenfeld is the CEO of PSAM. PSAM and Peter Schoenfeld have voting and investment power over the shares held directly by PSAM WorldArb Master Fund Ltd. Each of PSAM and Peter Schoenfeld disclaim beneficial ownership of the securities reported herein except to the extent of their pecuniary interest therein. The stockholder’s business address is 1350 Avenue of the Americas, 21st Floor, New York, NY 10019. |
| (5) | P. Schoenfeld Asset Management LP, or PSAM, is the investment manager of Lumyna Specialist Funds – Event Alternative Fund. Peter Schoenfeld is the CEO of PSAM. PSAM and Peter Schoenfeld have voting and investment power over the shares held directly by Lumyna Specialist Funds – Event Alternative Fund. Each of PSAM and Peter Schoenfeld disclaim beneficial ownership of the securities reported herein except to the extent of their pecuniary interest therein. The stockholder’s business address is 1350 Avenue of the Americas, 21st Floor, New York, NY 10019 |
| (6) | Alberta Investment Management Corporation is a body corporate established as an agent of the Crown in right of the Province of Alberta and manages funds on behalf of a diverse set of Alberta public sector clients for which it serves as investment manager. The stockholder’s business address is 1600-10250 101 Street NW, Edmonton, AB, T5J 3P4, Canada. |
| (7) | The stockholder’s business address is 625 Floyd Street, Englewood Cliffs, NJ 07632.. |
| (8) | The stockholder’s business address is 540 East 200 South, Salt Lake City, Utah 84102. |
| (9) | The shares are held in trust by Gundy CO for The HGC Fund LP. Sean Kallir is the Chief Executive Officer of The HGC Fund LP and has the power to vote or dispose of such shares. |
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| (10) | Kepos Capital LP is the investment manager of the selling securityholder and Kepos Partners LLC is the General Partner of the selling securityholder and each may be deemed to have voting and dispositive power with respect to the shares. The general partner of Kepos Capital LP is Kepos Capital GP LLC (the “Kepos GP”) and the Managing Member of Kepos Partners LLC is Kepos Partners MM LLC (“Kepos MM”). Mark Carhart controls Kepos GP and Kepos MM and, accordingly, may be deemed to have voting and dispositive power with respect to the shares held by this selling securityholder. Mr. Carhart disclaims beneficial ownership of the shares held by the selling securityholder. The stockholder’s business address is 11 Times Square, 35th Floor, New York, NY 10036. |
| (11) | The stockholder’s business address is 250 West 55th Street, Fl 30A, New York, NY 10019. |
| (12) | The stockholder’s business address is Mourant Governance Service (Cayman) Ltd., 94 Solaris Avenue, Camana Bay, P.O. Box 1348, Grand Cayman KY1-1104, Cayman Islands. |
| (13) | Owl Creek Asset Management, L.P., as investment advisor to the Selling Stockholder may be deemed to control the Selling Stockholder. Owl Creek GP, L.L.C., as general partner of Owl Creek Asset Management, L.P., may be deemed to control Owl Creek Asset Management, L.P. Jeffrey A. Altman, as managing member of Owl Creek GP, LLC, may be deemed to control such general partner. |
| (14) | Sculptor SC GP, LP ("SCGP"), a Delaware limited partnership, is the general partner of Sculptor SC II, LP ("SCSC"), a Delaware limited partnership. Sculptor SC GP, LLC ("SCLLC"), a Delaware limited liability company, is the general partner of SCGP. Sculptor Capital Advisors LP ("Advisors"), a Delaware limited partnership, is the sole member of SCLLC. Sculptor Capital Holding Corporation (“SCHC”), a Delaware corporation, is the general partner of Advisors. Sculptor Capital Management, Inc. (“SCU”), a Delaware corporation, is the sole shareholder of SCHC. Rithm Capital Corp. ("RITM"), a Delaware corporation, is the sole shareholder of SCU and is publicly traded on the New York Stock exchange. Accordingly SCGP, SCLLC, Advisors, SCHC, SCU and RITM, may be deemed to be beneficial owners of SCSC. The stockholder’s business address is 9 West 57TH Street, 39th Floor, New York, NY 100193. |
| (15) | Sculptor Special Funding, LP (“NRMD”), a Cayman Islands company is wholly owned by Sculptor Master Fund, Ltd. ("SCMD"), a Cayman Islands company. Sculptor Capital LP (“Sculptor”), a Delaware limited partnership, is the investment manager to SCMD. Sculptor Capital Holding Corporation (“SCHC”), a Delaware corporation, is the general partner of Sculptor. Sculptor Capital Management, Inc. (“SCU”), a Delaware corporation is the sole shareholder of SCHC. Rithm Capital Corp. ("RITM"), a Delaware corporation, is the sole shareholder of SCU and is publicly traded on the New York Stock exchange. Accordingly, SCMD, Sculptor, SCHC, SCU and RITM, may be deemed to be beneficial owners of NRMD. The stockholder’s business address is 9 West 57TH Street, 39th Floor, New York, NY 100193. |
| (16) | Sculptor Capital LP (“Sculptor”), a Delaware limited partnership, is the investment manager to Sculptor Credit Opportunities Master Fund, Ltd. ("SCCO"), a Cayman Islands company. Sculptor Capital Holding Corporation (“SCHC”), a Delaware corporation, is the general partner of Sculptor. Sculptor Capital Management, Inc. (“SCU”), a Delaware corporation is the sole shareholder of SCHC. Rithm Capital Corp. ("RITM"), a Delaware corporation, is the sole shareholder of SCU and is publicly traded on the New York Stock exchange. Accordingly, Sculptor, SCHC, SCU and RITM, may be deemed to be beneficial owners of SCCO. The stockholder’s business address is 9 West 57TH Street, 39th Floor, New York, NY 100193. |
| (17) | Pursuant to an investment management agreement, Radcliffe Capital Management, L.P. (“RCM”) serves as the investment manager of the stockholder. RGC Management Company, LLC (“Management”) is the general partner of RCM. Steve Katznelson and Christoper Hinkel serve as the managing members of Management. Each of the parties in this footnote disclaims any beneficial ownership of the reported shares other than to the extent of any pecuniary interest the party may have therein. The stockholder’s business address is 50 Monument Road, Suite 300, Bala Cynwyd, PA 19004. |
| (18) | The stockholder’s business address is 2 Bloor St. West, Suite 801, Toronto, Ontario, M4W 3E2. |
| (19) | The stockholder’s business address is 4111 East 37th St. N., Wichita, KS, 67220. |
| (20) | The stockholder’s business address is 2800 Niagara Lane N., Plymouth, MN 55447. |
| (21) | The stockholder’s business address is 2800 Niagara Lane N., Plymouth, MN 55447. |
| (22) | The stockholder’s business address is 2800 Niagara Lane N., Plymouth, MN 55447. |
| (23) | The stockholder’s business address is 3300 N IH-35, Suite 380, Austin, TX 78705. |
| (24) | Vasile Frank Timis is the majority owner of Global Commodities & Investments Ltd., and has voting and dispositive power with respect to the shares held by Global Commodities & Investments Ltd. The address of Mr. Timis and Global Commodities & Investments Ltd. is Second floor, Strathvale House, 90 North Church Street, George Town, Grand Cayman. Mr. Timis disclaims beneficial ownership of these shares, except to the extent of his pecuniary interest therein. |
| (25) | The stockholder’s business address is 27 Turtle Rock Court, Tiburon, CA 94920. |
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
The following is a summary of transactions since January 1, 2021 to which we, 10X II and AFRAG have been a participant, in which:
| ● | the amount involved exceeded or will |
| ● | any of our |
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Immediately after this offering, our initial shareholders will beneficially own 26.1%
10X II
Founder Shares
On February 18, 2021, the Sponsor paid an aggregate of the then issued and outstanding ordinary shares (assuming they do not purchase any units$25,000 to cover certain expenses on behalf of 10X II in this offering). Only holdersexchange for issuance of an aggregate of 7,666,667 Class B ordinary shares, will havepar value $0.0001 per share. On October 19, 2021, the right to appoint directors in any election held prior to orSponsor forfeited at no cost 1,000,000 Class B ordinary shares in connection with the completionelection by the underwriters of our10X II’s initial business combination. Holderspublic offering not to exercise an option granted to the underwriters to cover over-allotments. Following the closing of ourthe initial public offering, the Sponsor agreed to transfer an aggregate of 1,334,339 founder shares will not haveto the rightAnchor Investors for the same price originally paid for such shares. In connection with the Extension Meetings, 10X II, the Sponsor, the Anchor Investors and certain other shareholders of 10X II entered into non-redemption agreements whereby the Anchor Investors and those certain shareholders agreed for the benefit of 10X II to appoint any directors to our board(i) vote the Subject 10X II Equity Securities in favor of directors prior to our initial business combination. Because of this ownership block, our initial shareholders may be able to effectively influence the outcome of all other matters requiring approval by our shareholders, including amendments to ouramending 10X II’s amended and restated memorandum and articles of association to extend the date by which 10X II must consummate a business combination, cease its operations and approval of significant corporate transactions including our initialwind-up its business combination.
Our sponsor and Cantor have committedredeem the issued and outstanding public shares, until May 13, 2023. In connection with these commitments from the Anchor Investors and those certain shareholders, the Sponsor agreed to purchasetransfer an aggregate of 655,000 private placement units1,358,618 Class B ordinary shares prior to the consummation of the Business Combination. The founder shares automatically converted into Common Stock upon consummation of the Business Combination on a one-for-one basis.
Related Party Loans
On February 18, 2021, the Sponsor agreed to loan the Company up to $300,000 to be used for an aggregate purchase pricethe payment of $6,550,000,costs related to the initial public offering pursuant to a promissory note (the “Note”). The Note was non-interest bearing, unsecured and payable on the earlier to occur of (i) December 31, 2021 or $10.00 per unit, in a private placement that will occur simultaneously with(ii) the completion of the initial public offering. Upon the closing of this offering.the initial public offering, 10X II repaid $87,369 under the Note and the Note is no longer available to 10X II.
On November 14, 2022, the Sponsor agreed to loan 10X II up to $800,000 pursuant to a promissory note (as amended and restated on November 14, 2022, the “New Note”). The private placement units are identicalNew Note is non-interest bearing, unsecured and due at the earlier of the consummation of the Business Combination and the day prior to the units solddate the Company must elect to liquidate and dissolve in this offering, subject to certain limited exceptions as described in this prospectus. A portionaccordance with the provisions of the purchase priceAmended and Restated Memorandum and Articles of Association. On May 17, 2023, 10X II amended and restated the New Note and the Sponsor agreed to loan 10X II up to $2,500,000 pursuant to the second amended and restated promissory note. The amended and restated New Note bears no interest and is repayable in full upon the earlier of the private placement units will be addedconsummation of the Business Combination and the day prior to the proceeds from this offeringdate 10X II elects to be heldliquidate and dissolve in accordance with the trust account such that at the time of closing of this offering $200,000,000 (or $230,000,000 if the underwriters exercise their over-allotment option in full) will be held in the trust account. If we do not complete our initial business combination within 15 months from the closing of this offering, the private placement units will expire worthless. The private placement units, private placement shares and private placement warrants are subject to the transfer restrictions described below. Otherwise, the private placement units have terms and provisions that are identical to those of the units being sold in this offering.
10X Capital SPAC Sponsor II LLC, our sponsor,Amended and our executive officersRestated Memorandum and directors are deemed to be our “promoters” as such term is defined under the federal securities laws.
Articles of Association (the “Maturity Date”). Up to seven 9.9% anchor investors, two 7.5% anchor investors$1,500,000 of the principal amount of the amended and three 4.9% anchor investors have each expressed to us an interest in purchasing up to 1,980,000restated New Note could also be converted into additional private placement-equivalent units, 1,500,000 units and 980,000 units, respectively, in this offering as the offeringat a price of $10.00 per unit, at the option of the holder of the amended and such allocations will be determined byrestated New Note at any time on or prior to the underwriters.Maturity Date. As of the closing of the Business Combination, approximately $2,200,000 remained outstanding under the New Note, of which $395,000 was repaid out of the trust funds released in connection with the Business Combination.
Pursuant
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On November 14, 2022, 10X II issued an unsecured promissory note (as amended and restated on November 14, 2022, the “2022 Note”) to such units, the anchor investors have not been granted any shareholder or other rights in addition to those afforded to our other public shareholders. Further, the anchor investors are not required to (i) hold any units, Class A ordinary shares or warrants they may purchase in this offering or thereafterSponsor for anyan aggregate principal amount of time, (ii) vote any Class A ordinary shares they may own at the applicable timeup to $800,000 for working capital purposes (“Working Capital Loan”). The 2022 Note bore no interest and was repaid in favor of our initial business combination or (iii) refrain from exercising their right to redeem their public shares at the time of our initial business combination. The anchor investors will have the same rights to the funds held in the trust account with respect to the Class A ordinary shares underlying the units they may purchase in this offering as the rights afforded to our other public shareholders.
There can be no assurance that the anchor investors will acquire any units in this offering, or as to the amount of such units the anchor investors will retain, if any, prior to orfull upon the consummation of our initial business
combination. There is also no guarantee that all anchor investors will participate in the offering. In the event that the anchor investors purchase all of the units that they have expressed an interest in purchasing in this offering, hold all such units until prior to consummation of our initial business combination and vote their public shares in favor of our initial business combination, in addition to the founder shares, no affirmative votes from other public shareholders would be required to approve our initial business combination. The anchor investors are not required to vote any of their public shares in favor of our initial business combination or for or against any other matter presented for a shareholder vote.
Each anchor investor has
Administrative Support Agreement
10X II entered into separate investment agreements with us and our sponsor pursuant to which each 9.9% anchor investor agreed to purchase 133,333 founder shares, each 7.5% anchor investor agreed to purchase 99,999 founder shares and each 4.9% anchor investor agreed to purchase 66,666 founder shares, or an aggregateagreement that provides that from August 10, 2021 through the earlier of 1,333,327 founder shares, from our sponsor at the closing of this offering, subject to such anchor investors’ acquisition of 100% of the units allocated to it by the underwriters in this offering. Pursuant to the investment agreements, the anchor investors have agreed to (a) vote any founder shares held by them in favor of our initial business combination and (b) subject any founder shares held by them to the same lock-up restrictions as the founder shares held by our sponsor and independent directors. Since our sponsor is transferring founder shares held by it to the anchor investors and we are not issuing any new Class B ordinary shares, there will be no dilutive impact on the other investors in this offering.
Transfers of Founder Shares and Private Placement Units
The founder shares, private placement units, private placement shares, private placement warrants and any Class A ordinary shares issued upon conversion or exercise thereof are each subject to transfer restrictions pursuant to lock-up provisions in a letter agreement entered into by our initial shareholders and management team or the warrant purchase agreement with us to be entered into by Cantor. Those lock-up provisions provide that such securities are not transferable or salable (1) in the case of the founder shares, until consummation of our initial business combination and (2) in the case of the private placement units, private placement shares, private placement warrants and the respective Class A ordinary shares underlying such warrants, until 30 days after the completion of our initial business combination except in each case (a) to our officers or directors, any affiliate or family member of any of our officers or directors, any affiliate of our sponsor or to any member of the sponsor, any of their affiliates, any members of Cantor, or any affiliates of Cantor, (b) in the case of an individual, as a gift to such person’s immediate family or to a trust, the beneficiary of which is a member of such person’s immediate family, an affiliate of such person or to a charitable organization; (c) in the case of an individual, by virtue of laws of descent and distribution upon death of such person; (d) in the case of an individual, pursuant to a qualified domestic relations order; (e) by private sales or transfers made in connection with any forward purchase agreement or similar arrangement or in connection with the consummation of a business combination at prices no greater than the price at which the shares or warrants were originally purchased; (f) by virtue of the laws of the Cayman Islands or our sponsor’s memorandum and articles of association or Cantor’s organizational documents or the winding-up and liquidation of our sponsor or Cantor, (g) in the event of our liquidation prior to our consummation of our initial business combination; or (h) in the event that, subsequent to our consummation of an initial business combination we complete a liquidation, merger, share exchange or other similar transaction which results in all of our shareholders having the right to exchange their Class A ordinary shares for cash, securities or other property; provided, however, that in the case of clauses (a) through (f) these permitted transferees must enter into a written agreement agreeing to be bound by these transfer restrictions and the other restrictions contained in the letter agreement.
Registration Rights
The holders of the (i) founder shares, which were issued in a private placement prior to the closing of this offering, (ii) private placement units, which will be issued in a private placement simultaneously with the closing of this offering, private placement shares and private placement warrants and the Class A ordinary shares underlying such private placement warrants and (iii) private placement units that may be issued upon conversion
of working capital loans will have registration rights to require us to register a sale of any of our securities held by them pursuant to a registration rights agreement to be signed prior to or on the effective date of this offering. Pursuant to the registration rights agreement and assuming the underwriters exercise their over-allotment option in full and $1,500,000 of working capital loans are converted into private placement units, we will be obligated to register up to 8,649,167 Class A ordinary shares and 268,333 warrants. The number of Class A ordinary shares includes (i) 7,666,667 Class A ordinary shares to be issued upon conversion of the founder shares, (ii) 818,750 Class A ordinary shares underlying the private placement units and (iii) 187,500 Class A ordinary shares underlying the private placement units issued upon conversion of working capital loans. The number of warrants includes 218,333 private placement warrants and 50,000 private placement warrants issued upon conversion of working capital loans. The holders of these securities are entitled to make up to three demands, excluding short form demands, that we register such securities. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to our completion of our initial business combination. Notwithstanding the foregoing, Cantor may not exercise its demand and “piggyback” registration rights after five (5) and seven (7) years, respectively, after the effective date of the registration statement of which this prospectus forms a part and may not exercise its demand rights on more than one occasion. We will bear the expenses incurred in connection with the filing of any such registration statements.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
On February 18, 2021, our sponsor paid $25,000, or approximately $0.003 per share, to cover certain expenses on our behalf in consideration of 7,666,667 founder shares. The number of founder shares outstanding was determined based on the expectation that the total size of this offering would be a maximum of 23,000,000 units if the underwriters’ over-allotment option is exercised in full, and therefore that such founder shares would represent 25% of the outstanding shares after this offering (not including the Class A ordinary shares underlying the private placement units). Up to 1,000,000 of the founder shares will be forfeited depending on the extent to which the underwriters’ over-allotment is exercised. If we increase or decrease the size of the offering, we will effect a stock dividend or share contribution back to capital or other appropriate mechanism, as applicable, with respect to our Class B ordinary shares immediately prior to the consummation of this offering in such amount as to maintain the number of founder shares at 25.0% of our issued and outstanding ordinary shares upon the consummation of this offering (not including the Class A ordinary shares underlying the private placement units).
Our sponsor and Cantor have committed to purchase an aggregate of 655,000 private placement units for an aggregate purchase price of $6,550,000, or $10.00 per unit, in a private placement that will occur simultaneously with the closing of this offering. The private placement units are identical to the units sold in this offering, subject to certain limited exceptions as described in this prospectus. The private placement units, private placement shares and private placement warrants (including the Class A ordinary shares issuable upon exercise of the private placement warrants) may not, subject to certain limited exceptions, be transferred, assigned or sold until 30 days after the completion of our initial business combination.
We currently utilize office space at 1 World Trade Center, 85th Floor, New York, New York 10007 from our sponsor. Subsequent to the closing of this offering, weliquidation, 10X II will pay our sponsorthe Sponsor $20,000 per month for office space and secretarial and administrative services provided to members of our management team. Upon completion of our initial business combination or our liquidation, we will cease10X II. 10X II ceased paying these monthly fees.
No compensationfees upon the consummation of any kind, including finder’s and consulting fees, will be paid bya business combination.
In addition, the company to our sponsor, executiveSponsor, officers and directors, or any of their respective affiliates for services rendered prior to or in connection with the completion of an initial business combination. However, these individuals will bewere reimbursed for any out-of-pocket expenses incurred in connection with activities on our10X II’s behalf such as identifying potential target businesses and performing due diligence on suitable business combinations. Our audit committee will review on a quarterly basis all payments that were made to our sponsor, officers, directors or our or their affiliates.
Prior to the closing of this offering, our sponsor may loan us funds to be used for a portion of the expenses of this offering. These loans would be non-interest bearing, unsecured and are due at the earlier of December 31, 2021 or the closing of this offering.
In addition, in order to finance transaction costs in connection with an intended initial business combination, our sponsor or an affiliate of our sponsor or certain of our officers and directors may, but are not obligated to, loan us funds as may be required on a non-interest basis. If we complete an initial business combination, we would repay such loaned amounts. In the event that the initial business combination does not close, we may use a portion of the working capital held outside the trust account to repay such loaned amounts but no proceeds from our trust account would be used for such repayment. Up to $1,500,000 of such loans may be convertible into units of the post business combination entity at a price of $10.00 per unit at the option of the lender. The units would be identical to the private placement units. Except as set forth above, the terms of such loans, if any, have not been determined and no written agreements exist with respect to such loans. Prior to the completion of our initial business combination, we do not expect to seek loans from parties other than our sponsor or an affiliate of our sponsor as we do not believe third parties will be willing to loan such funds and provide a waiver against any and all rights to seek access to funds in our trust account.
Any of the foregoing payments to our sponsor, repayments of loans from our sponsor or repayments of working capital loans prior to our initial business combination will be made using funds held outside the trust account.
After our initial business combination, members of our management team who remain with us may be paid consulting, management or other fees from the combined company with any and all amounts being fully disclosed to our shareholders, to the extent then known, in the proxy solicitation or tender offer materials, as applicable, furnished to our shareholders. It is unlikely the amount of such compensation will be known at the time of distribution of such tender offer materials or at the time of a shareholder meeting held to consider our initial business combination, as applicable, as it will be up to the directors of the post-combination business to determine executive and director compensation.
We have entered into a registration rights agreement with respect to the founder shares and private placement units, which is described under the heading “Principal Shareholders — Registration Rights.”
Policy for Approval of Related Party Transactions
The audit committee of our board of directors will adopt a policy setting forth the policies and procedures for its review and approval or ratification of “related party transactions.” A “related party transaction” is any consummated or proposed transaction or series of transactions: (i) in which the company was or is to be a participant; (ii) the amount of which exceeds (or is reasonably expected to exceed) the lesser of $120,000 or 1% of the average of the company’s total assets at year end for the prior two completed fiscal years in the aggregate over the duration of the transaction (without regard to profit or loss); and (iii) in which a “related party” had, has or will have a direct or indirect material interest. “Related parties” under this policy will include: (i) our directors, nominees for director or executive officers; (ii) any record or beneficial owner of more than 5% of any class of our voting securities; (iii) any immediate family member of any of the foregoing if the foregoing person is a natural person; and (iv) any other person who maybe a “related person” pursuant to Item 404 of Regulation S-K under the Exchange Act. Pursuant to the policy, the audit committee will consider (i) the relevant facts and circumstances of each related party transaction, including if the transaction is on terms comparable to those that could be obtained in arm’s-length dealings with an unrelated third party, (ii) the extent of the related party’s interest in the transaction, (iii) whether the transaction contravenes our code of ethics or other policies, (iv) whether the audit committee believes the relationship underlying the transaction to be in the best interests of the company and its shareholders and (v) the effect that the transaction may have on a director’s status as an independent member of the board and on his or her eligibility to serve on the board’s committees. Management will present to the audit committee each proposed related party transaction, including all relevant facts and circumstances relating thereto. Under the policy, we may consummate related party transactions only if our audit committee approves or ratifies the transaction in accordance with the guidelines set forth in the policy. The policy will not permit any director or executive officer to participate in the discussion of, or decision concerning, a related person transaction in which he or she is the related party.
We are a Cayman Islands exempted company and our affairs are governed by our amended and restated memorandum and articles of association, the Companies Act and the common law of the Cayman Islands. Pursuant to our amended and restated memorandum and articles of association which will be adopted prior to the consummation of this offering, we will be authorized to issue 550,000,000 ordinary shares, $0.0001 par value each, including 500,000,000 Class A ordinary shares and 50,000,000 Class B ordinary shares, as well as 1,000,000 preference shares, $0.0001 par value each. The following description summarizes certain terms of our capital stock as set out more particularly in our amended and restated memorandum and articles of association. Because it is only a summary, it may not contain all the information that is important to you.
Units
Public Units
Each unit has an offering price of $10.00 and consists of Class A ordinary share and one-third of one redeemable warrant. Each whole warrant entitles the holder thereof to purchase one Class A ordinary share at a price of $11.50 per share, subject to adjustment as described in this prospectus. Pursuant to the warrant agreement, a warrant holder may exercise its warrants only for a whole number of the Company’s Class A ordinary shares. This means only a whole warrant may be exercised at any given time by a warrant holder. For example, if a warrant holder holds one-third of one warrant to purchase a Class A ordinary share, such warrant will not be exercisable. If a warrant holder holds three-thirds of one warrant, such whole warrant will be exercisable for one Class A ordinary share at a price of $11.50 per share. The Class A ordinary shares and warrants comprising the units are expected to begin separate trading on the 52nd day following the date of this prospectus unless Cantor informs us of its decision to allow earlier separate trading, subject to our having filed the Current Report on Form 8-K described below and having issued a press release announcing when such separate trading will begin. Once the Class A ordinary shares and warrants commence separate trading, holders will have the option to continue to hold units or separate their units into the component securities. Holders will need to have their brokers contact our transfer agent in order to separate the units into Class A ordinary shares and warrants. No fractional warrants will be issued upon separation of the units and only whole warrants will trade. Accordingly, unless you purchase at least three units, you will not be able to receive or trade a whole warrant.
In no event will the Class A ordinary shares and warrants be traded separately until we have filed with the SEC a Current Report on Form 8-K which includes an audited balance sheet reflecting our receipt of the gross proceeds at closing of this offering. We will file a Current Report on Form 8-K which includes this audited balance sheet promptly after the completion of this offering, which closing is anticipated to take place three business days after the date of this prospectus. If the underwriters’ over-allotment option is exercised following the initial filing of such Current Report on Form 8-K, a second or amended Current Report on Form 8-K will be filed to provide updated financial information to reflect the exercise of the underwriters’ over-allotment option.
Private Placement Units
The
Simultaneously with the closing of the initial public offering, the Sponsor and Cantor purchased an aggregate of 655,000 private placement units (including the private placement warrants or private placement shares issuable upon exercise of such warrants) will not be transferable, assignable or salable until 30 days after the completion of our initial business combination (except, among other limited exceptions as described under “Principal Shareholders — Restrictions on Transfers of Founder Shares and Private Placement Units,” to our officers and directors and other persons or entities affiliated with our sponsor). Otherwise, the private placement units are identical to the units sold in this offering except that the private placement warrants will be entitled to registration rights, as described below under “— Redeemable Warrants — Private Placement Warrants”. Cantor has agreed that it shall have the right to exercise private placement warrants until and shall forfeit to us for cancellation any private placement warrants held by it on the date that is five years after the effective date of the registration statement of
which this prospectus forms a part in accordance with FINRA Rule 5110(g)(8)(A). The private placement units held by Cantor or its affiliates will be subject to compliance with the lock-up and resale registration requirements imposed by FINRA Rule 5110(e) and (g)(8).
In order to finance transaction costs in connection with an intended initial business combination, our sponsor or an affiliate of our sponsor or certain of our officers and directors may, but are not obligated to, loan us funds as may be required. Up to $1,500,000 of such working capital loans may be convertible into private placement-equivalent units at a price of $10.00 per private placement unit at the optionin a private placement, generating gross proceeds of $6.55 million. 455,000 of the lender. Suchprivate placement units would be identicalwere sold to the Sponsor and 200,000 private placement units were sold to Cantor. No underwriting discounts or commissions were paid with respect to sale of the private placement units. The issuance of the private placement units was made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act of 1933, as amended. The proceeds from the private placement units were added to the proceeds from the initial public offering held in the Trust Account. Effective as of the closing of the Business Combination, each private placement units automatically split into their component securities representing one share of Common Stock and one third of one warrant.
Amended and Restated Registration Rights Agreement
On August 10, 2021, 10X II entered into a registration rights agreement pursuant to which the Sponsor, Cantor and Anchor Investors and their permitted transferees, if any, are entitled to certain registration rights with respect to the private placement units, including as tothe securities issuable upon conversion of working capital loans (if any) and the Class A ordinary shares issuable upon exercise price, exercisability and exercise period of the underlying warrants.foregoing and upon conversion of the founder shares. At the Closing, AFRAG, the Sponsor and other holders of AFRAG Common Stock entered into the Amended and Restated Registration Rights Agreement, which superseded the registration rights agreement, and pursuant to which, among other things, the Sponsor and such holders were granted certain customary registration rights, demand rights and piggyback rights with respect to their respective shares of Common Stock.
AFRAG
Gora Seck
AFRAG entered into an agreement with AN IMMOBILIER SARL, of which Gora Seck, AFRAG’s minority shareholder and the President of LFT, one of its wholly owned subsidiaries, is a sole shareholder, to lease a camp for residential purposes for a 12-month period for the semi-permanent staff on the LFT Farm from August 16, 2021. The camp is located in Yetti Yone Colon at Richard Toll, which is a locality in the region of St Louis, in the north-west of Senegal, adjacent to the LFT Farm. The total area of the field where the camp is located is 5 hectares including 2 hectares unfenced, the camp is located on the watercourse which connects the Lac de Guiers to the Senegal river. AFRAG agreed to rent the camp at €10,000 per month for the term of the rental, for a total payment of €120,000. The agreement was not renewed upon its expiration but may be renewed in the future, if needed.
Monitor Power Systems
African Discovery Group, Inc. or AFDG, a company of which AFRAG’s Chairman and CEO is a majority shareholder, has an agreement in place with Monitor Power Systems (“MPS”), for a 5-year term from May 2019 to provide power generation projects. MPS agreed to pay AFDG a fee of $0.002 per kilowatt hour for power that is actually generated and for which MPS actually receives revenue for the duration of the project. MPS is expected to build an independent power project using solar generation at LFT at a material discount to current tariff paid to Senelec, that is expected to boost consistency of power supply necessary for water irrigation, operations and processing.
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Global Commodities
AFRAG entered into two unsecured, related party loans with its majority shareholder, Global Commodities. As of September, 2022, the total obligations under such related party loans were $16,130,513, all of which was converted into AFRAG equity on November 1, 2022. The first loan agreement dated May 2021 did not contemplate any interest rate and had a 60-month rolling term following the creation of payables within each year. The second loan dated June 2021 had an interest rate of 0% and matured 12 months from the date of the agreement.
In February 2018 AFRAG issued a note in the principal amount for the Euro equivalent of $5,919,915 payable in connection with its acquisition of LFT. Global Commodities provided a payment guarantee to the selling stockholders in the LFT acquisition for the entire outstanding amount of the note payable. The note payable does not contemplate an interest rate. As of November 30, 2023 the euro equivalent of approximately $215,000 remained outstanding.
On October 31, 2022 we issued 380 shares of our common stock, or 1,373,647 shares following the 1-to-3,614.8601 split effective November 1, 2022, to Global Commodities in consideration for approximately $13.7 million of strategic services provided by Global Commodities. The services arrangement was not documented, but contemplated advice to our Board of Directors and executive officers, assistance with operational consulting, investor and strategic customer introductions and assistance with structuring and negotiating our agreement with the mayor and local governments of Ingall and Aderbissinat.
Alan Kessler
AFRAG entered into an amended and restated advisor agreement, as of May 21, 2022, with AFDG which governs the terms pursuant to which Alan Kessler serves as AFRAG’s Chief Executive Officer and Executive Chairman. The terms of such working capital loansthe advisor agreement are detailed above in “Employment Agreements with Named Executive Officers.”
AFRAG Support Agreement
AFRAG’s majority stockholder, Global Commodities & Investments Ltd., entered into a support agreement, dated as of November 3, 2022 (the “AFRAG Support Agreement”) with 10X II and AFRAG, pursuant to which Global Commodities & Investments Ltd. agreed to (i) vote at any meeting of the stockholders of AFRAG all shares of common stock of AFRAG held of record or thereafter acquired in favor of the Proposals, (ii) be bound by our sponsor or its affiliates, or our officerscertain other covenants and directors, if any, have not been determinedagreements related to the Business Combination and no written agreements exist(iii) be bound by certain transfer restrictions with respect to such loans.
Additionally,securities, prior to the unitsClosing of the Business Combination, in each case, on the terms and subject to the conditions set forth in the AFRAG Support Agreement.
Policies and Procedures for Related Person Transactions
Our board of directors adopted a written related person transaction policy that have not already been separated will automatically separate into their component partssets forth the following policies and procedures for the review and approval or ratification of related person transactions.
A “Related Person Transaction” is a transaction, arrangement or relationship in connection with the completionwhich we or any of our subsidiaries was, is or will be a participant, the amount of which involved exceeds $120,000, and in which any related person had, has or will have a direct or indirect material interest. A “Related Person” means:
| ● | any person who is, or at any time during the applicable period was, one of our officers or one of our directors; |
| ● | any person who is known to be the beneficial owner of more than 5% of our voting stock; |
| ● | any immediate family member of any of the foregoing persons, which means any child, stepchild, parent, stepparent, spouse, sibling, mother-in-law, father-in-law, daughter-in-law, brother-in-law or sister-in-law of a director, officer or a beneficial owner of more than 5% of our voting stock, and any person (other than a tenant or employee) sharing the household of such director, officer or beneficial owner of more than 5% of our voting stock; and |
| ● | any firm, corporation or other entity in which any of the foregoing persons is a partner or principal or in a similar position or in which such person has a 10% or greater beneficial ownership interest. |
We have policies and procedures designed to minimize potential conflicts of interest arising from any dealings we may have with our affiliates and to provide appropriate procedures for the disclosure of any real or potential conflicts of interest that may exist from time to time.
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U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a discussion of certain material U.S. federal income tax consequences of the acquisition, ownership and disposition of shares of our common stock. This discussion is limited to certain U.S. federal income tax considerations to beneficial owners of our common stock who are initial business combinationpurchasers of such common stock pursuant to this offering and hold the common stock as a capital asset within the meaning of Section 1221 of the U.S. Internal Revenue Code of 1986, as amended (the “Code”). This discussion assumes that any distributions made by us on our common stock and any consideration received by a holder in consideration for the sale or other disposition of our common stock will no longer be listed thereafter.in U.S. dollars.
Ordinary Shares
PriorThis summary is based upon U.S. federal income tax laws as of the date of this prospectus, which is subject to change or differing interpretations, possibly with retroactive effect. This discussion is a summary only and does not describe all of the tax consequences that may be relevant to you in light of your particular circumstances, including but not limited to the alternative minimum tax, the Medicare tax on certain net investment income and the different consequences that may apply if you are subject to special rules that apply to certain types of investors, including but not limited to:
| ● | financial institutions or financial services entities; |
| ● | broker-dealers; |
| ● | governments or agencies or instrumentalities thereof; |
| ● | regulated investment companies; |
| ● | real estate investment trusts; |
| ● | expatriates or former long-term residents of the United States; |
| ● | persons that acquired our common stock pursuant to an exercise of employee share options, in connection with employee share incentive plans or otherwise as compensation; |
| ● | insurance companies; |
| ● | dealers or traders subject to a mark-to-market method of accounting with respect to our common stock; |
| ● | persons holding our common stock as part of a “straddle,” constructive sale, hedge, conversion or other integrated or similar transaction; |
| ● | U.S. holders (as defined below) whose functional currency is not the U.S. dollar; |
| ● | partnerships (or entities or arrangements classified as partnerships or other pass-through entities for U.S. federal income tax purposes) and any beneficial owners of such partnerships; |
| ● | tax-exempt entities; |
| ● | controlled foreign corporations; and |
| ● | passive foreign investment companies. |
If a partnership (including an entity or arrangement treated as a partnership or other pass-thru entity for U.S. federal income tax purposes) holds our common stock, the tax treatment of a partner, member or other beneficial owner in such partnership will generally depend upon the status of the partner, member or other beneficial owner, the activities of the partnership and certain determinations made at the partner, member or other beneficial owner level. If you are a partner, member or other beneficial owner of a partnership holding our common stock, you are urged to consult your tax advisor regarding the tax consequences of the acquisition, ownership and disposition of our common stock.
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This discussion is based on the Code, and administrative pronouncements, judicial decisions and final, temporary and proposed Treasury regulations as of the date hereof, which are subject to change, possibly on a retroactive basis, and changes to any of which subsequent to the date of this prospectus may affect the tax consequences described herein. This discussion does not address any aspect of state, local or non-U.S. taxation, or any U.S. federal taxes other than income taxes (such as gift and estate taxes).
We have not sought, and do not expect to seek, a ruling from the U.S. Internal Revenue Service (the “IRS”) as to any U.S. federal income tax consequence described herein. The IRS may disagree with the discussion herein, and its determination may be upheld by a court. Moreover, there can be no assurance that future legislation, regulations, administrative rulings or court decisions will not adversely affect the accuracy of the statements in this discussion. You are urged to consult your tax advisor with respect to the application of U.S. federal tax laws to your particular situation, as well as any tax consequences arising under the laws of any state, local or foreign jurisdiction.
THIS DISCUSSION IS ONLY A SUMMARY OF CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS ASSOCIATED WITH THE ACQUISITION, OWNERSHIP AND DISPOSITION OF OUR COMMON STOCK. EACH PROSPECTIVE INVESTOR IN OUR COMMON STOCK IS URGED TO CONSULT ITS OWN TAX ADVISOR WITH RESPECT TO THE PARTICULAR TAX CONSEQUENCES TO SUCH INVESTOR OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF OUR COMMON STOCK, INCLUDING THE APPLICABILITY AND EFFECT OF ANY U.S. FEDERAL NON-INCOME, STATE, LOCAL, AND NON-U.S. TAX LAWS.
U.S. Holders
This section applies to you if you are a “U.S. holder.” A U.S. holder is a beneficial owner of our common stock who or that is, for U.S. federal income tax purposes:
| ● | an individual who is a citizen or resident of the United States; |
| ● | a corporation (or other entity taxable as a corporation) organized in or under the laws of the United States, any state thereof or the District of Columbia; |
| ● | an estate the income of which is includible in gross income for U.S. federal income tax purposes regardless of its source; or |
| ● | a trust, if (i) a court within the United States is able to exercise primary supervision over the administration of the trust and one or more United States persons (as defined in the Code) have authority to control all substantial decisions of the trust or (ii) it has a valid election in effect under Treasury Regulations to be treated as a United States person. |
Taxation of Distributions. If we pay distributions in cash or other property (other than certain distributions of our stock or rights to acquire our stock) to U.S. holders of shares of our common stock, such distributions generally will constitute dividends for U.S. federal income tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. Distributions in excess of current and accumulated earnings and profits will constitute a return of capital that will be applied against and reduce (but not below zero) the U.S. holder’s adjusted tax basis in our common stock. Any remaining excess will be treated as gain realized on the sale or other disposition of our common stock and will be treated as described under “U.S. Holders — Gain or Loss on Sale, Taxable Exchange or Other Taxable Disposition of Common Stock” below.
Dividends we pay to a U.S. holder that is a taxable corporation generally will qualify for the dividends received deduction if the requisite holding period is satisfied. With certain exceptions, and provided certain holding period requirements are met, dividends we pay to a non-corporate U.S. holder may constitute “qualified dividend income” that will be subject to tax at the maximum tax rate accorded to long-term capital gains. If the holding period requirements are not satisfied, then a corporation may not be able to qualify for the dividends received deduction and would have taxable income equal to the entire dividend amount, and non-corporate U.S. holders may be subject to tax on such dividend at regular ordinary income tax rates instead of the preferential rate that applies to qualified dividend income.
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Gain or Loss on Sale, Taxable Exchange or Other Taxable Disposition of Common Stock. Upon a sale or other taxable disposition of our common stock, a U.S. holder generally will recognize capital gain or loss in an amount equal to the difference between the amount realized and the U.S. holder’s adjusted tax basis in the common stock. Any such capital gain or loss generally will be long-term capital gain or loss if the U.S. holder’s holding period for the common stock so disposed of exceeds one year. Long-term capital gains recognized by non-corporate U.S. holders may be eligible to be taxed at reduced rates. The deductibility of capital losses is subject to limitations.
Information Reporting and Backup Withholding. In general, information reporting requirements may apply to dividends paid to a U.S. holder and to the proceeds of the sale or other disposition of our common stock, unless the U.S. holder is an exempt recipient. Backup withholding may apply to such payments if the U.S. holder fails to provide a taxpayer identification number, a certification of exempt status or has been notified by the IRS that it is subject to backup withholding (and such notification has not been withdrawn).
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules will be allowed as a credit against a U.S. holder’s U.S. federal income tax liability and may entitle such holder to a refund, provided the required information is timely furnished to the IRS.
Non-U.S. Holders
This section applies to you if you are a “Non-U.S. holder.” As used herein, the term “Non-U.S. holder” means a beneficial owner of our common stock who or that is for U.S. federal income tax purposes:
| ● | a non-resident alien individual (other than certain former citizens and residents of the United States subject to U.S. tax as expatriates); |
| ● | a foreign corporation; or |
| ● | an estate or trust that is not a U.S. holder; |
but generally does not include an individual who is present in the United States for a material number of days in the taxable year of the disposition of our common stock. If you are such an individual, you should consult your tax advisor regarding the U.S. federal income tax consequences of the acquisition, ownership or sale or other disposition of our common stock.
Taxation of Distributions. In general, any distributions we make to a Non-U.S. holder of shares of our common stock, to the extent paid out of our current or accumulated earnings and profits (as determined under U.S. federal income tax principles), will constitute dividends for U.S. federal income tax purposes and, provided such dividends are not effectively connected with the Non-U.S. holder’s conduct of a trade or business within the United States, we will be required to withhold tax from the gross amount of the dividend at a rate of 30%, unless such Non-U.S. holder is eligible for a reduced rate of withholding tax under an applicable income tax treaty and provides proper certification of its eligibility for such reduced rate (usually on an IRS Form W-8BEN or W-8BEN-E). Any distribution not constituting a dividend will be treated first as reducing (but not below zero) the Non-U.S. holder’s adjusted tax basis in its shares of our common stock and, to the extent such distribution exceeds the Non-U.S. holder’s adjusted tax basis, as gain realized from the sale or other disposition of the common stock, which will be treated as described under “Non-U.S. Holders — Gain on Sale, Taxable Exchange or Other Taxable Disposition of Common Stock” below. In addition, if we determine that we are likely to be classified as a “United States real property holding corporation” (see “Non-U.S. Holders — Gain on Sale, Taxable Exchange or Other Taxable Disposition of Common Stock” below), we generally will withhold 15% of any distribution that exceeds our current and accumulated earnings and profits.
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Gain on Sale, Taxable Exchange or Other Taxable Disposition of Common Stock. A Non-U.S. holder generally will not be subject to U.S. federal income or withholding tax in respect of gain recognized on a sale, taxable exchange or other taxable disposition of our common stock unless:
| ● | the gain is effectively connected with the conduct by the Non-U.S. holder of a trade or business within the United States (and, under certain income tax treaties, is attributable to a United States permanent establishment or fixed base maintained by the Non-U.S. holder); or |
| ● | we are or have been a “United States real property holding corporation” for U.S. federal income tax purposes at any time during the shorter of the five-year period ending on the date of disposition or the period that the Non-U.S. holder held our common stock. |
Unless an applicable treaty provides otherwise, gain described in the first bullet point above will be subject to tax at generally applicable U.S. federal income tax rates as if the Non-U.S. holder were 7,666,667 Class B ordinarya U.S. resident. Any gains described in the first bullet point above of a Non-U.S. holder that is treated as a foreign corporation for U.S. federal income tax purposes may also be subject to an additional “branch profits tax” imposed at a 30% rate (or lower treaty rate).
If the second bullet point above applies to a Non-U.S. holder, gain recognized by such holder on the sale, exchange or other disposition of our common stock will be subject to tax at generally applicable U.S. federal income tax rates. In addition, a buyer of our common stock from such holder may be required to withhold U.S. federal income tax at a rate of 15% of the amount realized upon such disposition. We will be classified as a United States real property holding corporation if the fair market value of our “United States real property interests” equals or exceeds 50% of the sum of the fair market value of our worldwide real property interests plus our other assets used or held for use in a trade or business, as determined for U.S. federal income tax purposes. We do not expect to be a United States real property holding corporation immediately after the business combination is completed.
Information Reporting and Backup Withholding. Information returns will be filed with the IRS in connection with payments of dividends and the proceeds from a sale or other disposition of shares outstanding,of our common stock. A Non-U.S. holder may have to comply with certification procedures to establish that it is not a United States person in order to avoid information reporting and backup withholding requirements. The certification procedures required to claim a reduced rate of withholding under a treaty generally will satisfy the certification requirements necessary to avoid the backup withholding as well.
FATCA Withholding Taxes. Provisions commonly referred to as “FATCA” impose withholding of 30% on payments of dividends on our common stock to “foreign financial institutions” (which is broadly defined for this purpose and in general includes investment vehicles) and certain other non-U.S. entities unless various U.S. information reporting and due diligence requirements (generally relating to ownership by United States persons of interests in or accounts with those entities) have been satisfied by, or an exemption applies to, the payee (typically certified as to by the delivery of a properly completed IRS Form W-8BEN-E). Foreign financial institutions located in jurisdictions that have an intergovernmental agreement with the United States governing FATCA may be subject to different rules. Under certain circumstances, a Non-U.S. holder might be eligible for taxes, and a Non-U.S. holder might be required to file a U.S. federal income tax return to claim such refunds or credits. Thirty percent withholding under FATCA was scheduled to apply to payments of gross proceeds from the sale or other disposition of property that produces U.S.-source interest or dividends beginning on January 1, 2019, but on December 13, 2018, the IRS released proposed regulations that, if finalized in their proposed form, would eliminate the obligation to withhold on gross proceeds. Such proposed regulations also delayed withholding on certain other payments received from other foreign financial institutions that are allocable, as provided for under final Treasury Regulations, to payments of U.S.-source dividends, and other fixed or determinable annual or periodic income. Although these proposed Treasury Regulations are not final, taxpayers generally may rely on them until final Treasury Regulations are issued. Prospective investors should consult their tax advisors regarding the effects of FATCA on their investment in our common stock.
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PLAN OF DISTRIBUTION
The selling securityholders, which as used here includes donees, pledgees, transferees or other successors-in-interest selling warrants, shares of common stock or interests in shares of common stock received after the date of this prospectus from a selling securityholder as a gift, pledge, partnership distribution or other transfer, may, from time to time, sell, transfer or otherwise dispose of any or all of their warrants, shares of common stock or interests in shares of common stock on any stock exchange, market or trading facility on which were heldthe warrants or shares are traded or in private transactions. These dispositions may be at fixed prices, at prevailing market prices at the time of recordsale, at prices related to the prevailing market price, at varying prices determined at the time of sale, or at negotiated prices.
The selling securityholders may use any one or more of the following methods when disposing of warrants, shares or interests therein:
| ● | ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers; |
| ● | block trades in which the broker-dealer will attempt to sell the shares as agent, but may position and resell a portion of the block as principal to facilitate the transaction; |
| ● | purchases by a broker-dealer as principal and resale by the broker-dealer for their account; |
| ● | an exchange distribution in accordance with the rules of the applicable exchange; |
| ● | privately negotiated transactions; |
| ● | short sales effected after the date the registration statement of which this prospectus is a part is declared effective by the SEC; |
| ● | through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise; |
| ● | broker-dealers may agree with the selling securityholders to sell a specified number of such shares at a stipulated price per share; |
| ● | a combination of any such methods of sale; and |
| ● | any other method permitted by applicable law. |
The selling securityholders may, from time to time, pledge or grant a security interest in some or all of the warrants or shares of common stock owned by our initial shareholders, so that our initial shareholdersthem and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell the warrants or shares of common stock, from time to time, under this prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act amending the list of selling securityholders to include the pledgee, transferee or other successors in interest as selling securityholders under this prospectus. The selling securityholders also may transfer the warrants or shares of common stock in other circumstances, in which case the transferees, pledgees or other successors in interest will own 25%be the selling beneficial owners for purposes of this prospectus.
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In connection with the sale of our issuedwarrants, shares of common stock or interests therein, the selling securityholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the warrants shares of common stock in the course of hedging the positions they assume. The selling securityholders may also sell warrants or shares of our common stock short and outstandingdeliver these securities to close out their short positions, or loan or pledge the warrants or common stock to broker-dealers that in turn may sell these securities. The selling securityholders may also enter into option or other transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities which require the delivery to such broker-dealer or other financial institution of warrants or shares afteroffered by this prospectus, which warrants or shares such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).
Each of the selling securityholders reserves the right to accept and, together with their agents from time to time, to reject, in whole or in part, any proposed purchase of warrants or common stock to be made directly or through agents. We will not receive any of the proceeds from this offering. Upon any exercise of the warrants or options by payment of cash, however, we will receive the exercise price of such warrants or options.
The selling securityholders and any underwriters, broker-dealers or agents that participate in the sale of the common stock or interests therein may be “underwriters” within the meaning of Section 2(11) of the Securities Act. Any discounts, commissions, concessions or profit they earn on any resale of the shares may be underwriting discounts and commissions under the Securities Act. selling securityholders who are “underwriters” within the meaning of Section 2(11) of the Securities Act will be subject to the prospectus delivery requirements of the Securities Act.
In addition, a selling securityholder that is an entity may elect to make a pro rata in-kind distribution of securities to its members, partners or stockholders pursuant to the registration statement of which this prospectus is a part by delivering a prospectus with a plan of distribution. Such members, partners or stockholders would thereby receive freely tradeable securities pursuant to the distribution through a registration statement.
To the extent required, the warrants or shares of our common stock to be sold, the names of the selling securityholders, the respective purchase prices and public offering (assumingprices, the names of any agents, dealer or underwriter, any applicable commissions or discounts with respect to a particular offer will be set forth in an accompanying prospectus supplement or, if appropriate, a post-effective amendment to the registration statement that includes this prospectus.
In order to comply with the securities laws of some states, if applicable, the warrants or common stock may be sold in these jurisdictions only through registered or licensed brokers or dealers. In addition, in some states the warrants or common stock may not be sold unless they have been registered or qualified for sale or an exemption from registration or qualification requirements is available and is complied with.
We have advised the selling securityholders that the anti-manipulation rules of Regulation M under the Exchange Act may apply to sales of warrants or shares in the market and to the activities of the selling securityholders and their affiliates. In addition, to the extent applicable we will make copies of this prospectus (as it may be supplemented or amended from time to time) available to the selling securityholders for the purpose of satisfying the prospectus delivery requirements of the Securities Act. The selling securityholders may indemnify any broker-dealer that participates in transactions involving the sale of the shares against certain liabilities, including liabilities arising under the Securities Act.
We have agreed to indemnify the selling securityholders against liabilities, including liabilities under the Securities Act and state securities laws, relating to the registration of the warrants or shares offered by this prospectus.
We have agreed with the selling securityholders to keep the registration statement of which this prospectus constitutes a part effective until all of the shares covered by this prospectus have been disposed of pursuant to and in accordance with the registration statement or the securities have been withdrawn.
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LEGAL MATTERS
Morrison Cohen LLP has passed upon the validity of our initial shareholders do not purchase any unitscommon stock offered by this prospectus and certain other legal matters related to this prospectus.
EXPERTS
The financial statements of 10X Capital Venture Acquisition Corp. II as of December 31, 2022 and 2021 and for the year ended December 31, 2022 and for the period from February 10, 2021 through December 31, 2021, appearing in this proxy statement/prospectus have been audited by WithumSmith+Brown, PC (“Withum”), independent registered public accounting firm, as set forth in their report thereon (which contains explanatory paragraphs relating to the substantial doubt about the ability of 10X Capital Venture Acquisition Corp. II to continue as a going concern), appearing elsewhere in this proxy statement/prospectus, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.
The consolidated financial statements of African Agriculture, Inc. as of December 31, 2022 and 2021, and for the years then ended, included in this prospectus and in the registration statement have been so included in reliance on the report of Whitley Penn LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.
On December 12, 2023, the Audit Committee of the Board approved the engagement of M&K CPAS, PLLC (“M&K”) as our independent registered public accounting firm effective as of December 12, 2023 to audit the Company’s consolidated financial statements for the year ended December 31, 2023. The Audit Committee of the resolved that Withum would be dismissed as the Company’s independent registered public accounting firm effective as of December 12, 2023. Accordingly, Withum was informed that it would be dismissed as the Company’s independent registered public accounting firm effective as of December 12, 2023. On December 12, 2023, the Company disclosed the dismissal of Withum in a Current Report on Form 8-K.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-1, including exhibits, under the Securities Act of 1933, as amended, with respect to the common stock offered by this prospectus. This prospectus does not contain all of the information included in the registration statement. For further information pertaining to us and our securities, you should refer to the registration statement and our exhibits.
In addition, we file annual, quarterly and current reports, proxy statements and other information with the SEC. Our SEC filings are available to the public on a website maintained by the SEC located at www.sec.gov. We also maintain a website at https://africanagriculture.com. Through our website, we make available, free of charge, annual, quarterly and current reports, proxy statements and other information as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. The information contained on, or that may be accessed through, our website is not part of, and is not incorporated into, this prospectus.
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INDEX TO FINANCIAL STATEMENTS
10X CAPITAL VENTURE ACQUISITION CORP. II UNAUDITED FINANCIAL STATEMENTS AS OF JUNE 30, 2023 AND DECEMBER 31, 2022 AND FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2023 AND 2022
10X CAPITAL VENTURE ACQUISITION CORP. II AUDITED FINANCIAL STATEMENTS AS DECEMBER 31, 2022 AND 2021 AND FOR THE YEAR ENDED DECEMBER 31, 2022 AND FOR THE PERIOD FROM FEBRUARY 10, 2021 (INCEPTION) THROUGH DECEMBER 31, 2021
AFRICAN AGRICULTURE, INC. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2023 AND DECEMBER 31, 2022 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
AFRICAN AGRICULTURE, INC. AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2022 AND 2021 AND FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2022 AND 2021
F-1
10X CAPITAL VENTURE ACQUISITION CORP. II
CONDENSED CONSOLIDATED BALANCE SHEETS
| September 30, 2023 | December 31, 2022 | |||||||
| (Unaudited) | ||||||||
| Assets: | ||||||||
| Current assets: | ||||||||
| Cash | $ | 17,450 | $ | 36,675 | ||||
| Prepaid expenses | 92,949 | 137,073 | ||||||
| Total current assets | 110,399 | 173,748 | ||||||
| Cash held in Trust Account | 22,442,184 | - | ||||||
| Investments held in Trust Account | - | 47,264,548 | ||||||
| Total Assets | $ | 22,552,583 | $ | 47,438,296 | ||||
| Liabilities, Class A Ordinary Shares Subject to Possible Redemption and Shareholders’ Deficit: | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 3,153,214 | $ | 2,969,033 | ||||
| Accrued expenses | 8,837,319 | 6,768,920 | ||||||
| Promissory note - related party | 1,625,213 | 600,000 | ||||||
| Non-redemption agreements liabilities | 400,702 | - | ||||||
| Total current liabilities | 14,016,448 | 10,337,953 | ||||||
| Forward purchase options liabilities | 172 | 331,777 | ||||||
| Deferred underwriting fee payable | 7,000,000 | 7,000,000 | ||||||
| Total Liabilities | 21,016,620 | 17,669,730 | ||||||
| Commitments and Contingencies | ||||||||
| Class A ordinary shares subject to possible redemption, $0.0001 par value; 2,119,553 and 4,642,030 shares issued and outstanding at redemption value of approximately $10.54 and $10.16 per share as of September 30, 2023 and December 31, 2022, respectively | 22,342,184 | 47,164,548 | ||||||
| Shareholders’ Deficit: | ||||||||
| Preference shares, $0.0001 par value; 1,000,000 shares authorized; none issued or outstanding as of September 30, 2023 and December 31, 2022 | - | - | ||||||
| Class A ordinary shares, $0.0001 par value; 500,000,000 shares authorized; 1,655,000 and 655,000 shares issued and outstanding (excluding 2,119,553 and 4,642,030 shares subject to possible redemption) as of September 30, 2023 and December 31, 2022, respectively | 166 | 66 | ||||||
| Class B ordinary shares, $0.0001 par value; 50,000,000 shares authorized; 5,666,667 and 6,666,667 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively | 567 | 667 | ||||||
| Additional paid-in capital | - | - | ||||||
| Accumulated deficit | (20,806,954 | ) | (17,396,715 | ) | ||||
| Total shareholders’ deficit | (20,806,221 | ) | (17,395,982 | ) | ||||
| Total Liabilities, Class A Ordinary Shares Subject to Possible Redemption and Shareholders’ Deficit | $ | 22,552,583 | $ | 47,438,296 | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-2
10X CAPITAL VENTURE ACQUISITION CORP. II
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| General and administrative expenses | $ | 985,544 | $ | 1,768,741 | $ | 3,161,142 | $ | 7,583,664 | ||||||||
| Administrative expenses - related party | 60,000 | 60,000 | 180,000 | 180,000 | ||||||||||||
| Loss from operations | (1,045,544 | ) | (1,828,741 | ) | (3,341,142 | ) | (7,763,664 | ) | ||||||||
| Change in fair value of forward purchase options liabilities | 176,828 | - | 331,605 | |||||||||||||
| Change in fair value of non redemption agreement liabilities | (500,877 | ) | - | (478,196 | ) | - | ||||||||||
| Loss in connection with non-redemption agreements | - | - | (130,418 | ) | - | |||||||||||
| Income from cash and investments held in Trust Account | 260,232 | 902,743 | 1,201,552 | 1,192,958 | ||||||||||||
| Net loss | $ | (1,109,361 | ) | $ | (925,998 | ) | $ | (2,416,599 | ) | $ | (6,570,706 | ) | ||||
| Basic and diluted weighted average redeemable and non-redeemable shares outstanding, Class A ordinary shares | 3,774,553 | 20,655,000 | 4,481,227 | 20,655,000 | ||||||||||||
| Basic and diluted net loss per share, Class A ordinary shares | $ | (0.12 | ) | $ | (0.03 | ) | $ | (0.23 | ) | $ | (0.24 | ) | ||||
| Basic and diluted weighted average shares outstanding, Class B ordinary shares | 5,666,667 | 6,666,667 | 6,161,172 | 6,666,667 | ||||||||||||
| Basic and diluted net loss per share, Class B ordinary shares | $ | (0.12 | ) | $ | (0.03 | ) | $ | (0.23 | ) | $ | (0.24 | ) | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-3
10X CAPITAL VENTURE ACQUISITION CORP. II
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ DEFICIT
For the Three and Nine Months Ended September 30, 2023
| Class A | Class B | Additional Paid-in | Accumulated | Total Shareholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||
| Balance - December 31, 2022 | 655,000 | $ | 66 | 6,666,667 | $ | 667 | $ | - | $ | (17,396,715 | ) | $ | (17,395,982 | ) | ||||||||||||||
| Increase in redemption value of Class A ordinary shares subject to possible redemption | - | - | - | - | - | (501,501 | ) | (501,501 | ) | |||||||||||||||||||
| Net loss | - | - | - | - | - | (906,456 | ) | (906,456 | ) | |||||||||||||||||||
| Balance - March 31, 2023 (Unaudited) | 655,000 | 66 | 6,666,667 | 667 | - | (18,804,672 | ) | (18,803,939 | ) | |||||||||||||||||||
| Shareholder non-redemption agreement | - | - | - | - | 43,473 | - | 43,473 | |||||||||||||||||||||
| Conversion of Class B ordinary shares to Class A ordinary shares | 1,000,000 | 100 | (1,000,000 | ) | (100 | ) | - | - | - | |||||||||||||||||||
| Increase in redemption value of Class A ordinary shares subject to possible redemption | - | - | - | - | (43,473 | ) | (396,346 | ) | (439,819 | ) | ||||||||||||||||||
| Net loss | - | - | - | - | - | (400,782 | ) | (400,782 | ) | |||||||||||||||||||
| Balance - June 30, 2023 (Unaudited) | 1,655,000 | 166 | 5,666,667 | 567 | - | (19,601,800 | ) | (19,601,067 | ) | |||||||||||||||||||
| Shareholder non-redemption agreement | - | - | - | - | 164,439 | - | 164,439 | |||||||||||||||||||||
| Increase in redemption value of Class A ordinary shares subject to possible redemption | - | - | - | - | (164,439 | ) | (95,793 | ) | (260,232 | ) | ||||||||||||||||||
| Net loss | - | - | - | - | - | (1,109,361 | ) | (1,109,361 | ) | |||||||||||||||||||
| Balance - September 30, 2023 (Unaudited) | 1,655,000 | $ | 166 | 5,666,667 | $ | 567 | $ | - | $ | (20,806,954 | ) | $ | (20,806,221 | ) | ||||||||||||||
For the Three and Nine Months Ended September 30, 2022
| Class A | Class B | Additional Paid-in | Accumulated | Total Shareholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||
| Balance - December 31, 2021 | 655,000 | $ | 66 | 6,666,667 | $ | 667 | $ | - | $ | (6,646,356 | ) | $ | (6,645,623 | ) | ||||||||||||||
| Net loss | - | - | - | - | - | (1,906,041 | ) | (1,906,041 | ) | |||||||||||||||||||
| Balance - March 31, 2022 (Unaudited) | 655,000 | 66 | 6,666,667 | 667 | - | (8,552,397 | ) | (8,551,664 | ) | |||||||||||||||||||
| Increase in redemption value of Class A ordinary shares subject to possible redemption | - | - | - | - | - | (195,699 | ) | (195,699 | ) | |||||||||||||||||||
| Net loss | - | - | - | - | - | (3,738,667 | ) | (3,738,667 | ) | |||||||||||||||||||
| Balance - June 30, 2022 (Unaudited) | 655,000 | $ | 66 | 6,666,667 | $ | 667 | $ | - | $ | (12,486,763 | ) | $ | (12,486,030 | ) | ||||||||||||||
| Increase in redemption value of Class A ordinary shares subject to possible redemption | - | - | - | - | - | (902,743 | ) | (902,743 | ) | |||||||||||||||||||
| Net loss | - | - | - | - | - | (925,998 | ) | (925,998 | ) | |||||||||||||||||||
| Balance - September 30, 2022 (Unaudited) | 655,000 | $ | 66 | 6,666,667 | $ | 667 | $ | - | $ | (14,315,504 | ) | $ | (14,314,771 | ) | ||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-4
10X CAPITAL VENTURE ACQUISITION CORP. II
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| Nine Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net loss | $ | (2,416,599 | ) | $ | (6,570,706 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Income from investments held in Trust Account | (1,201,552 | ) | (1,192,958 | ) | ||||
| Change in fair value of forward purchase options liabilities | (331,605 | ) | - | |||||
| Change in fair value of non redemption agreement liabilities | 478,196 | - | ||||||
| Loss in connection with non- redemption agreements | 130,418 | - | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses | 44,124 | 88,032 | ||||||
| Accounts payable | 184,181 | 2,470,256 | ||||||
| Accrued expenses | 2,068,399 | 3,993,845 | ||||||
| Net cash used in operating activities | (1,044,438 | ) | (1,211,531 | ) | ||||
| Cash Flows from Investing Activities: | ||||||||
| Cash withdrawn from Trust Account for payment to redeeming shareholders | 26,023,916 | - | ||||||
| Net cash provided by investing activities | 26,023,916 | - | ||||||
| Cash Flows from Financing Activities: | ||||||||
| Payment to redeeming shareholders | (26,023,916 | ) | - | |||||
| Proceeds from promissory note - related party | 1,025,213 | - | ||||||
| Net cash used in financing activities | (24,998,703 | ) | - | |||||
| Net Change in Cash | (19,225 | ) | (1,211,531 | ) | ||||
| Cash - Beginning of period | 36,675 | 1,358,622 | ||||||
| Cash - End of period | $ | 17,450 | $ | 147,091 | ||||
| Supplemental disclosure of noncash investing and financing activities: | ||||||||
| Conversion of Class B ordinary shares to Class A ordinary shares | $ | 100 | $ | - | ||||
| Shareholder non-redemption agreement | $ | 207,912 | $ | - | ||||
| Subsequent accretion of Class A ordinary shares subject to possible redemption to redemption amount as of September 30, 2023 | $ | 1,201,552 | $ | 1,098,442 | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-5
10X CAPITAL VENTURE ACQUISITION CORP. II
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
NOTE 1. DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS
10X Capital Venture Acquisition Corp. II (the “Company”) is a blank check company incorporated as a Cayman Islands exempted company on February 10, 2021. The Company was formed for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses or entities (the “Business Combination”).
As of September 30, 2023, the Company had not commenced any operations. All activity for the period from February 10, 2021 (inception) through September 30, 2023 relates to the Company’s formation and the Initial Public Offering (as defined below), and, since the closing of the Initial Public Offering, the search for and efforts toward completing an initial Business Combination. The Company will not generate any operating revenues until after the completion of its initial Business Combination, at the earliest. The Company generates non-operating income in the form of investment income from the proceeds held in the Trust Account (as defined below).
The Company’s Sponsor is 10X Capital SPAC Sponsor II LLC, a Cayman Islands limited liability company (the “Sponsor”). The registration statement for the Company’s Initial Public Offering was declared effective on August 10, 2021. On August 13, 2021, the Company consummated its initial public offering (the “Initial Public Offering”) of 20,000,000 units (the “Units”) at $10.00 per Unit, generating gross proceeds of $200.0 million, and not including theincurring offering costs of approximately $21.7 million, of which $7.0 million was for deferred underwriting commissions (see Note 6). Each Unit is comprised of one Class A ordinary shares underlyingshare, par value $0.0001 per share (the “Public Shares”) and one-third of one redeemable warrant (the “Public Warrants”), each whole warrant entitling the private placement units). Upholder to 1,000,000 of the founder shares will be forfeited by our initial shareholders depending on the extent to which the underwriters’ over-allotment is exercised. Upon the closing of this offering, 27,321,667 of our ordinary shares will be outstanding (assuming no exercise of the underwriters’ over-allotment option and the corresponding forfeiture of 1,000,000 founder shares by our initial shareholders) including:purchase one Public Share.
20,000,000 Class A ordinary shares underlying units issued as part of this offering;
655,000 Class A ordinary shares underlying the private placement units; and
6,666,667 Class B ordinary shares held by our initial shareholders.
If we increase or decrease the size of this offering, we will effect a share dividend or share contribution back to capital or other appropriate mechanism, as applicable,Simultaneously with respect to our Class B ordinary shares immediately prior to the consummation of the offering in such amount asInitial Public Offering, the Company consummated the private placement (the “Private Placement”) of 655,000 Units (the “Private Units”) to maintain the ownershipSponsor and Cantor Fitzgerald & Co. (“Cantor”), at a price of our initial shareholders at 25.0%$10.00 per Private Unit, generating gross proceeds of our issued and outstanding ordinary shares upon the consummationapproximately $6.6 million. Each Private Unit is comprised of this offering (not including theone Class A ordinary shares underlyingshare (a “private placement share”) and one-third of one redeemable warrant (each whole warrant, a “private placement warrant”), with each whole warrant entitling the holder to purchase one private placement units).share at an exercise price of $11.50 per share.
Ordinary shareholders
Following the closing of record are entitledthe Initial Public Offering on August 13, 2021, $200,000,000 ($10.00 per Unit) from the net proceeds of the sale of the Units in the Initial Public Offering and the sale of the Private Units and $12,515 overfunded by Sponsor, which was returned to onethe Sponsor on August 17, 2021, was placed in a Trust Account (“Trust Account”) and is being invested only in U.S. government treasury obligations with a maturity of 185 days or less or in money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act of 1940, as amended (the “Investment Company Act”), which invest only in direct U.S. government treasury obligations. Except with respect to interest earned on the funds held in the Trust Account that may be released to the Company to pay its taxes, up to $100,000 to pay dissolution expenses, the proceeds from the Initial Public Offering and the sale of the Private Units will not be released from the Trust Account until the earliest of (i) the completion of the initial Business Combination, (ii) the redemption of the Public Shares if the Company is unable to complete the initial Business Combination within 21 months from the closing of the Initial Public Offering, subject to applicable law, and (iii) the redemption of the Public Shares properly submitted in connection with a shareholder vote for each share held on all matters to be voted on by shareholders. Holders of Class A ordinary shares and holders of Class B ordinary shares will vote together as a single class on all matters submitted to a vote of our shareholders except as required by law. Unless specified in ouramend the Company’s amended and restated memorandum and articles of association to modify the substance or as required by applicable provisionstiming of its obligation to redeem 100% of the Companies Act or applicable stock exchange rules,Public Shares if the affirmative vote of a majority of our ordinary shares that are voted is required to approve any such matter voted on by our shareholders. Approval of certain actions will require a special resolution under Cayman Islands law, beingCompany has not consummated the affirmative vote of at least two-thirdsinitial Business Combination within 21 months from the closing of the ordinary shares that are voted, and pursuant to our amended and restated memorandum and articles of association; such actions include amending our amended and restated memorandum and articles of association and approving a statutory mergerInitial Public Offering or consolidation with another company. Our board of directors is divided into three classes, each of which will generally serve for a term of three years with only one class of directors being appointed in each year. There is no cumulative voting with respect to any other material provisions relating to shareholders’ rights or pre-initial Business Combination activity. The proceeds deposited in the appointment of directors, withTrust Account could become subject to the result that the holders of more than 50%claims of the shares voted forCompany’s creditors, if any, which could have priority over the appointment of directors can elect allclaims of the directors. However, only holders of Class B ordinary shares willpublic shareholders.
F-6
10X CAPITAL VENTURE ACQUISITION CORP. II
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
The Company’s Business Combination must be with one or more target businesses that together have the righta fair market value equal to appoint directors in any
election held prior to or in connection with the completion of our initial business combination, meaning that holders of Class A ordinary shares will not have the right to appoint any directors until after the completion of our initial business combination. In addition, in a vote to continue the Company in a jurisdiction outside the Cayman Islands (which requires the approval of at least two thirds80% of the votesnet balance in the Trust Account (excluding the amount of all ordinary shares), holdersdeferred underwriting discounts held and taxes payable on the income earned on the Trust Account) at the time of our Class B ordinary shares will have ten votes for every Class B ordinary share and holders of our Class A ordinary shares will have one vote for every Class A ordinary share. The provisions of our amended and restated memorandum and articles of association governing the appointment or removal of directors prior to our initial business combination and our continuation in a jurisdiction outside the Cayman Islands prior to our initial business combination may only be amended by a special resolution passed by not less than two-thirds of our ordinary shares who attend and vote at our general meeting which shall include the affirmative vote of a simple majority of our Class B ordinary shares. Our shareholders are entitled to receive ratable dividends when, as and if declared by the board of directors out of funds legally available therefor.
Because our amended and restated memorandum and articles of association authorize the issuance of up to 500,000,000 Class A ordinary shares, if we weresigning an agreement to enter into a business combination, we may (depending onBusiness Combination. However, the termsCompany will only complete a Business Combination if the post-Business Combination company owns or acquires 50% or more of suchthe outstanding voting securities of the target or otherwise acquires a business combination)controlling interest in the target sufficient for it not to be required to increaseregister as an investment company under the number of Class A ordinary shares which we are authorized to issue at the same time as our shareholders vote on the business combination to the extent we seek shareholder approval in connection with our initial business combination. Our board of directors is divided into three classes with only one class of directors being elected in each year and each class (except for those directors appointed prior to our first annual general meeting) serving a three-year term.
In accordance with Nasdaq corporate governance requirements, we are not required to hold an annual meeting until no later than one year after our first fiscal year end following our listing on Nasdaq.Investment Company Act. There is no requirement underassurance that the Companies Act for usCompany will be able to hold annual or extraordinary general meetings or elect directors. We may not hold an annual general meeting to elect new directors prior to the consummation of our initial business combination.successfully effect a Business Combination.
We
The Company will provide ourthe public shareholders with the opportunity to redeem all or a portion of their public sharesPublic Shares upon the completion of ourthe initial business combinationBusiness Combination either (i) in connection with a shareholder meeting called to approve the Business Combination or (ii) without a shareholder vote by means of a tender offer. The decision as to whether the Company will seek shareholder approval of a proposed Business Combination or conduct a tender offer will be made by the Company, solely in its discretion. The public shareholders will be entitled to redeem their Public Shares at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the trust accountTrust Account calculated as of two business days prior to the consummation of ourthe initial business combination,Business Combination, including interest earned on the funds held in the trust accountTrust Account (which interest shall be net of taxes payable), divided by the number of then outstanding public shares,Public Shares, subject to the limitations and on the conditions described herein. The amount in the trust accountTrust Account at September 30, 2023 was $10.54 per Public Share.
The Class A ordinary shares subject to possible redemption is initially anticipated to be $10.00 per public share. The per share amount werecorded at a redemption value and classified as temporary equity, in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 480, “Distinguishing Liabilities from Equity” (“ASC 480”). In such case, the Company will distribute to investors who properly redeem theirproceed with a Business Combination if the Company seeks shareholder approval, and a majority of the issued and outstanding shares will not be reduced byvoted are voted in favor of the deferred underwriting commissions we will pay to the underwriters. Our initial shareholders, sponsor, officers and directors have entered into a letter agreement with us, pursuant to which they have agreed to waive their redemption rights with respect to any founder shares and public shares they hold in connection with the completion of our initial business combination. The anchor investors will not be entitled to redemption rights with respect to any founder shares held by them in connection with the completion of our initial business combination. Unlike many special purpose acquisition companies that hold shareholder votes and conduct proxy solicitations in conjunction with their initial business combinations and provide for related redemptions of public shares for cash upon completion of such initial business combinations even when a vote is not required by law, ifBusiness Combination. If a shareholder vote is not required by law and we dothe Company does not decide to hold a shareholder vote for business or other legal reasons, wethe Company will, pursuant to ourthe second amended and restated memorandum and articles of association which the Company adopted upon the consummation of the Initial Public Offering (as amended on May 10, 2023, the “Amended and Restated Memorandum and Articles of Association”), conduct the redemptions pursuant to the tender offer rules of the SEC,U.S. Securities and Exchange Commission (“SEC”) and file tender offer documents with the SEC prior to completing our initial business combination. Our amended and restated memorandum and articles of association require these tender offer documents to contain substantially the same financial and other information about our initial business combination and the redemption rights as is required under the SEC’s proxy rules.a Business Combination. If, however, a shareholder approval of the transactiontransactions is required by law, or we decidethe Company decides to obtain shareholder approval for business or other legal reasons, wethe Company will like many special purpose acquisition companies, offer to redeem shares in conjunction with a proxy solicitation pursuant to the proxy rules and not pursuant to the tender offer rules. If we seek shareholder approval, we will complete our initial business combination only if we receive the approval of an ordinary resolution under Cayman Islands law, which requires the affirmative vote of a
majority of the shareholders who attend and vote at a general meeting of the company. However, the participation of our sponsor, officers, directors, advisors or their affiliates in privately-negotiated transactions (as described in this prospectus), if any, could result in the approval of our initial business combination even if a majority of our public shareholders vote, or indicate their intention to vote, against such initial business combination. For purposes of seeking approval of an ordinary resolution, non-votes will have no effect on the approval of our initial business combination once a quorum is obtained. Our amended and restated memorandum and articles of association require that at least five days’ notice will be given of any general meeting. These quorum and voting thresholds, and the voting agreements of our initial shareholders and the anchor investors, may make it more likely that we will consummate our initial business combination.
If we seek shareholder approval of our initial business combination and we do not conduct redemptions in connection with our initial business combination pursuant to the tender offer rules, our memorandum and articles of association provide that a public shareholder, together with any affiliate of such shareholder or any other person with whom such shareholder is acting in concert or as a “group” (as defined under Section 13 of the Exchange Act), will be restricted from redeeming its shares with respect to Excess Shares, without our prior consent. However, we would not be restricting our shareholders’ ability to vote all of their shares (including Excess Shares) for or against our initial business combination. Our shareholders’ inability to redeem the Excess Shares will reduce their influence over our ability to complete our initial business combination, and such shareholders could suffer a material loss in their investment if they sell such Excess Shares on the open market. Additionally, such shareholders will not receive redemption distributions with respect to the Excess Shares if we complete our initial business combination. And, as a result, such shareholders will continue to hold that number of shares exceeding 15% and, in order to dispose such shares would be required to sell their shares in open market transactions, potentially at a loss.
If we seek shareholder approval in connection with our initial business combination, our initial shareholders, sponsor, officers and directors have agreed to vote any founder shares they hold and any public shares purchased during or after this offering, and the anchor investors have agreed to vote any founder shares held by them, in favor of our initial business combination. As a result, in addition to our initial shareholders’ founder shares and private placement shares, we would need 6,539,168, or 32.7% of the 20,000,000 public shares sold in this offering to be voted in favor of an initial business combination in order to have our initial business combination approved (assuming all outstanding shares are voted and the over-allotment option is not exercised). Assuming that only one-third of our issued and outstanding ordinary shares, representing a quorum under our amended and restated memorandum and articles of association, are voted, we will not need any public shares in addition to our founder shares to be voted in favor of an initial business combination in order to have an initial business combination approved. Additionally, each public shareholderPublic Shareholder may elect to redeem their public sharesPublic Shares irrespective of whether they vote for or against the proposed transaction or whether they werevote at all. If the Company seeks shareholder approval in connection with a public shareholderBusiness Combination, the initial shareholders (as defined below) agreed to vote their Founder Shares (as defined below in Note 5) and any Public Shares purchased during or after the Initial Public Offering in favor of a Business Combination. In addition, the initial shareholders agreed to waive their redemption rights with respect to their Founder Shares, the private placement shares underlying the Private Units and Public Shares in connection with the completion of a Business Combination. The Sponsor will not have any redemption rights in connection with the Converted Shares (as defined below), and the Converted Shares will be subject to the restrictions on transfer included in the recordletter agreement entered into by the Sponsor in connection with the Initial Public Offering.
F-7
10X CAPITAL VENTURE ACQUISITION CORP. II
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
The Company has until December 13, 2023 with the option to extend up to two times, by an additional month each time, upon approval by the Company’s board of directors, up until February 13, 2024 (the “Combination Period”) (see discussion below), to complete the Business Combination. On August 8 2023, the Board approved the extension of the date forby which the general meeting heldCompany is required to approvecomplete an initial business combination until September 13, 2023 (the “First Optional Extension”). On September 11, 2023, the proposed transaction.
PursuantBoard approved the extension of the date by which the Company is required to our amended and restated memorandum and articlescomplete an initial business combination until October 13, 2023. On October 10, 2023, the Board approved the extension of association, if we arethe date by which the Company is required to complete an initial business combination until November 13, 2023. On November 8, 2023, the Board approved an extension of the date by which 10X II is required to complete an initial business combination from November 13, 2023 until December 13, 2023. If the Company is unable to complete ourthe initial business combinationBusiness Combination within 15 months from the closing of this offering, weCombination Period, the Company will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but nonot more than ten business days thereafter, redeem the public shares,Public Shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the trust account,Trust Account, including interest earned on the funds held in the Trust Account (which interest shall be net of taxes payable and up to $100,000 of interest to pay dissolution expenses), divided by the number of then outstanding Public Shares, which redemption will completely extinguish public shareholders’ rights as shareholders (including the right to receive further liquidating distributions, if any), and (iii) as promptly as reasonably possible following such redemption, subject to the approval of the Company’s remaining shareholders and the Company’s board of directors, liquidate and dissolve, subject, in each case, to the Company’s obligations under Cayman Islands law to provide for claims of creditors and the requirements of other applicable law.
The Sponsor, officers and directors have agreed to (i) waive their redemption rights with respect to any Founder Shares, the private placement shares underlying the Private Units, and Public Shares they hold in connection with the completion of the initial Business Combination, (ii) waive their redemption rights with respect to any Founder Shares and Public Shares they hold in connection with a shareholder vote to approve an amendment to the Amended and Restated Memorandum and Articles of Association, and (iii) waive their rights to liquidating distributions from the Trust Account with respect to any Founder Shares they hold if the Company fails to complete the initial Business Combination within the Combination Period or any extended period of time that the Company may have to consummate the Business Combination as a result of an amendment to the Amended and Restated Memorandum and Articles of Association (although they will be entitled to liquidating distributions from the Trust Account with respect to any Public Shares they hold if the Company fails to complete the Business Combination within the Combination Period). The Sponsor will not have any redemption rights in connection with the Converted Shares (as defined below), and the Converted Shares will be subject to the restrictions on transfer included in the letter agreement entered into by the Sponsor in connection with the Initial Public Offering.
The Sponsor has agreed that it will be liable to the Company if and to the extent any claims by a third party for services rendered or products sold to the Company, or a prospective target business with which the Company has entered into a written letter of intent, confidentiality or other similar agreement or Business Combination agreement, reduce the amount of funds in the Trust Account to below the lesser of (i) $10.00 per Public Share and (ii) the actual amount per Public Share held in the Trust Account as of the date of the liquidation of the Trust Account, if less than $10.00 per Public Share due to reductions in the value of the assets in the Trust Account, less taxes payable, provided that such liability will not apply to any claims by a third party or prospective target business who executed a waiver of any and all rights to the monies held in the Trust Account (whether or not such waiver is enforceable) nor will it apply to any claims under the Company’s indemnity of the underwriter of the Initial Public Offering against certain liabilities, including liabilities under the Securities Act. However, the Company has not asked the Sponsor to reserve for such indemnification obligations, nor has the Company independently verified whether the Sponsor has sufficient funds to satisfy its indemnity obligations and the Company believes that the Sponsor’s only assets are securities of the Company. Therefore, the Company cannot assure that the Sponsor would be able to satisfy those obligations.
F-8
10X CAPITAL VENTURE ACQUISITION CORP. II
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
Proposed Business Combination
On November 2, 2022, the Company entered into an Agreement and Plan of Merger (as amended by that certain First Amendment to Agreement and Plan of Merger, dated as of January 3, 2023, and as may be further amended, supplemented or otherwise modified from time to time, the “AA Merger Agreement”), by and among the Company, 10X AA Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of the Company (“Merger Sub”), and African Agriculture, Inc., a Delaware corporation (“African Agriculture”). The AA Merger Agreement and the transactions contemplated thereby were approved by the Company’s board of directors (the “Board”) and the board of directors of African Agriculture.
Pursuant to the AA Merger Agreement, the Company will, subject to obtaining the required shareholder approvals and at least one day prior to the Effective Time (as defined in the AA Merger Agreement), change the Company’s jurisdiction of incorporation by deregistering as a Cayman Islands exempted company and continuing and domesticating as a corporation incorporated under the laws of the State of Delaware at least one day prior to the Closing (the “Domestication”). Following the Domestication, AA Merger Sub will merge with and into African Agriculture (the “Merger”), with African Agriculture surviving the Merger as the Company’s wholly owned subsidiary. In connection with the Domestication, the Company will change their name to “African Agriculture Holdings Inc.” (“New African Agriculture”). The Domestication, the Merger and the other transactions contemplated by the AA Merger Agreement are hereinafter referred to as the “Business Combination.”
In accordance with the terms and subject to the conditions of the AA Merger Agreement, at the effective time of the Merger (the “Effective Time”), each share of common stock of African Agriculture issued and outstanding immediately prior to the Effective Time, shall be converted into the right to receive the number of shares of duly authorized, validly issued, fully paid and nonassessable common stock of New African Agriculture (“New African Agriculture Common Stock”) equal to the quotient obtained by dividing (x) the quotient obtained by dividing (i) the sum of (1) $450,000,000 and (2) the aggregate amount of any Company Pre-Closing Financing (as defined in the AA Merger Agreement) by (ii) ten dollars ($10.00) by (y) the sum, without duplication, of the aggregate number of shares of common stock of African Agriculture that are (i) issued and outstanding immediately prior to the Effective Time, (ii) issuable upon the exercise or settlement of options or restricted stock units of African Agriculture (whether or not then vested or exercisable) that are outstanding immediately prior to the Effective Time, or (iii) issuable upon conversion of any African Agriculture convertible note issued prior to the date of the AA Merger Agreement and outstanding at the Effective Time (the “Merger Consideration”).
The AA Merger Agreement may be terminated under certain customary and limited circumstances prior to the closing of the Business Combination, including, but not limited to, (i) by the Company’s or African Agriculture’s mutual written consent, (ii) by the Company, subject to certain exceptions, if any of the representations and warranties of African Agriculture are not true and correct or if African Agriculture fails to perform any of its respective covenants or agreements set forth in the AA Merger Agreement such that certain conditions to the Company’s obligations cannot be satisfied and the breach (or breaches) of such representations or warranties or failure (or failures) to perform such covenants or agreements, as applicable, are not cured or cannot be cured within certain specified time periods, (iii) by African Agriculture, subject to certain exceptions, if any of the representations and warranties made by the Company are not true and correct or if the Company fails to perform any of its covenants or agreements set forth in the AA Merger Agreement such that the condition to the obligations of African Agriculture cannot be satisfied and the breach (or breaches) of such representations or warranties or failure (or failures) to perform such covenants or agreements, as applicable, are not cured or cannot be cured within certain specified time periods, (iv) by either the Company or African Agriculture if the closing of the Merger (the “Closing”) has not occurred on or before December 13, 2023 (the “Termination Date”); provided that the Termination Date may be extended at the Company’s discretion up to February 13, 2024 provided further that such date is prior to the deadline by which the Company must complete the Company’s initial business combination under the Company’s organizational documents, (v) by either African Agriculture or the Company if the consummation of the Merger is permanently enjoined or prohibited by the terms of a final, non-appealable governmental order or other law; (vi) by either the Company or African Agriculture if the Extension Proposal (as defined below) is not duly approved on or before November 13, 2022, (vii) prior to obtaining the required approvals by the Company’s shareholders, by African Agriculture if the Company’s Board changes its recommendation that the Company’s shareholders approve the proposals included in the proxy statement/prospectus or fails to include such recommendation in the proxy statement/prospectus, (viii) by African Agriculture if certain required shareholders approvals are not obtained after the conclusion of a meeting of the Company’s shareholders held for the purpose of voting on such approvals, and (ix) by the Company if the required approvals by African Agriculture stockholders have not been obtained within ten (10) business days following the date that the Registration Statement (as defined in the AA Merger Agreement) is disseminated by African Agriculture to its stockholders.
F-9
10X CAPITAL VENTURE ACQUISITION CORP. II
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
African Agriculture will be obligated to pay the Company a termination fee equal to 2.0% of the aggregate Merger Consideration if the AA Merger Agreement is terminated pursuant to clauses (ii) or (iv) of the preceding paragraph; provided that in the case of a termination under clause (iv) above, African Agriculture will only be required to pay the termination fee if the transactions contemplated by the AA Merger Agreement were not consummated prior to the Termination Date primarily due to failure of African Agriculture to provide information required to obtain SEC clearance of the Registration Statement (as defined in the AA Merger Agreement). The Company will be obligated to pay African Agriculture a termination fee equal to 2.0% of the Merger Consideration if the AA Merger Agreement is terminated pursuant to clause (iii) of the preceding paragraph.
On January 3, 2023, the parties to the AA Merger Agreement entered into the First Amendment, pursuant to which African Agriculture has agreed to provide all necessary assistance and cooperation in connection with a shareholder vote to amend the Amended and Restated Memorandum and Articles of Association to further extend the term of the Company, if necessary, including paying all reasonable out-of-pocket fees and expenses of African Agriculture, the Company and AA Merger Sub (including, but not limited to, fees and expenses of outside counsel and any other agents, advisors, consultants, experts and financial advisors, employed by or on behalf of African Agriculture, the Company or AA Merger Sub) related to such extension.
Acquiror Support Agreement
Concurrently with the execution of the AA Merger Agreement, the Company entered into the Acquiror Support Agreement (the “Acquiror Support Agreement”) with African Agriculture, and the sponsor and the Company’s directors and officers (collectively, the “Class B Holders”), pursuant to which the Class B Holders agreed to, among other things, (i) vote at any shareholder meeting or pursuant to any action of written resolution of the Company’s shareholders all of their Class B ordinary shares, par value $0.001 per share, held of record or thereafter acquired in favor of the Business Combination, the Domestication and the other Proposals (as defined in the AA Merger Agreement) and (ii) be bound by certain other covenants and agreements related to the Business Combination, in each case, on the terms and subject to the conditions set forth in the Acquiror Support Agreement. Additionally, for a period ending six months after the Closing (the “First Lock-up Period”), the Class B Holders will be subject to a lock-up with respect to one-third of the Lock-Up Shares (as defined in the Acquiror Support Agreement), and for a period beginning six months after the Closing and ending twelve months after the Closing (the “Second Lock-up Period”), the Class B Holders will be subject to a lock-up with respect to the remaining two-thirds of the Lock-Up Shares; provided that the lock-up shall expire upon the date on which the last reported sale price of the shares of New African Agriculture Common Stock exceeds $12.00 per share for any twenty (20) trading days within any consecutive thirty (30) trading day period during the Second Lock-up Period.
African Agriculture Support Agreements
In connection with the execution of the AA Merger Agreement, the Company entered into a support agreement (the “African Agriculture Support Agreements”) with African Agriculture’s majority stockholder, Global Commodities & Investments Ltd., and African Agriculture pursuant to which Global Commodities & Investments Ltd. agreed to (i) vote at any meeting of the stockholders of African Agriculture all shares of common stock of African Agriculture held of record or thereafter acquired in favor of the Business Combination, (ii) be bound by certain other covenants and agreements related to the Business Combination and (iii) be bound by certain transfer restrictions with respect to such securities prior to the Closing of the Business Combination, in each case, on the terms and subject to the conditions set forth in the African Agriculture Support Agreements.
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10X CAPITAL VENTURE ACQUISITION CORP. II
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
Standby Equity Purchase Agreement
Concurrently with the execution of the AA Merger Agreement, the Company entered into the Standby Equity Purchase Agreement (“SEPA”) with Yorkville Advisors Global, LP (“Yorkville”), pursuant to which, subject to the consummation of the Business Combination, African Agriculture Holdings, Inc., a Delaware corporation (“New African Agriculture”) has the option, but not the obligation, to issue, and Yorkville shall subscribe for, an aggregate amount of up to $100 million of New African Agriculture Common Stock at the time of New African Agriculture’s choosing during the term of the agreement, subject to certain limitations, including caps on issuance and subscriptions based on trading volumes. Each advance under the SEPA (an “Advance”) may be for an aggregate amount of New African Agriculture Common Stock purchased at 96% of the Market Price during a one-day pricing period or 97% of the Market Price during a three-day pricing period elected by New African Agriculture. The “Market Price” is defined in the SEPA as the VWAP (as defined below) during the trading day, in the case of a one day pricing period, or the lowest daily VWAP of the three consecutive trading days, in the case of a three day pricing period, commencing on the trading day on which New African Agriculture submits an Advance notice to Yorkville. “VWAP” means, for any trading day, the daily volume weighted average price of New African Agriculture Common Stock for such date on Nasdaq as reported by Bloomberg L.P. during regular trading hours or such other period in the case of a one-day trading period. The SEPA will continue for a term of three years commencing from the sixth trading day following the closing of the Business Combination (the “SEPA Effective Date”).
Pursuant to the SEPA, New African Agriculture will pay to Yorkville a commitment fee of $1.0 million, which is to be paid on the SEPA Effective Date. New African Agriculture can elect to pay the commitment fee by issuing New African Agriculture Common Stock to Yorkville in an amount equal to the commitment fee divided by the average daily VWAP for the five consecutive trading days prior to the SEPA Effective Date.
Forward Purchase Agreement
Simultaneously with the execution of the AA Merger Agreement, the Company and African Agriculture entered into an OTC Equity Prepaid Forward Transaction (the “Forward Purchase Agreement”) with Vellar Opportunity Fund SPV LLC - Series 8 (“Vellar”), a client of Cohen & Company Financial Management, LLC (“Cohen”). Pursuant to the Forward Purchase Agreement, Vellar intends, but is not obligated, to purchase through a broker in the open market (a) the Company’s Class A ordinary shares, par value $0.0001 per share, including from public shareholders who elect to redeem their shares (such purchased shares, the “Recycled Shares”) in connection with the extraordinary general meeting to vote to approve the Business Combination. Vellar may also purchase additional Shares in an issuance from the Company (such shares, the “Additional Shares” and, together with the Recycled Shares, the “Subject Shares”). Pursuant to the Forward Purchase Agreement, Vellar may purchase up to 4,000,000 shares, subject to automatic reduction to equal the amount of the Company’s ordinary shares outstanding as of the redemption deadline and subject to increase to up to 10,000,000 shares upon mutual agreement of the Company and Vellar (the “Maximum Number of Shares”). Vellar has agreed to waive any redemption rights with respect to any Subject Shares in connection with the Business Combination. The Forward Purchase Agreement provides that on the earlier of (i) one business day after the closing of the Business Combination and (ii) the date any assets from the Trust Account are disbursed in connection with the Business Combination (the “Prepayment Date”), the Company will pay to Vellar, out of funds held in its trust account, an amount (the “Prepayment Amount”) equal to (x) the price per-share paid to public shareholders who elect to redeem their shares in connection with the extraordinary general meeting (the “Initial Price”) multiplied by (y) the number of Recycled Shares on the Prepayment Date. On the Prepayment Date, the Company shall also pay to Vellar, out of funds held in its trust account, an amount equal to the product of (x) the greater of (a) 5% of the Maximum Number of Shares and (b) 200,000 and (y) the Initial Price (the “Share Consideration”), and Vellar shall use such Share Consideration to purchase shares of New African Agriculture (the “Share Consideration Shares”). The Company shall also reimburse Vellar up to $0.05 per Share for expenses actually incurred in connection with Vellar’s acquisition of the shares. No later than two days prior to the Prepayment Date, the Company may request that Vellar provide it an amount in cash of up to 10% of the product of (a) all shares purchased by Vellar pursuant to the Forward Purchase Agreement and (b) the Initial Price (the “Prepayment Shortfall”) and Vellar shall pay the Prepayment Shortfall either (i) on the Prepayment Date, in which case such amount shall be deducted from the Prepayment Amount, or (ii) if Vellar submits a request to register the resale of the shares it holds prior to the Prepayment Date, one business day following the effective date of the resale registration statement. If the Company elects to receive the Prepayment Shortfall the Share Consideration shall be increased to the product of (x) the greater of (a) 10% of the Maximum Number of Shares and (b) 400,000 and (y) the Initial Price.
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10X CAPITAL VENTURE ACQUISITION CORP. II
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
From time to time following the Closing but prior to the Maturity Date (as defined below), Vellar, in its discretion, may declare an early termination (an “Optional Early Termination”) of the Forward Purchase Agreement with regard to all or a portion of the Subject Shares (such shares “Terminated Shares”) and remit to New African Agriculture an amount equal to the number of Terminated Shares multiplied by a price (the “Reset Price”) that adjusts on the first scheduled trading day of each month to be the lowest of (a) the then-current Reset Price, (b) $10.00 and (c) the VWAP for the last ten trading days of the prior month, but in no case less than $6.00; and may sell the Subject Shares, at any time and at any sales price, and, by notice to the Company, apply the proceeds of such sales to offset the Prepayment Shortfall, until such time as the Prepayment Shortfall has been fully repaid, to the extent the Company elects to receive the Prepayment Shortfall; provided, that Vellar may not declare an Optional Early Termination in respect of any Subject Shares sold to repay the Prepayment Shortfall. In addition, Vellar would not declare an Optional Early Termination in respect of Share Consideration Shares, nor would it make payments to New African Agriculture in respect of any Share Consideration Shares it subsequently sells. To the extent New African Agriculture, following the closing of the Business Combination, sells, enters into any agreement to sell or grants any right to reprice, or otherwise dispose of or issues any shares or any securities of New African Agriculture or any of its subsidiaries which would entitle the holder thereof to acquire at any time shares at an effective price per share less than the then existing Reset Price then the Reset Price shall be modified to equal such reduced price. The Forward Purchase Agreement matures on the earlier to occur of (a) three years after the closing of the Business Combination Agreement and (b) the date specified by Vellar in a written notice delivered at Vellar’s discretion if either (i) the VWAP of the shares during 20 out of 30 consecutive trading days is less than $3.00 per share, (ii) the Company fails to register the Backstop Shares as required by the Backstop Agreement, or (iii) the shares cease to be listed on a national securities exchange (such date, the “Maturity Date”). Upon the occurrence of the Maturity Date, the Company is obligated to pay to Vellar an amount equal to the product of (a) (x) the Maximum Number of Shares, less (y) the number of Terminated Shares, multiplied by (b) $2.00 (the “Maturity Consideration”) payable either in cash or in shares at the option of New African Agriculture. On the Maturity Date, Vellar shall return to New African Agriculture a number of shares of New African Agriculture Common Stock equal to the number of Recycled Shares less the number of Terminated Shares. In the event that the Maturity Shares are not (i) (a) registered for resale under an effective registration statement or (b) eligible to be transferred by Vellar without any restrictions and (ii) bear a restrictive legend (collectively, the “Share Conditions”), Vellar would be entitled to receive such number of shares equal to 225% of the Maturity Shares (the “Penalty Shares”); provided that if the Share Conditions are satisfied within 120 days of the Maturity Date, Vellar shall return to the Company the number of Penalty Shares that are valued in excess of the Maturity Consideration based on the 10-day VWAP ending on such date that the Maturity Shares satisfied the Share Conditions. At Vellar’s option, the Company will pay the Maturity Consideration on a net basis such that Vellar retains a number of shares due to the Company upon the Maturity Date equal to the number of Maturity Shares payable to Vellar, only to the extent the number of shares due to the Company is at least equal to the number of Maturity Shares payable to Vellar, with any remaining Maturity Consideration to be paid in newly issued shares. The Maturity Date may be accelerated upon occurrences described in the Forward Purchase Agreement. A break-up fee equal to $500,000 shall be payable, jointly and severally, by the Company and African Agriculture to Vellar in the event the Forward Purchase Agreement is terminated by either the Company or African Agriculture, subject to certain exceptions. the Company and African Agriculture may terminate the Forward Purchase Agreement, without penalty, if the number of shares tendered by public shareholders for redemption in connection with the shareholder vote to approve the Business Combination represent less than 75% of the total outstanding Class A ordinary shares subject to redemption. The Company has agreed to file, upon the request of Vellar, a registration statement with the SEC registering the resale of the Subject Shares and the Share Consideration Shares under the Securities Act, within 30 days following such request. The Forward Purchase Agreement contains additional representations, warranties, indemnities, agreements and termination rights of the parties thereto. If the Company has not completed the initial business combination within such time period, the Company will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem the public shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest earned on the funds held in the Trust Account (which interest shall be net of taxes payable and up to $100,000 of interest to pay dissolution expenses), divided by the number of then outstanding public shares, which redemption will completely extinguish public shareholders’ rights as shareholders (including the right to receive further liquidationliquidating distributions, if any), and (iii) as promptly as reasonably possible following such redemption, subject to the approval of ourthe Company’s remaining shareholders and ourthe Company’s board of directors, liquidate and dissolve, subject in each case, to ourthe Company’s obligations under Cayman Islands lawCompanies Law to provide for claims of creditors and the requirements of other applicable law. Our initial shareholders have
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10X CAPITAL VENTURE ACQUISITION CORP. II
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
Extensions
Concurrently with the execution of the AA Merger Agreement, certain Initial Public Offering anchor investors of the Company (the “Initial 10X II Anchor Investors”) entered into non-redemption agreements (the “Initial Non-Redemption Agreements”) with us, pursuant to which they have agreed to waive their rights to liquidating distributions from the trust account with respect to their founder shares if we fail to complete our initial business combination within 15 months fromCompany and the closing of this offering. However, if our initial shareholders, our management team or theSponsor.
On November 4, 2022, additional IPO anchor investors acquire public shares in or after this offering, they will be entitledof 10X II (the “Additional 10X II Anchor Investors” and together with the Initial 10X II Anchor Investors, the “10X II Anchor Investors”) entered into non-redemption agreements (collectively, the “Additional Non-Redemption Agreements” and together with the Initial Non-Redemption Agreements, the “Non-Redemption Agreements”) with the Company and the Sponsor.
Pursuant to
liquidating distributions from the trust account with respect toNon-Redemption Agreements, such public shares if we fail to complete our initial business combination within10X II Anchor Investors agreed for the prescribed time period.
In the event of a liquidation, dissolution or winding upbenefit of the company after a business combination, our shareholders are entitledCompany to share ratably(i) vote certain Public Shares now owned or hereafter acquired (the “Subject 10X II Equity Securities”), representing 3,355,743 Public Shares in all assets remaining available for distribution to them after payment of liabilities and after provision is made for each class of shares, if any, having preference over the ordinary shares. Our shareholders have no preemptive or other subscription rights. There are no sinking fund provisions applicable to the ordinary shares, except that we will provide our public shareholders with the opportunity to redeem their public shares for cash at a per share price equal to the aggregate, amount then on deposit in favor of the trust account, including interest earned onproposal to amend the funds held inCompany’s organizational documents to extend the trust account (which interest shall be net of taxes payable), divided by the number of then outstanding public shares, upon the completion of our initial business combination, subject to the limitations described herein.
Founder Shares
The founder shares are designated as Class B ordinary shares and, except as described below, are identical to the Class A ordinary shares included in the units being sold in this offering, and holders of founder shares have the same shareholder rights as public shareholders, except that (i) the founder shares are entitled to registration rights, (ii) in a vote to continuetime the Company inis permitted to close a jurisdiction outsideBusiness Combination and (ii) not redeem the Cayman Islands (which requires the approval of at least two thirds of the votes of all ordinary shares), holders of our founder shares will have ten votes for every founder share and holders of our Class A ordinary shares will have one vote for every Class A ordinary share, (iii) our initial shareholders, sponsor, officers and directors have entered into a letter agreement with us, pursuant to which they have agreed (A) to waive their redemption rights with respect to any founder shares and public shares they holdSubject 10X II Equity Securities in connection with the completion of our initial business combination, (B) to waive their redemption rights with respect to any founder shares and public shares they hold insuch proposal. In connection with a shareholder votethese commitments from the 10X II Anchor Investors, the Sponsor has agreed to approvetransfer to each 10X II Anchor Investor an amendmentamount of its Founder Shares following the Closing of the Merger.
On November 9, 2022, the Company’s shareholders approved, by special resolution, the proposal to ouramend and restate the Company’s amended and restated memorandum and articles of association, to modifyextend the substance or timingdate by which the Company must (1) consummate a Business Combination, (2) cease its operations except for the purpose of our obligationwinding up if it fails to complete such Business Combination, and (3) redeem all of the Public Shares included as part of the Units sold in the Initial Public Offering, from November 13, 2022 to May 13, 2023 (the “First Extension,” and such proposal, the “First Extension Proposal”). In connection with the Company’s solicitation of proxies in connection with the Extension Proposal, the Company was required to permit the public shareholders to redeem 100%their Public Shares. Of the Public Shares outstanding with redemption rights, a total of our public shares if we have not consummated212 of the Company’s shareholders elected to redeem an initial business combination within 15 monthsaggregate total of 15,357,970 Public Shares at a per share redemption price of $10.09. As a result of such redemptions, approximately $154.9 million was removed from the closingTrust Account to pay such holders.
On May 2, 2023, and May 5, 2023, certain investors of this offeringthe Company (the “Second Extension 10X II Investors”) entered into non-redemption agreements (the “Second Extension Non-Redemption Agreements”) with the Company and the Sponsor. Pursuant to the Second Extension Non-Redemption Agreements, the Second Extension 10X II Investors agreed for the benefit of the Company to (i) vote certain Public Shares owned or acquired (the “Second Extension Subject 10X II Equity Securities”) in favor of the Second Extension Proposal (as defined below) and (ii) not redeem the Second Extension Subject 10X II Equity Securities in connection with respect to any other provisions relating to shareholders’ rights or pre-initial business combination activity and (C) to waive their rights to liquidating distributionsthe Second Extension Proposal. In exchange for these commitments from the trust accountSecond Extension 10X II Investors, the Sponsor agreed to transfer to the Second Extension 10X II Investors (a) an aggregate of 189,011 Founder Shares (as defined in Note 5) in connection with respectthe Second Extended Date (as defined below) and (b) to any founderthe extent the Company’s board of directors agrees to further extend the date to consummate a Business Combination to the Additional Extension Date (as defined below), an aggregate amount of up to 567,032 Founder Shares, which includes the Founder Shares referred to in clause (a), on or promptly after the consummation of the Business Combination. As of September 30, 2023, 252,014 shares they hold if we failwere due to complete our initial business combination within 15 monthsbe transferred to the Second Extension 10X II Investors.
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10X CAPITAL VENTURE ACQUISITION CORP. II
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
The Company estimated the fair value of the investor interests attributable to the Founder Shares to be $103,231 or $0.13 per share as of November 4, 2022 and $130,418 or $0.23 per share as of May 5, 2023. The fair value for November 4, 2022 was determined using a discount for the probability of liquidation approach with a discount of 1.3% for the probability of liquidation and the value per shares as of the valuation date of $9.91. The fair value for May 5, 2023 was determined using a discount for the probability of liquidation approach with a discount of 2.2% for the probability of liquidation and the value per shares as of the valuation date of $10.25. Each Non-Redeeming Stockholder acquired from the closingSponsor an indirect economic interest in such Founder Shares. The indirect economic interests were evaluated under ASC 480 and ASC 815. The value of this offering orthe shares in the Initial Extension, and the shares eligible to be earned in the Additional Extension will be treated as an expense. The shares that have been earned in connection with the approval of the Second Extension Proposal with a fixed-for-fixed value will be credited to additional paid-in capital. The remaining shares affiliated with any extended period of time that we may havemonthly extensions up to consummate an initial business combinationthe Additional Extension Date will be treated as a derivative liability as a result of the variability in the value of shares due to the amount of shares held by the Investor (3.5% of the number of non-redeemed Class A ordinary shares). As the shares affiliated with any monthly extensions up to the Additional Extension Date become determinable and therefore fixed-for-fixed, the value of those shares will be transferred from a liability to equity. Any changes in the fair value of the shares will be recognized as an amendmentexpense in the period of remeasurement.
On May 10, 2023, in connection with the extraordinary general meeting of shareholders, shareholders agreed to, ouramong other things, amend the Company’s second amended and restated memorandum and articles of association although they will be entitled to liquidating distributionsfurther extend the date by which the Company has to consummate a Business Combination (the “Second Extension Proposal”) from May 13, 2023 to August 13, 2023 (the “Second Extended Date”) and to allow the trust account with respectboard of directors of the Company, without shareholder approval, to any public shares they hold if we failelect to further extend the date to consummate a Business Combination after the Second Extended Date up to six times, by an additional month each time, up to February 13, 2024 (the “Additional Extension Date”). On August 8, 2023, the Board approved the Optional Extension. On September 11, 2023, the Board approved the extension of the date by which the Company is required to complete ouran initial business combination within such time period, (iv)until October 13, 2023. On October 10, 2023, the anchor investors will not be entitledBoard approved the extension of the date by which the Company is required to (A) redemption rights with respectcomplete an initial business combination until November 13, 2023. On November 8, 2023, the Board approved the extension of the date by which the Company is required to any founder shares held by themcomplete an initial business combination until December 13, 2023. On May 10, 2023, in connection with the completionCompany’s solicitation of our business combination, (B)proxies in connection with the Extension Proposal, the Company was required to permit the public shareholders to redeem their Public Shares. Of the Public Shares outstanding with redemption rights, the Company’s shareholders elected to redeem an aggregate total of 2,522,477 Public Shares at a per share redemption price of $10.32. As a result of such redemptions, approximately $26 million was removed from the Trust Account to pay such holders, and approximately $22.4 million remained in the Trust Account as of September 30, 2023. Following the redemptions and as of September 30, 2023, the Company had 2,119,553 Public Shares, including the Public Shares underlying the Units outstanding, with respectredemption rights outstanding.
Additionally, on May 15, 2023, pursuant to any founder sharesthe terms of the Charter, the Sponsor elected to convert 1,000,000 Class B Ordinary Shares held by themit on a one-for-one basis into Class A Ordinary Shares, with immediate effect (such shares, the “Converted Shares”). The Sponsor will not have any redemption rights in connection with the Converted Shares, and the Converted Shares will be subject to the restrictions on transfer included in the letter agreement entered into by the Sponsor in connection with the IPO. Following such conversion, and as a result of the redemptions described above, as of September 30, 2023 there are an aggregate of 3,774,553 Class A Ordinary Shares issued and outstanding and 5,666,667 Class B Ordinary Shares issued and outstanding.
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10X CAPITAL VENTURE ACQUISITION CORP. II
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
Liquidity and Going Concern
As of September 30, 2023, the Company had $17,450 in cash and a working capital deficit of approximately $13.9 million.
The Company’s liquidity needs prior to the consummation of the Initial Public Offering were satisfied through the payment of $25,000 from the Sponsor to cover certain expenses on behalf of the Company in exchange for issuance of Founder Shares (as defined in Note 5), and loan proceeds from the Sponsor of approximately $87,000 under an unsecured promissory note. The Company fully repaid the amounts borrowed under the unsecured promissory note upon closing of the Initial Public Offering on August 13, 2021. Subsequent to the consummation of the Initial Public Offering, the Company’s 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 shareholder vote to approve an amendment to ourBusiness Combination, the Sponsor, members of the Company’s founding team or any of their affiliates provided the Company with $1,625,213 under the amended and restated memorandum and articles of association that would affectNew Note (as defined in Note 5) (of which up to $1.5 million may be converted at the substance or timing of our obligationlender’s option into warrants to redeem 100% of our public shares if we have not consummated an initial business combination within 15 months frompurchase the closing of this offering or (C) rights to liquidating distributions from the trust account with respect to any founder shares held by them if we fail to complete our business combination within 24 months (or 27 months, as applicable) from the closing of this offering, although they will be entitled to liquidating distributions from the trust account with respect to any public shares they hold if we fail to complete our business combination within such time period (v) the founder shares are automatically convertible intoCompany’s Class A ordinary shares concurrentlyat an exercise price of $11.50 per share).
In connection with the Company’s 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,” management has determined that the liquidity condition and date for mandatory liquidation and subsequent dissolution raises substantial doubt about the Company’s ability to continue as a going concern. No adjustments have been made to the carrying amounts of assets or liabilities should the Company be required to liquidate after February 13, 2024. The unaudited condensed consolidated financial statements do not include any adjustment that might be necessary if the Company is unable to continue as a going concern. The Company intends to complete an initial Business Combination before the Combination Period. Over this time period, the Company will be using the funds outside of the Trust Account for paying existing accounts payable, identifying and evaluating prospective initial Business Combination candidates, performing due diligence on prospective target businesses, paying for travel expenditures, selecting the target business to merge with or immediately followingacquire, and structuring, negotiating and consummating a Business Combination.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of the consummationCompany are presented in conformity with accounting principles generally accepted in the United States of our initial businessAmerica (“U.S. GAAP”) and pursuant to the rules and regulations of the SEC. Certain information or footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of financial position, results of operations, or cash flows. In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K as filed with the SEC on April 17, 2023. The interim results for the three and nine months ended September 30, 2023, are not necessarily indicative of the results to be expected for the year ending December 31, 2023, or for any future periods.
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10X CAPITAL VENTURE ACQUISITION CORP. II
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. All significant intercompany accounts and transactions have been eliminated in consolidation.
Emerging Growth Company
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended (the “Securities Act”), as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Securities Exchange Act of 1934, as amended) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s unaudited condensed consolidated financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
Use of Estimates
The preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the unaudited condensed consolidated financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ from those estimates.
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10X CAPITAL VENTURE ACQUISITION CORP. II
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash accounts in a financial institution, which, at times, may exceed the Federal Deposit Insurance Corporation coverage limit of $250,000. Any loss incurred or a lack of access to such funds could have a significant adverse impact on the Company’s financial condition, results of operations, and cash flows.
Cash and Cash Equivalents
The Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents. The Company had no cash equivalents as of September 30, 2023 and December 31, 2022.
Investments Held in Trust Account
As of September 30, 2023, the assets held in the Trust Account were held in a demand deposit account. As of December 31, 2022, the Company’s portfolio of investments was comprised of U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act, with a maturity of 185 days or less, or investments in money market funds that invested in U.S. government securities and generally had a readily determinable fair value, or a combination thereof. The Company’s investments held in the Trust Account in the demand deposit funds are recognized at fair value. When the Company’s investments held in the Trust Account were comprised of U.S. government securities, the investments were classified as trading securities. When the Company’s investments held in the Trust Account were comprised of money market funds, the investments were recognized at fair value. The demand deposit funds, trading securities, and investments in money market funds are presented on the condensed consolidated balance sheets at fair value at the end of each reporting period. Gains and losses resulting from the change in fair value of these securities are included in income from investments held in Trust Account in the accompanying condensed consolidated statements of operations. The estimated fair values of investments held in the Trust Account are determined using available market information.
Fair Value Measurements
Fair value is defined as the price that would be received for sale of an asset or paid for transfer of a liability, in an orderly transaction between market participants at the measurement date. U.S. GAAP establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). These tiers consist of:
| ● | Level 1, defined as observable inputs such as quoted prices (unadjusted) for identical instruments in active markets; |
| ● | Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and |
| ● | Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. |
In some circumstances, the inputs used to measure fair value might be categorized within different levels of the fair value hierarchy. In those instances, the fair value measurement is categorized in its entirety in the fair value hierarchy based on the lowest level input that is significant to the fair value measurement.
F-17
10X CAPITAL VENTURE ACQUISITION CORP. II
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
Promissory Note-Related Party
The Company notes that the amended and restated New Note (as defined below in Note 5) includes a conversion option. The conversion option was evaluated under ASC Topic 815, “Derivatives and Hedging” (“ASC 815”). In accordance with ASC 815-10-15-74, the conversion feature is not required to be bifurcated from the note. The conversion feature was considered to be immaterial and considering the other terms of the amended and restated New Note, management believes the fair value of the amended and restated New Note is approximately equal to the carrying value.
Derivative Financial Instruments
The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to ASC 480 and ASC 815. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period.
The Public Warrants and the Private Placement Warrants are classified in accordance with ASC Topic 480, “Distinguishing Liabilities and Equity” (“ASC 480”), and ASC 815, which provides that the warrants are not precluded from equity classification. Equity-classified contracts were initially measured at fair value (or allocated value). Subsequent changes in fair value will not be recognized as long as the contracts continue to be classified in equity in accordance with ASC 480 and ASC 815.
The Forward Purchase Agreement (defined in Note 1) is recognized as a derivative liability in accordance with ASC 815. Accordingly, the Company recognizes the instrument as an asset or liability at fair value and with changes in fair value recognized in the Company’s condensed consolidated statements of operations. The estimated fair value of the Forward Purchase Agreement is measured at fair value using a Monte Carlo simulation model.
The transfer to the Second Extension 10X II Investors of Founder Shares in connection with the approval of the Second Extension Proposal is classified in accordance with ASC 480 and ASC 815, which provides that the Founder Shares are not precluded from equity classification. Equity-classified contracts were initially measured at fair value (or allocated value). Subsequent changes in fair value will not be recognized as long as the contracts continue to be classified in equity in accordance with ASC 480 and ASC 815.
The transfer to the Second Extension 10X II Investors of Founder Shares to the extent the Company’s board of directors agrees to further extend the date to consummate a Business Combination to the Additional Extension Date is recognized as a derivative liability in accordance with ASC 815. Accordingly, the Company recognizes the instrument as an asset or liability at fair value and with changes in fair value recognized in the Company’s condensed consolidated statements of operations. The estimated fair value of the Non-Redemption Agreement is measured at fair value using a discount for the probability of liquidation approach.
Offering Costs Associated with the Initial Public Offering
Offering costs consisted of legal, accounting, underwriting and other costs incurred that were directly related to the Initial Public Offering. Offering costs were allocated to the separable financial instruments issued in the Initial Public Offering based on a one-for-onerelative fair value basis, compared to total proceeds received. Offering costs associated with Public Warrants are recognized net in equity. Offering costs associated with the Class A ordinary shares were charged against the carrying value of Class A ordinary shares upon the completion of the Initial Public Offering. The Company classifies deferred underwriting commissions as non-current liabilities as their liquidation is not reasonably expected to require the use of current assets or require the creation of current liabilities.
F-18
10X CAPITAL VENTURE ACQUISITION CORP. II
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
Class A Ordinary Shares Subject to Possible Redemption
Class A ordinary shares subject to mandatory redemption (if any) are classified as liability instruments and are measured at fair value. Conditionally redeemable Class A ordinary shares (including Class A ordinary shares that feature redemption rights that are either within the control of the holder or subject to possible redemption upon the occurrence of uncertain events not solely within the Company’s control) are classified as temporary equity. At all other times, Class A ordinary shares are classified as shareholders’ equity (deficit). The Company’s Class A ordinary shares feature certain redemption rights that are considered to be outside of the Company’s control and subject to occurrence of uncertain future events. Accordingly, all outstanding Class A ordinary shares subject to possible redemption are presented at redemption value as temporary equity, outside of the shareholders’ deficit section of the Company’s condensed consolidated balance sheets.
Under ASC 480, the Company has elected to recognize changes in the redemption value immediately as they occur and adjust the carrying value of the security to equal the redemption value at the end of each reporting period. This method would view the end of the reporting period as if it were also the redemption date for the security. Immediately upon the closing of the Initial Public Offering, the Company recognized the accretion from initial book value to redemption amount value. The change in the carrying value of the redeemable Class A ordinary shares resulted in charges against additional paid-in capital (to the extent available) and accumulated deficit.
Net Loss per Ordinary Share
The Company complies with accounting and disclosure requirements of ASC Topic 260, “Earnings Per Share.” The Company has two classes of shares, which are referred to as Class A ordinary shares and Class B ordinary shares. Income and losses are shared pro rata between the two classes of shares. Net loss per ordinary share is calculated by dividing the net loss by the weighted average ordinary shares outstanding for the respective period.
The calculation of diluted net loss per ordinary shares does not consider the effect of the Public Warrants, the Private Placement Warrants and any warrants underlying any Working Capital Units (as defined in Note 5) issued to the Sponsor, officers or directors upon future conversions of the amended and restated New Note, if any, since their inclusion would be anti-dilutive under the treasury stock method. As a result, diluted net loss per share is the same as basic net loss per share for the three and nine months ended September 30, 2023 and 2022. Accretion associated with the redeemable Class A ordinary shares is excluded from earnings per share as the redemption value approximates fair value.
The following table presents a reconciliation of the numerator and denominator used to compute basic and diluted net loss per share for each class of ordinary shares:
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||||||
| Class A | Class B | Class A | Class B | Class A | Class B | Class A | Class B | |||||||||||||||||||||||||
| Basic and diluted net loss per share: | ||||||||||||||||||||||||||||||||
| Numerator: | ||||||||||||||||||||||||||||||||
| Net loss | $ | (443,517 | ) | $ | (665,844 | ) | $ | (700,048 | ) | $ | (225,950 | ) | $ | (1,089,917 | ) | $ | (1,498,510 | ) | $ | (4,967,410 | ) | $ | (1,603,296 | ) | ||||||||
| Denominator: | ||||||||||||||||||||||||||||||||
| Basic and diluted weighted average shares outstanding | 3,774,553 | 5,666,667 | 20,655,000 | 6,666,667 | 4,481,227 | 6,161,172 | 20,655,000 | 6,666,667 | ||||||||||||||||||||||||
| Basic and diluted net loss per share | $ | (0.12 | ) | $ | (0.12 | ) | $ | (0.03 | ) | $ | (0.03 | ) | $ | (0.23 | ) | $ | (0.23 | ) | $ | (0.24 | ) | $ | (0.24 | ) | ||||||||
Income Taxes
The Company follows the guidance of accounting for income taxes under ASC 740, “Income Taxes”, which prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. There were no unrecognized tax benefits and no amounts accrued for interest and penalties as of September 30, 2023 and December 31, 2022. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position.
There is currently no taxation imposed on income by the government of the Cayman Islands. In accordance with Cayman Islands federal income tax regulations, income taxes are not levied on the Company. Consequently, income taxes are not reflected in the Company’s unaudited condensed consolidated financial statements. The Company’s management does not expect that the total amount of unrecognized tax benefits will materially change over the next twelve months.
F-19
10X CAPITAL VENTURE ACQUISITION CORP. II
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
Recent Accounting Standards
In August 2020, the FASB issued ASU No. 2020-06, “Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40)” (“ASU 2020-06”), which simplifies the accounting for convertible instruments. ASU 2020-06 eliminates the current models that require separation of beneficial conversion and cash conversion features from convertible instruments and simplifies the derivative scope exception guidance pertaining to equity classification of contracts in an entity’s own equity. The new standard also introduces additional disclosures for convertible debt and freestanding instruments that are indexed to and settled in an entity’s own equity. ASU 2020-06 amends the diluted earnings per share guidance, including the requirement to use the if-converted method for all convertible instruments. ASU 2020-06 allows for a modified or full retrospective method of transition. For smaller reporting companies, ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, and should be applied on a full or modified retrospective basis, with early adoption permitted for fiscal years beginning after December 15, 2020. The Company adopted ASU 2020-06 on January 1, 2023. Adoption of the ASU did not impact the Company’s financial position, results of operations or cash flows.
The Company’s management does not believe that any other recently issued, but not yet effective, accounting standards updates, if currently adopted, would have a material effect on the Company’s unaudited condensed consolidated financial statements.
NOTE 3. INITIAL PUBLIC OFFERING
On August 13, 2021, the Company consummated its Initial Public Offering of 20,000,000 Units at a purchase price of $10.00 per Unit, generating gross proceeds of $200,000,000. Of the 20,000,000 Units sold, 19,780,000 Units were purchased by qualified institutional buyers not affiliated with the Sponsor or any member of the management team (the “Anchor Investors”).
Each Unit consists of one Class A ordinary share, and one-third of one redeemable warrant. Each whole warrant entitles the holder to purchase one Class A ordinary share at a price of $11.50 per share, subject to adjustment as described herein(see Note 8). Each warrant will become exercisable 30 days after the completion of the initial Business Combination and will expire five years after the completion of the Business Combination, or earlier upon redemption or liquidation.
NOTE 4. PRIVATE PLACEMENT
Simultaneously with the closing of the Initial Public Offering, the Sponsor and Cantor purchased an aggregate of 655,000 Private Units, at a price of $10.00 per Unit, for an aggregate purchase price of $6,550,000, in our amendeda private placement.
If the Company does not complete a Business Combination within the Combination Period, the Private Units will expire worthless. The Private Units, including the private placement shares and restated memorandumprivate placement warrants each underlying the Private Units are subject to the transfer restrictions. The Private Units have terms and articlesprovisions that are identical to those of association,the Units sold in the Initial Public Offering.
F-20
10X CAPITAL VENTURE ACQUISITION CORP. II
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
NOTE 5. RELATED PARTY TRANSACTIONS
Founder Shares
In February 2021, the Sponsor paid $25,000, or approximately $0.003 per share, to cover certain of the offering and (vi) only holdersformation costs in exchange for an aggregate of 7,666,667 Class B ordinary shares, will havepar value $0.0001 per share (the “Founder Shares”), 1,000,000 of which were subject to forfeiture depending on the rightextent to appoint directors in any election held prior to or in connection withwhich the completionunderwriter’s over-allotment option was exercised. The option expired on September 25, 2021, and subsequently, the Sponsor forfeited 1,000,000 Class B ordinary shares. Additionally, contingent upon the consummation of our initial business combination. If we submit our initial business combination to our public shareholders for a vote, our initial shareholders havethe Business Combination, the Sponsor has agreed to vote their foundertransfer an aggregate of 1,334,339 Class B ordinary shares and any public shares purchased during or after this offering in favor of our initial business combination.
to the Anchor Investor for the same price originally paid for such shares. The founderClass B ordinary shares will automatically convert into Class A ordinary shares upon consummation of a Business Combination on a one-for-one basis, subject to certain adjustments, as described in Note 8. The Company determined that the fair value of these Class B ordinary shares was approximately $10.0 million (or approximately $7.50 per share) using a Monte Carlo simulation. The Company recognized the excess fair value of these Class B ordinary shares, over the price sold to the Anchor Investors, as an expense of the Initial Public Offering resulting in a charge against the carrying value of Class A ordinary shares subject to possible redemption. On May 15, 2023, the Sponsor converted 1,000,000 Class B ordinary shares into 1,000,000 Class A ordinary shares.
The initial shareholders and the Anchor Investors have agreed not to transfer, assign or sell any of their Class B ordinary shares until after, or concurrently with, the consummation of the initial Business Combination.
Related Party Loans
In order to finance transaction costs in connection with an intended initial Business Combination, the Sponsor or an affiliate of the Sponsor or certain of the Company’s officers and directors may, but are not obligated to, loan the Company funds as may be required (the “Working Capital Loans”). If the Company completes the initial Business Combination, the Company would repay the Working Capital Loans. In the event that the Business Combination does not close, the Company may use a portion of the working capital held outside the Trust Account to repay the Working Capital Loans but no proceeds from the Trust Account would be used to repay the Working Capital Loans. Up to $1,500,000 of the Working Capital Loans may be convertible into additional units of the Company (“Working Capital Units”) at a price of $10.00 per unit at the timeoption of the lender. The units would be identical to the Private Units. On November 14, 2022, the Sponsor agreed to loan the Company up to $800,000 pursuant to a promissory note (as amended and restated on November 14, 2022, the “New Note”). The New Note is non-interest bearing, unsecured and due at the earlier of the consummation of ourthe Business Combination and the day prior to the date the Company must elect to liquidate and dissolve in accordance with the provisions of the Amended and Restated Memorandum and Articles of Association. On May 17, 2023, the Company amended and restated the New Note and the Sponsor agreed to loan the Company up to $2,500,000 pursuant to the second amended and restated promissory note. The amended and restated New Note bears no interest and is repayable in full upon the earlier of the consummation of the Company’s initial business combinationBusiness Combination and the day prior to the date the Company elects to liquidate and dissolve in accordance with the provisions of the Amended and Restated Memorandum and Articles of Association (the “Maturity Date”). Up to $1,500,000 of the principal amount of the amended and restated New Note may also be converted into additional private placement-equivalent units, at a price of $10.00 per unit, at the option of the holder of the amended and restated New Note at any time on or prior to the Maturity Date. As of September 30, 2023 and December 31, 2022, the Company had $1,625,213 and $600,000 outstanding under the amended and restated New Note , respectively. Management considers the conversion option within the amended and restated New Note to be immaterial. As the conversion option was considered to be immaterial and considering other terms of the amended and restated New Note, management believes the fair value of the amended and restated New Note is approximately equal to the carrying value.
F-21
10X CAPITAL VENTURE ACQUISITION CORP. II
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
Administrative Support Agreement
The Company pays an affiliate of the Sponsor $20,000 per month for office space and secretarial and administrative services. Upon the earlier of the Company’s consummation of a Business Combination and its liquidation, the Company will cease paying these monthly fees. For the three months ended September 30, 2023 and 2022, the Company incurred and paid $60,000 and $60,000 of administrative support expense, respectively. For the nine months ended September 30, 2023 and 2022, the Company incurred and paid $180,000 and $180,000 of administrative support expense, respectively. As of September 30, 2023 and December 31, 2022, there were no administrative support fees outstanding.
NOTE 6. COMMITMENTS AND CONTINGENCIES
Registration Rights
The holders of the Class B ordinary shares, private placement units, and warrants that may be issued upon conversion of the amended and restated New Note (and any Class A ordinary shares and warrants issuable upon the exercise of the private placement units and units that may be issued upon conversion of the amended and restated New Note and upon conversion of the Class B ordinary shares) are entitled to registration rights pursuant to a registration rights agreement dated August 10, 2021 requiring the Company to register such securities for resale (in the case of the Class B ordinary shares, only after conversion to Class A ordinary shares). The holders of these securities are entitled to make up to three demands, excluding short form demands, that the Company register such securities. In addition, the holders have certain “piggyback” registration rights with respect to registration statements filed subsequent to the completion of the initial Business Combination. The Company will bear the expenses incurred in connection with the filing of any such registration statements.
Underwriting Agreement
The Company granted the underwriter a 45-day option from the date of effectiveness to purchase up to an additional 3,000,000 Units at the Initial Public Offering price less the underwriting discounts and commissions. The option expired on September 25, 2021.
The underwriter was entitled to an underwriting discount of approximately $4.0 million, paid upon the closing of the Initial Public Offering. In addition, $7.0 million was recorded as payable to the underwriter for deferred underwriting commissions. The deferred fee will become payable to the underwriter from the amounts held in the Trust Account solely in the event that the Company completes a Business Combination, subject to the terms of the underwriting agreement.
Contingent Fee Arrangements
On October 21, 2022 the Company entered into an arrangement with Canaccord Genuity LLC (“Canaccord”) to obtain certain financial advisory and equity capital market advisory services. Canaccord would be entitled to an aggregate fee of up to $1,500,000. In addition, Canaccord would also be eligible for a discretionary incentive fee of $250,000. Per the arrangement, a portion of the fee is payable upon execution of the letter agreement with Canaccord, a portion is payable upon delivery of a fairness opinion by Canaccord and the remainder of the fee (plus any discretionary incentive fee for these services) is contingent upon the closing of a Business Combination and therefore are not included as liabilities on the accompanying condensed consolidated balance sheets. Under the arrangement, the Company will also reimburse Canaccord for reasonable expenses. As of September 30, 2023, no expenses have been claimed.
Pursuant to the SEPA, New African Agriculture will pay to Yorkville a commitment fee of $1.0 million, which is to be paid on the SEPA Effective Date. New African Agriculture can elect to pay the commitment fee by issuing New African Agriculture Common Stock to Yorkville in an amount equal to the commitment fee divided by the average daily VWAP for the five consecutive trading days prior to the SEPA Effective Date. Per the arrangement, the Yorkville commitment fee is contingent upon the closing of a Business Combination and therefore is not included as a liability on the accompanying condensed consolidated balance sheets.
F-22
10X CAPITAL VENTURE ACQUISITION CORP. II
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
NOTE 7. CLASS A ORDINARY SHARES SUBJECT TO POSSIBLE REDEMPTION
The Company’s Class A ordinary shares contain certain redemption rights that are considered to be outside of the Company’s control and subject to the occurrence of future events. The Company is authorized to issue 500,000,000 Class A ordinary shares with a par value of $0.0001 per share. Holders of Company’s Class A ordinary shares are entitled to one vote for each share. As of September 30, 2023 and December 31, 2022, there were 2,119,553 and 4,642,030 Class A ordinary shares outstanding which were subject to possible redemption, respectively.
The Class A ordinary shares subject to possible redemption reflected on the accompanying condensed consolidated balance sheets as of September 30, 2023 and December 31, 2022 are reconciled in the following table:
| Gross proceeds | $ | 200,000,000 | ||
| Less: | ||||
| Redemption of Class A ordinary share subject to possible redemption | (154,906,130 | ) | ||
| Plus: | ||||
| Increase in redemption value of Class A ordinary shares subject to possible redemption | 2,070,678 | |||
| Class A ordinary shares subject to possible redemption at December 31, 2022 | 47,164,548 | |||
| Increase in redemption value of Class A ordinary shares subject to possible redemption | 501,501 | |||
| Class A ordinary shares subject to possible redemption at March 31, 2023 | 47,666,049 | |||
| Increase in redemption value of Class A ordinary shares subject to possible redemption | 439,819 | |||
| Redemptions of Class A ordinary shares | (26,023,916 | ) | ||
| Class A ordinary shares subject to possible redemption at June 30, 2023 | 22,081,952 | |||
| Increase in redemption value of Class A ordinary shares subject to possible redemption | 260,232 | |||
| Class A ordinary shares subject to possible redemption at September 30, 2023 | $ | 22,342,184 |
NOTE 8. SHAREHOLDERS’ DEFICIT
Preference shares - The Company is authorized to issue 1,000,000 preference shares at par value of $0.0001 each. As of September 30, 2023 and December 31, 2022, there were no preference shares issued or outstanding.
Class A ordinary shares - The Company is authorized to issue 500,000,000 Class A ordinary shares with a par value of $0.0001 per share. Holders of the Company’s Class A ordinary shares are entitled to one vote for each share. As of September 30, 2023 and December 31, 2022, there were 1,655,000 and 655,000 Class A ordinary shares issued and outstanding, excluding 2,119,553 and 4,642,030 Class A ordinary shares subject to possible redemption, respectively, classified outside of permanent equity on the condensed consolidated balance sheets.
Class B ordinary shares - The Company is authorized to issue 50,000,000 Class B ordinary shares with a par value of $0.0001 per share. As of September 30, 2023 and December 31, 2022 there were 5,666,667 and 6,666,667 Class B ordinary shares issued and outstanding, respectively (see Note 5).
F-23
10X CAPITAL VENTURE ACQUISITION CORP. II
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
The Class B ordinary shares will automatically convert into Class A ordinary shares concurrently with the consummation of the Business Combination on a one-for-one basis, subject to adjustment for sharestock splits, sharestock dividends, reorganizations, recapitalizations and the like, and subject to further adjustment as provided herein. In the case
that additional Class A ordinary shares or equity-linked securities are issued or deemed issued in connection with our initial business combination,the Business Combination in excess of the number of Class A ordinary shares or equity-linked securities issued in the Company’s Initial Public Offering, the number of Class A ordinary shares issuable upon conversion of all founderClass B ordinary shares will equal, in the aggregate, on an as-converted basis, 25% of the total number of Class A ordinary shares outstanding after such conversion (after giving effect to any redemptions of Class A ordinary shares by public shareholders and not including the Class A ordinary shares underlying the private placement units)Private Units), including the total number of Class A ordinary shares issued, or deemed issued or issuable upon conversion or exercise of any equity-linked securities or rights issued or deemed issued, by the Company in connection with or in relation to the consummation of the initial business combination,Business Combination, excluding any Class A ordinary shares or equity-linked securities or rights exercisable for or convertible into Class A ordinary shares issued, or to be issued, to any seller in the initial business combinationBusiness Combination and any private placement unitsWorking Capital Units issued to our sponsor,the Sponsor, officers or directors upon conversion of working capital loans, the amended and restated New Note, provided that such conversion of founder sharesFounder Shares will never occur on a less than one-for-one basis.
With certain limited exceptions, the founder shares are not transferable, assignable or salable (except to our officers and directors and other persons or entities affiliated with our sponsor, each
Holders of whom will be subject to the same transfer restrictions) until the consummation of our initial business combination. Up to 1,000,000 founder shares will be forfeited by our initial shareholders depending on the exerciserecord of the over-allotment option. The anchor investors have agreed to vote any founder shares owned by them in favor of any proposed business combination.
Register of Members
Under Cayman Islands law, we must keep a register of members and there will be entered therein:
the names and addresses of the members, a statement of the shares held by each member, and of the amount paid or agreed to be considered as paid, on the shares of each member and the voting rights of the shares of each member;
whether voting rights are attached to the share in issue;
the date on which the name of any person was entered on the register as a member; and
the date on which any person ceased to be a member.
Under Cayman Islands law, the register of members of our company is prima facie evidence of the matters set out therein (i.e. the register of members will raise a presumption of fact on the matters referred to above unless rebutted) and a member registered in the register of members will be deemed as a matter of Cayman Islands law to have legal title to the shares as set against its name in the register of members. Upon the closing of this public offering, the register of members will be immediately updated to reflect the issue of shares by us. Once our register of members has been updated, the shareholders recorded in the register of members will be deemed to have legal title to the shares set against their name. However, there are certain limited circumstances where an application may be made to a Cayman Islands court for a determination on whether the register of members reflects the correct legal position. Further, the Cayman Islands court has the power to order that the register of members maintained by a company should be rectified where it considers that the register of members does not reflect the correct legal position. If an application for an order for rectification of the register of members were made in respect of our ordinary shares, then the validity of such shares may be subject to re-examination by a Cayman Islands court.
Preference Shares
Our amended and restated memorandum and articles of association authorize 1,000,000 preference shares and provide that preference shares may be issued from time to time in one or more series. Our board of directors will be authorized to fix the voting rights, if any, designations, powers, preferences, the relative, participating, optional or other special rights and any qualifications, limitations and restrictions thereof, applicable to the shares of each series. Our board of directors will be able to, without shareholder approval, issue preference shares with voting and other rights that could adversely affect the voting power and other rights of the holders of theClass A ordinary shares and could have anti-takeover effects. The abilityClass B ordinary shares are entitled to one vote for each share held on all matters to be voted on by shareholders.
On May 15, 2023, the Sponsor converted 1,000,000 Class B ordinary shares into 1,000,000 Class A ordinary shares.
Warrants - As of our board of directors to issue preference shares
without shareholder approval could have the effect of delaying, deferring or preventing a change of control of us or the removal of existing management. We have no preference shares outstanding at the date hereof. Although we do not currently intend to issue any preference shares, we cannot assure you that we will not do soSeptember 30, 2023 and December 31, 2022, there were 6,885,000 warrants (6,666,667 Public Warrants and 218,333 Private Warrants included in the future. No preference shares are being issued or registered in this offering.
Warrants
Public Shareholders’ Warrants
Private Units) outstanding. Each whole warrant entitles the registered holder to purchase one Class A ordinary share at a price of $11.50 per share, subject to adjustmentadjustments as discusseddescribed herein. In addition, if (x) the Company issues additional Class A ordinary shares or equity-linked securities for capital raising purposes in connection with the closing of the Business Combination at an issue price or effective issue price of less than $9.20 per Class A ordinary share (with such issue price or effective issue price to be determined in good faith by the board of directors and, in the case of any such issuance to the initial shareholders or their affiliates, without taking into account any founder shares or private placement shares held by the initial shareholders or such affiliates, as applicable, prior to such issuance) (the “Newly Issued Price”) (y) the aggregate gross proceeds from such issuances represent more than 60% of the total equity proceeds, and interest thereon, available for the funding of the Business Combination on the date of the consummation of the initial Business Combination (net of redemptions), and (z) the volume weighted average trading price of the Class A ordinary shares during the 20 trading day period starting on the trading day after the day on which the Company consummates the Business Combination (such price, the “Market Value”) is below $9.20 per share, the exercise price of the warrants will be adjusted (to the nearest cent) to be equal to 115% of the higher of the Market Value and the Newly Issued Price, and the $18.00 per share redemption trigger price described below will be adjusted (to the nearest cent) to be equal to 180% of the higher of the Market Value and the Newly Issued Price. Each whole warrant entitles the holder to purchase one Class A ordinary share at any time commencinga price of $11.50 per share, subject to adjustments as described herein.
The warrants cannot be exercised until 30 days after the completion of ourthe initial business combination, provided that we have an effective registration statement under the Securities Act covering the Class A ordinary shares issuable upon exercise of the warrantsBusiness Combination, and a current prospectus relating to them is available (or we permit holders to exercise their warrants on a cashless basis under the circumstances specified in the warrant agreement) and such shares are registered, qualified or exempt from registration under the securities, or blue sky, laws of the state of residence of the holder. Pursuant to the warrant agreement, a warrant holder may exercise its warrants only for a whole number of Class A ordinary shares. This means only a whole warrant may be exercisedwill expire at a givenfive p.m., New York City time, by a warrant holder. No fractional warrants will be issued upon separation of the units and only whole warrants will trade. Accordingly, unless you purchase at least three units, you will not be able to receive or trade a whole warrant. The warrants will expire five years after the completion of ourthe initial business combination, at 5:00 p.m., New York City time,Business Combination or earlier upon redemption or liquidation.
We
The Company will not be obligated to deliver any Class A ordinary shares pursuant to the exercise of a warrant and will have no obligation to settle such warrant exercise unless a registration statement under the Securities Act with respect to the Class A ordinary shares underlying the warrants is then effective and a prospectus relating thereto is current, subject to ourthe Company’s satisfying ourits obligations described below with respect to registration. No warrant will be exercisable and wethe Company will not be obligated to issue a Class A ordinary share upon exercise of a warrant unless the Class A ordinary share issuable upon such warrant exercise has been registered, qualified or deemed to be exempt under the securities laws of the state of residence of the registered holder of the warrants. In the event that the conditions in the two immediately preceding sentences are not satisfied with respect to a warrant, the holder of such warrant will not be entitled to exercise such warrant and such warrant may have no value and expire worthless.
F-24
10X CAPITAL VENTURE ACQUISITION CORP. II
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
In no event will wethe Company be required to net cash settle any warrant. In the event that a registration statement is not effective for the exercised warrants, the purchaser of a unitUnit containing such warrant will have paid the full purchase price for the unitUnit solely for the Class A ordinary share underlying such unit.Unit.
We are registering the Class A ordinary shares issuable upon exercise of the warrants in the registration statement of which this prospectus forms a part because the warrants will become exercisable 30 days after the completion of our initial business combination, which may be within one year of this offering. However, because the warrants will be exercisable until their expiration date of up to five years after the completion of our initial business combination, in order to comply with the requirements of Section 10(a)(3) of the Securities Act following the consummation of our initial business combination under the terms of the warrant agreement, we have agreed, that as soon as practicable, but in no event later than 15 business days after the closing of our initial business combination, we will use our commercially reasonable efforts to file with the SEC a post-effective amendment to the registration statement of which this prospectus forms a part or a new registration statement covering the registration, under the Securities Act, of the Class A ordinary shares issuable upon exercise of the warrants and thereafter will use our commercially reasonable efforts to cause the same to become effective within 60 business days following our initial business combination and to maintain a current prospectus relating to the Class A ordinary shares issuable upon exercise of the warrants until the expiration of the warrants in accordance with the provisions of the warrant agreement. If a registration statement covering the Class A ordinary shares issuable upon exercise of the warrants is not effective by the sixtieth (60th) business day after the closing of our initial business combination, warrant holders may, until such time as there is an effective registration statement and during any period when we will have failed to maintain an effective registration statement, exercise warrants on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act or another exemption. Notwithstanding the above, if our Class A ordinary shares are at the time of any exercise of a warrant not listed on a national securities exchange such that they satisfy the definition of a “covered security”
under Section 18(b)(1) of the Securities Act, we may, at our option, require holders of public warrants who exercise their warrants to do so on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act and, in the event we so elect, we will not be required to file or maintain in effect a registration statement, and in the event we do not so elect, we will use our commercially reasonable efforts to register or qualify the shares under applicable blue sky laws to the extent an exemption is not available.
Redemption of warrants for cash
Once the warrants become exercisable, wethe Company may callredeem the outstanding warrants for redemption for cash:cash (except as described herein with respect to the private placement warrants):
in whole and not in part;
| ● | in whole and not in part; |
at a price of $0.01 per warrant;
| ● | at a price of $0.01 per warrant; |
upon not less than 30 days’ prior written notice of redemption (the “30-day redemption period”) to each warrant holder; and
| ● | upon a minimum of 30 days’ prior written notice of redemption (the “30-day redemption period”); and |
| ● | if, and only if, the closing price of the Class A ordinary shares equals or exceeds $18.00 per share (as adjusted for stock splits, stock capitalizations, reorganizations, recapitalizations and the like and for certain issuances of Class A ordinary shares and equity-linked securities for capital raising purposes in connection with the closing of the initial Business Combination) for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date on which the Company sends the notice of redemption to the warrant holders. |
if, and only if, the closing price of the ordinary shares equals or exceeds $18.00 per share (as adjusted for share splits, share capitalizations, reorganizations, recapitalizations and the like and for certain issuances of Class A ordinary shares and equity-linked securities for capital raising purposes in connection with the closing of our initial business combination as described elsewhere in this prospectus) for any 20 trading days within a 30-trading day period ending three business days before we send to the notice of redemption to the warrant holders.
If and when the warrants become redeemable by us for cash, we may exercise our redemption right even if we are unable to register or qualify the underlying securities for sale under all applicable state securities laws.
We have established the last of the redemption criterion discussed above to prevent a redemption call unless there is at the time of the call a significant premium to the warrant exercise price. If the foregoing conditions are satisfied and we issue a notice of redemption of the warrants, each warrant holder will be entitled to exercise his, her or its warrant prior to the scheduled redemption date. However, the price of the Class A ordinary shares may fall below the $18.00 redemption trigger price (as adjusted for share splits, share capitalizations, reorganizations, recapitalizations and the like and for certain issuances of Class A ordinary shares and equity-linked securities for capital raising purposes in connection with the closing of our initial business combination as described elsewhere in this prospectus) as well as the $11.50 warrant exercise price after the redemption notice is issued.
Redemption procedures and cashless exercise
If we callCompany calls the warrants for redemption as described above, under “— Redemption of warrants for cash”, ourthe management will have the option to require any holderall holders that wisheswish to exercise his, her or its warrantwarrants to do so on a “cashless basis.” In determining whether to require all holders to exercise their warrants on a “cashless basis,” ourthe management will consider, among other factors, ourthe Company’s cash position, the number of warrants that are outstanding and the dilutive effect on ourthe shareholders of issuing the maximum number of Class A ordinary shares issuable upon the exercise of ourthe warrants. If our management takes advantage of this option, all holders of warrantsIn such event, each holder would pay the exercise price by surrendering theirthe warrants for that number of Class A ordinary shares equal to the quotient obtained by dividing (x) the product of the number of Class A ordinary shares underlying the warrants, multiplied by the excess of the “fair market value” of ourthe Class A ordinary shares (defined below) over the exercise price of the warrants by (y) the fair market value. The “fair market value” will mean the average reported closing price of the Class A ordinary shares for the 10 trading days ending on the third trading day prior to the date on which the notice of redemption is sent to the holders of warrants. If our management takes advantage of this option,
The private placement warrants underlying the notice of redemption will contain the information necessary to calculate the number of Class A ordinary shares to be received upon exercise of the warrants, including the “fair market value” in such case. Requiring a cashless exercise in this manner will reduce the number of shares to be issued and thereby lessen the dilutive effect of a warrant redemption. We believe this feature is an attractive option to us if we do not need the cash from the exercise of the warrants after our initial business combination.
A holder of a warrant may notify us in writing in the event it elects to be subject to a requirement that such holder will not have the right to exercise such warrant, to the extent that after giving effect to such exercise, such
person (together with such person’s affiliates), to the warrant agent’s actual knowledge, would beneficially own in excess of 4.9% or 9.8% (as specified by the holder) of the Class A ordinary shares outstanding immediately after giving effect to such exercise.
If the number of outstanding Class A ordinary shares is increased by a share capitalization payable in Class A ordinary shares, or by a split-up of ordinary shares or other similar event, then, on the effective date of such share capitalization, split-up or similar event, the number of Class A ordinary shares issuable on exercise of each warrant will be increased in proportion to such increase in the outstanding ordinary shares. A rights offering to holders of ordinary shares entitling holders to purchase Class A ordinary shares at a price less than the fair market value will be deemed a share capitalization of a number of Class A ordinary shares equal to the product of (i) the number of Class A ordinary shares actually sold in such rights offering (or issuable under any other equity securities sold in such rights offering that are convertible into or exercisable for Class A ordinary shares) and (ii) the quotient of (x) the price per Class A ordinary share paid in such rights offering and (y) the fair market value. For these purposes (i) if the rights offering is for securities convertible into or exercisable for Class A ordinary shares, in determining the price payable for Class A ordinary shares, there will be taken into account any consideration received for such rights,Private Units, as well as any additional amount payable upon exercise or conversion and (ii) fair market value meanswarrants underlying Working Capital Units the volume weighted average price of Class A ordinary shares as reported during the ten (10) trading day period ending on the trading day priorCompany issues to the first date on which the Class A ordinary shares trade on the applicable exchange or in the applicable market, regular way, without the right to receive such rights.
In addition, if we, at any time while the warrants are outstanding and unexpired, pay a dividend or make a distribution in cash, securities or other assets to the holders of Class A ordinary shares on account of such Class A ordinary shares (or other securities into which the warrants are convertible), other than (a) as described above, (b) certain ordinary cash dividends, (c) to satisfy the redemption rights of the holders of Class A ordinary shares in connection with a proposed initial business combination, or (d) in connection with the redemption of our public shares upon our failure to complete our initial business combination, then the warrant exercise price will be decreased, effective immediately after the effective date of such event, by the amount of cash and/or the fair market value of any securities or other assets paid on each Class A ordinary share in respect of such event.
If the number of outstanding Class A ordinary shares is decreased by a consolidation, combination, reverse share split or reclassification of Class A ordinary shares or other similar event, then, on the effective date of such consolidation, combination, reverse share split, reclassification or similar event, the number of Class A ordinary shares issuable on exercise of each warrant will be decreased in proportion to such decrease in outstanding Class A ordinary shares.
Whenever the number of Class A ordinary shares purchasable upon the exercise of the warrants is adjusted, as described above, the warrant exercise price will be adjusted by multiplying the warrant exercise price immediately prior to such adjustment by a fraction (x) the numerator of which will be the number of Class A ordinary shares purchasable upon the exercise of the warrants immediately prior to such adjustment, and (y) the denominator of which will be the number of Class A ordinary shares so purchasable immediately thereafter.
In addition, if (x) we issue additional Class A ordinary shares or equity-linked securities for capital raising purposes in connection with the closing of our initial business combination at an issue price or effective issue price of less than $9.20 per Class A ordinary shares (with such issue price or effective issue price to be determined in good faith by our board ofSponsor, officers, directors, and, in the case of any such issuance to our initial shareholders or their affiliates without taking into account any founder shares held by our initial shareholders or such affiliates, as applicable, prior to such issuance), (the “Newly Issued Price”) (y) the aggregate gross proceeds from such issuances represent more than 60% of the total equity proceeds, and interest thereon, available for the funding of our initial business combination on the date of the consummation of our initial business combination (net of redemptions), and the volume weighted average trading price of our Class A ordinary shares during the 20 trading day period starting on the trading day after the day on which we consummate our initial business
combination (such price, the “Market Value”) is below $9.20 per share, the exercise price of the warrants will be adjusted (to the nearest cent) to be equal to 115% of the higher of the Market Value and the Newly Issued Price, and the $18.00 per share redemption trigger price described under “— Redemption of warrants” will be adjusted (to the nearest cent) to be equal to 180% of the higher of the Market Value and the Newly Issued Price.
In case of any reclassification or reorganization of the outstanding Class A ordinary shares (other than those described above or that solely affects the par value of such Class A ordinary shares), or in the case of any merger or consolidation of us with or into another corporation (other than a consolidation or merger in which we are the continuing corporation and that does not result in any reclassification or reorganization of our outstanding Class A ordinary shares), or in the case of any sale or conveyance to another corporation or entity of the assets or other property of us as an entirety or substantially as an entirety in connection with which we are dissolved, the holders of the warrants will thereafter have the right to purchase and receive, upon the basis and upon the terms and conditions specified in the warrants and in lieu of the Class A ordinary shares immediately theretofore purchasable and receivable upon the exercise of the rights represented thereby, the kind and amount of Class A ordinary shares or other securities or property (including cash) receivable upon such reclassification, reorganization, merger or consolidation, or upon a dissolution following any such sale or transfer, that the holder of the warrants would have received if such holder had exercised their warrants immediately prior to such event. If less than 70% of the consideration receivable by the holders of Class A ordinary shares in such a transaction is payable in the form of Class A ordinary shares in the successor entity that is listed for trading on a national securities exchange or is quoted in an established over-the-counter market, or is to be so listed for trading or quoted immediately following such event, and if the registered holder of the warrant properly exercises the warrant within thirty days following public disclosure of such transaction, the warrant exercise price will be reduced as specified in the warrant agreement based on the Black-Scholes Warrant Value (as defined in the warrant agreement) of the warrant. The purpose of such exercise price reduction is to provide additional value to holders of the warrants when an extraordinary transaction occurs during the exercise period of the warrants pursuant to which the holders of the warrants otherwise do not receive the full potential value of the warrants.
The warrants will be issued in registered form under a warrant agreement between Continental Stock Transfer & Trust Company, as warrant agent, and us. The warrant agreement provides that the terms of the warrants may be amended without the consent of any holder to cure any ambiguity or correct any defective provision, and that all other modifications or amendments will require the vote or written consent of the holders of at least 50% of the then outstanding warrants, and, solely with respect to any amendment to the terms of warrants we may issue in connection with our initial business combination, or post-IPO warrants, at least 50% of the then outstanding post- IPO warrants. You should review a copy of the warrant agreement, which will be filed as an exhibit to the registration statement of which this prospectus is a part, for a complete description of the terms and conditions applicable to the warrants.
The warrants may be exercised upon surrender of the warrant certificate on or prior to the expiration date at the offices of the warrant agent, with the exercise form on the reverse side of the warrant certificate completed and executed as indicated, accompanied by full payment of the exercise price (or on a cashless basis, if applicable), by certified or official bank check payable to us, for the number of warrants being exercised. The warrant holders do not have the rights or privileges of holders of ordinary sharesamended and any voting rights until they exercise their warrants and receive Class A ordinary shares. After the issuance of Class A ordinary shares upon exercise of the warrants, each holder will be entitled to one vote for each share held of record on all matters to be voted on by shareholders.
No fractional shares will be issued upon exercise of the warrants. If, upon exercise of the warrants, a holder would be entitled to receive a fractional interest in a share, we will, upon exercise, round downrestated New Note made to the nearest whole number the number of Class A ordinary shares to be issued to the warrant holder.
We have agreed that, subject to applicable law, any action, proceeding or claim against us arising out of or relating in any way to the warrant agreement will be brought and enforced in the courts of the State of New York
or the United States District Court for the Southern District of New York, and we irrevocably submit to such jurisdiction, which jurisdiction will be the exclusive forum for any such action, proceeding or claim. See “Risk Factors — Our warrant agreement will designate the courts of the State of New York or the United States District Court for the Southern District of New York as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by holders of our warrants, which could limit the ability of warrant holders to obtain a favorable judicial forum for disputes with our company.” This provision applies to claims under the Securities Act but does not apply to claims under the Exchange Act or any claim for which the federal district courts of the United States of America are the sole and exclusive forum.
Private Placement Warrants
The private placement warrants (including the Class A ordinary shares issuable upon exercise of the private placement warrants) will not be transferable, assignable or salable until 30 days after the completion of our initial business combination (except, among other limited exceptions as described under “Principal Shareholders — Transfers of Founder Shares and Private Placement Units,” to our officers and directors and other persons or entities affiliated with the initial purchasers of the private placement units) The private placement warrants have terms and provisions thatCompany, are identical to those of the warrants being sold as part of the units in this offering.Public Warrants.
Dividends
We have not paid any cash dividends on our ordinary shares to date and do not intend to pay cash dividends prior to the completion of a business combination. The payment of cash dividends in the future will be dependent upon our revenues and earnings, if any, capital requirements and general financial condition subsequent to completion of a business combination. The payment of any cash dividends subsequent to a business combination will be within the discretion of our board of directors at such time. If we increase or decrease the size of this offering, then we will effect a share dividend or share contribution back to capital or other appropriate mechanism, as applicable, with respect to our founder shares immediately prior to the consummation of the offering in such amount as to maintain the number of founder shares at 25.0% of our issued and outstanding ordinary shares upon the consummation of this offering (not including the Class A ordinary shares underlying the private placement units). Further, if we incur any indebtedness, our ability to declare dividends may be limited by restrictive covenants we may agree to in connection therewith.
Our Transfer Agent and Warrant Agent
The transfer agent for our ordinary shares and warrant agent for our warrants is Continental Stock Transfer & Trust Company. We have agreed to indemnify Continental Stock Transfer & Trust Company in its roles as transfer agent and warrant agent, its agents and each of its shareholders, directors, officers and employees against all claims and losses that may arise out of acts performed or omitted for its activities in that capacity, except for any liability due to any gross negligence or intentional misconduct of the indemnified person or entity. Continental Stock Transfer & Trust Company has agreed that it has no right of set-off or any right, title, interest or claim of any kind to, or to any monies in, the trust account, and has irrevocably waived any right, title, interest or claim of any kind to, or to any monies in, the trust account that it may have now or in the future. Accordingly, any indemnification provided will only be able to be satisfied, or a claim will only be able to be pursued, solely against us and our assets outside the trust account and not against the any monies in the trust account or interest earned thereon.
Certain Differences in Corporate Law
Cayman Islands companies are governed by the Companies Act. The Companies Act is modeled on English Law but does not follow recent English Law statutory enactments, and differs from laws applicable to United States corporations and their shareholders. Set forth below is a summary of the material differences between the provisions of the Companies Act applicable to us and the laws applicable to companies incorporated in the United States and their shareholders.F-25
Mergers and Similar Arrangements. In certain circumstances, the Companies Act allows for mergers or consolidations between two Cayman Islands companies, or between a Cayman Islands exempted company and a company incorporated in another jurisdiction (provided that is facilitated by the laws of that other jurisdiction).
Where the merger or consolidation is between two Cayman Islands companies, the directors of each company must approve a written plan of merger or consolidation containing certain prescribed information. That plan or merger or consolidation must then be authorized by either (a) a special resolution (usually a majority of 662⁄3% in value of the voting shares voted at a general meeting) of the shareholders of each company; or (b) such other authorization, if any, as may be specified in such constituent company’s articles of association. No shareholder resolution is required for a merger between a parent company (i.e., a company that owns at least 90% of the issued shares of each class in a subsidiary company) and its subsidiary company. The consent of each holder of a fixed or floating security interest of a constituent company must be obtained, unless the court waives such requirement. If the Cayman Islands Registrar of Companies is satisfied that the requirements of the Companies Act (which includes certain other formalities) have been complied with, the Registrar of Companies will register the plan of merger or consolidation.
Where the merger or consolidation involves a foreign company, the procedure is similar, save that with respect to the foreign company, the directors of the Cayman Islands exempted company are required to make a declaration to the effect that, having made due enquiry, they are of the opinion that the requirements set out below have been met: (i) that the merger or consolidation is permitted or not prohibited by the constitutional documents of the foreign company and by the laws of the jurisdiction in which the foreign company is incorporated, and that those laws and any requirements of those constitutional documents have been or will be complied with; (ii) that no petition or other similar proceeding has been filed and remains outstanding or order made or resolution adopted to wind up or liquidate the foreign company in any jurisdictions; (iii) that no receiver, trustee, administrator or other similar person has been appointed in any jurisdiction and is acting in respect of the foreign company, its affairs or its property or any part thereof; (iv) that no scheme, order, compromise or other similar arrangement has been entered into or made in any jurisdiction whereby the rights of creditors of the foreign company are and continue to be suspended or restricted.
Where the surviving company is the Cayman Islands exempted company, the directors of the Cayman Islands exempted company are further required to make a declaration to the effect that, having made due enquiry, they are of the opinion that the requirements set out below have been met: (i) that the foreign company is able to pay its debts as they fall due and that the merger or consolidated is bona fide and not intended to defraud unsecured creditors of the foreign company; (ii) that in respect of the transfer of any security interest granted by the foreign company to the surviving or consolidated company (a) consent or approval to the transfer has been obtained, released or waived; (b) the transfer is permitted by and has been approved in accordance with the constitutional documents of the foreign company; and (c) the laws of the jurisdiction of the foreign company with respect to the transfer have been or will be complied with; (iii) that the foreign company will, upon the merger or consolidation becoming effective, cease to be incorporated, registered or exist under the laws of the relevant foreign jurisdiction; and (iv) that there is no other reason why it would be against the public interest to permit the merger or consolidation. the arrangement in question must be approved by a majority in number of each class of shareholders and creditors with whom the arrangement is to be made and who must in addition represent three-fourths in value of each such class of shareholders or creditors, as the case may be, that are present and voting either in person or by proxy at an annual general meeting, or extraordinary general meeting summoned for that purpose. The convening of the meetings and subsequently the terms of the arrangement must be sanctioned by the Grand Court of the Cayman Islands. While a dissenting shareholder would have the right to express to the court the view that the transaction should not be approved, the court can be expected to approve the arrangement if it satisfies itself that:
we are not proposing to act illegally or beyond the scope of our corporate authority and the statutory provisions as to majority vote have been complied with;
the shareholders have been fairly represented at the general meeting in question;
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
the arrangement is such as a businessman would reasonably approve; andSEPTEMBER 30, 2023
NOTE 9. FAIR VALUE MEASUREMENTS
The following table presents information about the arrangement is not oneCompany’s assets and liabilities that would more properly be sanctioned under some other provision of the Companies Act or that would amount to a “fraud on the minority.”
If a scheme of arrangement or takeover offer (as described below) is approved, any dissenting shareholder would have no rights comparable to appraisal rights (providing rights to receive payment in cash for the judicially determinedare measured at fair value of the shares), which would otherwise ordinarily be available to dissenting shareholders of United States corporations.
Squeeze-out Provisions. When a takeover offer is made and accepted by holders of 90% of the shares to whom the offer relates is made within four months, the offeror may, within a two-month period, require the holders of the remaining shares to transfer such shares on the terms of the offer. An objection can be made to the Grand Court of the Cayman Islands but this is unlikely to succeed unless there is evidence of fraud, bad faith, collusion or inequitable treatment of the shareholders.
Further, transactions similar to a merger, reconstruction and/or an amalgamation may in some circumstances be achieved through means other than these statutory provisions, such as a share capital exchange, asset acquisition or control, or through contractual arrangements, of an operating business.
Shareholders’ Suits. Maples and Calder (Cayman) LLP, our Cayman Islands legal counsel, is not aware of any
reported class action having been brought in a Cayman Islands court. Derivative actions have been brought in the Cayman Islands courts, and the Cayman Islands courts have confirmed the availability for such actions. In most cases, we will be the proper plaintiff in any claim based on a breachrecurring basis as of duty owed to us,September 30, 2023 and a claim against (for example) our officers or directors usually may not be brought by a shareholder. However, based both on Cayman Islands authoritiesDecember 31, 2022 and on English authorities, which would in all likelihood be of persuasive authority and be applied by a court in the Cayman Islands, exceptions to the foregoing principle apply in circumstances in which:
a company is acting, or proposing to act, illegally or beyond the scope of its authority;
the act complained of, although not beyond the scope of the authority, could be effected if duly authorized by more than the number of votes which have actually been obtained; or
those who control the company are perpetrating a “fraud on the minority.”
A shareholder may have a direct right of action against us where the individual rights of that shareholder have been infringed or are about to be infringed.
Enforcement of Civil Liabilities. The Cayman Islands has a different body of securities laws as compared to the United States and provides less protection to investors. Additionally, Cayman Islands companies may not have standing to sue before the Federal courts of the United States.
We have been advised by Maples and Calder (Cayman) LLP, our Cayman Islands legal counsel, that the courts of the Cayman Islands are unlikely (i) to recognize or enforce against us judgments of courts of the United States predicated upon the civil liability provisions of the federal securities laws of the United States or any state; and (ii) in original actions brought in the Cayman Islands, to impose liabilities against us predicated upon the civil liability provisions of the federal securities laws of the United States or any state, so far as the liabilities
Where the above procedures are adopted, the Companies Act provides for a right of dissenting shareholders to be paid a payment ofindicates the fair value hierarchy of his shares upon their dissenting to the merger or consolidation if they follow a prescribed procedure. In essence, that procedure is as follows (a) the shareholder must give his written objection to the merger or consolidation to the constituent company before the vote on the merger or consolidation, including a statementvaluation techniques that the shareholder proposesCompany utilized to demand payment for his shares ifdetermine such fair value at each respective date:
| Description | Amount at Fair Value | Level 1 | Level 2 | Level 3 | ||||||||||||
| September 30, 2023 | ||||||||||||||||
| Assets | ||||||||||||||||
| Cash held in Trust Account | $ | 22,442,184 | $ | 22,442,184 | $ | - | $ | - | ||||||||
| Liabilities | ||||||||||||||||
| Derivative liabilities - Forward Purchase Agreement | $ | 172 | $ | - | $ | - | $ | 172 | ||||||||
| Derivative liabilities - Non Redemption Agreement | $ | 400,702 | $ | - | $ | - | $ | 400,702 | ||||||||
| December 31, 2022 | ||||||||||||||||
| Assets | ||||||||||||||||
| Funds that invest in U.S. Treasury Securities | $ | 47,264,548 | $ | 47,264,548 | $ | - | $ | - | ||||||||
| Liabilities | ||||||||||||||||
| Derivative liabilities - Forward Purchase Agreement | $ | 331,777 | $ | - | $ | - | $ | 331,777 | ||||||||
Transfers to/from Levels 1, 2, and 3 are recognized at the merger or consolidation is authorized by the vote; (b) within 20 days following the date on which the merger or
consolidation is approved by the shareholders, the constituent company must give written notice to each shareholder who made a written objection; (c) a shareholder must within 20 days following receipt of such notice from the constituent company, give the constituent company a written notice of his intention to dissent including, among other details, a demand for paymentbeginning of the fair value of his shares; (d) within seven days followingreporting period. There were no transfers to/from Levels 1, 2, and 3 during the date offor the expiration of the period set outthree and nine months ended September 30, 2023 and 2022.
Level 1 instruments include investments in paragraph (b) abovemutual funds invested in government securities. The Company uses inputs such as actual trade data, benchmark yields, quoted market prices from dealers or seven days following the date on which the plan of merger or consolidation is filed, whichever is later, the constituent company, the surviving company or the consolidated company must make a written offer to each dissenting shareholder to purchase his shares at a price that the company determines is the fair valuebrokers, and if the company and the shareholder agree the price within 30 days following the date on which the offer was made, the company must pay the shareholder such amount; and (e) if the company and the shareholder fail to agree a price within such 30 day period, within 20 days following the date on which such 30 day period expires, the company (and any dissenting shareholder) must file a petition with the Cayman Islands Grand Court to determine the fair value and such petition must be accompanied by a list of the names and addresses of the dissenting shareholders with whom agreements as to the fair value of their shares have not been reached by the company. At the hearing of that petition, the court has the powerother similar sources to determine the fair value of the shares together with a fair rate of interest, if any, to be paid by the company upon the amount determined to be the fair value. Any dissenting shareholder whose name appears on the list filed by the company may participate fully in all proceedings until the determination ofits investments.
The estimated fair value is reached. These rights of a dissenting shareholder are not available in certain circumstances, for example, to dissenters holding shares of any class in respect of which an open market exists on a recognized stock exchange or recognized interdealer quotation system at the relevant date or where the consideration for such shares to be contributed are shares of any company listed on a national securities exchange or shares of the surviving or consolidated company.
Moreover, Cayman Islands law has separate statutory provisionsForward Purchase Agreement was measured at fair value using a Monte Carlo simulation model, which was determined using Level 3 inputs. Inherent in a Monte Carlo simulation are assumptions related to expected stock-price volatility, expected life, risk-free interest rate and dividend yield. The Company estimates the volatility of its warrants based on implied volatility from the Company’s traded warrants and from historical volatility of select peer company’s shares that facilitatematches the reconstruction or amalgamation of companies in certain circumstances, schemes of arrangement will generally be more suited for complex mergers or other transactions involving widely held companies, commonly referred to in the Cayman Islands as a “scheme of arrangement” which may be tantamount to a merger. In the event that a merger was sought pursuant to a scheme of arrangement (the procedures for which are more rigorous and take longer to complete than the procedures typically required to consummate a merger in the United States), imposed by those provisions are penal in nature. In those circumstances, although there is no statutory enforcement in the Cayman Islands of judgments obtained in the United States, the courtsexpected remaining life of the Cayman Islands will recognize and enforce a foreign money judgment of a foreign court of competent jurisdiction without retrial on the meritswarrants. The risk-free interest rate is based on the principle that a judgment of a competent foreign court imposes uponU.S. Treasury zero-coupon yield curve on the judgment debtor an obligation to pay the sum for which judgment has been given provided certain conditions are met. For a foreign judgment to be enforced in the Cayman Islands, such judgment must be final and conclusive andgrant date for a liquidated sum, and must not be in respect of taxes or a fine or penalty, inconsistent with a Cayman Islands judgment in respect of the same matter, impeachable on the grounds of fraud or obtained in a manner, and or be of a kind the enforcement of which is, contrary to natural justice or the public policy of the Cayman Islands (awards of punitive or multiple damages may well be held to be contrary to public policy). A Cayman Islands Court may stay enforcement proceedings if concurrent proceedings are being brought elsewhere.
Special Considerations for Exempted Companies. We are an exempted company with limited liability under the Companies Act. The Companies Act distinguishes between ordinary resident companies and exempted companies. Any company that is registered in the Cayman Islands but conducts business mainly outside of the Cayman Islands may apply to be registered as an exempted company. The requirements for an exempted company are essentially the same as for an ordinary company except for the exemptions and privileges listed below:
an exempted company does not have to file an annual return of its shareholders with the Registrar of Companies;
an exempted company’s register of members is not open to inspection;
an exempted company does not have to hold an annual general meeting;
an exempted company may issue shares with no par value;
an exempted company may obtain an undertaking against the imposition of any future taxation (such undertakings are usually given for 20 years in the first instance);
an exempted company may register by way of continuation in another jurisdiction and be deregistered in the Cayman Islands;
an exempted company may register as a limited duration company; and
an exempted company may register as a segregated portfolio company.
“Limited liability” means that the liability of each shareholder is limitedmaturity similar to the amount unpaid by the shareholder on the shares of the company (except in exceptional circumstances, such as involving fraud, the establishment of an agency relationship or an illegal or improper purpose or other circumstances in which a court may be prepared to pierce or lift the corporate veil).
Amended and Restated Memorandum and Articles of Association
The Business Combination Article of our amended and restated memorandum and articles of association contains provisions designed to provide certain rights and protections relating to this offering that will apply to us until the completion of our initial business combination. These provisions cannot be amended without a special resolution. As a matter of Cayman Islands law, a resolution is deemed to be a special resolution where it has been approved by either (i) at least two-thirds (or any higher threshold specified in a company’s articles of association) of a company’s shareholders at a general meeting for which notice specifying the intention to propose the resolution as a special resolution has been given; or (ii) if so authorized by a company’s articles of association, by a unanimous written resolution of all of the company’s shareholders. Our amended and restated memorandum and articles of association provide that special resolutions must be approved either by at least two-thirds of our shareholders (i.e., the lowest threshold permissible under Cayman Islands law), or by a unanimous written resolution of all of our shareholders.
Our initial shareholders, who will collectively beneficially own 25% of our ordinary shares upon the closing of this offering (assuming they do not purchase any units in this offering and not including the Class A ordinary shares underlying the private placement units), may participate in any vote to amend our amended and restated memorandum and articles of association and will have the discretion to vote in any manner they choose. Specifically, our amended and restated memorandum and articles of association provide, among other things, that:
If we are unable to complete our initial business combination within 15 months from the closing of this offering, we will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but no 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 (which interest shall be net of taxes payable and up to $100,000 of interest to pay dissolution expenses), divided by the number of then outstanding public shares, which redemption will completely extinguish public shareholders’ rights as shareholders (including the right to receive further liquidating distributions, if any), and (iii) as promptly as reasonably possible following such redemption, subject to the approval of ourexpected 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 in all cases subject to the requirements of other applicable law;
Prior to our initial business combination, we may not issue additional securities that would entitle the holders thereof to (i) receive funds from the trust account or (ii) vote on our initial business combination;
Although we do not intend to enter into a business combination with a target business that is affiliated with our sponsor, our directors or our executive officers, we are not prohibited from doing so. In the event we enter into such a transaction, we, or a committee of independent directors, will obtain an opinion from an independent investment banking firm which is a member of FINRA or a valuation or appraisal firm that such a business combination is fair to our company from a financial point of view;
If a shareholder vote on our initial business combination is not required by law and we do not decide to hold a shareholder vote for business or other legal reasons, we will offer to redeem our public shares pursuant to Rule 13e-4 and Regulation 14E of the Exchange Act, and will file tender offer documents with the SEC prior to completing our initial business combination which contain substantially the same financial and other information about our initial business combination and the redemption rights as is required under Regulation 14A of the Exchange Act.
We must complete one or more business combinations having an aggregate fair market value of at least 80% of the assets held in the trust account (excluding the deferred underwriting commissions and taxes payable on the income earned on the trust account) at the time of the agreement to enter into the initial business combination;
If our shareholders approve an amendment to our amended and restated memorandum and articles of association to modify the substance or timing of our obligation to allow redemption in connection with our initial business combination or to redeem 100% of our public shares if we do not complete our initial business combination within 15 months from the closing of this offering, or with respect to any other material provisions relating to shareholders’ rights or pre-initial business combination activity, we will provide our public shareholders with the opportunity to redeem all or a portion of their Class A ordinary shares upon such approval at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the trust account, including interest (which interest shall be net of taxes payable), divided by the number of then outstanding public shares, subject to the limitations described herein; and
We will not effectuate our initial business combination with another blank check company or a similar company with nominal operations.
Our amended and restated memorandum and articles of association provide that unless we consent in writing to the selection of an alternative forum, the courts of the Cayman Islands shall have exclusive jurisdiction over any claim or dispute arising out of or in connection with our amended and restated memorandum and articles of association or otherwise related in any way to each shareholder’s shareholding in us, including but not limited to (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of any fiduciary or other duty owed by any of our current or former director, officer or other employee to us or our shareholders, (iii) any action asserting a claim arising pursuant to any provision of the Companies Act or our amended and restated memorandum and articles of association, or (iv) any action asserting a claim against us governed by the internal affairs doctrine (as such concept is recognized under the laws of the United States of America) and that each shareholder irrevocably submits to the exclusive jurisdiction of the courts of the Cayman Islands over all such claims or disputes. Our amended and restated memorandum and articles of association also provide that, without prejudice to any other rights or remedies that we may have, each of our shareholders acknowledges that damages alone would not be an adequate remedy for any breach of the selection of the courts of the Cayman Islands as exclusive forum and that accordingly we shall be entitled, without proof of special damages, to the remedies of injunction, specific performance or other equitable relief for any threatened or actual breach of the selection of the courts of the Cayman Islands as exclusive forum. The forum selection provision in our amended and restated memorandum and articles of association will not apply to actions or suits brought to enforce any liability or duty created by the Securities Act, Exchange Act or any claim for which the federal district courts of the United States of America are, as a matter of the laws of the United States of America, the sole and exclusive forum for determination of such a claim.
In addition, our amended and restated memorandum and articles of association provide that under no circumstances will we redeem our public shares in an amount that would cause our net tangible assets to be less than $5,000,001. We may, however, raise funds through the issuance of equity-linked securities or through loans, advances or other indebtedness in connection with our initial business combination including pursuant to forward purchase agreements or backstop arrangements we may enter into following consummation of this offering, in order to, among other reasons, satisfy such net tangible assets requirement.
The Companies Act permits a company incorporated in the Cayman Islands to amend its memorandum and articles of association with the approval of a special resolution. A company’s articles of association may specify that the approval of a higher majority is required but, provided the approval of the required majority is obtained, any Cayman Islands exempted company may amend its memorandum and articles of association regardless of whether its memorandum and articles of association provide otherwise. Accordingly, although we could amend any of the provisions relating to our proposed offering, structure and business plan which are contained in our amended and restated memorandum and articles of association, we view all of these provisions as binding obligations to our shareholders and neither we, nor our officers or directors, will take any action to amend or waive any of these provisions unless we provide dissenting public shareholders with the opportunity to redeem their public shares.
Anti-Money Laundering-Cayman Islands
If any person resident in the Cayman Islands knows or suspects or has reasonable grounds for knowing or suspecting that another person is engaged in criminal conduct or money-laundering or is involved with terrorism or terrorist financing and property and the information for that knowledge or suspicion came to their attention in the course of business in the regulated sector, or other trade, profession, business or employment, the person will be required to report such knowledge or suspicion to (i) the Financial Reporting Authority of the Cayman Islands, pursuant to the Proceeds of Crime Act (As Revised) of the Cayman Islands if the disclosure relates to criminal conduct or money laundering, or (ii) a police officer of the rank of constable or higher, or the Financial Reporting Authority, pursuant to the Terrorism Act (As Revised) of the Cayman Islands, if the disclosure relates to involvement with terrorism or terrorist financing and property. Such a report shall not be treated as a breach of confidence or of any restriction upon the disclosure of information imposed by any enactment or otherwise.
Cayman Islands Data Protection
We have certain duties under the Data Protection Act, 2017 of the Cayman Islands (the “DPL”) based on internationally accepted principles of data privacy.
Privacy Notice
Introduction
This privacy notice puts our shareholders on notice that through your investment in the company you will provide us with certain personal information which constitutes personal data within the meaning of the DPL (“personal data”).
In the following discussion, the “company” refers to us and our affiliates and/or delegates, except where the context requires otherwise.
Investor Data
We will collect, use, disclose, retain and secure personal data to the extent reasonably required only and within the parameters that could be reasonably expected during the normal course of business. We will only process, disclose, transfer or retain personal data to the extent legitimately required to conduct our activities of on an ongoing basis or to comply with legal and regulatory obligations to which we are subject. We will only transfer
personal data in accordance with the requirements of the DPL, and will apply appropriate technical and organizational information security measures designed to protect against unauthorized or unlawful processing of the personal data and against the accidental loss, destruction or damage to the personal data.
In our use of this personal data, we will be characterized as a “data controller” for the purposes of the DPL, while our affiliates and service providers who may receive this personal data from us in the conduct of our activities may either act as our “data processors” for the purposes of the DPL or may process personal information for their own lawful purposes in connection with services provided to us. We may also obtain personal data from other public sources. Personal data includes, without limitation, the following information relating to a shareholder and/or any individuals connected with a shareholder as an investor: name, residential address, email address, contact details, corporate contact information, signature, nationality, place of birth, date of birth, tax identification, credit history, correspondence records, passport number, bank account details, source of funds details and details relating to the shareholder’s investment activity.
Who this Affects
If you are a natural person, this will affect you directly. If you are a corporate investor (including, for these purposes, legal arrangements such as trusts or exempted limited partnerships) that provides us with personal data on individuals connected to you for any reason in relation your investment in the Company, this will be relevant for those individuals and you should transmit the content of this Privacy Notice to such individuals or otherwise advise them of its content.
How the Company May Use Your Personal Data
The company, as the data controller, may collect, store and use personal data for lawful purposes, including, in particular:
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Should we wish to use personal data for other specific purposes (including, if applicable, any purpose that requires your consent), we will contact you.
Why We May Transfer Your Personal Data
In certain circumstances, we may be legally obliged to share personal data and other information with respect to your shareholding with the relevant regulatory authorities such as the Cayman Islands Monetary Authority or the Tax Information Authority. They, in turn, may exchange this information with foreign authorities, including tax authorities.
We anticipate disclosing personal data to persons who provide services to us and their respective affiliates (which may include certain entities located outside the United States, the Cayman Islands or the European Economic Area), who will process your personal data on our behalf.
The Data Protection Measures We Take
Any transfer of personal data by us or our duly authorized affiliates and/or delegates outside of the Cayman Islands shall be in accordance with the requirements of the DPL.
We and our duly authorized affiliates and/or delegates shall apply appropriate technical and organizational information security measures designed to protect against unauthorized or unlawful processing of personal data, and against accidental loss or destruction of, or damage to, personal data
We shall notify you of any personal data breach that is reasonably likely to result in a risk to your interests, fundamental rights or freedoms or those data subjects to whom the relevant personal data relates.
Certain Anti-Takeover Provisions of our Amended and Restated Memorandum and Articles of Association
Our amended and restated memorandum and articles of association provide that our board of directors will be classified into three classes of directors. As a result, in most circumstances, a person can gain control of our board only by successfully engaging in a proxy contest at two or more annual meetings. Our authorized but unissued Class A ordinary shares and preference shares are available for future issuances without shareholder approval and could be utilized for a variety of corporate purposes, including future offerings to raise additional capital, acquisitions and employee benefit plans. The existence of authorized but unissued and unreserved Class A ordinary shares and preference shares could render more difficult or discourage an attempt to obtain control of us by means of a proxy contest, tender offer, merger or otherwise.
Securities Eligible for Future Sale
Immediately after this offering we will have 27,321,667 (or 31,321,667 if the underwriters’ over-allotment option is exercised in full) ordinary shares outstanding. Of these shares, the Class A ordinary shares sold in this offering (20,000,000 Class A ordinary shares if the underwriters’ over-allotment option is not exercised and 23,000,000 shares if the underwriters’ over-allotment option is exercised in full) will be freely tradable without restriction or further registration under the Securities Act, except for any Class A ordinary shares purchased by one of our affiliates within the meaning of Rule 144 under the Securities Act. All of the outstanding founder shares (6,666,667 founder shares if the underwriters’ over-allotment option is not exercised and 7,666,667 founder shares if the underwriters’ over-allotment option is exercised in full) and all of the outstanding private placement shares (655,000 shares regardless of whether the underwriters’ over-allotment option is exercised) will be restricted securities under Rule 144, in that they were issued in private transactions not involving a public offering.
Rule 144
Pursuant to Rule 144, a person who has beneficially owned restricted shares or warrants for at least six months would be entitled to sell their securities provided that (i) such person is not deemed to have been one of our affiliates at the time of, or at any time during the three months preceding, a sale and (ii) we are subject to the Exchange Act periodic reporting requirements for at least three months before the sale and have filed all required reports under Section 13 or 15(d) of the Exchange Act during the 12 months (or such shorter period as we were required to file reports) preceding the sale.
Persons who have beneficially owned restricted shares or warrants for at least six months but who are our affiliates at the time of, or at any time during the three months preceding, a sale, would be subject to additional restrictions, by which such person would be entitled to sell within any three-month period only a number of securities that does not exceed the greater of:
1% of the total number of ordinary shares then outstanding, which will equal 273,217 shares immediately after this offering (or 313,217 if the underwriters exercise in full their over-allotment option); or
the average weekly reported trading volume of the Class A ordinary shares during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale.
Sales by our affiliates under Rule 144 are also limited by manner of sale provisions and notice requirements and to the availability of current public information about us.
Restrictions on the Use of Rule 144 by Shell Companies or Former Shell Companies
Rule 144 is not available for the resale of securities initially issued by shell companies (other than business combination related shell companies) or issuers that have been at any time previously a shell company. However, Rule 144 also includes an important exception to this prohibition if the following conditions are met:
the issuer of the securities that was formerly a shell company has ceased to be a shell company;
the issuer of the securities is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act;
the issuer of the securities has filed all Exchange Act reports and material required to be filed, as applicable, during the preceding 12 months (or such shorter period that the issuer was required to file such reports and materials), other than Current Reports on Form 8-K; and
at least one year has elapsed from the time that the issuer filed current Form 10 type information with the SEC reflecting its status as an entity that is not a shell company.
As a result, our initial shareholders will be able to sell their founder shares and private placement units, as applicable, pursuant to Rule 144 without registration one year after we have completed our initial business combination.
Registration Rights
The holders of the (i) founder shares, which were issued in a private placement prior to the closing of this offering, (ii) private placement units, which will be issued in a private placement simultaneously with the closing of this offering, private placement shares and private placement warrants and the Class A ordinary shares underlying such private placement warrants and (iii) private placement units that may be issued upon conversion of working capital loans will have registration rights to require us to register a sale of any of our securities held by them pursuant to a registration rights agreement to be signed prior to or on the effective date of this offering. Pursuant to the registration rights agreement and assuming the underwriters exercise their over-allotment option in full and $1,500,000 of working capital loans are converted into private placement units, we will be obligated to register up to 8,649,167 Class A ordinary shares and 268,333 warrants. The number of Class A ordinary shares includes (i) 7,666,667 Class A ordinary shares to be issued upon conversion of the founder shares, (ii) 818,750 Class A ordinary shares underlying the private placement units and (iii) 187,500 Class A ordinary shares underlying the private placement units issued upon conversion of working capital loans. The number of warrants includes 218,333 private placement warrants and 50,000 private placement warrants issued upon conversion of working capital loans. The holders of these securities are entitled to make up to three demands, excluding short form demands, that we register such securities. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to our completion of our initial business combination. Notwithstanding the foregoing, Cantor may not exercise its demand and “piggyback” registration rights after five (5) and seven (7) years, respectively, after the effective date of the registration statement of which this prospectus forms a part and may not exercise its demand rights on more than one occasion. We will bear the expenses incurred in connection with the filing of any such registration statements.
Listing of Securities
We intend to apply to have our units listed on Nasdaq under the symbol “VCXAU” commencing on or promptly after the date of this prospectus. We cannot guarantee that our securities will be approved for listing on Nasdaq. Once the securities comprising the units begin separate trading, we expect that the Class A ordinary shares and warrants will be listed on Nasdaq under the symbols “VCXA” and “VCXAW,” respectively.
The following summary of certain Cayman Islands and United States federal income tax consequences of an investment in our units, each consisting of one Class A ordinary share and one-third of one redeemable warrant, which we refer to collectively as our securities, is based upon laws and relevant interpretations thereof in effect as of the date of this prospectus, all of which are subject to change. This summary does not deal with all possible tax consequences relating to an investment in our Class A ordinary shares and warrants, such as the tax consequences under state, local and other tax laws.
Prospective investors should consult their advisors on the possible tax consequences of investing in our securities under the laws of their country of citizenship, residence or domicile.
Cayman Islands Tax Considerations
The following is a discussion on certain Cayman Islands income tax consequences of an investment in the securities of the Company. The discussion is a general summary of present law, which is subject to prospective and retroactive change. It is not intended as tax advice, does not consider any investor’s particular circumstances, and does not consider tax consequences other than those arising under Cayman Islands law.
Under Existing Cayman Islands Laws
Payments of dividends and capital in respect of our securities will not be subject to taxation in the Cayman Islands and no withholding will be required on the payment of a dividend or capital to any holder of the securities nor will gains derived from the disposal of the securities be subject to Cayman Islands income or corporate tax. The Cayman Islands currently has no income, corporate or capital gains tax and no estate duty, inheritance tax or gift tax.
No stamp duty is payable in respect of the issuelife of the warrants. An instrument of transfer in respect of a warrant is stampable if executed in or brought into the Cayman Islands.
No stamp duty is payable in respectThe expected life of the issue of our Class A ordinary shares or on an instrument of transfer in respect of such shares.
The Company has been incorporated under the laws of the Cayman Islands as an exempted company with limited liability and, as such, has applied for and has obtained an undertaking from the Financial Secretary of the Cayman Islands in the following form:
The Tax Concessions Act (As Revised)
Undertaking as to Tax Concessions
In accordance with the provision of Section 6 of The Tax Concessions Act (As Revised), the Financial Secretary undertakes with 10X Capital Venture Acquisition Corp. II (“the Company”):
1. That no law whichwarrants is hereafter enacted in the Cayman Islands imposing any taxassumed to be levied on profits, income, gains or appreciations shall applyequivalent to the Company or its operations; and
2. In addition, that no tax to be levied on profits, income, gains or appreciations or whichtheir remaining contractual term. The dividend rate is in the nature of estate duty or inheritance tax shall be payable:
2.1 On or in respect of the shares, debentures or other obligations of the Company; or
2.2 by way of the withholding in whole or part, of any relevant payment as defined in the Tax Concessions Act (As Revised).
These concessions shall be for a period of twenty years from the date hereof.
United States Federal Income Tax Considerations
General
The following discussion summarizes certain United States federal income tax considerations generally applicable to the acquisition, ownership and disposition of our units (each consisting of one Class A ordinary share and one-third of one redeemable warrant) that are purchased in this offering, which we refer to collectively as our securities, by U.S. Holders (as defined below) and Non-U.S. Holders (as defined below). Because the components of a unit are generally separable at the option of the holder, the holder of a unit generally should be treated, for United States federal income tax purposes, as the owner of the underlying Class A ordinary share and warrant components of the unit. As a result, the discussion below with respect to actual holders of Class A ordinary shares and warrants also should apply to holders of units (as the deemed owners of the underlying Class A ordinary shares and warrants that constitute the units).
This discussion does not address the United States federal income tax consequences to our founders, sponsors, officers or directors, or to holders of private placement warrants. This discussion is limited to certain United States federal income tax considerations to beneficial owners of our securities who are initial purchasers of a unit pursuant to this offering and hold the unit and each component of the unit as a capital asset within the meaning of Section 1221 of the U.S. Internal Revenue Code of 1986, as amended (the “Code”). This discussion assumes that the Class A ordinary shares and warrants will trade separately and that any distributions made (or deemed made) by us on our Class A ordinary shares and any consideration received (or deemed received) by a holder in consideration for the sale or other disposition of our securities will be in U.S. dollars.
This discussion is a summary only and does not describe all of the tax consequences that may be relevant to the acquisition, ownership and disposition of a unit by a prospective investor in light of its particular circumstances, including but not limited to, the alternative minimum tax, the Medicare tax on net investment income and the different consequences that may apply to investors that are subject to special rules under U.S. federal income tax laws, including but not limited to:
banks, financial institutions or financial services entities;
broker-dealers;
taxpayers that are subject to the mark-to-market tax accounting rules;
tax-exempt entities;
governments or agencies or instrumentalities thereof;
insurance companies;
regulated investment companies;
real estate investment trusts;
expatriates or former long-term residents of the United States;
persons that actually or constructively own five percent or more (by vote or value) of our shares;
persons that acquired our securities pursuant to an exercise of employee share options, in connection with employee share incentive plans or otherwise as compensation;
persons that hold our securities as part of a straddle, constructive sale, hedge, wash sale, conversion or other integrated or similar transaction;
U.S. Holders (as defined below) whose functional currency is not the U.S. dollar;
controlled foreign corporations;
passive foreign investment companies; and
partnerships (or entities or arrangements classified as partnerships or other pass-through entities for U.S. federal income tax purposes) and any beneficial owners of such partnerships.
Moreover, the discussion below is based upon the provisions of the Code, the Treasury regulations promulgated thereunder and administrative and judicial interpretations thereof, all as of the date hereof, and such provisions may be repealed, revoked, modified or subject to differing interpretations, possibly on a retroactive basis, which may result in United States federal income tax consequences different from those discussed below. Furthermore, this discussion does not address any aspect of United States federal non-income tax laws, such as gift or estate tax laws, or state, local or non-United States tax laws.
We have not sought, and do not expect to seek, a ruling from the United States Internal Revenue Service (“IRS”) as to any United States federal income tax consequence described herein. The IRS may disagree with the discussion herein, and its determination may be upheld by a court. Moreover, there can be no assurance that future legislation, regulations, administrative rulings or court decisions will not adversely affect the accuracy of the statements in this discussion.
If a partnership (or other entity or arrangement classified as a partnership or other pass-through entity for United States federal income tax purposes) is the beneficial owner of our securities, the United States federal income tax treatment of a partner, member or other beneficial owner in such partnership or other pass-through entity generally will depend on the status of the partner, member or other beneficial owner and the activities of the partnership or other pass-through entity. If you are a partner, member or other beneficial owner of a partnership or other pass-through entity holding our securities, you are urged to consult your own tax advisor regarding the tax consequences of the acquisition, ownership and disposition of our securities.
THIS DISCUSSION IS ONLY A SUMMARY OF CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS ASSOCIATED WITH THE ACQUISITION, OWNERSHIP AND DISPOSITION OF OUR SECURITIES. EACH PROSPECTIVE INVESTOR IN OUR SECURITIES IS URGED TO CONSULT ITS OWN TAX ADVISOR WITH RESPECT TO THE PARTICULAR TAX CONSEQUENCES TO SUCH INVESTOR OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF OUR SECURITIES, INCLUDING THE APPLICABILITY AND EFFECT OF ANY UNITED STATES FEDERAL NON-INCOME, STATE, LOCAL, AND NON-UNITED STATES TAX LAWS.
Allocation of Purchase Price and Characterization of a Unit
No statutory, administrative or judicial authority directly addresses the treatment of a unit or any instrument similar to a unit for United States federal income tax purposes, and therefore, that treatment is not entirely clear. The acquisition of a unit should be treated for United States federal income tax purposes as the acquisition of one Class A ordinary share and one-third of one warrant, and the Company intends to treat the acquisition of a unit in such manner. By purchasing a unit, you agree to adopt such treatment for United States federal income tax purposes. For United States federal income tax purposes, each holder of a unit must allocate the purchase price paid by such holder for such unit between the one Class A ordinary share and the one-third of one warrant based on the relative fair market value of eachhistorical rate, which the Company anticipates remaining at zero. Any changes in these assumptions can change the time of issuance. Under U.S. federal income tax law, each investor must make his or her own determination of such value based on all the relevant facts and circumstances. Therefore, we strongly urge each investor to consult his or her tax advisor regarding the determination of value for these purposes. The price allocated to each Class A ordinary share and the one-third of one warrant should be the shareholder’s initial tax basis in such share or warrant. Any disposition of a unit should be treated for United States federal income tax purposes as a disposition of the Class A ordinary share and one-third of one warrant comprising the unit, and the amount realized on the disposition should be allocated between the Class A ordinary share and one-third of one warrant based on their respective fair market values (as determined by each such unit holder based on all the relevant facts and circumstances) at the time of disposition. The separation of the Class A ordinary share and the one-third of one warrant constituting a unit and the combination of three-thirds of warrants into a single warrant should not be a taxable event for United States federal income tax purposes.
The foregoing treatment of the units, Class A ordinary shares and warrants and a holder’s purchase price allocation are not binding on the IRS or the courts. Because there are no authorities that directly address instruments that are similar to the units, no assurance can be given that the IRS or the courts will agree with the characterization described above or the discussion below. Accordingly, each prospective investor is urged to consult its tax advisors regarding the tax consequences of an investment in a unit (including alternative characterizations of a unit). The balance of this discussion assumes that the characterization of the units described above will be respected for United States federal income tax purposes.
U.S. Holders
This section applies to you if you are a “U.S. Holder.” A U.S. Holder is a beneficial owner of our units, Class A ordinary shares or warrants who or that is, for United States federal income tax purposes:valuation significantly.
an individual who is a citizen or resident of the United States;
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a corporation (or other entity taxable as a corporation for United States federal income tax purposes) organized in or under the laws of the United States, any state thereof or the District of Columbia;
an estate whose income is subject to United States federal income tax regardless of its source; or
a trust, if (i) a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons (as defined in the Code) have authority to control all substantial decisions of the trust or (ii) it has a valid election in effect under Treasury Regulations to be treated as a U.S. person.
Taxation of Distributions
Subject to the passive foreign investment company (“PFIC”) rules discussed below, a U.S. Holder generally will be required to include in gross income as dividends in the year actually or constructively received by the U.S. Holder the amount of any distribution of cash or other property (other than certain distributions of our shares or rights to acquire our shares) paid on our Class A ordinary shares to the extent the distribution is paid out of our current or accumulated earnings and profits (as determined under United States federal income tax principles). Distributions in excess of such earnings and profits generally will be applied against and reduce the U.S. Holder’s basis in its Class A ordinary shares (but not below zero) and, to the extent in excess of such basis, will be treated as gain from the sale or exchange of such Class A ordinary shares (the treatment of which is described under “-Gain or Loss on Sale, Taxable Exchange or Other Taxable Disposition of Class A Ordinary Shares and Warrants” below).
Dividends paid by us will be taxable to a corporate U.S. Holder at regular rates and will not be eligible for the dividends-received deduction generally allowed to domestic corporations in respect of dividends received from other domestic corporations. With respect to non-corporate U.S. Holders, dividends generally will be taxed at the lower applicable long-term capital gains rate (see “-Gain or Loss on Sale, Taxable Exchange or Other Taxable Disposition of Class A Ordinary Shares and Warrants” below) only if our Class A ordinary shares are readily tradable on an established securities market in the United States, we are not a PFIC at the time the dividend was paid or in the previous year, and certain other requirements are met. U.S. Holders should consult their tax advisors regarding the availability of such lower rate for any dividends paid with respect to our Class A ordinary shares.
Gain or Loss on Sale, Taxable Exchange or Other Taxable Disposition of Class A Ordinary Shares and Warrants
Subject to the PFIC rules discussed below, a U.S. Holder generally will recognize capital gain or loss on the sale or other taxable disposition of our Class A ordinary shares or warrants (including a redemption of our Class A ordinary shares (as described below) or warrants that is treated as a taxable disposition, including pursuant to our dissolution and liquidation if we do not consummate an initial business combination within the required time
period). Any such capital gain or loss generally will be long-term capital gain or loss if the U.S. Holder’s holding period for such Class A ordinary shares or warrants exceeds one year. Long-term capital gain realized by a non-corporate U.S. Holder may be taxed at reduced rates of taxation. It is unclear, however, whether certain redemption rights described in this prospectus may suspend the running of the applicable holding period of the Class A ordinary shares for this purpose. If the running of the holding period for the Class A ordinary shares is suspended, then non-corporate U.S. Holders may not be able to satisfy the one-year holding period requirement for long-term capital gain treatment, in which case any gain on a sale or other taxable disposition of the Class A ordinary shares would be subject to short-term capital gain treatment and would be taxed at regular ordinary income tax rates. The deductibility of capital losses is subject to certain limitations.
The amount of gain or loss recognized by a U.S. Holder on a sale or other taxable disposition generally will be equal to the difference between (i) the sum of the amount of cash and the fair market value of any property received in such disposition (or, if the Class A ordinary shares or warrants are held as part of units at the time of the disposition, the portion of the amount realized on such disposition that is allocated to the Class A ordinary shares or warrants based upon the then relative fair market values of the Class A ordinary shares and the warrants constituting the units) and (ii) the U.S. Holder’s adjusted tax basis in its Class A ordinary shares or warrants so disposed of. A U.S. Holder’s adjusted tax basis in its Class A ordinary shares or warrants generally will equal the U.S. Holder’s acquisition cost (that is, the portion of the purchase price of a unit allocated to a Class A ordinary share or one-third of one warrant, as described above under “-Allocation of Purchase Price and Characterization of a Unit”) reduced, in the case of a Class A ordinary share, by any prior distributions treated as a return of capital. See “Exercise, Lapse or Redemption of a Warrant” below for a discussion regarding a U.S. Holder’s tax basis in the Class A ordinary share acquired pursuant to the exercise of a warrant.
Redemption of Class A Ordinary Shares
Subject to the PFIC rules discussed below, in the event that a U.S. Holder’s Class A ordinary shares are redeemed pursuant to the redemption provisions described in the section of this prospectus entitled “Description of Securities-Ordinary Shares” or if we purchase a U.S. Holder’s Class A ordinary shares in an open market transaction (such open market purchase of Class A ordinary shares by us is referred to as a “redemption” for the remainder of this discussion), the treatment of the transaction for United States federal income tax purposes will depend on whether the redemption qualifies as a sale of the Class A ordinary shares under Section 302 of the Code. If the redemption qualifies as a sale of Class A ordinary shares, the U.S. Holder will be treated as described under “-Gain or Loss on Sale, Taxable Exchange or Other Taxable Disposition of Class A Ordinary Shares and Warrants” above. If the redemption does not qualify as a sale of Class A ordinary shares, the U.S. Holder will be treated as receiving a corporate distribution with the tax consequences described above under “-Taxation of Distributions.” Whether a redemption qualifies for sale treatment will depend largely on the total number of our shares treated as held by the U.S. Holder (including any shares constructively owned by the U.S. Holder described in the following paragraph, including as a result of owning warrants) relative to all of our shares outstanding both before and after such redemption. A redemption of Class A ordinary shares generally will be treated as a sale of the Class A ordinary shares (rather than as a corporate distribution) if such redemption (i) is “substantially disproportionate” with respect to the U.S. Holder, (ii) results in a “complete termination” of the U.S. Holder’s interest in us or (iii) is “not essentially equivalent to a dividend” with respect to the U.S. Holder. These tests are explained more fully below.
In determining whether any of the foregoing tests are satisfied, a U.S. Holder takes into account not only our shares actually owned by the U.S. Holder, but also our shares that are constructively owned by such holder. A U.S. Holder may constructively own, in addition to shares owned directly, shares owned by certain related individuals and entities in which the U.S. Holder has an interest or that have an interest in such U.S. Holder, as well as any shares the U.S. Holder has a right to acquire by exercise of an option, which generally would include Class A ordinary shares which could be acquired by such U.S. Holder pursuant to the exercise of the warrants. In order to meet the substantially disproportionate test, the percentage of our issued and outstanding voting shares actually and constructively owned by the U.S. Holder immediately following the redemption of Class A ordinary
shares must, among other requirements, be less than 80% of the percentage of our issued and outstanding voting shares actually and constructively owned by the U.S. Holder immediately before the redemption. Prior to our initial business combination the Class A ordinary shares may not be treated as voting shares for this purpose and, consequently, this substantially disproportionate test may not be applicable. There will be a complete termination of a U.S. Holder’s interest if either (i) all of our shares actually and constructively owned by the U.S. Holder are redeemed or (ii) all of our shares actually owned by the U.S. Holder are redeemed and the U.S. Holder is eligible to waive, and effectively waives in accordance with specific rules, the attribution of shares owned by certain family members and the U.S. Holder does not constructively own any other shares of ours (including any shares constructively owned by the U.S. Holder as a result of owning our warrants). The redemption of the Class A ordinary shares will not be essentially equivalent to a dividend if such redemption results in a “meaningful reduction” of the U.S. Holder’s proportionate interest in us. Whether the redemption will result in a meaningful reduction in a U.S. Holder’s proportionate interest in us will depend on the particular facts and circumstances. However, the IRS has indicated in a published ruling that even a small reduction in the proportionate interest of a small minority shareholder in a publicly held corporation who exercises no control over corporate affairs may constitute such a “meaningful reduction.” A U.S. Holder should consult with its own tax advisors as to the tax consequences of a redemption of any Class A ordinary shares.
If none of the foregoing tests are satisfied, then the redemption of any Class A ordinary shares will be treated as a corporate distribution and the tax effects will be as described under “-Taxation of Distributions” above. After the application of those rules, any remaining tax basis of the U.S. Holder in the redeemed Class A ordinary shares will be added to the U.S. Holder’s adjusted tax basis in its remaining shares, or, if it has none, to the U.S. Holder’s adjusted tax basis in its warrants or possibly in other shares constructively owned by it.
U.S. holders who actually or constructively own five percent (or, if our Class A ordinary shares are not then publicly traded, one percent) or more of our shares (by vote or value) may be subject to special reporting requirements with respect to a redemption of Class A ordinary shares, and such holders are urged to consult with their own tax advisors with respect to their reporting requirements.
Exercise, Lapse or Redemption of a Warrant
A U.S. Holder generally will not recognize gain or loss upon the acquisition of a Class A ordinary share on the exercise of a warrant for cash. A U.S. Holder’s tax basis in a Class A ordinary share received upon exercise of the warrant generally will equal the sum of the U.S. Holder’s initial investment in the warrant (that is, the portion of the U.S. Holder’s purchase price for the units that is allocated to the warrant, as described above under “-Allocation of Purchase Price and Characterization of a Unit”) and the exercise price. It is unclear whether a U.S. Holder’s holding period for the Class A ordinary share received will commence on the date of exercise of the warrant or the day following the date of exercise of the warrant; in either case, the holding period will not include the period during which the U.S. Holder held the warrant. If a warrant is allowed to lapse unexercised, a U.S. Holder generally will recognize a capital loss equal to such holder’s tax basis in the warrant.
The tax consequences of a cashless exercise of a warrant are not clear under current law. Subject to the PFIC rules discussed below, a cashless exercise may not be taxable, either because the exercise is not a realization event or because the exercise is treated as a recapitalization for United States federal income tax purposes. In either situation, a U.S. Holder’s tax basis in the Class A ordinary shares received generally should equal the U.S. Holder’s tax basis in the warrants exercised therefor. If the cashless exercise was not a realization event, it is unclear whether a U.S. Holder’s holding period for the Class A ordinary shares received would be treated as commencing on the date of exercise of the warrants or the day following the date of exercise of the warrants; in either case, the holding period will not include the period during which the U.S. Holder held the warrants. If the cashless exercise were treated as a recapitalization, the holding period of the Class A ordinary shares received would include the holding period of the warrants.
It is also possible that a cashless exercise could be treated in part as a taxable exchange in which gain or loss would be recognized. In such event, a U.S. Holder could be deemed to have surrendered a number of warrants
equal to the number of Class A ordinary shares having a value equal to the exercise price for the total number of warrants to be exercised. In such case, subject to the PFIC rules discussed below, the U.S. Holder would recognize capital gain or loss with respect to the warrants deemed surrendered in an amount equal to the difference between the fair market value of the Class A ordinary shares that would have been received in a regular exercise of the warrants deemed surrendered and the U.S. Holder’s tax basis in the warrants deemed surrendered. In this case, a U.S. Holder’s aggregate tax basis in the Class A ordinary shares received would equal the sum of the U.S. Holder’s initial investment in the warrants deemed exercised (i.e., the portion of the U.S. Holder’s purchase price for the units that is allocated to the warrants, as described above under “Allocation of Purchase Price and Characterization of a Unit”) and the aggregate exercise price of such warrants. It is unclear whether a U.S. Holder’s holding period for the Class A ordinary shares would commence on the date of exercise of the warrants or the day following the date of exercise of the warrants; in either case, the holding period will not include the period during which the U.S. Holder held the warrants.
Due to the absence of authority on the United States federal income tax treatment of a cashless exercise, including when a U.S. Holder’s holding period would commence with respect to the Class A ordinary share received, there can be no assurance regarding which, if any, of the alternative tax consequences and holding periods described above would be adopted by the IRS or a court of law. Accordingly, U.S. Holders should consult their tax advisors regarding the tax consequences of a cashless exercise.
Subject to the PFIC rules described below, if we redeem warrants for cash pursuant to the redemption provisions described in the section of this prospectus entitled “Description of Securities-Warrants-Public Shareholders’ Warrants” or if we purchase warrants in an open market transaction, such redemption or purchase generally will be treated as a taxable disposition to the U.S. Holder, taxed as described above under “-Gain or Loss on Sale, Taxable Exchange or Other Taxable Disposition of Class A Ordinary Shares and Warrants.”
Possible Constructive Distributions
The terms of each warrant provide for an adjustment to the number of Class A ordinary shares for which the warrant may be exercised or to the exercise price of the warrant in certain events, as discussed in the section of this prospectus entitled “Description of Securities-Warrants-Public Shareholders’ Warrants.” An adjustment which has the effect of preventing dilution generally is not taxable. The U.S. Holders of the warrants would, however, be treated as receiving a constructive distribution from us if, for example, the adjustment increases such U.S. Holders’ proportionate interest in our assets or earnings and profits (e.g., through an increase in the number of Class A ordinary shares that would be obtained upon exercise or through a decrease in the exercise price of the warrants), which adjustment may be made as a result of a distribution of cash or other property to the holders of our Class A ordinary shares. Such constructive distribution to a U.S. Holder of warrants would be treated as if such U.S. Holder had received a cash distribution from us generally equal to the fair market value of such increased interest (taxed as described above under “-Taxation of Distributions”).
Passive Foreign Investment Company Rules
A foreign (i.e., non-U.S.) corporation will be classified as a PFIC for United States federal income tax purposes if either (i) at least 75% of its gross income in a taxable year, including its pro rata share of the gross income of any corporation in which it is considered to own at least 25% of the shares by value, is passive income or (ii) at least 50% of its assets in a taxable year (ordinarily determined based on fair market value and averaged quarterly over the year), including its pro rata share of the assets of any corporation in which it is considered to own at least 25% of the shares by value, are held for the production of, or produce, passive income. Passive income generally includes, among other things, dividends, interest, rents and royalties (other than rents or royalties derived from the active conduct of a trade or business) and gains from the disposition of assets giving rise to passive income.
Because we are a blank check company, with no current active business, we believe that it is likely that we will meet the PFIC asset or income test for our current taxable year. However, pursuant to a startup exception, a
corporation will not be a PFIC for the first taxable year the corporation has gross income (the “startup year”), if (1) no predecessor of the corporation was a PFIC; (2) the corporation satisfies the IRS that it will not be a PFIC for either of the first two taxable years following the startup year; and (3) the corporation is not in fact a PFIC for either of those years. The applicability of the startup exception to us is uncertain and will not be known until after the close of our current taxable year and, perhaps, until after the end of our two taxable years following our startup year. After the acquisition of a company or assets in a business combination, we may still meet one of the PFIC tests depending on the timing of the acquisition and the amount of our passive income and assets as well as the passive income and assets of the acquired business. If the company that we acquire in a business combination is a PFIC, then we will likely not qualify for the startup exception and will be a PFIC for our current taxable year. Our actual PFIC status for our current taxable year or any subsequent taxable year will not be determinable until after the end of such taxable year (and, in the case of the startup exception to our current taxable year, perhaps until after the end of our two taxable years following our startup year). Accordingly, there can be no assurance with respect to our status as a PFIC for our current taxable year or any future taxable year. In addition, our U.S. counsel expresses no opinion with respect to our PFIC status for our current or future taxable years.
Although our PFIC status is determined annually, an initial determination that our company is a PFIC generally will apply for subsequent years to a U.S. Holder who held Class A ordinary shares or warrants while we were a PFIC, whether or not we meet the test for PFIC status in those subsequent years. If we are determined to be a PFIC for any taxable year (or portion thereof) that is included in the holding period of a U.S. Holder of our Class A ordinary shares or warrants and, in the case of our Class A ordinary shares, the U.S. Holder did not make either a timely mark-to-market election or a qualified electing fund (“QEF”) election for our first taxable year as a PFIC in which the U.S. Holder held (or was deemed to hold) Class A ordinary shares, as described below, such U.S. Holder generally will be subject to special rules with respect to (i) any gain recognized by the U.S. Holder on the sale or other disposition of its Class A ordinary shares or warrants (which may include gain realized by reason of transfers of Class A ordinary shares or warrants that would otherwise qualify as nonrecognition transactions for U.S. federal income tax purposes) and (ii) any “excess distribution” made to the U.S. Holder (generally, any distributions to such U.S. Holder during a taxable year of the U.S. Holder that are greater than 125% of the average annual distributions received by such U.S. Holder in respect of the Class A ordinary shares during the three preceding taxable years of such U.S. Holder or, if shorter, the portion of such U.S. Holder’s holding period for the Class A ordinary shares that preceded the taxable year of the distribution.
Under these rules:
the U.S. Holder’s gain or excess distribution will be allocated ratably over the U.S. Holder’s holding period for the Class A ordinary shares or warrants;
the amount allocated to the U.S. Holder’s taxable year in which the U.S. Holder recognized the gain or received the excess distribution, or to the period in the U.S. Holder’s holding period before the first day of our first taxable year in which we are a PFIC, will be taxed as ordinary income;
the amount allocated to other taxable years (or portions thereof) of the U.S. Holder and included in its holding period will be taxed at the highest tax rate in effect for that year and applicable to the U.S. Holder without regard to the U.S. Holder’s other items of income and loss for such year; and
an additional amount equal to the interest charge generally applicable to underpayments of tax will be imposed on the U.S. Holder with respect to the tax attributable to each such other taxable year of the U.S. Holder.
In general, if we are determined to be a PFIC, a U.S. Holder may be able to avoid the PFIC tax consequences described above in respect to our Class A ordinary shares by making a timely and valid QEF election (if eligible to do so) to include in income its pro rata share of our net capital gains (as long-term capital gain) and other earnings and profits (as ordinary income), on a current basis, in each case whether or not distributed, in the taxable year of the U.S. Holder in which or with which our taxable year ends. A U.S. Holder generally may make a separate election to defer the payment of taxes on undistributed income inclusions under the QEF rules, but if deferred, any such taxes will be subject to an interest charge.
If a U.S. Holder makes a QEF election with respect to its Class A ordinary shares in a year after our first taxable year as a PFIC in which the U.S. Holder held (or was deemed to hold) Class A ordinary shares, then notwithstanding such QEF election, the rules relating to “excess distributions” discussed above, adjusted to take into account the current income inclusions resulting from the QEF election, will continue to apply with respect to such U.S. Holder’s Class A ordinary shares, unless the U.S. Holder makes a purging election under the PFIC rules. Under the purging election, the U.S. Holder will be deemed to have sold such shares at their fair market value and any gain recognized on such deemed sale will be treated as an excess distribution, as described above. As a result of the purging election, the U.S. Holder will have additional basis (to the extent of any gain recognized on the deemed sale) and, solely for purposes of the PFIC rules, a new holding period in the Class A ordinary shares.
It is not entirely clear how various aspects of the PFIC rules apply to the warrants. However, a U.S. Holder may not make a QEF election with respect to its warrants to acquire our Class A ordinary shares. As a result, if a U.S. Holder sells or otherwise disposes of such warrants (other than upon exercise of such warrants) and we were a PFIC at any time during the U.S. Holder’s holding period of such warrants, any gain recognized generally will be treated as an excess distribution, taxed as described above. If a U.S. Holder that exercises such warrants properly makes and maintains a QEF election with respect to the newly acquired Class A ordinary shares (or has previously made a QEF election with respect to our Class A ordinary shares), the QEF election will apply to the newly acquired Class A ordinary shares. Notwithstanding such QEF election, the rules relating to “excess distributions” discussed above, adjusted to take into account the current income inclusions resulting from the QEF election, will continue to apply with respect to such newly acquired Class A ordinary shares (which, while not entirely clear, generally will be deemed to have a holding period for purposes of the PFIC rules that includes the period the U.S. Holder held the warrants), unless the U.S. Holder makes a purging election under the PFIC rules. U.S. Holders are urged to consult their tax advisors as to the application of the rules governing purging elections to their particular circumstances.
The QEF election is made on a shareholder-by-shareholder basis and, once made, can be revoked only with the consent of the IRS. A U.S. Holder generally makes a QEF election by attaching a completed IRS Form 8621 (Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund), including the information provided in a PFIC annual information statement, to a timely filed United States federal income tax return for the tax year to which the election relates. Retroactive QEF elections generally may be made only by filing a protective statement with such return and if certain other conditions are met or with the consent of the IRS. U.S. Holders should consult their tax advisors regarding the availability and tax consequences of a retroactive QEF election under their particular circumstances.
In order to comply with the requirements of a QEF election, a U.S. Holder must receive a PFIC annual information statement from us. If we determine we are a PFIC for any taxable year, upon written request, we will endeavor to provide to a U.S. Holder such information as the IRS may require, including a PFIC annual information statement, in order to enable the U.S. Holder to make and maintain a QEF election, but there is no assurance that we will timely provide such required information. There is also no assurance that we will have timely knowledge of our status as a PFIC in the future or of the required information to be provided.
If a U.S. Holder has made a QEF election with respect to our Class A ordinary shares, and the excess distribution rules discussed above do not apply to such shares (because of a timely QEF election for our first taxable year as a PFIC in which the U.S. Holder holds (or is deemed to hold) such shares or a purge of the PFIC taint pursuant to a purging election, as described above), any gain recognized on the sale of our Class A ordinary shares generally will be taxable as capital gain and no additional interest charge will be imposed under the PFIC rules. As discussed above, if we are a PFIC for any taxable year, a U.S. Holder of our Class A ordinary shares that has made a QEF election will be currently taxed on its pro rata share of our earnings and profits, whether or not distributed for such year. A subsequent distribution of such earnings and profits that were previously included in income generally should not be taxable when distributed to such U.S. Holder. The tax basis of a U.S. Holder’s shares in a QEF will be increased by amounts that are included in income, and decreased by amounts distributed
but not taxed as dividends, under the above rules. In addition, if we are not a PFIC for any taxable year, such U.S. Holder will not be subject to the QEF inclusion regime with respect to our Class A ordinary shares for such a taxable year.
Alternatively, if a U.S. Holder, at the close of its taxable year, owns shares in a PFIC that are treated as marketable stock, the U.S. Holder may make a mark-to-market election with respect to such shares for such taxable year. If the U.S. Holder makes a valid mark-to-market election for the first taxable year of the U.S. Holder in which the U.S. Holder holds (or is deemed to hold) Class A ordinary shares in us and for which we are determined to be a PFIC, such U.S. Holder generally will not be subject to the PFIC rules described above with respect to its Class A ordinary shares. Instead, in general, the U.S. Holder will include as ordinary income in each taxable year the excess, if any, of the fair market value of its Class A ordinary shares at the end of its taxable year over its adjusted basis in its Class A ordinary shares. These amounts of ordinary income would not be eligible for the favorable tax rates applicable to qualified dividend income or long-term capital gains. The U.S. Holder also will recognize an ordinary loss in respect of the excess, if any, of its adjusted basis in its Class A ordinary shares over the fair market value of its Class A ordinary shares at the end of its taxable year (but only to the extent of the net amount of previously included income as a result of the mark-to-market election). The U.S. Holder’s basis in its Class A ordinary shares will be adjusted to reflect any such income or loss amounts, and any further gain recognized on a sale or other taxable disposition of its Class A ordinary shares will be treated as ordinary income. Currently, a mark-to-market election may not be made with respect to warrants. The mark-to-market election is available only for stock that is regularly traded on a national securities exchange that is registered with the Securities and Exchange Commission, including the New York Stock Exchange (on which we intend to list the Class A ordinary shares), or on a foreign exchange or market that the IRS determines has rules sufficient to ensure that the market price represents a legitimate and sound fair market value. If made, a mark-to-market election would be effective for the taxable year for which the election was made and for all subsequent taxable years unless the Class A ordinary shares ceased to qualify as “marketable stock” for purposes of the PFIC rules or the IRS consented to the revocation of the election. U.S. Holders are urged to consult their own tax advisors regarding the availability and tax consequences of a mark-to-market election in respect to our Class A ordinary shares under their particular circumstances.
If we are a PFIC and, at any time, have a foreign subsidiary that is classified as a PFIC, U.S. Holders generally would be deemed to own a portion of the shares of such lower-tier PFIC, and generally could incur liability for the deferred tax and interest charge described above if we receive a distribution from, or dispose of all or part of our interest in, the lower-tier PFIC or the U.S. Holders otherwise were deemed to have disposed of an interest in the lower-tier PFIC. Upon written request, we will endeavor to cause any lower-tier PFIC to provide to a U.S. Holder the information that may be required to make or maintain a QEF election with respect to the lower-tier PFIC. There can be no assurance that we will have timely knowledge of the status of any such lower-tier PFIC. In addition, we may not hold a controlling interest in any such lower-tier PFIC and thus there can be no assurance we will be able to cause the lower-tier PFIC to provide such required information. A mark-to-market election generally would not be available with respect to such lower-tier PFIC. U.S. Holders are urged to consult their tax advisors regarding the tax issues raised by lower-tier PFICs.
A U.S. Holder that owns (or is deemed to own) shares in a PFIC during any taxable year of the U.S. Holder, may have to file an IRS Form 8621 (whether or not a QEF or mark-to-market election is made) and such other information as may be required by the U.S. Treasury Department. Failure to do so, if required, will extend the statute of limitations until such required information is furnished to the IRS.
The rules dealing with PFICs and with the QEF, purging, and mark-to-market elections are very complex and are affected by various factors in addition to those described above. Accordingly, U.S. Holders of our Class A ordinary shares and warrants should consult their own tax advisors concerning the application of the PFIC rules to our Class A ordinary shares and warrants under their particular circumstances.
Tax Reporting
Certain U.S. Holders may be required to file an IRS Form 926 (Return by a U.S. Transferor of Property to a Foreign Corporation) to report a transfer of property (including cash) to us. Substantial penalties may be imposed on a U.S. Holder that fails to comply with this reporting requirement, and the period of limitations on assessment and collection of United States federal income taxes will be extended in the event of a failure to comply. Furthermore, certain U.S. Holders who are individuals and certain entities will be required to report information with respect to such U.S. Holder’s investment in “specified foreign financial assets” on IRS Form 8938 (Statement of Specified Foreign Financial Assets), subject to certain exceptions. Specified foreign financial assets generally include any financial account maintained with a non-U.S. financial institution and should also include our units, Class A ordinary shares and warrants if they are not held in an account maintained with a U.S. financial institution. Persons who are required to report specified foreign financial assets and fail to do so may be subject to substantial penalties, and the period of limitations on assessment and collection of United States federal income taxes may be extended in the event of a failure to comply. Potential investors are urged to consult their tax advisors regarding the foreign financial asset and other reporting obligations and their application to an investment in our units, Class A ordinary shares and warrants.
Non-U.S. Holders
This section applies to you if you are a “Non-U.S. Holder.” As used herein, the term “Non-U.S. Holder” means a beneficial owner of our units, Class A ordinary shares or warrants that is for United States federal income tax purposes:
a non-resident alien individual (other than certain former citizens and residents of the United States subject to U.S. tax as expatriates);
a foreign corporation; or
an estate or trust that is not a U.S. Holder;
but generally does not include an individual who is present in the United States for 183 days or more in the taxable year of the disposition of our units, Class A ordinary shares or warrants. If you are such an individual, you should consult your tax advisor regarding the United States federal income tax consequences of the acquisition, ownership and disposition of our securities.
Dividends (including, as described under “-U.S. Holders-Possible Constructive Distributions” above, constructive distributions treated as dividends) paid or deemed paid to a Non-U.S. Holder in respect of our Class A ordinary shares generally will not be subject to United States federal income tax, unless the dividends are effectively connected with the Non-U.S. Holder’s conduct of a trade or business within the United States (and, if required by an applicable income tax treaty, are attributable to a permanent establishment or fixed base that such Non-U.S. Holder maintains in the United States). In addition, a Non-U.S. Holder generally will not be subject to United States federal income tax on any gain attributable to a sale or other disposition of our Class A ordinary shares or warrants unless such gain is effectively connected with its conduct of a trade or business in the United States (and, if required by an applicable income tax treaty, is attributable to a permanent establishment or fixed base that such Non-U.S. Holder maintains in the United States).
Dividends (including, as described under “-U.S. Holders-Possible Constructive Distributions” above, constructive distributions treated as dividends) and gains that are effectively connected with the Non-U.S. Holder’s conduct of a trade or business in the United States (and, if required by an applicable income tax treaty, are attributable to a permanent establishment or fixed base in the United States) generally will be subject to United States federal income tax at the same regular United States federal income tax rates applicable to a comparable U.S. Holder and, in the case of a Non-U.S. Holder that is a corporation for United States federal income tax purposes, also may be subject to an additional branch profits tax at a 30% rate or a lower applicable tax treaty rate.
The United States federal income tax treatment of a Non-U.S. Holder’s receipt of any Class A ordinary share upon the exercise, or the lapse, of a warrant held by a Non-U.S. Holder generally will correspond to the United States federal income tax treatment of the receipt of a Class A ordinary share on exercise, or lapse, of a warrant by a U.S. Holder, as described under “-U.S. Holders-Exercise, Lapse or Redemption of a Warrant” above, although to the extent a cashless exercise results in a taxable exchange, the consequences would be similar to those described in the preceding paragraphs above for a Non-U.S. Holder’s gain on the sale or other disposition of our Class A ordinary shares and warrants.
The characterization for United States federal income tax purposes of the redemption of the Non-U.S. Holder’s warrants generally will correspond to the United States federal income tax treatment of such a redemption of a U.S. Holder’s warrants, as described under “-U.S. Holders-Exercise, Lapse or Redemption of a Warrant” above, and the consequences of the redemption to the Non-U.S. Holder will be as described in the paragraphs above under the heading “-Non-U.S. Holders” based on such characterization.
Information Reporting and Backup Withholding
Dividend payments with respect to our Class A ordinary shares and proceeds from the sale, exchange or redemption of our Class A ordinary shares may be subject to information reporting to the IRS and possible United States backup withholding. Backup withholding will not apply, however, to a U.S. Holder who furnishes a correct taxpayer identification number and makes other required certifications, or who is otherwise exempt from backup withholding and establishes such exempt status. A Non-U.S. Holder generally will eliminate the requirement for information reporting and backup withholding by providing certification of its foreign status, under penalties of perjury, on a duly executed applicable IRS Form W-8 or by otherwise establishing an exemption.
Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against a holder’s United States federal income tax liability, and a holder generally may obtain a refund of any excess amounts withheld under the backup withholding rules by timely filing the appropriate claim for refund with the IRS and furnishing any required information.
The company and the underwriters named below have entered into an underwriting agreement with respect to the units being offered. Subject to certain conditions, the underwriters have agreed to purchase the number of units indicated in the following table.
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The underwriters have an option to buy up to an additional 3,000,000 units from the company to cover sales by the underwriters of a greater number of units than the total number set forth in the table above. They may exercise that option for 45 days.
The following table shows the per unit and total underwriting discounts and commissions to be paid to the underwriters by the company. Such amounts are shown assuming both no exercise and full exercise of the underwriters’ option to purchase 3,000,000 additional units.
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Per Unit(1) | $ | 0.55 | $ | 0.55 | ||||
Total(1) | $ | 11,000,000 | $ | 12,650,000 | ||||
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If the company does not complete its initial business combination within the time period required by its amended and restated memorandum and articles of association, the underwriters have agreed that (i) they will forfeit any rights or claims to their deferred underwriting discounts and commissions, including any accrued interest thereon, then in the trust account, and (ii) that the deferred underwriter’s discounts and commissions will be distributed on a pro rata basis, together with any interest earned on the funds held in the trust account and not previously released to the company to pay the company’s taxes, to the public shareholders.
We have agreed to reimburse the underwriters for reasonable out-of-pocket expenses incurred by the underwriters during the registration process, including, but not limited to, legal fees and expenses incurred to clear the offering with FINRA and background searches of our officers and directors (not to exceed $5,500 per person), in an aggregate amount not to exceed $25,000.
Units sold by the underwriters to the public will initially be offered at the initial public offering price set forth on the cover of this prospectus. The underwriters may allow dealers concessions not in excess of $ per unit and the dealers may re-allow a concession not in excess of $ per unit to other dealers. After the initial
offering of the units, the representative may change the offering price and the other selling terms. The offering of the units by the underwriters is subject to receipt and acceptance and subject to the underwriters’ right to reject any order in whole or in part. Sales of any units outside of the United States may be made by affiliates of the underwriters.
The company and its sponsors, officers, and directors have agreed with the underwriters, subject to certain exceptions, not to, except with the prior written consent of the underwriters, offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any units, warrants, Class A ordinary shares or any other securities convertible into, or exercisable, or exchangeable for, Class A ordinary shares during the period from the date of this prospectus continuing through the date 180 days after the date of this prospectus; provided, however, that the company may (1) issue and sell the private placement warrants, (2) issue and sell the additional units to cover the underwriters’ over-allotment option (if any), (3) register with the SEC pursuant to an agreement to be entered into concurrently with the issuance and sale of the securities in this offering, the resale of the founder shares and the private placement units or the warrants and Class A ordinary shares issuable upon exercise of the warrants and (4) issue securities in connection with a Business Combination. The underwriters in their sole discretion may release any of the securities subject to these lock-up agreements at any time without notice.
The company’s initial shareholders and anchor investors have agreed not to transfer, assign or sell any of their founder shares until consummation of our initial business combination.
The private placement units, private placement shares and private placement warrants (including the Class A ordinary shares issuable upon exercise of the private placement warrants) will not be transferable, assignable or salable until 30 days after the completion of the company’s initial business combination (except with respect to permitted transferees as described herein under “Principal Shareholders — Transfers of Founder Shares and Private Placement Units”). Our sponsor and Cantor have committed to purchase an aggregate of 655,000 private placement units, at a price of $10.00 per unit, for an aggregate purchase price of $6,550,000, in a private placement that will occur simultaneously with the closing of this offering. The private placement units are identical to the units sold in this offering, subject to certain limited exceptions as described in this prospectus. The private placement units, private placement share and private placement warrants (including the Class A ordinary shares issuable upon exercise of the private placement warrants) may not, subject to certain limited exceptions, be transferred, assigned or sold until 30 days after the completion of our initial business combination. If we do not complete our initial business combination within 15 months from the closing of this offering, the private placement warrants will expire worthless. The private placement units purchased by Cantor and the underlying private placement shares and private placement warrants securities are deemed underwriting compensation by FINRA pursuant to FINRA Rule 5110 and will be subject to compliance with the provisions of that rule. Pursuant to FINRA Rule 5110(e)(1), these securities may not be sold, transferred, assigned, pledged or hypothecated or be the subject of any hedging, short sale, derivative, put or call transaction that would result in the economic disposition of the securities by any person for a period of 180 days immediately following the commencement of sales of this offering except as permitted by FINRA Rule 5110(e)(2). Cantor may exercise one demand and unlimited piggyback registration rights up to five and seven years, respectively, from the effective date of the registration statement of which this prospectus forms a part. Cantor has agreed that it shall have the right to exercise private placement warrants until and shall forfeit to us for cancellation any private placement warrants held by it on the date that is five years after the effective date of the registration statement of which this prospectus forms a part in accordance with FINRA Rule 5110(g)(8)(A).
Prior to the offering, there has been no public market for the units. The initial public offering price has been negotiated among the company and the underwriters. The determination of the per unit offering price was more arbitrary than would typically be the case if the company was an operating company. Among the factors considered in determining initial public offering price were the history and prospects of companies whose principal business is the acquisition of other companies, prior offerings of those companies, the company’s management, the company’s capital structure, and currently prevailing general conditions in equity securities markets, including current market valuations of publicly traded companies considered comparable to the company.
We intend to apply to have our units listed on Nasdaq under the symbol “VCXAU” commencing on or promptly after the date of this prospectus. We cannot guarantee that our securities will be approved for listing on Nasdaq. Once the securities comprising the units begin separate trading, we expect that the Class A ordinary shares and warrants will be listed on Nasdaq under the symbols “VCXA” and “VCXAW,” respectively.
Expressions of Interest
The representative has informed us that it and/or its affiliates or accounts over which it and/or its affiliates have discretionary authority have expressed an interest in purchasing up to 7.5% of the units to be sold in this offering. However, because indications of interest are not binding agreements or commitments to purchase and are simply expressions of intent, these entities may determine to purchase fewer or no units at all in the offering or may purchase more units than they indicate an interest in purchasing (although they do not intend to exceed 9.99% ownership in the aggregate). In addition, the representative may determine to allocate fewer units to any of these entities than the entities indicate an interest in purchasing or to not sell any units to these entities. The underwriters will receive the same underwriting discount on any units purchased by these entities as they will on any other units sold to the public in this offering. If the representative or any of its affiliates or accounts over which it and/or its affiliates have discretionary authority purchases any units in this offering or otherwise in the open market, it has no obligation to vote the underlying shares in favor of any business combination, nor does it have an obligation not to redeem any such shares or hold any such units or underlying shares beyond the consummation of an initial business combination, if any. Any trading decisions made by any of the foregoing entities will be made by them based on market conditions at the time of the proposed sale or redemption. The representative’s affiliates will not receive any economic or other interest in our sponsor.
Stabilization and Other Transactions
The underwriters pursuant to Regulation M under the Securities Exchange Act of 1934, as amended, may engage in short sale transactions, stabilizing transactions, syndicate covering transactions or the imposition of penalty bids in connection with this offering. These activities may have the effect of stabilizing or maintaining the market price of the units at a level above that which might otherwise prevail in the open market. Establishing short sales positions may involve either “covered” short sales or “naked” short sales.
“Covered” short sales are sales made in an amount not greater than the underwriters’ option to purchase additional units in this offering. The underwriters may close out any covered short position by either exercising the overallotment option or purchasing our securities in the open market or from market participants. In determining the source of units to close out the covered short position, the underwriters will consider, among other things, the price of units available for purchase in the market as compared to the price at which they may purchase units through the overallotment option.
“Naked” short sales are sales in excess of the option to purchase additional units. The underwriters must close out any naked short position by purchasing units in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the units in the open market after pricing that could adversely affect investors who purchase in this offering.
A stabilizing bid is a bid for the purchase of securities on behalf of the underwriters for the purpose of fixing or maintaining the price of the securities. A syndicate covering transaction is the bid for or the purchase of securities on behalf of the underwriters to reduce a short position incurred by the underwriters in connection with the offering. Similar to other purchase transactions, the underwriters’ purchases to cover the syndicate short sales may have the effect of raising or maintaining the market price of our securities or preventing or retarding a decline in the market price of our securities. As a result, the price of our securities may be higher than the price that might otherwise exist in the open market. A penalty bid is an arrangement permitting the underwriters to reclaim the selling concession otherwise accruing to a syndicate member in connection with the offering if the securities originally sold by such syndicate member are purchased in a syndicate covering transaction and therefore have not been effectively placed by such syndicate member.
Neither we, nor any of the underwriters make any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of our securities. The underwriters are not obligated to engage in these activities and, if commenced, may end any of these activities at any time. These transactions may be effected on the Nasdaq, in the over-the-counter market or otherwise.
NOTICE TO INVESTORS
Canada
This prospectus supplement constitutes an “exempt offering document” as defined in and for the purposes of applicable Canadian securities laws. No prospectus has been filed with any securities commission or similar regulatory authority in Canada in connection with the offer and sale of the securities. No securities commission or similar regulatory authority in Canada has reviewed or in any way passed upon this prospectus supplement or on the merits of the securities and any representation to the contrary is an offence.
Canadian investors are advised that this prospectus supplement has been prepared in reliance on section 3A.3 of National Instrument 33-105Underwriting Conflicts (“NI 33-105”). Pursuant to section 3A.3 of NI 33-105, this prospectus supplement is exempt from the requirement that the issuer and the underwriter(s) provide investors with certain conflicts of interest disclosure pertaining to “connected issuer” and/or “related issuer” relationships that may exist between the issuer and the underwriter(s) as would otherwise be required pursuant to subsection 2.1(1) of NI 33-105.
Resale Restrictions
The offer and sale of the securities in Canada is being made on a private placement basis only and is exempt from the requirement that the issuer prepares and files a prospectus under applicable Canadian securities laws. Any resale of the securities acquired by a Canadian investor in this offering must be made in accordance with applicable Canadian securities laws, which may vary depending on the relevant jurisdiction, and which may require resales to be made in accordance with Canadian prospectus requirements, pursuant to a statutory exemption from the prospectus requirements, in a transaction exempt from the prospectus requirements or otherwise under a discretionary exemption from the prospectus requirements granted by the applicable local Canadian securities regulatory authority. These resale restrictions may under certain circumstances apply to resales of the securities outside of Canada.
Representations of Purchasers
Each Canadian investor who purchases the securities will be deemed to have represented to the issuer and the underwriter(s) that the investor (i) is purchasing the securities as principal, or is deemed to be purchasing as principal in accordance with applicable Canadian securities laws, for investment only and not with a view to resale or redistribution; (ii) is an “accredited investor” as such term is defined in section 1.1 of National Instrument 45-106Prospectus Exemptions (“NI 45-106”) or, in Ontario, as such term is defined in section 73.3(1) of the Securities Act (Ontario); and (iii) is a “permitted client” as such term is defined in section 1.1 of National Instrument 31-103Registration Requirements, Exemptions and Ongoing Registrant Obligations.
Taxation and Eligibility for Investment
Any discussion of taxation and related matters contained in this prospectus supplement does not purport to be a comprehensive description of all of the tax considerations that may be relevant to a Canadian investor when deciding to purchase the securities and, in particular, does not address any Canadian tax considerations. No representation or warranty is hereby made as to the tax consequences to a resident, or deemed resident, of Canada of an investment in the securities or with respect to the eligibility of the securities for investment by such investor under relevant Canadian federal and provincial legislation and regulations.
Rights of Action for Damages or Rescission
Securities legislation in certain of the Canadian jurisdictions provides certain purchasers of securities pursuant to an offering memorandum (such as this prospectus supplement), including where the distribution involves an
“eligible foreign security” as such term is defined in Ontario Securities Commission Rule 45-501Ontario Prospectus and Registration Exemptions and in Multilateral Instrument 45-107Listing Representation and Statutory Rights of Action Disclosure Exemptions, as applicable, with a remedy for damages or rescission, or both, in addition to any other rights they may have at law, where the offering memorandum, or other offering document that constitutes an offering memorandum, and any amendment thereto, contains a “misrepresentation” as defined under applicable Canadian securities laws. These remedies, or notice with respect to these remedies, must be exercised or delivered, as the case may be, by the purchaser within the time limits prescribed under, and are subject to limitations and defences under, applicable Canadian securities legislation. In addition, these remedies are in addition to and without derogation from any other right or remedy available at law to the investor.
Language of Documents
Upon receipt of this document, each Canadian investor hereby confirms that it has expressly requested that all documents evidencing or relating in any way to the sale of the securities described herein (including for greater certainty any purchase confirmation or any notice) be drawn up in the English language only. Par la réception de ce document, chaque investisseur Canadien confirme par les présentes qu’il a expressément exigé que tous les documents faisant foi ou se rapportant de quelque manière que ce soit à la vente des valeurs mobilières décrites aux présentes (incluant, pour plus de certitude, toute confirmation d’achat ou tout avis) soient rédigés en anglais seulement.
Australia
This document does not constitute a prospectus, product disclosure statement or other disclosure document under the Australia’s Corporations Act 2001 (Cth) (the “Corporations Act”) of Australia. This document has not been lodged with the Australian Securities & Investments Commission and is only directed to the categories of exempt persons set out below. Accordingly, if you receive this document in Australia:
You confirm and warrant that you are either:
a “sophisticated investor” under section 708(8)(a) or (b) of the Corporations Act;
a “sophisticated investor” under section 708(8)(c) or (d) of the Corporations Act and that you have provided an accountant’s certificate to the company which complies with the requirements of section 708(8)(c)(i) or (ii) of the Corporations Act and related regulations before the offer has been made; or
a “professional investor” within the meaning of section 708(11)(a) or (b) of the Corporations Act.
To the extent that you are unable to confirm or warrant that you are an exempt sophisticated investor or professional investor under the Corporations Act any offer made to you under this document is void and incapable of acceptance.
You warrant and agree that you will not offer any of the shares issued to you pursuant to this document for resale in Australia within 12 months of those securities being issued unless any such resale offer is exempt from the requirement to issue a disclosure document under section 708 of the Corporations Act.
European Economic Area
In relation to each member state of the European Economic Area (each a “Member State”), no securities have been offered or will be offered pursuant to the offer described herein in that Member State prior to the publication of a prospectus in relation to the securities which has been approved by the competent authority in that Member State or, where appropriate, approved in another Member State and notified to the competent
authority in that Member State, all in accordance with the Prospectus Regulation, except that the securities may be offered to the public in that Member State at any time:
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provided that no such offer of securities shall require the issuer or any underwriter to publish a prospectus pursuant to Article 3 of the Prospectus Regulation or supplement a prospectus pursuant to Article 23 of the Prospectus Regulation.
Each person in a Member State who acquires any securities in the offer or to whom any offer is made will be deemed to have represented, acknowledged and agreed to and with the issuer and the underwriters that it is a qualified investor within the meaning of the Prospectus Regulation.
In the case of any securities being offered to a financial intermediary as that term is used in Article 5(1) of the Prospectus Regulation, each such financial intermediary will be deemed to have represented, acknowledged and agreed to and with the issuer and the underwriters that the securities acquired by it in the offer have not been acquired on a non-discretionary basis on behalf of, nor have they been acquired with a view to their offer or resale to, persons in circumstances which may give rise to an offer to the public other than their offer or resale in a Member State to qualified investors, in circumstances in which the prior consent of the underwriters has been obtained to each such proposed offer or resale. Neither the issuer nor the underwriters have authorised, nor do they authorise, the making of any offer of securities through any financial intermediary, other than offers made by the underwriters which constitute the final placement of securities contemplated in this document.
The issuer and the underwriters and their affiliates will rely upon the truth and accuracy of the foregoing representations, acknowledgements and agreements.
For the purposes of this provision, the expression an “offer to the public” in relation to any securities in any Member State means the communication in any form and by any means of sufficient information on the terms of the offer and any securities to be offered so as to enable an investor to decide to purchase, or subscribe for, any securities and the expression “Prospectus Regulation” means Regulation (EU) 2017/1129.
In Member States, this document is being distributed only to, and is directed only at, persons who are “qualified investors” within the meaning of Article 2(e) of the Prospectus Regulation (“Qualified Investors”). This document must not be acted on or relied on in any Member State by persons who are not Qualified Investors. Any investment or investment activity to which this document relates is available in any Member State only to Qualified Investors and will be engaged in only with such persons.
Hong Kong
No securities have been, may be or will be offered or sold in Hong Kong, by means of any document, other than to persons whose ordinary business is to buy or sell shares or debentures, whether as principal or agent; or to “professional investors” as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong (the “SFO”) and any rules made thereunder; or in other circumstances which do not result in the document being a “prospectus” as defined in the Companies (Winding UP and Miscellaneous Provisions) Ordinance (Cap. 32) of Hong Kong (the “C(WUMP)O”), or which do not constitute an offer to the public within the meaning of the C(WUMP)O. No document, invitation or advertisement relating to the securities has been issued or may be issued or will be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by,
the public of Hong Kong (except if permitted under the securities laws of Hong Kong) other than with respect to securities which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” as defined in the SFO and any rules made thereunder.
This document has not been and will not be registered with the Registrar of Companies in Hong Kong. Accordingly, this document may not be issued, circulated or distributed in Hong Kong, and the securities may not be offered for subscription to members of the public in Hong Kong. Each person acquiring the securities will be required, and is deemed by the acquisition of the securities, to confirm that he is aware of the restriction on offers of the securities described in this document and the relevant offering documents and that he is not acquiring, and has not been offered any securities in circumstances that contravene any such restrictions.
Japan
The offering has not been and will not be registered under the Financial Instruments and Exchange Act of Japan (Act No. 25 of 1948 of Japan, as amended) (the “FIEA”), and the Initial Purchaser will not offer or sell any securities, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan (which term as used herein means, unless otherwise provided herein, any person resident in Japan, including any corporation or other entity organized under the laws of Japan), or to others for re-offering or resale, directly or indirectly, in Japan or to a resident of Japan, except pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the FIEA and any other applicable laws, regulations and ministerial guidelines of Japan.
Singapore
This document has not been and will not be lodged or registered with the Monetary Authority of Singapore. Accordingly, this document and any other document or material in connection with the offer or sale, or the invitation for subscription or purchase of the securities may not be issued, circulated or distributed, nor may the securities be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to any person in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (the “SFA”), (ii) to a relevant person as defined under Section 275(2) of the SFA, or any person pursuant to Section 275(1A) of the SFA, and in accordance with the conditions, specified in Section 275 of the SFA and where (where applicable) Regulation 3 of the Securities and Futures (Classes of Investors) Regulations 2018 , or (iii) otherwise pursuant to, and in accordance with the conditions of any other applicable provision of the SFA. In the event that you are not an investor falling within any of the categories set out above, please return this document immediately. You may not forward or circulate this document to any other person in Singapore.
No offer is made to you with a view to the securities being subsequently offered for sale to any other party. There are on-sale restrictions that may be applicable to investors who acquire securities. As such, investors are advised to acquaint themselves with the provisions of the SFA relating to resale restrictions and comply accordingly.
Where the securities are subscribed or purchased under Section 275 of the SFA by a relevant person which is:
a corporation (which is not an accredited investor as defined under Section 4A of the SFA) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or
a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary is an accredited investor,
securities or securities-based derivatives contracts (each term as defined in Section 2(1) of the SFA) of that corporation or the beneficiaries’ rights and interest (howsoever described) in that trust shall not be transferable
within six months after that corporation or that trust has acquired the securities under Section 275 of the SFA except:
to an institutional investor under Section 274 of the SFA or to a relevant person defined in Section 275(2) of the SFA, or to any person pursuant to an offer referred to in Section 275(1A) or Section 276(4)(i)(B) of the SFA;
where no consideration is given for the transfer;
where the transfer is by operation of law;
as specified in Section 276(7) of the SFA; or
as specified in Regulation 37A of the Securities and Futures (Offers of Investments) (Securities and Securities-based Derivatives Contracts) Regulations 2018 of Singapore.
Switzerland
The securities may not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange, or SIX, or on any other stock exchange or regulated trading facility in Switzerland. This document has been prepared without regard to the disclosure standards for issuance prospectuses under art. 652a or art. 1156 of the Swiss Code of Obligations or the disclosure standards for listing prospectuses under art. 27 ff. of the SIX Listing Rules or the listing rules of any other stock exchange or regulated trading facility in Switzerland. Neither this document nor any other offering or marketing material relating to the securities or the offering may be publicly distributed or otherwise made publicly available in Switzerland.
Neither this document nor any other offering or marketing material relating to the offering, the issuer or the securities have been or will be filed with or approved by any Swiss regulatory authority. In particular, this document will not be filed with, and the offer of securities will not be supervised by, the Swiss Financial Market Supervisory Authority FINMA, or FINMA, and the offer of securities has not been and will not be authorized under the Swiss Federal Act on Collective Investment Schemes, or CISA. The investor protection afforded to acquirers of interests in collective investment schemes under the CISA does not extend to acquirers of securities.
Israel
This document does not constitute a prospectus under the Israeli Securities Law, 5728-1968, or the Securities Law, and has not been filed with or approved by the Israel Securities Authority. In the State of Israel, this document is being distributed only to, and is directed only at, and any offer of the shares is directed only at, investors listed in the first addendum, or the Addendum, to the Israeli Securities Law, consisting primarily of joint investment in trust funds, provident funds, insurance companies, banks, portfolio managers, investment advisors, members of the Tel Aviv Stock Exchange, underwriters, venture capital funds, entities with equity in excess of NIS 50 million and “qualified individuals”, each as defined in the Addendum (as it may be amended from time to time), collectively referred to as qualified investors (in each case purchasing for their own account or, where permitted under the Addendum, for the accounts of their clients who are investors listed in the Addendum). Qualified investors will be required to submit written confirmation that they fall within the scope of the Addendum, are aware of the meaning of same and agree to it.
United Kingdom
In relation to the United Kingdom, no securities have been offered or will be offered pursuant to the offer described herein to the public in the United Kingdom prior to the publication of a prospectus in relation to the securities which has been approved by the UK Financial Conduct Authority, except that the securities may be offered to the public in the United Kingdom at any time:
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provided that no such offer of the securities shall require the issuer or any underwriter to publish a prospectus pursuant to Section 85 of the FSMA or supplement a prospectus pursuant to Article 23 of the UK Prospectus Regulation.
Each person in the United Kingdom who acquires any securities in the offer or to whom any offer is made will be deemed to have represented, acknowledged and agreed to and with the issuer and the underwriters that it is a qualified investor within the meaning of the UK Prospectus Regulation.
In the case of any securities being offered to a financial intermediary as that term is used in Article 5(1) of the UK Prospectus Regulation, each such financial intermediary will be deemed to have represented, acknowledged and agreed to and with the issuer and the underwriters that the securities acquired by it in the offer have not been acquired on a non-discretionary basis on behalf of, nor have they been acquired with a view to their offer or resale to, persons in circumstances which may give rise to an offer to the public other than their offer or resale in the United Kingdom to qualified investors, in circumstances in which the prior consent of the underwriters has been obtained to each such proposed offer or resale. Neither the issuer nor the underwriters have authorised, nor do they authorise, the making of any offer of securities through any financial intermediary, other than offers made by the underwriters which constitute the final placement of securities contemplated in this document.
The issuer and the underwriters and their affiliates will rely upon the truth and accuracy of the foregoing representations, acknowledgements and agreements.
For the purposes of this provision, the expression an “offer to the public” in relation to the securities in the United Kingdom means the communication in any form and by any means of sufficient information on the terms of the offer and any securities to be offered so as to enable an investor to decide to purchase or subscribe for any securities and the expression “UK Prospectus Regulation” means Regulation (EU) 2017/1129 as it forms part of United Kingdom law by virtue of the European Union (Withdrawal) Act 2018.
In the United Kingdom, this document is being distributed only to, and is directed only at, persons who are “qualified investors” within the meaning of Article 2(e) of the UK Prospectus Regulation who are also: (i) persons who fall within the definition of “investment professionals” in Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the “Order”); (ii) persons falling within Article 49(2) of the Order; or (iii) persons to whom it may otherwise lawfully be communicated (all such persons together being referred to as “relevant persons”). This document must not be acted on or relied on in the United Kingdom by persons who are not relevant persons. Any investment or investment activity to which this document relates is available in the United Kingdom only to relevant persons and will be engaged in only with such persons.
Any invitation or inducement to engage in investment activity (within the meaning of Section 21 of the FSMA) may only be communicated or caused to be communicated in connection with the issue or sale of the securities in circumstances in which Section 21(1) of the FSMA does not apply. All applicable provisions of the FSMA and the Order must be complied with in respect of anything done by any person in relation to the securities in, from or otherwise involving the United Kingdom.
White & Case LLP, New York, New York, is acting as counsel in connection with the registration of our securities under the Securities Act, and as such, will pass upon the validity of the securities offered in this prospectus. Maples and Calder (Cayman) LLP, Cayman Islands, will pass upon the validity of the securities offered in this prospectus with respect to the ordinary shares and matter of Cayman Islands law. Ellenoff Grossman & Schole LLP, New York, New York, advised the underwriters in connection with the offering of the securities.
The financial statements of 10X Capital Venture Acquisition Corp. II as of February 19, 2021, and for the period from February 10, 2021 (inception) through February 19, 2021, appearing in this prospectus have been audited by WithumSmith+Brown, PC, independent registered public accounting firm, as set forth in their report thereon, appearing elsewhere in this prospectus, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the securities we are offering by this prospectus. This prospectus does not contain all of the information included in the registration statement. For further information about us and our securities, you should refer to the registration statement and the exhibits and schedules filed with the registration statement. Whenever we make reference in this prospectus to any of our contracts, agreements or other documents, the references are materially complete but may not include a description of all aspects of such contracts, agreements or other documents, and you should refer to the exhibits attached to the registration statement for copies of the actual contract, agreement or other document.
Upon completion of this offering, we will be subject to the information requirements of the Exchange Act and will file annual, quarterly and current event reports, proxy statements and other information with the SEC. You can read our SEC filings, including the registration statement, over the Internet at the SEC’s website at www.sec.gov.
10X CAPITAL VENTURE ACQUISITION CORP. II
INDEXNOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
The following table provides quantitative information regarding Level 3 fair value measurements inputs at their measurement dates related to the Forward Purchase Agreement:
| As of September 30, 2023 | As of December 31, 2022 | |||||||
| Expected redemption price | $ | 10.54 | $ | 10.48 | ||||
| Stock price | $ | 10.60 | $ | 9.89 | ||||
| Volatility | 45 | % | 65.0 | % | ||||
| Term (years) | 3.1 | 3.50 | ||||||
| Risk-free rate | 4.8 | % | 4.49 | % | ||||
| Cost of debt | 13.66 | % | 14.80 | % | ||||
The Company estimated the fair value of the investor interests attributable to the Founder Shares in connection with the Non-Redemption Agreements (see Note 1) was determined using a discount for the probability of liquidation approach. The discount for the probability of liquidation approach was determined based on Level 3 inputs. The Company estimated the fair value of the investor interests attributable to the Founder Shares to be $130,418 or $0.23 per share as of May 5, 2023. The fair value for May 5, 2023 was determined using a discount for the probability of liquidation approach with a discount of 2.2% for the probability of liquidation and the value per shares as of the valuation date of $10.25. The fair value was estimated to be $400,702 or $0.17 per share as of September 30, 2023. The fair value for September 30, 2023 was determined using a discount of 15% for the probability of liquidation and the value per shares as of the valuation date of $10.6.
The following table provides quantitative information regarding Level 3 fair value measurements inputs at their measurement dates related to the Non-Redemption Agreements:
| As of September 30, 2023 | As of May 5, 2023 | |||||||
| Expected redemption price | $ | 11.50 | $ | 11.50 | ||||
| Stock price | $ | 10.60 | $ | 10.25 | ||||
| Volatility | 51 | % | 57.0 | % | ||||
| Term (years) | 5.12 | 5.44 | ||||||
| Risk-free rate | 4.5 | % | 3.35 | % | ||||
| Discount rate(1) | 85 | % | 2.2 | % | ||||
| (1) | ||||
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| Company’s progress toward completing a Business Combination. | ||||
F-27
10X CAPITAL VENTURE ACQUISITION CORP. II
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
The change in the fair value of the forward purchase agreement and non-redemption agreements liabilities, measured with Level 3 inputs, for the nine months ended September 30, 2023 is summarized as follows:
| Derivative liabilities at January 1, 2022 | $ | - | ||
| Loss on entry into forward purchase agreement | 295,330 | |||
| Change in fair value of derivative liabilities | 36,447 | |||
| Derivative liabilities at December 31, 2022 | 331,777 | |||
| Change in fair value of derivative liabilities | 190,109 | |||
| Derivative liabilities at March 31, 2023 | 521,886 | |||
| Loss on entry into non redemption agreements | 86,945 | |||
| Change in fair value of derivative liabilities | (367,567 | ) | ||
| Derivative liabilities at June 30, 2023 | 241,264 | |||
| Non-redemption agreements liabilities transferred to equity | (164,439 | ) | ||
| Change in fair value of derivative liabilities | 324,049 | |||
| Derivative liabilities at September 30, 2023 | $ | 400,874 |
The Company recognized a gain in connection with the change in the fair value of forward purchase options liabilities of $5,000 and $159,777 in the condensed consolidated statements of operations for the three and nine months ended September 30, 2023, respectively. The Company recognized a loss in connection with the change in the fair value of non-redemption agreement liabilities of $500,877 and $478,196 in the condensed consolidated statements of operations for the three and nine months ended September 30, 2023, respectively. The Company recognized a loss in connection with the issuance of non-redemption agreements of $130,418 in the condensed consolidated statements of operations for the nine months ended September 30, 2023.
NOTE 10. SUBSEQUENT EVENTS
The Company evaluated subsequent events and transactions that occurred after the unaudited condensed consolidated balance sheets date up to the date that the unaudited condensed consolidated financial statements were issued. Based upon this review, the Company did not identify any subsequent events other than the event described below that required adjustment or disclosure in the unaudited condensed consolidated financial statements.
On October 10, 2023, the Board approved the extension of the date by which the Company is required to complete an initial business combination until November 13, 2023. On November 8, 2023, the Board approved an extension of the date by which 10X II is required to complete an initial business combination from November 13, 2023 until December 13, 2023.
F-28
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholder’sShareholders and the Board of Directors of
10X Capital Venture Acquisition Corp. II
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheetsheets of 10X Capital Venture Acquisition Corp. II (the “Company”) as of February 19,December 31, 2022 and 2021, the related consolidated statements of operations, changes in shareholder’s equityshareholders’ deficit and cash flows for the year ended December 31, 2022 and for the period from February 10, 2020 (inception)2021 through February 19,December 31, 2021, and the related notes (collectively referred to as the “financial“consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of February 19,December 31, 2022 and 2021, and the results of its operations and its cash flows for the year ended December 31, 2022 and for the period from February 10, 2021 (inception) through February 19,December 31, 2021 in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, if the Company is unable to raise additional funds to alleviate liquidity needs and complete a business combination by May 13, 2023 then the Company will cease all operations except for the purpose of liquidating. The liquidity condition and date for mandatory liquidation and subsequent dissolution raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our auditaudits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the auditaudits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our auditaudits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our auditaudits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our auditaudits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit providesaudits provide a reasonable basis for our opinion.
/s/ WithumSmith+Brown, PC
We have served as the Company’s auditor since 2021.
New York, New York
July 27, 2021April 17, 2023
PCAOB Number 100
F-29
10X CAPITAL VENTURE ACQUISITION CORP. II
CONSOLIDATED BALANCE SHEETS
| March 31, 2021 | February 19, 2021 | |||||||
| (Unaudited) | ||||||||
Assets: | ||||||||
Deferred offering costs | $ | 118,157 | $ | 38,303 | ||||
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Total Assets | $ | 118,157 | $ | 38,303 | ||||
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Liabilities and Shareholder’s Equity: | ||||||||
Accrued offering costs | $ | 75,000 | $ | 25,000 | ||||
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Promissory note – related party | 29,854 | — | ||||||
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Total current liabilities | 104,854 | 25,000 | ||||||
Commitments and Contingencies (Note 6) | ||||||||
Shareholder’s Equity | ||||||||
Preference shares, $0.0001 par value; 1,000,000 shares authorized; none issued and outstanding as of March 31, 2021 and February 19, 2021 | — | — | ||||||
Class A ordinary shares, $0.0001 par value; 500,000,000 shares authorized; none issued and outstanding as of March 31, 2021 and February 19, 2021 | — | — | ||||||
Class B ordinary shares, $0.0001 par value; 50,000,000 shares authorized; 7,666,667 shares issued and outstanding as of March 31, 2021 and February 19, 2021(1) | 767 | 767 | ||||||
Additional paid-in capital | 24,233 | 24,233 | ||||||
Accumulated deficit | (11,697 | ) | (11,697 | ) | ||||
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Total shareholder’s equity | 13,303 | 13,303 | ||||||
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Total Liabilities and Shareholder’s Equity | $ | 118,157 | $ | 38,303 | ||||
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| December 31, | ||||||||
| 2022 | 2021 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash | $ | 36,675 | $ | 1,358,622 | ||||
| Prepaid expenses | 137,073 | 183,695 | ||||||
| Total current assets | 173,748 | 1,542,317 | ||||||
| Investments held in Trust Account | 47,264,548 | 200,005,484 | ||||||
| Total Assets | $ | 47,438,296 | $ | 201,547,801 | ||||
| Liabilities, Class A Ordinary Shares Subject to Possible Redemption and Shareholders’ Deficit | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 2,969,033 | $ | 130,384 | ||||
| Accrued expenses | 6,768,920 | 1,063,040 | ||||||
| Promissory note – related party | 600,000 | — | ||||||
| Total current liabilities | 10,337,953 | 1,193,424 | ||||||
| Derivative liabilities | 331,777 | — | ||||||
| Deferred underwriting commissions | 7,000,000 | 7,000,000 | ||||||
| Total Liabilities | 17,669,730 | 8,193,424 | ||||||
| Commitments and Contingencies | ||||||||
| Class A ordinary shares subject to possible redemption, $0.0001 par value; 4,642,030 and 20,000,000 shares issued and outstanding at redemption value of approximately $10.16 and $10.00 per share as of December 31, 2022 and 2021, respectively | 47,164,548 | 200,000,000 | ||||||
| Shareholders’ Deficit: | ||||||||
| Preference shares, $0.0001 par value; 1,000,000 shares authorized; none issued or outstanding as of December 31, 2022 and 2021 | — | — | ||||||
| Class A ordinary shares, $0.0001 par value; 500,000,000 shares authorized; 655,000 shares issued and outstanding (excluding 4,642,030 and 20,000,000 shares subject to possible redemption) as of December 31, 2022 and 2021 | 66 | 66 | ||||||
| Class B ordinary shares, $0.0001 par value; 50,000,000 shares authorized; 6,666,667 shares issued and outstanding as of December 31, 2022 and 2021 | 667 | 667 | ||||||
| Accumulated deficit | (17,396,715 | ) | (6,646,356 | ) | ||||
| Total shareholders’ deficit | (17,395,982 | ) | (6,645,623 | ) | ||||
| Total Liabilities, Class A Ordinary Shares Subject to Possible Redemption and Shareholders’ Deficit | $ | 47,438,296 | $ | 201,547,801 | ||||
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The accompanying notes are an integral part of thethese consolidated financial statements.
F-30
10X CAPITAL VENTURE ACQUISITION CORP. II
CONSOLIDATED STATEMENTS OF OPERATIONS
| For the period from February 10, 2021 (inception) through March 31, 2021 | For the period from February 10, 2021 (inception) through February 19, 2021 | |||||||
| (Unaudited) | ||||||||
Formation costs | $ | 11,697 | $ | 11,697 | ||||
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Net loss | $ | (11,697 | ) | $ | (11,697 | ) | ||
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Basic and diluted weighted average shares outstanding (1) | 6,666,667 | 6,666,667 | ||||||
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Basic and diluted net loss per share | $ | (0.00 | ) | $ | (0.00 | ) | ||
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| For the Year Ended December 31, 2022 | For the Period From February 10, 2021 (inception) Through December 31, 2021 | |||||||
| General and administrative expenses | $ | 10,273,098 | $ | 1,459,011 | ||||
| Administrative expenses — related party | 240,000 | 86,667 | ||||||
| Loss from operations | (10,513,098 | ) | (1,545,678 | ) | ||||
| Other income (expenses): | ||||||||
| Change in fair value of derivative liabilities | (36,447 | ) | — | |||||
| Income from investments held in Trust Account | 2,165,194 | 5,484 | ||||||
| Loss on Forward Purchase Agreement | (295,330 | ) | — | |||||
| Total other income | 1,833,417 | 5,484 | ||||||
| Net loss | $ | (8,679,681 | ) | $ | (1,540,194 | ) | ||
| Weighted average shares outstanding, Class A ordinary shares | 18,677,398 | 8,961,092 | ||||||
| Basic and diluted net loss per share, Class A ordinary shares | $ | (0.34 | ) | $ | (0.10 | ) | ||
| Weighted average shares outstanding, Class B ordinary shares | 6,666,667 | 6,482,052 | ||||||
| Basic and diluted net loss per share, Class B ordinary shares | $ | (0.34 | ) | $ | (0.10 | ) | ||
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The accompanying notes are an integral part of thethese consolidated financial statements.
F-31
10X CAPITAL VENTURE ACQUISITION CORP. II
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER’S EQUITYSHAREHOLDERS’ DEFICIT
FOR THE YEAR ENDED DECEMBER 31, 2022 AND FOR THE PERIOD FROM FEBRUARY 10, 2021 (INCEPTION) THROUGH MARCHDECEMBER 31, 2021
| Class B Ordinary shares | Additional Paid-In Capital | Accumulated Deficit | Shareholder’s Equity | |||||||||||||||||
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Balance as of February 10, 2021 (inception) | — | $ | — | $ | — | $ | — | $ | — | |||||||||||
Class B ordinary shares issued to Sponsor | 7,666,667 | 767 | 24,233 | — | 25,000 | |||||||||||||||
Net loss | — | — | — | (11,697 | ) | (11,697 | ) | |||||||||||||
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Balance as of March 31, 2021 (unaudited) and February 19, 2021 | 7,666,667 | $ | 767 | $ | 24,233 | $ | (11,697 | ) | $ | 13,303 | ||||||||||
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| Ordinary Shares | Additional | Total | ||||||||||||||||||||||||||
| Class A | Class B | Paid-in | Accumulated | Shareholder’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||
| Balance — February 10, 2021 (inception) | — | $ | — | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||
| Issuance of Class B ordinary shares to Sponsor | — | — | 7,666,667 | 767 | 24,233 | — | 25,000 | |||||||||||||||||||||
| Fair value of Public Warrants included in the Units sold in the Initial Public Offering | — | — | — | — | 4,733,334 | — | 4,733,334 | |||||||||||||||||||||
| Sales of Private Placement Units | 655,000 | 66 | — | — | 6,549,934 | — | 6,550,000 | |||||||||||||||||||||
| Contribution from Sponsor upon sale of Founder Shares to Anchor Investors | — | — | — | — | 10,341,127 | — | 10,341,127 | |||||||||||||||||||||
| Forfeiture of Class B ordinary shares | — | — | (1,000,000 | ) | (100 | ) | 100 | — | — | |||||||||||||||||||
| Accretion of Class A ordinary shares subject to possible redemption | — | — | — | — | (21,648,728 | ) | (5,106,162 | ) | (26,754,890 | ) | ||||||||||||||||||
| Net loss | — | — | — | — | — | (1,540,194 | ) | (1,540,194 | ) | |||||||||||||||||||
| Balance — December 31, 2021 | 655,000 | 66 | 6,666,667 | 667 | — | (6,646,356 | ) | (6,645,623 | ) | |||||||||||||||||||
| Increase in redemption value of Class A ordinary shares subject to possible redemption | — | — | — | — | — | (2,070,678 | ) | (2,070,678 | ) | |||||||||||||||||||
| Net loss | — | — | — | — | — | (8,679,681 | ) | (8,679,681 | ) | |||||||||||||||||||
| Balance — December 31, 2022 | 655,000 | $ | 66 | 6,666,667 | $ | 667 | $ | — | $ | (17,396,715 | ) | $ | (17,395,982 | ) | ||||||||||||||
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The accompanying notes are an integral part of thethese consolidated financial statements.
F-32
10X CAPITAL VENTURE ACQUISITION CORP. II
STATEMENTCONSOLIDATED STATEMENTS OF CASH FLOWS
| For the period from February 10, 2021 (inception) through March 31, 2021 | For the period from February 10, 2021 (inception) through February 19, 2021 | |||||||
| (Unaudited) | ||||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (11,697 | ) | $ | (11,697 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Formation costs paid by Sponsor in exchange for issuance of Class B ordinary shares | 11,697 | 11,697 | ||||||
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Net cash used in operating activities | — | — | ||||||
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Net change in cash | — | — | ||||||
Cash, beginning of the period | — | — | ||||||
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Cash, end of the period | $ | — | $ | — | ||||
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Supplemental disclosure of cash flow information: | ||||||||
Deferred offering costs paid by Sponsor in exchange for issuance of Class B ordinary shares | $ | 13,303 | $ | 13,303 | ||||
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Deferred offering costs included in accrued offerings costs | $ | 75,000 | $ | 25,000 | ||||
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Deferred offering costs paid by Sponsor loan | $ | 29,854 | $ | — | ||||
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| For the Year Ended December 31, 2022 | For the Period From February 10, 2021 (inception) Through December 31, 2021 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net loss | $ | (8,679,681 | ) | $ | (1,540,194 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| General and administrative expenses paid by related party in exchange for issuance of Class B ordinary shares | — | 11,697 | ||||||
| General and administrative expenses paid by Sponsor under promissory note | — | 34 | ||||||
| Change in fair value of derivative liabilities | 36,447 | — | ||||||
| Loss on Forward Purchase Agreement | 295,330 | — | ||||||
| Income from investments held in Trust Account | (2,165,194 | ) | (5,484 | ) | ||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses | 46,622 | (183,695 | ) | |||||
| Accounts payable | 2,838,649 | 98,384 | ||||||
| Accrued expenses | 5,705,880 | 993,040 | ||||||
| Net cash used in operating activities | (1,921,947 | ) | (626,218 | ) | ||||
| Cash Flows from Investing Activities: | ||||||||
| Principal deposited in Trust Account | — | (200,000,000 | ) | |||||
| Withdrawal for redemption payment | 154,906,130 | — | ||||||
| Net cash provided by (used in) investing activities | 154,906,130 | (200,000,000 | ) | |||||
| Cash Flows from Financing Activities: | ||||||||
| Advances from related party | — | 1,650 | ||||||
| Proceeds received from initial public offering, gross | — | 200,000,000 | ||||||
| Proceeds received from private placement | — | 6,550,000 | ||||||
| Redemption payment of Class A ordinary shares subject to possible redemption | (154,906,130 | ) | — | |||||
| Proceeds from promissory note | 600,000 | — | ||||||
| Repayment of promissory note | — | (87,369 | ) | |||||
| Offering costs paid | — | (4,479,441 | ) | |||||
| Net cash provided by (used in) financing activities | (154,306,130 | ) | 201,984,840 | |||||
| Net change in cash | (1,321,947 | ) | 1,358,622 | |||||
| Cash — beginning of the period | 1,358,622 | — | ||||||
| Cash — end of the period | $ | 36,675 | $ | 1,358,622 | ||||
| Supplemental disclosure of noncash investing and financing activities: | ||||||||
| Offering costs paid by related party in exchange for Founder Shares | $ | — | $ | 13,303 | ||||
| Offering costs included in accounts payable | $ | — | $ | 32,000 | ||||
| Offering costs included in accrued expenses | $ | — | $ | 70,000 | ||||
| Offering costs paid by related party under promissory note | $ | — | $ | 85,685 | ||||
| Value of Class B ordinary shares transferred to Anchor Investors | $ | — | $ | 10,341,127 | ||||
| Forfeiture of Class B ordinary shares | $ | — | $ | 100 | ||||
| Deferred underwriting fee | $ | — | $ | 7,000,000 | ||||
The accompanying notes are an integral part of thethese consolidated financial statements.
F-33
10X CAPITAL VENTURE ACQUISITION CORP. II
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 — Organization and Business Operations
Organization and General
10X Capital Venture Acquisition Corp. II (the “Company”) is a blank check company incorporated as a Cayman Islands exempted company on February 10, 2021. The Company was formed for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses or entities (the “Business Combination”). The Company has not selected any specific Business Combination target and the Company has not, nor has anyone on its behalf, engaged in any substantive discussions, directly or indirectly, with any Business Combination target with respect to the initial Business Combination with the Company.
As of MarchDecember 31, 2021,2022, the Company had not commenced any operations. All activity for the period from February 10, 2021 (inception) through MarchDecember 31, 20212022 relates to the Company’s formation and the ProposedInitial Public Offering (as defined below)., and, since the closing of the Initial Public Offering, the search for and efforts toward completing an initial Business Combination. The Company will not generate any operating revenues until after the completion of its initial Business Combination, at the earliest. The Company will generate generates non-operating income in the form of interest income from the proceeds derived from the ProposedInitial Public Offering (as defined below). The Company has selected December 31 as its fiscal year end.Offering.
The Company’s Sponsor is 10X Capital SPAC Sponsor II LLC, a Cayman Islands limited liability company (the “Sponsor”). The registration statement for the Company’s ability to commence operations is contingent upon obtaining adequate financial resources through a ProposedInitial Public Offering was declared effective on August 10, 2021. On August 13, 2021, the Company consummated its initial public offering (the “Initial Public Offering”) of 20,000,000 units (the “Units” and, with respect to the Class A ordinary shares included in the Units offered, the “Public Shares” and with respect to the warrants included in the Units offered, the “Public Warrants”) at $10.00 per unitUnit, generating gross proceeds of $200.0 million, and incurring offering costs of approximately $21.7 million, of which $7.0 million was for deferred underwriting commissions (Note 7).
Simultaneously with the consummation of the Initial Public Offering, the Company consummated the private placement (the “Units”“Private Placement”) (or 23,000,000 Units if the underwriters’ over-allotment option is exercised in full), which is discussed in Note 3 (the “Proposed Public Offering”), and the sale of 655,000 unitsUnits (the “Private Units”) to the Sponsor and Cantor Fitzgerald & Co. (“Cantor”), at a price of $10.00 per unit in a private placement that will close simultaneously withPrivate Unit, generating gross proceeds of approximately $6.6 million.
Following the Proposedclosing of the Initial Public Offering. Each Unit consists of one Class A ordinary share and one-third of one redeemable warrant. Each whole warrant entitles the holder to purchase one Class A ordinary share at a price of $11.50Offering on August 13, 2021, $200,000,000 ($10.00 per share. The Company’s management has broad discretion with respect to the specific application ofUnit) from the net proceeds of the Proposedsale of the Units in the Initial Public Offering and the sale of the Private Units although substantially alland $12,515 overfunded by Sponsor, which was returned to the Sponsor on August 17, 2021, was placed in a Trust Account (“Trust Account”) and is being invested only in U.S. government treasury obligations with a maturity of 185 days or less or in money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act of 1940, as amended (the “Investment Company Act”), which invest only in direct U.S. government treasury obligations. Except with respect to interest earned on the funds held in the Trust Account that may be released to the Company to pay its taxes, the proceeds from the Initial Public Offering and the sale of the net proceeds are intended toPrivate Units will not be generally applied toward consummating areleased from the Trust Account until the earliest of (i) the completion of the initial Business Combination, (less deferred underwriting commissions).(ii) the redemption of the Public Shares if the Company is unable to complete the initial Business Combination within 21 months from the closing of the Initial Public Offering, subject to applicable law, and (iii) the redemption of the Public Shares properly submitted in connection with a shareholder vote to amend the Company’s amended and restated memorandum and articles of association to modify the substance or timing of its obligation to redeem 100% of the Public Shares if the Company has not consummated the initial Business Combination within 21 months from the closing of the Initial Public Offering or with respect to any other material provisions relating to shareholders’ rights or pre-initial Business Combination activity. The proceeds deposited in the Trust Account could become subject to the claims of the Company’s creditors, if any, which could have priority over the claims of the public shareholders.
The Company’s Business Combination must be with one or more target businesses that together have a fair market value equal to at least 80% of the net balance in the Trust Account (as defined below) (excluding the amount of deferred underwriting discounts held and taxes payable on the income earned on the Trust Account) at the time of the signing an agreement to enter into a Business Combination. However, the Company will only complete a Business Combination if the post-Business Combination company owns or acquires 50% or more of the outstanding voting securities of the target or otherwise acquires a controlling interest in the target sufficient for it not to be required to register as an investment company under the Investment Company Act of 1940, as amended (the “Investment Company Act”).1940. There is no assurance that the Company will be able to successfully effect a Business Combination.
Upon the closing of the Proposed Public Offering, management has agreed that an aggregate of $10.00 per Unit sold in the Proposed Public Offering will be held in a Trust Account (“Trust Account”)
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10X CAPITAL VENTURE ACQUISITION CORP. II
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 — Organization and will be invested only in U.S. government treasury obligations with a maturity of 185 days or less or in money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act which invest only in direct U.S. government treasury obligations. Except with respect to interest earned on the funds held in the Trust Account that may be released to the Company to pay its taxes, the proceeds from the Proposed Public Offering and the sale of the Private Units will not be released from the Trust Account until the earliest of (i) the completion of the initial Business Combination, (ii) the redemption of the public shares if the Company is unable to complete the initial Business Combination within 15 months from the closing of the Proposed Public Offering, subject to applicable law, and (iii) the redemption of the public shares properly submitted in connection with a shareholderOperations (cont.)
vote to amend the Company’s amended and restated memorandum and articles of association to modify the substance or timing of its obligation to redeem 100% of the public shares if the Company has not consummated the initial Business Combination within 15 months from the closing of the Proposed Public Offering or with respect to any other material provisions relating to shareholders’ rights or pre-initial Business Combination activity. The proceeds deposited in the Trust Account could become subject to the claims of the Company’s creditors, if any, which could have priority over the claims of the public shareholders.
The Company will provide the public shareholders with the opportunity to redeem all or a portion of their public sharesPublic Shares upon the completion of the initial Business Combination either (i) in connection with a shareholder meeting called to approve the Business Combination or (ii) without a shareholder vote by means of a tender offer. The decision as to whether the Company will seek shareholder approval of a proposed Business Combination or conduct a tender offer will be made by the Company, solely in its discretion. The public shareholders will be entitled to redeem their public sharesPublic Shares at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account calculated as of two business days prior to the consummation of the initial Business Combination, including interest earned on the funds held in the Trust Account (which interest shall be net of taxes payable), divided by the number of then outstanding public shares,Public Shares, subject to the limitations and on the conditions described herein. The amount in the Trust Account is initially anticipated to be $10.00at December 31, 2022 was $10.16 per public share.Public Share.
The Class A ordinary shares subject to redemption will beis recorded at a redemption value and classified as temporary equity, upon the completion of the Proposed Public Offering, in accordance with Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 480, “Distinguishing Liabilities from Equity.” In such case, the Company will proceed with a Business Combination if the Company has net tangible assets of at least $5,000,001 upon such consummation of a Business Combination and, if the Company seeks shareholder approval, a majority of the issued and outstanding shares voted are voted in favor of the Business Combination. If a shareholder vote is not required by law and the Company does not decide to hold a shareholder vote for business or other reasons, the Company will, pursuant to the amended and restated memorandum and articles of association which the Company adopted upon the consummation of the Initial Public Offering (as amended and restated on November 9, 2022, the “Amended and Restated Memorandum and Articles of Association”), conduct the redemptions pursuant to the tender offer rules of the U.S. Securities and Exchange Commission (“SEC”) and file tender offer documents with the SEC prior to completing a Business Combination. If, however, shareholder approval of the transactions is required by law, or the Company decides to obtain shareholder approval for business or other reasons, the Company will offer to redeem shares in conjunction with a proxy solicitation pursuant to the proxy rules and not pursuant to the tender offer rules. Additionally, each Public Shareholder may elect to redeem their Public Shares irrespective of whether they vote for or against the proposed transaction or vote at all. If the Company seeks shareholder approval in connection with a Business Combination, the initial shareholders (as defined below) agreed to vote their Founder Shares (as defined below in Note 5) and any Public Shares purchased during or after the Initial Public Offering in favor of a Business Combination. In addition, the initial shareholders agreed to waive their redemption rights with respect to their Founder Shares, Private Placement Shares and Public Shares in connection with the completion of a Business Combination.
The Company will havehas only 1521 months from the closing of the ProposedInitial Public Offering (the “Combination Period”), or May 13, 2023 (see discussion below), to complete the initial Business Combination. If the Company is unable to complete the initial Business Combination within the Combination Period, the Company will: (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem the public shares,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 (which interest shall be net of taxes payable and up to $100,000 of interest to pay dissolution expenses), divided by the number of then outstanding public shares, which redemption will completely extinguish public shareholders’ rights as shareholders (including the right to receive further liquidating distributions, if any), and (iii) as promptly as reasonably possible following such redemption, subject to the approval of the Company’s remaining shareholders and the board of directors, liquidate and dissolve, subject, in each case, to the Company’s obligations under Cayman Islands law to provide for claims of creditors and the requirements of other applicable law.
The initial shareholders, Sponsor, officers and directors have agreed to (i) waive their redemption rights with respect to any founder sharesFounder Shares and public sharesPublic Shares they hold in connection with the completion of the initial Business Combination, (ii) waive their redemption rights with respect to any founder sharesFounder Shares and public sharesPublic Shares they hold in connection with a shareholder vote to approve an amendment to the Company’s amended and restated memorandum and articles of association, and (iii) waive their rights to liquidating distributions from the Trust Account with respect to any founder sharesFounder Shares they hold if the Company fails to complete the initial Business Combination within the Combination Period or any extended period of time that the Company may have to consummate the initial Business Combination as a result of an amendment to the Company’s amended and restated memorandum and articles of association (although they will be entitled to liquidating distributions from the Trust Account with respect to any public shares they hold if the Company fails to complete the initial Business Combination within the Combination Period).
The Company’s Sponsor has agreed that it will be liable to the Company if and to the extent any claims by a third party for services rendered or products sold to the Company, or a prospective target business with which the Company has entered into a written letter of intent, confidentiality or other similar agreement or Business Combination agreement, reduce the amount of funds in the Trust Account to below the lesser of (i) $10.00 per public sharePublic Share and (ii) the actual amount per public sharePublic Share held in the Trust Account as of the date of the liquidation of the Trust Account, if less than $10.00 per public sharePublic Share due to reductions in the value of the trust assets in the Trust Account, less taxes payable, provided that such liability will not apply to any claims by a third party or prospective target business who executed a waiver of any and all rights to the monies held in the Trust Account (whether or not such waiver is enforceable) nor will it apply to any claims under the Company’s indemnity of the underwritersunderwriter of the ProposedInitial Public Offering against certain liabilities, including liabilities under the Securities Act. However, the Company has not asked the Sponsor to reserve for such indemnification obligations, nor has the Company independently verified whether the Sponsor has sufficient funds to satisfy its indemnity obligations and the Company believes that the Sponsor’s only assets are securities of the Company. Therefore, the Company cannot assure that the Sponsor would be able to satisfy those obligations.
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10X CAPITAL VENTURE ACQUISITION CORP. II
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 — Organization and Business Operations (cont.)
Proposed Business Combination
On November 2, 2022, the Company entered into an Agreement and Plan of Merger (as amended by that certain First Amendment to Agreement and Plan of Merger, dated as of January 3, 2023, and as may be further amended, supplemented or otherwise modified from time to time, the “Merger Agreement”), by and among the Company, 10X AA Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of the Company (“Merger Sub”), and African Agriculture, Inc., a Delaware corporation (“African Agriculture”).
Concurrently with the execution of the Merger Agreement and on November 4, 2022, certain Initial Public Offering anchor investors of the Company (the “Initial 10X II Anchor Investors”) entered into non-redemption agreements (the “Initial Non-Redemption Agreements”) with the Company and the Sponsor.
On November 8, 2022, an additional investor of the Company (together with the Initial 10X II Anchor Investors, the “10X II Investors”) entered into a non-redemption agreement (together with the Initial Non-Redemption Agreements, the “Non-Redemption Agreements”) with the Company and the Sponsor.
Pursuant to the Non-Redemption Agreements, such 10X II Investors agreed for the benefit of the Company to (i) vote certain of the Company’s ordinary shares now owned or acquired (the “Subject 10X II Equity Securities”), representing 3,705,743 ordinary shares of the Company in the aggregate, in favor of the proposal to amend the Company’s organizational documents to extend the time the Company is permitted to close a Business Combination and (ii) not redeem the Subject 10X II Equity Securities in connection with such proposal. In connection with these commitments from the 10X II Investors, Sponsor has agreed to transfer to each 10X II Investor an amount of its Class B ordinary shares on or promptly after the consummation of the Business Combination.
Standby Equity Purchase Agreement
Concurrently with the execution of the AA Merger Agreement, the Company entered into the Standby Equity Purchase Agreement (“SEPA”) with Yorkville, pursuant to which, subject to the consummation of the Business Combination, New African Agriculture has the option, but not the obligation, to issue, and Yorkville shall subscribe for, an aggregate amount of up to $100 million of New African Agriculture Common Stock at the time of New African Agriculture’s choosing during the term of the agreement, subject to certain limitations, including caps on issuance and subscriptions based on trading volumes. Each advance under the SEPA (an “Advance”) may be for an aggregate amount of New African Agriculture Common Stock purchased at 96% of the Market Price during a one-day pricing period or 97% of the Market Price during a three-day pricing period elected by New African Agriculture. The “Market Price” is defined in the SEPA as the VWAP (as defined below) during the trading day, in the case of a one day pricing period, or the lowest daily VWAP of the three consecutive trading days, in the case of a three day pricing period, commencing on the trading day on which New African Agriculture submits an Advance notice to Yorkville. “VWAP” means, for any trading day, the daily volume weighted average price of New African Agriculture Common Stock for such date on Nasdaq as reported by Bloomberg L.P. during regular trading hours or such other period in the case of a one-day trading period. The SEPA will continue for a term of three years commencing from the sixth trading day following the closing of the Business Combination (the “SEPA Effective Date”).
Pursuant to the SEPA, New African Agriculture will pay to Yorkville a commitment fee of $1.0 million, which is to be paid on the SEPA Effective Date. New African Agriculture can elect to pay the commitment fee by issuing New African Agriculture Common Stock to Yorkville in an amount equal to the commitment fee divided by the average daily VWAP for the five consecutive trading days prior to the SEPA Effective Date.
Forward Purchase Agreement
Simultaneously with the execution of the Merger Agreement, the Company and African Agriculture entered into an OTC Equity Prepaid Forward Transaction (the “Forward Purchase Agreement”) with Vellar Opportunity Fund SPV LLC — Series 8 (“Seller”), a client of Cohen & Company Financial Management, LLC (“Cohen”). Pursuant to the Forward Purchase Agreement, Seller intends, but is not obligated, to purchase through a broker in the open market (a) the Company’s Class A ordinary shares, par value $0.0001 per share (the “Shares”), after the date of the Company’s redemption deadline from holders of Shares, including those who have elected to redeem Shares (such purchased Shares, the “Recycled Shares”) pursuant to the redemption rights set forth in the Company’s amended and restated memorandum and articles of association in connection with the Business Combination and (b) additional Shares in an issuance from the Company (such Shares, the “Additional Shares” and, together with the Recycled Shares, the “Subject Shares”). The aggregate total Subject Shares will be 4,000,000, subject to automatic reduction to equal the amount of the Company’s ordinary shares outstanding as of the redemption deadline and subject to increase to up to 10,000,000 upon mutual agreement of the Company and Seller (the “Maximum Number of Shares”). Seller has agreed to waive any redemption rights with respect to any Subject Shares in connection with the Business Combination.
F-36
10X CAPITAL VENTURE ACQUISITION CORP. II
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 — Organization and Business Operations (cont.)
Extension
On November 9, 2022, the Shareholders approved, by special resolution, the proposal to amend and restate the Company’s Amended and Restated Memorandum and Articles of Association (as amended and restated, the “Second A&R Charter”), to extend the date by which the Company must (1) consummate an initial Business Combination, (2) cease its operations except for the purpose of winding up if it fails to complete such initial Business Combination, and (3) redeem all of the Class A ordinary shares included as part of the Units sold in the Company’s Initial Public Offering, from November 13, 2022 to May 13, 2023 (the “Extension,” and such proposal, the “Extension Proposal”). In connection with the Company’s solicitation of proxies in connection with the Extension Proposal, the Company was required to permit the public shareholders to redeem their Public Shares. Of the Public Shares outstanding with redemption rights, a total of 212 of the Company’s shareholders elected to redeem 15,357,970 Public Shares at a per share redemption price of $10.09. As a result of such redemptions, approximately $154.9 million was removed from the Trust Account to pay such holders, and approximately $47.3 million remained in the Trust Account as of December 31, 2022. Following the redemptions and as of December 31, 2022, the Company had 4,642,030 public shares, including the public shares underlying the Units outstanding, with redemption rights outstanding.
Liquidity and Going Concern Consideration
As of December 31, 2022, the Company had approximately $37,000 in cash and a working capital deficit of approximately $10.2 million.
The Company’s liquidity needs prior to the consummation of the Initial Public Offering were satisfied through the payment of $25,000 from the Sponsor to cover certain expenses on behalf of the Company in exchange for issuance of Founder Shares (as defined in Note 6), and loan proceeds from the Sponsor of approximately $87,000 under the Note (as defined in Note 6). The Company fully repaid the amounts borrowed under the unsecured promissory note upon closing of the Initial Public Offering on August 13, 2021. Subsequent to the consummation of the Initial Public Offering, the Company’s 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, the Sponsor, members of the Company’s founding team or any of their affiliates provided the Company with $600,000 in Working Capital Loans (as defined in Note 6) (of which up to $1.5 million may be converted at the lender’s option into warrants to purchase the Company’s Class A ordinary shares at an exercise price of $11.50 per share).
In connection with the Company’s assessment of going concern considerations in accordance with FASB’sFASB Accounting Standards Update (“ASU”) 2014-15, “Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” management has determined that the liquidity condition and date for mandatory liquidation and subsequent dissolution raises substantial doubt about the Company’s ability to continue as a going concern. No adjustments have been made to the carrying amounts of assets or liabilities should the Company has accessbe required to liquidate after May 13, 2023. The consolidated financial statements do not include any adjustment that might be necessary if the Company is unable to continue as a going concern. The Company intends to complete an initial Business Combination before the mandatory liquidation date. Over this time period, the Company will be using the funds fromoutside of the Sponsor,Trust Account for paying existing accounts payable, identifying and evaluating prospective initial Business Combination candidates, performing due diligence on prospective target businesses, paying for travel expenditures, selecting the target business to merge with or acquire, and structuring, negotiating and consummating an initial Business Combination.
Risks and Uncertainties
In February 2022, the Russian Federation commenced a military action against Ukraine. As a result of this action, various nations, including the United States, have instituted economic sanctions against the Russian Federation, Belarus and other territories and individuals. Further, the impact of this military action and related sanctions on the world economy are not determinable as of the date of these consolidated financial statements and the Sponsor hasspecific impact on the means to provide such funds, that are sufficient to fund the working capital needsCompany’s financial condition, results of operations, and cash flows is also not determinable as of the Company until the earlier of the consummation of the Proposed Public Offering or one year from the issuancedate of these consolidated financial statements (see Note 3).statements.
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10X CAPITAL VENTURE ACQUISITION CORP. II
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 — Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements arestatement is presented in U.S. dollars in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”).SEC.
Principles of Consolidation
The accompanying unauditedconsolidated financial statements as of March 31, 2021 and forinclude the period from February 10, 2021 (inception) through March 31, 2021, have been prepared in accordance with U.S. GAAP for interim financial information and Article 8 of Regulation S-X. In the opinion of managementaccounts of the Company all adjustments (consisting of normal accruals) considered for a fair presentationand its wholly owned subsidiary. All significant intercompany accounts and transactions have been included. Operating results for the period from February 10, 2021 (inception) through March 31, 2021 are not necessarily indicative of the results that may be expected for the period ending December 31, 2021, or any other future period.eliminated in consolidation.
Emerging Growth Company Status
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended (the “Securities Act”), as modified by the Jumpstart our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a
Securities Act registration statement declared effective or do not have a class of securities registered under the Securities Exchange Act)Act of 1934, as amended) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s consolidated financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
Use of Estimates
The preparation of these consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actualperiods. Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the consolidated financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ from those estimates.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash accounts in a financial institution, which, regularly exceeds the Federal Deposit Insurance Corporation limit of $250,000. Any loss incurred or a lack of access to such funds could have a significant adverse impact on the Company’s financial condition, results of operations, and cash flows.
Cash and Cash Equivalents
The Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents. The Company did not have any cash andhad no cash equivalents as of MarchDecember 31, 20212022 and February 19, 2021.
Deferred Offering Costs
F-38
10X CAPITAL VENTURE ACQUISITION CORP. II
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 — Significant Accounting Policies (cont.)
Investments Held in Trust Account
Deferred offering costs consist
The Company’s portfolio of legal expenses incurred throughinvestments is comprised of U.S. government securities, within the balance sheet date that are directly related to the Proposed Public Offering and that will be charged to shareholders’ equity upon the completionmeaning set forth in Section 2(a)(16) of the Proposed Public Offering. ShouldInvestment Company Act, with a maturity of 185 days or less, or investments in money market funds that invest in U.S. government securities and generally have a readily determinable fair value, or a combination thereof. When the Proposed Public Offering prove to be unsuccessful,Company’s investments held in the Trust Account are comprised of U.S. government securities, the investments are classified as trading securities. When the Company’s investments held in the Trust Account are comprised of money market funds, the investments are recognized at fair value. Trading securities and investments in money market funds are presented on the consolidated balance sheets at fair value at the end of each reporting period. Gains and losses resulting from the change in fair value of these deferred costs, as well as additional expenses to be incurred, will be charged tosecurities is included in gain on investments held in the Trust Account in the accompanying consolidated statements of operations. The estimated fair values of investments held in the Trust Account are determined using available market information.
Fair Value of Financial Instruments
The fair value of the Company’s assets and liabilities, which qualify as financial instruments under FASB ASC 820, “Fair Value Measurements, and Disclosures,” approximates the carrying amounts represented in the balance sheet, primarily due to itstheir short-term nature.
Net Loss Per Ordinary Share
Net loss per ordinary shareFair Value Measurements
Fair value is computed by dividing net loss bydefined as the weighted average numberprice that would be received for sale of ordinary shares outstanding duringan asset or paid for transfer of a liability, in an orderly transaction between market participants at the period, excluding ordinary shares subjectmeasurement date. GAAP establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to forfeiture. Weighted average shares were reducedunadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). These tiers consist of:
| ● | Level 1, defined as observable inputs such as quoted prices (unadjusted) for identical instruments in active markets; |
| ● | Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and |
| ● | Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. |
In some circumstances, the inputs used to measure fair value might be categorized within different levels of the fair value hierarchy. In those instances, the fair value measurement is categorized in its entirety in the fair value hierarchy based on the lowest level input that is significant to the fair value measurement.
Working Capital Loan — Related Party
The Company accounts for its New Note (as defined below in Note 5) under ASC Topic 815, Derivatives and Hedging (“ASC 815”). Under ASC 815-15-25, the election can be made at the inception of a financial instrument to account for the effect of an aggregate of 1,000,000 ordinary shares that are subject to forfeiture ifinstrument under the over-allotmentfair value option under ASC Topic 825, Financial Instruments (“ASC 825”). The primary reason for electing the fair value option is not exercised byto provide better information on the underwriters (see Note 7). At March 31, 2021financial liability amount given current market and February 19, 2021, the Company did not have any dilutive securities and other contracts that could, potentially, be exercised or converted into ordinary shares and then share in the earningseconomic conditions of the Company. As a result dilutedof applying the fair value option, the Company records each draw at fair value with a gain or loss recognized at issuance, and subsequent changes in fair value recorded as change in the fair value of convertible note — related party on the accompanying consolidated statements of operations. The fair value are classified on a combined basis with the loan in promissory note — related party in the accompanying consolidated balance sheets.
Derivative Financial Instruments
The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of its financial instruments, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to ASC 480 and FASB ASC Topic 815, “Derivatives and Hedging” (“ASC 815”). The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period.
The Public Warrants and the Private Placement Warrants are classified in accordance with ASC 480 and ASC 815, which provides that the warrants are not precluded from equity classification. Equity-classified contracts were initially measured at fair value (or allocated value). Subsequent changes in fair value will not be recognized as long as the contracts continue to be classified in equity in accordance with ASC 480 and ASC 815.
The Forward Purchase Agreement (defined in Note 1) is recognized as a derivative liability in accordance with ASC 815. Accordingly, the Company recognizes the instrument as an asset or liability at fair value and with changes in fair value recognized in the Company’s consolidated statements of operations. The estimated fair value of the Forward Purchase Agreement is measured at fair value using a Monte Carlo simulation model.
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10X CAPITAL VENTURE ACQUISITION CORP. II
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 — Significant Accounting Policies (cont.)
Offering Costs Associated with the Initial Public Offering
Offering costs consisted of legal, accounting, underwriting and other costs incurred that were directly related to the Initial Public Offering. Offering costs are allocated to the separable financial instruments issued in the Initial Public Offering based on a relative fair value basis, compared to total proceeds received. Offering costs associated with Public Warrants are recognized net in equity. Offering costs associated with the Class A ordinary shares were charged against the carrying value of Class A ordinary shares upon the completion of the Initial Public Offering. The Company classifies deferred underwriting commissions as non-current liabilities as their liquidation is not reasonably expected to require the use of current assets or require the creation of current liabilities.
Class A Ordinary Shares Subject to Possible Redemption
Class A ordinary shares subject to mandatory redemption (if any) are classified as liability instruments and are measured at fair value. Conditionally redeemable Class A ordinary shares (including Class A ordinary shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) are classified as temporary equity. At all other times, Class A ordinary shares are classified as shareholders’ equity. The Company’s Class A ordinary shares feature certain redemption rights that are considered to be outside of the Company’s control and subject to occurrence of uncertain future events. Accordingly, all outstanding Class A ordinary shares subject to possible redemption are presented at redemption value as temporary equity, outside of the shareholders’ equity section of the Company’s consolidated balance sheets.
Under ASC 480, the Company has elected to recognize changes in the redemption value immediately as they occur and adjust the carrying value of the security to equal the redemption value at the end of each reporting period. This method would view the end of the reporting period as if it were also the redemption date for the security. Immediately upon the closing of the Initial Public Offering, the Company recognized the accretion from initial book value to redemption amount value. The change in the carrying value of the redeemable Class A ordinary shares resulted in charges against additional paid-in capital (to the extent available) and accumulated deficit.
Net Income (Loss) per Ordinary Share
The Company complies with accounting and disclosure requirements of FASB ASC Topic 260, “Earnings Per Share.” The Company has two classes of shares, which are referred to as Class A ordinary shares and Class B ordinary shares. Income and losses are shared pro rata between the two classes of shares. Net income (loss) per ordinary share is calculated by dividing the net income (loss) by the weighted average ordinary shares outstanding for the respective period.
The calculation of diluted net income (loss) per ordinary shares does not consider the effect of the Public Warrants, the Private Placement Warrants and the Rights to purchase an aggregate of 20,000,000 Class A ordinary shares since their inclusion would be anti-dilutive under the treasury stock method. As a result, diluted net income (loss) per share is the same as basic lossnet income (loss) per ordinary share for the periods presented.year ended December 31, 2022 and for the period from February 10, 2021 (inception) through December 31, 2021. Accretion associated with the redeemable Class A ordinary shares is excluded from earnings per share as the redemption value approximates fair value.
The following table presents a reconciliation of the numerator and denominator used to compute basic and diluted net income (loss) per share for each class of ordinary shares:
| For the Year Ended December 31, 2022 | For the Period From February 10, 2021 (inception) Through December 31, 2021 | |||||||||||||||
| Class A | Class B | Class A | Class B | |||||||||||||
| Basic and diluted net loss per ordinary share: | ||||||||||||||||
| Numerator: | ||||||||||||||||
| Allocation of net loss | $ | (6,396,522 | ) | $ | (2,283,159 | ) | $ | (893,718 | ) | $ | (646,476 | ) | ||||
| Denominator: | ||||||||||||||||
| Basic and diluted weighted average ordinary shares outstanding | 18,677,398 | 6,666,667 | 8,961,092 | 6,482,052 | ||||||||||||
| Basic and diluted net loss per ordinary share | $ | (0.34 | ) | $ | (0.34 | ) | $ | (0.10 | ) | $ | (0.10 | ) | ||||
F-40
10X CAPITAL VENTURE ACQUISITION CORP. II
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 — Significant Accounting Policies (cont.)
Income Taxes
ASC Topic 740 “Income Taxes,” prescribes a recognition threshold and a measurement attribute for the financial statementsstatement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than notmore-likely-than-not to be sustained upon examination by taxing
authorities. The Company’s management determined that the Cayman Islands is the Company’s only major tax jurisdiction. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. As of March 31, 2021 and February 19, 2021, thereThere were no unrecognized tax benefits and no amounts accrued for interest and penalties.penalties as of December 31, 2022 and 2021. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position.
The Company
There is considered to be an exemptedcurrently no taxation imposed on income by the Government of the Cayman Islands companyIslands. In accordance with no connection to any other taxable jurisdiction and is presently not subject toCayman federal income tax regulations, income taxes orare not levied on the Company. Consequently, income tax filing requirementstaxes are not reflected in the Cayman Islands or the United States. As such, the Company’s tax provision was zero for the periods presented.consolidated financial statement. The Company’s management does not expect that the total amount of unrecognized tax benefits will materially change over the next twelve months.
Recent Accounting Pronouncements
In August 2020, the FASB issued ASUAccounting Standards Update (“ASU”) No. 2020-06, Debt“Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40)” (“ASU 2020-06”), which simplifies the accounting for convertible instruments. The guidance removes certain accounting models that separate the embedded conversion features from the host contract for convertible instruments. ASU 2020-06 allows for a modified or full retrospective method of transition. This update is effective for fiscal years beginning after December 15, 2021,January 1, 2024, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact this change will have on its consolidated financial statements.
Other recent
The Company’s management does not believe that any other recently issued, but not yet effective, accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants, and the SEC did not, or are not believed by management to,standards updates, if currently adopted, would have a material impacteffect on the Company’s consolidated financial statements.
Note 3 — ProposedInitial Public Offering
In
On August 13, 2021, the ProposedCompany consummated its Initial Public Offering the Company will offer for sale up toof 20,000,000 Units (or 23,000,000 Units if the underwriters’ over-allotment option is exercised in full) at a purchase price of $10.00 per Unit. Unit, generating gross proceeds of $200,000,000. Of the 20,000,000 Units sold, 19,780,000 Units were purchased by qualified institutional buyers not affiliated with the Sponsor or any member of the management team (the “Anchor Investors”).
Each Unit that the Company is offering has a price of $10.00 and consists of one Class A ordinary share, and one-third of one redeemable warrant. Each whole warrant will entitleentitles the holder to purchase one Class A ordinary share at a price of $11.50 per share, subject to adjustment (see Note 7)8). Each warrant will become exercisable 30 days after the completion of the initial Business Combination and will expire five years after the completion of the initial Business Combination, or earlier upon redemption or liquidation.
F-41
10X CAPITAL VENTURE ACQUISITION CORP. II
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4 — Private Placement
The Company’s
Simultaneously with the closing of the Initial Public Offering, the Sponsor and Cantor Fitzgerald & Co. (“Cantor”) have committed to purchasepurchased an aggregate of 655,000 Private Units, at a price of $10.00 per unit,Unit, for an aggregate purchase price of $6,550,000, in a private placement that will occur simultaneously with the closing of the Proposed Public Offering. Each Private Unit will be identical to the Units sold in the Proposed Public Offering, except as described below.placement.
If the Company does not complete the initial Business Combination within the Combination Period, the Private Units will expire worthless. The Private Units, including the private placement shares and private placement warrants each underlying the Private Units are subject to the transfer restrictions described below.restrictions. The Private Units have terms and provisions that are identical to those of the Units being sold in the ProposedInitial Public Offering.
Note 5 — Related Party Transactions
Founder Shares
In February 2021, the Company’s Sponsor paid $25,000, or approximately $0.003 per share, to cover certain of the offering and formation costs in exchange for an aggregate of 7,666,667 Class B ordinary shares, par value
$0.0001 $0.0001 per share, 1,000,000 of which arewere subject to forfeiture depending on the extent to which the underwriters’underwriter’s over-allotment option iswas exercised. The option expired on September 25, 2021, and subsequently, the Sponsor forfeited 1,000,000 Class B ordinary shares. Additionally, upon consummation of the Business Combination, the Sponsor agreed to transfer an aggregate of 1,334,339 Class B ordinary shares to the Anchor Investor for the same price originally paid for such shares. The Class B ordinary shares will automatically convert into Class A ordinary shares upon consummation of a Business Combination on a one-for-one basis, subject to certain adjustments, as described in Note 8. The Company determined that the fair value of these Class B ordinary shares was approximately $10.0 million (or approximately $7.50 per share) using a Monte Carlo simulation. The Company recognized the excess fair value of these Class B ordinary shares, over the price sold to the Anchor Investors, as an expense of the Initial Public Offering resulting in a charge against the carrying value of Class A ordinary shares subject to possible redemption.
The Company’s initial shareholders and the anchor investorsAnchor Investors have agreed not to transfer, assign or sell any of their founderClass B ordinary shares until after, or concurrently with, the consummation of the Company’s initial business combination.Business Combination.
Promissory Note — RelatedNote-Related Party
The Sponsor has agreed to loan the Company up to $300,000 to be used for a portion of the expenses of the Proposed Public Offering.IPO. These loans are were non-interest bearing, unsecured and due at the earlier of December 31, 2021 or the closing of the Proposed Public Offering. These loans will beIPO. The Company fully repaid the promissory note in the amount of $87,369 upon the closing of the Proposed Public Offering out of the $ 1,350,000 of offering proceeds that has been allocated to the payment of offering expenses.IPO. As of MarchDecember 31, 2022 and 2021, and February 19, 2021, the Company had borrowed $29,854 and $0there was no outstanding balance under the promissory note. Subsequent to the repayment, the promissory note respectively.is no longer available to the Company.
Related Party
Working Capital Loans
In order to finance transaction costs in connection with an intended initial Business Combination, the Sponsor or an affiliate of the Sponsor or certain of the Company’s officers and directors may, but are not obligated to, loan the Company funds as may be required (the “Working Capital Loans”). If the Company completes the initial Business Combination, the Company would repay the Working Capital Loans. In the event that the initial Business Combination does not close, the Company may use a portion of the working capital held outside the Trust Account to repay the Working Capital Loans but no proceeds from the Trust Account would be used to repay the Working Capital Loans. Up to $1,500,000 of the Working Capital Loans may be convertible into units of the post Business Combination entity at a price of $10.00 per unit at the option of the lender. The units would be identical to the Private Units. At MarchDecember 31, 20212022 and February 19, 2021, no such Working Capital Loans were outstanding. On November 14, 2022, the Sponsor agreed to loan the Company up to $800,000 pursuant to a promissory note (as amended and restated on November 14, 2022, the “New Note”). The New Note is non-interest bearing, unsecured and due at the earlier of the consummation of the Company’s initial business combination and the day prior to the date the Company must elect to liquidate and dissolve in accordance with the provisions of the Second A&R Charter. As of December 31, 2022 and 2021, the Company had $600,000 and $0 outstanding under the Working Capital Loans.
Administrative Support Agreement
The Company intends to enter intopays an agreement, commencing on the effective dateaffiliate of the Proposed Public Offering throughSponsor $20,000 per month for office space and secretarial and administrative services. Upon the earlier of the Company’s consummation of a Business Combination and its liquidation, the Company will cease paying these monthly fees. For the year ended December 31, 2022 and for the period from February 10, 2021 (inception) through December 31, 2021, the Company incurred and paid approximately $240,000 and $87,000 of administrative support expense, respectively. As of December 31, 2022 and 2021, there were no outstanding balances under this agreement.
F-42
10X CAPITAL VENTURE ACQUISITION CORP. II
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5 — Related Party Transactions (cont.)
The executive officers and directors will be reimbursed for any out-of-pocket expenses incurred in connection with activities on the Company’s behalf such as identifying potential target businesses and performing due diligence on suitable Business Combinations. The Company’s audit committee will review on a quarterly basis all payments that were made by the Company to pay the Sponsor a totalofficers or directors. For the year ended December 31, 2022 and 2021, the Company incurred approximately $240,000 and $3,500, respectively in such costs and there were no outstanding amounts as of $20,000 per month for office space, secretarial,December 31, 2022 and administrative services.2021, respectively, payable to the executive officers and directors as reflected in the accounts payable on the accompanying balance sheets.
Note 6 — Commitments and Contingencies
Risks and Uncertainties
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 its operations close of the Proposed Public Offering and/or search for a target company, the specific impact is not readily determinable as of the date of these financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Registration Rights
The holders of the founderClass B ordinary shares, Private Units, private placement sharesunits, and private placement warrants and the Class A ordinary shares underlying such private placement warrants and Private Units that may be issued upon conversion of the Working Capital Loans will have(and any Class A ordinary shares and warrants issuable upon the exercise of the private placement units and units that may be issued upon conversion of Working Capital Loans and upon conversion of the Class B ordinary shares) are entitled to registration rights to require the Company to register a sale of any of the Company’s securities held by them pursuant to a registration rights agreement dated August 10, 2021 requiring the Company to be signed prior to or onregister such securities for resale (in the effective datecase of the Proposed Public Offering.Class B ordinary shares, only after conversion to Class A ordinary shares). The holders of these securities are entitled to make up to three demands, excluding short form demands, that the Company registersregister such securities.
In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to the completion of the initial Business Combination. Notwithstanding the foregoing, Cantor may not exercise its demand and “piggyback” registration rights after five (5) and seven (7) years, respectively, after the effective date of the registration statement and may not exercise its demand rights on more than one occasion. The Company will bear the expenses incurred in connection with the filing of any such registration statements.
Underwriters Agreement
The Company will grantgranted the underwritersunderwriter a 45-day option from the date of the Proposed Public Offeringeffectiveness to purchase up to an additional 3,000,000 Units to cover over-allotments, if any at the ProposedInitial Public Offering price less the underwriting discounts and commissions. The option expired on September 25, 2021.
The underwriters will beunderwriter was entitled to a cashan underwriting discount of two percent (2%)approximately $4.0 million, paid upon the closing of the gross proceeds ofInitial Public Offering. In addition, approximately $7.0 million was recorded as payable to the Proposed Public Offering, or $4,000,000 (or up to $4,600,000 if the underwriters’ over-allotment is exercised in full), $600,000 of which will beunderwriter for deferred underwriting discount, if the over-allotment is exercised, upon the completion of the Company’s initial Business Combination subjectcommissions. The deferred fee will become payable to the terms ofunderwriter from the underwriting agreement. Additionally, the underwriters will be entitled to a deferred underwriting discount of 3.5% of the gross proceeds of the Proposed Public Offeringamounts held in the Trust Account uponsolely in the completion ofevent that the Company’s initialCompany completes a Business Combination, subject to the terms of the underwriting agreement.
Contingent Fee Arrangement
On October 21, 2022 the Company entered into an arrangement with Canaccord Genuity LLC (“Canaccord”) to obtain financial advisory and equity capital market advisory services and to act as the Company’s placement agent in connection with raising capital with a specific target in its search for a Business Combination. Canaccord would be entitled to a capital markets advisory fee of $1.0 million. In addition, Canaccord would also be entitled to a discretionary incentive fee of $250,000. Per the arrangement, the capital markets advisory fee and discretionary incentive fee for these services is contingent upon the closing of a Business Combination and therefore are not included as liabilities on the accompanying consolidated balance sheets. Under the arrangement, the Company will also reimburse Canaccord for reasonable expenses. As of December 31, 2022, no expenses have been claimed.
Note 7 — Shareholder’s EquityClass A Ordinary Shares Subject to Possible Redemption
The Company’s Class A ordinary shares contain certain redemption rights that are considered to be outside of the Company’s control and subject to the occurrence of future events. The Company is authorized to issue 500,000,000 Class A ordinary shares with a par value of $0.0001 per share. Holders of Company’s Class A ordinary shares are entitled to one vote for each share. As of December 31, 2021, there were 20,000,000 Class A ordinary shares outstanding which were subject to possible redemption. As of December 31, 2022, there were 4,642,030 Class A ordinary shares outstanding which were subject to possible redemption.
The Class A ordinary shares subject to possible redemption reflected on the accompanying consolidated balance sheet is reconciled in the following table:
| Gross proceeds | $ | 200,000,000 | ||
| Less: | ||||
| Proceeds allocated to Public Warrants | (4,733,334 | ) | ||
| Class A ordinary share issuance costs | (22,021,556 | ) | ||
| Plus: | ||||
| Accretion of carrying value to redemption value | 26,754,890 | |||
| Class A ordinary share subject to possible redemption as of December 31, 2021 | 200,000,000 | |||
| Redemption of Class A ordinary shares subject to possible redemption | (154,906,130 | ) | ||
| Increase in redemption value of Class A ordinary shares subject to possible redemption | 2,070,678 | |||
| Class A ordinary share subject to possible redemption as of December 31, 2022 | $ | 47,164,548 |
F-43
10X CAPITAL VENTURE ACQUISITION CORP. II
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8 — Shareholders’ Deficit
Preference Shares — The Company is authorized to issue a total of 1,000,000 preference shares at par value of $0.0001 each. At MarchAs of December 31, 20212022 and February 19, 2021, there were no preference shares issued or outstanding.
Class
Class A Ordinary Shares— The Company is authorized to issue a total of 500,000,000 Class A ordinary shares atwith a par value of $0.0001 each. At Marchper share. Holders of the Company’s Class A ordinary shares are entitled to one vote for each share. As of December 31, 20212022 and February 19, 2021, there were no shares of655,000 Class A ordinary shares issued or outstanding.and outstanding, excluding 4,642,030 and 20,000,000 Class A shares subject to possible redemption and classified outside of permanent equity on the consolidated balance sheets, respectively.
Class B Ordinary Shares— The Company is authorized to issue a total of 50,000,000 Class B ordinary shares atwith a par value of $0.0001 each.per share. As of MarchDecember 31, 20212022 and February 19, 2021, there were 7,666,6676,666,667 Class B ordinary shares issued and outstanding. The founder shares include an aggregate of up to 1,000,000 shares subject to forfeiture if the over-allotment option is not exercised by the underwriters in full.outstanding (see Note 5).
The founderClass B ordinary shares will automatically convert into Class A ordinary shares concurrently with or immediately following the consummation of the initial Business Combination on a one-for-one basis, subject to adjustment for stock splits, stock dividends, reorganizations, recapitalizations and the like, and subject to further adjustment as provided herein. In the case that additional Class A ordinary shares or equity-linked securities are issued or deemed issued in connection with the initial Business Combination in excess of the number of Class A ordinary shares or equity-linked securities issued in our Initial Public Offering, the number of Class A ordinary shares issuable upon conversion of all founderClass B ordinary shares will equal, in the aggregate, on an as-converted basis, 25% of the total number of Class A ordinary shares outstanding after such conversion (after giving effect to any redemptions of Class A ordinary shares by public shareholders and not including the Class A ordinary shares underlying the Private Units), including the total number of Class A ordinary shares issued, or deemed issued or issuable upon conversion or exercise of any equity-linked securities or rights issued or deemed issued, by the Company in connection with or in relation to the consummation of the initial Business Combination, excluding any Class A ordinary shares or equity-linked securities or rights exercisable for or convertible into Class A ordinary shares issued, or to be issued, to any seller in the initial Business Combination and any Private Units issued to the Sponsor, officers or directors upon conversion of Working Capital Loans, provided that such conversion of founder shares will never occur on a less than one-for-one basis.
Holders of record of the Class A ordinary shares and Class B ordinary shares are entitled to one vote for each share held on all matters to be voted on by shareholders.
Warrants
Warrants — As of December 31, 2022, there were 6,885,000 warrants (6,666,667 Public Warrants and 218,333 Private Warrants included in the Private Placement Units) outstanding. Each whole warrant entitles the holder to purchase one Class A ordinary share at a price of $11.50 per share, subject to adjustments as described herein. In addition, if (x) the Company issues additional Class A ordinary shares or equity-linked securities for capital raising purposes in connection with the closing of the initial Business Combination at an issue price or effective issue price of less than $9.20 per Class A ordinary share (with such issue price or effective issue price to be determined in good faith by the board of directors and, in the case of any such issuance to the initial shareholders or their affiliates, without taking into account any founder shares or private placement shares held by the initial shareholders or such affiliates, as applicable, prior to such issuance), (the “Newly Issued Price”) (y) the aggregate gross proceeds from such issuances represent more than 60% of the total equity proceeds, and interest thereon, available for the funding of the initial Business Combination on the date of the consummation of the initial Business Combination (net of redemptions), and (z) the volume weighted average trading price of the Class A ordinary shares during the 20 trading day period starting on the trading day after the day on which the Company consummates the initial Business Combination (such price, the “Market Value”) is below $9.20 per share, the exercise price of the warrants will be adjusted (to the nearest cent) to be equal to 115% of the higher of the Market Value and the Newly Issued Price, and the $18.00 per share redemption trigger price described below will be adjusted (to the nearest cent) to be equal to 180% of the higher of the Market Value and the Newly Issued Price. No warrants are currently outstanding. Each whole warrant entitles the holder to purchase one Class A ordinary share at a price of $11.50 per share, subject to adjustments as described herein. In addition, if (x) the Company issues additional Class A ordinary shares or equity-linked securities for capital raising purposes in connection with the closing of the initial Business Combination at an issue price or effective issue price of less than $9.20 per Class A ordinary share (with such issue price or effective issue price to be determined in good
faith by the board of directors and, in the case of any such issuance to the initial shareholders or their affiliates, without taking into account any founder shares or private placement shares held by the initial shareholders or such affiliates, as applicable, prior to such issuance), (the “Newly Issued Price”) (y) the aggregate gross proceeds from such issuances represent more than 60% of the total equity proceeds, and interest thereon, available for the funding of the initial Business Combination on the date of the consummation of the initial Business Combination (net of redemptions), and (z) the volume weighted average trading price of the Class A ordinary shares during the 20 trading day period starting on the trading day after the day on which the Company consummates the initial Business Combination (such price, the “Market Value”) is below $9.20 per share, the exercise price of the warrants will be adjusted (to the nearest cent) to be equal to 115% of the higher of the Market Value and the Newly Issued Price, and the $18.00 per share redemption trigger price described below will be adjusted (to the nearest cent) to be equal to 180% of the higher of the Market Value and the Newly Issued Price.
F-44
10X CAPITAL VENTURE ACQUISITION CORP. II
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8 — Shareholders’ Deficit (cont.)
The warrants cannot be exercised until 30 days after the completion of the initial Business Combination, and will expire at 5:00five p.m., New York City time, five years after the completion of the initial Business Combination or earlier upon redemption or liquidation.
The Company will not be obligated to deliver any Class A ordinary shares pursuant to the exercise of a warrant and will have no obligation to settle such warrant exercise unless a registration statement under the Securities Act with respect to the Class A ordinary shares underlying the warrants is then effective and a prospectus relating thereto is current, subject to the Company’s satisfying its obligations described below with respect to registration. No warrant will be exercisable and the Company will not be obligated to issue a Class A ordinary share upon exercise of a warrant unless the Class A ordinary share issuable upon such warrant exercise has been registered, qualified or deemed to be exempt under the securities laws of the state of residence of the registered holder of the warrants. In the event that the conditions in the two immediately preceding sentences are not satisfied with respect to a warrant, the holder of such warrant will not be entitled to exercise such warrant and such warrant may have no value and expire worthless.
In no event will the Company be required to net cash settle any warrant. In the event that a registration statement is not effective for the exercised warrants, the purchaser of a unitUnit containing such warrant will have paid the full purchase price for the unitUnit solely for the Class A ordinary share underlying such unit.Unit.
Once the warrants become exercisable, the Company may redeem the outstanding warrants for cash (except as described herein with respect to the private placement warrants):
in whole and not in part;
| ● | in whole and not in part; |
at a price of $0.01 per warrant;
| ● | at a price of $0.01 per warrant; |
upon a minimum of 30 days’ prior written notice of redemption (the “30-day redemption period”); and
| ● | upon a minimum of 30 days’ prior written notice of redemption (the “30-day redemption period”); and |
| ● | if, and only if, the closing price of the Class A ordinary shares equals or exceeds $18.00 per share (as adjusted for stock splits, stock capitalizations, reorganizations, recapitalizations and the like and for certain issuances of Class A ordinary shares and equity-linked securities for capital raising purposes in connection with the closing of the initial Business Combination) for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date on which the Company sends the notice of redemption to the warrant holders. |
if, and only if, the closing price of the Class A ordinary shares equals or exceeds $18.00 per share (as adjusted for stock splits, stock capitalizations, reorganizations, recapitalizations and the like and for certain issuances of Class A ordinary shares and equity-linked securities for capital raising purposes in connection with the closing of the initial Business Combination) for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date on which the Company sends the notice of redemption to the warrant holders.
If the Company calls the warrants for redemption as described above, the management will have the option to require all holders that wish to exercise warrants to do so on a “cashless basis.” In determining whether to require all holders to exercise their warrants on a “cashless basis,” the management will consider, among other factors, the Company’s cash position, the number of warrants that are outstanding and the dilutive effect on the shareholders of issuing the maximum number of Class A ordinary shares issuable upon the exercise of the warrants. In such event, each holder would pay the exercise price by surrendering the warrants for that number of Class A ordinary shares equal to the quotient obtained by dividing (x) the product of the number of Class A ordinary shares underlying the warrants, multiplied by the excess of the “fair market value” of the Class A ordinary shares (defined below) over the exercise price of the warrants by (y) the fair market value. The “fair market value” will mean the average reported
closing price of the Class A ordinary shares for the 10 trading days ending on the third trading day prior to the date on which the notice of redemption is sent to the holders of warrants.
The private placement warrants underlying the Private Placement Warrants,Units, as well as any warrants underlying additional unitsUnits the Company issues to the Sponsor, officers, directors, initial shareholders or their affiliates in payment of Working Capital Loans made to the Company, will beare identical to the Public Warrants.
F-45
10X CAPITAL VENTURE ACQUISITION CORP. II
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9 — Fair Value Measurements
The following table presents information about the Company’s assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2022 and 2021 and indicates the fair value hierarchy of the valuation techniques that the Company utilized to determine such fair value at each respective date.
December 31, 2022
| Description | Quoted Prices in Active Markets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Other Unobservable Inputs (Level 3) | |||||||||
| Assets: | ||||||||||||
| Funds that invest in U.S. Treasury Securities | $ | 47,264,548 | $ | — | $ | — | ||||||
| Liabilities: | ||||||||||||
| Derivative liabilities – Forward Purchase Agreement | $ | — | $ | — | $ | 331,777 | ||||||
December 31, 2021
| Description | Quoted Prices in Active Markets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Other Unobservable Inputs (Level 3) | |||||||||
| Assets: | ||||||||||||
| Funds that invest in U.S. Treasury Securities | $ | 200,005,484 | $ | — | $ | — | ||||||
| Liabilities: | ||||||||||||
| Derivative liabilities – Forward Purchase Agreement | $ | — | $ | — | $ | — | ||||||
Transfers to/from Levels 1, 2, and 3 are recognized at the beginning of the reporting period. There were no transfers to/from Levels 1, 2, and 3 during the year ended December 31, 2022 and for the period from February 10, 2021 (inception) through December 31, 2021.
Level 1 instruments include investments in mutual funds invested in government securities. The Company uses inputs such as actual trade data, benchmark yields, quoted market prices from dealers or brokers, and other similar sources to determine the fair value of its investments.
The estimated fair value of the Forward Purchase Agreement was measured at fair value using a Monte Carlo simulation model, which was determined using Level 3 inputs. Inherent in a Monte Carlo simulation are assumptions related to expected stock-price volatility, expected life, risk-free interest rate and dividend yield. The Company estimates the volatility of its warrants underlyingbased on implied volatility from the Units being offeredCompany’s traded warrants and from historical volatility of select peer company’s shares that matches the expected remaining life of the warrants. The risk-free interest rate is based on the U.S. Treasury zero-coupon yield curve on the grant date for a maturity similar to the expected remaining life of the warrants. The expected life of the warrants is assumed to be equivalent to their remaining contractual term. The dividend rate is based on the historical rate, which the Company anticipates remaining at zero. Any changes in these assumptions can change the valuation significantly.
F-46
10X CAPITAL VENTURE ACQUISITION CORP. II
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9 — Fair Value Measurements (cont.)
The following table provides quantitative information regarding Level 3 fair value measurements inputs at their measurement dates:
| At initial issuance date | As of December 31, 2022 | |||||||
| Expected redemption price | $ | 10.33 | $ | 10.48 | ||||
| Stock price | $ | 10.04 | $ | 9.89 | ||||
| Volatility | 65.0 | % | 65.0 | % | ||||
| Term (years) | 3.50 | 5.67 | ||||||
| Risk-free rate | 4.49 | % | 4.18 | % | ||||
| Cost of debt | 14.8 | % | 12.4 | % | ||||
The change in the Proposed Public Offering.fair value of the forward purchase agreement assets and liabilities, measured with Level 3 inputs, for year ended December 31, 2022 is summarized as follows:
| Derivative liabilities at January 1, 2022 | $ | — | ||
| Loss on entry into Forward Purchase Agreement | 295,330 | |||
| Change in fair value of derivative liabilities | 36,447 | |||
| Derivative liabilities at December 31, 2022 | $ | 331,777 |
Note 810 — Subsequent Events
The Company evaluated subsequent events and transactions that occurred after the balance sheet date up to July 27, 2021, the date consolidated financial statements were available to be issued. Based upon this review, the Company did not identify any subsequentdetermined that, except for the below, there have been no events that have occurred that would have required adjustment or disclosurerequire adjustments to the disclosures in the consolidated financial statements.
20,000,000 UnitsF-47
AFRICAN AGRICULTURE, INC.
CONSOLIDATED BALANCE SHEETS
| Unaudited | ||||||||
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 34,497 | $ | 10,058 | ||||
| Inventory - current | 260,054 | 314,849 | ||||||
| Prepaid expenses | 963,738 | 989,703 | ||||||
| Accounts receivable | 36,958 | 87,755 | ||||||
| Other receivable | 10,826 | 103,115 | ||||||
| Total current assets | 1,306,073 | 1,505,480 | ||||||
| Long-term inventory | 109,667 | 276,581 | ||||||
| Property, plant, and equipment, net | 2,043,187 | 2,222,521 | ||||||
| Operating lease right-of-use asset | 6,642,096 | 2,318,959 | ||||||
| Intangible asset, net | 4,456,809 | 4,543,818 | ||||||
| Deposits | 11,876 | 11,977 | ||||||
| Total assets | $ | 14,569,708 | $ | 10,879,336 | ||||
| LIABILITIES AND SHAREHOLDERS’ DEFICIT | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | 6,552,462 | $ | 4,703,191 | ||||
| Accrued expenses | 1,529,252 | 832,346 | ||||||
| Seller note payable - current | 1,958,333 | 1,664,631 | ||||||
| Operating lease liabilities - current | 16,070 | 14,514 | ||||||
| Other payables | 176,708 | 123,237 | ||||||
| Short term convertible notes | 1,969,321 | 1,969,321 | ||||||
| Short term debt | 988,925 | 586,425 | ||||||
| Related party payables - current | 625,879 | - | ||||||
| Total current liabilities | 13,816,950 | 9,893,665 | ||||||
| Non-current liabilities | ||||||||
| Accrual for contingent liabilities | 2,236,841 | 2,271,181 | ||||||
| Operating lease liabilities, net of current | 6,796,367 | 2,352,645 | ||||||
| Related party payables | 211,398 | 108,277 | ||||||
| Total liabilities | $ | 23,061,556 | $ | 14,625,768 | ||||
| Commitments and Contingencies Shareholders’ deficit: | ||||||||
| Common stock; par value $0.0001, 70,000,000 shares authorized, 39,141,705 issued and outstanding at September 30, 2023 and December 31, 2022 | 3,914 | 3,914 | ||||||
| Additional paid-in-capital | 61,115,793 | 36,867,572 | ||||||
| Accumulated deficit | (69,575,490 | ) | (40,558,626 | ) | ||||
| Accumulated other comprehensive loss | (36,065 | ) | (59,292 | ) | ||||
| Total shareholders’ deficit | (8,491,848 | ) | (3,746,432 | ) | ||||
| Total liabilities and shareholders’ deficit | $ | 14,569,708 | $ | 10,879,336 | ||||
See accompanying notes to unaudited consolidated financial statements
F-48
AFRICAN AGRICULTURE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| For the nine months ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Revenue | ||||||||
| Sales | $ | 1,451,236 | $ | 330,291 | ||||
| Cost of goods sold | 1,031,135 | 319,711 | ||||||
| Gross profit | 420,101 | 10,580 | ||||||
| Operating expenses: | ||||||||
| Employee compensation | 24,163,737 | 561,492 | ||||||
| Professional fees | 3,760,393 | 2,896,365 | ||||||
| Equipment rental | 19,329 | 77,826 | ||||||
| Operating lease expense | 165,079 | 302,027 | ||||||
| Amortization | 87,009 | 87,009 | ||||||
| Depreciation | 177,194 | 196,349 | ||||||
| Utilities and fuel | 61,410 | 67,578 | ||||||
| Travel and entertainment | 104,920 | 117,697 | ||||||
| Program development and design | - | 101,893 | ||||||
| Other operating expenses | 272,234 | 308,032 | ||||||
| Total operating expenses | 28,811,305 | 4,716,268 | ||||||
| Loss from operations | (28,391,204 | ) | (4,705,688 | ) | ||||
| Other (income) expenses: | ||||||||
| Foreign currency exchange gain | (17,563 | ) | (297,886 | ) | ||||
| Loss on sale of assets | - | 21,281 | ||||||
| Interest expense - related party | 33,078 | 517,085 | ||||||
| Interest expense - other | 618,588 | 276,642 | ||||||
| Other income | (8,443 | ) | - | |||||
| Total other expense | 625,660 | 517,122 | ||||||
| Loss before provision for income tax | (29,016,864 | ) | (5,222,810 | ) | ||||
| Provision for income tax | - | - | ||||||
| Net loss | $ | (29,016,864 | ) | $ | (5,222,810 | ) | ||
| Loss per share | (0.75 | ) | (0.14 | ) | ||||
See accompanying notes to unaudited consolidated financial statements
F-49
AFRICAN AGRICULTURE, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(UNAUDITED)
| For the nine months ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Comprehensive loss | ||||||||
| Net loss | $ | (29,016,864 | ) | $ | (5,222,810 | ) | ||
| Foreign currency translation adjustment | 23,227 | 642,178 | ||||||
| Total comprehensive loss | $ | (28,993,637 | ) | $ | (4,580,632 | ) | ||
See accompanying notes to unaudited consolidated financial statements
F-50
AFRICAN AGRICULTURE, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ DEFICIT
(UNAUDITED)
| Additional | Accumulated Other | |||||||||||||||||||||||
| Common Stock | Paid-In | Accumulated | Comprehensive | |||||||||||||||||||||
| Shares | Amount | Capital | Deficit | (Loss) Income | Total | |||||||||||||||||||
| Balance, January 1, 2022 | 36,148,601 | $ | 3,615 | $ | 1,160,297 | $ | (14,305,129 | ) | $ | (655,675 | ) | $ | (13,796,892 | ) | ||||||||||
| Foreign currency translation | - | - | - | - | 642,178 | 642,178 | ||||||||||||||||||
| Imputed interest expense on shareholder loan | - | - | 517,084 | - | - | 517,084 | ||||||||||||||||||
| Net loss | - | - | - | (5,222,810 | ) | - | (5,222,810 | ) | ||||||||||||||||
| Balance, September 30, 2022 | 36,148,601 | 3,615 | 1,677,381 | (19,527,939 | ) | (13,497 | ) | (17,860,440 | ) | |||||||||||||||
| Balance, January 1, 2023 | 39,141,705 | 3,914 | 36,867,572 | (40,558,626 | ) | (59,292 | ) | (3,746,432 | ) | |||||||||||||||
| Foreign currency translation | - | - | - | - | 23,227 | 23,227 | ||||||||||||||||||
| Imputed interest expense on shareholder loan | - | - | 33,078 | - | - | 33,078 | ||||||||||||||||||
| Share based compensation | - | - | 24,215,143 | - | - | 24,215,143 | ||||||||||||||||||
| Net loss | - | - | - | (29,016,864 | ) | - | (29,016,864 | ) | ||||||||||||||||
| Balance, September 30, 2023 | 39,141,705 | $ | 3,914 | $ | 61,115,793 | $ | (69,575,490 | ) | $ | (36,065 | ) | $ | (8,491,848 | ) | ||||||||||
See accompanying notes to unaudited consolidated financial statements
F-51
AFRICAN AGRICULTURE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| For the nine months ended Sept 30, | ||||||||
| 2023 | 2022 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (29,016,864 | ) | $ | (5,222,810 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | 177,194 | 196,349 | ||||||
| Amortization | 87,009 | 87,009 | ||||||
| Loss on sale of equipment | - | 45,189 | ||||||
| Share based compensation | 24,215,143 | - | ||||||
| Foreign currency exchange gain | (17,563 | ) | (297,886 | ) | ||||
| Non-cash interest expense | 651,666 | 793,727 | ||||||
| Non-cash lease expense | 165,079 | 206,760 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Inventory | 221,544 | (377,299 | ) | |||||
| Prepaid expenses | 25,965 | (649,988 | ) | |||||
| Accounts receivable | 51,185 | (59,678 | ) | |||||
| Other receivable | 93,498 | (6,808 | ) | |||||
| Accounts payable | 1,857,862 | 2,487,126 | ||||||
| Accrued expenses | 350,541 | 179,462 | ||||||
| Accrual for contingent liabilities | (14,857 | ) | (148,462 | ) | ||||
| Other payables | 55,804 | - | ||||||
| Net cash used in operating activities | (1,096,794 | ) | (2,767,309 | ) | ||||
| Cash flows from investing activities: | ||||||||
| Proceeds from sales of equipment | - | 29,370 | ||||||
| Property, plant, and equipment purchases | (13,563 | ) | (188,614 | ) | ||||
| Net cash used in investing activities | (13,563 | ) | (159,244 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from related party payables | 729,000 | 1,755,605 | ||||||
| Principal repayments on seller note payable | - | (1,076,350 | ) | |||||
| Proceeds of debt issuance | 402,500 | 2,306,821 | ||||||
| Net cash provided by financing activities | 1,131,500 | 2,986,076 | ||||||
| Effect of exchange rate changes on cash | 3,296 | (73,195 | ) | |||||
| Net (decrease) increase in cash and cash equivalents | 24,439 | (13,672 | ) | |||||
| Cash and cash equivalents at beginning of period | 10,058 | 19,093 | ||||||
| Cash and cash equivalents at end of period | $ | 34,497 | $ | 5,421 | ||||
| Supplemental Cash Flow Information: | ||||||||
| Income taxes paid | $ | - | $ | - | ||||
| Interest paid | $ | - | $ | - | ||||
| Non-cash items | ||||||||
| Operating lease right-of-use asset assumed through operating lease obligation | $ | 4,338,175 | $ | 2,336,336 | ||||
| Accounts payable relieved to convertible debt | $ | - | $ | 152,500 | ||||
See accompanying notes to unaudited consolidated financial statements
F-52
AFRICAN AGRICULTURE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
NOTE 1 — ORGANIZATION
African Agriculture, Inc. (the “Company”), is focused on commercial farming, fishery logistics and management, and carbon offset production. The Company was incorporated in the State of Delaware on May 7, 2021. Under a Contribution Agreement dated June 24, 2021, by and between the shareholders of Agro Industries Corp and African Agriculture, Inc., Agro Industries Corp agreed to transfer all of its right, title and interest into the Company in exchange for common shares in the Company, with the shareholders of Agro Industries Corp becoming the shareholders of African Agriculture, Inc. pro rata to their existing ownership. Effective for this transaction, the Company owns 100% of Agro Industries Corp, formerly Agro Industries Corp Sub One, a company that was incorporated in the Cayman Islands on January 15, 2018 (“Agro Industries”). The Company is deemed the accounting predecessor and will be the successor for reporting purposes, meaning that prior to formation of the Company, the financials of the Company are the financials of Agro Industries for such previous periods.
Agro Industries has a wholly owned subsidiary, Les Fermes De La Teranga (“LFT”), which is a Senegalese Company formed in Dakar, Senegal. On February 28, 2018, Agro Industries, purchased approximately 91% of the outstanding equity of LFT. During 2021, the shareholders of LFT completed a share swap to enable Agro Industries shareholders to contribute their shares in exchange for shares of African Agriculture resulting in Agro Industries, the 100% owner of LFT, becoming a wholly owned subsidiary of African Agriculture. In March 2022, the Company formed a 100% owned subsidiary named African Agriculture Niger SA for purposes of developing operations in Niger.
In November 2022, the Company entered into a definitive Business Combination Agreement with 10X Capital Venture Acquisition Corp. II (Nasdaq: VCXA). If the Company and VCXA successfully complete the business combination, the Company will merge with and into a subsidiary of VCXA in exchange for VCXA shares being issued to existing shareholders of the Company, with the result being that the Company will become a wholly owned subsidiary of VCXA and the Company’s existing shareholders will become the majority shareholders of VCXA. The potential business combination is still subject to various closing conditions including a shareholders vote.
On November 1, 2022, the Company approved a 3,614.8601-for-1 common stock split and increased the total number of shares authorized to be issued to 70,000,000 common shares. Unless noted otherwise, all previously reported shares have been retroactively adjusted to reflect this stock split.
PRELIMINARY PROSPECTUSOn July 25, 2023, the Company formed a wholly owned subsidiary African Agriculture Mauritania LLC SARL for purposes of developing operations in Mauritania.
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared by the Company in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such SEC rules and regulations and accounting principles applicable for interim periods. However, the Company believes that the disclosures are adequate to make the information presented not misleading. The information included in the quarterly financial information should be read in connection with the audited consolidated financial statements and accompanying notes as of and for the years ended December 31, 2022 and 2021, which are included in this filing.
In the opinion of management, the consolidated financial statements as of September 30, 2023, and for the nine months ended September 30, 2023, reflect all adjustments, which are normal recurring adjustments, necessary to present a fair statement of financial position, results of operations and cash flows. The results of operations for the nine months ended September 30, 2023 are not necessarily indicative of the operating results for the full year or any future periods.
F-53
AFRICAN AGRICULTURE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
CantorUses and Sources of Liquidity
Until , 2021 (25 days after
The consolidated financial statements have been prepared assuming the Company will continue to operate as a going concern, which contemplates the realization of assets and settlement of liabilities in the normal course of business, and does not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from uncertainty related to its ability to continue as a going concern within one year from the date of issuance of these consolidated financial statements.
For the nine months ended September 30, 2023 and 2022, the Company incurred a net loss of approximately $29.0 million and $5.2 million, respectively, and used cash in continuing operations of $1.1 million and $2.8 million, respectively. The Company’s operations have historically been financed principally by loans from its majority shareholder, Global Commodities and Investments Limited, a Cayman Islands registered limited liability company (“Global Commodities”) and its affiliated entities. The Company’s primary sources of liquidity to date are loans from Global Commodities, sales of unneeded fixed assets from the prior ownership, various convertible and short-term debt instruments issued by the Company as well as the sale of alfalfa, which began during the second quarter of 2022. The Company does not have sufficient cash on hand or available liquidity to meet its obligations through the twelve months following the date the consolidated financial statements are issued. This condition raises substantial doubt about the Company’s ability to continue as a going concern should capital not be introduced.
On a go-forward basis the primary sources of liquidity are expected to be cash from operations, potential capital raises, grants and debt financing if available and deemed in the best interests of the Company and its shareholders. The Company’s liquidity requirements are to expand development of alfalfa production, finance current operations, meet financial commitments, fund organic growth and/or acquisitions, if any, and service debt, if outside debt financing is obtained. The liquidity requirements will fluctuate with the level and pace of expansion of the acreage being planted, harvested and sold, the effects of the timing between the settlement of payables and receivables, and our general working capital needs for ongoing operations. Estimating liquidity requirements is highly dependent on farming yields, then-current market conditions, including selling prices, costs of all farming inputs, market volatility and our then existing capital structure and requirements. It is anticipated that once the Company has fully developed the Senegal property it will have sufficient resources to fund the ongoing operations of the Company.
In connection with this prospectus)Business Combination Agreement VCXA and the Company have secured a $100 million equity line of credit facility from an affiliate of Yorkville Advisors. In addition, VCXA and the Company have secured an up to $100 million backstop commitment to help offset the impact of potential shareholder redemptions from a client of Cohen & Company Financial Management, LLC. The liquidity from these agreements will be available to the Company only following a successful closing of the business combination agreement and a resulting merger with VCXA.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All transactions and balances among the Company and its subsidiaries have been eliminated upon consolidation. The portion of a subsidiary owned by other investors is shown as non-controlling interest on the consolidated financial statements. After taking into account the impact of the Contribution Agreement discussed in Note 1, the Company now owns 100% of Agro Industries Corp and therefore the Company no longer records any non-controlling interest.
F-54
AFRICAN AGRICULTURE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
Foreign Currency Translation
The accompanying consolidated financial statements are presented in United States dollars (“$”), which is the reporting currency of the Company. The functional currency of the Company is the United States dollar. The functional currency of the Company’s subsidiaries located in Senegal and Niger is the West African Franc (“CFA”).
For the entities whose functional currencies are the CFA, results of operations and cash flows are translated at average exchange rates during the period (1 CFA=$0.001651 for the nine-months ended September 30, 2023 and 1 CFA=$0.001614 for the nine-months ended September 30, 2022), assets and liabilities are translated at the current exchange rate at the end of the period (1 CFA=$0.001614 at September 30, 2023, and 1 CFA=$0.001628 at December 31, 2022), and equity is translated at blended historical exchange rates. The resulting translation adjustments are included in determining other comprehensive income. Transaction gains and losses are reflected in the consolidated statements of operations.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities on the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates and judgments on historical experience and on various other assumptions and information that are believed to be reasonable under the circumstances. Estimates and assumptions of future events and their effects cannot be perceived with certainty and, accordingly, these estimates may change as new events occur, as more experience is acquired, as additional information is obtained and as our operating environment changes. Significant estimates and assumptions by management include, among others, useful lives and impairment of long-lived assets, contingent liabilities, imputed interest expense and income taxes including the valuation allowance for deferred tax assets. While the Company believes that the estimates and assumptions used in the preparation of the financial statements are appropriate, actual results could differ from those estimates. Estimates and assumptions are periodically reviewed and the effects of revisions are reflected in the consolidated financial statements in the period they are determined to be necessary.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, cash in bank accounts, cash in time deposits, certificates of deposit and all dealershighly liquid instruments with original maturities of three months or less. As of September 30, 2023 and December 31, 2022 cash balances were held at JP Morgan Chase and in various banks in Senegal and Niger. There were no cash equivalents at September 30, 2023 or December 31, 2022.
Property, plant, and equipment
Property, plant, and equipment consist of farming and farming support equipment, and office equipment. All property, plant and equipment are stated at historical cost net of accumulated depreciation. Repairs and maintenance are expensed as incurred. Property, plant and equipment are depreciated on a straight-line basis over the following periods:
| Buildings | 40 years | |
| Irrigation equipment | 20 years | |
| Industrial equipment | 6-10 years | |
| Office furniture and equipment | 5 years | |
| Motor vehicle and transportation equipment | 10 years | |
| Other equipment | 3 years |
F-55
AFRICAN AGRICULTURE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
Leases
The Company determines if an arrangement is a lease at inception. To the extent an arrangement represents a lease, the Company classifies that buy, selllease as an operating lease or tradea finance lease under Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) and its related ASUs (“ASC 842”).
The Company capitalizes operating leases on its Consolidated Balance Sheets through a Right-of-Use (“ROU”) asset and a corresponding lease liability. ROU assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities represent the Company’s obligation to make lease payments arising from the operating lease. Operating lease ROU assets and obligations are recognized at the commencement date of an arrangement based on the present value of lease payments over the lease term utilizing an interest rate that the Company would have incurred to borrow over a similar term the funds necessary to purchase the leased asset. Operating leases are included in “Operating lease right-of-use assets, net,” “Current portion of operating lease liabilities,” and “Non-current operating lease liabilities” in the Company’s Consolidated Balance Sheets as of September 30, 2023, and December 31, 2022. Lease expense for operating leases is recognized on a straight-line basis over the lease term.
For additional information regarding the Company’s leases, see Note 4 — Leases.
Inventory
Inventories are stated at the lower of cost or net realizable value. Cost is calculated on the basis of the first-in, first-out method; market is based upon estimated replacement costs. Costs included in inventory primarily include the following: cost of seeds, farming inputs such as fertilizer, gypsum, water and fuel as well as inbound freight cost. Each pivot is cleared, treated with fertilizer and various phytosanitary products and seeded ahead of the life cycle of alfalfa, which we currently estimate to be approximately three years. These initial costs are amortized using a straight-line method over that life cycle. The portion of these costs expected to amortize after twelve months is included in long-term inventory.
Intangible Asset
The intangible asset consists of a land use right of 20,000 hectares provided by way of a Senegal Presidential decree. The value of the intangible was established based on its estimated fair value at the time of the asset purchase of LFT by Agro Industries in 2018. Amortization of the intangible asset is calculated on a straight-line basis over the remaining term of the decree, which at the time of the purchase had 44 years of a 50-year term remaining. As of September 30, 2023, approximately 39 years remain under this decree. Refer to Note 5 for further discussion.
Impairment of Long-Lived Assets
The Company’s long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Recoverability of an asset to be held and used is measured by a comparison of the carrying amount of the asset to the future undiscounted cash flows expected to be generated by the asset. If such asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value. Impairment evaluations involve management’s estimates on asset useful lives and future cash flows. Actual useful lives and cash flows could be different from those estimated by management which could have a material effect on our ordinaryreporting results and financial position. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. There was no impairment charge for the nine-months ended September 30, 2023 or 2022.
F-56
AFRICAN AGRICULTURE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
Fair Value of Financial Instruments
The Company adopted ASC 820 “Fair Value Measurements,” which defines fair value, establishes a three-level valuation hierarchy for disclosures of fair value measurement and enhances disclosure requirements for fair value measures.
The three levels are defined as follows:
| Level 1 — | inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. |
| Level 2 — | inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liabilities, either directly or indirectly, for substantially the full term of the financial instruments. |
| Level 3 — | inputs to the valuation methodology are unobservable and significant to the fair value. |
Financial instruments include cash and cash equivalents, receivables, accounts payable and accrued expenses, advances from prospective customers/distributors, amounts due to related parties, notes payable and contingent liabilities. The carrying values of these financial instruments approximate their fair values due to the short-term maturities of these instruments.
For the periods presented, there were no financial assets or liabilities measured at fair value.
Income Taxes
The Company follows the liability method in accounting for income taxes in accordance with ASC topic 740 (“ASC 740”), Income Taxes. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax basis of assets and liabilities using enacted tax rates that will be in effect in the period in which the differences are expected to reverse. The Company records a valuation allowance against deferred tax assets if, based on the weight of available evidence, it is more likely than not that some portion, or all, of the deferred tax assets will not be realized.
The Company applies the provisions of ASC 740 to account for uncertainty in income taxes. ASC 740 clarifies the accounting for uncertainty in income taxes by prescribing the recognition threshold a tax position is required to meet before being recognized in the consolidated financial statements.
The Company will classify interest and penalties related to unrecognized tax benefits, if and when required, as part of income tax expense in the consolidated statements of operations.
Revenue Recognition
The Company’s revenue is derived from the sale of agricultural products. The Company recognizes revenue in accordance with ASC 606. To achieve that core principle, the Company applies the following steps:
| 1. | Identify the contract(s) with a customer; |
| 2. | Identify the performance obligations in the contract; |
| 3. | Determine the transaction price; |
| 4. | Allocate the transaction price to the performance obligations in the contract; |
| 5. | Recognize revenue when (or as) the entity satisfies a performance obligation. |
F-57
AFRICAN AGRICULTURE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
The Company recognizes its revenue at a point in time when it satisfies a performance obligation and transfers control of the product, primarily bales of alfalfa, to the respective customer. For domestic product sales, the Company meets its performance obligation upon the shipment of the products from its facilities to its customer. For international product sales, the Company meets its performance obligation upon delivery of the products to the customer’s international carrier. The Company does not provide any services to its customers currently.
The amount of revenue recognized is based on the fixed transaction price. Contracts for the Company’s products are negotiated on a per-contract basis at a regional level. Contracts vary in volume and price but typically have a single performance obligation, the delivery of bales of alfalfa.
The Company’s payment terms vary by the type and location of its customers and type of product. The Company receives cash equal to the invoice amount for its product sales, and payment terms typically range from 30 to 90 days from the date the Company invoices a customer. Since the period between the delivery of the Company’s products and the Company’s receipt of customer payment for these products and services is not expected to exceed one year, the Company has elected not to calculate or disclose a financing component for its customer contracts. The Company excludes sales taxes, value added taxes, and other taxes it collects concurrent with revenue producing activities from revenue. The Company’s contract assets at September 30, 2023, December 31, 2022 and December 31, 2021consisted of accounts receivable, which totaled $36,958, $87,755 and $0, respectively.
Share-based compensation
The Company measures compensation expense for all stock-based awards in accordance with ASC Topic 718, Compensation — Stock Compensation. Share-based compensation is measured at fair value on grant date and recognized as compensation expense ratably over the course of the requisite service period. The fair value of restricted stock units (“RSUs”) is typically determined based on the fair value of the related shares on the date of grant. The Company has elected to record forfeitures of employee awards as they occur.
Comprehensive Loss
Comprehensive loss is defined as the decrease in equity of the Company during a period from transactions and other events and circumstances excluding transactions resulting from investments by owners and distributions to owners. Comprehensive loss is reported in the consolidated statements of comprehensive loss, including net loss and foreign currency translation adjustments, presented net of tax.
Earnings per Share
Earnings per share are computed by dividing net income/(loss) applicable to the weighted number of shares outstanding during the period. The Company completed a share split on November 1, 2022 in the ratio of 3,614.8601:1.There were 39,141,705 shares outstanding at both September 30, 2023 and December 31, 2022. Neither the RSUs granted during the year ended December 31, 2022 nor the 291,911 shares that would be issued if the Company’s Convertible Promissory Notes that were issued during 2022 were converted by their terms as of September 30, 2023 were included in the calculations of earnings per share as these instruments are anti-dilutive.
Accounting Changes
Leases — ASC 842
On January 1, 2022, and effective January 1, 2022, the Company adopted ASU 2016-02, “Leases (Topic 842)” using the modified retrospective transition method allowing it to apply the new standard at the adoption date and to recognize a cumulative-effect adjustment to the opening balance of retained earnings on the date of adoption. Under this transition method, the prior comparative period continues to be reported under the accounting standards in effect for that period.
F-58
AFRICAN AGRICULTURE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
The Company elected to use the package of practical expedients permitted which allows (i) an entity not to reassess whether any expired or existing contracts are or contain leases; (ii) an entity need not reassess the lease classification for any expired or existing leases; and (iii) an entity need not reassess any initial direct costs for any existing leases. The Company made an accounting policy election to adopt the short-term lease exception which allows the Company to not recognize on the balance sheet those leases with terms of 12 months or less resulting in short-term lease payments being recognized in the condensed consolidated statements of income on a straight-line basis over the lease term. All of the Company’s leases were previously classified as operating and are similarly classified as operating lease under the new standard.
Adoption of the new standard resulted in recognition of right-of-use assets and related lease liabilities of $2,336,336 as of January 1, 2022. There was no cumulative effect on retained earnings upon adoption.
Revenue from Contracts with Customers — ASC 606
The Company adopted ASC 606 — Revenue from Contracts with Customers, effective January 1, 2022. Prior to 2022, the Company had no revenue from contracts with customers.
Upon adoption of ASC 606, the Company recognizes revenue when the product is received by the customer for domestic transactions or by the customer’s international carrier for its international transactions. The Company believes this better reflects the point at which the customer has control of the product as required by ASC 606. The adoption of ASC 606 did not have a material impact on the Company’s consolidated financial statements.
NOTE 3 — Property Plant and Equipment
Property plant and equipment, net consists of the following:
| September 30, 2023 | December 31, 2022 | |||||||
| Buildings | $ | 93,997 | $ | 94,825 | ||||
| Office furniture and equipment | 105,545 | 105,172 | ||||||
| Irrigation and industrial equipment | 4,257,422 | 4,291,465 | ||||||
| Motor vehicle and transportation equipment | 23,235 | 20,672 | ||||||
| Other equipment | 371,573 | 368,973 | ||||||
| Total | 4,851,772 | 4,881,107 | ||||||
| Less: accumulated depreciation | (2,808,585 | ) | (2,658,586 | ) | ||||
| Property, plant, and equipment, net | $ | 2,043,187 | $ | 2,222,521 | ||||
NOTE 4 — LEASEs
On January 1, 2022, and effective January 1, 2022, the Company adopted ASC 842. Under ASC 842, the Company determines if an arrangement is a lease at inception. Leases with an initial term of 12 months or less are not recorded in the Company’s Consolidated Balance Sheets. Leases with an initial term greater than 12 months are recognized in the Company’s Consolidated Balance Sheets based on lease classification as either operating or financing. The Company may enter into lease agreements that include lease and non-lease components for which the Company has elected to not separate for all classes of underlying assets. The Company’s current lease agreements do not contain any material residual value guarantees or material restrictive covenants. The Company may also sublease its ROU assets to third parties in the future.
F-59
AFRICAN AGRICULTURE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
NOTE 4 — LEASEs (cont.)
As a lessee, the Company’s current operating lease portfolio consists of three operating leases for farmland. Operating lease ROU assets and operating lease obligations are recognized based on the present value of the future minimum lease payments at commencement date. As the Company’s leases do not provide an implicit borrowing rate, the Company uses its incremental borrowing rate based on the lease information available at the commencement date in determining the present value of future payments. The initial incremental borrowing rate utilized for the Fass Lease (as defined below) and Niger Land Right (as defined below) was based upon the interest rate associated with the Company’s analysis of borrowing rates relating to “Senegal, 6.25% 2033, USD International Bonds” adjusted for credit and political risks. The Company believes this rate is a proxy for its incremental borrowing rate that would be utilized if it were to acquire assets or fund its working capital needs in Senegal and Niger. For the Company’s recently signed lease in Mauritania as there is no reference or comparable debt issuances, the Company utilized the same reference rate used for Niger Land Right, however adjusted the rate to also consider the increasing global rates since the commencement date of the Niger Land Right.
The Company’s current three leases are under long-term (greater than one year) non-cancellable term leases. The Company had one short-term lease and may also enter into other short-term or month-to-month operating leases in the future as required by its operations.
Operating leases are included in “Operating lease right-of-use assets, net,” “Current portion of operating lease liabilities,” and “Non-current operating lease liabilities” in the Company’s Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022.
Operating Leases
The Company has a non-cancellable convention agreement with the Fass Ngom community in Senegal (“Fass Lease”) that provides for the right to use 5,000 hectares. The original agreement was signed in 2018, but revised in 2021, largely on the same terms, for a 15-year term.
On November 27, 2021 and December 5, 2021, the Company and Agro Industries signed binding definitive agreements with the mayor and local governments of Aderbissinat and Ingall, respectively, in Niger each under a 49-year term for the right to use and development the land (“Niger Land Right”). The project will involve the planting of up to 1.1 million hectares of trees in each of Aderbissinat and Ingall, for an aggregate of 2.2 million hectares, to optimize the production of carbon credits and commercial production of alfalfa in areas to be mutually agreed upon by the parties, as well as water and usage rights. Pursuant to the Aderbissinat and Ingall agreements, the Company agreed to pay for each agreement approximately $86,000 per year. Once the sale of carbon credits commences the annual payment amount will increase to approximately $1.1 million for each of the Aderbissinat and Ingall leases. In addition, during the first year of the sale of carbon credits, we are required to pay an additional $129,000 for each agreement for budgetary support to each region. To date no carbon credits have been sold.
Following the formation of the Company’s Mauritanian subsidiary a lease signed between the Company, the community of Gie Dynn and the Government of Mauritania (the “Mauritania Lease”) became effective. This lease is for 20 years and covers 2,033 hectares of land. Of this land, 80%, or 1,626 hectares will be used by the Company for farming alfalfa with the balance being farmed, at the Company’s cost, at the direction of the community. The Company has agreed to invest up to $30 million into this project over the next 20 years. The annual cost of the 1,626 hectares will be $300 per hectare per annum, subject to an annual increase consistent with the household consumption index (a proxy for local inflation). In addition, the Company will pay 5% of annual net profits earned on the 1,626 hectares to the community subject to an annual minimum payment of approximately $122,000.
The Fass Lease, the Niger Land Right and the Mauritania Lease are operating leases under ASC 842.
F-60
AFRICAN AGRICULTURE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
NOTE 4 — LEASEs (cont.)
Short-term Lease
In August 2021, the Company entered into a one-year lease agreement with a company that its wholly-owned by Gora Seck for residential accommodations (“Seck Lease”) for use by employees. The monthly lease rate for this lease was approximately $11,200 per month. As this lease was not longer than 12 months, the lease expense was recognized on a straight-line basis over the lease term. This lease was not renewed in 2022.
The associated lease costs have been recognized in our consolidated statement of operations as follows:
| For the nine months ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Operating lease cost | $ | 165,079 | $ | 206,760 | ||||
| Short-term lease cost | $ | — | $ | 95,268 | ||||
Other information about the lease amounts recognized in our consolidated financial statements is as follows:
| September 30, 2023 | ||||
| Weighted-average remaining lease term – operating leases | 27.9 years | |||
| Weighted-average incremental borrowing rate – operating leases | 11.18 | % | ||
Our lease liabilities as reported on the accompanying consolidated balance sheet consists of the following:
| September 30, 2023 | ||||
| Gross lease liabilities | $ | 21,123,379 | ||
| Less: Imputed interest | 14,310,942 | |||
| Present value of lease liabilities | $ | 6,812,437 | ||
| Less: current portion of lease liabilities | 16,070 | |||
| Total long-term lease liabilities | $ | 6,796,367 | ||
The following summarizes our rent payments for the Fass Lease, the Niger Land Right and the Mauritania Lease operating leases as of September 30, 2023:
| 2023 (remaining) | $ | 324,436 | ||
| 2024 | 825,657 | |||
| 2025 | 826,533 | |||
| 2026 | 827,426 | |||
| 2027 | 828,338 | |||
| Thereafter | 17,490,989 | |||
| $ | 21,123,379 |
F-61
AFRICAN AGRICULTURE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
NOTE 5 — Intangible Asset
The Company recognized an intangible asset in connection with the purchase of LFT related to the 50-year land use right of 20,000 hectares provided by way of a Republic of Senegal Presidential Decree.
The intangible asset, net consists of the following:
| September 30, 2023 | December 31, 2022 | |||||||
| Land use right | $ | 5,104,546 | $ | 5,104,546 | ||||
| Less: Accumulated amortization | (647,737 | ) | (560,728 | ) | ||||
| Intangible asset, net | $ | 4,456,809 | $ | 4,543,818 | ||||
Scheduled amortization of the land use right at March 31, 2023 are as follows:
| 2023 (remaining) | $ | 29,003 | ||
| 2024 | 116,012 | |||
| 2025 | 116,012 | |||
| 2026 | 116,012 | |||
| 2027 | 116,012 | |||
| 2028 and thereafter | 3,963,758 | |||
| $ | 4,456,809 |
At September 30, 2023, management looked primarily at the undiscounted future cash flows of the Company, based on management’s estimates, in its assessment of whether or not participatingthis intangible asset was impaired. There were no impairments with respect to this intangible asset during the nine-months ended September 30, 2023 or 2022.
NOTE 6 — INVENTORY
The costs for establishing the seeded pivots including seeds, land preparation and various phytosanitary products that are applied prior to and in conjunction with the initial seeding, but which will not be reapplied during the growing and harvesting stages are allocated quarterly to the cost of production over the seed cycle, which we estimate will be three years. The remaining unallocated costs are included in inventory. In addition, all other ongoing costs associated with the continued growing and harvesting of each pivot are included in inventory. The allocated quarterly costs together with a harvested cost of the sold bales are allocated to cost of sales based on a first in first out method. The assessment of the recoverability of inventories and the amounts of any write-downs are based on currently available information and assumptions about future demand and market conditions. There is no contemplation of any write down of our current inventory.
| September 30, 2023 | December 31, 2022 | |||||||
| Seed costs, fertilizer, other direct costs to be allocated over cycle – current | $ | 219,334 | $ | 221,264 | ||||
| Inventory available for sale | 736 | 61,067 | ||||||
| Seed inventory | 25,208 | 28,387 | ||||||
| Fertilizer and other phytosanitary materials | 14,776 | 4,131 | ||||||
| Inventory – current | $ | 260,054 | $ | 314,849 | ||||
| Long term inventory | 109,667 | 276,581 | ||||||
| Total inventory | $ | 369,721 | $ | 591,430 | ||||
F-62
AFRICAN AGRICULTURE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
NOTE 7 — Related Party Payables and Transactions
During the normal course of business, the Company may enter into transactions with significant shareholders, directors and principal officers and their affiliates.
The Company has an unsecured payable due to a related party, the majority shareholder, Global Commodities & Investments Ltd. (“Global Commodities”). The related party payable does not have a stated interest rate. The payable between Global Commodities, and the Company has a 60-month rolling term following the creation of payables within each year. These payables are West African CFA Franc denominated and translated at year end spot rates. Since the time of the acquisition of LFT by Agro Industries, the majority shareholder has continued to provide funding to support the working capital needs of the business. Each new funding has been added to the principal of the related party payable. The balance of the related party loan, $16,130,522, was converted into equity during 2022. Global Commodities continued to provide funds to the Company as a related party payable after this conversion. The Company entered into a Payoff, Waiver and Release Agreement (the “GCIL Payoff Agreement”) in October 2022 with Global Commodities. The GCIL Payoff Agreement called for, among other things, the issuance of Company shares in repayment of $16,130,522. The GCIL Payoff Agreement calls for the termination of all outstanding principal amount of loans and all unpaid interest through the date of such payoff.
In January 2023, the Company issued to a related party, 10X Capital SPAC Sponsor II LLC an additional $225,000 Promissory Note bearing no interest. This Note maturity is the earlier of (i) the receipt of funds by Borrower from an equity, equity-linked, or debt financing and (ii) the Closing of the VCXA Merger Agreement. In May 2023, the $225,000 Promissory Note issued to the related party was amended and an additional $62,000 was issued pursuant to this note. The amendment further provided that the Note can be drawn on up to $750,000 in the aggregate. As part of this amendment, the Company agreed to issue to the Promissory Note holder a number of shares of the Company’s Common Stock, par value $0.0001 per share (the “Extension Shares”), equal to the number of Class B ordinary shares, par value $0.0001 per share, of 10X Capital Venture Acquisition Corp. II transferred to investors in connection with any past or future extensions of the deadline by which VCXA must consummate an initial business combination. In June through September an additional $338,879 was issued pursuant to this Promissory Note.
The Company previously had a related party loan with a minority shareholder, which also had no stated interest rate or maturity. The related party payable to the minority shareholder, was converted into equity in LFT during 2021.
The related party obligations of the Company are comprised of the following:
| September 30, 2023 | December 31, 2022 | |||||||
| Global Commodities | $ | 211,398 | $ | 108,277 | ||||
| 10X Capital SPAC Sponsor II LLC | 625,879 | - | ||||||
| Total | $ | 837,277 | $ | 108,277 | ||||
As of September 30, 2023, the related party payable has the following maturity schedule:
| 2023 (remaining) | $ | 625,879 | ||
| 2024 | — | |||
| 2025 | — | |||
| 2026 | — | |||
| 2027 | 108,277 | |||
| 2028 | 103,121 | |||
| $ | 837,277 |
F-63
AFRICAN AGRICULTURE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
NOTE 7 — Related Party Payables and Transactions (cont.)
In addition, to the shareholder loans, Global Commodities provided a loan repayment guarantee to the sellers of the LFT shares in the 2018 transaction. Refer Note 8 — Seller Note Payable.
As the related party payables have no stated interest rate, an imputed interest rate has been applied against such loan to represent an arms-length arrangement between the Company and the related party. The Company estimates comparable debt as of the date of the origination would incur interest of one-month SOFR plus 2.5% on an annual basis. Historically LIBOR was used as a reference rate, however as LIBOR is phased out, the Company began using SOFR. The following table summarizes imputed interest to related parties during the nine months ended September 30, 2023 and 2022. As this interest has not been paid on an annual basis it has been recorded as additional paid-in-capital.
| September 30, 2023 | September 30, 2022 | |||||||
| Imputed interest rate (SOFR + 2.5%) | 7.81 | % | 5.64 | % | ||||
| Imputed interest – additional paid-in-capital | $ | 33,078 | $ | 517,085 | ||||
During the nine-months ended September 30, 2023 and 2022, Gora Seck who serves on the board of LFT and is a minority shareholder of the Company received consulting payments for work conducted in Senegal of approximately $86,842 and $133,708, respectively. In addition, in August 2021, the Company entered into a one-year lease agreement with a company that is majority owned by Gora Seck. The monthly lease rate for this lease was approximately $11,200 per month. This lease expired in 2022 and was not renewed.
NOTE 8 — Seller Note Payable
The Company issued a note payable to Tampieri Financial Group in connection with the LFT asset acquisition in February 2018. In November 2022, Tampieri Financial Group agreed to a delayed payment of the balance of the seller note payable. The amendment fee, which is due at the maturity of the seller note payable, is being amortized monthly over the remaining period of the seller note payable. In May 2023, the Company and Tampieri Financial Group agreed to extend the payment date of approximately $544,000 that was due on March 31, 2023 until October 31, 2023. In consideration of Tampieri Financial Group’s agreement to amend the payment schedule the Company agreed to pay interest of 6.3% per annum on this delayed portion only. The interest is due at the date of final payment.
Other than the interest related to the delayed payment on March 31, 2023, the seller note payable does not bear an interest rate. As a result, the fair value of the seller note payable was less than face value when issued in the LFT asset acquisition. The seller note payable is presented net of unamortized discount and the unamortized amendment fee.
| September 30, 2023 | December 31, 2022 | |||||||
| Seller note payable | $ | 1,958,486 | $ | 1,976,050 | ||||
| Less: unamortized discount | — | — | ||||||
| Less: unamortized amendment fee | 31,141 | 311,419 | ||||||
| Add: interest on delayed instalment | 30,988 | — | ||||||
| Total | $ | 1,958,333 | $ | 1,664,631 | ||||
The remaining balance was due on October 31, 2023. The Company is in negotiation regarding the settlement or extension of this seller note payable.
Global Commodities has provided a loan repayment guarantee to Tampieri Financial Group for the amount of the outstanding seller note payable.
F-64
AFRICAN AGRICULTURE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
NOTE 9 — DEBT
During the year ended December 31, 2022, the Company issued Convertible Promissory Notes (“Notes”) the proceeds of which would be used to fund general corporate purposes. The Notes bear a simple interest rate of twelve percent (12%) per annum based on a 365-day year. The Notes have a one-year maturity. The Notes will automatically convert into common stock in the event of an IPO or upon the occurrence of another Qualified Financing or merger and acquisition transactions at a 20% discount to the IPO, another Qualified Financing offering or transaction price. There were $1,969,321 of convertible promissory notes outstanding as of both September 30, 2023 and December 31, 2022. Approximately $263,000 of the notes were with related parties of the Company.
In addition, the Company issued Promissory Notes (“Short Term Notes”) the proceeds of which would be used to fund general corporate purposes. The Notes bear a simple interest rate of sixteen percent (16%) per annum based on a 365-day year. The Notes have a four-month maturity, with an option of the Company to extend the maturity an additional four months. There were $688,925 and $586,425 of Short Term Notes outstanding as of September 30, 2023 and December 31, 2022, respectively, of which $113,925 and $41,425 were with related parties of the Company, respectively.
In February 2023, the Company issued an additional $300,000 Promissory Note. The Promissory Note bears a simple interest rate of two and a half percent (2.5%) per month based on a 30-day month. The Promissory Note has an eighteen-month maturity. In connection with this loan, the Promissory Note holder received warrants to acquire 30,000 shares in the Company at $11.50 per share.
NOTE 10 — Commitments
In June 2021, we entered into a non-binding understanding with Louisiana State University (“LSU”) to provide for a mutually-beneficial research project in which LSU will provide training, research and academic support. We continue to work with LSU to finalize the terms of the training and development project under the collaborative agreement. The term of the agreement is expected to run through June 30, 2026. The total amount to be paid by the Company to LSU has not yet been determined. Either party may terminate the agreement on 30 days’ prior written notice.
On May 14, 2022, the Company signed an agreement with the Directorate General of Water and Forests (“DGEF”) of Niger who manages forest reserves for a total area of 624,568 hectares to be reforested and developed by the Company. Under the terms of the agreement, African Agriculture will provide all necessary funds to carry out the programmed activities. The Company further agreed to distribute 10 percent of the profit from the sale of carbon credits, when they occur, to the State of Niger and to the social and development program in the concerned municipalities. Furthermore, until the sale of carbon credits, African Agriculture will allocate an amount of approximately $80,000 to the DGEF. The agreement tenure is for 25 years duration, renewable after project assessment. After the start of the project, its duration may be requiredextended for 20 years upon agreement between the parties. We have determined that this agreement does not meet the definition of a lease.
NOTE 11 — Contingent Liabilities
Various creditors and ex-employees in Senegal commenced some form of legal action for claims relating to the period prior to our acquisition of LFT. The Company has, as a result, several legal cases that are in various stages of resolution. The contingent liability includes various legal cases and other claims. The Company recorded a contingent liability representing, in the Company’s opinion, based on our outside counsel’s review, probable loss outcome for legal claims. At September 30, 2023 and December 31, 2022, the amount of the provision for the contingent liability, is $2,236,841 and $2,271,181, respectively. While there is a possibility that additional claims relating to pre-acquisition periods might arise such an amount is unknowable and hence cannot be estimated.
F-65
AFRICAN AGRICULTURE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
NOTE 12 — EMPLOYEE AND NON-EMPLOYEE SHARE BASED COMPENSATION
In 2022, the Company’s Board of Directors approved the adoption of the African Agriculture, Inc. 2022 Incentive Plan (the “Plan”). The Plan, as amended by the Board of Directors, permits the Company to grant up to 2,885,640 shares (at December 31, 2022) of the Company’s common stock.
The Plan provides for the granting of incentive and nonqualified stock options, share appreciation rights (SARs), restricted stock, and restricted stock units to employees, non-employee directors, and consultants of the Company. Instruments granted under the Plan generally become exercisable ratably over the stated vesting terms in each award agreement following the date of grant and expire ten years from the date of grant. All stock awards are exercisable only to the extent vested. The exercise price of incentive stock awards must be at least equal to 100% of the fair value of the Company’s common stock at the date of grant, as determined by the Board of Directors.
In addition, and as a separate award outside of the plan the Board approved an award of 2,700,000 RSUs to African Discovery Group, Inc., a corporation majority owned by the CEO of the Company.
A summary of stock award activity and related information is as follows:
| Number of | Weighted Average Remaining Vesting Term | Grant Date | ||||||||||
| RSUs | (in years) | Fair Value | ||||||||||
| Plan Awards: | ||||||||||||
| Employees: | ||||||||||||
| Nonvested at January 1, 2023 | 2,437,496 | 2.56 | $ | 24,374,960 | ||||||||
| Awarded during the period | — | — | — | |||||||||
| Vested during the period | — | — | — | |||||||||
| Forfeited, canceled, or expired | — | — | — | |||||||||
| Nonvested – September 30, 2023 | 2,437,496 | 1.81 | $ | 24,374,960 | ||||||||
| Non-employees: | ||||||||||||
| Nonvested at January 1, 2023 | 352,194 | 3.38 | $ | 3,521,940 | ||||||||
| Awarded during the period | — | — | — | |||||||||
| Vested during the period | — | — | — | |||||||||
| Forfeited, canceled, or expired | — | — | — | |||||||||
| Nonvested – September 30, 2023 | 352,194 | 2.63 | $ | 3,521,940 | ||||||||
| Awards outside of the Plan: | ||||||||||||
| Employees: | ||||||||||||
| Nonvested – at January 1, 2023 | 2,700,000 | 1.17 | $ | 27,000,000 | ||||||||
| Awarded during the period | — | — | — | |||||||||
| Vested during the period | — | — | — | |||||||||
| Forfeited, canceled, or expired | — | — | — | |||||||||
| Nonvested – September 30, 2023 | 2,700,000 | 0.42 | $ | 27,000,000 | ||||||||
F-66
AFRICAN AGRICULTURE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
NOTE 12 — EMPLOYEE AND NON-EMPLOYEE SHARE BASED COMPENSATION (cont.)
As all 2022 stock awards were granted contemporaneously with the Business Combination Agreement with VCXA, the Board of Directors determined the grant date fair value of the stock awards to be $10 per share, which is based on the per share merger consideration of the pending business combination. There were no new grants during the nine months ended September 30, 2023. As of September 30, 2023, there was approximately $25,360,000 of unamortized share-based compensation cost related to unvested stock awards. The unamortized share-based compensation is expected to be recognized over a weighted average period of approximately 1.4 years, and as the stock awards vest, the Company will record compensation and non-employee expense with the offset to additional paid-in capital.
In May 2023, the Board approved a resolution amending various RSU grants to extend the first vesting period of various RSU grants awarded in 2022 to January 2024. This change did not amend any subsequent vesting dates and hence the time to final vesting for the RSUs did not change.
The table below shows share-based compensation expense recognized in the statement of operations for the nine months ended September 30:
| 2023 | 2022 | |||||||
| Share based compensation expense: | ||||||||
| Employee compensation | $ | 23,470,956 | $ | — | ||||
| Professional fees | 744,187 | — | ||||||
| Total | $ | 24,215,143 | $ | — | ||||
NOTE 13 — Subsequent Events
In preparing the consolidated financial statements, the Company has evaluated all subsequent events and transactions for potential recognition of disclosure through December 12, 2023, the date the consolidated unaudited financial statements were issued.
In October 2023, the Company borrowed from a related party, 10X Capital SPAC Sponsor II LLC, an additional $144,655 covered under the existing Promissory Note. and concurrently amended the existing Promissory Note to provide that the Note can be drawn on up to $800,000 in the aggregate.
In November 2023, the Company increased the number of shares of its common stock reserved for issuance under its 2022 Incentive Plan from 2,881,727 to 9,500,000 and granted 6,699,719 restricted stock units to numerous individuals including the executive officers and directors.
In November 2022, the Company entered into certain Transaction Bonus and Release Agreements entitling a one-time transaction bonus of $700,000 upon consummation of the Business Combination with 10X Capital Venture Acquisition Corp. II. In November 2023, the Company amended these arrangements to provide that the bonuses contemplated by such Release Agreements will be recharacterized as retention bonuses payable no later than August 21, 2024, subject to each recipient’s continued service as of the payment date.
As discussed in Note 9, during the year ended December 31, 2022, the Company issued Convertible Promissory Notes with a one-year maturity. In November, the holders of these Notes and the Company desired to extend the Maturity Date to February 2024, to (i) allow for the conversion of certain of the Notes upon closing of the Business Combination with 10X Capital Venture Acquisition Corp or (ii) allow for prepayment of certain of the Notes upon closing of the transaction. In November, the Company issued approximately $333,000 Convertible Promissory Notes in settlement of various payables owing by the Company, and additionally issued approximately $66,600 in Convertible Promissory Notes.
In November 2023, the Company issued approximately $182,000 Short Term Notes, the proceeds of which would be used to fund general corporate purposes, and the Company raised $50,000 in a short-term bridge note. This note bears an interest rate of ten percent (10%) payable at the one-month maturity of the bridge note. This short-term bridge note was repaid in December.
In November 2023, in connection with the Business Combination Agreement with 10X Capital Venture Acquisition Corp. II, the Company signed an amendment to this agreement such that 10X Capital Venture Acquisition Corp. II agreed to waive the covenant requiring the Company to deliver a prospectus.duly executed Offtake Agreement at closing. In consideration for this amendment, the Company agreed to issue 3,000,000 shares of the combined company to remaining public and private holders of 10X Capital Venture Acquisition Corp. II shares at the closing of the merger agreement.
F-67
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
African Agriculture, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of African Agriculture, Inc. and subsidiaries (the “Company”) as of December 31, 2022 and 2021 and the related consolidated statements of operations, comprehensive loss, changes in shareholders’ deficit, and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022and 2021, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Restatement of 2021 Consolidated Financial Statements
As discussed in Note 3 to the consolidated financial statements, the accompanying consolidated financial statements as of December 31, 2021, and for the year then ended have been restated to correct misstatements.
Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has incurred significant losses, negative cash flows from operations, and is in a deficit working capital position all of which raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the Company’s auditor since 2021.
/s/ Whitley Penn LLP
Houston, Texas
June 30, 2023
F-68
AFRICAN AGRICULTURE, INC.
CONSOLIDATED BALANCE SHEETS
| December 31, | ||||||||
| 2022 | 2021 | |||||||
| (Restated) | ||||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 10,058 | $ | 19,093 | ||||
| Inventory – current | 314,849 | 549,739 | ||||||
| Prepaid expenses | 989,703 | 128,996 | ||||||
| Accounts receivable | 87,755 | — | ||||||
| Other receivable | 103,115 | 1,807 | ||||||
| Total current assets | 1,505,480 | 699,635 | ||||||
| Long-term inventory | 276,581 | — | ||||||
| Property, plant, and equipment, net | 2,222,521 | 2,277,979 | ||||||
| Operating lease right-of-use asset | 2,318,959 | — | ||||||
| Intangible asset, net | 4,543,818 | 4,659,830 | ||||||
| Deposits | 11,977 | 12,657 | ||||||
| Total assets | $ | 10,879,336 | $ | 7,650,101 | ||||
| LIABILITIES AND SHAREHOLDERS’ DEFICIT | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | 4,703,191 | $ | 929,540 | ||||
| Accrued expenses | 832,346 | 134,733 | ||||||
| Seller note payable – current, net | 1,664,631 | 2,696,428 | ||||||
| Operating lease – liabilities – current | 14,514 | — | ||||||
| Other payables | 123,237 | 62,685 | ||||||
| Short term convertible notes | 1,969,321 | — | ||||||
| Short term debt | 586,425 | — | ||||||
| Total current liabilities | 9,893,665 | 3,823,386 | ||||||
| Non-current liabilities | ||||||||
| Accrual for contingent liabilities | 2,271,181 | 2,584,918 | ||||||
| Operating lease – liabilities, net of current | 2,352,645 | — | ||||||
| Related party payables | 108,277 | 15,038,689 | ||||||
| Total liabilities | $ | 14,625,768 | $ | 21,446,993 | ||||
| Commitments and Contingencies | ||||||||
| Shareholders’ deficit: | ||||||||
| Common stock; par value $0.0001, 70,000,000 shares authorized, 39,141,705 issued and outstanding at December 31, 2022, 36,148,601 shares authorized, issued and outstanding at December 31, 2021(1) | 3,914 | 3,615 | ||||||
| Additional paid-in-capital | 36,867,572 | 1,160,297 | ||||||
| Accumulated deficit | (40,558,626 | ) | (14,305,129 | ) | ||||
| Accumulated other comprehensive loss | (59,292 | ) | (655,675 | ) | ||||
| Total controlling interest shareholders’ deficit | (3,746,432 | ) | (13,796,892 | ) | ||||
| Total non-controlling interest | — | — | ||||||
| Total shareholders’ deficit | (3,746,432 | ) | (13,796,892 | ) | ||||
| Total liabilities and shareholders’ deficit | $ | 10,879,336 | $ | 7,650,101 | ||||
| (1) | The number of shares have been retroactively adjusted to reflect the 3,614.8601stock split, effective on November 1, 2022. |
See accompanying notes to consolidated financial statements.
F-69
AFRICAN AGRICULTURE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
| For the year ended December 31, | ||||||||
| 2022 | 2021 | |||||||
| (Restated) | ||||||||
| Revenue | ||||||||
| Sales | $ | 679,196 | $ | — | ||||
| Cost of goods sold | 784,351 | — | ||||||
| Gross loss | (105,155 | ) | — | |||||
| Operating expenses: | ||||||||
| Employee compensation | 5,933,664 | 344,943 | ||||||
| Professional fees | 18,059,427 | 2,146,057 | ||||||
| Equipment rental | 89,875 | 95,207 | ||||||
| Operating lease expense | 346,436 | — | ||||||
| Amortization | 116,012 | 116,012 | ||||||
| Depreciation | 252,603 | 187,711 | ||||||
| Utilities and fuel | 107,024 | 112,092 | ||||||
| Travel and entertainment | 134,364 | 20,551 | ||||||
| Program development and design | 101,893 | — | ||||||
| Other operating expenses | 419,134 | 490,450 | ||||||
| Total operating expenses | 25,560,432 | 3,513,023 | ||||||
| Loss from operations | (25,665,587 | ) | (3,513,023 | ) | ||||
| Other (income) expenses: | ||||||||
| Foreign currency exchange gain | (170,530 | ) | (397,895 | ) | ||||
| Gain on sale of assets | (153,978 | ) | (79,517 | ) | ||||
| Interest expense – related party | 518,582 | 310,522 | ||||||
| Interest expense – other | 436,186 | 183,360 | ||||||
| Other income | (42,350 | ) | (45,351 | ) | ||||
| Total other (income) expense | 587,910 | ) | (28,881 | ) | ||||
| Loss before provision for income tax | (26,253,497 | ) | (3,484,142 | ) | ||||
| Provision for income tax | — | — | ||||||
| Net loss | (26,253,497 | ) | (3,484,142 | ) | ||||
| Less: Net loss attributable to non-controlling interests | — | 75,750 | ||||||
| Net loss attributable to controlling interests | $ | (26,253,497 | ) | $ | (3,408,392 | ) | ||
| Loss per share(1) | $ | (0.72 | ) | $ | (0.10 | ) | ||
| (1) | The number of shares have been retroactively adjusted to reflect the 3,614.8601stock split, effective on November 1, 2022 |
See accompanying notes to consolidated financial statements.
F-70
AFRICAN AGRICULTURE, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
| For the year ended December 31, | ||||||||
| 2022 | 2021 | |||||||
| (Restated) | ||||||||
| Comprehensive loss | ||||||||
| Net loss | $ | (26,253,497 | ) | $ | (3,484,142 | ) | ||
| Foreign currency translation adjustment | 596,383 | 493,554 | ||||||
| Total comprehensive loss | $ | (25,657,114 | ) | $ | (2,990,588 | ) | ||
| Comprehensive loss attributable to controlling interests | ||||||||
| Net loss attributable to controlling interests | $ | (26,253,497 | ) | $ | (3,408,392 | ) | ||
| Foreign currency translation adjustment attributable to controlling interests | 596,383 | 392,012 | ||||||
| Total comprehensive loss attributable to controlling interests | $ | (25,657,114 | ) | $ | (3,016,380 | ) | ||
| Comprehensive loss attributable to non-controlling interests | ||||||||
| Net loss attributable to non-controlling interests | $ | — | $ | (75,750 | ) | |||
| Foreign currency translation adjustment attributable to non-controlling interests | — | 101,542 | ||||||
| Total comprehensive loss attributable to non-controlling interests | $ | — | $ | 25,792 | ||||
See accompanying notes to consolidated financial statements.
F-71
AFRICAN AGRICULTURE, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ DEFICIT
| Common Stock | Additional Paid-In | Accumulated | Accumulated Other Comprehensive | Non-controlling | ||||||||||||||||||||||||
| Shares | Amount | Capital | Deficit | (Loss) Income | Interest | Total | ||||||||||||||||||||||
| Balance January 1, 2021 (Restated)(1) | 36,148,601 | $ | 3,615 | $ | 849,775 | $ | (9,762,505 | ) | $ | (1,047,687 | ) | $ | (1,160,024 | ) | $ | (11,116,826 | ) | |||||||||||
| Transfer of non-controlling interest to controlling interest (Restated) | — | — | — | (1,134,232 | ) | — | 1,134,232 | — | ||||||||||||||||||||
| Foreign currency translation (Restated) | — | — | — | — | 392,012 | 101,542 | 493,554 | |||||||||||||||||||||
| Imputed interest expense on shareholder loan (Restated) | — | — | 310,522 | — | — | — | 310,522 | |||||||||||||||||||||
| Net loss (Restated) | — | — | — | (3,408,392 | ) | — | (75,750 | ) | (3,484,142 | ) | ||||||||||||||||||
| Balance, December 31, 2021 (Restated)(1) | 36,148,601 | $ | 3,615 | $ | 1,160,297 | $ | (14,305,129 | ) | $ | (655,675 | ) | $ | — | $ | (13,796,892 | ) | ||||||||||||
| Foreign currency translation | — | — | — | — | 596,383 | — | 596,383 | |||||||||||||||||||||
| Imputed interest expense on shareholder loan | — | — | 518,582 | — | — | — | 518,582 | |||||||||||||||||||||
| Related party loan conversion to equity | 1,619,457 | 162 | 16,130,351 | — | — | — | 16,130,513 | |||||||||||||||||||||
| Share based compensation | 1,373,647 | 137 | 19,058,342 | — | — | — | 19,058,479 | |||||||||||||||||||||
| Net loss | — | — | — | (26,253,497 | ) | — | — | (26,253,497 | ) | |||||||||||||||||||
| Balance, December 31, 2022 | 39,141,705 | $ | 3,914 | $ | 36,867,572 | $ | (40,558,626 | ) | $ | (59,292 | ) | $ | — | $ | (3,746,432 | ) | ||||||||||||
| (1) | The number of shares have been retroactively adjusted to reflect the 3,614.8601stock split, effective on November 1, 2022. |
See accompanying notes to consolidated financial statements.
F-72
AFRICAN AGRICULTURE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| For the year ended December 31, | ||||||||
| 2022 | 2021 | |||||||
| (Restated) | ||||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (26,253,497 | ) | $ | (3,484,142 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | 252,603 | 187,711 | ||||||
| Amortization | 116,012 | 116,012 | ||||||
| Gain on sale of equipment | (153,978 | ) | (79,517 | ) | ||||
| Share based compensation | 19,058,479 | — | ||||||
| Foreign currency exchange gain | (170,530 | ) | (397,895 | ) | ||||
| Non-cash interest expense | 954,768 | 493,882 | ||||||
| Non-cash lease expense | 262,257 | — | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Inventory | (70,031 | ) | (573,828 | ) | ||||
| Prepaid expenses | (862,958 | ) | (132,307 | ) | ||||
| Accounts receivable | (86,482 | ) | — | |||||
| Other receivable | (99,933 | ) | (1,164 | ) | ||||
| Deposits | — | (11,774 | ) | |||||
| Accounts payable | 4,193,854 | 561,734 | ||||||
| Accrued expenses | 269,199 | (177,207 | ) | |||||
| Accrual for contingent liabilities | (173,084 | ) | — | |||||
| Other payables | 62,974 | (41,152 | ) | |||||
| Net cash used in operating activities | (2,700,347 | ) | (3,539,647 | ) | ||||
| Cash flows from investing activities: | ||||||||
| Proceeds from sales of equipment | 202,119 | 79,517 | ||||||
| Property, plant, and equipment purchases | (366,031 | ) | (954,503 | ) | ||||
| Net cash used in investing activities | (163,912 | ) | (874,986 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from related party payables | 1,863,883 | 6,691,300 | ||||||
| Principal repayments on seller note payable | (1,076,350 | ) | (2,545,666 | ) | ||||
| Proceeds of debt issuance | 2,161,246 | — | ||||||
| Net cash provided by financing activities | 2,948,779 | 4,145,634 | ||||||
| Effect of exchange rate changes on cash | (93,555 | ) | 199,605 | |||||
| Net decrease in cash and cash equivalents | (9,035 | ) | (69,394 | ) | ||||
| Cash and cash equivalents at beginning of year | 19,093 | 88,487 | ||||||
| Cash and cash equivalents at end of year | $ | 10,058 | $ | 19,093 | ||||
| Supplemental Cash Flow Information: | ||||||||
| Income taxes paid | $ | — | $ | — | ||||
| Interest paid | $ | — | $ | — | ||||
| Non-cash items | ||||||||
| Operating lease right-of-use asset assumed through operating lease obligation | $ | 2,336,336 | $ | — | ||||
| Accounts payable relieved to convertible debt | $ | 394,500 | $ | — | ||||
| Conversion of related party loan to equity | $ | 16,130,513 | $ | — | ||||
See accompanying notes to consolidated financial statements.
F-73
AFRICAN AGRICULTURE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022 AND DECEMBER 31, 2021
NOTE 1 — ORGANIZATION
African Agriculture, Inc. (the “Company”), is focused on commercial farming, fishery logistics and management, and carbon offset production. The Company was incorporated in the State of Delaware on May 7, 2021. Under a Contribution Agreement dated June 24, 2021, by and between the shareholders of Agro Industries Corp and African Agriculture, Inc., Agro Industries Corp agreed to transfer all of its right, title and interest into the Company in exchange for common shares in the Company, with the shareholders of Agro Industries Corp becoming the shareholders of African Agriculture, Inc. pro rata to their existing ownership. Effective for this transaction, the Company owns 100% of Agro Industries Corp, formerly Agro Industries Corp Sub One, a company that was incorporated in the Cayman Islands on January 15, 2018 (“Agro Industries”). The Company is deemed the accounting predecessor and will be the successor for reporting purposes, meaning that prior to formation of the Company, the financials of the Company are the financials of Agro Industries for such previous periods.
Agro Industries has a wholly owned subsidiary, Les Fermes De La Teranga (“LFT”), which is a Senegalese Company formed in Dakar, Senegal. On February 28, 2018, Agro Industries, purchased approximately 91% of the outstanding equity of LFT. During 2021, the shareholders of LFT completed a share swap to enable Agro Industries shareholders to contribute their shares in exchange for shares of African Agriculture resulting in Agro Industries, the 100% owner of LFT, becoming a wholly owned subsidiary of African Agriculture. In March 2022, the Company formed a 100% owned subsidiary named African Agriculture Niger SA for purposes of developing operations in Niger.
In November 2022, the Company entered into a definitive Business Combination Agreement with 10X Capital Venture Acquisition Corp. II (Nasdaq: VCXA). If the Company and VCXA successfully complete the business combination, the Company will merge with and into a subsidiary of VCXA in exchange for VCXA shares being issued to existing shareholders of the Company, with the result being that the Company will become a wholly owned subsidiary of VCXA and the Company’s existing shareholders will become the majority shareholders of VCXA. The potential business combination is still subject to various closing conditions including a shareholders vote.
On November 1, 2022, the Company approved a 3,614.8601-for-1 common stock split and increased the total number of shares authorized to be issued to 70,000,000 common shares. Unless noted otherwise, all previously reported shares have been retroactively adjusted to reflect this stock split.
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
These consolidated financial statements were prepared in conformity with accounting principles generally accepted in the United States (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).
Uses and Sources of Liquidity
The consolidated financial statements have been prepared assuming the Company will continue to operate as a going concern, which contemplates the realization of assets and settlement of liabilities in the normal course of business, and does not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from uncertainty related to its ability to continue as a going concern within one year from the date of issuance of these consolidated financial statements.
F-74
AFRICAN AGRICULTURE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022 AND DECEMBER 31, 2021
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
For the years ended December 31, 2022 and 2021, the Company incurred a net loss of approximately $26.3 million and $3.5 million, respectively, and used cash in continuing operations of $2.7 million and $3.5 million, respectively. The Company’s operations have historically been financed principally by loans from its majority shareholder, Global Commodities and Investments Limited, a Cayman Islands registered limited liability company (“Global Commodities”) and its affiliated entities. The Company’s primary sources of liquidity to date are loans from Global Commodities, sales of unneeded fixed assets from the prior ownership, various convertible and short-term debt instruments issued by the Company as well as the sale of alfalfa, which began during the second quarter of 2022. The Company does not have sufficient cash on hand or available liquidity to meet its obligations through the twelve months following the date the consolidated financial statements are issued. This condition raises substantial doubt about the Company’s ability to continue as a going concern.
On a go-forward basis the primary sources of liquidity are expected to be cash from operations, potential capital raises, grants and debt financing if available and prudent. The Company’s liquidity requirements are to finance current operations, meet financial commitments, fund organic growth and/or acquisitions, if any, and service debt, if outside debt financing is obtained. The liquidity requirements will fluctuate with the level and pace of expansion of the acreage being planted, harvested and sold, the effects of the timing between the settlement of payables and receivables, and our general working capital needs for ongoing operations. Estimating liquidity requirements is highly dependent on farming yields, then-current market conditions, including selling prices, costs of all farming inputs, market volatility and our then existing capital structure and requirements. It is anticipated that once the Company has fully developed the Senegal property it will have sufficient resources to fund the ongoing operations of the Company.
In connection with this Business Combination Agreement VCXA and the Company have secured a $100 million equity line of credit facility from an affiliate of Yorkville Advisors. In addition, VCXA and the Company have secured an up to $100 million backstop commitment to help offset the impact of potential shareholder redemptions from a client of Cohen & Company Financial Management, LLC. The liquidity from these agreements will be available to the Company only following a successful closing of the business combination agreement and a resulting merger with VCXA.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All transactions and balances among the Company and its subsidiaries have been eliminated upon consolidation. The portion of a subsidiary owned by other investors is shown as non-controlling interest on the consolidated financial statements. After taking into account the impact of the Contribution Agreement discussed in Note 1, the Company now owns 100% of Agro Industries Corp and therefore the Company no longer records any non-controlling interest.
Foreign Currency Translation
The accompanying consolidated financial statements are presented in United States dollars (“$”), which is the reporting currency of the Company. The functional currency of the Company is the United States dollar. The functional currency of the Company’s subsidiaries located in Senegal and Niger is the West African Franc (“CFA”). For the entities whose functional currencies are the CFA, results of operations and cash flows are translated at average exchange rates during the period (1 CFA=$0.001604 for the year ended December 31, 2022 and 1 CFA=$=$0.001795 for the year ended December 31, 2021), assets and liabilities are translated at the current exchange rate at the end of the period (1 CFA=$0.001628 at December 31, 2022, and 1 CFA=$0.001720 at December 31, 2021), and equity is translated at blended historical exchange rates. The resulting translation adjustments are included in determining other comprehensive loss. Transaction gains and losses are reflected in the consolidated statements of operations.
F-75
AFRICAN AGRICULTURE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022 AND DECEMBER 31, 2021
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities on the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates and judgments on historical experience and on various other assumptions and information that are believed to be reasonable under the circumstances. Estimates and assumptions of future events and their effects cannot be perceived with certainty and, accordingly, these estimates may change as new events occur, as more experience is acquired, as additional information is obtained and as our operating environment changes. Significant estimates and assumptions by management include, among others, useful lives and impairment of long-lived assets, contingent liabilities, imputed interest expense and income taxes including the valuation allowance for deferred tax assets. While the Company believes that the estimates and assumptions used in the preparation of the financial statements are appropriate, actual results could differ from those estimates. Estimates and assumptions are periodically reviewed and the effects of revisions are reflected in the consolidated financial statements in the period they are determined to be necessary.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, cash in bank accounts, cash in time deposits, certificates of deposit and all highly liquid instruments with original maturities of three months or less. The Company maintains cash in banks in the United States as well as in Senegal and Niger. As of December 31, 2022 cash balances were held at JP Morgan Chase and in various banks in Senegal and Niger. As of December 31, 2021, cash balances were held at JP Morgan Chase and in various banks in Senegal. There were no cash equivalents at December 31, 2022 or 2021.
Property, plant, and equipment
Property, plant, and equipment consist of farming and farming support equipment, and office equipment. All property, plant and equipment are stated at historical cost net of accumulated depreciation. Repairs and maintenance are expensed as incurred. Property, plant and equipment are depreciated on a straight-line basis over the following periods:
| Buildings | 40 years | |
| Irrigation equipment | 20 years | |
| Industrial equipment | 6 – 10 years | |
| Office furniture and equipment | 5 years | |
| Motor vehicle and transportation equipment | 10 years | |
| Other equipment | 4 years |
Leases
The Company determines if an arrangement is a lease at inception. To the extent an arrangement represents a lease, the Company classifies that lease as an operating lease or a finance lease under Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) and its related ASUs (“ASC 842”).
The Company capitalizes operating leases on its Consolidated Balance Sheets through a Right of Use (“ROU”) asset and a corresponding lease liability. ROU assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities represent the Company’s obligation to make lease payments arising from the operating lease. Operating lease ROU assets and obligations are recognized at the commencement date of an arrangement based on the present value of lease payments over the lease term utilizing an interest rate that the Company would have incurred to borrow over a similar term the funds necessary to purchase the leased asset. Operating leases are included in “Operating lease right-of-use assets, net,” “Current portion of operating lease liabilities,” and “Non-current operating lease liabilities” in the Company’s Consolidated Balance Sheets as of December 31, 2022, and December 31, 2021. Lease expense for operating leases is recognized on a straight-line basis over the lease term.
F-76
AFRICAN AGRICULTURE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022 AND DECEMBER 31, 2021
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
Accounting for finance leases under ASC 842 remained unchanged from previous accounting guidance. As of December 31, 2022, the Company had no finance leases.
For additional information regarding the Company’s leases, see Note 5 — Leases.
Inventory
Inventories are stated at the lower of cost or net realizable value. Cost is calculated on the basis of the first-in, first-out method; market is based upon estimated replacement costs. Costs included in inventory primarily include the following: cost of seeds, farming inputs such as fertilizer, gypsum, water and fuel as well as inbound freight cost. Each pivot is cleared, treated with fertilizer and various phytosanitary products and seeded ahead of the life cycle of alfalfa, which we currently estimate to be approximately three years. These initial costs are amortized using a straight-line method over that life cycle. The portion of these costs expected to amortize after twelve months is included in long-term inventory.
Intangible Asset
The intangible asset consists of a land use right of 20,000 hectares provided by way of a Senegal Presidential decree. The value of the intangible was established based on its estimated fair value at the time of the asset purchase of LFT by Agro Industries in 2018. Amortization of the intangible asset is calculated on a straight-line basis over the remaining term of the decree, which at the time of the purchase had 44 years of a 50-year term remaining. As of December 31, 2022, approximately 39 years remain under this decree. Refer to Note 6 and Note 7 for further discussion.
Impairment of Long-Lived Assets
The Company’s long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Recoverability of an asset to be held and used is measured by a comparison of the carrying amount of the asset to the future undiscounted cash flows expected to be generated by the asset. If such asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value. Impairment evaluations involve management’s estimates on asset useful lives and future cash flows. Actual useful lives and cash flows could be different from those estimated by management which could have a material effect on our reporting results and financial position. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. There was no impairment charge for the years ended December 31, 2022 or 2021.
Fair Value of Financial Instruments
The Company adopted ASC 820 “Fair Value Measurements,” which defines fair value, establishes a three-level valuation hierarchy for disclosures of fair value measurement and enhances disclosure requirements for fair value measures.
The three levels are defined as follows:
| Level 1 | — | inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. |
| Level 2 | — | inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liabilities, either directly or indirectly, for substantially the full term of the financial instruments. |
| Level 3 | — | inputs to the valuation methodology are unobservable and significant to the fair value. |
F-77
AFRICAN AGRICULTURE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022 AND DECEMBER 31, 2021
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
Financial instruments include cash, receivables, accounts payable and accrued expenses, advances from prospective customers/distributors, amounts due to related parties, notes payable and contingent liabilities. The carrying values of these financial instruments approximate their fair values due to the short-term maturities of these instruments.
For the periods presented, there were no financial assets or liabilities measured at fair value.
Income Taxes
The Company follows the liability method in accounting for income taxes in accordance with ASC topic 740 (“ASC 740”), Income Taxes. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax basis of assets and liabilities using enacted tax rates that will be in effect in the period in which the differences are expected to reverse. The Company records a valuation allowance against deferred tax assets if, based on the weight of available evidence, it is more likely than not that some portion, or all, of the deferred tax assets will not be realized.
The Company applies the provisions of ASC 740 to account for uncertainty in income taxes. ASC 740 clarifies the accounting for uncertainty in income taxes by prescribing the recognition threshold a tax position is required to meet before being recognized in the consolidated financial statements.
The Company will classify interest and penalties related to unrecognized tax benefits, if and when required, as part of income tax expense in the consolidated statements of operations.
Revenue Recognition
The Company’s revenue is derived from the sale of agricultural products. The Company recognizes revenue in accordance with ASC 606. To achieve that core principle, the Company applies the following steps:
| 1. | Identify the contract(s) with a customer; |
| 2. | Identify the performance obligations in the contract; |
| 3. | Determine the transaction price; |
| 4. | Allocate the transaction price to the performance obligations in the contract; |
| 5. | Recognize revenue when (or as) the entity satisfies a performance obligation. |
The Company recognizes its revenue at a point in time when it satisfies a performance obligation and transfers control of the product, primarily bales of alfalfa, to the respective customer. For domestic product sales, the Company meets its performance obligation upon the shipment of the products from its facilities to its customer. For international product sales, the Company meets its performance obligation upon delivery of the products to the customer’s international carrier. The Company does not provide any services to its customers currently.
The amount of revenue recognized is based on the fixed transaction price. Contracts for the Company’s products are negotiated on a per-contract basis at a regional level. Contracts vary in volume and price but typically have a single performance obligation, the delivery of bales of alfalfa.
F-78
AFRICAN AGRICULTURE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022 AND DECEMBER 31, 2021
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
The Company’s payment terms vary by the type and location of its customers and type of product. The Company receives cash equal to the invoice amount for its product sales, and payment terms typically range from 30 to 90 days from the date the Company invoices a customer. Since the period between the delivery of the Company’s products and the Company’s receipt of customer payment for these products and services is not expected to exceed one year, the Company has elected not to calculate or disclose a financing component for its customer contracts. The Company excludes sales taxes, value added taxes, and other taxes it collects concurrent with revenue-producing activities from revenue. The Company’s contract assets at December 31, 2022 consisted of accounts receivable, which totaled $87,755. The Company did not have any contract assets at December 31, 2021.
Share-based compensation
The Company measures compensation expense for all stock-based awards in accordance with ASC Topic 718, Compensation — Stock Compensation. Share-based compensation is measured at fair value on grant date and recognized as compensation expense ratably over the course of the requisite service period. The fair value of restricted stock units (“RSUs”) is typically determined based on the fair value of the related shares on the date of grant. The Company has elected to record forfeitures of employee awards as they occur.
Comprehensive Loss
Comprehensive loss is defined as the decrease in equity of the Company during a period from transactions and other events and circumstances excluding transactions resulting from investments by owners and distributions to owners. Comprehensive loss is reported in the consolidated statements of comprehensive loss, including net loss and foreign currency translation adjustments, presented net of tax.
Earnings per Share
Earnings per share are computed by dividing net income/(loss) applicable to the weighted number of shares outstanding during the period. The Company completed a share split on November 1, 2022 in the ratio of 3,614.8601:1. At December 31, 2022 and 2021, there were 39,141,705 and 36,148,601 shares outstanding respectively, after taking effect of the stock split. Neither the 5,489,690 RSUs granted during the year, as discussed in detail in Note 15, nor the 269,817 shares that would be issued if the Company’s Convertible Promissory Notes that were issued during 2022, as discussed in detail in Note 12, were converted by their terms as of December 31, 2022 were included in the calculations of earnings per share as these instruments are anti-dilutive.
Business Combinations and Acquisitions
The Company accounts for acquisitions in which it obtains control of one or more businesses as a business combination. The purchase price of the acquired businesses is allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. The excess of the purchase price over those fair values is recognized as goodwill. During the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments, in the period in which they are determined, to the assets acquired and liabilities assumed with the corresponding offset to goodwill. If the assets acquired are not a business, the Company accounts for the transaction or other event as an asset acquisition. Under both methods, the Company recognizes the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquired entity. In addition, for transactions that are business combinations, the Company evaluates the existence of goodwill or a gain from a bargain purchase.
Accounting Changes
Leases — ASC 842
On January 1, 2022, and effective January 1, 2022, the Company adopted ASU 2016-02, “Leases (Topic 842)” using the modified retrospective transition method allowing it to apply the new standard at the adoption date and to recognize a cumulative-effect adjustment to the opening balance of retained earnings on the date of adoption. Under this transition method, the prior comparative period continues to be reported under the accounting standards in effect for that period.
F-79
AFRICAN AGRICULTURE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022 AND DECEMBER 31, 2021
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
The Company elected to use the package of practical expedients permitted which allows (i) an entity not to reassess whether any expired or existing contracts are or contain leases; (ii) an entity need not reassess the lease classification for any expired or existing leases; and (iii) an entity need not reassess any initial direct costs for any existing leases. The Company made an accounting policy election to adopt the short-term lease exception which allows the Company to not recognize on the balance sheet those leases with terms of 12 months or less resulting in short-term lease payments being recognized in the condensed consolidated statements of income on a straight-line basis over the lease term. All of the Company’s leases were previously classified as operating and are similarly classified as operating lease under the new standard.
Adoption of the new standard resulted in recognition of right-of-use assets and related lease liabilities of $2,336,336 as of January 1, 2022. There was no cumulative effect on retained earnings upon adoption.
Revenue from Contracts with Customers — ASC 606
The Company adopted ASC 606 — Revenue from Contracts with Customers, effective January 1, 2022. Prior to 2022, the Company had no revenue from contracts with customers.
Upon adoption of ASC 606, the Company recognizes revenue when the product is received by the customer for domestic transactions or by the customer’s international carrier for its international transactions. The Company believes this better reflects the point at which the customer has control of the product as required by ASC 606. The adoption of ASC 606 did not have a material impact on the Company’s consolidated financial statements.
NOTE 3 — RESTATEMENT
The Company restated its consolidated financial statements for the year ended December 31, 2021 herein for the correction of the following errors.
| ● | The Company has determined that its acquisition of its wholly owned subsidiary, LFT, in 2018 should have been accounted for as an asset acquisition instead of a business combination. As a result, in 2018 the Company overstated its land use right intangible asset and should not have recognized a bargain purchase gain. |
| ● | The Company has determined that a related party payable owed to the prior owner of LFT was relinquished in the acquisition of LFT and, as a result, the Company should not have recognized this related party payable in 2018. As a result, the Company should not have accrued an operating expense for this related party payable in 2018. |
| ● | As a direct result of the above two error corrections imputed interest on the related party payable and amortization of the land use right asset were overstated. The reduction in the related party payable also impacted the calculation of the foreign currency translation adjustment and the allocation to the non-controlling interest. |
F-80
AFRICAN AGRICULTURE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022 AND DECEMBER 31, 2021
NOTE 3 — RESTATEMENT (cont.)
The restatement of the Company’s consolidated financial statements reduced the Company’s net loss for the year ended December 31, 2021 from $4.3 million to $3.5 million. The restatement affected the following line items in the Company’s consolidated financial statements.
| December 31, 2021 | ||||||||||||
| As Reported | Adjustment | As Adjusted | ||||||||||
| Consolidated Balance Sheets | ||||||||||||
| Prepaid expenses | $ | 123,996 | $ | 5,000 | $ | 128,996 | ||||||
| Total current assets | 694,635 | 5,000 | 699,635 | |||||||||
| Intangible asset, net | 18,563,640 | (13,903,810 | ) | 4,659,830 | ||||||||
| Total assets | 21,548,911 | (13,898,810 | ) | 7,650,101 | ||||||||
| Related party payables | 29,656,371 | (14,617,682 | ) | 15,038,689 | ||||||||
| Total liabilities | 36,064,675 | (14,617,682 | ) | 21,446,993 | ||||||||
| Additional paid-in-capital | 3,337,560 | (2,177,263 | ) | 1,160,297 | ||||||||
| Accumulated deficit | (18,541,381 | ) | 4,236,252 | (14,305,129 | ) | |||||||
| Accumulated other comprehensive income (loss) | 688,052 | (1,343,727 | ) | (655,675 | ) | |||||||
| Total controlling interest shareholders’ deficit | (14,515,764 | ) | 210,635 | (14,305,129 | ) | |||||||
| Total non-controlling interest | — | — | — | |||||||||
| Total shareholders’ deficit | (14,515,764 | ) | 718,872 | (13,796,892 | ) | |||||||
| Total liabilities and shareholders’ deficit | 21,548,911 | (13,898,810 | ) | 7,650,101 | ||||||||
| Year Ended December 31, 2021 | ||||||||||||
| As Reported | Adjustment | As Adjusted | ||||||||||
| Consolidated Statements of Operations | ||||||||||||
| Professional fees | $ | 2,151,057 | $ | (5,000 | ) | $ | 2,146,057 | |||||
| Amortization | 462,165 | (346,153 | ) | 116,012 | ||||||||
| Total operating expenses | 3,864,176 | (351,153 | ) | 3,513,023 | ||||||||
| Loss from operations | (3,864,176 | ) | 351,153 | (3,513,023 | ) | |||||||
| Foreign currency exchange (gain)/loss | (331,853 | ) | (66,042 | ) | (397,895 | ) | ||||||
| Interest expense – related party | 702,520 | (391,998 | ) | 310,522 | ||||||||
| Total other expense (income) | 429,159 | (458,040 | ) | (28,881 | ) | |||||||
| Loss before provision for income tax | (4,293,335 | ) | 809,193 | (3,484,142 | ) | |||||||
| Net loss | (4,293,335 | ) | 809,193 | (3,484,142 | ) | |||||||
| Less: Net loss attributable to non-controlling interest | 229,368 | (153,618 | ) | 75,750 | ||||||||
| Net loss attributable to controlling interest | (4,063,967 | ) | 655,575 | (3,408,392 | ) | |||||||
| Net loss per share, basic(1) | $ | (85.87 | ) | $ | 85.77 | $ | (0.10 | ) | ||||
| Net loss per share, diluted(1) | $ | (85.87 | ) | $ | 85.77 | $ | (0.10 | ) | ||||
| (1) | The “As Reported” Net loss per share, basic and diluted have not been retroactively adjusted to reflect the 3,614.8601 stock split, effective on November 1, 2022, whereas the “As Adjusted” net loss per share basic and diluted have been retroactively adjusted to reflect this stock split. |
F-81
AFRICAN AGRICULTURE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022 AND DECEMBER 31, 2021
NOTE 3 — RESTATEMENT (cont.)
| Year Ended December 31, 2021 | ||||||||||||
| As Reported | Adjustment | As Adjusted | ||||||||||
| Consolidated Statements of Comprehensive Income (Loss) | ||||||||||||
| Comprehensive loss | ||||||||||||
| Net loss | $ | (4,293,335 | ) | $ | 809,193 | $ | (3,484,142 | ) | ||||
| Foreign currency translation adjustment | 1,860,051 | (1,366,497 | ) | 493,554 | ||||||||
| Total comprehensive loss | $ | (2,433,284 | ) | $ | (557,304 | ) | $ | (2,990,588 | ) | |||
| Comprehensive loss attributable to controlling interest | ||||||||||||
| Net loss attributable to controlling interests | $ | (4,063,967 | ) | $ | 655,575 | $ | (3,408,392 | ) | ||||
| Foreign currency translation adjustment | 1,756,497 | (1,364,485 | ) | 392,012 | ||||||||
| Total comprehensive loss attributable to controlling interests | $ | (2,307,470 | ) | $ | (708,910 | ) | $ | (3,016,380 | ) | |||
| Comprehensive loss attributable to non-controlling interests | ||||||||||||
| Net loss attributable to non-controlling interests | $ | (229,368 | ) | $ | 153,618 | $ | (75,750 | ) | ||||
| Foreign currency translation adjustment | 103,554 | (2,012 | ) | 101,542 | ||||||||
| Total comprehensive income (loss) attributable to non-controlling interests | $ | (125,814 | ) | $ | 151,606 | $ | 25,792 | |||||
| Year Ended December 31, 2021 | ||||||||||||
| As Reported | Adjustment | As Adjusted | ||||||||||
| Consolidated Statements of Changes in Shareholders’ Deficit | ||||||||||||
| Additional paid-in-capital | ||||||||||||
| Balance, beginning of year | $ | 2,635,040 | $ | (1,785,265 | ) | $ | 849,775 | |||||
| Imputed interest expense on shareholder loan | 702,520 | (391,998 | ) | 310,522 | ||||||||
| Balance end of year | $ | 3,337,560 | $ | (2,177,263 | ) | $ | 1,160,297 | |||||
| Accumulated deficit | ||||||||||||
| Balance, beginning of year | $ | (12,569,647 | ) | $ | 2,807,142 | $ | (9,762,505 | ) | ||||
| Transfer of non-controlling interest to controlling interest | (1,907,767 | ) | 773,535 | (1,134,232 | ) | |||||||
| Net loss | (4,063,967 | ) | 655,575 | (3,408,392 | ) | |||||||
| Balance end of year | $ | (18,541,381 | ) | $ | 4,236,252 | $ | (14,305,129 | ) | ||||
| Accumulated other comprehensive (loss) income | ||||||||||||
| Balance, beginning of year | $ | (1,068,445 | ) | $ | 20,758 | $ | (1,047,687 | ) | ||||
| Foreign currency translation | 1,756,497 | (1,364,485 | ) | 392,012 | ||||||||
| Balance end of year | $ | 688,052 | $ | (1,343,727 | ) | $ | (655,675 | ) | ||||
| Non-controlling interest | ||||||||||||
| Balance, beginning of year | $ | (1,781,953 | ) | $ | 621,929 | $ | (1,160,024 | ) | ||||
| Transfer of non-controlling interest to controlling interest | 1,907,767 | (773,535 | ) | 1,134,232 | ||||||||
| Foreign currency translation | 103,554 | (2,012 | ) | 101,542 | ||||||||
| Net loss | (229,368 | ) | 153,618 | (75,750 | ) | |||||||
| Balance end of year | $ | — | $ | — | $ | — | ||||||
| Total Shareholders’ Deficit | ||||||||||||
| Balance, beginning of year | $ | (12,785,000 | ) | $ | 1,668,174 | $ | (11,116,826 | ) | ||||
| Transfer of non-controlling interest to controlling interest | — | — | — | |||||||||
| Foreign currency translation | 1,860,051 | (1,366,497 | ) | 493,554 | ||||||||
| Imputed interest expense on shareholder loan | 702,520 | (391,998 | ) | 310,522 | ||||||||
| Net loss | (4,293,335 | ) | 809,193 | (3,484,142 | ) | |||||||
| Balance end of year | $ | (14,515,764 | ) | $ | 718,872 | $ | (13,796,892 | ) | ||||
F-82
AFRICAN AGRICULTURE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022 AND DECEMBER 31, 2021
NOTE 3 — RESTATEMENT (cont.)
| Year Ended December 31, 2021 | ||||||||||||
| As Reported | Adjustment | As Adjusted | ||||||||||
| Consolidated Statements of Cash Flows | ||||||||||||
| Cash flows from operating activities | ||||||||||||
| Net loss | $ | (4,293,335 | ) | $ | 809,193 | $ | (3,484,142 | ) | ||||
| Amortization | 462,165 | (346,153 | ) | 116,012 | ||||||||
| Foreign currency exchange (gain) loss | (331,853 | ) | (66,042 | ) | (397,895 | ) | ||||||
| Non-cash interest expense | 885,880 | (391,998 | ) | 493,882 | ||||||||
| Changes in operating assets and liabilities: | ||||||||||||
| Prepaid expenses | (127,307 | ) | (5,000 | ) | (132,307 | ) | ||||||
| Net cash used in operating activities | (3,539,647 | ) | — | (3,539,647 | ) | |||||||
The cumulative effect of the restatement of the Company’s consolidated financial statements as of January 1, 2021 on net assets, accumulated deficit and the other components of shareholders’ deficit is as follows.
| January 1, 2021 | ||||||||||||
| As Reported | Adjustment | As Adjusted | ||||||||||
| Net assets | $ | (12,785,000 | ) | $ | 1,668,174 | $ | (11,116,826 | ) | ||||
| Shareholders’ deficit | ||||||||||||
| Additional paid-in-capital | 2,635,040 | (1,785,265 | ) | 849,775 | ||||||||
| Accumulated deficit | (12,569,647 | ) | 2,807,142 | (9,762,505 | ) | |||||||
| Accumulated other comprehensive income (loss) | (1,068,445 | ) | 20,758 | (1,047,687 | ) | |||||||
| Total controlling interest shareholders’ deficit | (11,003,047 | ) | 1,046,245 | (9,956,802 | ) | |||||||
| Total non-controlling interest | (1,781,953 | ) | 621,929 | (1,160,024 | ) | |||||||
| Total shareholders’ deficit | $ | (12,785,000 | ) | $ | 1,668,174 | $ | (11,116,826 | ) | ||||
NOTE 4 — Property, Plant, and Equipment
Property, plant, and equipment, net consists of the following:
| December 31, 2022 | December 31, 2021 | |||||||
| Buildings | $ | 94,825 | $ | 100,177 | ||||
| Office furniture and equipment | 105,172 | 108,873 | ||||||
| Irrigation and industrial equipment | 4,291,465 | 4,812,915 | ||||||
| Motor vehicle and transportation equipment | 20,672 | 18,917 | ||||||
| Other equipment | 368,973 | 389,799 | ||||||
| Total | 4,881,107 | 5,430,681 | ||||||
| Less: accumulated depreciation | (2,658,586 | ) | (3,152,702 | ) | ||||
| Property, plant, and equipment, net | $ | 2,222,521 | $ | 2,277,979 | ||||
NOTE 5 — LEASES
On January 1, 2022, and effective January 1, 2022, the Company adopted ASC 842. Under ASC 842, the Company determines if an arrangement is a lease at inception. Leases with an initial term of 12 months or less are not recorded in the Company’s Consolidated Balance Sheets. Leases with an initial term greater than 12 months are recognized in the Company’s Consolidated Balance Sheets based on lease classification as either operating or financing. The Company may enter into lease agreements that include lease and non-lease components for which the Company has elected to not separate for all classes of underlying assets. The Company’s current lease agreements do not contain any material residual value guarantees or material restrictive covenants. The Company may also sublease its ROU assets to third parties in the future.
F-83
AFRICAN AGRICULTURE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022 AND DECEMBER 31, 2021
NOTE 5 — LEASES (cont.)
As a lessee, the Company’s current operating lease portfolio consists of three operating leases for farmland. Operating lease ROU assets and operating lease obligations are recognized based on the present value of the future minimum lease payments at commencement date. As the Company’s leases do not provide an implicit borrowing rate, the Company uses its incremental borrowing rate based on the lease information available at the commencement date in determining the present value of future payments. The initial incremental borrowing rate utilized was based upon the interest rate associated with the Company’s analysis of borrowing rates relating to “Senegal, 6.25% 2033, USD International Bonds” adjusted for credit and political risks. The Company believes this rate is a proxy for its incremental borrowing rate that would be utilized if it were to acquire assets or fund its working capital needs in Senegal and Niger.
The Company’s current three leases are under long-term (greater than one year) non-cancellable term leases. The Company had one short-term lease and may also enter into other short-term or month-to-month operating leases in the future as required by its operations.
Operating leases are included in “Operating lease right-of-use assets, net,” “Current portion of operating lease liabilities,” and “Non-current operating lease liabilities” in the Company’s Consolidated Balance Sheets as of December 31, 2022.
Operating Leases
The Company has a non-cancellable convention agreement with the Fass Ngom community (“Fass Lease”) that provides for the right to use 5,000 hectares. The original agreement was signed in 2018, but revised in 2021, largely on the same terms, for a 15-year term.
On November 27, 2021 and December 5, 2021, the Company and Agro Industries signed binding definitive agreements with the mayor and local governments of Aderbissinat and Ingall, respectively, in Niger each under a 49-year term for the right to use and development the land (“Niger Land Right”). The project will involve the planting of up to 1.1 million hectares of trees in each of Aderbissinat and Ingall, for an aggregate of 2.2 million hectares, to optimize the production of carbon credits and commercial production of alfalfa in areas to be mutually agreed upon by the parties, as well as water and usage rights. Pursuant to the Aderbissinat and Ingall agreements, the Company agreed to pay for each agreement approximately $86,000 per year. Once the sale of carbon credits commences the annual payment amount will increase to approximately $1.1 million for each of the Aderbissinat and Ingall leases. In addition, during the first year of the sale of carbon credits, we are required to pay an additional $129,000 for each agreement for budgetary support to each region. To date no carbon credits have been sold.
The Fass Lease and the Niger Land Right are operating leases under ASC 842.
Short-term Lease
In August 2021, the Company entered into a one-year lease agreement with a company that its wholly-owned by Gora Seck for residential accommodations (“Seck Lease”) for use by employees. The monthly lease rate for this lease is approximately $11,200 per month. As this lease is not longer than 12 months, the lease expense is recognized on a straight-line basis over the lease term. This lease was not renewed in 2022.
The associated lease costs have been recognized in our consolidated statement of operations as follows:
| For the years ended December 31, | ||||||||
| 2022 | 2021 | |||||||
| Operating lease cost | $ | 262,257 | $ | 43,079 | ||||
| Short-term lease cost | $ | 84,179 | $ | 47,098 | ||||
F-84
AFRICAN AGRICULTURE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022 AND DECEMBER 31, 2021
NOTE 5 — LEASES (cont.)
Other information about the lease amounts recognized in our consolidated financial statements is as follows:
| December 31, 2022 | ||||
| Weighted-average remaining lease term – operating leases | 41.9 years | |||
| Weighted-average incremental borrowing rate – operating leases | 8.68 | % | ||
Our lease liabilities as reported on the accompanying consolidated balance sheet consists of the following:
| December 31, 2022 | ||||
| Gross lease liabilities | $ | 8,968,316 | ||
| Less: Imputed interest | 6,601,157 | |||
| Present value of lease liabilities | $ | 2,367,159 | ||
| Less: current portion of lease liabilities | 14,514 | |||
| Total long-term lease liabilities | $ | 2,352,645 | ||
The following summarizes our rent payments for the Fass Lease and the Niger Land Right operating leases as of December 31, 2022:
| 2023 | $ | 214,898 | ||
| 2024 | 215,757 | |||
| 2025 | 216,633 | |||
| 2026 | 217,526 | |||
| 2027 | 218,438 | |||
| Thereafter | 7,885,064 | |||
| $ | 8,968,316 |
NOTE 6 — BUSINESS COMBINATIONS AND AcquisitionS
On February 28, 2018 our wholly owned subsidiary, Agro Industries, purchased approximately 91% of the outstanding equity of LFT from Tampieri Financial Group pursuant to the terms of a share purchase agreement for approximately $7.2 million. The consideration consisted of cash and a note payable issued to the seller. The balance of the amounts due to the seller, Tampieri Financial Group, are reflected in detail in Note 10.
The Company evaluated the acquisition of the purchased assets under ASC 805 and concluded that the transaction did not meet the requirements to be accounted for as a business combination and therefore was accounted for as an asset purchase. Accordingly, the Company allocated the purchase consideration, including transaction costs, to the fair value of the assets acquired and liabilities assumed.
NOTE 7 — Intangible Asset
In connection with the purchase of LFT as discussed in Note 6, the Company recognized an intangible asset related to the land use right of 20,000 hectares provided by way of a Republic of Senegal Presidential Decree. The useful life for the land use right was determined based upon the remaining term of the decree totalling approximately 44 years as of the date of the acquisition.
F-85
AFRICAN AGRICULTURE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022 AND DECEMBER 31, 2021
NOTE 7 — Intangible Asset (cont.)
The intangible asset, net consists of the following:
| December 31, 2022 | December 31, 2021 (restated) | |||||||
| Land use right | $ | 5,104,546 | $ | 5,104,546 | ||||
| Less: Accumulated amortization | (560,728 | ) | (444,716 | ) | ||||
| Intangible asset, net | $ | 4,543,818 | $ | 4,659,830 | ||||
Scheduled amortization of the land use right at December 31, 2022 are as follows:
| 2023 | $ | 116,012 | ||
| 2024 | 116,012 | |||
| 2025 | 116,012 | |||
| 2026 | 116,012 | |||
| 2027 | 116,012 | |||
| 2028 and thereafter | 3,963,758 | |||
| $ | 4,543,818 |
At December 31, 2022, management reviewed the undiscounted future cash flows of the Company, based on management’s estimates, in its assessment of whether or not this intangible asset was impaired. There were no impairments with respect to this intangible asset during the years ended December 31, 2022 or 2021.
NOTE 8 — INVENTORY
The costs for establishing the seeded pivots including seeds, land preparation and various phytosanitary products that are applied prior to and in conjunction with the initial seeding, but which will not be reapplied during the growing and harvesting stages are allocated quarterly to the cost of production over the seed cycle, which we estimate will be three years. The remaining unallocated costs are included in inventory. In addition, all other ongoing costs associated with the continued growing and harvesting of each pivot are included in inventory. The allocated quarterly costs together with a harvested cost of the sold bales are allocated to cost of sales based on a first in first out method. The assessment of the recoverability of inventories and the amounts of any write-downs are based on currently available information and assumptions about future demand and market conditions. There is no contemplation of any write down of our current inventory.
| December 31, 2022 | December 31, 2021 | |||||||
| Seed costs, fertilizer and other direct costs to be allocated over cycle – current | $ | 221,264 | $ | 549,739 | ||||
| Inventory available for sale | 61,067 | — | ||||||
| Seed inventory | 28,387 | — | ||||||
| Fertilizer and other phytosanitary materials | 4,131 | — | ||||||
| Inventory – current | $ | 314,849 | $ | 549,739 | ||||
| Long term inventory | 276,581 | — | ||||||
| Total inventory | $ | 591,430 | $ | 549,739 | ||||
F-86
AFRICAN AGRICULTURE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022 AND DECEMBER 31, 2021
NOTE 9 — Related Party Payables and Transactions
During the normal course of business, the Company may enter into transactions with significant shareholders, directors and principal officers and their affiliates.
The Company has an unsecured payable due to a related party, the majority shareholder, Global Commodities & Investments Ltd. (“Global Commodities”). The related party payable does not have a stated interest rate. The payable between Global Commodities, and the Company has a 60-month rolling term following the creation of payables within each year. These payables are West African CFA Franc denominated and translated at year end spot rates. Since the time of the acquisition of LFT by Agro Industries, the majority shareholder has continued to provide funding to support the working capital needs of the business. Each new funding has been added to the principal of the related party payable. The balance of the related party loan, $16,130,522, was converted into equity during 2022. Global Commodities continued to provide funds to the Company as a related party payable after this conversion. The Company entered into a Payoff, Waiver and Release Agreement (the “GCIL Payoff Agreement”) in October 2022 with Global Commodities. The GCIL Payoff Agreement called for, among other things, the issuance of Company shares in repayment of $16,130,522. The GCIL Payoff Agreement calls for the termination of all outstanding principal amounts of loans and all unpaid interest through the date of such payoff.
The Company previously had a related party loan with a minority shareholder, which also had no stated interest rate or maturity. The related party payable to the minority shareholder, was converted into equity in LFT during 2021.
The related party obligations of the Company are comprised of the following:
| December 31, 2022 | December 31, 2021 | |||||||
| Global Commodities Limited | $ | 108,277 | $ | 15,038,689 | ||||
| Total | $ | 108,277 | $ | 15,038,689 | ||||
As of December 31, 2022, the related party payable has the following maturity schedule:
| 2023 | $ | — | ||
| 2024 | — | |||
| 2025 | — | |||
| 2026 | — | |||
| 2027 | 108,277 | |||
| $ | 108,277 |
In addition, to the dealers’ obligationshareholder loans, Global Commodities provided a loan repayment guarantee to deliver a prospectus when actingthe sellers of the LFT shares in the 2018 transaction. Refer Note 10 — Seller Note Payable.
As the related party payables have no stated interest rate, an imputed interest rate has been applied against such loan to represent an arms-length arrangement between the Company and the related party. The Company estimates comparable debt as underwritersof the date of the origination would incur interest of one-month LIBOR plus 2.5% on an annual basis. The following table summarizes imputed interest to related parties during the years ended December 31, 2022 and with respect to their unsold allotments or subscriptions.2021. As this interest has not been paid on an annual basis it has been recorded as additional paid in capital.
You should rely only
| December 31, 2022 | December 31, 2021 | |||||||
| Imputed interest rate (LIBOR + 2.5%) | 6.89 | % | 2.60 | % | ||||
| Imputed interest – additional paid-in-capital | $ | 518,582 | $ | 310,522 | ||||
F-87
AFRICAN AGRICULTURE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022 AND DECEMBER 31, 2021
NOTE 9 — Related Party Payables and Transactions (cont.)
During the years ended December 2022 and 2021, Gora Seck who serves on the information containedboard of LFT and is a minority shareholder of the Company received consulting payments for work conducted in Senegal of approximately $204,000 and $162,000, respectively. In addition, in August 2021, the Company entered into a one-year lease agreement with a company that is majority owned by Gora Seck. The monthly lease rate for this prospectus. We havelease is $10,677 per month. This lease was not and the underwriters have not, authorized anyonerenewed See Note 5.
NOTE 10 — Seller Note Payable
The Company issued a note payable to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not, and the underwriters are not, making an offer to sell securities in any jurisdiction where the offer or sale is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than the date on the front of this prospectus.
No dealer, salesperson or any other person is authorized to give any information or make any representationsTampieri Financial Group in connection with this offering other than those containedthe LFT asset acquisition in this prospectus and, if given or made,February 2018. In November 2022, Tampieri Financial Group agreed to a delayed payment of the information or representations must not be relied upon as having been authorized by us. This prospectusbalance of the seller note payable. The amendment fee, which is due at the maturity of the seller note payable, is being amortized monthly over the remaining period of the seller note payable.
The seller note payable does not constitutebear an offerinterest rate. As a result, the fair value of the seller note payable was less than face value when issued in the LFT asset acquisition. The seller note payable is presented net of unamortized discount and the unamortized amendment fee.
| December 31, 2022 | December 31, 2021 | |||||||
| Seller note payable | $ | 1,976,050 | $ | 2,849,228 | ||||
| Less: unamortized discount | — | 152,800 | ||||||
| Less: unamortized amendment fee | 311,419 | — | ||||||
| Total | $ | 1,664,631 | $ | 2,696,428 | ||||
Of the balance, $533,860 is due by March 31, 2023 and the remaining balance is due on October 31, 2023.Global Commodities has provided a loan repayment guarantee to sellTampieri Financial Group for the amount of the outstanding seller note payable.
NOTE 11 — Income Tax
There was no income tax expense from continuing operations for the years ended December 31, 2022 or 2021.
The difference between tax expense and the amount computed by applying the statutory federal income tax rate of 21% to loss before income taxes is as follows:
| For the Years Ended December 31, | ||||||||
| 2022 | 2021 | |||||||
| Statutory rate applied to pre-tax loss | $ | (5,513,234 | ) | $ | (745,539 | ) | ||
| Foreign exchange rate | 19,863 | (27,742 | ) | |||||
| State taxes | (1,021,618 | ) | (65,323 | ) | ||||
| Permanent adjustment | 3,028,628 | 65,210 | ||||||
| Other foreign deferred permanent adjustment | 2,060,520 | 728,347 | ||||||
| Change in valuation allowance | 1,425,841 | 45,047 | ||||||
| Provision for income taxes | $ | — | $ | — | ||||
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AFRICAN AGRICULTURE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022 AND DECEMBER 31, 2021
NOTE 11 — Income Tax (cont.)
The significant components of the Company’s deferred tax assets and liabilities are as follows:
| For the Years Ended December 31, | ||||||||
| 2022 | 2021 | |||||||
| Deferred tax assets (liabilities): | ||||||||
| Research and development | $ | 31,384 | $ | — | ||||
| Share based compensation | 1,477,283 | — | ||||||
| Net operating loss carryforwards – finite-lived | 2,321,121 | 3,301,683 | ||||||
| Net operating loss carryforwards – indefinite-lived | 2,659,026 | 1,764,939 | ||||||
| Unrealized gain on foreign currency exchange | 22,636 | 18,987 | ||||||
| Valuation allowance | (6,511,450 | ) | (5,085,609 | ) | ||||
| Deferred tax assets, net of valuation allowance | $ | — | $ | — | ||||
The Company has evaluated the need for a solicitationvaluation allowance on a jurisdiction-by-jurisdiction basis. The Company has considered all available evidence, both positive and negative, and based upon the weight of the available evidence, a valuation allowance has been recorded against the net deferred tax assets since the Company cannot be assured that, more likely than not, such amounts will be realized. In addition, utilization of these net operating losses is dependent upon achieving taxable results. The change in valuation allowance for deferred taxes was an increase of approximately $1.4 million, and increase of approximately $0.05 million for the years ended December 31, 2022 and December 31, 2021 respectively, primarily due to the changes in net operating loss carryforwards and share based compensation.
At December 31, 2022 and December 31, 2021, the Company has Federal net operating loss carryforwards of approximately $5.2 million and $1.1 million, which do not expire. The Company has foreign net operating loss carryforwards of approximately $11.1 million and $15.9 million at December 31, 2022 and 2021, respectively. Of the total foreign net operating loss carryforwards approximately $5.2 million do not expire, and the remaining carryforwards begin to expire in 2023.
The Company classifies interest and penalties related to unrecognized tax benefits in income tax expense. The Company has not accrued any interest or penalties as of December 31, 2022 or 2021.
NOTE 12 — DEBT
During the year ended December 31, 2022, the Company issued Convertible Promissory Notes (“Notes”) the proceeds of which would be used to fund general corporate purposes. The Notes bear a simple interest rate of twelve percent (12%) per annum based on a 365-day year. The Notes have a one-year maturity. The Notes will automatically convert in the event of an offerIPO or upon the occurrence of another Qualified Financing or merger and acquisition transactions at a 20% discount to buy any security other than the securities offered by this prospectus,IPO, another Qualified Financing offering or transaction price. There were $1,969,321 of convertible promissory notes outstanding as of December 31, 2022, of which $263,321 were with related parties of the Company. There were no Notes outstanding as of December 31, 2021.
In addition, the Company issued Promissory Notes (“Short Term Notes”) the proceeds of which would be used to fund general corporate purposes. The Notes bear a simple interest rate of sixteen percent (16%) per annum based on a 365-day year. The Notes have a four-month maturity, with an offeroption of the Company to sell orextend the maturity an additional four months. There were $586,425 of Short Term Notes outstanding as of December 31, 2022, of which $41,425 were with related parties of the Company. There were no Short Term Notes outstanding as of December 31, 2021.
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AFRICAN AGRICULTURE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022 AND DECEMBER 31, 2021
Note 13 — Commitments
In June 2021, we entered into a solicitation of an offernon-binding understanding with Louisiana State University (“LSU”) to buy any securities by anyone in any jurisdictionprovide for a mutually-beneficial research project in which LSU will provide training, research and academic support. We continue to work with LSU to finalize the offer or solicitationterms of the training and development project under the collaborative agreement. The term of the agreement is expected to run through June 30, 2026. The total amount to be paid by the Company to LSU has not authorized or is unlawful.yet been determined. Either party may terminate the agreement on 30 days’ prior written notice.
, 2021
On May 14 2022, the Company signed an agreement with the Directorate General of Water and Forests (“DGEF”) of Niger who manages forest reserves for a total area of 624,568 hectares to be reforested and developed by the Company. Under the terms of the agreement, African Agriculture will provide all necessary funds to carry out the programmed activities. The Company further agreed to distribute 10 percent of the profit from the sale of carbon credits, when they occur, to the State of Niger and to the social and development program in the concerned municipalities. Furthermore, until the sale of carbon credits, African Agriculture will allocate an amount of approximately $80,000 to the DGEF. The agreement tenure is for 25 years duration, renewable after project assessment. After the start of the project, its duration may be extended for 20 years upon agreement between the parties. We have determined that this agreement does not meet the definition of a lease.
NOTE 14 — Contingent Liabilities
Various creditors and ex-employees in Senegal commenced some form of legal action for claims relating to the period prior to our acquisition of LFT. The Company has, as a result, several legal cases that are in various stages of resolution. The contingent liability includes various legal cases and other claims. The Company recorded a contingent liability representing, in the Company’s opinion, based on our outside counsel’s review, probable loss outcome for legal claims. At December 31, 2022 and December 31, 2021, the amount of the provision for the contingent liability, is $2,271,181 and $2,584,918, respectively. While there is a possibility that additional claims relating to pre-acquisition periods might arise such an amount is unknowable and hence cannot be estimated.
NOTE 15 — EMPLOYEE AND NON-EMPLOYEE SHARE BASED COMPENSATION
In 2022, the Company’s Board of Directors approved the adoption of the African Agriculture, Inc. 2022 Incentive Plan (the “Plan”). The Plan, as amended by the Board of Directors, permits the Company to grant up to 2,885,640 shares (at December 31, 2022) of the Company’s common stock.
The Plan provides for the granting of incentive and nonqualified stock options, share appreciation rights (SARs), restricted stock, and restricted stock units to employees, non-employee directors, and consultants of the Company. Instruments granted under the Plan generally become exercisable ratably over the stated vesting terms in each award agreement following the date of grant and expire ten years from the date of grant. All stock awards are exercisable only to the extent vested. The exercise price of incentive stock awards must be at least equal to 100% of the fair value of the Company’s common stock at the date of grant, as determined by the Board of Directors.
In addition, and as a separate award outside of the Plan, during 2022 the Board approved an award of 2,700,000 RSUs to African Discovery Group, Inc., a corporation majority owned by the CEO of the Company. Similarly, on November 1, 2022, the Company granted 1,373,647 shares of common stock to Global Commodities (the “GCI Grant”) as compensation for certain services provided to the Company since its formation.
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NOTE 15 — EMPLOYEE AND NON-EMPLOYEE SHARE BASED COMPENSATION (cont.)
A summary of stock award activity and related information is as follows:
| Number of RSUs | Weighted Average Remaining Vesting Term | Grant Date Fair Value | ||||||||||
| (in years) | ||||||||||||
| Plan Awards: | ||||||||||||
| Employees: | ||||||||||||
| Nonvested at beginning of year | — | — | — | |||||||||
| Awarded during the year | 2,437,496 | 2.72 | 24,374,960 | |||||||||
| Vested during the year | — | — | — | |||||||||
| Forfeited, canceled, or expired | — | — | — | |||||||||
| Nonvested at end of year | 2,437,496 | 2.56 | $ | 24,374,960 | ||||||||
| Non-employees: | ||||||||||||
| Nonvested at beginning of year | — | — | — | |||||||||
| Awarded during the year | 352,194 | 3.54 | 3,521,940 | |||||||||
| Vested during the year | — | — | — | |||||||||
| Forfeited, canceled, or expired | — | — | — | |||||||||
| Nonvested at end of year | 352,194 | 3.38 | $ | 3,521,940 | ||||||||
| Awards outside of the Plan: | ||||||||||||
| Employees: | ||||||||||||
| Nonvested at beginning of year | — | — | — | |||||||||
| Awarded during the year | 2,700,000 | 1.33 | 27,000,000 | |||||||||
| Vested during the year | — | — | — | |||||||||
| Forfeited, canceled, or expired | — | — | — | |||||||||
| Nonvested at end of year | 2,700,000 | 1.17 | $ | 27,000,000 | ||||||||
| Non-employees: | ||||||||||||
| Awarded and vested during the year | 1,373,647 | — | $ | 13,736,470 | ||||||||
As all 2022 stock awards were granted contemporaneously with the Business Combination Agreement with VCXA, the Board of Directors determined the grant date fair value of the stock awards to be $10 per share, which is based on the per share merger consideration of the pending business combination. The grant date fair value of stock awards awarded during the years ended December 31, 2022 and 2021 totaled $68,633,370 and $0, respectively. As of December 31, 2022, there was approximately $49,575,000 of unamortized share based compensation cost related to unvested stock awards which is expected to be recognized over a weighted average period of approximately 1.9 years, and as the stock awards vest, the Company will record compensation and non-employee expense with the offset to additional paid-in capital.
The table below shows share-based compensation expense recognized in the statement of operations for the years ended December 31:
| 2022 | 2021 | |||||||
| Share based compensation expense: | ||||||||
| Employee compensation | $ | 5,158,452 | $ | — | ||||
| Professional fees | 13,900,027 | — | ||||||
| Total | $ | 19,058,479 | $ | — | ||||
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AFRICAN AGRICULTURE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022 AND DECEMBER 31, 2021
NOTE 16 — Subsequent Events
In preparing the consolidated financial statements, the Company has evaluated all subsequent events and transactions for potential recognition of disclosure through June 30, 2023, the date the consolidated restated financial statements were issued.
In January 2023, the Company issued to a related party an additional $225,000 Promissory Note bearing no interest. In May, 2023, this note was amended and an additional $62,000 was issued pursuant to this note. The amendment further provided that the Note can be drawn on up to $750,000 in the aggregate. This Note maturity is the earlier of (i) the receipt of funds by Borrower from an equity, equity-linked, or debt financing and (ii) the Closing of the SPAC Merger Agreement. As part of this amendment, the Company agreed to issue to the Promissory Note holder a number of shares of the Company’s Common Stock, par value $0.0001 per share (the “Extension Shares”), equal to the number of Class B ordinary shares, par value $0.0001 per share, of 10X Capital Venture Acquisition Corp. II transferred to investors in connection with any past or future extensions of the deadline by which the SPAC must consummate an initial business combination.
In February, 2023, Company issued to a related party an additional $50,000 Short Term Notes. The Notes bear a simple interest rate of sixteen percent (16%) per annum based on a 365-day year. The Notes have a four-month maturity, with an option of the Company to extend the maturity an additional four months.
In February, 2023, Company issued an additional $300,000 Promissory Note. The Note bears a simple interest rate of two and a half percent (2.5%) per month based on a 30-day month. The Notes have an eighteen-month maturity. In connection with this loan, the Promissory Note holder received warrants to acquire 30,000 shares in the Company at $11.50 per share.
In May 2023, the Board approved a resolution amending various RSU grants to extend the first vesting period of various RSU grants awarded in 2022 to January 2023. This change did not amend any subsequent vesting dates and hence the time to final vesting for the RSUs did not change.
In May 2023, the Company and Tampieri Financial Group agreed to extend the payment date of approximately $544,000 that was due on March 31, 2023 until October 31, 2023. In consideration of Tampieri Financial Group’s agreement to amend the payment schedule the Company agreed to pay interest of 6.3% per annum on this delayed payment. The interest is due at the date of final payment.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth the estimated expenses payableto be borne by usthe registrant in connection with the offering described in this registration statement (other thanissuance and distribution of the underwriting discount and commissions) will be as follows:shares of common stock being registered hereby.
SEC/FINRA expenses | $ | 60,000 | ||
Accounting fees and expenses | 60,000 | |||
Printing and engraving expenses | 40,000 | |||
Travel and road show expenses | 5,000 | |||
Legal fees and expenses. | 360,000 | |||
Nasdaq listing and filing fees | 75,000 | |||
Director & Officers liability insurance premiums(1) | 700,000 | |||
Trustee and transfer agent fees | 40,000 | |||
Miscellaneous | 10,000 | |||
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| |||
Total | $ | 1,350,000 | ||
|
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| Expense | Estimated Amount | |||
| Securities and Exchange Commission registration fee | $ | 7,678 | ||
| Accounting fees and expenses | 22,500 | |||
| Legal fees and expenses | 100,000 | |||
| Financial printing and miscellaneous expenses | 40,000 | |||
| Total | $ | 470,178 | ||
|
Item 14. Indemnification of Directors and Officers.
Cayman Islands law does
Section 145 of the Delaware General Corporation Law, or the DGCL, permits a corporation to indemnify its directors and officers against expenses, including attorneys’ fees, judgments, fines and amounts paid in settlements actually and reasonably incurred by them in connection with any action, suit or proceeding brought by third parties. The directors or officers must have acted in good faith and in a manner they reasonably believed to be in or not limitopposed to the best interests of the corporation and, with respect to any criminal action or proceeding, had no reason to believe their conduct was unlawful. In a derivative action, an action only by or in the right of the corporation, indemnification may be made only for expenses actually and reasonably incurred by directors and officers in connection with the defense or settlement of an action or suit, and only with respect to a matter as to which they must have acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of the corporation. No indemnification may be made if such person must have been adjudged liable to the corporation, unless and only to the extent that the court in which the action or suit was brought must determine upon application that the defendant officers or directors are fairly and reasonably entitled to which a company’s memorandumindemnity for such expenses despite such adjudication of liability. The current certificate of incorporation and articlesthe bylaw of association maythe registrant provide for indemnification by the registrant of its directors, senior officers and directors, exceptemployees to the fullest extent any such provision may be heldpermitted by applicable law.
Section 102(b)(7) of the Cayman Islands courts to be contrary to public policy, such asDGCL permits a corporation to provide in its charter that a director of the corporation must not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (1) for any breach of the director’s duty of loyalty to the corporation or its stockholders, (2) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (3) for payments of unlawful dividends or unlawful stock purchases or redemptions or (4) for any transaction from which the director derived an improper personal benefit. The current certificate of incorporation of the registrant provide for such limitation of liability.
We have entered into indemnification against willful default, willful neglect, civil fraudagreements with each of our directors and officers in which we have agreed to indemnify, defend and hold harmless, and also advance expenses as incurred, to the fullest extent permitted under applicable law, from damage arising from the fact that such person is or the consequenceswas an officer or director of committing a crime. Ourour company or our subsidiaries.
The indemnification rights set forth above shall not be exclusive of any other right which an indemnified person may have or hereafter acquire under any statute, our amended and restated memorandumcertificate of incorporation, our amended and articlesrestated bylaws, any agreement, any vote of association will provide for indemnificationstockholders or disinterested directors or otherwise.
We maintain standard policies of our officers and directors to the maximum extent permitted by law, including for any liability incurred in their capacities as such, except through their own actual fraud, willful default or willful neglect. We may purchase a policy of directors’ and officers’ liability insurance that insuresprovide coverage (1) to our directors and officers against loss rising from claims made by reason of breach of duty or other wrongful act and directors against the cost of defense, settlement or payment of a judgment in some circumstances and insures us against our obligations to indemnify our officers and directors.
Our officers and directors have agreed to waive any right, title, interest or claim of any kind in or to any monies in the trust account, and have agreed to waive any right, title, interest or claim of any kind they may have in the future as a result of, or arising out of, any services provided(2) to us with respect to indemnification payments that we may make to such directors and will not seek recourse against the trust account for any reason whatsoever. Accordingly, any indemnification provided will only be ableofficers.
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We have purchased and intend to be satisfied by us if (i) we have sufficient funds outsidemaintain insurance on behalf of the trust accountregistrant and any person who is or (ii) we consummate an initial business combination.
Insofar as indemnification for liabilitieswas a director or officer against any loss arising under the Securities Act may be permittedfrom any claim asserted against him or her and incurred by him or her in that capacity, subject to directors, officers or persons controlling us pursuant to the foregoing provisions, we have been informed that in the opinioncertain exclusions and limits of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.amount of coverage.
Item 15. Recent Sales of Unregistered Securities.
On February 18, 2021, 10X Capital SPACthe Sponsor II LLC, our sponsor, purchased an aggregate of 7,666,667 of our10X II’s Class B ordinary shares in exchange for a capital contribution of $25,000 at an average purchase price of approximately $0.004 per share. Such securities were issued in connection with our organization pursuant to the
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exemption from registration contained in Section 4(a)(2) of the Securities Act. The number of founder shares outstanding was determined based on the expectation that the total size of this offering would be a maximum of 23,000,000 units if the underwriters’ over-allotment option is exercised in full and therefore that such founder shares would represent 25% of the outstanding shares after this offering (not including the Class A ordinary shares underlying the private placement units). Up to 1,000,000 of these shares will be forfeited depending on the extent to which the underwriters’ over-allotment is exercised.
Hans Thomas is the sole managing member of our sponsor. Our sponsor is an accredited investor for purposes of Rule 501 of Regulation D. Each of the equity holders in our sponsor is an accredited investor under Rule 501 of Regulation D. The sole business of our sponsor is to act as the company’s sponsor in connection with this offering. The limited liability company agreement of our sponsor provides that its membership interests may only be transferred to our officers or directors or other persons affiliated with our sponsor, or in connection with estate planning transfers.
Our sponsor and Cantor have committed to purchase an aggregate of 655,000 private placement units for an aggregate purchase price of $6,550,000,$25,000, or approximately $0.003 per share. Prior to the Sponsor’s initial investment in 10X II of $25,000, 10X II had no assets.
On October 19, 2021, the Sponsor forfeited, at no cost, 1,000,000 of 10X II’s Class B ordinary shares in connection with the election by the underwriter of 10X II’s Public Offering not to exercise an option granted to the underwriter to cover over-allotments.
In connection with the Public Offering, the Anchor Investors agreed to purchase a certain percentage of 10X II’s Units in the Public Offering. In connection with each Anchor Investor’s agreement to purchase a specified percentage of Units to be sold in 10X II’s Public Offering, the Sponsor agreed to transfer a certain number of its Founder Shares to such Anchor Investor, which could be purchased by the Anchor Investor as early as the Close Date. Following the Close Date, the Sponsor transferred an aggregate of 1,334,339 Founder Shares to the Anchor Investors for the same price originally paid by the Sponsor for such shares.
Simultaneously with the consummation of 10X II’s Public Offering, 10X II consummated the private placement of an aggregate of 655,000 Private Placement Units to the Sponsor and Cantor at a price of $10.00 per unit. This purchase will take place on a private placement basis simultaneouslyPrivate Placement Unit, generating total gross proceeds of $6,550,000. No underwriting discounts or commissions were paid with respect to the completionPrivate Placement. The issuance of our initial public offering. This issuance will bethe Private Placement Units was made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act.
No underwriting discountsAct of 1933, as amended. In the Private Placement, the Sponsor purchased 455,000 Private Placement Units and Cantor purchased 200,000 Private Placement Units. The Private Placement Units were identical to the Units, except that the Private Placement Units (including the underlying securities) were subject to certain transfer restrictions and the holders thereof were entitled to certain registration rights, and, if held by the original holder or commissions were paidtheir permitted assigns, the underlying Private Placement Warrants (i) may be exercised on a cashless basis, (ii) are not subject to redemption and (iii) with respect to such sales.Private Placement Warrants held by Cantor, will not be exercisable more than five years from the commencement of sales in the Public Offering. If the Private Placement Units are held by holders other than the initial purchasers or their permitted transferees, then the Private Placement Warrants included in the Private Placement Units will be redeemable by us and exercisable by the holders on the same basis as the Public Warrants included in the Units sold in the Public Offering.
Concurrently with the execution of the AA Merger Agreement, on November 4, 2022 and on November 8, 2022, the 10X II Investors entered into the Non-Redemption Agreements with the Sponsor. Pursuant to the Non-Redemption Agreements, the 10X II Investors agreed for the benefit of the Company to (i) vote the Subject 10X II Equity Securities, representing 3,705,743 ordinary shares in the aggregate, in favor of the Extension Proposal and (ii) not redeem the Subject 10X II Equity Securities in connection with such proposal. In connection with these commitments from the 10X II Investors, the Sponsor agreed to transfer to each 10X II Investor an amount of its Founder Shares on or promptly after the consummation of the Business Combination.
The sales of the above securities, including the shares to be offered and sold in connection with the Non-Redemption Agreements, by us have not been registered under the Securities Act in reliance upon the exemption provided in Section 4(a)(2) thereof.
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Item 16. Exhibits and Financial Statement Schedules.Statements.
(a) Exhibits. The following exhibits are being filed herewith:
EXHIBIT INDEX
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| † | Certain of the exhibits and schedules to this Exhibit have been omitted in accordance with Regulation S-K Item 601(a)(5). The Registrant agrees to furnish a copy of all omitted exhibits and schedules to the SEC upon its request. | |
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| * | Filed herewith. | |
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Financial |
Item 17. Undertakings.
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Item 17. Undertakings.
The undersigned registrant, hereby undertakes:
| (1) | To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: |
| (i) | To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933, as amended; |
| (ii) | To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and |
| (iii) | To include any material information with respect to |
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| (2) |
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| (3) |
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| (4) | That, for the purpose of determining liability under the Securities Act |
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Insofar as indemnification for liabilities arising under the Securities may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
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Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this Registration Statementregistration statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of New York,Edison, State of New York, on the 30th day of July, 2021.
December 29, 2023.
| AFRICAN AGRICULTURE HOLDINGS INC. | |||
| By: | /s/ Alan Kessler | ||
| |||
Each person whose signature appears below constitutes and appoints Alan Kessler and Harry Green his or her true and lawful attorney-in-fact and agent, each with full power of substitution and re-substitution, severally, for him and in his or her name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this registration statement on Form S-1, any subsequent registration statements pursuant to Rule 462 of the Securities Act of 1933, as amended, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. This power of attorney may be executed in counterparts.
Pursuant to the requirements of the Securities Act, of 1933, as amended, this Registration Statementregistration statement has been signed below by the following persons in the capacities and on the dates indicated.December 29, 2023.
Name | Position | |||
| ||||
/s/ | ||||
| Alan Kessler | ||||
| (Principal Executive Officer) | ||||
| Chief Financial Officer | |||
| Harry Green | ||||
| (Principal Financial and Accounting Officer) | ||||
| ||||
| Russell Read | ||||
| /s/ Orim Graves | Director | |||
| ||||
| Director | ||||
| Daphne Michelle Titus | ||||
AUTHORIZED REPRESENTATIVE
Pursuant to the requirements of Section 6(a) of the Securities Act of 1933, the undersigned has signed this registration statement, solely in its capacity as the duly authorized representative of 10X Capital Venture Acquisition Corp. II, in New York, New York, on the 30th day of July, 2021.
| ||
| /s/ Osman Ahmed | Director | |
| Osman Ahmed | ||
| /s/ Modest Jonathan Mero | Director | |
| Modest Jonathan Mero |
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